FORM 10-Q
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, 2001 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 capital common stock, $10.00 par value at April 17, 2001, 3,577,928 shares.
This report contains 10 pages.
NOLAND COMPANYAND SUBSIDIARY
INDEX
Part 1: FINANCIAL INFORMATION | PAGE NO. |
Item 1. Financial Statements | |
Consolidated Balance Sheets - | |
March 31, 2001 (Unaudited) and Dec. 31, 2000 | . . . . . . . . .3 |
Unaudited Consolidated Statements of Income - | |
Three Months Ended March 31, 2001 and 2000 | . . . . . . . . .4 |
Unaudited Consolidated Statements of Cash Flows - | |
Three Months Ended March 31, 2001 and 2000 | . . . . . . . . .5 |
Notes to Unaudited Consolidated Financial Statements | . . . . . . . . .6 |
Item 2. Management's Discussion and Analysis of Financial | |
Condition and Results of Operations | . . . . . . . . .7 |
Item 3. Qualitative and Quantitative Disclosures About | |
Market Risk | . . . . . . . . .9 |
Part II: OTHER INFORMATION | |
Items 1, 2, 3, 4, 5, and 6 | . . . . . . . . 10 |
SIGNATURES | . . . . . . . . 11 |
PART 1. FINANCIAL INFORMATION
NOLAND COMPANY AND SUBSIDIARY
Consolidated Balance Sheets
Item 1. Financial Statements
March 31, December 31,
2001 2000
(Unaudited) (Audited)
Assets
Current Assets:
Cash and cash equivalents $ 3,843,175 $ 3,349,283
Accounts receivable, net 53,844,177 56,045,064
Inventory, net 64,455,454 65,121,199 Deferred income taxes 1,022,875 1,022,875
Prepaid expenses 497,019 342,012
Total Current Assets123,662,700125,880,433
Property and Equipment, at cost:
Land 13,425,443 13,397,010
Buildings 85,932,279 85,829,159
Equipment and fixtures 65,654,264 64,897,674
Property in excess of current needs 1,452,738 1,452,738
Total 166,464,724 165,576,581
Less accumulated depreciation 86,149,140 84,477,542
Property and Equipment, net 80,315,584 81,099,039
Assets Held for Resale 1,021,492 1,021,492
Prepaid Pension 23,627,718 22,982,968
Other Assets 893,588 976,532
$229,521,082 $231,960,464
Liabilities and Stockholders' Equity
Current Liabilities:
Notes payable - short term borrowings $ 17,750,000 $ 8,475,000
Current maturity of long-term debt 3,447,708 3,021,775
Book overdrafts 7,920,984 6,679,923
Accounts payable 19,171,107 22,879,945
Other accruals and liabilities 9,714,698 12,333,674
Federal and state income taxes 1,185,554 947,193
Total Current Liabilities 59,190,051 54,337,510
Long-term Debt 18,440,944 26,637,097
Deferred Income Taxes 10,937,070 10,937,070
Accrued Postretirement Benefits 1,887,803 1,824,474
Stockholders' Equity:
Capital common stock, par value $10;
authorized, 6,000,000 shares; issued,
3,577,928 and 3,584,758 shares 35,779,280 35,847,580
Retained earnings103,611,595102,741,284
Total 139,390,875 138,588,864
Less restricted stock 325,661 364,551
Stockholders' Equity139,065,214138,224,313
$229,521,082 $231,960,464
The accompanying notes are an integral part of the financial statements.
NOLAND COMPANY AND SUBSIDIARY
Unaudited Consolidated Statements of Income
Three Months Ended
March 31,
20012000
Merchandise sales $114,930,701 $120,994,151
Cost of goods sold:
Purchases and freight-in 91,262,078 100,391,072
Inventory, beginning 65,121,199 69,839,568
Inventory, ending (64,455,454) (73,111,888)
Cost of goods sold91,927,82397,118,752
Gross profit on sales 23,002,878 23,875,399
Operating expenses22,123,42521,279,609
Operating profit 879,453 2,595,790
Other income:
Cash discounts, net 1,051,192 1,329,294
Service charges 312,425 358,370
Miscellaneous 225,548 195,928
Total other income1,589,1651,883,592
Interest expense 515,539 687,174
Income before income taxes1,953,0793,792,208
Income taxes 741,3001,427,000
Net income $1,211,779 $2,365,208
Basic earnings per share $ .34 $ .65
Diluted earnings per share $ .34 $ .64
Cash dividends per share $ .08 $ .08
The accompanying notes are an integral part of the financial statements.
NOLAND COMPANY AND SUBSIDIARY
Unaudited Consolidated Statements of Cash Flows
Three Months
Ended March 31,
2001 | 2000 | |
CASH FLOWS FROM OPERATING ACTIVITIES: | ||
Net income | $1,211,779 | $2,365,208 |
Adjustments to reconcile net income to net cash (used in) operating activities: | ||
Depreciation and amortization | 2,030,486 | 2,111,020 |
Amortization of prepaid pension cost | (644,750) | (1,105,750) |
Provision for doubtful accounts | 339,995 | 337,042 |
Amortization of unearned compensation-restricted stock | 32,059 | 31,589 |
Change in operating assets and liabilities: | ||
Decrease (increase) in accounts receivable | 1,860,892 | (364,368) |
Decrease (increase) in inventory | 665,745 | (3,272,320) |
(Increase) in prepaid expenses | (155,007) | (76,996) |
Decrease (increase) in other assets | 82,944 | (10,303) |
(Decrease) in accounts payable | (3,708,838) | (1,937,322) |
(Decrease) in other accruals and liabilities | (2,618,976) | (4,392,829) |
Increase in federal and state income taxes | 238,361 | 675,418 |
Increase in accrued post retirement benefits | 63,329 | 54,996 |
Total adjustments | (1,813,760) | (7,949,823) |
Net cash (used in) operating activities | (601,981) | (5,584,615) |
CASH FLOWS FROM INVESTING ACTIVITIES: | ||
Capital expenditures | (1,305,049) | (1,661,738) |
Proceeds from sale of assets | 58,018 | 10,942 |
Net cash (used in) investing activities | (1,247,031) | (1,650,796) |
CASH FLOWS FROM FINANCING ACTIVITIES: | ||
Increase (decrease) in bank overdrafts | 1,241,061 | (996,575) |
Short-term borrowings - net | 9,275,000 | 10,050,000 |
Long-term debt (payments)- net | (7,770,220) | (261,944) |
Issue (purchase) deferred directors stock | 13,531 | (3,920) |
Retirement of common stock | (129,688) | (212,666) |
Dividends paid | (286,780) | (296,070) |
Purchase of restricted stock | - _ | (168,125) |
Net cash provided by financing activities | 2,342,904 | 8,110,700 |
CASH AND CASH EQUIVALENTS: | ||
Increase during first quarter | 493,892 | 875,289 |
Beginning of year | 3,349,283 | 2,528,131 |
End of first quarter | $3,843,175 | $3,403,420 |
The accompanying notes are an integral part of the financial statements.
NOLAND COMPANY AND SUBSIDIARY
Notes to Unaudited Consolidated Financial Statements
1. In the opinion of the Company, the accompanying unaudited 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, 2001, and its results of operations and cash flows for the three months ended March 31, 2001 and 2000. The balance sheet as of December 31, 2000 was derived from audited financial statements as of that date.
2. The Notes to Consolidated Financial Statements included in the Company's December 31, 2000 Annual Report on Form 10-K are an integral part of the interim unaudited 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 in flation/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.
3. Due to the seasonal nature of the construction industry supplied by the registrant, results of operations for the quarter ended March 31, 2001 are not necessarily indicative of the results for the full year.
4. Accounts Receivable as of March 31, 2001 and December 31, 2000 are net of allowance for doubtful accounts of $1,008,132. Quarterly bad debt charges, net of recoveries, were $266,966 for 2001 and $292,254 for 2000.
5. Diluted earnings per share is based on weighted-average shares of 3,581,583 and 3,693,764 for the periods ended March 31, 2001 and 2000, respectively. Basic earnings per share for the same periods are based on weighted-average shares outstanding of 3,549,783 and 3,654,997, respectively. The difference in shares is due to non-vested shares of restricted stock.
6. 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.
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 which 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.
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 $64.5 million and a current ratio of 2.1. Short-term borrowing provided much of the cash flow for the quarter. The increase in short-term debt of $9,275,000 since December 31, 2000 was used for capital expenditures, dividends and a reduction in long-term debt. In addition, the Company purchased on the open market, and retired, a total of 7,500 shares of its common stock. Since May 2000, 122,948 shares have been retired at a cost of $2,216,000. Management believes the Company has adequate financial resources to meet the needs of the foreseeable future.
Results of Operations
The first quarter of 2001 produced sales of $114,931,000 compared to $120,994,000 for the same quarter a year ago. First quarter 2000 sales were a record high for any first quarter. The 5% drop in sales reflects weaker construction and manufacturing conditions in much of the Company's territory. The slowing economy that reduced demand for products and services in the fourth quarter of 2000 worsened in the early part of 2001. Electrical/industrial sales, which are heavily dependent on manufacturing activity, fell 8.2%. Plumbing sales declined 5.6% while air conditioning sales were flat.
The Company's gross margins increased to 20.0% from 19.7%. The combination of lower sales and higher margins resulted in an $873,000 decline in gross profit.
Operating expenses increased 4% compared to first quarter 2000. The increase can be attributed to higher branch expenses and a decline in pension income. Pension income from the overfunded pension plan reduced operating expenses $645,000 compared to $1,106,000 a year ago. Other income is down 15.6% due to less cash discounts earned on less purchases. Interest expense declined by 25% due to lower rates and lower average borrowings.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Noland Company's market risk exposure from changes in interest rates and foreign currency are not material. The Company generally does not engage in foreign currency hedging or the use of derivatives. The Company's pension plan is overfunded, resulting in 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, discount rate, and other factors may cause the amount of pension income to increase or decrease from year-to-year.
PART II. OTHER INFORMATION
Item 1. None
Item 2. None
Item 3. None
Item 4. None
Item 5. None
Item 6. Exhibits and Reports on Form 8-K - None
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
May 2, 2001
Arthur P. Henderson, Jr.
Vice President-Finance
