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, 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 October 24, 2000
3,595,538 shares.
This report contains 10 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, 2000 (Unaudited) and Dec. 31, 1999 (Audited).......3
Unaudited Consolidated Statements of Income -
Three Months and Nine Months Ended September 30, 2000 and 1999...4
Unaudited Consolidated Statements of Cash Flows -
Nine Months Ended September 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......................................................8
PART II. OTHER INFORMATION
Items 1, 2, 3, 4, 5, and 6..........................................9
SIGNATURE....................................................................10
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PART 1. FINANCIAL INFORMATION
NOLAND COMPANY AND SUBSIDIARY
Consolidated Balance Sheets
Item 1. Financial Statements
September 30, December 31,
2000 1999
(Unaudited) (Audited)
Assets
Current Assets:
Cash and cash equivalents $ 2,482 868 $ 2,528,131
Accounts receivable, net 58,309,339 55,704,292
Inventory, net 66,581,992 69,839,568
Deferred income taxes 1,146,509 1,146,509
Prepaid expenses 195,638 235,593
Total Current Assets 128,716,346 129,454,093
Property and Equipment, at cost:
Land 13,232,888 13,406,704
Buildings 84,781,945 83,413,913
Equipment and fixtures 63,945,999 64,620,605
Property excess to current needs 1,652,738 1,699,140
Total 163,613,570 163,140,362
Less accumulated depreciation 82,789,939 79,599,165
Property and Equipment, net 80,823,631 83,541,197
Assets Held for Resale 1,021,492 1,021,492
Prepaid Pension 21,935,218 18,617,968
Other Assets 890,022 984,505
$233,386,709 $233,619,255
Liabilities and Stockholders' Equity
Current Liabilities:
Notes payable, short-term borrowing $ 10,100,000 $ 7,800,000
Current maturity of long-term debt 2,997,775 4,397,775
Book overdrafts 13,421,927 8,402,769
Accounts payable 25,400,949 26,895,562
Other accruals and liabilities 10,495,192 13,177,386
Federal and state income taxes 964,600 1,028,722
Total Current Liabilities 63,380,443 61,702,214
Long-term Debt 21,779,040 28,014,872
Deferred Income Taxes 10,196,539 10,196,539
Accrued Postretirement Benefits 1,755,509 1,543,437
Stockholders' Equity:
Capital common stock, par value $10;
authorized, 6,000,000 shares; issued,
3,595,538 and 3,700,876 shares 35,955,380 37,008,760
Retained earnings 100,723,856 95,523,652
Total 136,679,236 132,532,412
Less unearned compensation-restricted stock 404,058 370,219
Stockholders' Equity 136,275,178 132,162,193
$233,386,709 $233,619,255
The accompanying notes are an integral part of the financial statements.
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NOLAND COMPANY AND SUBSIDIARY
Unaudited Consolidated Statements of Income
Three Months Ended Nine Months Ended
September 30, September 30,
2000 1999 2000 1999
Merchandise sales $124,283,925 $126,276,396 $374,408,861 $365,664,181
Cost of goods sold:
Purchases and freight-in 101,848,248 98,289,265 298,392,172 289,700,724
Inventory, beginning 64,834,045 68,354,182 69,839,568 70,570,288
Inventory, ending 66,581,992 64,236,441 66,581,992 64,236,441
Cost of goods sold 100,100,301 102,407,006 301,649,748 296,034,571
Gross profit on sales 24,183,624 23,869,390 72,759,113 69,629,610
Operating expenses 22,256,054 22,619,585 65,495,037 66,238,090
Operating profit 1,927,570 1,249,805 7,264,076 3,391,520
Other income:
Cash discounts, net 1,126,166 1,106,984 3,592,604 3,611,195
Service charges 340,226 353,395 1,005,776 1,085,761
Miscellaneous 456,550 188,710 1,327,218 581,639
Total other income 1,922,942 1,649,089 5,925,598 5,278,595
Interest expense 650,648 681,318 2,086,933 2,188,230
Income before taxes 3,199,864 2,217,576 11,102,741 6,481,885
Income taxes:
State 176,000 121,900 610,700 356,500
Federal 1,032,982 712,600 3,572,182 2,082,700
Total income taxes 1,208,982 834,500 4,182,882 2,439,200
Net income $ 1,990,882 $ 1,383,076 $ 6,919,859 $ 4,042,685
Earnings per share:
Basic $ .56 $ .38 $ 1.90 $ 1.10
Diluted $ .55 $ .37 $ 1.89 $ 1.09
Average shares outstanding:
Basic 3,584,874 3,674,776 3,633,762 3,674,776
Diluted 3,617,092 3,700,876 3,665,241 3,700,876
Cash dividends per share $ .08 $ .08 $ .24 $ .24
The accompanying notes are an integral part of the financial statements.
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NOLAND COMPANY AND SUBSIDIARY
Unaudited Consolidated Statements of Cash Flows
Nine Months
Ended September 30,
2000 1999
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $6,919,859 $4,042,685
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 6,228,15 6,418,924
Amortization of prepaid pension cost (3,317,250 (2,325,000)
Amortization of unearned compensation-restricted stock 120,874 93,731
Deferred directors compensation - 12,000
Provision for doubtful accounts 1,015,069 973,377
Gain on sale of property (625,434) -
Change in operating assets and liabilities:
(Increase) in accounts receivable (3,620,116) (1,549,573)
Decrease in inventory 3,257,576 6,333,847
Decrease in prepaid expenses 39,955 38,648
(Increase) in other assets (26,390 (11,168)
(Decrease) increase in accounts payable (1,494,613) 3,699,783
(Decrease) in other accruals and liabilities (2,682,194) (325,420)
(Decrease) increase in federal and state income taxes (64,122) 370,467
Increase in accrued postretirement benefits 212,072 228,849
Total adjustments (956,417) 13,958,465
Net cash provided by operating activities (5,963,442) 18,001,150
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (4,174,245) (4,946,719)
Proceeds from sale of assets 1,409,961 623,122
Net cash (used) by investing activities (2,764,284) (4,323,597)
CASH FLOWS FROM FINANCING ACTIVITIES:
Increase in book overdrafts 5,019,158 3,152,674
Short-term borrowing (repayments) - net 2,300,000 (400,000)
Long-term debt repayments - net (7,635,382)(14,610,058)
Purchase and retirement of common stock (1,899,780) -
Dividends paid (880,675) (888,210)
Purchase of restricted stock (147,293) (175,131)
Net cash (used) by financing activities (3,244,421)(12,920,725)
CASH AND CASH EQUIVALENTS:
(Decrease) increase during first nine months (45,263) 756,828
Beginning of year 2,528,131 3,318,526
End of first nine months $2,482,868 $4,075,354
The accompanying notes are an integral part of the financial statements.
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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, 2000, and its results of operations and cash flows for the
three and nine months ended September 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 in the fourth quarter 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. 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, results of operations for the quarter ended September 30, 2000
are not necessarily indicative of the results for the full year.
4. Accounts Receivable as of September 30, 2000 and December 31, 1999 are net
of an allowance for doubtful accounts of $1,008,132. Third-quarter bad debt
charges, net of recoveries, were $309,557 for 2000 and $230,959 for 1999.
Year-to-date bad debt charges, net of recoveries, were $862,562 for 2000
and $776,116 for 1999.
5. The Company recognizes revenue from product sales when goods are
received by the customer or title transfers.
6. Diluted earnings per share is based on weighted-average shares outstanding
of 3,665,241 and 3,700,876 for the periods ended September 30, 2000 and
1999, respectively. Basic earnings per share for the same periods is based
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on weighted-average shares outstanding of 3,633,762 and 3,674,776,
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
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.
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 2000, the Company generated $6.0 million from
operating activities compared to $18.0 million for the same period last year.
The decline in cash flow from operations is due in part to an increase in
accounts receivable and decreases in accounts payable and other accrued
liabilities. Sales of a Company plane and former branch location in Arkansas
provided $771,000 in cash from investing activities. During the first nine
months of 2000, the Company purchased on the open market, and retired, 105,338
shares of its common stock at a cost of $1.9 million. Management believes the
Company's liquidity, capital resources and working capital are sufficient to
meet the needs of the foreseeable future.
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Results of Operations
Third-quarter sales of $124.3 million were 1.6 percent less than the $126.3
million for the year-earlier period. Plumbing sales increased 6.5 percent for
the quarter followed by decreases of 6.0 percent and 7.0 percent for air
conditioning and electrical/industrial departments, respectively. Residential
construction activity began cooling down in the third-quarter reducing demand
for the products and services we supply to the building trades. In addition,
an unusually cool summer had an adverse effect on replacement air conditioning
equipment sales and weakening manufacturing activity hurt the sale of
electrical and industrial MRO products.
The gross margin of profit increased from 18.9 percent in the third quarter
of 1999 to 19.5 percent for the third quarter of 2000. Estimated year-end
inventory adjustments account for much of the increase. Operating expenses
declined 1.6 percent, due in part to pension income for the quarter of
$1,106,000 compared to $775,000 for the year-earlier period. The combination
of higher gross profit dollars and lower operating expenses led to an increase
in operating profit of 54 percent. Interest expense dropped 4.5 percent as a
result of lower average borrowing.
Net income for the quarter was $1,991,000 compared to $1,383,000 for the third
quarter of 1999. Year-to-date net income was $6.9 million compared to $4.0
million for the year-earlier period.
Year 2000
Noland Company has not experienced any disruption to its business due to Year
2000 issues.
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 does not engage in foreign
currency hedging or the use of derivatives. The Company's pension plan is
overfunded, resulting in a 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 and discount rate may
cause the amount of pension income to increase or decrease from year-to-year.
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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. Exhibits and Reports on Form 8-K
(a) Exhibits
27 - Financial Data Schedule (SEC use only)
(b) Reports on Form 8-K
None
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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 27, 2000 Arthur P. Henderson, Jr.
Arthur P. Henderson, Jr.
Vice President-Finance
