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 September 30, 1994 Commission file no. 2-27393
NOLAND COMPANY
A Virginia Corporation IRS Identification #54-0320170
2700 Warwick Boulevard
Newport News, Virginia 23607
Telephone: (804) 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 October 20, 1994
3,700,876 shares.
[FN]
This report contains 12 pages.
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NOLAND COMPANY AND SUBSIDIARY
INDEX
PAGE NO.
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets -
September 30, 1994 (Unaudited) and Dec. 31, 1993 (Audited).......3
Unaudited Consolidated Statements of Income -
Three Months and Nine Months Ended September 30, 1994 and 1993....4
Unaudited Consolidated Statements of Retained Earnings -
Nine Months Ended September 30, 1994 and 1993.....................5
Unaudited Consolidated Statements of Cash Flows -
Nine Months Ended September 30, 1994 and 1993.....................6
Notes to Unaudited Consolidated Financial Statements...............7-8
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations.........................9-10
PART II. OTHER INFORMATION
Items 1, 2, 3, 4, 5, and 6..........................................11
SIGNATURE.....................................................................12
<PAGE>
PART 1. FINANCIAL INFORMATION
NOLAND COMPANY AND SUBSIDIARY
Consolidated Balance Sheets
Item 1. Financial Statements
September 30, December 31,
1994 1993
(Unaudited) (Audited)
Assets
Current Assets:
Cash and cash equivalents $ 4,993,118 $ 2,191,153
Accounts receivable, net 51,275,895 46,829,595
Inventory, net 61,646,445 55,474,887
Deferred income taxes 1,763,065 1,763,065
Prepaid expenses 280,732 698,572
Total Current Assets 119,959,255 106,957,272
Property and Equipment, at cost:
Land 12,494,871 12,413,631
Buildings 63,236,956 62,006,032
Equipment and fixtures 47,697,842 46,097,163
Property excess to current needs 2,091,952 2,200,626
Total 125,521,621 122,717,452
Less accumulated depreciation 56,489,915 53,580,106
Property and Equipment, net 69,031,706 69,137,346
Assets Held for Resale 1,355,897 1,305,986
Prepaid Pension 12,005,599 11,705,599
Other Assets 1,357,587 2,273,348
$203,710,044 $191,379,551
Liabilities and Stockholders' Equity
Current Liabilities:
Notes payable, short-term borrowings $ 8,750,000 $ 7,000,000
Current maturity of long-term debt 2,105,000 1,980,000
Accounts payable 32,883,572 20,976,392
Employee compensation 3,812,389 3,972,603
Accruals and other liabilities 5,568,791 6,183,664
Federal and state income taxes 467,998 1,256,093
Total Current Liabilities 53,587,750 41,368,752
Long-term Debt 36,400,000 38,505,000
Deferred Income Taxes 8,403,742 8,403,742
Accrued Postretirement Benefits 180,612 505,517
Stockholders' Equity:
Capital common stock, par value $10;
authorized, 6,000,000 shares; issued,
3,880,888 shares 38,808,880 38,808,880
Retained earnings 66,959,842 64,323,410
Total 105,768,722 103,132,290
Less treasury stock, 180,012, at cost 535,750 535,750
Less unearned compensation-restricted stock 95,032 -
Stockholders' Equity 105,137,940 102,596,540
$203,710,044 $191,379,551
[FN]
The accompanying notes are an integral part of the financial statements.
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<TABLE>
<CAPTION>
NOLAND COMPANY AND SUBSIDIARY
Unaudited Consolidated Statements of Income
Three Months Ended Nine Months Ended
September 30, September 30,
1994 1993 1994 1993
<S> <C> <C> <C> <C>
Merchandise sales $116,981,688 $108,996,610 $329,964,410 $302,449,406
Cost of goods sold:
Purchases and freight-in 92,592,426 85,028,685 274,589,772 246,465,877
Inventory, beginning 64,122,742 54,573,322 55,474,886 50,865,543
Inventory, ending 61,646,444 50,748,289 61,646,444 50,748,289
Cost of goods sold 95,068,724 88,853,718 268,418,214 246,583,131
Gross profit on sales 21,912,964 20,142,892 61,546,196 55,866,275
Operating expenses 20,242,399 19,005,063 58,447,718 56,463,224
Operating profit (loss) 1,670,565 1,137,829 3,098,478 (596,949)
Other income:
Interest 18,141 33,003 69,767 90,694
Cash discounts, net 932,075 830,974 2,838,086 2,436,529
Service charges 333,080 313,038 925,464 933,106
Other gains (losses)
and recoveries - 33,172 (44,234) (386,288)
Miscellaneous 67,754 133,364 290,865 357,430
Total other income 1,351,050 1,343,581 4,079,948 3,431,471
Interest expense 666,164 594,161 1,884,436 1,831,584
Income before income taxes 2,355,451 1,887,249 5,293,990 1,002,938
Income taxes:
State 129,500 103,900 291,200 55,200
Federal 756,800 606,900 1,700,200 315,000
Total income taxes 886,300 710,800 1,991,400 370,200
Net income $ 1,469,151 $ 1,176,449 $3,302,590 $ 632,738
Earnings per share (based on
3,700,876 shares outstanding) $ .39 $ .32 $ .89 $ .17
Cash dividends per share $ .06 $ .06 $ .18 $ .18
</TABLE>
[FN]
The accompanying notes are an integral part of the financial statements.
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NOLAND COMPANY AND SUBSIDIARY
Unaudited Consolidated Statements of Retained Earnings
Nine Months Ended
September 30,
1994 1993
Retained earnings, January 1 $64,323,410 $61,916,132
Add net income 3,302,590 632,738
Deduct cash dividends paid
($.18 per share) (666,158) (666,157)
Retained earnings, September 30 $66,959,842 $61,882,713
[FN]
The accompanying notes are an integral part of the financial statements.
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<TABLE>
<CAPTION>
NOLAND COMPANY AND SUBSIDIARY
Unaudited Consolidated Statements of Cash Flows
Nine Months
Ended September 30,
1994 1993
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 3,302,590 $ 632,738
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 4,660,788 4,659,136
Amortization of prepaid pension cost (300,000) (540,000)
Amortization of unearned compensation-restricted stock 7,468 -
Provision for doubtful accounts 1,032,750 1,708,875
Deferred income taxes - (262,468)
Loss on sale of property 44,234 386,288
Change in operating assets and liabilities:
(Increase) in accounts receivable (5,479,050) (3,485,756)
(Increase) decrease in inventory (6,171,558) 117,254
Decrease in prepaid expenses 417,840 51,936
(Increase) decrease in assets held for resale (49,911) 52,175
Decrease in other assets 863,261 323,090
Increase in accounts payable 11,907,180 14,786,119
(Decrease) increase in employee compensation (160,214) 149,001
(Decrease) in accruals and other liabilities (614,873) (1,790,589)
(Decrease) in federal and state income taxes (788,095) (1,087,580)
(Decrease) increase in accrued postretirement benefits (324,905) 401,980
Total adjustments 5,044,915 15,469,462
Net cash provided by operating activities 8,347,505 16,102,200
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (4,922,287) (5,565,304)
Proceeds from sale of assets 375,405 803,395
Net cash used by investing activities (4,546,882) (4,761,909)
CASH FLOWS FROM FINANCING ACTIVITIES:
Short-term borrowings (payments) net 1,750,000 (3,500,000)
Long-term debt repayments (1,980,000) (2,112,358)
Dividends paid (666,158) (666,157)
Purchase of restricted stock (102,500) -
Net cash used by financing activities (998,658) (6,278,515)
CASH AND CASH EQUIVALENTS:
Increase during first nine months 2,801,965 5,061,776
Beginning of year 2,191,153 2,538,167
End of first nine months $4,993,118 $7,599,943
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the first nine months for:
Interest $1,859,016 $1,863,436
Income taxes $2,779,495 $1,720,248
</TABLE>
[FN]
The accompanying notes are an integral part of the financial statements.
<PAGE>
NOLAND COMPANY AND SUBSIDIARY
Notes to Unaudited Consolidated Financial Statements
1. In the opinion of the Company, the accompanying unaudited
consolidated statements of income contain all adjustments
(consisting of only normal recurring adjustments) necessary
to present fairly the results of operations for the nine
months ended September 30, 1994 and 1993.
2. The Notes to Consolidated Financial Statements included in
the Company's December 31, 1993 Annual Report on Form 10-K
are an integral part of the interim unaudited financial
statements and remain substantially unchanged. The Company
takes a physical inventory annually on December 31 of each
year. Interim period cost of goods sold is determined by
costing sales as follows: stock items at current acquisition
costs; direct shipments from manufacturers to customers at
identified cost. Elements of cost that are finally
determinable only at year-end have been considered by
management.
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 September 30, 1994 and 1993 are
net of allowance for doubtful accounts of $968,427 and
$2,206,442, respectively. Third-quarter bad debt charges,
net of recoveries, were $292,778 for 1994 and $486,930 for
1993. Year-to-date bad debt charges, net of recoveries,
were $788,584 for 1994 and $1,466,479 for 1993.
5. The dollar amount of Noland Company's backlog of orders
believed to be firm was approximately $35,868,787 at
September 30, 1994.
6. At the April 20, 1994 Annual Meeting of Stockholders,
the stockholders approved a restricted stock plan for
certain senior executives of the company.
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The plan covers in the aggregate 50,000 shares of common
stock and provides for annual grants to certain senior
executives of up to an aggregate of 10,000 shares of
restricted stock each year. Participants may not dispose or
otherwise transfer stock granted for three years from date
of grant.
Restrictions lapse at the rate of 20% of the grant each
anniversary date, beginning at the end of the third year.
5,000 shares of stock were acquired in the third quarter of
1994 at a cost of $102,500. This amount has been charged to
stockholders' equity and will be amortized to compensation
expense over a seven-year period.
<PAGE>
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
Liquidity and Capital Resources
The Company generates necessary cash through: (1) cash flow from
operations; (2) short-term borrowings; (3) bank lines of credit
arrangements, when needed; and (4) additional long-term debt.
For the first nine months of 1994, the Company generated $8.3
million in cash from operations, compared to $16.1 million for
the same period last year. The decrease from a year ago is
primarily due to an increase in inventory. Cash from all sources
increased $2.8 million for the first nine months compared to $5.1
million for the first nine months of 1993.
Management believes the Company's liquidity, capital resources
and working capital are sufficient to meet the needs of the
foreseeable future.
Results of Operations
Third-quarter sales of $117 million were 7.3 percent greater than
the $109 million for the year-earlier period, but the results for
individual product departments varied. Stronger demand by
manufacturing plants for the Company's maintenance, repair, and
operating (MRO) supplies led to double-digit sales gains over the
prior year for both the electrical and industrial departments.
The plumbing and heating department, which serves primarily the
construction industry, achieved a five percent sales increase,
while air conditioning department sales were virtually flat due
to unusually mild late-summer weather.
The gross margin of profit was slightly higher than that of the
year-earlier period, and operating expenses rose by only 6.5
percent. This combination, coupled with the higher sales, led to
a 46.8 percent increase in operating profit for the quarter, from
$1.1 million in 1993 to $1.7 million for the period just ended.
Interest expense was up by 12.1 percent, due to higher interest
rates and increased inventories. Total borrowings as of
September 30 were $6.8 million more than one year earlier but
$230,000 less than December 31, 1993.
Third-quarter net income of $1.5 million, or 39 cents per share
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was 24.9 percent greater than 1993's third-quarter earnings of
$1.2 million, or 32 cents per share; it was also the highest
third-quarter net income since 1988.
At the end of nine months, sales were 9.1 percent greater than a
year ago, at $330 million. Net income totaled $3.3 million, or
89 cents per share, compared to $633,000 or 17 cents per share
for the first three quarters of 1993.
As the Company entered the final months of 1994, rising mortgage
rates were having a dampening effect on single-family housing
starts, which could reduce demand for the Company's products.
However, multi-family construction is rebounding in many markets,
and factory production continues to expand. As long as inflation
remains in check, the overall demand for our products and
services should provide us with ample sales opportunities in the
fourth quarter.
Helping sales prospects in the final two months of the year will
be a new Hanover, Pa., branch, which opens for business October
31 following the acquisition of the principal assets of an
established plumbing and air conditioning supply house in that
community. The new Hanover branch is the Company's first
location in the state of Pennsylvania.
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PART II. OTHER INFORMATION
Item 1. None
Item 2. None
Item 3. None
Item 4. None
Item 5. None
Item 6. None
<PAGE>
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
October 26, 1994 Arthur P. Henderson, Jr.
Arthur P. Henderson, Jr.
Vice President-Finance
