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, 1998 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 20, 1998,
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 -
March 31, 1998 (Unaudited) and Dec. 31, 1997 (Audited).... 3
Unaudited Consolidated Statements of Income -
Three Months Ended March 31, 1998 and 1997................. 4
Unaudited Consolidated Statements of Retained Earnings -
Three Months Ended March 31, 1998 and 1997................ 5
Unaudited Consolidated Statements of Cash Flows -
Three Months Ended March 31, 1998 and 1997................ 6
Notes to Unaudited Consolidated Financial Statements......... 7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations..................... 8-9
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,
1998 1997
(Unaudited) (Audited)
Assets
Current Assets:
Cash and cash equivalents $ 5,585,483 $ 5,674,097
Accounts receivable, net 47,847,686 49,984,020
Inventory, net 68,354,153 66,470,051
Deferred income taxes 1,706,295 1,706,295
Prepaid expenses 391,293 184,912
Total Current Assets 123,884,910 124,019,375
Property and Equipment, at cost:
Land 13,380,753 13,384,253
Buildings 78,057,661 76,944,986
Equipment and fixtures 61,817,089 55,713,614
Property excess to current needs 1,876,351 1,872,851
Total 155,131,854 147,915,704
Less accumulated depreciation 70,174,971 68,491,485
Property and Equipment, net 84,956,883 79,424,219
Assets Held for Resale 1,240,864 1,240,864
Prepaid Pension 13,395,944 12,874,194
Other Assets 952,373 889,271
$224,430,974 $218,447,923
Liabilities and Stockholders' Equity
Current Liabilities:
Notes payable - short term borrowings $13,000,000 $ 5,750,000
Current maturity of long-term debt 3,645,778 $ 2,895,778
Book overdrafts 10,159,484 5,348,276
Accounts payable 20,643,200 21,029,521
Other accruals and liabilities 6,940,853 12,277,259
Federal and state income taxes 400,338 873,298
Total Current Liabilities 54,789,653 48,174,132
Long-term Debt 38,772,944 39,784,389
Deferred Income Taxes 8,806,830 8,806,830
Accrued Postretirement Benefits 979,835 915,709
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 84,235,024 83,875,284
Total 121,243,784 120,884,044
Less restricted stock 162,072 117,181
Stockholders' Equity 121,081,712 120,766,863
$224,430,974 $218,447,923
[FN]
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,
1998 1997
Merchandise sales $103,884,838 $110,929,637
Cost of goods sold:
Purchases and freight-in 85,218,369 90,494,378
Inventory, beginning 66,470,051 67,782,230
Inventory, ending (68,354,153) (69,630,325)
Cost of goods sold 83,334,267 88,646,283
Gross profit on sales 20,550,571 22,283,354
Operating expenses 20,480,710 21,982,956
Operating profit 69,861 300,398
Other income:
Cash discounts, net 1,352,181 1,102,566
Service charges 327,348 296,128
Miscellaneous 110,599 77,555
Total other income 1,790,128 1,476,249
Interest expense 808,678 754,416
Income before income taxes 1,051,311 1,022,231
Income taxes 395,500 384,700
Net income $ 655,811 $ 637,531
Basic earnings per share (based on
3,700,876 shares outstanding) $ .18 $ .17
Cash dividends per share $ .08 $ .08
[FN]
The accompanying notes are an integral part of the financial statements.
NOLAND COMPANY AND SUBSIDIARY
Unaudited Consolidated Statements of Retained Earnings
Three Months Ended
March 31,
1998 1997
Retained earnings, January 1 $83,875,284 $79,516,091
Add net income 655,811 637,531
Deduct cash dividends paid
($.08 per share) (296,071) (296,071)
Retained earnings, March 31 $84,235,024 $79,857,552
[FN]
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
1998 1997
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 655,811$ 637,531
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 1,919,993 1,684,203
Amortization of prepaid pension cost (521,750) (129,999)
Provision for doubtful accounts 384,042 365,216
Amortization of unearned compensation-restricted stock 13,278 16,862
Change in operating assets and liabilities:
Decrease in accounts receivable 1,752,292 265,172
(Increase) in inventory (1,884,102) (1,848,095)
(Increase) in prepaid expenses (206,381) (109,422)
(Increase) decrease in other assets (87,901) 245,304
Increase in bank overdrafts 4,811,208 1,717,056
(Decrease) increase in accounts payable (386,321) 6,081,190
(Decrease) in other accruals and liabilities (5,336,406) (6,381,742)
(Decrease) increase in federal and state income taxes (472,960) 357,950
Increase in accrued post retirement benefits 64,126 25,314
Total adjustments 49,118 2,289,009
Net cash provided by operating activities 704,929 2,926,540
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (7,440,455) (1,369,228)
Proceeds from sale of assets 12,597 1,042,037
Net cash used by investing activities (7,427,858) ( 327,191)
CASH FLOWS FROM FINANCING ACTIVITIES:
Short-term borrowings (payments)-net 7,250,000 (1,000,000)
Long-term debt (payments)-net (261,445) (3,220)
Dividends paid (296,071) (296,070)
Purchase of restricted stock (58,169) -
Net cash provided (used) by financing activities 6,634,315 (1,299,290)
CASH AND CASH EQUIVALENTS:
(Decrease) increase during first quarter (88,614) 1,300,059
Beginning of year 5,674,097 3,507,588
End of first quarter $5,585,483 $ 4,807,647
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the first quarter for:
Interest $ 800,011 $ 773,094
Income taxes $ 868,468 $ 26,750
[FN]
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,
1998, and its results of operations and cash flows for the
three months ended March 31, 1998 and 1997. The balance sheet
as of December 31, 1997 was derived from audited financial
statements as of that date. The results of operations for the
quarter ended March 31, 1998 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, 1997 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 March 31, 1998 and December 31, 1997
are net of allowance for doubtful accounts of $1,008,132.
Quarterly bad debt charges, net of recoveries, were $348,749
for 1998 and $295,330 for 1997.
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
Liquidity and Capital Resources
The Company maintains its short and long-term liquidity 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.
The Company's financial condition remains strong with working
capital of $69.1 million and a current ratio of 2.3. Total debt at
March 31, 1998 was $7.0 million more than at December 31, 1997. The
increase in debt was used to pay for capital expenditures and to
finance the pre-season purchase of air conditioning equipment.
Management believes the Company has adequate financial resources to
meet the needs of the foreseeable future.
Results of Operations
For the first quarter of 1998 the Company had net income of
$656,000, or 18 cents per share, compared to net income of $638,000
or 17 cents per share, for the first quarter of 1997. The improved
earnings came despite a weather-related sales decline that affected
all four product departments. First quarter sales totaled $103.9
million, six percent less than the $110.9 million total registered
in the year-earlier period.
The Company's gross margin of profit decreased from 20.1 percent to
19.8 percent. The gross margin of profit decreased for both
delivered and counter sales and increased for direct sales. The
decline can be attributed to competitive pricing conditions caused
primarily by a temporary surplus inventory condition among
distributors.
Operating expenses decreased $1.5 million, or 7 percent, compared
to the first quarter of 1997. A 7 percent reduction in the workforce
and lower sales-related costs contributed to the decline. A
reduction in pension costs of $392,000 also contributed to the
decline.
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.
Year 2000
The Company has completed an inventory and assessment of all
computer operating systems and active application programs. Year
2000 remediation for all internally-generated and purchased software
is expected to be completed by August 1999. There are also Year 2000
issues in a number of areas outside of the operating systems. These
include software in goods purchased for resale (inventory), security
systems, communications systems, mechanical equipment and software
used by integrated supply customers. The Company expects all
material issues in these areas to be identified by June 30, 1998,
and, if under its control, corrected no later than August 1999. The
Year 2000 issue and the cost of remediation is not expected to be
material to the Company's business, operations, or financial
condition.
PART II. OTHER INFORMATION
Item 1. None
Item 2. None
Item 3. None
Item 4. None
Item 5. None
Item 6. 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
April 22, 1998 Arthur P. Henderson, Jr.
Arthur P. Henderson, Jr.
Vice President-Finance