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 June 30, 1997 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 July 16, 1997,
3,700,876 shares.
This report contains 11 pages.
NOLAND COMPANY AND SUBSIDIARY
INDEX
PAGE NO.
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets -
June 30, 1997 (Unaudited) and Dec. 31, 1996 (Audited).... 3
Unaudited Consolidated Statements of Income -
Three Months and Six Months Ended June 30, 1997 and 1996.. 4
Unaudited Consolidated Statements of Retained Earnings -
Six Months Ended June 30, 1997 and 1996.................. 5
Unaudited Consolidated Statements of Cash Flows -
Six Months Ended June 30, 1997 and 1996.................. 6
Notes to Unaudited Consolidated Financial Statements........ 7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations.................. 8
PART II. OTHER INFORMATION
Items 1, 2, 3, 4, 5, and 6................................. 10
SIGNATURE ........................................................... 11
PART 1. FINANCIAL INFORMATION
NOLAND COMPANY AND SUBSIDIARY
Consolidated Balance Sheets
Item 1. Financial Statements
June 30, December 31,
1997 1996
(Unaudited) (Audited)
Assets
Current Assets:
Cash and cash equivalents $ 5,390,370 $ 3,507,588
Accounts receivable, net 51,919,814 52,866,928
Inventory, net 71,200,735 67,782,230
Deferred income taxes 2,182,606 2,182,606
Prepaid expenses 310,955 389,524
Total Current Assets 131,004,480 126,728,876
Property and Equipment, at cost:
Land 13,295,368 13,026,030
Buildings 76,077,621 74,530,963
Equipment and fixtures 53,311,336 54,654,300
Property excess to current needs 2,054,040 2,054,040
Total 144,738,365 144,265,333
Less accumulated depreciation 65,860,123 65,367,803
Property and Equipment, net 78,878,242 78,897,530
Assets Held for Resale 1,240,864 1,290,775
Prepaid Pension 12,483,002 12,223,004
Other Assets 571,227 744,498
$224,177,815 $219,884,683
Liabilities and Stockholders' Equity
Current Liabilities:
Notes payable - short term borrowings $ 6,000,000 $ 6,000,000
Current maturity of long-term debt 1,894,880 3,227,880
Book overdrafts 13,845,440 6,337,972
Accounts payable 23,736,183 19,199,304
Other accruals and liabilities 8,696,208 14,096,550
Federal and state income taxes 374,311 487,650
Total Current Liabilities 54,547,022 49,349,356
Long-term Debt 43,307,726 45,038,833
Deferred Income Taxes 8,544,103 8,544,103
Accrued Postretirement Benefits 752,395 660,275
Stockholders' Equity:
Capital common stock, par value $10;
authorized, 6,000,000 shares; issued,
3,700,876 shares 37,008,760 37,008,760
Retained earnings 80,216,821 79,516,091
Total 117,225,581 116,524,851
Less restricted stock 199,012 232,735
Stockholders' Equity 117,026,569 116,292,116
$224,177,815 $219,884,683
The accompanying notes are an integral part of the financial statements.
NOLAND COMPANY AND SUBSIDIARY
Unaudited Consolidated Statements of Income
Three Months Ended Six Months Ended
June 30, June 30,
1997 1996 1997 1996
Merchandise sales $117,719,051 $124,574,466 $228,648,688 $230,814,263
Cost of goods sold:
Purchases and freight-in 96,497,246 102,313,216 186,991,624 191,224,379
Inventory, beginning 69,630,325 61,373,232 67,782,230 58,072,334
Inventory, ending (71,200,735) (62,879,086) (71,200,735) (62,879,086)
Cost of goods sold 94,926,836 100,807,362 183,573,119 186,417,627
Gross profit on sales 22,792,215 23,767,104 45,075,569 44,396,636
Operating expenses 22,587,672 21,299,435 44,570,628 41,908,564
Operating profit 204,543 2,467,669 504,941 2,488,072
Other income:
Cash discounts, net 1,107,672 1,169,723 2,210,238 2,243,163
Service charges 284,082 381,034 580,210 765,584
Other gains
and recoveries - 4,499 - 4,499
Miscellaneous 270,609 90,898 348,164 141,461
Total other income 1,662,363 1,646,154 3,138,612 3,154,707
Interest expense 816,268 706,597 1,570,684 1,391,384
Income before income taxes 1,050,638 3,407,226 2,072,869 4,251,395
Income taxes:
State 57,700 187,300 114,000 233,700
Federal 337,600 1,094,800 666,000 1,366,000
Total income taxes 395,300 1,282,100 780,000 1,599,700
Net income $ 655,338 $ 2,125,126 $ 1,292,869 $ 2,651,695
Earnings per share (based on
3,700,876 shares outstanding)$ .18 $ .58 $ .35 $ .72
Cash dividends per share $ .08 $ .08 $ .16 $ .16
The accompanying notes are an integral part of the financial statements.
NOLAND COMPANY AND SUBSIDIARY
Unaudited Consolidated Statements of Retained Earnings
Six Months Ended
June 30,
1997 1996
Retained earnings, January 1 $79,516,091 $74,836,888
Add net income 1,292,869 2,651,695
Deduct cash dividends paid
($.16 per share) (592,139) (592,140)
Retained earnings, June 30 $80,216,821 $76,896,443
The accompanying notes are an integral part of the financial statements.
NOLAND COMPANY AND SUBSIDIARY
Unaudited Consolidated Statements of Cash Flows
Six Months
Ended June 30
1997 1996
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 1,292,869 $ 2,651,696
Adjustments to reconcile net income to net cash
provided (used) by operating activities:
Depreciation and amortization 3,370,644 3,336,925
Amortization of prepaid pension cost (259,998) (115,750)
Provision for doubtful accounts 734,529 664,250
Amortization of unearned compensation-restricted stock 33,723 19,416
Gain on sale of property - (4,499)
Change in operating assets and liabilities:
Decrease (increase) in accounts receivable 212,585 (4,575,160)
(Increase) in inventory (3,418,505) (4,806,751)
Decrease (increase) in prepaid expenses 78,569 (30,373)
Decrease in assets held for resale 49,911 -
Decrease in other assets 136,459 57,521
Increase (decrease) in bank overdrafts 7,507,468 (565,138)
Increase in accounts payable 4,536,879 6,430,109
(Decrease) in other accruals and liabilities (5,400,342) (4,433,379)
(Decrease) increase in federal and state income taxes (113,339) 1,057,927
Increase in accrued post retirement benefits 92,120 134,576
Total adjustments 7,560,703 (2,830,326)
Net cash provided (used) by operating activities 8,853,572 (178,630)
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (5,125,150) (5,863,620)
Proceeds from sale of assets 1,810,606 477,763
Net cash used by investing activities (3,314,544) (5,385,857)
CASH FLOWS FROM FINANCING ACTIVITIES:
Long-term debt repayments (10,724,107) (173,053)
Long-term debt borrowings 7,660,000 -
Dividends paid (592,139) (592,141)
Net cash used by financing activities (3,656,246) (765,194)
CASH AND CASH EQUIVALENTS:
Increase (decrease) during first six months 1,882,782 (6,329,681)
Beginning of year 3,507,588 12,577,642
End of first six months $5,390,370 $6,247,961
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the first six months for:
Interest $1,567,730 $1,403,696
Income taxes $ 893,339 $ 541,773
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 June 30, 1997,
and its results of operations and cash flows for the three and
six months ended June 30, 1997 and 1996. The balance sheet as
of December 31, 1996, was derived from audited financial
statements as of that date. The results of operations for the
quarter ended June 30, 1997, are not necessarily indicative of
the results to be expected for the full year.
2. The Notes to Consolidated Financial Statements included in the
Company's December 31, 1996 Annual Report on Form 10-K are an
integral part of the interim unaudited financial statements.
The Company takes a physical inventory annually on December 31
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 and such estimates at interim may not be
consistent with year-end results. 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, interim results of operations of
each period are not necessarily indicative of earnings for the
year.
4. Accounts Receivable as of June 30, 1997 and December 31, 1996
are net of an allowance for doubtful accounts of $1,008,132.
Second quarter bad debt charges, net of recoveries, were
$346,752 for 1997 and $269,577 for 1996. Year-to-date bad
debt charges, net of recoveries, were $642,082 for 1997 and
$566,847 for 1996.
5. Statement of Financial Accounting Standards No. 128 "Earnings
Per Share" is effective for periods ending after December 15,
1997. Early application is not permitted. Adoption of SFAS NO.
128 will not be material to the financial condition or results
of operations of the Company. Statements of Financial
Accounting Standards No. 130 "Reporting Comprehensive Income"
and No. 131 "Disclosures about Segments of an Enterprise and
Related Information" are effective for periods beginning after
December 15, 1997. Earlier application is permitted.
Adoption of SFAS NO. 130 and 131 will not have a material
effect on the financial condition or results of operations of
the Company.
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
Liquidity and Capital Resources
The Company generally generates its cash needs through: (1) cash
flow from operations; (2) short-term borrowings, (3) bank lines of
credit arrangements, when needed; and (4) additional long-term debt,
when needed.
For the first six months of 1997, the Company generated $8.9 million
in cash from operations which was used primarily to purchase
property and equipment, pay dividends and retire debt. The
Company's financial condition remains strong with working capital
of $76.5 million and a current ratio of 2.4. Management believes
the Company has adequate financial resources to meet the needs of
the foreseeable future.
Results of Operations
Second-quarter sales of $117.7 million were 5.5 percent less than
the $124.6 million recorded in the second quarter of 1996. The
unusually cool spring reduced demand for replacement air
conditioning equipment leading to a 13 percent drop in air
conditioning sales. In addition the full benefits of the nine new
branches added through acquisition in the second half of 1996 have
not yet been realized. Sales for the first six months of 1997 were
$228.6 million compared to $230.8 million for the year-earlier
period.
The gross margin of profit for the second quarter increased to 19.4
percent compared to the year-earlier period's 19.1 percent, but was
offset by the sales decline, resulting in a decline in operating
profit to $205,000 from $2.5 million a year-ago. Operating expenses
for the quarter of $22.6 million were six percent higher than the
$21.3 million for the year-earlier period. For the first six
months, operating expenses were up 6.4 percent over the same period
a year ago. The nine new branches contributed to the increase in
operating expenses.
Interest expense for the quarter and year-to-date increased 15.5
percent and 12.9 percent, respectively. The increases are largely
due to higher average daily borrowings required to finance the new
operations' inventories.
With the arrival of hot summer weather, the Company should see a
rebound in air conditioning sales in the third quarter. Meanwhile,
the Company is focusing its energies on overcoming obstacles to
sales growth in underperforming branches, including newer
operations. The Company has every reason to believe it can improve
on the second quarter's sales performance, but first-half
performance makes it unlikely that sales and profit targets for the
year will be achieved.
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.
PART II. OTHER INFORMATION
Item 1. None
Item 2. None
Item 3. None
Item 4. None
Item 5. None
Item 6. None
SIGNATURE
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
July 22, 1997 Arthur P. Henderson, Jr.
Arthur P. Henderson, Jr.
Vice President-Finance