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, 2000 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, 2000,
3,688,605 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, 2000 (Unaudited) and Dec. 31, 1999 (Audited).... 3
Unaudited Consolidated Statements of Income -
Three Months Ended March 31, 2000 and 1999................. 4
Unaudited Consolidated Statements of Retained Earnings -
Three Months Ended March 31, 2000 and 1999................ 5
Unaudited Consolidated Statements of Cash Flows -
Three Months Ended March 31, 2000 and 1999................ 6
Notes to Unaudited Consolidated Financial Statements......... 7-8
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations...................... 8-9
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,
2000 1999
(Unaudited) (Audited)
Assets
Current Assets:
Cash and cash equivalents $ 3,403,420 $ 2,528,131
Accounts receivable, net 55,731,618 55,704,292
Inventory, net 73,111,888 69,839,568
Deferred income taxes 1,146,509 1,146,509
Prepaid expenses 312,589 235,593
Total Current Assets 133,706,024 129,454,093
Property and Equipment, at cost:
Land 13,314,245 13,406,704
Buildings 84,045,944 83,413,913
Equipment and fixtures 65,262,322 64,620,605
Property in excess of current needs 1,699,140 1,699,140
Total 164,321,651 163,140,362
Less accumulated depreciation 81,209,089 79,599,165
Property and Equipment, net 83,112,562 83,541,197
Assets Held for Resale 1,021,492 1,021,492
Prepaid Pension 19,723,718 18,617,968
Other Assets 963,219 984,505
$238,527,015 $233,619,255
Liabilities and Stockholders' Equity
Current Liabilities:
Notes payable - short term borrowings $ 17,850,000 $ 7,800,000
Current maturity of long-term debt 4,397,775 4,397,775
Book overdrafts 7,406,194 8,402,769
Accounts payable 24,958,240 26,895,562
Other accruals and liabilities 8,784,557 13,177,386
Federal and state income taxes 1,704,140 1,028,722
Total Current Liabilities 65,100,906 61,702,214
Long-term Debt 27,752,928 28,014,872
Deferred Income Taxes 10,196,539 10,196,539
Accrued Postretirement Benefits 1,598,433 1,543,437
Stockholders' Equity:
Capital common stock, par value $10;
authorized, 6,000,000 shares; issued,
3,688,605 and 3,700,876 shares 36,886,050 37,008,760
Retained earnings 97,502,834 95,523,652
Total 134,388,884 132,532,412
Less restricted stock 510,675 370,219
Stockholders' Equity 133,878,209 132,162,193
$238,527,015 $233,619,255
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,
2000 1999
Merchandise sales $120,994,151 $114,250,440
Cost of goods sold:
Purchases and freight-in 100,391,072 87,526,662
Inventory, beginning 69,839,568 70,570,288
Inventory, ending (73,111,888) (65,507,284)
Cost of goods sold 97,118,752 92,589,666
Gross profit on sales 23,875,399 21,660,774
Operating expenses 21,279,609 21,438,480
Operating profit 2,595,790 222,294
Other income:
Cash discounts, net 1,329,294 1,255,553
Service charges 358,370 428,199
Miscellaneous 195,928 179,049
Total other income 1,883,592 1,862,801
Interest expense 687,174 766,938
Income before income taxes 3,792,208 1,318,157
Income taxes 1,427,000 496,000
Net income $2,365,208 $ 822,157
Basic earnings per share $ .65 $ .22
Diluted earnings per share $ .64 $ .22
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 Retained Earnings
Three Months Ended
March 31,
2000 1999
Retained earnings, January 1 $95,523,652 $88,560,575
Add net income 2,365,208 822,157
Less cost of retired stock in excess of par (89,956) -
Deduct cash dividends paid
($.08 per share) (296,070) (296,070)
Retained earnings, March 31 $97,502,834 $89,086,662
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
2000 1999
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 2,365,208 $ 822,157
Adjustments to reconcile net income to net cash (used in)
provided by operating activities:
Depreciation and amortization 2,111,020 2,166,131
Amortization of prepaid pension cost (1,105,750) (625,000)
Provision for doubtful accounts 337,042 319,890
Amortization of unearned
compensation-restricted stock 31,589 25,459
Change in operating assets and liabilities:
(Increase) decrease in accounts receivable (364,368) 539,782
(Increase) decrease in inventory (3,272,320) 5,063,004
(Increase) in prepaid expenses (76,996) (97,796)
(Increase) in other assets (10,303) (25,996)
(Decrease) in accounts payable (1,937,322) (101,625)
(Decrease) in other accruals and liabilities (4,392,829) (2,690,828)
Increase in federal and state income taxes 675,418 380,359
Increase in accrued post retirement benefits 54,996 75,969
Total adjustments (7,949,823) 5,029,349
Net cash (used in) provided
by operating activities (5,584,615) 5,851,506
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (1,661,738) (1,475,931)
Proceeds from sale of assets 10,942 25,606
Net cash used in investing activities (1,650,796) (1,450,325)
CASH FLOWS FROM FINANCING ACTIVITIES:
(Decrease) in bank overdrafts (996,575) (4,069,386)
Short-term borrowings - net 10,050,000 12,500,000
Long-term debt (payments)- net (261,944) (11,546,687)
Purchase of deferred directors stock (3,920) -
Retirement of common stock (212,666) -
Dividends paid (296,070) (296,070)
Purchase of restricted stock (168,125) (175,191)
Net cash provided by (used in)
financing activities 8,110,700 (3,587,334)
CASH AND CASH EQUIVALENTS:
Increase during first quarter 875,289 813,847
Beginning of year 2,528,131 3,318,526
End of first quarter $ 3,403,420 $ 4,132,373
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,
2000, and its results of operations and cash flows for the
three months ended March 31, 2000 and 1999. The balance sheet
as of December 31, 1999 was derived from audited financial
statements as of that date.
2. The Notes to Consolidated Financial Statements included in the
Company's December 31, 1999 Annual Report on Form 10-K are an
integral part of the interim unaudited financial statements.
The Company takes a physical inventory annually near 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 other inventory year-end adjustments 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, results of operations for the
quarter ended March 31, 2000 are not necessarily indicative of
the results for the full year.
4. Accounts Receivable as of March 31, 2000 and December 31, 1999
are net of allowance for doubtful accounts of $1,008,132.
Quarterly bad debt charges, net of recoveries, were $292,254
for 2000 and $266,393 for 1999.
5. Diluted earning per share is based on a weighted average of
3,693,764 shares in 2000 and 3,700,876 shares in 1999. The
Company purchased and retired 12,271 shares of its common stock
during the first quarter of 2000 reducing the number of shares
outstanding. Basic earnings per share for the periods ended
March 31, 2000 and 1999 is based on 3,654,997 and 3,672,976
shares, respectively. The difference in shares is due to non-
vested shares of restricted stock.
6. Statements of Financial Accounting Standards ("SFAS") No.133
"Accounting for Derivative Instruments and Hedging Activities",
as amended, by SFAS No. 137 is effective for periods beginning
after June 15, 2000. The Company believes that it has no
derivative instruments or hedging activities.
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 $68.6 million and a current ratio of 2.0. Short-term debt
increased $10,050,000 since December 31, 1999 to pay for higher
inventory levels caused by forward buys in advance of price
increases and/or pre-season concessions. However, average borrowings
for the quarter were approximately $11 million less than a year-ago.
During the quarter, the Company purchased on the open market, and
retired, a total of 12,271 shares of its common stock. These shares
will be used, in part, to meet the obligations of the 1999 Outside
Directors Stock Plan. On April 20, 2000 the Board Of Directors
approved a plan to acquire up to an additonal 237,729 shares on the
open market.
Results of Operations
The first quarter of 2000 produced the highest first-quarter sales
and net income in the Company's history. Net income increased 188%
from $822,000 to $2,365,000, while first quarter sales increased 6%.
First quarter sales totaled $121.0 million, compared to $114.3
million for the year-earlier period. Plumbing sales rose 10%, while
air conditioning sales were up 3%. Electrical/industrial sales were
down by 3%.
The Company's gross margins increased from 19.0% to 19.7, in part,
through better buying. The combination of higher sales and margins
resulted in a $2.2 million increase in gross profit.
Operating expenses decreased slightly compared to first quarter
1999. The decrease can be attributed to six fewer branches than a
year-ago and an increase in pension income. Pension income from the
overfunded pension plan reduced operating expenses $1,106,000
compared to $625,000 a year ago. Other income was flat and interest
expense declined by 10.4% due to the previously mentioned decline
in average borrowings.
Year 2000
Noland Company has not experienced any disruption to its business
due to Year 2000 issues. All programs and modules, tested and
migrated into production before January 1, 2000, have worked without
interruption.
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.
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
(a) Exhibits
27 - Financial Data Schedule (SEC use only)
(b) A Form 8-K was filed on Friday, April 21, 2000 to
announce the authorization of the Board of Directors
to repurchase up to 250,000 shares of the Company's
stock on the open market.
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 27, 2000 Arthur P. Henderson, Jr.
Arthur P. Henderson, Jr.
Vice President-Finance