~~FORM~~UNITED ~~10-Q~~STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d)

OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarter ended ~~June~~September 30, 2004 Commission file no. 2-27393

NOLAND COMPANY

A Virginia Corporation IRS Identification #54-0320170

80 29^th 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~~October 3129, 2004: 3,~~383~~384,~~656~~027 shares.

This report contains 2019 pages.

NOLAND COMPANY AND SUBSIDIARIES

INDEX

Part I. FINANCIAL INFORMATION PAGE NO.
Item 1. Financial Statements
Consolidated Balance Sheets -
June 30, 2004 (Unaudited) and Dec. 31, 2003 (Audited) . . . . . . . .3
Unaudited Consolidated Statements of Income -
Three Months and Six Months Ended June 30, 2004 and 2003 . . . . . . . .4
Unaudited Consolidated Statements of Cash Flows -
Six Months Ended June 30, 2004 and 2003 . . . . . . . .5
Notes to Unaudited Consolidated Financial Statements . . . . . . . .6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations . . . . . . . .8
Item 3. Qualitative and Quantitative Disclosures
About Market Risk . . . . . . . 12
Item 4. Controls and Procedures . . . . . . . 13
Part II. Other Information
Item 1. Legal Matters . . . . . . . 14
Item 4. Submission of Matters to a Vote of Security
Holders . . . . . . . 14
Item 6. Exhibits and Reports on 8-K . . . . . . . 15
SIGNATURE . . . . . . . 16
EXHIBITS . . . . . . . 17
Page No.

~~PART~~Part I. Financial ~~FINANCIAL INFORMATION~~Information

Item 1. Financial Statements

Unaudited Consolidated Balance Sheets -

September 30, 2004 and December 31, 2003 . . . . . . . . . . . . . 3

Unaudited Consolidated Statements of Income -

Three Months and Nine Months Ended September 30, 2004 and 2003 . . 4

Unaudited Consolidated Statements of Cash Flows -

Nine Months Ended September 30, 2004 and 2003 . . . . . . . . . . 5

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

Item 2. Management's Discussion and Analysis of Financial

Condition and Results of Operations . . . . . . . .. . 9

Item 3. Qualitative and Quantitative Disclosures About

Market Risk . . . . . . . . . . . . . . . . . . . . . .12

Item 4. Controls and Procedures . . . . . . . . . . . . . . . . .13

Part II. OTHER INFORMATION

Item 1. Legal Matters . . . . . . . . . . . . . . . . . . . . . . 14

Item 6. Exhibits . . . . . . . . . . . . . . . . . . . . .. . . . 14

SIGNATURE
. . . . . . . . . . . . . . . . . . . . . . . .. . . . .15

EXHIBITS . . . . . . . . . . . . . . . . . . . . . . . . . . . .
16

PART 1. FINANCIAL INFORMATION

NOLAND COMPANY AND SUBSIDIARIES

Unaudited Consolidated Balance Sheets

Item 1. Financial Statements

~~June~~ September 30, December 31,

2004 2003

(Unaudited) (Audited)
Assets

Current Assets:

Cash and cash equivalents $ 3,~~904~~453,~~101~~ 104 $ 3,703,719

Trade accounts receivable, net 63 60,~~438~~952,~~275~~ 854 48,122,094

Other accounts receivable 7,~~006~~606,~~485~~ 280 8,570,010

Inventory, net 69,~~787~~157,~~625~~ 017 67,690,838

Other current assets 2,~~236~~802,~~165~~ 371 1,678,995

Total Current Assets ~~146~~ 143,~~372~~971,~~651~~ 626 129,765,656

Property and Equipment, at cost:

Land 19,~~620~~631,~~002~~ 107 19,062,864

Buildings 111,~~772~~696,~~266~~ 838 109,211,586

Equipment and fixtures 73 74,~~143~~409,~~001~~ 408 71,726,775

Property in excess of current needs 5,~~882~~652,~~716~~ 747 3,458,760

Total ~~210~~ 211,~~417~~390,~~985~~ 100 203,459,985

Less accumulated depreciation 92 93,~~333~~617,~~590~~ 524 90,368,999

Property and Equipment, net ~~118~~ 117,~~084~~772,~~395~~ 576 113,090,986

Assets Held for Resale 247,136 247,136

Prepaid Pension 27,~~380~~536,~~056~~ 556 27,067,056

Other ~~Assets~~ assets 1,~~080~~347,~~588~~ 798 1,090,610

Total Assets $~~293~~290,~~164~~875,~~826~~ 692 $271,261,444

Liabilities and Stockholders' Equity

Current Liabilities:

Notes payable, - short-term ~~borrowings~~ borrowing $ 4 6,~~975~~055,~~173~~135 $ 6,627,197

Current maturity of long-term debt ~~516~~ 513,~~016~~ 207 521,691

Bank overdrafts 5 6,~~440~~235,~~571~~ 602 5,677,062

Accounts payable 38 35,~~358~~848,~~933~~ 696 27,932,064

Other accruals and liabilities 15 17,~~965~~597,~~333~~ 057 18,~~041~~891,~~681~~885

~~Federal~~ Total ~~and~~Current ~~state income taxes - 850~~Liabilities 66,~~204~~249,697 59,649,899

~~Total~~Long-term ~~Current Liabilities 65~~Debt 32,~~256~~039,~~026 59~~180 35,~~649~~144,~~899~~703

~~Long-term~~Deferred ~~Debt 37~~Income Taxes 20,~~066~~189,~~712 35~~530 15,~~144~~649,~~703~~607

~~Deferred~~Accrued ~~Income~~Postretirement ~~Taxes 20~~Benefits 2,~~214~~439,~~295~~786 152,~~649~~313,~~607~~502

~~Accrued~~Total ~~Postretirement Benefits 2~~Liabilities 120,~~384~~918,~~352 2~~193 112,~~313~~757,~~502~~711

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

Stockholders' Equity:

Capital common stock, par value $10;

authorized, 6,000,000 shares; issued,

3,~~383~~384,~~656~~027 and 3,373,267 shares 33,~~836~~840,~~560~~ 270 33,732,670

Additional paid in capital 762,635 416,510

Retained earnings ~~135~~ 136,~~015~~686,~~979~~ 723 125,715,351

Accumulated other comprehensive loss,

net of tax (~~591~~627,~~597~~099) (880,862)

Unearned compensation, stock plans (~~780~~705,~~136~~030) (479,936)

Total Stockholders' Equity ~~168~~ 169,~~243~~957,~~441~~ 499 158,503,733

Total Liabilities and Stockholders' Equity$~~293~~290,~~164~~875,~~826~~ 692 $271,261,444

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

NOLAND COMPANY AND SUBSIDIARIES

Unaudited Consolidated Statements of Income

Three Months Ended ~~Six~~ Nine Months Ended

~~June~~ September 30, ~~June~~ September 30,

2004 2003 2004 2003

Merchandise ~~Sales~~ sales $~~145~~140,~~630~~260,~~713~~444 $~~122~~121,~~532~~771,~~036~~ 477 $~~268~~408,~~396~~656,~~504~~948 $~~232~~354,~~694~~466,~~643~~120

Cost of goods sold:

Purchases and freight-in ~~113~~ 110,~~874~~403,~~063 96~~576 92,~~213~~497,~~605 214~~771 325,~~599~~002,~~108 181~~684 273,~~472~~970,~~871~~642

Inventory, beginning 72 69,~~798~~787,~~001 60~~625 61,~~883~~517,~~700~~ 106 67,690,838 60,869,800

Inventory, ending ( 69,~~787~~157,~~625)~~017 ~~(61~~60,~~517~~412,~~106) (~~234 69,~~787~~157,~~625)~~017 6160,~~517~~412,~~106)~~234

Cost of goods sold ~~116~~ 111,~~884~~034,~~439 95~~184 93,~~580~~602,~~199 212~~643 323,~~502~~536,~~321 180~~505 274,~~825~~428,~~565~~208

Gross profit on sales 28 29,~~746~~226,~~274 26~~260 28,~~951~~168,~~837 55~~834 85,~~894~~120,~~183 51~~443 80,~~869~~037,~~078~~912

Operating expenses 25 26,~~820~~189,~~097 23~~833 24,~~646~~005,~~220 49~~639 76,~~817~~006,~~064 46~~897 70,~~761~~767,~~672~~311

Rental income ~~292,~~ 283 ~~325~~,278 351,779 ~~624~~ 907,~~181 532~~459 884,~~391~~170

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

property __ ~~Operating profit 12~~85,~~662~~654 672,~~745 4~~338 _9,~~055~~540,~~829 16~~525 __4,~~156~~517,~~171 9,485,116~~657

Operating ~~Other income 389~~profit 3,~~662 380~~405,~~257 747~~359 5,~~293 820~~187,~~190~~312 19,561,530 14,672,428

Other ~~Interest~~income (expense ~~397,960 321,415 777,030 619,517~~):

Service ~~Income before income taxes 12~~charges 304,~~654~~171 298,~~447 4~~041 902,~~114~~169 910,~~671 16,126,434 9,685,789~~735

~~Income taxes 4~~Miscellaneous (22,~~919,400~~978) 1259,~~610~~648 126,~~400 6~~317 467,~~285,300 3,761,300~~144

Total ~~Net~~other income ~~$ 7~~ 281,~~735~~193 557,~~047 $ 2~~689 1,~~504~~028,~~271 $ 9~~486 1,~~841~~377,~~134 $ 5,924,489~~879

Interest expense 381,617 342,985 1,158,647 962,502

Income before taxes 3,304,935 5,402,016 19,431,369 15,087,805

Income taxes:

State 246,000 325,600 1,230,900 911,300

Federal 1,117,500 1,811,000 6,417,900 4,986,600

Total income taxes 1,363,500 2,136,600 7,648,800 5,897,900

Net income $ 1,941,435 $ 3,265,416 $ 11,782,569$ 9,189,905

Earnings per share:

Basic $ ~~2.32~~ $.58 $ .7398 $ 3.53 $ 2.~~95 $ 1.71~~69

Diluted $ ~~2.29~~ $.57 $ .7397 $ 3.50 $ 2.~~92 $ 1.70~~67

Average shares outstanding:

Basic 3,~~338~~340,~~313 3~~672 ,~~424~~329,~~986~~ 515 3,~~335~~337,~~836~~ 459 3,~~455~~412,~~175~~619

Diluted 3,~~370~~377,~~947~~478 3,~~453~~365,~~625~~ 328 3,~~368~~370,~~885~~ 010 3,~~486~~443,~~283~~630

Cash dividends per share $ .08 $ $ .08 $ ~~.16~~ .24 $ .1624

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

NOLAND COMPANY AND SUBSIDIARIES

Unaudited Consolidated Statements of Cash Flows

~~Six~~Nine Months Ended

~~Ended~~September ~~June~~ 30,

	2004	2003
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income	$911,~~841~~782,~~134~~569	$ 59,~~924~~189,~~489~~905
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	46,~~478~~799,~~674~~646	35,~~901~~944,~~083~~106
Decrease (increase) in prepaid pension cost	(~~313~~469,~~000~~500)	~~104~~156,000
Increase in accrued postretirement benefits	70126,~~850~~284	57103,~~131~~957
Amortization of unearned compensation-restricted stock	~~149~~228,~~815~~631	96151,~~615~~644
Provision for doubtful accounts	~~(41~~1,~~901)~~020,330	~~(389~~1,~~722)~~005,012
Increase in LIFO Reserve Gains from sale of property	24,~~700~~743,000 (9,~~454~~540,~~871~~525)	~~250~~500,000 (34,~~845~~517,~~319~~657)
Deferred income taxes	4,388,149	-
Change in operating assets and liabilities:
(Increase) in accounts receivable	(15,274,280)	(5,180,537)
(Increase) in trade accounts receivable	(13,851,090)	(3,437,384)
Decrease in other accounts receivable	1963,~~563,525~~730	2431,~~379,636~~504
(Increase) in inventory	(46,~~796~~209,~~787~~179)	(~~897~~42,~~306~~434)
(Increase) decrease in other current assets	(557,170)	48,160
(Increase) in other current assets	(1,123,376)	(176,181)
Decrease (increase) in other assets	6,938	(459,841)
(Increase) in other assets	(261,814)	( 366,170)
Increase (decrease) in accounts payable	107,~~426~~916,~~869~~632	(~~425~~398,~~147~~259)
(Decrease) in accruals and other liabilities	(1,610,545)	(1,118,289)
(Decrease) increase in accruals and other liabilities	(889,291)	2,915,735
(Decrease) increase in accrued income taxes	(850,204)	951,609
Total adjustments	(6,158,373)	2,269,873
Total adjustments	(9,113,938)	(4,527,927)
Net cash provided by operating activities	5,624,196	11,459,778
Net cash provided by operating activities	727,196	1,396,562
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures	(1013,~~025~~006,~~116~~953)	(1928,~~581~~168,~~911~~791)
Proceeds from sale of assets	1011,~~010~~070,~~988~~868	79,~~994~~049,~~476~~838
Net cash used in investing activities	( ~~114~~1,~~128~~936,085)	(1119,~~587~~118,~~435~~953)
CASH FLOWS FROM FINANCING ACTIVITIES:
Short-term debt (payments) borrowings - net	(1572,~~652,024~~062)	96,~~427~~872,~~326~~352
(Decrease) in bank overdrafts	(236,491)	(975,404)
Increase (decrease) in bank overdrafts	558,540	(1,286,314)
Long-term debt borrowings - net	1,916,334	7,126,970
Long-term debt (payments) borrowings - net	(3,114,007)	7,097,966
Retirement of common stock	-	(6,~~307~~276,~~617~~002)
Dividends paid	(~~540~~811,~~505~~197)	(~~564~~834,~~825~~588)
Net cash (used in) provided by financing activities	(~~512~~3,~~686~~938,726)	85,~~706~~573,~~450~~414
CASH AND CASH EQUIVALENTS:
Increase (decrease) during first six months	200,382	(1,484,423)
Decrease during first nine months	(250,615)	(2,085,761)
Beginning of year	3,703,719	5,752,095
End of first six months	$3,904,101	$ 4,267,672
End of first nine months	$3,453,104	$ 3,666,334
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Non-cash increase in fair value of derivatives	$ ~~289~~253,~~265~~763	$ ~~170~~27,~~984~~712
Common stock and additional paid in capital related
to equity compensation plans	$ ~~450~~453,~~015~~725	$ ~~367~~339,~~223~~056

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

NOLAND COMPANY AND SUBSIDIARIES

Notes to Unaudited Consolidated Financial Statements

1. InThe ~~the opinion of Management, the~~ accompanying interim consolidated financial statements of Noland Company and Subsidiaries are unaudited and in the opinion of management contain all adjustments (consisting of only normal recurring adjustments) necessary to present fairly the Company's consolidated financial position as of ~~June~~September 30, 2004, and its consolidated results of operations for the three and nine months ended September 30, 2004 and 2003 and its cash flows for the ~~three~~nine ~~and six~~ months ended ~~June~~September 30, 2004 and 2003. The balance sheet as of December 31, 2003 was derived from audited financial statements as of that date.

2. The Notes to Consolidated Financial Statements included in the Company's December 31, 2003 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. The consolidated financial statements include the accounts of Noland Company and its wholly owned subsidiary Noland Properties, Incorporated. Noland Properties, Incorporated has one wholly owned limited liability company which in turn owns two limited liability companies.

4. Due to the seasonal nature of the construction industry supplied by the registrant, results of operations for the three and ~~six~~nine months ended ~~June~~September 30, 2004 are not necessarily indicative of the results for the full year.

5. Trade accounts receivable as of ~~June~~September 30, 2004 and December 31, 2003 are net of allowance for doubtful accounts of $1,~~041~~381,~~305~~414 and $1,083,206, respectively. Quarterly bad debt charges, net of recoveries, were $~~296~~285,~~553~~299 for 2004 and $~~297~~250,~~481~~708 for 2003. Year-to-date bad debt charges, net of recoveries, were $~~562~~847,~~089~~388 for 2004 and $~~591~~842,~~481~~189 for 2003.

6. The Company issued ~~10,112~~371 shares of common stock during the ~~second~~third quarter 2004 ~~for~~under its equity based compensation plans. The issuance of these shares increased ~~additional paid in capital and~~ unearned compensation.

7. At ~~June~~September 30, 2004 the Company has three interest rate swap agreements with an aggregate notional amount of $22,~~133~~107,000 that ~~reduces~~reduce 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 inception 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.

During the three and ~~six~~nine months ended ~~June~~September 30, 2004, the Company reclassified $~~204~~190,000 and $~~411~~601,000, respectively, from other comprehensive income ("OCI") to current period interest expense as required by SFAS No 133 "Accounting for Derivative Instruments and Hedging Activities. " Comparable amounts for the three and ~~six~~nine months ended ~~June~~September 30, 2003 are $~~197~~212,000 and $~~390~~602,000, respectively. The net deferred loss recorded in OCI will be reclassified to earnings as interest payments occur. As of ~~June~~September 30, 2004, approximately $~~831~~809,000 in deferred losses on derivative instruments accumulated in OCI is expected to be reclassified to earnings during the next twelve months.

8. The Company provides retirement benefits and postretirement health and life benefits to its eligible employees. The components of net periodic (income) cost for these plans for the three and ~~six~~nine months ended ~~June~~September 30, 2004 and 2003 are:

Pension Benefits Other Benefits

Three Months Ended ~~June~~September 30 2004 2003 2004 2003

2004 2003 2004 2003

Service cost $ 347,750 $ 303,500 $ 16,000 $ 14,000

Interest cost 788,500 759,500 48,250 50,000

Return on assets (1,336,000)(1,167,750) -- --

Amortization of net gain 43,250 156,750 (12,000) (6,250)

Amortization of transition

obligation -- -- 50,750 50,750

Net periodic (income) cost $(156,500) $ 52,000 $103,000 $108,500

Pension Benefits Other Benefits

~~Six~~ Nine Months Ended ~~June~~September 30

2004 2003 2004 2003

Service cost $ ~~695~~1,~~500~~ 043,250 $ ~~607~~910,~~000~~ 500 $ 3248,000 $ 2842,000

Interest cost 1 2,~~577~~365,~~000 1~~500 2,~~519~~278,~~000 96,~~500 144,750 ~~100~~150,000

Return on assets (24,~~672~~008,000)(23,~~335~~503,~~500~~250) -- --

Amortization of net gain 86 129,~~500 313~~750 470,~~500~~ 250 (2436,000) (1218,~~500~~750)

Amortization of transition

~~obligation~~ Obligation -- -- ~~101~~152,~~500 101~~250 152,~~500~~250

Net periodic (income) cost $(~~313~~469,~~000~~500) $~~104~~156,000 $~~206~~309,000 $~~217~~325,~~000~~500

9. The difference in diluted and basic average shares outstanding used to calculate earnings per share is due to ~~the~~non-vested ~~effect~~shares of restricted stock ~~using the treasury stock method~~.

10. 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~~nine months ended ~~June~~September 30, 2004 and 2003 are as follows:

	Three Months		~~Six~~Nine Months
	Ended June 30,		Ended June 30,
	Ended September 30,		Ended September 30,
	2004	2003	2004	2003
Net income	$71,~~735~~941,~~047~~435	$23,~~504~~265,~~271~~416	$ 911,~~841~~782,~~134~~569	$59,~~924~~189,~~489~~905
Gain (loss) on derivative
Gain (loss) on derivative instruments	(60,266)	319,963	405,538	44,626
instruments	622,369	(206,692)	465,804	(275,337)
Income tax (expense) benefit	24,765	(121,266)	(151,774)	(16,914)
Income tax (expense) benefit	(235,878)	78,336	(176,539)	104,353
Comprehensive income	$1,905,934	$3,464,113	$12,036,333	$9,217,617
Comprehensive income	$8,121,538	$2,375,915	$10,130,399	$5,753,505

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

Overview

Noland Company is an independent wholesale distributor of mechanical equipment and supplies, primarily to the construction trades but also to various other industries. The Company operates in a 13 state territory that ranges from Pennsylvania to Florida, providing plumbing, air conditioning, water systems, electrical and industrial products to a customer base that includes plumbing, heating/cooling, and electrical contractors, mechanical contractors, home builders, well drillers, maintenance/repair organizations, utilities, government agencies, and manufacturing plants. The Company operates in only one segment of business.

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.

Forward-Looking Statements

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.

Critical Accounting Policies

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~~and have not changed since December 31, 2003 are as follows:

Allowance for Doubtful Accounts
Consideration Received from Vendors
Self Insurance Reserves

In the first three months of 2004, there have been no changes in the above critical accounting policies.

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.

Results of Operations

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

In Thousands
Three Months Ended September 30 Nine Months Ended September 30

	2004	2003	% Change	2004	2003	% Change
Sales	$~~145~~140,~~631~~260	$~~122~~121,~~532~~771	1815.92%	$~~268~~408,~~397~~657	$~~232~~354,~~695232,692$$~~466	15.3%
Cost of Goods Sold	~~116~~111,~~885~~034	9593,~~580~~602	2218.36%	~~212~~323,~~503~~537	~~180~~274,~~826~~428	17.59%
Gross Profit	2829,~~746~~226	2628,~~952~~169	63.78%	5585,~~894~~120	5180,~~869~~038	76.83%
Operating Expenses	2526,~~820~~190	2324,~~646~~006	9.21%	4976,~~817~~007	4670,~~762~~767	67.54%
Rental Income	~~293~~283	~~326~~352	-1019.76%	~~624~~908	~~533~~884	172.17%
Gains from Sale of Property	~~9,444~~86	~~424~~672	~~2127~~-87.42%	9,~~455~~541	34,~~845~~517	~~145~~111.92%
Operating Profit	123,~~663~~405	45,~~056~~187	~~212~~-34.24%	1619,~~156~~562	914,~~485~~672	7033.3%
Other Income	~~390~~281	~~380~~558	2-49.6%	~~747~~1,029	~~820~~1,378	-825.93%
Interest Expense	~~398~~382	~~321~~343	2411.04%	~~777~~1,159	~~620~~962	2520.35%
Income Taxes	41,~~920~~363	12,~~611~~137	~~205~~-36.42%	67,~~285~~649	35,~~761~~898	6729.17%
Net Income	$71,~~735~~941	$23,~~504~~265	~~208~~-40.96%	$911,~~841~~783	$59,~~924~~190	6628.12%

Strong construction activity and rising prices contributed to ~~the~~a 1815.92% increase in sales for the ~~second~~third quarter of 2004. ~~The~~despite ~~Company~~hurricanes ~~also~~and ~~benefited~~related ~~from~~bad ~~good~~ weather, in ~~sharp~~August ~~contrast~~and toSeptember ~~the record rainfall a year ago~~ that ~~caused~~disrupted ~~construction~~business ~~delays~~for ~~and~~days ~~adversely~~in ~~affected~~several ~~second~~southern ~~quarter 2003~~markets. ~~All~~ ~~three~~Air ~~product~~conditioning ~~categories~~sales ~~achieved~~in ~~double-digit~~Florida ~~sales~~were ~~gains~~especially inhard ~~the~~hit. ~~second~~However, ~~quarter~~increased ~~led~~business bywith ~~plumbing's~~HVAC ~~21%~~dealers ~~improvement. Hot~~in ~~weather~~other inparts ~~June~~of ~~boosted~~our ~~demand~~territory ~~for~~allowed ~~replacement~~us ~~air~~to ~~conditioning~~continue ~~equipment,~~our ~~contributing~~growth towith aan 1611.2% ~~rise~~increase in air conditioning sales for the quarter compared to the third quarter of 2003. ~~Electrical~~Plumbing and electrical/industrial sales ~~also~~benefited ~~increased~~from 16strong construction levels increasing 17.8% and 14. 8%, respectively. Gross profit margins declined due to ~~intense~~higher ~~competition~~freight costs, pursuit of lower-profit commodity sales 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~~043,000 for the ~~second~~third quarter of 2004 compared to a charge of $~~115~~250,000 for the ~~second~~third quarter of 2003. The Company believes that some key products will continue to experience inflation into 2005.

Operating profit for the ~~second~~third quarter of 2004 ~~increased~~decreased $81,~~607~~782,000, or ~~212~~34.24%, ~~over~~from the ~~second~~third quarter of 2003 due in part to a $9587,~~020,~~000 year-to-year ~~increase~~decrease in gains from the disposal of surplus real property. Operating expenses for the ~~second~~third quarter of 2004 were $2,~~174~~184,000, or 9.21%, 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~~third quarter of 2004 in the amount of $156,500 compared to a pension expense of $52,000 in the ~~second~~third quarter of 2003.

Through the first ~~six~~nine months sales totaled $~~268~~408,~~397~~657,000 or 15.3% more than the first ~~half~~nine months of 2003's $~~232~~354,~~695~~466,000. ~~After~~ After'tax gains from the disposal of surplus real property totaled $5,~~866~~817,000 in the first ~~six~~nine months of 2004 versus $2,~~386~~803,000 in the year-earlier period.

~~Conditions~~Customer ~~appear~~orders tofor befuture ~~favorable~~delivery ~~for~~business ~~continued~~as ~~sales~~of ~~growth~~September in30, ~~the~~2004 ~~third~~were ~~quarter~~15% ~~but~~higher ~~possibly~~than at a ~~slower~~year ~~pace. Customer~~ago ~~orders~~reflecting ~~for~~a ~~future~~continued ~~delivery~~bright ~~business~~outlook ~~are~~for ~~only~~construction ~~modestly~~activity ~~higher~~for ~~than~~the aremainder ~~year~~of ~~ago but~~ the ~~current~~year. ~~level~~We ofbelieve ~~housing~~we ~~construction~~are ~~suggests~~still ~~there~~on ~~are~~track ~~ample~~to ~~opportunities~~turn in ~~the~~a ~~short~~solid ~~term.~~performance Ifin ~~the~~2004, ~~weather~~on ~~cooperates~~top of our ~~recent~~record ~~sales~~earnings ~~momentum~~year ~~should continue~~ in ~~the second quarter~~2003.

Liquidity and Capital Resources

The Company's primary capital requirements for the ~~second~~third 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 $8177,~~117~~722,000 and a current ratio of 2.2 to 1. During the first ~~six~~nine months of 2004 the Company's cash position ~~increased~~decreased $~~200~~251,000.

The Company's main properties consist of 102 branch facilities in thirteen southeastern states. Eighteen of the properties are leased and Noland Properties, Inc., a wholly owned subsidiary of Noland Company, owns the remaining eighty-four. Independent appraisals of most of the owned properties indicate that the fair market value of the owned properties is higher than the historical cost shown on the consolidated balance sheet as of September 30, 2004.

Item 3. Quantitative and Qualitative Disclosure About Market Risk

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~~September 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 industrial 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 and SFAS No. 149, 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~~decreased $~~386~~60,000, net of ~~income~~a tax ~~expense~~benefit of $~~236~~25,000, for the three months ended ~~June~~September 30, 2004 and increased $~~289~~406,000, net of ~~income~~a tax expense of $~~177~~152,000, for the ~~six~~nine months ended ~~June~~September 30, 2004. ~~Comparable~~ ~~amounts~~OCI increased for the three and ~~six~~nine months ended ~~June~~September 30, 2003 ~~were decreases~~by of $~~128~~199,000, net of a tax benefit of $78121,000 and $~~171~~28,000, net of a tax ~~benefit~~expense of $~~104~~17,000, 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.

Item 4. Controls and Procedures

(a) Evaluation of disclosure controls and procedures: The Company's Chief Executive Officer and Chief Financial Officer evaluated the effectiveness of the design and operation of its disclosure controls and procedures as of the end of the periodyear covered by this quarterlyannual report. The Company's disclosure controls and procedures are designed to ensure that information required to be disclosed by the Company in the reports that are filed or submitted under the Securities Exchange Act of 1934 is recorded, processed, summarized, and reported within the time periods specified in the Securities and Exchange Commission's rules and forms. Based on this evaluation, the Company's Chief Executive Officer and Chief Financial Officer concluded that these controls and procedures are effective as of the end of the period covered by this quarterly report.

(b) Change in internal controls: During the quarter ended ~~June~~September 30, 2004, there have been no changes in the Company's internal control over financial reporting, identified in connection with our evaluation thereof, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Part II. OTHER INFORMATION

Item 1. Legal Matters

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.

Item 46. ~~Submission~~Exhibits ~~of Matters to a Vote of Securities Holders~~

a) The Company's 2003 Annual Meeting of Stockholders was held on April 29, 2004. Holders of 3,251,917 shares, 96.4 percent of outstanding shares, were present in person or by proxy.

b) The Company's management solicited proxies pursuant to Regulation 14 under the Securities Exchange Act of 1934. There was no solicitation in opposition to management's nominees as listed in the proxy statement. The following nominees were elected pursuant to the vote of the stockholders:

Name	For	Abstain or Authority Withheld
Thomas N. Allen	3,243,843	8,074
Mark M. Gambill	3,242,590	9,327
Allen C. Goolsby	3,181,391	70,526
Arthur P. Henderson, Jr.	3,183,939	67,978
Kenneth C. King	3,183,966	67,951
C. Edward Pleasants	3,243,843	8,074
Lloyd U. Noland, III	3,184,442	67,475

Item 6. Exhibits and Reports on 8-K

a) Exhibits:

31.1 Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

31.2 Certification of the Vice President - Finance pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

32.1 Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

32.2 Certification of the Vice President ' Finance pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

b) Reports on 8-K: None
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

~~August~~October 529, 2004 Arthur P. Henderson, Jr.

Arthur P. Henderson, Jr.

Vice President ' Finance

Part I. FINANCIAL INFORMATION	PAGE NO.
Item 1. Financial Statements
Consolidated Balance Sheets -
June 30, 2004 (Unaudited) and Dec. 31, 2003 (Audited)	. . . . . . . .3
Unaudited Consolidated Statements of Income -
Three Months and Six Months Ended June 30, 2004 and 2003	. . . . . . . .4
Unaudited Consolidated Statements of Cash Flows -
Six Months Ended June 30, 2004 and 2003	. . . . . . . .5
Notes to Unaudited Consolidated Financial Statements	. . . . . . . .6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations	. . . . . . . .8
Item 3. Qualitative and Quantitative Disclosures
About Market Risk	. . . . . . . 12
Item 4. Controls and Procedures	. . . . . . . 13
Part II. Other Information
Item 1. Legal Matters	. . . . . . . 14
Item 4. Submission of Matters to a Vote of Security
Holders	. . . . . . . 14
Item 6. Exhibits and Reports on 8-K	. . . . . . . 15
SIGNATURE	. . . . . . . 16
EXHIBITS	. . . . . . . 17

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