EXHIBIT 13
INDEX FOR PORTIONS OF ANNUAL REPORT TO STOCKHOLDERS
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Management's Discussion | 16-19 |
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Independent Auditors Report | 20 |
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Consolidated Statements of Income | 21 |
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Consolidated Balance Sheets | 22 |
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Consolidated Statements of Cash Flows | 23 |
Consolidated Statements of Stockholders Equity and Comprehensive Income | 24 |
Notes to Consolidated Financial Statements | 25-38 |
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Ten Year Review | 39-40 |
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Quarterly Financial Data | 41 |
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Inside Back Cover | 42-43 |
Managements 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.
Forward-Looking Statements
Management's discussion and analysis and other sections of this Annual Report contain "forward-looking statements" under the securities laws. Such 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 conditions, climatic conditions, competitive pricing pressures, and product availability.
Restatement of Consolidated Financial Statements
In October 2002, the Company determined that gains from certain sales of excess real estate in 2001 and 2000 and prior years 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 gains was to increase net income by $252,000 in 2001 and $2.3 million in 2000. The consolidated financial statements as of and for the years ended December 31, 2001 and 2000 and the notes thereto have been restated to recognize these gains.
Results of Operations
Sales for 2002 totaled $488.7 million, 2.3 percent more than 2001 sales of $477.9 million. Sales for 2000 were also $488.7 million. In 2002, a strong residential construction market and severe drought conditions in many parts of our 13-state territory boosted plumbing sales by 3.2 percent. Air conditioning sales rose 10.9 percent in 2002 as a result of the hot summer and the continued expansion of air conditioning operations in Florida. Electrical/industrial sales declined 13.1 percent in 2002 due to a combination of sluggish manufacturing activity and a shift away from the integrated supply business. Several unprofitable integrated supply accounts were cancelled in 2002 as the Company moved to eliminate sources of future profit drains.
The gross profit margin was 20.8 percent for 2002 compared to 20.5 percent for 2001, and 20.2 percent for 2000. The gross profit margin for 2002 and 2001 was affected by the liquidation of inventory layers that were carried at the lower costs, which prevailed in prior years as compared with the costs of 2002 and 2001 purchases. These layer decrements, combined with low inflation, and in some cases deflation, decreased cost of goods sold by $1.8 million and $4.2 million in 2002 and 2001, respectively. A net layer increment increased cost of goods sold by $374,000 in 2000.
Operating expenses increased $1.8 million from 2001's $91.4 million to $93.2 million in 2002. Operating expenses for 2000 were $88.4 million. Higher personnel-related costs and a decline in non-cash pension income, which reduces operating expenses, account for much of the increase. Operating expenses benefited in 2002, 2001 and 2000 from non-cash pension credits of $1.5 million, $2.8 million, and $4.4 million, respectively, as a result of the Company having an overfunded pension plan. These credits have declined over the past several years as a result of lower discount rates and losses recorded in the market value of the assets held by the Company's pension plan.
The combination of higher sales, higher gross margins, and larger gains from the sale of excess real estate resulted in a 35.5 percent increase in operating profits compared to 2001. Operating profits for 2001 were 51.6 percent lower than 2000 due to lower sales and higher operating expenses. Noland Properties Inc., the Company's property management subsidiary, has initiated efforts to sell excess property and reinvest the proceeds in income-producing property. These efforts resulted in selling several parcels of excess real estate that generated additional operating profits from such sales of $1.2 million, $384,000, and $4.5 million for 2002, 2001, and 2000, respectively. Prior to 2002, the sale of excess real estate used in tax-free exchanges for income tax purposes was treated as a non-monetary exchange for financial statement purposes and no gain was recognized. Results for 2001 and 2000 were restated as noted in Footnote 2. Other non-operating income for 2002 increased 5.9 percent compared to 2001. Interest expense decreased 33.0 percent to $1.2 million in 2002 from $1.7 million in 2001. Lower interest rates and reduced borrowings accounted for the decline. Interest expense for 2000 was $2.7 million.
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 borrowings, when needed; and (4) additional long-term debt, when needed.
In 2002, net cash provided by operating activities was $24.4 million compared to $24.3 million in 2001 and $10.2 million in 2000. Cash from operations in 2002 was used to reduce short-term debt by $4.0 million, for capital expenditures of $17.0 million, to pay dividends of $1.1 million and to repurchase 42,600 shares of the Companys outstanding common stock for $1.1 million. For much of the last half of 2002, the Company did not require the use of short-term debt and was a net investor in overnight investments and ended the year with no outstanding short-term debt. Working capital decreased $2.1 million, and the current ratio declined to 2.2-to-1 in 2002 from 2.4-to-1 in 2001. 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.
The Company continued its progress on the inventory front in 2002. Inventory turns improved to their highest level in 20 years.
Recent Accounting Pronouncements
The Financial Accounting Standards Board has issued Statement of Financial Accounting Standards (SFAS) No. 143, "Accounting for Asset Retirement Obligations;" SFAS No. 146, "Accounting for Costs Associated with Exit or Disposal Activities;" and SFAS No. 148, "Accounting for Stock-Based Compensation-Transition and Disclosure." SFAS No. 143 and 146 are effective for the Companys 2003 fiscal year. Adoption of these statements is not expected to have a material impact on the Company's consolidated financial statements. SFAS No. 148, which amends SFAS No. 123, "Accounting for Stock-Based Compensation," was adopted December 15, 2002 without material effect on the Company's consolidated financial statements. The Emerging Issues Task Force (EITF) reached a consensus in 2003 on Issue No. 02-16, "Accounting by a Customer (including a Reseller) for Cash Consideration Received from a Vendor" that is effective for the Company's 2003 fiscal year. The Company is still evaluating the impact of the adoption of EITF Issue No. 02-16 on the Company's consolidated financial statements.
Quantitative and Qualitative Disclosure About Market Risk
The Company's market risk exposure comes from changes in interest rates and inflationary pressures. Reported results, for the most part, reflect the impact of inflation/deflation because of the Company's use of the LIFO (last-in, first-out) inventory method. This method tends to remove artificial profits induced by inflation and presents operating results in truer, more absolute terms. The objective in managing the Company's exposure to interest rate changes is to limit the impact of rate changes on earnings, cash flow, and to lower overall borrowing cost. In the second quarter of 2001, the Company entered into two separate interest rate swaps to manage its exposure to interest rate changes on its borrowings. These swaps are with financial institutions that have investment grade credit ratings, minimizing the risk of credit loss. Both swaps are non-trading.
At December 31, 2002, the Company had two swap agreements at an aggregate notional amount of $20.1 million to manage interest rate changes related to the Company's industrial revenue bonds and a portion of its revolving credit agreement. The swaps effectively convert the variable rate borrowings (LIBOR and BMA Municipal Swap Index) into fixed rate borrowings with fixed rates of 5.36% and 4.22%.
SFAS No. 133, "Accounting for Certain Derivative Instruments and Certain Hedging Activities," as amended by SFAS No. 138, requires all derivatives to be recorded as an asset or liability on the balance sheet at fair value. For a derivative designated as a cash flow hedge, the effective portion of the derivatives gain or loss is initially reported as a component of other comprehensive income and subsequently reclassified into earnings when the hedged item affects earnings. Ineffective portions of the derivatives gain or loss is reported in earnings immediately. Other comprehensive loss related to these hedges was $788,000 and $303,000, net of tax benefits of $481,000 and $185,000 for the years ended December 31, 2002 and 2001, respectively.
In addition, the Company's pension plan is overfunded, resulting in a prepaid pension asset. The prepaid pension asset is subject to change based on the performance of the plan investments and the discount rate. Changes in the investment performance and discount rate may cause the amount of pension income to increase or decrease from year to year. The discount rate and long-term rate of return for calculating 2003 pension credits is expected to decline, resulting in a lower credit than 2002 and 2001.
Critical Accounting Policies
All of our significant accounting policies are described in the accompanying footnotes to the consolidated financial statements. We believe four of these constitute our most critical policies requiring estimates and judgments by management. Factors affecting estimates and judgments, as discussed in the footnotes, are subject to change and could cause actual results to differ. Reference is made to footnotes 3(c) for vendor rebates, 3(e) for casualty and medical insurance, 4 for allowance for doubtful accounts and 14 for loss contingencies.
INDEPENDENT AUDITORS REPORT
To the Board of Directors and Stockholders
Noland Company:
We have audited the accompanying consolidated balance sheets of Noland Company and subsidiary (the Company) as of December 31, 2002 and 2001, and the related consolidated statements of income, stockholders' equity and comprehensive income, and cash flows for the years then ended. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. The accompanying consolidated financial statements of the Company as of and for the year ended December 31, 2000 were audited by other auditors whose report thereon dated February 22, 2001, except as to Note 2 for which the date is November 6, 2002, expressed an unqualified opinion on those consolidated statements.
We conducted our audits in accordance with auditing standards generally accepted in the United States of America. 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 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 2002 and 2001 consolidated financial statements referred to above present fairly in all material respects, the financial position of Noland Company and subsidiary as of December 31, 2002 and 2001, and the results of their operations and their cash flows for the years then ended in conformity with accounting principles generally accepted in the United States of America.
As discussed in Note 2, the Company restated its consolidated financial statements for the years ended December 31, 2001 and 2000.
KPMG LLP
Norfolk, Virginia
February 18, 2003
CONSOLIDATED STATEMENTS OF INCOME
Noland Company and Subsidiary
For the years ended December 31, 2002, 2001 and 2000
(In thousands, except per share amounts)
| | 2002 | 2001 | 2000 |
| | | Restated | Restated |
Sales | $ 488,715 | $ 477,911 | $488,714 |
Cost of Goods Sold: | | | |
Purchases and freight in | 390,100 | 372,364 | 385,260 |
Inventory, January 1 | 57,743 | 65,121 | 69,839 |
Inventory, December 31 | (60,870) | (57,743) | (65,121) |
Cost of Goods Sold | 386,973 | 379,742 | 389,978 |
Gross Profit on Sales | 101,742 | 98,169 | 98,736 |
Operating Expenses | 93,180 | 91,357 | 88,376 |
Gains from Sale of Property, net | (1,191) | (384) | (4,499) |
Operating Profit | 9,753 | 7,196 | 14,859 |
Other Income: | | | |
Cash discounts, net | 4,674 | 4,373 | 4,660 |
Service charges | 1,170 | 1,182 | 1,412 |
Miscellaneous | 773 | 692 | 882 |
Total Other Income | 6,617 | 6,247 | 6,954 |
Interest Expense | 1,154 | 1,723 | 2,715 |
Income Before Income Taxes | 15,216 | 11,720 | 19,098 |
Income Taxes | 5,655 | 4,599 | 7,489 |
Net Income | $ 9,561 | $ 7,121 | $ 11,609 |
Basic Earnings Per Share | $ 2.72 | $ 2.01 | $ 3.21 |
Diluted Earnings Per Share | $ 2.70 | $ 1.99 | $ 3.18 |
The accompanying notes are an integral part of the consolidated financial statements.
CONSOLIDATED BALANCE SHEETS
Noland Company and Subsidiary
December 31, 2002, 2001, and 2000 (In thousands) | 2002 | 2001 Restated | 2000 Restated |
Assets | | | |
Current Assets: | | | |
Cash and cash equivalents | $ 5,752 | $ 3,606 | $ 3,349 |
Trade accounts receivable (net of allowance for doubtful accounts) | 53,989 | 56,694 | 56,585 |
Inventory (net of reduction to LIFO) | 60,870 | 57,743 | 65,121 |
Other current assets | 1,322 | 883 | 4,610 |
Total Current Assets | 121,933 | 118,926 | 129,665 |
Property and Equipment, at cost: | | | |
Land | 17,363 | 15,600 | 14,182 |
Buildings | 97,082 | 88,210 | 86,920 |
Equipment and fixtures | 67,633 | 66,746 | 64,898 |
Property in excess of current needs | 3,630 | 3,662 | 1,453 |
Total | 185,708 | 174,218 | 167,453 |
Less accumulated depreciation | 92,748 | 89,550 | 84,478 |
Total Property and Equipment, net | 92,960 | 84,668 | 82,975 |
Assets Held for Resale | 447 | 447 | 1,021 |
Prepaid Pension | 27,275 | 25,804 | 22,983 |
Other Assets | 998 | 1,046 | 977 |
| | $ 243,613 | $230,891 | $237,621 |
Liabilities and Stockholders' Equity | | | |
Current Liabilities: | | | |
Notes payable, short-term borrowings | $ - | $ 4,000 | $ 8,475 |
Current maturity of long-term debt | 435 | 1,465 | 3,022 |
Book overdrafts | 6,590 | 6,485 | 6,680 |
Accounts payable | 30,331 | 23,670 | 22,459 |
Other accruals and liabilities | 15,708 | 13,219 | 13,389 |
Federal and state income taxes | 1,289 | 368 | 947 |
Total Current Liabilities | 54,353 | 49,207 | 54,972 |
Long-term Debt | 20,163 | 20,187 | 26,637 |
Deferred Income Taxes | 13,932 | 13,146 | 12,959 |
Accrued Postretirement Benefits | 2,155 | 2,090 | 1,824 |
Total Liabilities | 90,603 | 84,630 | 96,392 |
Stockholders' Equity: | | | |
Capital common stock, par value, $10; authorized, 6,000,000 shares; issued 3,526,991, 3,557,829, and 3,584,758 shares | 35,270 | 35,578 | 35,848 |
Retained earnings | 119,086 | 111,345 | 105,746 |
Additional paid in capital | 158 | - | - |
Accumulated other comprehensive loss, net of tax | (1,091) | (303) | - |
Unearned compensation, stock plans | (413) | (359) | (365) |
Stockholders' Equity | 153,010 | 146,261 | 141,229 |
| | $ 243,613 | $230,891 | $ 237,621 |
The accompanying notes are an integral part of the consolidated financial statements.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Noland Company and Subsidiary
For the years ended December 31, 2002, 2001, and 2000 (In thousands) | 2002 | 2001 Restated | 2000 Restated |
Cash Flows From Operating Activities: | | | |
Net Income | $ 9,561 | $ 7,121 | $ 11,609 |
Adjustments to reconcile net income to net cash | | | |
provided by operating activities: | | | |
Depreciation and amortization | 8,042 | 8,168 | 8,222 |
Amortization of prepaid pension cost | (1,471) | (2,821) | (4,365) |
Deferred income taxes | 2,276 | 1,370 | 2,268 |
Gain on sale of property, net | (1,191) | (384) | (4,499) |
Provision for doubtful accounts | 2,391 | 2,531 | 1,644 |
(Decrease) increase in LIFO reserve | (1,759) | (4,181) | 374 |
Other non-cash adjustments | 172 | 215 | 192 |
Change in operating assets and liabilities: | | | |
Decrease (increase) in accounts receivable | 313 | (2,640) | (2,628) |
(Increase) decrease in inventory | (1,368) | 11,559 | 4,344 |
(Increase) decrease in other current assets | (638) | 2,729 | (2,813) |
Decrease in assets held for resale | - | 574 | - |
Increase in other assets | (8) | (159) | (89) |
Increase (decrease) in accounts payable | 6,661 | 1,211 | (4,436) |
Increase (decrease) in other accruals and liabilities | 409 | (657) | 212 |
Increase (decrease) in federal and state income taxes | 921 | (579) | (82) |
Increase in postretirement benefits | 65 | 266 | 281 |
Total adjustments | 14,815 | 17,202 | (1,375) |
Net cash provided by operating activities | 24,376 | 24,323 | 10,234 |
Cash Flows From Investing Activities: | | | |
Capital expenditures | (16,995) | (11,782) | (7,703) |
Proceeds from sale of assets | 1,909 | 2,395 | 5,531 |
Net cash used by investing activities | (15,086) | (9,387) | (2,172) |
Cash Flows From Financing Activities: | | | |
Increase (decrease) in book overdrafts | 104 | (195) | (1,723) |
Short-term debt, net (payments) borrowings | (4,000) | (4,475) | 675 |
Long-term debt borrowings | - | 12,500 | 7,644 |
Long-term debt repayments | (1,054) | (20,507) | (10,398) |
Dividends paid | (1,138) | (1,145) | (1,168) |
Retirement of common stock | (1,107) | (669) | (2,103) |
Increase in unearned compensation - stock plans | (225) | (188) | (168) |
Issuance of common stock | 118 | - | - |
Additional paid in capital | 158 | - | - |
Net cash used by financing activities | (7,144) | (14,679) | (7,241) |
Cash and Cash Equivalents: | | | |
Increase during year | 2,146 | 257 | 821 |
Beginning of year | 3,606 | 3,349 | 2,528 |
End of year | $ 5,752 | $ 3,606 | $ 3,349 |
Supplemental Disclosures of Cash Flow Information: | | | |
Cash paid for interest | $ 1,173 | $ 1,847 | $ 2,646 |
Cash paid for income taxes | $ 2,817 | $ 3,972 | $ 6,018 |
The accompanying notes are an integral part of the consolidated financial statements.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY AND COMPREHENSIVE INCOME
Noland Company and Subsidiary
For the years ended December 31, 2002, 2001 and 2000
(In thousands, except share amounts)
| COMMON STOCK | Retained | Additional | Unearned | Accumulated | Total |
| Shares | Amount | Earnings | Paid In | Compensation | Other | |
| | | | Capital | | Comprehensive Loss | |
Balance, December 31, 1999 | | | | | | | |
restated | 3,700,876 | $37,009 | $96,228 | $ - | $ (371) | $ - | $132,866 |
Net income-restated | | | 11,609 | | | | 11,609 |
Cash dividends | | | | | | | |
($.32 per share) | | | (1,168) | | | | (1,168) |
Purchase of restricted stock | | | | | (168) | | (168) |
Amortization of unearned | | | | | | | |
compensation | | | | | 136 | | 136 |
Purchase and retirement | | | | | | | |
of common stock | (117,966) | (1,180) | (923) | | | | (2,103) |
Other | 1,848 | 19 | | | 38 | | 57 |
Balance, December 31, 2000 | | | | | | | |
restated | 3,584,758 | 35,848 | 105,746 | | (365) | | 141,229 |
Net income - restated | | | 7,121 | | | | 7,121 |
Loss on derivative | | | | | | | |
instruments, net of | | | | | | | |
income tax | | | | | | (303) | (303) |
Comprehensive income -restated | | | | | | | 6,818 |
Cash dividends | | | | | | | |
($.32 per share) | | | (1,145) | | | | (1,145) |
Purchase of restricted stock | | | | | (188) | | (188) |
Amortization of unearned | | | | | | | |
compensation | | | | | 154 | | 154 |
Purchase and retirement | | | | | | | |
of common stock | (29,172) | (292) | (377) | | | | (669) |
Other | 2,243 | 22 | | | 40 | | 62 |
Balance, December 31, 2001 | | | | | | | |
restated | 3,557,829 | 35,578 | 111,345 | | (359) | (303) | 146,261 |
Net income | | | 9,561 | | | | 9,561 |
Loss on derivative | | | | | | | |
instruments, net of | | | | | | | |
income tax | | | | | | (788) | (788) |
Comprehensive income | | | | | | | 8,773 |
Cash dividends | | | | | | | |
($.32 per share) | | | (1,138) | | | | (1,138) |
Issue of restricted stock | 9,900 | 99 | | 158 | (257) | | |
Amortization of unearned | | | | | | | |
compensation | | | | | 172 | | 172 |
Purchase and retirement | | | | | | | |
of common stock | (42,600) | (426) | (682) | | | | (1,108) |
Other | 1,862 | 19 | | | 31 | | 50 |
Balance, December 31, 2002 | 3,526,991 | $35,270 | $119,086 | $158 | $(413) | $(1,091) | $153,010 |
The accompanying notes are an integral part of the consolidated 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, air conditioning, and electrical/industrial. Markets for these products include contractors, industrial plants, utilities and others. The Company operates in only one segment of business.
2. Restatement of Consolidated Financial Statements
In late October 2002, the Company determined that gains from certain sales of excess real estate in 2001 and 2000 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 net income by $252,000 in 2001 and $2.3 million in 2000. The consolidated financial statements as of and for the years ended December 31, 2001 and 2000, and the notes thereto have been restated to include the effects of recognizing the gains. Certain amounts in the restated financial statements have been reclassified to conform to the 2002 presentation.
Consolidated Results of Operations
For the years ended December 31, 2001 and 2000
(In thousands, except per share amounts)
2001 2000
| | | | As Reported | Restated | As Reported | Restated |
Operating expenses | | | $91,357 | $91,357 | $88,399 | $88,376 |
Gains from sale of property, net | | | 231 | 384 | 817 | 4,499 |
Operating profit | | | 6,812 | 7,196 | 10,337 | 14,859 |
Total other income | | | 6,226 | 6,247 | 7,771 | 6,954 |
Income before income taxes | | | 11,315 | 11,720 | 15,393 | 19,098 |
Income taxes | | | 4,446 | 4,599 | 6,085 | 7,489 |
Net income | | | $ 6,869 | $ 7,121 | $ 9,308 | $11,609 |
Basic earnings per share | | | $ 1.94 | $ 2.01 | $ 2.57 | $ 3.21 |
Diluted earnings per share | | | $ 1.92 | $ 1.99 | $ 2.55 | $ 3.18 |
Comprehensive income | | | $ 6,566 | $ 6,818 | $ 9,308 | $11,609 |
Net cash provided by operating activities | | | $21,099 | $24,323 | $12,928 | $10,234 |
Net cash used by investing activities | | | $(6,163) | $(9,387) | $(4,866) | $(2,172) |
Consolidated Balance Sheets
December 31, 2001 2000
(In thousands) 2001 2000
| | | As Reported | Restated | As Reported | Restated |
Other current assets | | | $ 679 | $ 883 | $ 436 | $ 4,610 |
Total current assets | | | 118,722 | 118,926 | 126,514 | 129,665 |
Total property and equipment, net | | | 79,415 | 84,668 | 81,099 | 82,975 |
Total assets | | | $225,434 | $230,891 | $232,594 | $237,621 |
Deferred income taxes | | | $ 10,666 | $ 13,146 | $ 10,937 | $ 12,959 |
Stockholders equity | | | 143,004 | 146,261 | 138,224 | 141,229 |
Total liabilities and stockholders equity | | | $225,434 | $230,891 | $232,594 | $237,621 |
As a result of recognizing these gains, the Companys December 31, 1999 accounts receivable, other current assets, property and equipment, net, deferred income taxes, and retained earnings changed from the previously reported amounts of $55,704, $236, $83,541, $10,197, and $95,524 to $55,601, $601, $84,428, $10,642, and 96,228, respectively.
3. 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.
The Company disposed of its 50 percent interest in two foreign joint ventures in 2001. Prior to the sale, the equity method of accounting was used for both entities. The aggregate investment in and results of operations from both joint ventures are not material.
b. Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America 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. Material estimates that are susceptible to changes are the allowance for doubtful accounts, reserves for casualty and health insurance, vendor rebates, and loss contingencies related to litigation. 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 LIFO method since 1974. Vendor rebates are based on quantitative contracts with our vendors and are recognized as a reduction of cost of goods sold as the merchandise is sold. The dollar amount of rebates earned is dependent upon the purchasing activity of the Company. The Company estimates these rebates based upon the individual vendor contracts. The actual amount of rebates may vary from the estimate and could affect cost of goods sold accordingly.
d. Property and Equipment
Property and equipment are recorded at cost less accumulated depreciation. Depreciation is computed by the straight-line method based on estimated useful lives of 20 to 40 years for buildings and 3 to 10 years for equipment and fixtures.
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.
The Company reevaluates property, plant, and equipment whenever significant events or changes occur which might impair recovery of recorded costs. Impaired assets, if any, are written down to fair value.
Property in excess of current needs and assets held for resale consist primarily of land that the Company expects to convert to income producing property.
e.Other Accruals and Liabilities
Included in other accruals and liabilities is accrued compensation expense of $5,328,000, $4,420,000 and $4,689,000 for 2002, 2001 and 2000, respectively. The Company retains large deductibles for its casualty insurance and is self-insured for health insurance benefits. Reserves are established based on the estimated cost to settle claims. Adverse changes in the expected cost of claims would increase reserves and decrease income.
f. Income Taxes
A deferred tax asset or liability is recognized for the deferred tax consequences of all temporary differences.
g. Cash and Cash Equivalents
The Company considers all highly liquid debt instruments purchased with an original maturity of three months or less to be cash equivalents. Due to the short maturity period of cash and cash equivalents, the carrying amount approximates the fair value.
Cash is maintained in bank deposit accounts that, at times, may exceed federally insured limits. The Company has not experienced any losses in such accounts and believes it is not exposed to any significant credit risk on cash and cash equivalents. There are no requirements for compensating balances.
h. Derivative Financial Instruments
The Company uses interest rate swap agreements to reduce its exposure to market risks from changing interest rates. Two swap agreements are outstanding at December 31, 2002. The agreements are accounted for in accordance with Statement of Financial Accounting Standards (SFAS) No. 133, "Accounting for Certain Derivative Instruments and Certain Hedging Activities," as amended by SFAS No. 138, which became effective January 1, 2001. SFAS No. 133 established accounting and reporting standards that require all derivative instruments be recorded in the balance sheet as an asset or liability measured at its fair value. Changes in a derivative's fair value must be recognized currently in earnings unless specific hedge accounting criteria are met. Special accounting for qualifying hedges allows a derivative instrument's gains and losses to be recorded in the statement of stockholders' equity as a component of other comprehensive income for cash flow hedges, and requires that the Company formally documen t, designate, and assess the effectiveness of transactions that receive hedge accounting. The Company does not hold or issue financial instruments for trading purposes.
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 income before income taxes and certain adjustments. The cost of these plans was $2,568,000 in 2002, $1,793,000 in 2001 and $2,140,000 in 2000.
j. Unearned Compensation - Stock Plans
The Company has two equity compensation plans that provide compensation in the form of Company stock to certain executives and outside directors, accounted for at fair value under SFAS No 123, "Accounting for Stock-Based Compensation." Both plans have been approved by the stockholders. The Company does not use options, warrants or rights for stock-based compensation.
The nonvested stock plan for executives provides that, 100,000 shares in the aggregate, limited to 10,000 shares per year, may be granted as nonvested stock. Participants may not dispose or otherwise transfer stock granted for three years from date of grant. Restrictions lapse on 20 percent of the stock per year beginning at the end of the third year and are fully vested at the end of seven years. Upon issuance of stock under the plan, unearned compensation equivalent to the market value at the date of grant is recorded in a contra-equity account and amortized over seven years. Shares granted for 2002, 2001, and 2000 were 9,900, 9,900, and 10,000 with a fair value of $257,000, $188,000, and $168,000, respectively. Shares granted prior to 2002 were purchased in the open market. The amount amortized to compensation expense in 2002, 2001, and 2000 was $171,000, $154,000, and $136,000, respectively. In addition, 500 and 900 shares were forfeited in 2001 and 2000, respectively.
The 1999 Outside Directors Stock Plan (the Plan) provides incentive and award to the Company's Outside Directors. The Common Stock Benefit Trust (the Trust), a grantor trust, was established to provide a source of funds to meet the obligations of the Plan. The Trust is consolidated with the Company. The cost of purchased shares or par value of issued shares held by the Trust, net of the deferred compensation expense, is shown as a reduction of stockholders' equity. In 2002, 2001, and 2000, $17,000, $22,000, and $20,000 were charged against stockholders' equity, and $49,000, $51,000, and $38,000 were recorded as director compensation, respectively.
k. Earnings Per Share
Basic earnings per share for 2002, 2001, and 2000 are calculated based on 3,509,554, 3,541,113, and 3,614,951 shares, respectively. Diluted earnings per share for 2002, 2001, and 2000 are based on 3,541,362, 3,571,752 and 3,646,517 shares, respectively. The potentially dilutive shares consist of restricted stock.
l. Professional Standards
The Financial Accounting Standards Board has issued the following Statements of Financial Accounting Standards that are relevant to Noland Company: SFAS No. 143, "Accounting for Asset Retirement Obligations," and SFAS No. 146, "Accounting for Costs Associated with Exit or Disposal Activities." Adoption of these Statements is not expected to have a material impact on the Company's financial statements. SFAS No. 148, "Accounting for Stock-Based Compensation - Transition and Disclosure," was adopted on December 15, 2002 with no material impact on the Company's financial statements. The Emerging Issues Task Force (EITF) reached a consensus in 2003 on Issue No. 02-16, "Accounting by a Customer (including a Reseller) for Cash Consideration Received from a Vendor" that is effective for the Company's 2003 fiscal year. The Company is still evaluating the impact of the adoption of EITF No. 02-16 on the Company's consolidated financial statements.
m. Revenue Recognition
Revenue from product sales is generally recognized when the customer receives goods, which is when the risks and rewards of ownership have transferred to the customer.
n. Reclassifications
Certain amounts in prior years' financial statements have been reclassified to conform to the 2002 presentation.
4. Trade Accounts Receivable
Trade accounts receivable are recorded at the invoiced amount and are subject to service charges on past due amounts. The allowance for doubtful accounts of $1,815,000, $2,312,000, and $1,464,000 as of December 31, 2002, 2001, and 2000, respectively is the Company's best estimate of the amount of probable credit losses in existing trade accounts receivable. The allowance is based on historical write-off experience. Account balances are charged off against the allowance after all means of collection have been exhausted and the potential for recovery is considered remote. Bad debt charges, net of recoveries, were $1,828,000 for 2002, $1,860,000 for 2001 and $1,169,000 for 2000.
5. Inventory
Comparative year-end inventories are as follows:
(Th (In thousands) | 2002 | 2001 | 2000 |
InventInventory at FIFO | $ 89,571 | $ 88,203 | $ 99,762 |
Reduction to LIFO | 28,701 | 30,460 | 34,641 |
Inventory at LIFO | $ 60,870 | $ 57,743 | $ 65,121 |
Liquidation of certain inventory layers carried at the lower costs which prevailed in prior years as compared with the costs of 2002, 2001, and 2000 purchases had the effect of increasing 2002, 2001, and 2000 net income $807,000 ($.23 per share), $2,085,000 ($.58 per share), and $232,000 ($.06 per share), respectively.
6. Debt
a. Short-Term Borrowings:
There was no short-term debt at December 31, 2002. Amounts payable to banks at December 31, 2001 and 2000 were $4,000,000 and $8,475,000, respectively. The average interest rate, which is based on existing Federal Funds rates, was 2.2 percent at December 31, 2001 and 7.1 percent at December 31, 2000. The carrying amount of these short-term borrowings approximates fair value because of the short maturity.
The Company had unused lines of credit totaling $42.8 million at December 31, 2002.
b. Long-Term Debt:
(In thousands) | 2002 | 2001 | 2000 |
Promissory note, variable interest | | | |
payable monthly (1.69% at December | | | |
31, 2002), principal due August | | | |
2004. (1) (2) | $10,000 | $10,000 | $15,000 |
Industrial revenue financings, variable | | | |
interest payable quarterly (1.8% at | | | |
December 31, 2002) with varying | | | |
maturities from 2005 to 2009. (1) (3) | 10,075 | 10,075 | 10,075 |
Other | 523 | 1,577 | 4,584 |
| | 20,598 | 21,652 | 29,659 |
Less current maturities | 435 | 1,465 | 3,022 |
| | $ 20,163 | $ 20,187 | $26,637 |
(1) Subject to agreements that require the Company to maintain a tangible net worth of $140,000,000 and not less than a 1.6-to-1 current ratio. The ratio of funded debt to earnings before interest, income taxes, and depreciation (EBITDA) cannot exceed 3.0-to-1.
(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. 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 $10,440,000. The contract amount of the letter of credit is a reasonable estimate of its fair value as the rate is fixed over the life of the commitment. The counter parties to those agreements anticipate no material loss due to nonperformance.
Annual maturities of long-term debt for the five years subsequent to December 31, 2002, are as follows: 2003, $435,000; 2004, $10,024,000; 2005, $1,524,000; 2006, $1,040,000; thereafter, $7,575,000.
In the second quarter of 2001 the Company entered into two interest rate swap agreements. The agreements require the Company to exchange, at specified intervals, the difference between fixed and variable interest amounts that are calculated by reference to notional amounts of $10,000,000 and $10,075,000. The swaps effectively convert the variable rate borrowings (LIBOR and BMA Municipal Swap Index) into fixed rate borrowings with fixed rates of 5.36% and 4.22% and maturity dates of May 2006 and February 2009. Any difference between interest paid and received on the swap is recognized as interest expense over the life of each swap, thereby adjusting the effective interest rate on the underlying obligations. For the years ended December 31, 2002 and 2001, the Company reclassified $647,000 and $268,000, respectively into interest expense.
Changes in the fair value of the cash flow hedges resulted in losses in other comprehensive income of $788,000 and $303,000, net of income tax benefits of $481,000 and $185,000 for the years ended December 31, 2002 and 2001, respectively. As of December 31, 2002 $647,000 of deferred losses for the cash flow hedges are expected to be reclassified to earnings during the next 12 months. There were no cash flow hedges discontinued during 2002 and 2001.
7. Postretirement Health and Life Benefits
The following tables reconcile the plan's change in benefit obligation and show the plan's funded status at December 31, 2002, 2001, and 2000.
(In th(In thousands) | 2002 | 2001 | 2000 |
Change in benefit obligation | | | |
Benefit obligation at the end | | | |
of the prior year | $ 4,486 | $ 4,486 | $ 4,348 |
Service cost | 47 | 43 | 47 |
Interest cost | 216 | 303 | 331 |
Plan participants' contributions | 85 | 26 | 66 |
Actuarial (gain) loss | (1,202) | (64) | 59 |
Benefit payments | (402) | (308) | (365) |
Benefit obligation at year end | $3,230 | $4,486 | $ 4,486 |
Reconciliation of funded status | | | |
Funded status | $ (3,230) | $ (4,486) | $(4,486) |
Unrecognized net actuarial loss | (961) | 157 | 220 |
Unrecognized transition obligation | 2,036 | 2,239 | 2,442 |
Accrued cost | $ (2,155) | $ (2,090) | $(1,824) |
The discount rate used to calculate the benefit obligation was 6.75 percent for 2002, 7.25 percent for 2001, and 7.60 percent for 2000. There are no plan assets. Employer paid benefits are limited to a fixed reimbursement allowance based on years of service at retirement; as such no health care cost trend assumption is necessary.
The components of the provision for net periodic postretirement benefit costs are:
(In thousands) | 2002 | 2001 | 2000 |
Service cost | $ 47 | $ 43 | $ 47 |
Interest cost | $ 216 | $ 303 | $ 331 |
Net amortization | $ 119 | $ 203 | $ 203 |
Net postretirement benefit cost | $ 382 | $ 549 | $ 581 |
8. Retirement Plan
The following tables reconcile the plan's change in benefit obligation and change in plan assets and show the funded status at December 31, 2002, 2001, and 2000.
(In thousands) | 2002 | 2001 | 2000 |
Change in benefit obligation | | | |
Benefit obligation at the end | | | |
of the prior year | $ 43,165 | $ 41,220 | $ 37,518 |
Service cost | 960 | 954 | 862 |
Interest cost | 2,989 | 2,958 | 2,853 |
Actuarial loss | 2,009 | 624 | 1,160 |
Benefit payments | (2,759) | (2,591) | (1,173) |
Benefit obligation at year end | $ 46,364 | $ 43,165 | $ 41,220 |
Change in plan assets | | | |
Fair value of plan assets at | | | |
beginning of year | $ 71,156 | $ 77,492 | $ 79,798 |
Actual return on plan assets | (6,950) | (3,745) | (1,135) |
Benefits paid | (2,759) | (2,591) | (1,173) |
Fair value of plan assets at year end | $ 61,447 | $ 71,156 | $ 77,490 |
Reconciliation of funded status | | | |
Funded status | $ 15,083 | $ 27,991 | $ 36,270 |
Unrecognized net actuarial loss (gain) | 12,192 | (2,187) | (13,287) |
Prepaid benefit | $ 27,275 | $ 25,804 | $ 22,983 |
Weighted-average assumptions as of the end of the year were:
| | 2002 | 2001 | 2000 |
Discount rate | 6.75% | 7.25% | 7.60% |
Rate of compensation increase | 4.0% | 4.0% | 4.0% |
Expected return on plan assets | 7.75% | 7.75% | 7.75% |
The components of the net pension benefit are:
(In thousands) | 2002 | 2001 | 2000 |
Service cost | $ 960 | $ 954 | $ 862 |
Interest cost | 2,989 | 2,958 | 2,853 |
Expected return on plan assets | (5,422) | (5,915) | (6,095) |
Amortization of net actuarial loss (gain) | 2 | (818) | (1,985) |
Net pension benefit | $(1,471) | $(2,821) | $(4,365) |
9. Income Taxes
Income tax expense components for income from continuing operations are as follows:
(In th(In thousands) | 2002 | 2001 | 2000 |
Federal: | | | |
Current | $ 2,829 | $ 2,755 | $ 4,372 |
Deferred | 1,930 | 1,156 | 1,825 |
State: | | | |
Current | 550 | 474 | 849 |
Deferred | 346 | 214 | 443 |
Total | $ 5,655 | $ 4,599 | $ 7,489 |
The components of the net deferred tax liability are:
(In thousands) | 2002 | 2001 | 2000 |
Current deferred (assets) liabilities | | | |
Accounts receivable | $ (688) | $ (876) | $ (460) |
Inventory | 2,097 | 1,302 | (103) |
Accrued vacation | (598) | (624) | (633) |
Total net current deferred (asset) liability | 811 | (198) | (1,196) |
Noncurrent deferred (assets) liabilities | | | |
Property and equipment | 6,123 | 5,440 | 5,762 |
Pension asset | 10,336 | 9,778 | 8,709 |
Postretirement benefit liability | (817) | (792) | (691) |
Other | (1,710) | (1,280) | (821) |
Total net non-current deferred liability | 13,932 | 13,146 | 12,959 |
Net deferred liability | $ 14,743 | $ 12,948 | $11,763 |
Management has determined, based on the Company's history of reporting taxable income, that no valuation allowance is necessary for deferred tax assets. The reasons for the difference between total tax expense attributable to income from continuing operations and the amount computed by applying the statutory federal income tax rate to income before income taxes from continuing operations are as follows:
(In thousands) | 2002 | 2001 | 2000 |
Statutory rate applied to | | | |
pretax income | $ 5,174 | $ 3,985 | $ 6,548 |
State income taxes, net | | | |
of federal tax benefit | 593 | 456 | 734 |
Other | (112) | 158 | 207 |
Total tax expense | $ 5,655 | $ 4,599 | $ 7,489 |
10. Lease Commitments/Related Parties
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. The corporate office is leased from a related party, Basic Inc., which is owned by the Noland family, in an arms length transaction for an annual rent of $290,000.
Rental expense under operating leases for 2002, 2001, and 2000 was $1,923,000, $1,797,000, and 1,528,000, respectively.
Minimum payments due for years after 2002 under non-cancelable operating leases are $1,864,000 in 2003; $1,303,000 in 2004; $1,155,000 in 2005; $938,000 in 2006; $300,000 in 2007; and $70,000 thereafter.
11. Common Stock
The Board of Directors has authorized the repurchase of up to 500,000 shares of the Companys outstanding common stock. Of that amount, 42,600, 29,172 and 117,996 shares were acquired in 2002, 2001, and 2000, at a cost of $1,108,000, $669,000, and $2,103,000, respectively.
12. Concentration of Credit Risk
The Company sells its products to all major areas of construction and manufacturing markets throughoutthe southeastern 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 southeastern 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.
13. Supplier Concentration
Purchases from the top three suppliers aggregated 35%, 32%, and 29% of all inventory purchases made in 2002, 2001, and 2000, respectively. The single largest supplier, Rheem Manufacturing Company, accounted for 19%, 21%, and 18% of all inventory purchases made in 2002, 2001, and 2000, respectively. The loss of any of these suppliers could have a material effect on the Company's operations. The Company does not anticipate any problems with inventory supply from these suppliers.
14. Contingencies
Noland Company is a defendant in personal injury claims based on alleged past exposure to asbestos-containing products or materials produced by others and allegedly distributed by the Company years ago. Since the early 1990s, the Company has been sued many times, along with a large number of other companies, by one law firm in cases that allege asbestos-related injuries to persons in the maritime industry. In none of these suits has a link to the Company been substantiated, and most of them already have been dismissed.
The Company also has been named as one of the defendants in fifteen other asbestos-related suits in which a connection to the Company was alleged. One of these suits has been dismissed with prejudice, three have been settled through the Company's insurance carrier and eleven are still pending. Management does not consider the foregoing suits, individually or in the aggregate, to be material to the Company.
The Company also has been named as one of the defendants in approximately four hundred asbestos-related suits filed by one law firm in the Circuit Court for Newport News, Virginia or in the Circuit Court for Portsmouth, Virginia. At this early date it is not possible to evaluate the merits of these new suits. The Company is not aware of any relationship between the Company and any of the plaintiffs, nor does it have any information as to the extent of any injury that may have been suffered by any of them. All of these cases will be defended vigorously.
No provision for losses under SFAS No. 5, "Accounting for Contingencies" has been made in the 2002 consolidated financial statements. An adverse outcome in any of these cases could affect income.
Ten-Year Review of Selected Financial Data (Dollar amounts in thousands, except per share data) | 2002 | 2001 Restated | 2000 Restated |
Income Statement Data | | | |
Sales | $488,715 | $477,911 | $488,714 |
Gross Profit | 101,742 | 98,169 | 98,736 |
Operating Expenses | 93,180 | 91,357 | 88,376 |
Operating Profit | 9,753 | 7,196 | 14,859 |
Interest Expense | 1,154 | 1,723 | 2,715 |
Interest Expense as Percent of Total Assets | .5 | .8 | 1.1 |
Income Before Income Taxes | 15,216 | 11,720 | 19,098 |
Pretax Profit as Percent of Sales | 3.1 | 2.5 | 3.9 |
Income Tax Expense | 5,655 | 4,599 | 7,489 |
Effective Tax Rate | 37.2 | 39.2 | 39.2 |
Net Income | 9,561 | 7,121 | 11,609 |
Income Paid to Stockholders (Cash Dividends) | 1,138 | 1,145 | 1,168 |
Income Reinvested | 8,423 | 5,976 | 10,441 |
Property and Equipment Expenditures | 16,995 | 11,782 | 7,703 |
Depreciation and Amortization | 8,042 | 8,168 | 8,222 |
Balance Sheet Data | | | |
Stockholders' Equity | 153,010 | 146,261 | 141,229 |
Working Capital | 67,580 | 69,729 | 74,520 |
Current Ratio | 2.2 | 2.4 | 2.4 |
Total Assets | 243,613 | 230,891 | 237,448 |
Long-term Debt | 20,163 | 20,187 | 26,637 |
Borrowed Funds | 20,598 | 25,652 | 38,134 |
Borrowed Funds as Percent of Total Assets | 8.5 | 11.1 | 16.1 |
Total Liabilities as Percent of Total Assets | 37.2 | 36.6 | 40.5 |
Per Share Data | | | |
Diluted Earnings | 2.70 | 1.99 | 3.18 |
Cash Dividends Paid to Stockholders | .32 | .32 | .32 |
Stockholders' Equity (Book Value) | 43.38 | 41.11 | 39.40 |
Return on Average Stockholders' Equity (Percent) | 6.4 | 5.0 | 8.5 |
Stock Price Range: | | | |
Average High | 28.60 | 26.21 | 19.09 |
Average Low | 26.02 | 18.90 | 14.98 |
Number of Employees at December 31 | 1,358 | 1,415 | 1,492 |
Number of Branches at December 31 | 98 | 103 | 102 |
Supplemental Information | | | |
The Company elected the LIFO method of inventory valuation in 1974.
The above information (i.e., gross profit, income and taxes) is stated on that basis.
Had the Company used the FIFO method, the results would have been:
Gross Profit | 99,983 | 93,989 | 99,110 |
Income Before Income Taxes | 13,458 | 7,540 | 19,472 |
Income Tax Expense | 5,001 | 2,956 | 7,633 |
Net Income | 8,457 | 4,584 | 11,839 |
Net Income Per Share (Diluted) | 2.39 | 1.28 | 3.25 |
Stockholders' Equity (Book Value) Per Share | 48.11 | 46.02 | 44.90 |
Return on Average Stockholders' Equity (Percent) | 5.1 | 2.8 | 7.6 |
1999 | 1998 | 1997 | 1996 | 1995 | 1994 | 1993 |
Restated | Restated | Restated | Restated | | | |
| | | | | | | |
$482,830 | $465,479 | $464,965 | $465,705 | $469,512 | $440,202 | $402,941 |
96,938 | 93,446 | 93,753 | 90,789 | 89,087 | 86,166 | 77,306 |
88,115 | 87,927 | 87,659 | 84,383 | 83,389 | 78,259 | 74,692 |
9,079 | 5,566 | 6,318 | 7,039 | 5,698 | 7,907 | 2,614 |
2,819 | 3,498 | 3,078 | 2,828 | 3,239 | 2,626 | 2,422 |
1.2 | 1.5 | 1.4 | 1.3 | 1.5 | 1.2 | 1.2 |
13,568 | 9,238 | 9,101 | 10,286 | 8,237 | 10,568 | 5,291 |
2.8 | 2.0 | 2.0 | 2.2 | 1.8 | 2.4 | 1.3 |
5,264 | 3,339 | 3,422 | 4,041 | 3,290 | 4,341 | 1,996 |
38.8 | 36.1 | 37.6 | 39.3 | 39.9 | 41.1 | 37.7 |
8,304 | 5,899 | 5,679 | 6,245 | 4,947 | 6,227 | 3,295 |
1,184 | 1,184 | 1,184 | 1,184 | 1,036 | 888 | 888 |
7,120 | 4,715 | 4,495 | 5,061 | 3,911 | 5,339 | 2,407 |
7,059 | 14,751 | 9,556 | 11,519 | 9,735 | 10,858 | 7,611 |
8,450 | 7,977 | 6,890 | 6,868 | 6,655 | 6,232 | 6,178 |
| | | | | | |
132,866 | 125,780 | 121,284 | 116,674 | 111,688 | 107,865 | 102,596 |
68,014 | 65,314 | 75,845 | 77,379 | 71,889 | 65,575 | 65,203 |
2.1 | 2.0 | 2.6 | 2.6 | 2.4 | 2.0 | 2.3 |
234,768 | 235,221 | 219,294 | 220,514 | 213,520 | 217,085 | 201,029 |
28,015 | 32,413 | 39,784 | 45,039 | 41,611 | 36,914 | 38,505 |
40,213 | 54,785 | 48,430 | 54,267 | 45,332 | 53,130 | 47,485 |
17.1 | 23.3 | 22.1 | 24.6 | 21.2 | 24.5 | 23.6 |
43.4 | 46.5 | 44.7 | 47.1 | 47.7 | 50.3 | 48.9 |
| | | | | | |
2.24 | 1.59 | 1.53 | 1.69 | 1.34 | 1.68 | .89 |
.32 | .32 | .32 | .32 | .28 | .24 | .24 |
35.90 | 33.99 | 32.77 | 31.52 | 30.18 | 29.15 | 27.72 |
6.4 | 4.8 | 4.8 | 5.5 | 4.5 | 5.9 | 3.2 |
| | | | | | |
22.95 | 27.17 | 24.59 | 21.81 | 21.31 | 20.94 | 18.13 |
18.25 | 22.27 | 21.72 | 18.89 | 18.38 | 17.56 | 15.06 |
1,512 | 1,554 | 1,606 | 1,692 | 1,655 | 1,741 | 1,683 |
100 | 106 | 107 | 107 | 99 | 99 | 93 |
98,329 | 93,827 | 92,713 | 90,582 | 91,187 | 86,404 | 77,318 |
14,959 | 9,619 | 8,061 | 10,079 | 10,337 | 10,806 | 5,303 |
5,804 | 3,473 | 3,030 | 3,961 | 4,124 | 4,441 | 2,000 |
9,155 | 6,146 | 5,031 | 6,118 | 6,213 | 6,365 | 3,303 |
2.47 | 1.66 | 1.35 | 1.65 | 1.68 | 1.72 | .89 |
40.70 | 38.14 | 37.46 | 36.42 | 34.39 | 33.69 | 32.21 |
6.3 | 4.4 | 3.7 | 4.7 | 4.9 | 5.2 | 2.8 |
Selected Quarterly Financial Data (unaudited)
(In thousands, except per share amounts)
First Quarter Second Quarter Third Quarter Fourth Quarter Total
| 2002 | 2001 | 2002 | 2001 | 2002 | 2001 | 2002 | 2001 | 2002 | 2001 |
Sales | $109,696 | $114,931 | $130,752 | $127,470 | $131,076 | $122,337 | $117,191 | $113,173 | $488,715 | $477,911 |
Gross Profit | $ 21,410 | $ 23,003 | $ 26,792 | $ 25,053 | $ 26,415 | $ 23,664 | $ 27,125 | $ 26,449 | $101,742 | $ 98,169 |
Net Income As Restated(B) | $ 516 | $ 1,464 | $ 2,505 | $ 1,895 | $ 2,954 | $ 1,132 | $ 3,586(A) | $ 2,630(A) | $ 9,561 | $ 7,121 |
Basic Earnings | $ .14 | $ .41 | $ .71 | & .54 | $ .84 | $ .32 | $ 1.03(A) | $ .74(A) | $ 2.72 | $ 2.01 |
Per Share As Restated(B) | | | | | | | | | | |
Diluted Earnings Per Share As Restated(B) | $ .14 | $ .40 | $ .71 | $ .53 | $ .83 | $ .32 | $ 1.02(A) | $ .74(A) | $ 2.70 | $ 1.99 |
(A) The Company uses estimated gross profit rates to determine cost of goods sold during interim periods. Year-end inventory adjustments to reflect actual inventory levels are made in the fourth quarter. These adjustments had the effect of increasing net income for the fourth quarter of 2002 and 2001 by approximately $3.0 million ($.87 per share) and $2.5 million ($.71 per share), respectively.
(B) Net income and diluted and basic earnings per share were restated for the first quarter of 2001 as a result of recognizing gains from the sale of excess real estate previously reported as non-monetary exchanges.
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.
400 Wachovia Bank Building
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:
KPMG LLP
2100 Dominion Tower
999 Waterside Drive
Norfolk, Virginia 23510
Legal Counsel:
Hunton & Williams
P.O. Box 1535
Richmond, Virginia 23212
Noland on the Internet:
For the latest financial news, career opportunities and other Company information, visit us on the Internet at: www.noland.com
Stock Information
The Company's common stock is traded over the counter as part of NASDAQ's National Market System (symbol: NOLD). On March 14, 2003, the approximate number of holders of record of the Company's common stock was 950.
Market Prices:
The following table sets forth the reported high and low prices for the common stock on the NASDAQ system:
High Low
2002
Qtr. 4 $30.32 $25.95
Qtr. 3 $28.25 $26.00
Qtr. 2 $27.19 $25.87
Qtr. 1 $30.75 $26.25
2001
Qtr. 4 $32.00 $19.80
Qtr. 3 $25.60 $20.80
Qtr. 2 $24.00 $19.50
Qtr. 1 $23.25 $15.50
P/E Ratio:*
High Low
2002 11 10
2001 14 10
*Based on final, full-year diluted earnings
Dividend Policy:
Noland has paid regular cash dividends for 70 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.
Dividends Paid:
The Company paid quarterly dividends of $.08 per share in each quarter of 2002 and 2001.
Registrar:
Noland Company
Transfer Agent:
Continental Stock Transfer and Trust Company
2 Broadway
New York, New York 10004
(212) 509-4000
Annual Meeting:
May 1, 2003, 10:00 a.m.
Noland's Corporate Headquarters
Newport News, Virginia
