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, 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 July 27, 1998,
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 -
June 30, 1998 (Unaudited) and Dec. 31, 1997 (Audited).... 3
Unaudited Consolidated Statements of Income -
Three Months and Six Months Ended June 30, 1998 and 1997.. 4
Unaudited Consolidated Statements of Retained Earnings -
Six Months Ended June 30, 1998 and 1997.................. 5
Unaudited Consolidated Statements of Cash Flows -
Six Months Ended June 30, 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
PART II. OTHER INFORMATION
Items 1, 2, 3, 4, 5, and 6.................................. 9
SIGNATURE ........................................................... 10
<PAGE>
PART 1. FINANCIAL INFORMATION
NOLAND COMPANY AND SUBSIDIARY
Consolidated Balance Sheets
Item 1. Financial Statements
June 30, December 31,
1998 1997
(Unaudited) (Audited)
Assets
Current Assets:
Cash and cash equivalents $ 6,607,031 $ 5,674,097
Accounts receivable, net 55,357,259 49,984,020
Inventory, net 70,533,927 66,470,051
Deferred income taxes 1,706,295 1,706,295
Prepaid expenses 464,777 184,912
Total Current Assets 134,669,289 124,019,375
Property and Equipment, at cost:
Land 13,185,246 13,384,253
Buildings 79,341,709 76,944,986
Equipment and fixtures 63,224,096 55,713,614
Property excess to current needs 1,876,351 1,872,851
Total 157,627,402 147,915,704
Less accumulated depreciation 71,795,066 68,491,485
Property and Equipment, net 85,832,336 79,424,219
Assets Held for Resale 1,240,864 1,240,864
Prepaid Pension 13,917,694 12,874,194
Other Assets 880,287 889,271
$236,540,470 $218,447,923
Liabilities and Stockholders' Equity
Current Liabilities:
Notes payable - short term borrowings $ 14,000,000 $ 5,750,000
Current maturity of long-term debt 4,180,778 2,895,778
Book overdrafts 6,980,742 5,348,276
Accounts payable 26,736,674 21,029,521
Other accruals and liabilities 8,233,766 12,277,259
Federal and state income taxes 729,341 873,298
Total Current Liabilities 60,861,301 48,174,132
Long-term Debt 43,626,500 39,784,389
Deferred Income Taxes 8,806,830 8,806,830
Accrued Postretirement Benefits 1,046,978 915,709
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 85,578,969 83,875,284
Total 122,587,729 120,884,044
Less restricted stock 388,868 117,181
Stockholders' Equity 122,198,861 120,766,863
$236,540,470 $218,447,923
The accompanying notes are an integral part of the financial statements.
<PAGE>
NOLAND COMPANY AND SUBSIDIARY
Unaudited Consolidated Statements of Income
Three Months Ended Six Months Ended
June 30, June 30,
1998 1997 1998 1997
Merchandise sales $119,918,822 $117,719,051 $223,803,660 $228,648,688
Cost of goods sold:
Purchases and freight-in 98,355,375 96,497,246 183,573,744 186,991,624
Inventory, beginning 68,354,153 69,630,325 66,470,051 67,782,230
Inventory, ending 70,533,927 71,200,735 70,533,927 71,200,735
Cost of goods sold 96,175,601 94,926,836 179,509,868 183,573,119
Gross profit on sales 23,743,221 22,792,215 44,293,792 45,075,569
Operating expenses 21,832,295 22,587,672 42,313,005 44,570,628
Operating profit 1,910,926 204,543 1,980,787 504,941
Other income:
Cash discounts, net 1,021,052 1,107,672 2,373,233 2,210,238
Service charges 269,242 284,082 596,590 580,210
Miscellaneous 321,024 270,609 431,623 348,164
Total other income 1,611,318 1,662,363 3,401,446 3,138,612
Interest expense 892,629 816,268 1,701,307 1,570,684
Income before income taxes 2,629,615 1,050,638 3,680,926 2,072,869
Income taxes:
State 144,600 57,700 202,400 114,000
Federal 845,000 337,600 1,182,700 666,000
Total income taxes 989,600 395,300 1,385,100 780,000
Net income $ 1,640,015 $ 655,338 $ 2,295,826 $1,292,869
Basic earnings per share (based on
3,700,876 shares outstanding)$ .44 $ .18 $ .62 $ .35
Cash dividends per share $ .08 $ .08 $ .16 $ .16
The accompanying notes are an integral part of the financial statements.
<PAGE>
NOLAND COMPANY AND SUBSIDIARY
Unaudited Consolidated Statements of Retained Earnings
Six Months Ended
June 30,
1998 1997
Retained earnings, January 1 $83,875,284 $79,516,091
Add net income 2,295,826 1,292,869
Deduct cash dividends paid
($.16 per share) (592,141) (592,139)
Retained earnings, June 30 $85,578,969 $80,216,821
The accompanying notes are an integral part of the financial statements.
<PAGE>
NOLAND COMPANY AND SUBSIDIARY
Unaudited Consolidated Statements of Cash Flows
Six Months
Ended June 30
1998 1997
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 2,295,826 $1,292,869
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 3,912,847 3,370,644
Amortization of prepaid pension cost (1,043,500) (259,998)
Provision for doubtful accounts 772,697 734,529
Amortization of unearned compensation-restricted stock 35,163 33,723
Change in operating assets and liabilities:
(Increase) decrease in accounts receivable (6,145,936) 212,585
(Increase) in inventory (4,063,876) (3,418,505)
(Increase) decrease in prepaid expenses (279,865) 78,569
Decrease in assets held for resale - 49,911
(Increase) decrease in other assets (40,615) 136,459
Increase in accounts payable 5,707,153 4,536,879
(Decrease) in other accruals and liabilities (4,043,493) (5,400,342)
(Decrease) in federal and state income taxes (143,957) (113,339)
Increase in accrued postretirement benefits 131,269 92,120
Total adjustments (5,202,113) 53,235
Net cash (used) provided by operating activities (2,906,287) 1,346,104
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (10,581,039) (5,125,150)
Proceeds from sale of assets 309,674 1,810,606
Net cash used by investing activities (10,271,365) (3,314,544)
CASH FLOWS FROM FINANCING ACTIVITIES:
Increase in bank overdrafts 1,632,466 7,507,468
Short-term borrowings 8,250,000 -
Long-term debt repayments (2,372,889)(10,724,107)
Long-term debt borrowings 7,500,000 7,660,000
Dividends paid (592,141) (592,139)
Purchase of restricted stock (306,850) -
Net cash provided by financing activities 14,110,586 3,851,222
CASH AND CASH EQUIVALENTS:
Increase during first six months 932,934 1,882,782
Beginning of year 5,674,097 3,507,588
End of first six months $ 6,607,031 $ 5,390,370
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 six months
ended June 30, 1998 and 1997.
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
and remain substantially unchanged. 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. The estimated gross profit
rates include an estimate of any adjustment to the LIFO
reserve. The rate of inflation/deflation for an interim period
is not necessarily consistent with the full year rate of
inflation/deflation. 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 June 30, 1998 and December 31, 1997
are net of an allowance for doubtful accounts of $1,008,132.
Second quarter bad debt charges, net of recoveries, were
$309,474 for 1998 and $346,752 for 1997. Year-to-date bad
debt charges, net of recoveries, were $658,223 for 1998 and
$642,082 for 1997.
5. Several accounting pronouncements have been released since the
beginning of the year. Among these are Statement of Financial
Accounting Standards No. 132 "Employers' Disclosures about
Pensions and Other Postretirement Benefits" and Statement of
<PAGE>
Financial Accounting Standards No. 133 "Accounting for
Derivative Instruments and Hedging Activities". The Company
has no derivative instuments or hedging activities. Adoption
of the new pronouncements is not expected to materially effect
the financial condition or results of operations of the
Company.
6. Certain prior period amounts have been reclassified to conform
to current period presentation.
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
Liquidity and Capital Resources
The Company generally generates its cash needs 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.
During the first six months of 1998, the Company increased long-term
debt $7.5 million and short-term debt $8.3 million. The additional
funds were used to purchase $10.6 million in capital assets, pay off
$2.4 million in long-term debt and to finance operations. The
Company's financial condition remains strong with working capital
of $73.8 million and a current ratio of 2.2. Management believes
the Company has adequate financial resources to meet the needs of
the foreseeable future.
Results of Operations
Second-quarter sales of $119.9 million were aided by a 10 percent
increase in June sales causing second-quarter sales to exceed the
$117.7 million recorded in the second quarter of 1997. Hot, dry
weather in June boosted demand for air conditioning and water
systems equipment and facilitated new construction projects. Air
conditioning sales rose eight percent for the quarter, followed by
a three percent rise in industrial sales and a one percent increase
for plumbing sales. Electrical sales declined eight percent. Sales
for the first six months of 1998 were $223.8 million compared to
$228.6 million for the year-earlier period.
<PAGE>
The gross margin of profit for the second quarter was 19.8 percent
compared to 19.4 percent for the year-earlier period. Operating
expenses for the quarter of $21.8 million were three percent less
than the $22.6 million a year ago. For the first six months,
operating expenses were down five percent compared to a year ago.
Interest expense for the quarter and year-to-date increased 9.4
percent and 8.3 percent, respectively. The increases are due to
higher borrowings.
We are encouraged by June's strong sales performance and the
improved bottom-line at the mid-point in the year.
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, but are not limited to, software in goods purchased for
resale, security systems, communication systems, mechanical
equipment and software used by integrated supply customers. The
Company expects all material issues in these areas, if under its
control, to be corrected no later than August 1999. The Year 2000
issue and remediation is not expected to be material to the
Company's business, operations, or financial condition.
<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
July 27, 1998 Arthur P. Henderson, Jr.
Arthur P. Henderson, Jr.
Vice President-Finance
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<PERIOD-END> Jun-30-1998
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<RECEIVABLES> 56,365,391
<ALLOWANCES> 1,008,132
<INVENTORY> 70,533,927
<CURRENT-ASSETS> 134,669,289
<PP&E> 157,627,402
<DEPRECIATION> 71,795,066
<TOTAL-ASSETS> 236,540,470
<CURRENT-LIABILITIES> 60,861,301
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<COMMON> 37,008,760
<OTHER-SE> 85,190,101
<TOTAL-LIABILITY-AND-EQUITY> 236,540,470
<SALES> 119,918,822
<TOTAL-REVENUES> 119,918,822
<CGS> 96,175,601
<TOTAL-COSTS> 21,522,821
<OTHER-EXPENSES> (1,611,318)
<LOSS-PROVISION> 309,474
<INTEREST-EXPENSE> 892,629
<INCOME-PRETAX> 2,629,615
<INCOME-TAX> 989,600
<INCOME-CONTINUING> 1,640,015
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