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, 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 October 27, 1997
3,700,876 shares.
This report contains 11 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, 1997 (Unaudited) and Dec. 31, 1996 (Audited)........3
Unaudited Consolidated Statements of Income -
Three Months and Nine Months Ended September 30, 1997 and 1996....4
Unaudited Consolidated Statements of Retained Earnings -
Nine Months Ended September 30, 1997 and 1996.....................5
Unaudited Consolidated Statements of Cash Flows -
Nine Months Ended September 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..........................8-9
PART II. OTHER INFORMATION
Items 1, 2, 3, 4, 5, and 6..........................................10
SIGNATURE....................................................................11
<PAGE>
PART 1. FINANCIAL INFORMATION
NOLAND COMPANY AND SUBSIDIARY
Consolidated Balance Sheets
Item 1. Financial Statements
September 30, December 31,
1997 1996
(Unaudited) (Audited)
Assets
Current Assets:
Cash and cash equivalents $ 5,588,745 $ 3,507,588
Accounts receivable, net 51,876,891 52,866,928
Inventory, net 67,437,708 67,782,230
Deferred income taxes 2,182,606 2,182,606
Prepaid expenses 127,252 389,524
Total Current Assets 127,213,202 126,728,876
Property and Equipment, at cost:
Land 13,478,016 13,026,030
Buildings 76,553,668 74,530,963
Equipment and fixtures 54,544,372 54,654,300
Property excess to current needs 1,872,851 2,054,040
Total 146,448,907 144,265,333
Less accumulated depreciation 67,363,939 65,367,803
Property and Equipment, net 79,084,968 78,897,530
Assets Held for Resale 1,240,863 1,290,775
Prepaid Pension 12,613,001 12,223,004
Other Assets 557,788 744,498
$220,709,822 $219,884,683
Liabilities and Stockholders' Equity
Current Liabilities:
Notes payable, short-term borrowing $ 1,000,000 $ 6,000,000
Current maturity of long-term debt 1,894,880 3,227,880
Book overdrafts 11,662,931 6,337,972
Accounts payable 25,247,829 19,199,304
Other accruals and liabilities 10,069,124 14,096,550
Federal and state income taxes 433,687 487,650
Total Current Liabilities 50,308,451 49,349,356
Long-term Debt 43,296,506 45,038,833
Deferred Income Taxes 8,544,103 8,544,103
Accrued Postretirement Benefits 832,818 660,275
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 80,901,335 79,516,091
Total 117,910,095 116,524,851
Less unearned compensation-restricted stock 182,151 232,735
Stockholders' Equity 117,727,944 116,292,116
$220,709,822 $219,884,683
The accompanying notes are an integral part of the financial statements.
<PAGE>
NOLAND COMPANY AND SUBSIDIARY
Unaudited Consolidated Statements of Income
Three Months Ended Nine Months Ended
September 30, September 30,
1997 1996 1997 1996
Merchandise sales $122,014,132 $123,472,658 $350,662,820 $354,286,921
Cost of goods sold:
Purchases and freight-in 94,413,891 99,771,423 281,405,515 290,995,802
Inventory, beginning 71,200,735 62,879,086 67,782,230 58,072,334
Inventory, ending 67,437,708 62,703,491 67,437,708 62,703,491
Cost of goods sold 98,176,918 99,947,018 281,750,037 286,364,645
Gross profit on sales 23,837,214 23,525,640 68,912,783 67,922,276
Operating expenses 22,778,587 21,283,600 67,349,215 63,192,164
Operating profit 1,058,627 2,242,040 1,563,568 4,730,112
Other income:
Cash discounts, net 918,466 1,005,084 3,128,704 3,248,247
Service charges 301,762 388,060 881,972 1,153,644
Other gains (losses)
and recoveries - (547) - 3,952
Miscellaneous 80,067 75,640 428,231 217,101
Total other income 1,300,295 1,468,237 4,438,907 4,622,944
Interest expense 786,637 680,660 2,357,321 2,072,044
Income before income taxes 1,572,285 3,029,617 3,645,154 7,281,012
Income taxes:
State 86,500 166,700 200,500 400,400
Federal 505,200 973,400 1,171,200 2,339,400
Total income taxes 591,700 1,140,100 1,371,700 2,739,800
Net income $ 980,585 $ 1,889,517 $ 2,273,454 $4,541,212
Earnings per share (based on
3,700,876 shares outstanding) $ .26 $ .51 $ .61 $ 1.23
Cash dividends per share $ .08 $ .08 $ .24 $ .24
The accompanying notes are an integral part of the financial statements.
<PAGE>
NOLAND COMPANY AND SUBSIDIARY
Unaudited Consolidated Statements of Retained Earnings
Nine Months Ended
September 30,
1997 1996
Retained earnings, January 1 $79,516,091 $74,836,888
Add net income 2,273,454 4,541,212
Deduct cash dividends paid
($.24 per share) (888,210) (888,210)
Retained earnings, September 30 $80,901,335 $78,489,890
The accompanying notes are an integral part of the financial statements.
<PAGE>
NOLAND COMPANY AND SUBSIDIARY
Unaudited Consolidated Statements of Cash Flows
Nine Months
Ended September 30,
1997 1996
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 2,273,454 $ 4,541,212
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 5,139,143 5,037,836
Amortization of prepaid pension cost (389,997) (173,625)
Amortization of unearned compensation-restricted stock 50,585 33,678
Provision for doubtful accounts 1,110,284 996,314
Gain on sale of property - (3,952)
Change in operating assets and liabilities:
(Increase) in accounts receivable (120,247) (5,380,659)
Decrease (increase)in inventory 344,522 (4,631,157)
Decrease (Increase)in prepaid expenses 262,272 (192,034)
Decrease in assets held for resale 49,912 -
Decrease in other assets 125,052 136,877
Increase in book overdrafts 5,324,931 53,994
Increase in accounts payable 6,048,553 3,975,008
(Decrease) in other accruals and liabilities (4,027,426) (3,687,614)
(Decrease)increase in federal and state income taxes (53,963) 483,530
Increase in accrued postretirement benefits 172,543 203,049
Total adjustments 14,036,164 (3,148,755)
Net cash provided by operating activities 16,309,618 1,392,457
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (7,157,162) (9,045,401)
Proceeds from sale of assets 1,892,238 717,520
Net cash used by investing activities (5,264,924) (8,327,881)
CASH FLOWS FROM FINANCING ACTIVITIES:
Short-term (payments) borrowing net (5,000,000) 4,000,000
Long-term debt repayments (10,735,327) (3,693,408)
Long-term borrowing 7,660,000 -
Dividends paid (888,210) (888,210)
Purchase of restricted stock - (125,000)
Net cash used by financing activities (8,963,537) (706,618)
CASH AND CASH EQUIVALENTS:
Increase (Decrease) during first nine months 2,081,157 (7,642,042)
Beginning of year 3,507,588 12,577,642
End of first nine months $5,588,745 $4,935,600
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the first nine months for:
Interest $2,386,084 $2,351,211
Income taxes $1,425,663 $2,256,270
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 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
September 30, 1997, and its results of operations and cash
flows for the three and nine months ended September 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 September
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 September 30, 1997 and December
31, 1996 are net of an allowance for doubtful accounts of
$1,008,132. Third-quarter bad debt charges, net of
recoveries, were $326,708 for 1997 and $257,488 for 1996.
Year-to-date bad debt charges, net of recoveries, were
$968,790 for 1997 and $824,335 for 1996.
<PAGE>
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 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.
6. The Company entered into two joint venture aggreements with
former air conditioning customers in Venezuela and Panama.
Noland Company owns fifty percent interest in each joint
venture and accounts for both entities under the equity
method of accounting. As of September 30, 1997, the
aggregate investment in and results of operations from both
joint ventures are not material.
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 borrowing from bank lines of credit
arrangements, when needed; and (3) additional long-term debt,
when needed.
For the first nine months of 1997, the Company generated $16.3
million in cash from operations, compared to $1.4 million for the
same period last year. Cash was used primarily to purchase
property and equipment, retire short-term debt and pay dividends.
Working capital at September 30, 1997 was $77.0 million and the
current ratio was 2.53. Management believes the Company's
liquidity, capital resources and working capital are sufficient
to meet the needs of the foreseeable future.
<PAGE>
Results of Operations
Third-quarter sales of $122 million were 1.2 percent less than
the $123.5 million for the year-earlier period. Sales for the
first nine months of 1997 were $350.7 million compared to $354.3
million for the year-earlier period. The new branches added in
the second half of 1996 did not perform up to expectations, and
mild weather conditions dampened demand for replacement air
conditioning equipment in most parts of our 14-state territory.
For the quarter the gross margin of profit improved to 19.5
percent from 19.1 percent a year ago. This resulted in an
increase in gross profit dollars despite the sales decline. For
the first nine months the gross margin of profit was 19.7 percent
compared to 19.2 percent a year ago.
Operating expenses for the quarter rose seven percent, in large
part due to the newer branches. This led to an operating profit
of $1,059,000, down sharply from the $2,242,000 recorded in the
third quarter of 1996. Operating expenses for the first nine
months were also up seven percent over the year earlier period.
Net income for the quarter was $980,585 or 26 cents per share
compared to $1.9 million or 51 cents per share for the third
quarter of 1996. For year-to-date, net income was $2.3 million
or $.61 per share compared to $4.5 million or $1.23 per share for
the year earlier period.
Steps are being taken on a number of fronts to energize our sales
efforts. The impact will be gradual and we don't expect to see
the benefits until sometime in 1998. At the same time we are
continuing to focus on improving gross margins and internal
operations.
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.
<PAGE>
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
November 3, 1997 Arthur P. Henderson, Jr.
Arthur P. Henderson, Jr.
Vice President-Finance
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
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<COMMON> 37,008,760
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