10-Q/A 1 junetenqa.htm 3:

FORM 10-Q/A

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, 2002 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 common stock, $10.00 par value at July 16, 2002: 3,557,871 shares.

This report contains 12 pages.

NOLAND COMPANY AND SUBSIDIARY

INDEX

Part 1: FINANCIAL INFORMATION	PAGE NO.

Item 1. Financial Statements

Consolidated Balance Sheets -

June 30, 2002 and Dec. 31, 2001	. . . . . . . .3

Consolidated Statements of Income -

Three Months and Six Months Ended June 30, 2002 and 2001	. . . . . . . .4

Consolidated Statements of Cash Flows -

Six Months Ended June 30, 2002 and 2001	. . . . . . . .5

Notes to Consolidated Financial Statements	. . . . . . . .6

Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations	. . . . . . . .8

SIGNATURES	. . . . . . . 11

CERTIFICATIONS	. . . . . . . 12

PART 1. FINANCIAL INFORMATION

NOLAND COMPANY AND SUBSIDIARY

Consolidated Balance Sheets

Item 1. Financial Statements

June 30, December 31,

2002 * 2001 *

Assets

Current Assets:

Cash and cash equivalents $ 3,420,888 $ 3,606,187

Accounts receivable, net 61,798,300 56,699,501

Inventory, net 64,494,758 57,743,020

Other current assets 575,270 678,451

Total Current Assets 130,289,216 118,727,159

Property and Equipment, at cost:

Land 18,102,815 17,721,917

Buildings 89,602,855 88,210,396

Equipment and fixtures 67,451,346 66,746,192

Property in excess of current needs 1,530,850 1,539,431

Total 176,687,866 174,217,936

Less accumulated depreciation 91,734,756 89,549,572

Property and Equipment, net 84,953,110 84,668,364

Assets Held for Resale 447,136 447,136

Prepaid Pension 26,463,184 25,804,184

Other Assets 896,199 1,046,201

$243,048,845 $230,693,044

Liabilities and Stockholders' Equity

Current Liabilities:

Notes payable - short term borrowings $ 5,309,340 $ 4,000,000

Current maturity of long-term debt 943,220 1,464,993

Book overdrafts 5,299,517 6,485,518

Accounts payable 34,860,105 23,669,591

Other accruals and liabilities 12,276,176 13,499,515

Federal and state income taxes 1,241,517 367,886

Total Current Liabilities 59,929,875 49,487,503

Long-term Debt 20,163,000 20,187,000

Deferred Income Taxes 12,499,369 12,668,047

Accrued Postretirement Benefits 2,203,515 2,090,231

Stockholders' Equity:

Capital common stock, par value $10;

authorized, 6,000,000 shares; issued,

3,557,871 and 3,557,829 shares 35,578,710 35,578,290

Retained earnings 113,624,078 111,344,866

Additional paid in capital 158,400 -

Accumulated other comprehensive loss, net of tax (579,814) (303,360)

Unearned compensation, stock plans (528,288) (359,533)

Stockholders' Equity 148,253,086 146,260,263

$243,048,845 $230,693,044

* Restated. See note 2.

The accompanying notes are an integral part of the financial statements.

NOLAND COMPANY AND SUBSIDIARY

Consolidated Statements of Income

Three Months Ended Six Months Ended

June 30, June 30,

2002 2001 2002 2001 *

Merchandise Sales $130,751,726 $127,469,787 $240,447,642 242,400,488

Cost of goods sold:

Purchases and freight-in 111,543,218 101,543,715 198,997,000 192,805,793

Inventory, beginning 56,911,168 64,455,454 57,743,020 65,121,199

Inventory, ending (64,494,759) (63,582,479) (64,494,759)(63,582,479)

Cost of goods sold 103,959,627 102,416,690 192,245,261 194,344,513

Gross profits on sales 26,792,099 25,053,097 48,202,381 48,055,975

Operating expenses 24,201,978 23,327,646 46,018,045 45,451,071

(Gains) from sale of property - - (8,319) (404,568)

Operating profit 2,590,121 1,725,451 2,192,655 3,009,472

Other income:

Cash discounts, net 1,294,182 1,320,073 2,357,949 2,371,265

Service charges 269,809 271,187 542,334 583,612

Miscellaneous 166,901 190,246 357,358 415,794

Total other income 1,730,892 1,781,506 3,257,641 3,370,671

Interest expense 283,436 452,247 580,152 967,786

Income before income taxes 4,037,577 3,054,710 4,870,144 5,412,357

Income taxes 1,532,600 1,159,600 1,848,900 2,054,207

Net income $ 2,504,977 $ 1,895,110 $ 3,021,244 3,358,150

Earnings per share:

Basic $ .71 $ .54 $ .86 $ .95

Diluted $ .71 $ .53 $ .85 $ .94

Average shares outstanding:

Basic 3,517,116 3,540,811 3,519,352 3,545,272

Diluted 3,551,097 3,575,188 3,553,546 3,582,085

Cash dividends per share $ .08 $ .08 $ .16 $ .16

* Restated. See note 2.

The accompanying notes are an integral part of the financial statements.

NOLAND COMPANY AND SUBSIDIARY

Consolidated Statements of Cash Flows

Six Months

Ended June 30,

	2002	2001 *
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income	$3,021,244	$3,358,150
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	3,982,234	4,054,123
Amortization of prepaid pension cost	(659,000)	(1,289,500)
Amortization of unearned compensation-restricted stock	73,842	70,971
Provision for doubtful accounts	1,264,970	529,488
Deferred income taxes	-	153,306
Increase in LIFO Reserve (Gain) on sale of property	370,000 (8,319)	150,000 (404,568)
Change in operating assets and liabilities:
(Increase) in accounts receivable	(6,363,769)	(3,945,993)
(Increase) decrease in inventory	(7,121,738)	1,388,720
Decrease (increase) in other current assets	103,181	2,675,544
Decrease in other assets	150,002	154,564
Increase in accounts payable	11,190,514	2,133,957
(Decrease) in accruals and other liabilities	(1,668,471)	(3,030,733)
Increase (decrease) in accrued income taxes	873,631	(6,926)
Increase in postretirement benefits	113,284	135,836
Total adjustments	2,300,361	2,768,789
Net cash provided by operating activities	5,321,605	6,126,939

CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures	(4,518,919)	(6,233,285)
Proceeds from sale of assets	260,258	532,539
Net cash used in investing activities	(4,258,661)	(5,700,746)

CASH FLOWS FROM FINANCING ACTIVITIES:
Short-term borrowings - net	1,309,340	5,325,000
(Decrease) increase in bank overdrafts	(1,186,001)	1,141,911
Long-term debt (payments) - net	(545,773)	(5,532,440)
Retirement of common stock	(280,800)	(131,589)
Issuance of common stock	108,420	12,420
Increase in unearned compensation -stock plans	(242,597)	(174,323)
Additional paid in capital	158,400	-
Dividends paid	(569,232)	(573,037)
NET CASH (USED IN) PROVIDED BY FINANCING ACTIVITIES	(1,248,243)	67,942

CASH AND CASH EQUIVALENTS:
(Decrease) increase during first six months	(185,299)	494,135
Beginning of year	3,606,187	3,349,283
End of first six months	$3,420,888	$3,843,418

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Non-cash change in fair value of derivatives	$ 276,454	$ -
* Restated. See note 2.

The accompanying notes are an integral part of the financial statements.

NOLAND COMPANY AND SUBSIDIARY

Notes to Consolidated Financial Statements

1. In the opinion of the Company, the accompanying interim 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, 2002, as restated, its consolidated results of operations for the three and six months ended June 30, 2002 and 2001, as restated, and its cash flows for the six months ended June 30, 2002 and 2001, as restated. The balance sheet as of December 31, 2001, as restated, was derived from audited financial statements as of that date.

2. In late October 2002, the Company determined that gains from certain sales of excess real estate in 2001 should be recognized as income. These transactions were previously treated as non-monetary exchanges and no gains were recognized. There were no gains in the second quarter of 2002 or 2001. The consolidated statement of income and consolidated statement of cash flows for the six months ended June 30, 2001 and the consolidated balance sheets as of June 30, 2002 and December 31, 2001 have been restated to include the effects of recognizing the gains, as follows:

Consolidated Results of Operations

For the six months ended June 30, 2001

2001

	As Reported	Restated
Gains from sale of property	$ -	$ 404,568
Operating profit	2,604,904	3,009,472
Income before income taxes	5,007,789	5,412,357
Income taxes	1,900,900	2,054,207
Net income	$ 3,106,889	$ 3,358,150
Basic earnings per share	$ .88	$ .95
Diluted earnings per share	$ .87	$ .94
Net cash provided by operating activities	$ 3,186,500	$ 6,126,939
Net cash used in investing activities	$(2,760,306)	$(5,700,746)

Consolidated Balance Sheet

June 30, 2002 December 31, 2001

As

Reported

Restated

As

Reported

Restated

Total current assets

$130,283,607

$130,289,216

$118,721,550

$118,727,159

Total property and equipment, net

79,700,100

84,953,110

79,415,354

84,668,364

Total assets

237,790,226

243,048,845

225,434,425

230,693,044

Deferred income taxes

10,497,512

12,499,369

$ 10,666,190

$ 12,668,047

Stockholders' equity

144,996,324

148,253,086

143,003,501

146,260,263

Total liabilities and stockholders' equity

$237,790,226

$243,048,845

$225,434,425

$230,693,044

3. The Notes to Consolidated Financial Statements included in the Company's December 31, 2001 Annual Report on Form 10-K/A are an integral part of the interim 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.

4. Due to the seasonal nature of the construction industry supplied by the registrant, results of operations for the quarter ended June 30, 2002 are not necessarily indicative of the results for the full year.

5 Accounts Receivable as of June 30, 2002 and December 31, 2001 are net of allowance for doubtful accounts of $2,361,353 and $2,311,755, respectively. Quarterly bad debt charges, net of recoveries, were $979,521 for 2002 and $262,522 for 2001. Year-to-date bad debt charges, net of recoveries, were $1,264,970 for 2002 and $529,488 for 2001.

6. Revenue from product sales is generally recognized when goods are received by the customer and the risks and rewards of ownership have transferred to the customer.

7. The difference in diluted and basic average shares outstanding used to calculate earnings per share is due to non-vested shares of restricted stock.

8. Comprehensive income consists of net income and changes in the fair value of derivative instruments. The components of comprehensive income for the three and six months ended June 30, 2002 are as follows:

Three Months Six Months

Ended June 30, Ended June 30,

	2002	2002
Net income	$2,504,977	$3,021,244
Loss on derivative instruments, net of income tax benefit of ($230,497 and $353,774)	(377,770)


		(276,454)
Comprehensive income	$2,127,207	$2,744,790

There were no other items of comprehensive income for the three and six months ended June 30, 2002. There were no items of comprehensive income for the three and six months ended June 30, 2001.

9. Effective January 1, 2002 the Company adopted SFAS No. 142 "Goodwill and Other Intangible Assets" and SFAS No. 144 "Accounting for the Impairment or Disposal of Long-Lived Assets. Adoption of these statements did not have a material impact on the Company's financial statement. SFAS No. 143 "Accounting for Asset Retirement Obligations," is effective for years beginning after June 15, 2002. Adoption of this statement is not expected to have a material impact on the Company's financial statements.

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.

Restatement of Consolidated Financial Statements

In late October 2002, the Company determined that gains from certain sales of excess real estate in 2001 should have been recognized as income. These transactions were previously treated as non-monetary exchanges and no gain was recognized. The effect of recognizing the 2001 gain was to increase first six months net income by $252,000. The consolidated statement of income and consolidated cash flows for the six months ended June 30, 2001 and the consolidated balance sheets as of June 30, 2002 and December 31, 2001 have been restated to include the affect of recognizing these gains.

Liquidity and Capital Resources

The Company maintains its short- and long-term liquidity through: (1) cash flow from operations; (2) short-term borrowings from bank lines of credit arrangements, when needed; and (3) additional long-term debt, when needed.

The Company's financial condition remains strong with working capital of $70.4 million and a current ratio of 2.17. Cash provided from operations for the first six months of 2002 was $5.3 million compared to $6.1 million for same period of 2001. The cash was used for capital expenditures, to pay down debt and to pay dividends. As discussed in Item 3 below, the Company took steps in 2001 to protect itself against the possibility of a rising interest rate environment. This was done by utilizing a pay-fixed receive-variable interest rate swap. Management believes the Company has adequate financial resources to meet the needs of the foreseeable future.

Results of Operations

Second-quarter sales of $130.8 million were 2.6 percent more than the $127.5 million total for 2001's second quarter. Strong residential construction activity and favorable weather conditions in most of our territory gave us heightened opportunities and we took advantage of them. Plumbing sales increased 5.7 percent in part due to drought conditions that led to increased sales of well drilling rigs and water systems. Air conditioning sales rose 8.3 percent from higher demand for replacement air conditioning equipment brought on by unusually warm weather. Electrical/industrial sales declined 16.1 percent with the continual erosion of the Company's integrated supply business. Sales for the first six months of 2002 were $240.4 million, .8 percent less than the $242.4 million total for the year-earlier period. The Company has made the decision to cancel or not renew two of its larger integrated supply contracts due to continued losses. By December 31, 2002 the Company's Industrial Distribution Center outside of Richmond, Virginia which services these contracts, will cease operations. Other contracts will continue but will be managed from branch facilities located closer to the customers. The expected loss for the remainder of the year is not determinable at this time.

The gross margin of profit rose 4.1 percent in the second quarter from 19.7 percent in second quarter 2001 to 20.5 percent for second quarter 2002 despite a larger LIFO inventory adjustment for this year compared to 2001. Operating expenses were up 3.7 percent, largely due to higher bad debts stemming from two large accounts and a decline in non-cash pension credits. For the first six months, gross margins increased from 19.8 percent to 20.0 percent and operating expenses increased 1.2 percent. Operating expenses for the quarter and first six months were affected by pension credits generated by the Company's overfunded pension plan of $330,000 and $659,000 compared to $645,000 and $1,290,000 for the same periods a year ago.

Interest expense for the quarter and first six months is down 37.3 and 40.1 percent, respectively. Lower average borrowing and lower interest rates contributed to the declines. Also, the Company's overall inventory turns steadily improved during the first six months of 2002, and the average inventory investment was consistently lower than the prior-year period.

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

November 18, 2002 Arthur P. Henderson, Jr.

Arthur P. Henderson, Jr.

Vice President ' Finance

CERTIFICATIONS

I, Lloyd U. Noland, III, certify that:

1. I have reviewed this amended quarterly report on Form 10-Q of the registrant for the three and six months ended June 30, 2002.

2. Based on my knowledge, this amended quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this amended quarterly report.

3. Based on my knowledge, the financial statements, and other financial information included in this amended quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this amended quarterly report.

Lloyd U. Noland, III

Name: Lloyd U. Noland, III

Title: Chief Executive Officer

I, Arthur P. Henderson, Jr., certify that:

1. I have reviewed this amended quarterly report on Form 10-Q of the registrant for the three and six months ended June 30, 2002.

Arthur P. Henderson, Jr.

Name: Arthur P. Henderson, Jr. Title: Vice President - Finance