OF THE SECURITIES EXCHANGE ACT OF 1934

A Virginia Corporation IRS Identification #54-0320170

80 29^th Street

Newport News, Virginia 23607

Telephone: (757) 928-9000

Securities registered pursuant to Section 12 (g) of the Act:

Common Stock $10 Par Value

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 (or for such shorter period that the Registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days.

Yes X No 

Aggregate market value of the voting stock held by non-affiliates of the Registrant as of March 15, 2002, was approximately $40,498,838.

3,557,829 shares of the Registrant's Common Stock were outstanding at the close of business on March 15, 2002.

This report contains 38 pages. The exhibit index is shown on page 11 of this 10-K.

The Company does not use or market raw materials.

As of December 31, 2001, the Company employed 1,415 persons.

The Company operates principally in the Southern United States.

None of material consequence.

None

Item 7 Management's Discussion and Analysis of Financial Condition and Results of Operations

--Years ended December 31, 2001, 2000, and 1999

Item 9 Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

Data relating to Executive Officers is included in Part I of this report.

(b) Not applicable.

(c) Not applicable.

(d) Not applicable.

Independent Auditors' Report

Consolidated Statement of Income'Years ended December 31, 2001, 2000, and 1999

Consolidated Balance Sheet'December 31, 2001, 2000, and 1999

Consolidated Statement of Stockholders' Equity and Comprehensive Income--Years ended December 31, 2001, 2000, 1999

Consolidated Statement of Cash Flows'Years ended December 31, 2001, 2000, and 1999

Notes to Consolidated Financial Statements-Years ended December 31, 2001, 2000, and 1999

Financial Statement Schedule included in PART IV of this report:

For the three years ended December 31, 2001

Schedule II Valuation and

Qualifying Accounts 8

Independent Auditors' Report

on Consolidated Financial

Statement Schedule 10

(d) Financial Statement Schedule II

(2) Represents charges for which reserve was previously provided.

Pursuant to the requirements of Section 13 or 15 (d) 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.

Lloyd U. Noland, III

March 22, 2002 By 

Chairman of the Board and President

Pursuant to the requirements of the Securities Exchange Act of 1934, the following persons on behalf of the Registrant and in the capacities and on the dates indicated have signed this report below.

To the Board of Directors and Stockholders of Noland Company:

Under date of February 22, 2002, we reported on the consolidated balance sheet of Noland Company and subsidiary (the Company) as of December 31, 2001, and the related consolidated statements of income, stockholders' equity and comprehensive income, and cash flows for the year ended December 31, 2001, as contained in the 2001 annual report to stockholders. These consolidated financial statements and our report thereon are incorporated by reference in the annual report on Form 10-K for the year 2001. In connection with our audits of the aforementioned consolidated financial statements, we also audited the related consolidated financial statement schedule listed in item 14 (a) 2 of this form 10-K. This 2001 financial statement schedule is the responsibility of the Company's management. Our responsibility is to express an opinion on this financial statement schedule based on our audit.

In our opinion the 2001 financial statement schedule when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein.

KPMG LLP

Norfolk, Virginia

February 22, 2002

(99) Opinion of Former Independent Accountants 38

As to any security holder requesting a copy of the Form 10-K, the Company will furnish any exhibit indicated in the above list as filed with the Form 10-K upon payment to it of its expenses in furnishing such exhibit.

EXHIBIT 13

INDEX

Management's discussion and analysis and other sections of this Annual Report contain "forward-looking statements" under the securities laws. 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.

Sales for 2001 totaled $477.9 million, 2.2 percent less than 2000 sales of $488.7 million. Sales for 1999 were $482.8 million. Sluggish economic conditions in many parts of the Company's 13-state territory adversely affected sales, despite pockets of strength in residential construction. In addition, deflation in pricing on key plumbing commodities had a negative impact on plumbing sales, which decreased 3.9 percent. Electrical/industrial sales declined 9.0 percent as a result of continued weakness in manufacturing. Air conditioning sales increased 7.4 percent. A significant part of this increase came from sales in several new Florida branches, but same store sales also rose modestly.

The gross profit margin was 20.5 percent for 2001 compared to 20.2 percent for 2000, and 20.1 percent for 1999. The gross profit margin for 2001 was affected by the LIFO inventory adjustment, which decreased cost of goods sold by $4.2 million. The LIFO adjustment increased cost of goods sold by $374,000 and $1.4 million in 2000 and 1999, respectively. Inventory quantity reductions contributed to the positive effect of LIFO for 2001. Excluding the LIFO adjustment, margins declined in 2001 as a result of competitive pricing conditions and an aggressive strategy to dispose of unproductive inventory.

Operating expenses increased $3.0 million from 2000's $88.4 million to $91.4 million in 2001. 1999's operating expenses were $88.1 million. Higher personnel-related costs, non-cash charges of $847,000 related to accounts receivable valuation reserves and a decline in non-cash pension income, which reduces operating expense, account for much of the increase. Operating expenses benefited in 2001, 2000, and 1999 from non-cash pension credits of $2.8 million, $4.4 million, and $3.8 million, respectively as a result of the Company having an over-funded pension plan.

The combination of lower sales and higher operating expenses resulted in a 34.1 percent decline in operating profits compared to 2000. Operating profits for 2000 were 17.2 percent higher than 1999. Other non-operating income for 2001 declined 19.9 percent compared to 2000. Other income in 2000 benefited from non-recurring gains of $817,000 on the sale of a Company aircraft and real estate. Interest expense decreased 36.5 percent to $1.7 million in 2001 from $2.7 million in 2000. Lower interest rates and reduced borrowings accounted for the decline. Interest expense for 1999 was $2.8 million.

The effective tax rate was 39.3 percent, 39.5 percent, and 38.8 percent in 2001, 2000, and 1999, respectively.

The Company maintains its short and long-term liquidity

through: (1) cash flow from operations; (2) short-term financings; (3) bank line of credit borrowings, when needed; and (4) additional long-term debt, when needed.

In 2001 net cash provided by operating activities was $21.1 million compared to $12.9 million in 2000 and $23.4 million in 1999. Cash from operations in 2001 was used to reduce long-term debt by $7.5 million, for capital expenditures of $8.4 million, to pay dividends, and to repurchase and retire 29,172 shares of the Company's outstanding common stock for $669,000. Working capital decreased $1.8 million, but the current ratio increased to 2.4 from 2.3. Management believes the Company's liquidity, working capital and capital resources are sufficient to meet the working capital and capital expenditure needs of the foreseeable future.

The Company continued its progress on the inventory front in 2001. Inventory turns improved, unproductive inventory was reduced, and the total investment in inventory declined $7.4 million after a $4.7 million reduction in 2000.

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 entered into two separate interest rate swaps to manage it's exposure to interest rate changes on it's borrowings. These swaps are with financial institutions that have investment grade credit ratings, minimizing the risk of credit loss. Both swaps are non-trading.

At December 31, 2001, the Company had two swap agreements at an aggregate notional amount of $20,075,000 to manage interest rate changes related to the Company's industrial revenue bonds and a portion of its revolving credit agreement. The swaps effectively convert the variable rate borrowings (LIBOR and BMA Municipal Swap Index) into fixed rate borrowings with fixed rates of 5.36% and 4.22%.

Statement of Financial Accounting Standards (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 face 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 other comprehensive income ("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. Other comprehensive income was reduced by $303,000, net of tax benefit of $185,000 as of December 31, 2001.

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. The discount rate for calculating 2002 pension credits is expected to decline resulting in a lower credit than 2001 and 2000.

The Financial Accounting Standards Board ("FASB") has issued SFAS No. 141 "Business Combinations," SFAS No. 142 "Goodwill and Other Intangible Assets," and SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets" that are effective for years beginning after December 15, 2001 and SFAS No. 143 "Accounting for Asset Retirement Obligations" that is effective for years beginning after June 15, 2002. Adoption of these statements is not expected to have a material impact on the Company's financial statements.

To the Board of Directors and Stockholders of Noland Company:

We have audited the accompanying consolidated balance sheet of Noland Company and Subsidiary (the Company) as of December 31, 2001, and the related consolidated statements of income, stockholders' equity and comprehensive income, and cash flows for the year then ended. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audit. The accompanying consolidated financial statements of the Company as of December 31, 2000 and 1999 were audited by other auditors whose report thereon dated February 22, 2001, expressed unqualified opinions on those consolidated statements.

We conducted our audit in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.

In our opinion, the 2001 consolidated financial statements referred to above present fairly, in all material respects, the financial position of Noland Company as of December 31, 2001, and the results of their operations and their cash flows for the year then ended in conformity with accounting principles generally accepted in the United States of America.

KPMG LLP

Norfolk, Virginia

February 22, 2002

First Quarter Second Quarter Third Quarter Fourth Quarter

For the years ended December 31, 2001, 2000 and 1999

(In thousands, except per share amounts) 2001 2000 1999

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

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

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

For the years ended December 31, 2001, 2000 and 1999

(In thousands, except share amounts)

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

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Noland Company and Subsidiary

Noland Company is a wholesale distributor of mechanical equipment and supplies. These products are categorized under plumbing, air conditioning, and electrical/industrial.

Markets for these products include contractors, industrial plants, utilities and others. The Company operates in only one segment of business.

The consolidated financial statements include the accounts of Noland Company and its wholly owned subsidiary. All material intercompany transactions have been eliminated.

The Company disposed of its fifty percent interest in two foreign joint ventures in 2001. Prior to the sale, the equity method of accounting was used for both entities. The aggregate investment in and results of operations from both joint ventures are not material.

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Material estimates that are susceptible to changes in the near term are the allowance for doubtful accounts, last-in, first-out (LIFO) reserve, and pension plan assumptions.

Inventory is stated at the lower of cost or market. The cost of inventory has been principally determined by the LIFO method since 1974.

Property and equipment are valued at cost less accumulated depreciation.

Depreciation is computed by the straight-line method based on estimated useful lives of 20 to 40 years for buildings and 3 to 10 years for equipment and fixtures.

Expenditures for maintenance and repairs are charged to earnings as incurred. Upon disposition, the cost and related accumulated depreciation are removed and the resulting gain or loss is reflected in income for the period.

The Company reevaluates property, plant, and equipment whenever significant events or changes occur which might impair recovery of recorded costs. Impaired assets, if any, are written down to fair value.

Property in excess of current needs consists primarily of land held for possible future expansion.

A deferred tax asset or liability is recognized for the deferred tax consequences of all temporary differences.

f. Cash and Cash Equivalents

The Company considers all highly liquid debt instruments purchased with an original maturity of three months or less to be cash equivalents. Due to the short maturity period of cash and cash equivalents, the carrying amount approximates the fair value.

Cash is maintained in bank deposit accounts which, at times,

may exceed federally insured limits. The Company has not experienced any losses in such accounts and believes it is not exposed to any significant credit risk on cash and cash equivalents. There are no requirements for compensating balances.

The Company uses interest rate swap agreements to reduce its exposure to market risks from changing interest rates. Two swap agreements are outstanding at December 31, 2001. The agreements are accounted for in accordance with Statement of Financial Accounting Standards (SFAS) No. 133 "Accounting for Certain Derivative Instruments and Certain Hedging Activities," as amended by SFAS No. 138, which became effective

January 1, 2001. SFAS No. 133 established accounting and reporting standards that require all derivative instruments be recorded in the balance sheet as an asset or liability measured at its fair value. Changes in a derivative's fair value must be recognized currently in earnings unless specific hedge accounting criteria are met.

Special accounting for qualifying hedges allows a derivative instrument's gains and losses to be recorded in the statement of stockholders equity as a component of other comprehensive income for cash flow hedges, and requires that the Company formally document, designate, and assess the effectiveness of transactions that receive hedge

accounting. The Company does not hold or issue financial instruments for trading purposes.

All employees with at least one year of service participate in one or more of the Company's extra compensation plans, which are based on earnings before income taxes and certain adjustments. The cost of these plans was $1,793,000 in 2001, $2,140,000 in 2000 and $2,150,000 in 1999.

The Company provides a restricted stock plan for certain executives of the Company. Under the Plan, 100,000 shares in the aggregate, limited to 10,000 shares per year, may be granted as restricted stock. Participants may not dispose or otherwise transfer stock granted for three years from date of grant. Restrictions lapse on 20 percent of the stock per year beginning at the end of the third year. Upon issuance of stock under the plan, unearned compensation equivalent to the market value at the date of grant is recorded in a contra-equity account and amortized over seven years. Shares granted for 2001, 2000, and 1999 were 9,900, 10,000, and 9,700 with a fair value of $188,000, $168,000, and $238,000, respectively. The amount amortized to compensation expense in 2001, 2000, and 1999 was $154,000, $136,000, and

$118,000, respectively. In addition, 500, 900, and 1,500 shares were forfeited in 2001, 2000, and 1999, respectively.

Effective July 1, 1999 the Company adopted the 1999 Outside Directors Stock Plan (the Plan) to provide incentive and award to the Company's Outside Directors. The Common Stock Benefit Trust (the Trust), a grantor trust, was established to provide a source of funds to meet the obligations of the Plan. The Trust is consolidated with the Company. The cost of purchased shares or par value of issued shares held by the Trust, net of the deferred compensation expense, is shown as a reduction of stockholders' equity. In 2001, 2000, and 1999, $22,000, $20,000, and $44,000 was charged against stockholders' equity, and $51,000, $38,000, and $23,000 recorded as director compensation, respectively.

Basic earnings per share for 2001, 2000, and 1999 is calculated based on 3,540,212, 3,614,951, and 3,676,276 shares, respectively. Diluted earnings per share for 2001, 2000, and 1999 is based on 3,576,630, 3,646,517 and 3,700,876 shares, respectively. The dilutive potential shares consist of restricted stock.

The Financial Accounting Standards Board has issued the following Statements of Financial Accounting Standards: SFAS No. 141 "Business Combinations," SFAS No. 142 "Goodwill and Other Intangible Assets," SFAS No. 143 "Accounting for Asset Retirement Obligations," and SFAS No. 144 "Accounting for the Impairment or Disposal of Long-Lived Assets." Adoption of these Statements is not expected to have a material impact on the Company's financial statements.

Revenue from product sales is recognized when goods are received by the customer or the risks and rewards of ownership transfer to the customer.

Certain amounts in prior years' financial statements have been reclassified to conform to the 2001 presentation.

Accounts receivable are net of an allowance for doubtful accounts of $2,312,000, $1,464,000, and $1,008,000 as of December 31, 2001, 2000, and 1999, respectively. Bad debt charges, net of recoveries, were $1,860,000 for 2001, $1,169,000 for 2000 and $1,147,000 for 1999.

Comparative year-end inventories are as follows:

Liquidation of certain inventory layers carried at the lower costs which prevailed in prior years as compared with the costs of 2001, 2000, and 1999 purchases had the effect of increasing 2001, 2000, and 1999 net income $2,085,000 ($.58 per share), $232,000 ($.06 per share), and $47,000 ($.01 per share), respectively.

Amounts payable to banks at December 31, 2001, 2000, and 1999 were $4,000,000, $8,475,000, and $7,800,000, respectively. The average interest rate, which is based on existing Federal Funds rates, was 2.2 percent at December 31, 2001, 7.1 percent at December 31, 2000, and 5.4 percent at December 31, 1999. The carrying amount of these short-term borrowings approximates fair value because of the short maturity.

The Company had unused lines of credit totaling $43.5 million at December 31, 2001.

(1) Subject to agreements that require the Company to maintain not less than $55,000,000 in working capital and not less than a 1.75-to-1 year-end current ratio. Cash dividends cannot exceed 50 percent of earnings, excluding net gains on disposition of capital assets, reckoned accumulatively from January 1, 1986. Earnings retained since that date not restricted under this provision amount to $20,480,000.

(2) The Company has an unsecured term revolver loan with a committed amount of $15,000,000. The Company may pay down and reborrow within the committed amount

without penalty except for a non-usage fee if the average usage for a 90 day period is less than 50 percent.

(3) Industrial Development Revenue Refunding Bonds are callable at the option of the bondholders upon giving seven days notice to the Trustee. The maturity date of these bonds was extended for five years in 2000. To ensure payment of the long-term refunding bonds the Company has caused to be delivered to the Trustee an irrevocable, direct pay letter of credit in favor of the Trustee in the amount of $10,440,000. The contract amount of the letter of credit is a reasonable estimate of its fair value as the rate is fixed over the life of the commitment. No material loss is anticipated due to nonperformance by the counterparties to those agreements.

Annual maturities of long-term debt for the five years subsequent to December 31, 2001, are as follows: 2002, $1,465,000; 2003, $10,024,000; 2004, $24,000; 2005, $1,524,000; 2006, $1,040,000.

Late in the second quarter of 2001 the Company entered into two interest rate swap agreements. Under the agreements the Company agreed to exchange, at specified intervals, the difference between fixed and variable interest amounts that are calculated by reference to notional amounts of $10,000,000 and $10,075,000. The swaps effectively convert the variable rate borrowings (LIBOR and BMA Municipal Swap Index) into fixed rate borrowings with fixed rates of 5.36% and 4.22% and maturity dates of May 2006 and February 2009. Any difference between interest paid and received on the swap is recognized as interest expense over the life of each swap, thereby adjusting the effective interest rate on the underlying obligations.

Accounting for the swaps in accordance with SFAS No. 133, as amended by SFAS No. 138, resulted in a loss of $303,000, net of an income tax benefit of $185,000, in other comprehensive income for changes in fair value of the cash flow hedges for the year ended December 31, 2001. Included in other debt is $488,000, which is the fair value of the derivatives.

The following tables reconcile the plan's change in benefit obligation and show the plan's funded status at December 31, 2001, 2000, and 1999.

The discount rate used to calculate the benefit obligation was 7.25 percent for 2001, 7.60 percent for 2000, and 8.00 percent for 1999. There are no plan assets. Employer paid benefits are limited to a fixed reimbursement allowance based on years of service at retirement. No health care cost trend assumption is necessary.

The components of the provision for net periodic postretirement benefit costs are:

The following tables reconcile the plan's change in benefit obligation and change in plan assets and show the funded status at December 31, 2001, 2000, and 1999.

Weighted-average assumptions as of the end of the year were:

The components of the net pension benefit are:

The components of income tax expense are as follows:

The components of the net deferred tax liability are:

The reasons for the difference between total tax expense and the amount computed by applying the statutory federal income tax rate to income before income taxes are as follows:

9. Lease Commitments/Related Parties

The Company leases some of the warehouse and office facilities used in its business. These leases have varying expiration dates and often include renewal and purchase options. Certain leases require the Company to pay escalations in cost over base amounts for taxes, insurance, or other operating expenses incurred by lessor. The corporate office is leased from a related party for an annual rent of $260,000.

Rental expense under operating leases for 2001, 2000, and 1999 was $1,797,000, $1,528,000, and $1,558,000, respectively.

Minimum payments due for years after 2001 under noncancelable operating leases are $1,728,000 in 2002, $1,548,000 in 2003, $1,119,000 in 2004, $1,018,000 in 2005, $803,000 in 2006, and $343,000 thereafter.

The Board of Directors authorized the repurchase and retirement of up to 250,000 shares of the Company's outstanding common stock. Shares retired were 29,172 in 2001 and 117,996 shares in 2000, at a cost of $669,000 and $2,103,000, respectively.

The Company sells its products to all major areas of construction and manufacturing markets throughout the Southern United States. When the Company grants credit, it is primarily to customers whose ability to pay is dependent upon the construction and manufacturing industry economics prevailing in the Southern United States; however, concentrations of credit risk with respect to trade accounts receivable are limited due to the large number of customers comprising the Company's customer base. The Company performs ongoing credit evaluations of its customers and in certain situations requires collateral. The Company maintains allowances for potential credit losses, and such losses have been within management's expectations.

The Company is a defendant in various lawsuits arising in the normal course of business. In the opinion of management, the outcome of these lawsuits will not have material adverse effect on the Company's financial position or results of operations.

The Company elected the LIFO method of inventory valuation in 1974.

The above information (i.e., gross profit, income and taxes) is stated on that basis.

Had the Company used the FIFO method, the results would have been: