QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d)

OF THE SECURITIES EXCHANGE ACT OF 1934

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 31, 2004: 3,383,656 shares.

This report contains 20 pages.

NOLAND COMPANY AND SUBSIDIARIES

Cash and cash equivalents $ 3,904,101 $ 3,703,719

Trade accounts receivable, net 63,438,275 48,122,094

Other accounts receivable 7,006,485 8,570,010

Inventory, net 69,787,625 67,690,838

Other current assets 2,236,165 1,678,995

Total Current Assets 146,372,651 129,765,656

Property and Equipment, at cost:

Land 19,620,002 19,062,864

Buildings 111,772,266 109,211,586

Equipment and fixtures 73,143,001 71,726,775

Property in excess of current needs 5,882,716 3,458,760

Total 210,417,985 203,459,985

Less accumulated depreciation 92,333,590 90,368,999

Property and Equipment, net 118,084,395 113,090,986

Assets Held for Resale 247,136 247,136

Prepaid Pension 27,380,056 27,067,056

Other Assets 1,080,588 1,090,610

$293,164,826 $271,261,444

Current Liabilities:

Notes payable - short-term borrowings $ 4,975,173 $ 6,627,197

Current maturity of long-term debt 516,016 521,691

Bank overdrafts 5,440,571 5,677,062

Accounts payable 38,358,933 27,932,064

Other accruals and liabilities 15,965,333 18,041,681

Federal and state income taxes - 850,204

Total Current Liabilities 65,256,026 59,649,899

Long-term Debt 37,066,712 35,144,703

Deferred Income Taxes 20,214,295 15,649,607

Accrued Postretirement Benefits 2,384,352 2,313,502

Total Liabilities 124,921,385 112,757,711

Stockholders' Equity:

Capital common stock, par value $10;

authorized, 6,000,000 shares; issued,

3,383,656 and 3,373,267 shares 33,836,560 33,732,670

Additional paid in capital 762,635 416,510

Retained earnings 135,015,979 125,715,351

Accumulated other comprehensive loss,

net of tax (591,597) (880,862)

Unearned compensation, stock plans (780,136) (479,936)

Stockholders' Equity 168,243,441 158,503,733

$293,164,826 $271,261,444

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

Merchandise Sales $145,630,713 $122,532,036 $268,396,504 $232,694,643

Cost of goods sold:

Purchases and freight-in 113,874,063 96,213,605 214,599,108 181,472,871

Inventory, beginning 72,798,001 60,883,700 67,690,838 60,869,800

Inventory, ending (69,787,625) (61,517,106) (69,787,625) 61,517,106)

Cost of goods sold 116,884,439 95,580,199 212,502,321 180,825,565

Gross profit on sales 28,746,274 26,951,837 55,894,183 51,869,078

Operating expenses 25,820,097 23,646,220 49,817,064 46,761,672

Rental income 292,283 325,779 624,181 532,391

Gains from sale of property 9,444,285 424,433 9,454,871 3,845,319

Operating profit 12,662,745 4,055,829 16,156,171 9,485,116

Other income 389,662 380,257 747,293 820,190

Interest expense 397,960 321,415 777,030 619,517

Income before income taxes 12,654,447 4,114,671 16,126,434 9,685,789

Income taxes 4,919,400 1,610,400 6,285,300 3,761,300

Net income $ 7,735,047 $ 2,504,271 $ 9,841,134 $ 5,924,489

Earnings per share:

Basic $ 2.32 $ .73 $ 2.95 $ 1.71

Diluted $ 2.29 $ .73 $ 2.92 $ 1.70

Average shares outstanding:

Basic 3,338,313 3,424,986 3,335,836 3,455,175

Diluted 3,370,947 3,453,625 3,368,885 3,486,283

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

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

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

7. At June 30, 2004 the Company has three interest rate swap agreements with an aggregate notional amount of $22,133,000 that reduces its exposure to market risks from changing interest rates. Under the swap agreements, the Company has agreed to exchange, at specified intervals, the difference between fixed and variable interest amounts calculated by reference to the notional principal amount. Any differences paid or received on interest rate swap agreements are recognized as adjustments to interest expense over the life of each swap, thereby adjusting the effective interest rate on the underlying obligation. The Company does not hold or issue such financial instruments for trading purposes. Derivatives used for hedging purposes must be designated as, and effective as, a hedge of the identified risk exposure at the inception of the contract. Accordingly, changes in the fair value of the derivative contract must be highly correlated with changes in the fair value of the underlying hedged item at incepti on of the hedge and over the life of the hedge contract. The agreements are accounted for as cash flow hedges in accordance with Statement of Financial Accounting Standard ("SFAS") No. 133 "Accounting for Derivative Instruments and Hedging Activities," as amended by SFAS No. 138.

The wholesale distribution of mechanical equipment and supplies is highly competitive. Competition results primarily from price, service and the availability of goods. The business may be affected to the extent the residential and commercial construction industries are affected by interest rate changes and the weather.

Management's discussion and analysis and other sections of this quarterly report contain "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. The words "estimate", "project", "anticipate", "intend", "believe", and similar expressions are intended to identify forward-looking statements. Such 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 conditions, climatic conditions, competitive pricing pressures, and product availability.

The Company makes estimates and assumptions when preparing financial statements. These estimates and assumptions affect various matters, including:

• reported amounts of assets and liabilities in the Company's Consolidated Balance Sheets at the dates of the financial statements;
• disclosure of contingent assets and liabilities at the dates of the financial statements; and
• reported amounts of revenues and expenses in the Company's Consolidated Statements of Income during the reporting periods. These estimates involve judgments with respect to, among other things, future economic factors which are difficult to predict and are beyond management's control. Actual amounts could differ from these estimates.

The critical accounting policies considered most important to the Company's financial condition and results of operations that require management's most difficult, subjective, or complex judgments that have not changed since December 31, 2003 are as follows:

• Allowance for Doubtful Accounts

• Consideration Received from Vendors

• Self Insurance Reserves

For interim reporting purposes there is an additional critical accounting policy that is not applicable for full year reporting. The Company uses estimated gross profit rates to determine cost of goods sold during interim periods. This process includes estimates for inventory shrink and the LIFO reserve adjustment. For the interim LIFO reserve adjustment the Company estimates the final year-end FIFO inventory and the rate of inflation/deflation. 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.

The following table highlights changes in the results of operations for the three and six months ended June 30, 2004 and 2003:

In Thousands Three Months Ended June 30 Six Months Ended June 30

Strong construction activity and rising prices contributed to the 18.9% increase in sales for the second quarter of 2004. The Company also benefited from good weather, in sharp contrast to the record rainfall a year ago that caused construction delays and adversely affected second quarter 2003. All three product categories achieved double-digit sales gains in the second quarter led by plumbing's 21% improvement. Hot weather in June boosted demand for replacement air conditioning equipment, contributing to a 16% rise in air conditioning sales for the quarter. Electrical/industrial sales also increased 16%. Gross profit margins declined due to intense competition and costs associated with the LIFO method of accounting for inventory costs. Rising prices resulted in a charge to cost of goods sold of $2,172,000 for the second quarter of 2004 compared to a charge of $115,000 for the second quarter of 2003.

Operating profit for the second quarter of 2004 increased $8,607,000, or 212.2%, over the second quarter of 2003 due to a $9,020,000 year-to-year increase in gains from the disposal of surplus real property. Operating expenses for the second quarter of 2004 were $2,174,000, or 9.2%, higher than the year earlier total largely due to costs associated with the Company's new central distribution center and five new branches opened since mid-2003. Operating expenses benefited from pension income in the second quarter of 2004 in the amount of $156,500 compared to a pension expense of $52,000 in the second quarter of 2003.

Through the first six months sales totaled $268,397,000 or 15.3% more than the first half of 2003's $232,695,000. After tax gains from the disposal of surplus real property totaled $5,866,000 in the first six months of 2004 versus $2,386,000 in the year-earlier period.

Conditions appear to be favorable for continued sales growth in the third quarter but possibly at a slower pace. Customer orders for future delivery business are only modestly higher than a year ago but the current level of housing construction suggests there are ample opportunities in the short term. If the weather cooperates our recent sales momentum should continue in the second quarter.

The Company's primary capital requirements for the second quarter of 2004 were for property and equipment expenditures and working capital. The Company maintains its short- and long-term liquidity through: (1) cash flow from operations; (2) short-term borrowings from bank line of credit arrangements, when needed; and (3) additional long-term debt, when needed.

The Company's financial condition remains strong with working capital of $81,117,000 and a current ratio of 2.2 to 1. During the first six months of 2004 the Company's cash position increased $200,000.

The Company's market risk exposure comes from changes in interest rates and inflationary pressures. Reported results, for the most part, reflect the impact of inflation/deflation because of the Company's use of the LIFO (last in, first out) inventory method. This method tends to remove artificial profits induced by inflation and presents operating results in truer, more absolute terms. The objective in managing the Company's exposure to interest rate changes is to limit the impact of rate changes on earnings, cash flow, and to lower overall borrowing cost. The Company is a party to three separate interest rate swaps to manage its exposure to interest rate changes on its borrowings. The swaps are with financial institutions that have investment grade credit ratings, minimizing the risk of credit loss. All swaps are non-trading. At June 30, 2004, the Company had three swap agreements with an aggregate notional amount of $22.1 million to manage interest rate changes related to the Company's indust rial revenue bonds, a portion of its revolving credit agreement and its term loan. The swaps effectively convert the variable rate borrowings (LIBOR and BMA Municipal Swap Index) into fixed rate borrowings with fixed rates of 5.36%, 4.22% and 5.27%, respectively.

SFAS No. 133 "Accounting for Certain Derivative Instruments and Certain Hedging Activities," as amended by SFAS No. 138, requires all derivatives to be recorded as an asset or liability on the balance sheet at fair value. For a derivative designated as a cash flow hedge, the effective portion of the change in the fair value of the derivative is recorded in OCI and recognized in the income statement when the hedged item affects earnings. Ineffective portions of changes in the fair value of cash flow hedges are recognized in earnings. OCI increased $386,000, net of income tax expense of $236,000, for the three months ended June 30, 2004 and $289,000, net of income tax expense of $177,000, for the six months ended June 30, 2004. Comparable amounts for the three and six months ended June 30, 2003 were decreases of $128,000, net of a tax benefit of $78,000 and $171,000, net of a tax benefit of $104,000, respectively.

In addition, the Company's pension plan is over-funded, 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.

As reported previously, Noland Company is a defendant in personal injury claims based on alleged past exposure to asbestos-containing products or materials produced by others and allegedly distributed by the Company years ago. Since the early 1990s, the Company has been sued many times, along with a large number of other companies, by one law firm in cases that allege asbestos-related injuries to persons in the maritime industry. In none of these suits has a link to the Company been substantiated, and most of them already have been dismissed.

The Company also has been named as one of the defendants in various other asbestos-related suits within its operating footprint in which a connection to the Company was alleged. Some of these suits have been dismissed with prejudice and several have been settled through the Company's insurance carrier and some are still pending and are being defended. Management does not consider the foregoing suits, individually or in the aggregate, to be material to the Company.

The Company has also been named as one of the defendants in approximately twenty one hundred asbestos-related suits filed by one law firm in the Circuit Court for Newport News, Virginia or in the Circuit Court for Portsmouth, Virginia. At this time it is still not possible to fully evaluate the merits of these new suits. The Company is not aware of any relationship between the Company and any of the plaintiffs; nor does is have any information as to the extent of any injury that may have been suffered by any of them. All of these cases will be defended vigorously.

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.

August 5, 2004 Arthur P. Henderson, Jr.

Arthur P. Henderson, Jr.

Vice President Finance