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, 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 July 21, 2000,
3,618,960 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, 2000 (Unaudited) and Dec. 31, 1999 (Audited).... 3
Unaudited Consolidated Statements of Income -
Three Months and Six Months Ended June 30, 2000 and 1999.. 4
Unaudited Consolidated Statements of Cash Flows -
Six Months Ended June 30, 2000 and 1999.................. 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
June 30, December 31,
2000 1999
(Unaudited) (Audited)
Assets
Current Assets:
Cash and cash equivalents $ 4,573,339 $ 2,528,131
Accounts receivable, net 61,812,769 55,704,292
Inventory, net 64,834,045 69,839,568
Deferred income taxes 1,146,509 1,146,509
Prepaid expenses 236,625 235,593
Total Current Assets 132,603,287 129,454,093
Property and Equipment, at cost:
Land 13,360,706 13,406,704
Buildings 85,059,568 83,413,913
Equipment and fixtures 63,681,789 64,620,605
Property in excess of current needs 1,652,738 1,699,140
Total 163,754,801 163,140,362
Less accumulated depreciation 81,597,807 79,599,165
Property and Equipment, net 82,156,994 83,541,197
Assets Held for Resale 1,021,492 1,021,492
Prepaid Pension 20,829,468 18,617,968
Other Assets 925,362 984,505
$237,536,603 $233,619,255
Liabilities and Stockholders' Equity
Current Liabilities:
Notes payable - short term borrowings $ 11,500,000 $ 7,800,000
Current maturity of long-term debt 4,497,775 4,397,775
Book overdrafts 10,675,635 8,402,769
Accounts payable 26,639,626 26,895,562
Other accruals and liabilities 9,993,683 13,177,386
Federal and state income taxes 967,470 1,028,722
Total Current Liabilities 64,274,189 61,702,214
Long-term Debt 25,540,984 28,014,872
Deferred Income Taxes 10,196,539 10,196,539
Accrued Postretirement Benefits 1,665,063 1,543,437
Stockholders' Equity:
Capital common stock, par value $10;
authorized, 6,000,000 shares; issued,
3,667,960 and 3,700,876 shares 36,679,600 37,008,760
Retained earnings 99,618,880 95,523,652
Total 136,298,480 132,532,412
Less restricted stock 438,652 370,219
Stockholders' Equity 135,859,828 132,162,193
$237,536,603 $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 Six Months Ended
June 30, June 30,
2000 1999 2000 1999
Merchandise Sales $129,130,785 $125,137,345 $250,124,936 $239,387,785
Cost of goods sold:
Purchases and freight-in 96,152,852 103,884,796 196,543,924 191,411,459
Inventory, beginning 73,111,888 65,507,284 69,839,568 70,570,288
Inventory, ending 64,834,045 68,354,182 64,834,045 68,354,182
Cost of goods sold 104,430,695 101,037,898 201,549,447 193,627,565
Gross profits on sales 24,700,090 24,099,447 48,575,489 45,760,220
Operating expenses 21,959,374 22,180,026 43,238,983 43,618,505
Operating profit 2,740,716 1,919,421 5,336,506 2,141,715
Other income:
Cash discounts, net 1,137,144 1,248,657 2,466,438 2,504,211
Service charges 307,179 304,167 665,550 732,367
Miscellaneous 674,741 213,881 870,668 392,928
Total other income 2,119,064 1,766,705 4,002,656 3,629,506
Interest expense 749,111 739,934 1,436,285 1,506,912
Income before income taxes 4,110,669 2,946,152 7,902,877 4,264,309
Income taxes 1,546,900 1,108,700 2,973,900 1,604,700
Net income $2,563,769 $1,837,452 $ 4,928,977 $ 2,659,609
Earnings per share:
Basic $ .70 $ .50 $ 1.35 $ .72
Diluted $ .69 $ .50 $ 1.34 $ .72
Average shares outstanding:
Basic 3,658,475 3,676,454 3,658,475 3,676,454
Diluted 3,689,580 3,700,876 3,689,580 3,700,876
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 Cash Flows
Six Months
Ended June 30
2000 1999
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 4,928,977 $ 2,659,609
Adjustments to reconcile net income to net cash (used in)
provided by operating activities:
Depreciation and amortization 4,179,487 4,302,541
Amortization of prepaid pension cost (2,211,500) (1,550,000)
Provision for doubtful accounts 667,054 648,721
Amortization of unearned compensation-restricted stock 69,434 59,595
Gain on sale of property (442,879) -
Change in operating assets and liabilities:
(Increase) in accounts receivable (6,775,531) (3,156,868)
Decrease in inventory 5,005,523 2,216,106
(Increase) in prepaid expenses (1,032) (6,134)
(Increase) decrease in other assets (10,291) 38,756
(Decrease) increase in accounts payable (255,936) (4(323,646)
(Decrease) in other accruals and liabilities (3,183,703) (1,115,462)
(Decrease) increase in federal and state income taxes(61,525) 568,572
Increase in accrued post retirement benefits 121,626 152,817
Total adjustments (2,899,000) 6,482,290
Net cash provided by operating activities 2,029,977 9,141,899
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (3,004,657) (3,208,095)
Proceeds from sale of assets 721,687 74,036
Net cash used in investing activities (2,282,970) (3,134,059)
CASH FLOWS FROM FINANCING ACTIVITIES:
Increase (decrease) in bank overdrafts 2,272,866 (1,726,343)
Short-term borrowings - net 3,700,000 11,100,000
Long-term debt repayments - net (2,373,888)(13,658,372)
Purchase and retirement of common stock (576,320) -
Dividends paid (592,140) (592,140)
Purchase of restricted stock (132,317) (175,131)
Net cash provided by (used in) financing
activities 2,298,201 (5,501,986)
CASH AND CASH EQUIVALENTS:
Increase during first quarter 2,045,208 955,854
Beginning of year 2,528,131 3,318,526
End of first quarter $ 4,573,339 $ 4,274,380
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,
2000, and its results of operations and cash flows for the
three months ended June 30, 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 June 30, 2000 are not necessarily indicative
of the results for the full year.
4. Accounts Receivable as of June 30, 2000 and December 31,
1999 are net of allowance for doubtful accounts of
$1,008,132. Quarterly bad debt charges, net of recoveries,
were $260,751 for 2000 and $278,764 for 1999. Year-to-date
bad debt charges, net of recoveries, were $553,005 for 2000
and $545,157 for 1999.
5. The Company recognizes revenue from product sales when goods
are received by the customer.
6. Diluted earning per share is based on 3,689,580 and
3,700,876 shares outstanding for the periods ended June 30,
2000 and 1999, respectively. Basic earnings per share for
the same periods is based on 3,658,475 and 3,676,454 shares
respectively. The difference in shares is due to non-vested
shares of restricted stock.
7. 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 30, 2000. The Company believes
that it has no derivative instruments or hedging activities.
Securities and Exchange Commission Staff Accounting Bulletin
(SAB) 101 "Revenue Recognition in Financial Statements" as
amended by SAB 101B, must be adopted no later than the
fourth quarter of year 2000. Adoption of SAB 101 is not
expected to have a material affect on the recognition,
presentation, and disclosure of revenues.
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 $68.3 million and a current ratio of 2.06. During the
quarter, the Company purchased on the open market, and retired, a
total of 21,200 shares of its common stock, bringing the total
shares retired to 32,916. Shares are being acquired in
accordance with a plan approved by the Board of Directors to
acquire up to 250,000 shares on the open market. Cash flow from
operations was $2 million for the first six months compared to
$9.1 million for the same period last year. The decrease can be
attributed to lower accounts payable and other
accruals/liabilities. Management believes the Company has
adequate financial resources to meet the needs of the foreseeable
future.
Results of Operations
Second-quarter sales of $129.1 million were a record high and 3.2
percent more than the $125.1 million total for 1999's second
quarter. Plumbing sales rose 7 percent as we continued to
benefit from strenght in the residential and commercial
construction markets. Air conditioning sales, which depend
greatly upon demand for replacement equipment, were flat.
Electrical/industrial sales declined 3 percent. Sales for the
first six months of 2000 were $250.1 million, 4.5 percent greater
than the $239.4 million total for the year-earlier period.
The gross margin of profit declined in the second quarter from
19.3 percent in second quarter 1999 to 19.1 percent for this
year, largely due to intense competition for commercial
construction jobs. Operating expenses were down 1 percent in
part to last year's closing of six branches. For the first six
months, gross margins increased from 19.1 percent to 19.4 percent
and operating expenses declined slightly. Operating expenses for
the quarter and first six months benefitted from pension income,
generated by the Company's overfunded pension plan of $1,106,000
and $2,212,000 compared to $925,000 and $1,550,000 for the same
periods a year ago.
Other income for the quarter and first six months benefitted from
a gain of $442,000 on the sale od a corporate aircraft.
Interest expense for the quarter increased1.2 percent due to
higher rates. For the first six months, interest expense
declined 4.7 percent due to lower debt. Borrowed debt at Jume
30, 2000 was $10.7 million less than a year ago.
The results for the first six months were satisfying, but we are
concerned about a weakening in construction activity in many of
our markets. There is no doubt the economy is slowing down,
which presents a real challenge to our efforts to sustain sales
growth in the second half, but we remain confident that we will
compete effectively for the available business.
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) 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
August 4,2000 Arthur P. Henderson, Jr.
Arthur P. Henderson, Jr.
Vice President-Finance