<PAGE> 1
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported) FEBRUARY 18, 1997
HUGHES SUPPLY, INC.
(Exact Name of Registrant as Specified in Charter)
<TABLE>
<S> <C> <C>
FLORIDA 001-08772 59-0559446
(State or Other Jurisdiction (Commission File Number) (IRS Employer Identification
of Incorporation) No.)
20 North Orange Avenue, 32801
Suite 200, (Zip Code)
Orlando, Florida
(Address of Principal
Executive Offices)
</TABLE>
Registrant's telephone number, including area code (404) 841-4755
NOT APPLICABLE
(Former Name or Former Address, if Changed Since Last Report)
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<PAGE> 2
ITEM 5. OTHER EVENTS
Hughes Supply, Inc., a Florida corporation (the "Registrant"), has restated
its financial statements for the years ended January 26, 1996, January 27, 1995
and January 28, 1994 and for the nine months ended October 31, 1996 and October
31, 1995 (the "Supplemental Consolidated Financial Statements"). The
Supplemental Consolidated Financial Statements give effect to the business
combinations between the Registrant and Panhandle Pipe & Supply Co., a West
Virginia corporation, Sunbelt Supply Co., a Texas corporation, and Metals,
Incorporated, Stainless Tubular Products, Inc. and Metals, Inc.-Gulf Coast
Division, each an Oklahoma corporation, accounted for as poolings of interests.
Accordingly, these Supplemental Consolidated Financial Statements supersede the
Consolidated Financial Statements filed as a part of the Registrant's
Registration Statement on Form S-3, dated November 6, 1996 ( File No.
333-15675). A copy of the Supplemental Consolidated Financial Statements are
attached as Exhibit 99.1 to this Report, and Management's Discussion and
Analysis of Financial Condition and Results of Operations is attached as Exhibit
99.2 to this report. Each Exhibit is incorporated by reference herein.
ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS
(c) Exhibits
<TABLE>
<S> <C>
99.1 Supplemental Consolidated Financial Statements for the years
ended January 26, 1996, January 27, 1995 and January 28,
1994 and for the nine months ended October 31, 1996 and
October 31, 1995.
99.2 Management's Discussion and Analysis of Financial Condition
and Results of Operations.
99.3 Consent of Price Waterhouse LLP
99.4 Consent of Coopers & Lybrand L.L.P.
</TABLE>
2
<PAGE> 3
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 hereunto duly authorized.
HUGHES SUPPLY, INC.
Date: February 18, 1997
By: /s/ J. STEPHEN ZEPF
--------------------------------------
J. Stephen Zepf
Treasurer and Chief Financial Officer
3
<PAGE> 4
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<S> <C>
99.1 Supplemental Consolidated Financial Statements for the years
ended January 26, 1996, January 27, 1995 and January 28,
1994 and for the nine months ended October 31, 1996 and
October 31, 1995.
99.2 Management's Discussion and Analysis of Financial Condition
and Results of Operations.
99.3 Consent of Price Waterhouse LLP
99.4 Consent of Coopers & Lybrand L.L.P.
</TABLE>
4
<PAGE> 1
EXHIBIT 99.1
SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS
The following supplemental consolidated financial statements give effect to
the business combinations between the Company and Panhandle Pipe & Supply Co.,
Inc. ("PPSC"), Sunbelt Supply Co. ("Sunbelt") and Metals, Incorporated,
Stainless Tubular Products, Inc. and Metals, Inc. -- Gulf Coast Division
(collectively, the "Metals Group") consummated after October 31, 1996 and
accounted for as poolings of interests. These supplemental financial statements
will become the restated historical financial statements of the Company upon the
publication of combined financial results of the combining companies covering a
period subsequent to the acquisitions. The following supplemental consolidated
statements of operations and of cash flows combine the historical consolidated
statements of operations and of cash flows of the Company and PPSC, Sunbelt and
the Metals Group for the three years ended January 26, 1996, January 27, 1995
and January 28, 1994, respectively and the nine months ended October 31, 1996
and 1995. The supplemental consolidated statements of operations and of cash
flows assume the PPSC, Sunbelt, and the Metals Group acquisitions occurred at
the beginning of the earliest period presented. The supplemental consolidated
balance sheets combine the historical consolidated balance sheet of the Company
with the historical consolidated balances sheets of PPSC, Sunbelt and the Metals
Group as of January 26, 1996, January 27, 1995 and October 31, 1996.
The supplemental consolidated earnings per share is based on the combined
weighted average number of shares of Common Stock of the Company and Common
Stock of the Company issued to former shareholders of PPSC, Sunbelt and the
Metals Group for each period. The supplemental consolidated balance sheets
reflect the issuance of 155,556, 483,882 and 537,601 shares of Common Stock of
the Company in exchange for all outstanding shares of PPSC, Sunbelt and the
Metals Group.
INDEX TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS
OF THE COMPANY
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Price Waterhouse LLP, Independent Certified Public
Accountants............................................... 2
Report of Coopers & Lybrand L.L.P., Independent
Accountants............................................... 3
Supplemental Consolidated Balance Sheets as of January 26,
1996 and January 27, 1995................................. 4
Supplemental Consolidated Statements of Income for the
fiscal years ended January 26, 1996, January 27, 1995 and
January 28, 1994.......................................... 5
Supplemental Consolidated Statements of Shareholders' Equity
for the fiscal years ended January 26, 1996, January 27,
1995 and January 28, 1994................................. 6
Supplemental Consolidated Statements of Cash Flows for the
fiscal years ended January 26, 1996, January 27, 1995 and
January 28, 1994.......................................... 7
Notes to Supplemental Consolidated Financial Statements..... 8
Supplemental Consolidated Balance Sheets as of October 31,
1996 (unaudited) and January 26, 1996..................... 21
Supplemental Consolidated Statements of Income for the nine
months ended October 31, 1996 and October 31, 1995
(unaudited)............................................... 22
Supplemental Consolidated Statements of Cash Flows for the
nine months ended October 31, 1996 and October 31, 1995
(unaudited)............................................... 23
Notes to Supplemental Consolidated Financial Statements
(unaudited)............................................... 24
</TABLE>
1
<PAGE> 2
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Shareholders and Board of Directors of Hughes Supply, Inc.
In our opinion, the accompanying supplemental consolidated balance sheets
and the related supplemental consolidated statements of income, shareholders'
equity and of cash flows present fairly, in all material respects, the financial
position of Hughes Supply, Inc. and its subsidiaries at January 26, 1996 and
January 27, 1995, and the results of their operations and their cash flows for
the years ended January 26, 1996 and January 27, 1995, in conformity with
generally accepted accounting principles. These financial statements are the
responsibility of the Company's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these statements in accordance with generally accepted auditing
standards which 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, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed above. The
consolidated financial statements of Hughes Supply, Inc. and its subsidiaries
for the year ended January 28, 1994, prior to restatement, were audited by other
independent accountants whose report dated March 17, 1994 expressed an
unqualified opinion on those financial statements.
As described in Note 2, on December 11, 1996, December 30, 1996 and January
24, 1997, the Company merged with Panhandle Pipe and Supply Co., Inc., Sunbelt
Supply Co., and Metals, Incorporated, Stainless Tubular Products, Inc. and
Metals, Inc. -- Gulf Coast Division, respectively, in transactions accounted for
as poolings of interests. The accompanying supplemental consolidated financial
statements give retroactive effect to the mergers.
The supplemental financial statements for 1994 have been restated to
reflect the poolings of interests described in Note 2. We have audited the
restatement adjustments described in Note 2 that were applied to restate the
1994 supplemental financial statements. In our opinion, such adjustments are
appropriate and have been properly applied to the 1994 supplemental financial
statements.
/s/ PRICE WATERHOUSE LLP
Orlando, Florida
March 14, 1996, except as to the pooling
of interests with Electric Laboratories and
Sales Corporation and ELASCO Agency Sales,
Inc., which is as of April 26, 1996,
Panhandle Pipe and Supply Co., Inc.,
which is as of December 11, 1996,
Sunbelt Supply Co., which is as of
December 30, 1996 and Metals, Incorporated,
Stainless Tubular Products, Inc. and
Metals, Inc. -- Gulf Coast Division,
which is as of January 24, 1997.
2
<PAGE> 3
REPORT OF INDEPENDENT ACCOUNTANTS
Shareholders and Board of Directors
Hughes Supply, Inc.
We have audited the consolidated statements of income, shareholders'
equity, and cash flows of Hughes Supply, Inc. and subsidiaries for the fiscal
year ended January 28, 1994 (not presented herein). These financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. 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 financial statements referred to above present fairly,
in all material respects, the consolidated results of operations and cash flows
of Hughes Supply, Inc. and subsidiaries for the fiscal year ended January 28,
1994 (prior to the retroactive restatement to account for the poolings of
interests), in conformity with generally accepted accounting principles.
/s/ COOPERS & LYBRAND
Orlando, Florida
March 17, 1994
3
<PAGE> 4
HUGHES SUPPLY, INC.
SUPPLEMENTAL CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
JANUARY 26, JANUARY 27,
1996 1995
----------- -----------
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents................................. $ 3,644 $ 3,774
Accounts receivable, less allowance for losses of $4,868
and $5,224............................................. 155,702 140,898
Inventories............................................... 167,138 149,461
Deferred income taxes..................................... 10,501 8,999
Other current assets...................................... 16,737 13,010
-------- --------
Total current assets.............................. 353,722 316,142
Property and Equipment, Net................................. 62,751 59,147
Deferred Income Taxes....................................... 2,436 2,095
Other Assets................................................ 21,886 13,769
-------- --------
$440,795 $391,153
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Current portion of long-term debt......................... $ 3,238 $ 3,414
Accounts payable.......................................... 102,262 91,447
Accrued compensation and benefits......................... 13,551 10,305
Other current liabilities................................. 17,525 14,024
-------- --------
Total current liabilities......................... 136,576 119,190
Long-Term Debt.............................................. 131,682 121,728
Other Noncurrent Liabilities................................ 1,771 1,546
-------- --------
Total liabilities................................. 270,029 242,464
-------- --------
Commitments and Contingencies (Note 7)
Shareholders' Equity:
Preferred stock, no par value; 10,000,000 shares
authorized; none issued; preferences, limitations and
relative rights to be established by the Board of
Directors.............................................. -- --
Common stock, par value $1 per share; 20,000,000 shares
authorized; 8,465,662 and 8,280,957 shares issued...... 8,466 8,281
Capital in excess of par value............................ 40,048 36,952
Retained earnings......................................... 122,252 105,144
-------- --------
170,766 150,377
Less treasury stock, no shares and 108,988 shares, at
cost................................................... -- (1,688)
-------- --------
Total shareholders' equity........................ 170,766 148,689
-------- --------
$440,795 $391,153
======== ========
</TABLE>
The accompanying notes are an integral part of these supplemental consolidated
financial statements.
4
<PAGE> 5
HUGHES SUPPLY, INC.
SUPPLEMENTAL CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
FISCAL YEARS ENDED
---------------------------------------
JANUARY 26, JANUARY 27, JANUARY 28,
1996 1995 1994
----------- ----------- -----------
<S> <C> <C> <C>
Net Sales................................................... $1,242,446 $994,811 $827,251
Cost of Sales............................................... 989,214 797,123 664,696
---------- -------- --------
Gross Profit................................................ 253,232 197,688 162,555
---------- -------- --------
Operating Expenses:
Selling, general and administrative....................... 200,767 159,548 135,162
Depreciation and amortization............................. 11,272 9,654 8,358
Provision for doubtful accounts........................... 1,907 1,415 2,229
---------- -------- --------
Total operating expenses.......................... 213,946 170,617 145,749
---------- -------- --------
Operating Income............................................ 39,286 27,071 16,806
---------- -------- --------
Non-Operating Income and (Expenses):
Interest and other income................................. 4,961 3,203 3,679
Interest expense.......................................... (9,380) (6,414) (6,048)
---------- -------- --------
(4,419) (3,211) (2,369)
---------- -------- --------
Income Before Income Taxes.................................. 34,867 23,860 14,437
Income Taxes................................................ 11,661 7,979 4,710
---------- -------- --------
Net Income.................................................. $ 23,206 $ 15,881 $ 9,727
========== ======== ========
Earnings Per Share:
Primary................................................... $ 2.72 $ 2.00 $ 1.43
========== ======== ========
Fully diluted............................................. $ 2.70 $ 1.98 $ 1.34
========== ======== ========
Average Shares Outstanding:
Primary................................................... 8,523 7,926 6,810
========== ======== ========
Fully diluted............................................. 8,602 8,110 7,980
========== ======== ========
Unaudited Pro Forma Net Income(Note 2)...................... $ 20,749 $ 14,426 $ 8,647
========== ======== ========
Unaudited Pro Forma Earnings Per Share:
Primary................................................... $ 2.43 $ 1.82 $ 1.27
========== ======== ========
Fully diluted............................................. $ 2.41 $ 1.80 $ 1.21
========== ======== ========
</TABLE>
The accompanying notes are an integral part of these supplemental consolidated
financial statements.
5
<PAGE> 6
HUGHES SUPPLY, INC.
SUPPLEMENTAL CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
COMMON STOCK CAPITAL IN TREASURY STOCK UNEARNED
------------------ EXCESS OF RETAINED ------------------- ESOP
SHARES AMOUNT PAR VALUE EARNINGS SHARES AMOUNT COMPENSATION
--------- ------ ---------- -------- -------- -------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, January 29, 1993, as
previously reported............. 5,892,306 $5,892 $22,134 $ 76,012 901,055 $(13,958) $ --
Adjustment for poolings of
interests.................... 1,667,200 1,667 (920) 8,790 -- -- (520)
--------- ------ ------- -------- -------- -------- ------
Balance, January 29, 1993, as
restated........................ 7,559,506 7,559 21,214 84,802 901,055 (13,958) (520)
Net income..................... -- -- -- 9,727 -- --
Cash dividends --
$.16 per share............... -- -- -- (724) -- --
Pooled companies............. -- -- -- (2,853) -- --
Issuance of treasury shares for
EDI merger................... (374,998) (375) (5,434) -- (374,998) 5,809
Other acquisition.............. -- -- (1,557) 2,158 (101,368) 1,570
Shares issued under stock
option plans................. -- -- 98 (18) (6,123) 95
Purchase and retirement of
common shares................ (2,581) (2) (9) (38) -- --
Reduction of guaranteed ESOP
debt......................... 520
--------- ------ ------- -------- -------- -------- ------
Balance, January 28, 1994........ 7,181,927 7,182 14,312 93,054 418,566 (6,484) --
Net income..................... -- -- -- 15,881 -- --
Cash dividends --
$.22 per share............... -- -- -- (1,290) -- --
Pooled companies............. -- -- -- (1,957) -- --
Treasury shares contributed to
employee benefit plan........ -- -- 243 -- (16,597) 257
Conversion of subordinated
convertible debentures into
common stock................. 1,081,146 1,081 21,670 -- -- --
Stock dividend by pooled
company...................... 26,101 26 207 (233) -- --
Shares issued under stock
option plans................. -- -- 121 (141) (44,341) 687
Purchase and retirement of
common shares................ (8,217) (8) (35) (170) -- --
Other acquisitions............. -- -- 434 -- (248,640) 3,852
--------- ------ ------- -------- -------- -------- ------
Balance, January 27, 1995........ 8,280,957 8,281 36,952 105,144 108,988 (1,688) --
Net income..................... -- -- -- 23,206 -- --
Cash dividends --
$.30 per share............... -- -- -- (1,971) -- --
Pooled companies............. -- -- -- (3,330) -- --
Stock dividend by pooled
company...................... 28,710 29 260 (289) -- --
Shares issued under stock
option
plans........................ 6,657 7 270 (154) (86,984) 1,347
Purchase and retirement of
common shares................ (19,642) (20) (146) (354) -- --
Other acquisitions............. 168,980 169 2,712 -- (22,004) 341
--------- ------ ------- -------- -------- -------- ------
Balance, January 26, 1996........ 8,465,662 $8,466 $40,048 $122,252 -- $ -- $ --
========= ====== ======= ======== ======== ======== ======
</TABLE>
The accompanying notes are an integral part of these supplemental consolidated
financial statements.
6
<PAGE> 7
HUGHES SUPPLY, INC.
SUPPLEMENTAL CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
FISCAL YEARS ENDED
---------------------------------------
JANUARY 26, JANUARY 27, JANUARY 28,
1996 1995 1994
----------- ----------- -----------
<S> <C> <C> <C>
Increase (Decrease) in Cash and Cash Equivalents:
Cash flows from operating activities:
Cash received from customers.......................... $ 1,231,106 $ 979,122 $ 811,069
Cash paid to suppliers and employees.................. (1,192,412) (962,508) (802,000)
Interest received..................................... 3,540 2,397 2,078
Interest paid......................................... (9,156) (5,961) (6,117)
Income taxes paid..................................... (15,729) (9,383) (6,014)
----------- --------- ---------
Net cash provided by (used in) operating
activities....................................... 17,349 3,667 (984)
----------- --------- ---------
Cash flows from investing activities:
Capital expenditures.................................. (13,140) (13,117) (9,222)
Proceeds from sale of property and equipment.......... 1,285 812 731
Business acquisitions, net of cash.................... (10,009) (11,099) (3,934)
----------- --------- ---------
Net cash used in investing activities............... (21,864) (23,404) (12,425)
----------- --------- ---------
Cash flows from financing activities:
Net borrowings under short-term debt arrangements..... 15,418 26,789 17,849
Proceeds from issuance of long-term debt.............. -- -- 580
Principal payments on:
Long-term notes..................................... (6,033) (1,266) (2,918)
Capital lease obligations........................... (844) (725) (660)
Proceeds from issuance of common shares under stock
option plans........................................ 1,470 667 175
Purchase of common shares............................. (520) (213) (49)
Dividends paid........................................ (5,106) (3,111) (3,421)
----------- --------- ---------
Net cash provided by financing activities........... 4,385 22,141 11,556
----------- --------- ---------
Net Increase (Decrease) in Cash and Cash Equivalents....... (130) 2,404 (1,853)
Cash and Cash Equivalents, beginning of year............... 3,774 1,370 3,223
----------- --------- ---------
Cash and Cash Equivalents, end of year..................... $ 3,644 $ 3,774 $ 1,370
=========== ========= =========
</TABLE>
The accompanying notes are an integral part of these supplemental consolidated
financial statements.
7
<PAGE> 8
HUGHES SUPPLY, INC.
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
NOTE 1 -- DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
SUPPLEMENTAL FINANCIAL STATEMENTS
As described in Note 2, on December 11, 1996, December 30, 1996 and January
24, 1997, the Company merged with PPSC, Sunbelt and the Metals Group,
respectively, in transactions accounted for as poolings of interests. The
accompanying supplemental consolidated financial statements give retroactive
effect to the mergers.
INDUSTRY
Hughes Supply, Inc. and its subsidiaries (the "Company") are engaged in the
wholesale distribution of a broad range of materials, equipment and supplies
primarily to the construction industry. Major product lines distributed by the
Company include electrical, plumbing and electric utility equipment, building
materials, pool equipment and supplies, water and sewer products, heating and
air conditioning equipment and supplies, water systems and industrial pipe,
valves and fittings. The Company's principal customers are electrical, plumbing
and mechanical contractors, electric utility companies, municipal and industrial
accounts.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the Company and its
wholly-owned subsidiaries. All significant intercompany transactions and
accounts have been eliminated. Prior period financial statements have been
restated to include the accounts of companies acquired and accounted for as
poolings of interests. Results of operations of companies purchased and
immaterial poolings are included from dates of acquisition. The Company's
minority investment in affiliate is accounted for by the equity method.
FISCAL YEAR
The Company's fiscal year ends on the last Friday in January. Fiscal years
1996, 1995 and 1994 each contained 52 weeks.
CASH EQUIVALENTS
The Company considers all highly liquid investments with a maturity of
three months or less when purchased to be cash equivalents.
INVENTORIES
Inventories are carried at the lower of cost or market. The cost of
substantially all inventories is determined by the average cost method.
PROPERTY AND EQUIPMENT
Buildings and equipment are depreciated using both straight-line and
declining-balance methods based on the following estimated useful lives:
<TABLE>
<S> <C>
Buildings and improvements.................................. 5-40 years
Transportation equipment.................................... 2-7 years
Furniture, fixtures and equipment........................... 3-10 years
Property under capital leases............................... 20-40 years
</TABLE>
8
<PAGE> 9
HUGHES SUPPLY, INC.
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
Maintenance and repairs are charged to expense as incurred and major
renewals and betterments are capitalized. Gains or losses are credited or
charged to earnings upon disposition.
OTHER ASSETS
The excess of cost over the fair value of net assets of purchased companies
($16,637 and $8,806 at January 26, 1996 and January 27, 1995, respectively, net
of accumulated amortization) is being amortized by the straight-line method over
15 to 25 years.
IMPAIRMENT OF LONG-LIVED ASSETS
In the event that facts and circumstances indicate that the excess of cost
over the fair value of net assets of purchased companies or other assets may be
impaired, an evaluation of recoverability would be performed. If an evaluation
is required, the estimated future undiscounted cash flows associated with the
asset would be compared to the asset's carrying amount to determine if a
write-down to market value or discounted cash flow is required.
REVENUE RECOGNITION
The Company recognizes revenue from product sales when goods are received
by customers.
INCOME TAXES
Income taxes are provided for the tax effects of transactions reported in
the financial statements and consist of taxes currently due plus deferred taxes
resulting from temporary differences. Such temporary differences result from
differences in the carrying value of assets and liabilities for tax and
financial reporting purposes. The deferred tax assets and liabilities represent
the future tax consequences of those differences, which will either be taxable
or deductible when the assets and liabilities are recovered or settled. Deferred
taxes are also recognized for operating losses that are available to offset
future taxable income.
EARNINGS PER COMMON SHARE
Primary earnings per share are based on the weighted average number of
shares outstanding during each year plus the common stock equivalents issuable
upon the exercise of stock options. Fully diluted earnings per share assumes the
conversion of 7% convertible subordinated debentures (after elimination of
related interest expense, net of income tax effect) and exercise of stock
options.
DEFERRED EMPLOYEE BENEFITS
The present value of amounts estimated to be payable under unfunded
supplemental retirement agreements with certain officers is being accrued over
the remaining years of active employment of the officers and is included in
other noncurrent liabilities.
ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles necessarily 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.
9
<PAGE> 10
HUGHES SUPPLY, INC.
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
NOTE 2 -- BUSINESS COMBINATIONS
On August 1, 1995, the Company acquired all the common stock of Moore
Electric Supply, Inc. ("Moore Electric") in exchange for 315,815 shares of the
Company's common stock. Moore Electric is a wholesale distributor of electrical
products with five outlets in North Carolina and South Carolina.
On December 18, 1995, the Company acquired all the common stock of Florida
Pipe & Supply Company ("FPS") in exchange for 178,053 shares of the Company's
common stock. FPS is a wholesale distributor of industrial pipe, valves and
fittings with one outlet in Florida.
On April 26, 1996, the Company acquired all the common stock of Electric
Laboratories and Sales Corporation and ELASCO Agency Sales, Inc. (collectively,
"ELASCO") in exchange for 490,161 shares of the Company's common stock. ELASCO
is a wholesale distributor of electric utility supplies and equipment with three
outlets in Illinois and Ohio. ELASCO was a Subchapter S corporation for federal
income tax purposes and, accordingly, did not pay U.S. federal income taxes.
ELASCO will be included in the Company's U.S. federal income tax return
effective April 26, 1996.
On December 11, 1996, the Company acquired all the common stock of
Panhandle Pipe and Supply Co., Inc. ("PPSC") in exchange for 155,556 shares of
the Company's common stock. PPSC is a wholesale distributor of water and sewer
supplies and equipment with one outlet in West Virginia.
On December 30, 1996, the Company acquired all the common stock of Sunbelt
Supply Co. ("Sunbelt") in exchange for 483,882 shares of the Company's common
stock. Sunbelt is a wholesale distributor of industrial valves, flanges and
fittings with nine outlets in Texas, Louisiana, Virginia and Florida.
On January 24, 1997, the Company acquired all the common stock of Metals,
Incorporated, Stainless Tubular Products, Inc. and Metals, Inc. -- Gulf Coast
Division (collectively, the "Metals Group") in exchange for 537,601 shares of
the Company's common stock. The Metals Group is a wholesale distributor of
stainless steel, high temperature and corrosion resistant pipe, bar and flat
products with three outlets in Oklahoma, Alabama and Missouri. Metals,
Incorporated and Stainless Tubular Products, Inc. were Subchapter S corporations
for federal income tax purposes and accordingly, did not pay U.S. federal income
taxes. They will be included in the Company's U.S. federal income tax return
effective January 24, 1997.
The above transactions have been accounted for as poolings of interests
and, accordingly, the consolidated financial statements for the periods
presented have been restated to include the accounts of Moore Electric, FPS,
ELASCO, PPSC, Sunbelt and the Metals Group. Moore Electric's, FPS's, ELASCO's,
PPSC's, Sunbelt's and the Metals Group's fiscal year ends have been changed to
the last Friday in January to conform to the Company's fiscal year end.
10
<PAGE> 11
HUGHES SUPPLY, INC.
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
Net sales and net income for the periods preceding the ELASCO, PPSC,
Sunbelt and the Metals Group mergers were as follows:
<TABLE>
<CAPTION>
UNAUDITED
NET NET PRO FORMA
SALES INCOME NET INCOME
---------- ------- ----------
<S> <C> <C> <C>
Nine months ended October 31, 1996:
Hughes, as previously reported...................... $1,050,187 $22,011 $21,874
PPSC................................................ 7,528 212 212
Sunbelt............................................. 52,705 1,179 1,179
The Metals Group.................................... 40,250 1,734 1,067
---------- ------- -------
Combined............................................ $1,150,670 $25,136 $24,332
========== ======= =======
Fiscal year ended January 26, 1996:
Hughes, as previously reported...................... $1,082,179 $16,050 $16,050
ELASCO.............................................. 44,616 2,181 1,287
PPSC................................................ 7,740 112 112
Sunbelt............................................. 56,959 921 921
The Metals Group.................................... 50,952 3,942 2,379
---------- ------- -------
Combined............................................ $1,242,446 $23,206 $20,749
========== ======= =======
Fiscal year ended January 27, 1995:
Hughes, as previously reported...................... $ 875,459 $11,485 $11,485
ELASCO.............................................. 35,903 2,139 1,293
PPSC................................................ 8,489 312 312
Sunbelt............................................. 39,079 430 430
The Metals Group.................................... 35,881 1,515 906
---------- ------- -------
Combined............................................ $ 994,811 $15,881 $14,426
========== ======= =======
Fiscal year ended January 28, 1994:
Hughes, as previously reported...................... $ 734,958 $ 6,524 $ 6,524
ELASCO.............................................. 26,063 1,683 1,005
PPSC................................................ 6,891 124 124
Sunbelt............................................. 32,264 412 412
The Metals Group.................................... 27,075 984 582
---------- ------- -------
Combined............................................ $ 827,251 $ 9,727 $ 8,647
========== ======= =======
</TABLE>
Unaudited pro forma net income reflects adjustments to net income to record
an estimated provision for income taxes for each period presented assuming
ELASCO, Metals, Incorporated and Stainless Tubular Products, Inc. were tax
paying entities.
During fiscal years 1996, 1995 and 1994, the Company acquired several
wholesale distributors of materials to the construction industry that were
accounted for as purchases. These acquisitions, individually or in the
aggregate, did not have a material effect on the consolidated financial
statements. Results of operations of these companies from their respective dates
of acquisition have been included in the consolidated financial statements.
11
<PAGE> 12
HUGHES SUPPLY, INC.
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
NOTE 3 -- PROPERTY AND EQUIPMENT
Property and equipment consist of the following:
<TABLE>
<CAPTION>
1996 1995
-------- --------
<S> <C> <C>
Land........................................................ $ 14,475 $ 13,509
Buildings and improvements.................................. 53,161 49,307
Transportation equipment.................................... 20,444 20,106
Furniture, fixtures and equipment........................... 24,982 21,812
Property under capital leases............................... 10,551 10,794
-------- --------
123,613 115,528
Less accumulated depreciation and amortization.............. (60,862) (56,381)
-------- --------
$ 62,751 $ 59,147
======== ========
</TABLE>
NOTE 4 -- LONG-TERM DEBT
Long-term debt consists of the following:
<TABLE>
<CAPTION>
1996 1995
-------- --------
<S> <C> <C>
Unsecured revolving bank notes under $160,000 credit
agreement, payable June 30, 1998, fluctuating interest
(6.3% to 6.4% at January 26, 1996)........................ $ 87,567 $ 74,918
Short-term instruments classified as long-term debt......... 35,200 34,803
Other notes payable......................................... 9,139 11,563
Capital lease obligations................................... 3,014 3,858
-------- --------
134,920 125,142
Less current portion........................................ (3,238) (3,414)
-------- --------
$131,682 $121,728
======== ========
</TABLE>
On July 31, 1995, the Company's revolving credit and line of credit
agreement with a group of banks was amended. The agreement, as amended, now
permits the Company to borrow up to $160,000 (subject to borrowing limitations
under the agreement) -- $125,000 long-term, expiring June 30, 1998, and $35,000
line of credit convertible to a term note due two years from conversion date.
The $35,000 line of credit backs commercial paper. Under the credit facility,
interest is payable at market rates plus applicable margins. Commitment fees of
.25% and .125% are paid on the unused portions of the revolving and line of
credit facilities, respectively.
Loan covenants require the Company to maintain consolidated working capital
of not less than $75,000 and a maximum ratio of funded debt to total capital, as
defined, of .55 to 1.0. The covenants also restrict the Company's activities
regarding investments, liens, borrowing and leasing, and payment of dividends
other than stock. Under the dividend covenant, approximately $13,480 is
available at January 26, 1996 for payment of dividends.
The Company has a bank line of credit for short-term borrowing aggregating
$6,000 (subject to borrowing limitations under the long-term debt covenants)
under which $200 was outstanding at January 26, 1996. There were no amounts
outstanding at January 27, 1995. The line provides for interest at market rates.
The interest rate on short-term borrowing as of January 26, 1996 was 5.9%. In
addition, the Company has a commercial paper program backed by its revolving
credit facility. The weighted average interest rate on outstanding commercial
paper borrowings of $35,000 and $34,803 as of January 26, 1996 and January 27,
1995 was 5.9% and 6.0%, respectively.
12
<PAGE> 13
HUGHES SUPPLY, INC.
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
The Company's credit facility enables the Company to refinance short-term
borrowings on a long-term basis to the extent that the credit facility is
unused. Accordingly, $35,200 and $34,803 of short-term borrowings at January 26,
1996 and January 27, 1995, respectively, have been classified as long-term debt.
The carrying value of notes payable is a reasonable estimate of fair value
since interest rates are based on prevailing market rates.
Maturities of long-term debt, excluding capital lease obligations, for each
of the five years subsequent to January 26, 1996 and in the aggregate are as
follows:
<TABLE>
<CAPTION>
FISCAL YEARS ENDING
-------------------
<S> <C>
1997................................................... $ 2,381
1998................................................... 5,737
1999................................................... 123,067
2000................................................... 166
2001................................................... 555
Later years............................................ --
--------
$131,906
========
</TABLE>
NOTE 5 -- INCOME TAXES
The components of deferred tax assets and liabilities are as follows:
<TABLE>
<CAPTION>
1996 1995
------- -------
<S> <C> <C>
Deferred tax assets:
Allowance for doubtful accounts........................... $ 1,829 $ 1,874
Inventories............................................... 1,821 2,900
Capital leases............................................ 503 590
Property and equipment.................................... 1,171 765
Accrued vacation.......................................... 914 670
Deferred compensation..................................... 681 597
Environmental clean-up costs.............................. 268 216
Operating leases.......................................... 276 --
Other accrued liabilities................................. 5,106 3,222
Other..................................................... 389 310
------- -------
Total deferred tax assets......................... 12,958 11,144
------- -------
Deferred tax liabilities:
Operating leases.......................................... -- 42
Intangible assets......................................... 21 8
------- -------
Total deferred tax liabilities......................... 21 50
------- -------
Net deferred tax asset...................................... $12,937 $11,094
======= =======
</TABLE>
No valuation allowance has been provided for these deferred tax assets at
January 26, 1996 and January 27, 1995 as full realization of these assets is
expected.
13
<PAGE> 14
HUGHES SUPPLY, INC.
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
The consolidated provision for income taxes consists of the following:
<TABLE>
<CAPTION>
FISCAL YEARS ENDED
----------------------------
1996 1995 1994
------- ------- ------
<S> <C> <C> <C>
Currently payable:
Federal.............................................. $11,676 $10,161 $4,739
State................................................ 1,796 1,667 672
------- ------- ------
13,472 11,828 5,411
------- ------- ------
Deferred:
Federal.............................................. (1,555) (3,650) (906)
State................................................ (256) (199) 205
------- ------- ------
(1,811) (3,849) (701)
------- ------- ------
$11,661 $ 7,979 $4,710
======= ======= ======
</TABLE>
The following is a reconciliation of tax computed at the statutory Federal
rate to the income tax expense in the consolidated statements of income:
<TABLE>
<CAPTION>
FISCAL YEARS ENDED
------------------------------------------------------
1996 1995 1994
---------------- --------------- ---------------
AMOUNT % AMOUNT % AMOUNT %
------- ----- ------ ----- ------ -----
<S> <C> <C> <C> <C> <C> <C>
Tax computed at statutory
Federal rate............... $12,204 35.0% $8,350 35.0% $5,053 35.0%
Effect of:
State income tax, net of
Federal income tax
benefit................. 991 2.8 955 4.0 569 3.9
ELASCO earnings............ (772) (2.2) (756) (3.2) (595) (4.1)
Metals Group earnings...... (1,395) (4.0) (530) (2.2) (344) (2.4)
Nondeductible purchase
adjustments............. 43 0.1 38 0.2 24 0.2
Nondeductible expenses..... 396 1.1 330 1.4 117 0.8
Other, net................. 194 0.6 (408) (1.7) (114) (0.8)
------- ----- ------ ----- ------ -----
Income tax expense........... $11,661 33.4% $7,979 33.5% $4,710 32.6%
======= ===== ====== ===== ====== =====
</TABLE>
Prior to their merger with the Company, ELASCO, Metals, Incorporated and
Stainless Tubular Products, Inc. were Subchapter S corporations and, therefore,
not subject to corporate income tax. ELASCO's Subchapter S corporation status
terminated upon the merger with the Company on April 26, 1996, and Metals,
Incorporated and Stainless Tubular Products, Inc.'s Subchapter S corporation
status terminated upon the merger with the Company on January 24, 1997.
NOTE 6 -- EMPLOYEE BENEFIT PLANS
PROFIT SHARING AND EMPLOYEE STOCK OWNERSHIP PLANS
The Company has a 401(k) profit sharing plan which provides benefits for
substantially all employees of the Company who meet minimum age and length of
service requirements. Under the plan, employee contributions of not less than 2%
to not more than 3% of each eligible employee's compensation are matched (in
cash or stock) 50% by the Company. Additional annual contributions may be made
at the discretion of the Board of Directors.
14
<PAGE> 15
HUGHES SUPPLY, INC.
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
The Company has an employee stock ownership plan (ESOP) covering
substantially all employees of the Company who meet minimum age and length of
service requirements. The plan is designed to enable eligible employees to
acquire a proprietary interest in the Company. Company contributions (whether in
cash or stock) are determined annually by the Board of Directors in an amount
not to exceed the maximum allowable as an income tax deduction. At January 26,
1996 and January 27, 1995, the plan owned approximately 184,000 and 172,000
shares, respectively, of the Company's common stock, all of which were allocated
to participants.
Amounts charged to expense for these and other similar plans during the
fiscal years ended in 1996, 1995 and 1994 were $2,322, $1,315 and $1,784,
respectively.
BONUS PLANS
The Company has bonus plans, based on profitability formulas, which provide
incentive compensation for key employees. Amounts charged to expense for bonuses
to executive officers were $1,354, $935 and $533 for the fiscal years ended in
1996, 1995 and 1994, respectively.
STOCK OPTION PLANS
The Company's stock option plans authorize the granting of both incentive
and non-incentive stock options for an aggregate of 1,635,000 shares of common
stock to key executive, management, and sales employees, and, with respect to
135,000 shares, to directors. Under the plans, options are granted at prices not
less than market value on the date of grant, and the maximum term of an option
may not exceed ten years. Prices for incentive stock options granted to
employees who own 10% or more of the Company's stock are at least 110% of market
value at date of grant. Options may be granted from time to time to May 1998, or
May 2003 with regard to directors. An option becomes exercisable at such times
and in such installments as set by the Board of Directors.
The employee plan also permits the granting of stock appreciation rights
(SARs) to holders of options. Such rights permit the optionee to surrender an
exercisable option, in whole or in part, on any date that the fair market value
of the Company's common stock exceeds the option price for the stock and receive
payment in common stock, or, if the Board of Directors approves, in cash or any
combination of cash and common stock. Such payment would be equal to the excess
of the fair market value of the shares under the surrendered option over the
option price for such shares. The change in value of SARs would be reflected in
income based upon the market value of the stock. No SARs have been granted or
issued through January 26, 1996.
15
<PAGE> 16
HUGHES SUPPLY, INC.
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
A summary of option transactions during each of the three fiscal years in
the period ended January 26, 1996 is shown below:
<TABLE>
<CAPTION>
NUMBER OF OPTION PRICE
SHARES RANGE
--------- -------------
<S> <C> <C>
Under option, January 29, 1993
(253,442 shares exercisable).............................. 406,442 $12.00-$17.63
Granted................................................... 12,000 $16.25
Exercised................................................. (6,023) $12.25-$12.87
Cancelled................................................. (12,835) $12.00-$12.63
-------
Under option, January 28, 1994
(297,584 shares exercisable).............................. 399,584 $12.25-$17.63
Granted................................................... 115,000 $18.13-$25.37
Exercised................................................. (44,241) $12.25-$12.63
-------
Under option, January 27, 1995
(339,343 shares exercisable).............................. 470,343 $12.25-$25.37
Granted................................................... 15,000 $19.25
Exercised................................................. (93,541) $12.25-$20.25
Cancelled................................................. (1,861) $12.25-$12.63
-------
Under option, January 26, 1996
(329,941 shares exercisable).............................. 389,941 $12.25-$25.37
=======
</TABLE>
There were 627,519 and 640,658 shares available for the granting of options
at January 26, 1996 and January 27, 1995, respectively.
STOCK-BASED COMPENSATION
The Company accounts for compensation cost related to employee stock
options and other forms of employee stock-based compensation plans in accordance
with the requirements of Accounting Principles Board Opinion 25 ("APB 25"). APB
25 requires compensation cost for stock-based compensation plans to be
recognized based on the difference, if any, between the fair market value of the
stock on the date of grant and the option exercise price. In October 1995, the
Financial Accounting Standards Board issued Statement of Financial Accounting
Standards No. 123, Accounting for Stock-Based Compensation ("SFAS 123"). SFAS
123 established a fair value-based method of accounting for compensation cost
related to stock options and other forms of stock-based compensation plans.
However, SFAS 123 allows an entity to continue to measure compensation costs
using the principles of APB 25 if certain pro forma disclosures are made. SFAS
123 is effective for fiscal years beginning after December 15, 1995. The Company
intends to adopt the provisions for pro forma disclosure requirements of SFAS
123 in fiscal 1997.
SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN
The Company has entered into agreements with certain key executive officers
providing for supplemental payments, generally for periods up to 15 years, upon
retirement, disability or death. The obligations are not funded apart from the
Company's general assets. Amounts charged to expense under the agreements were
$238, $390 and $166 in fiscal years ended 1996, 1995 and 1994, respectively.
16
<PAGE> 17
HUGHES SUPPLY, INC.
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
NOTE 7 -- COMMITMENTS AND CONTINGENCIES
LEASE COMMITMENTS
A portion of the Company's operations are conducted from locations leased
under capital leases from a corporation which is owned by three of the directors
of Hughes Supply, Inc. The leases generally provide that all expenses related to
the properties are to be paid by the lessee. The leases also generally provide
for rental increases at specified intervals. The leases all expire within ten
years; however, it is expected that they will be renewed. Rents under these
agreements amounted to $1,149 in fiscal year ended 1996 and $1,165 for fiscal
years ended 1995 and 1994. Property under capital leases is included in the
consolidated balance sheets as follows:
<TABLE>
<CAPTION>
1996 1995
------- -------
<S> <C> <C>
Property under capital leases (consisting of land and
buildings)................................................ $10,551 $10,794
Accumulated amortization.................................... (8,840) (8,458)
------- -------
$ 1,711 $ 2,336
======= =======
</TABLE>
In addition, rents under operating leases paid to this related corporation
were $358, $400 and $396 in 1996, 1995 and 1994, respectively.
Future minimum payments, by year and in the aggregate, under the
aforementioned leases and other noncancellable operating leases with initial or
remaining terms in excess of one year as of January 26, 1996, are as follows:
<TABLE>
<CAPTION>
CAPITAL OPERATING
LEASES LEASES
------- ---------
<S> <C> <C>
FISCAL YEARS ENDING
1997................................................. $1,141 $ 9,992
1998................................................. 1,141 8,971
1999................................................. 558 7,134
2000................................................. 360 5,155
2001................................................. 325 3,340
Later years.......................................... 258 5,372
------ -------
Total minimum lease payments................................ 3,783 $39,964
=======
Less amount representing interest........................... (769)
------
Present value of net minimum lease payments................. 3,014
Less current portion........................................ (857)
------
$2,157
======
</TABLE>
Lease-related expenses are as follows:
<TABLE>
<CAPTION>
FISCAL YEARS ENDED
-------------------------
1996 1995 1994
------- ------ ------
<S> <C> <C> <C>
Capital lease amortization.................................. $ 584 $ 594 $ 594
Capital lease interest expense.............................. 364 440 505
Operating lease rentals (excluding month-to-month rents).... 12,816 7,904 6,768
</TABLE>
GUARANTEES OF AFFILIATE DEBT
A wholly-owned subsidiary of the Company owns a 20% interest in Accord
Industries Company ("Accord"), a joint venture formed from the Company's sale of
its manufacturing operations in 1990. As
17
<PAGE> 18
HUGHES SUPPLY, INC.
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
partial consideration for the sale, the Company received $2,750 in notes
receivable, part of which is convertible into an additional partnership interest
in Accord of up to 29%.
In connection with the investment in Accord, the Company guaranteed $500 of
Accord's indebtedness to a bank and the Company's subsidiary as a joint venturer
is contingently liable for the remaining bank debt of approximately $1,100 as of
January 26, 1996.
LEGAL MATTERS
The Company is involved in various legal proceedings incident to the
conduct of its business. In the opinion of management, none of the proceedings
are material in relation to the Company's consolidated operations or financial
position.
NOTE 8 -- CAPITAL STOCK
COMMON STOCK
On May 24, 1994, the shareholders approved an amendment to the articles of
incorporation of the Company increasing the number of authorized shares of
common stock to 20,000,000 shares, $1.00 par value per share.
On March 8, 1994, the Company issued a call for redemption of its
outstanding 7% convertible subordinated debentures to take place on April 7,
1994. Of the $22,960 debentures outstanding at January 28, 1994, $22,889, or
99.7%, were converted into the Company's common stock at $21.17 per share or
47.2 common shares for each $1 face amount of debentures. This conversion
resulted in the issuance of 1,081,146 common shares.
PREFERRED STOCK
The Company's Board of Directors established Series A Junior Participating
Preferred Stock (Series A Stock) consisting of 300,000 shares. Each share of
Series A Stock will be entitled to one vote on all matters submitted to a vote
of shareholders. Series A Stock is not redeemable or convertible into any other
security. Each share of Series A Stock shall have a minimum cumulative
preferential quarterly dividend rate equal to the greater of $1.25 per share or
100 times the aggregate per share amount of the dividend declared on common
stock. In the event of liquidation, shares of Series A Stock will be entitled to
the greater of $100 per share plus any accrued and unpaid dividend or 100 times
the payment to be made per share of common stock. No shares of Series A Stock
are presently outstanding, and no shares are expected to be issued except in
connection with the shareholder rights plan referred to below.
The Company has a shareholder rights plan. Under the plan, the Company
distributed to shareholders a dividend of one right per share of the Company's
common stock. When exercisable, each right will permit the holder to purchase
from the Company a unit consisting of one one-hundredth of a share of Series A
Stock at a purchase price of $65 per unit. The rights generally become
exercisable if a person or group acquires 20% or more of the Company's common
stock or commences a tender offer that could result in such person or group
owning 30% or more of the Company's common stock. If certain subsequent events
occur after the rights first become exercisable, the rights may become
exercisable for the purchase of shares of common stock of the Company, or of an
acquiring company, having a value equal to two times the exercise price of the
right. The rights may be redeemed by the Company at $.01 per right at any time
prior to ten days after 20% or more of the Company's stock is acquired by a
person or group. The rights expire on June 2, 1998 unless sooner terminated in
accordance with the rights plan.
18
<PAGE> 19
HUGHES SUPPLY, INC.
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
NOTE 9 -- CONCENTRATION OF CREDIT RISK
The Company sells its products in the major areas of construction markets
in certain states of the eastern half of the United States. Approximately 90% of
the Company's sales are credit sales which are primarily to customers whose
ability to pay is dependent upon the construction industry economics prevailing
in these areas; however, concentration of credit risk with respect to trade
accounts receivable is limited due to the large number of customers comprising
the Company's customer base and no one customer comprises more than 1% of annual
sales. The Company performs ongoing credit evaluations of its customers and in
certain situations obtains collateral sufficient to protect its credit position.
The Company maintains reserves for potential credit losses, and such losses have
been within management's expectations.
NOTE 10 -- SUPPLEMENTAL CASH FLOWS INFORMATION
The following is a reconciliation of net income to net cash provided by
(used in) operating activities:
<TABLE>
<CAPTION>
FISCAL YEARS ENDED
-----------------------------
1996 1995 1994
------- -------- --------
<S> <C> <C> <C>
Net income.............................................. $23,206 $ 15,881 $ 9,727
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation....................................... 9,342 8,815 7,596
Amortization....................................... 1,930 839 762
Provision for doubtful accounts.................... 1,907 1,415 2,229
Gain on sale of property and equipment............. (589) (286) (428)
Undistributed (earnings) losses of affiliate....... 115 (139) (171)
Treasury shares contributed to employee benefit
plan............................................. -- 500 --
Changes in assets and liabilities, net of effects
of business acquisitions:
(Increase) decrease in --
Accounts receivable........................... (12,287) (16,069) (17,184)
Inventories................................... (9,183) (22,278) (5,404)
Other current assets.......................... (3,619) (3,016) (632)
Other assets.................................. (1,090) (390) 168
Increase (decrease) in --
Accounts payable and accrued expenses......... 11,236 18,950 3,548
Accrued interest and income taxes............. (2,001) 2,845 (718)
Other noncurrent liabilities.................. 225 397 178
Increase in deferred income taxes................ (1,843) (3,797) (655)
------- -------- --------
Net cash provided by (used in) operating activities..... $17,349 $ 3,667 $ (984)
======= ======== ========
</TABLE>
19
<PAGE> 20
HUGHES SUPPLY, INC.
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
NONCASH INVESTING AND FINANCING ACTIVITIES
The net assets acquired and consideration for acquisitions accounted for as
purchases are summarized below:
<TABLE>
<CAPTION>
FISCAL YEARS ENDED
---------------------------
1996 1995 1994
------- ------- -------
<S> <C> <C> <C>
Fair value of:
Assets acquired......................................... $22,600 $28,396 $ 8,421
Liabilities assumed..................................... (9,369) (7,269) (4,487)
------- ------- -------
Purchase price............................................ $13,231 $21,127 $ 3,934
======= ======= =======
</TABLE>
Consideration in fiscal 1996 included 191,000 shares of common stock (fair
value $3,222). Consideration in fiscal 1995 included 249,000 shares of common
stock (fair value $4,286), a note for $1,525 and amounts payable of $4,217.
Additional common stock was issued in fiscal year 1995 upon the conversion
of $22,889 convertible subordinated debentures.
NOTE 11 -- SUBSEQUENT EVENTS (UNAUDITED)
On May 13, 1996, the Company acquired substantially all of the assets,
properties and business of PVF Holdings, Inc. and its subsidiaries ("PVF"). The
aggregate consideration paid was approximately $108,832. The following table
reflects the unaudited pro forma combined results of operations, assuming the
PVF acquisition had occurred at the beginning of fiscal 1996:
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
JANUARY 26, 1996
-----------------
<S> <C>
Net sales................................................... $1,351,605
Net income.................................................. 35,346
Earnings per share:
Primary................................................... 3.82
Fully diluted............................................. 3.78
</TABLE>
The pro forma information does not purport to be indicative of the results
which actually would have occurred had the PVF acquisition occurred at the
beginning of fiscal 1996, or of results which may occur in the future.
In May 1996, the Company sold in a public offering 1,486,989 shares of its
common stock which generated net proceeds of approximately $48,197. On May 29,
1996, the Company issued $98,000 of senior notes in a private placement in
connection with the acquisition of PVF. Proceeds received by the Company in the
private placement of the senior notes and the sale of the Company's common stock
were used to partially fund the PVF acquisition and to reduce indebtedness
outstanding under the Company's revolving credit facility and line of credit
agreement.
20
<PAGE> 21
HUGHES SUPPLY, INC.
SUPPLEMENTAL CONSOLIDATED BALANCE SHEETS -- (UNAUDITED)
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
OCTOBER 31, JANUARY 26,
1996 1996
----------- -----------
(NOTE 2)
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents................................. $ 3,423 $ 3,644
Accounts receivable, less allowance for losses of $8,611
and $4,868............................................. 215,126 155,702
Inventories............................................... 224,209 167,138
Deferred income taxes..................................... 12,346 10,501
Other current assets...................................... 10,907 16,737
-------- --------
Total current assets.............................. 466,011 353,722
Property and Equipment, Net................................. 69,671 62,751
Excess of Cost over Net Assets Acquired..................... 80,239 16,637
Deferred Income Taxes....................................... 3,028 2,436
Other Assets................................................ 6,179 5,249
-------- --------
$625,128 $440,795
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Current portion of long-term debt......................... $ 1,616 $ 3,238
Accounts payable.......................................... 120,319 102,262
Accrued compensation and benefits......................... 16,921 13,551
Other current liabilities................................. 23,971 17,525
-------- --------
Total current liabilities......................... 162,827 136,576
Long-Term Debt.............................................. 194,755 131,682
Other Noncurrent Liabilities................................ 2,119 1,771
-------- --------
Total liabilities................................. 359,701 270,029
-------- --------
Commitments and Contingencies
Shareholders' Equity:
Preferred Stock........................................... -- --
Common Stock -- 11,300,698 and 8,465,662 shares issued and
outstanding............................................ 11,301 8,466
Capital in excess of par value............................ 104,537 40,048
Retained earnings......................................... 149,589 122,252
-------- --------
Total shareholders' equity........................ 265,427 170,766
-------- --------
$625,128 $440,795
======== ========
</TABLE>
The accompanying notes are an integral part of these supplemental consolidated
financial statements.
21
<PAGE> 22
HUGHES SUPPLY, INC.
SUPPLEMENTAL CONSOLIDATED STATEMENTS OF INCOME -- (UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
OCTOBER 31,
----------------------
1996 1995
---------- --------
<S> <C> <C>
Net Sales................................................... $1,150,670 $938,481
Cost of Sales............................................... 914,270 750,121
---------- --------
Gross Profit................................................ 236,400 188,360
---------- --------
Operating Expenses:
Selling, general and administrative....................... 177,694 147,724
Depreciation and amortization............................. 10,638 7,772
Provision for doubtful accounts........................... 2,701 2,454
---------- --------
Total operating expenses.......................... 191,033 157,950
---------- --------
Operating Income............................................ 45,367 30,410
---------- --------
Non-Operating Income and (Expenses):
Interest and other income................................. 4,665 3,834
Interest expense.......................................... (9,603) (7,133)
---------- --------
(4,938) (3,299)
---------- --------
Income Before Income Taxes.................................. 40,429 27,111
Income Taxes................................................ 15,293 8,980
---------- --------
Net Income.................................................. $ 25,136 $ 18,131
========== ========
Earnings Per Share:
Primary................................................... $ 2.46 $ 2.13
========== ========
Fully diluted............................................. $ 2.45 $ 2.12
========== ========
Average Shares Outstanding:
Primary................................................... 10,208 8,499
========== ========
Fully diluted............................................. 10,242 8,555
========== ========
Unaudited Pro Forma Net Income.............................. $ 24,332 $ 16,083
========== ========
Unaudited Pro Forma Earnings Per Share:
Primary................................................... $ 2.38 $ 1.89
========== ========
Fully diluted............................................. $ 2.38 $ 1.88
========== ========
</TABLE>
The accompanying notes are an integral part of these supplemental consolidated
financial statements.
22
<PAGE> 23
HUGHES SUPPLY, INC.
SUPPLEMENTAL CONSOLIDATED STATEMENTS OF CASH FLOWS -- (UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
----------------------------
OCTOBER 31, OCTOBER 31,
1996 1995
----------- -----------
<S> <C> <C>
Increase (Decrease) in Cash and Cash Equivalents:
Cash flows from operating activities:
Cash received from customers........................... $ 1,112,764 $ 913,089
Cash paid to suppliers and employees................... (1,085,918) (885,596)
Interest received...................................... 2,967 2,538
Interest paid.......................................... (6,564) (6,866)
Income taxes paid...................................... (15,269) (11,158)
----------- ---------
Net cash provided by operating activities............ 7,980 12,007
----------- ---------
Cash flows from investing activities:
Capital expenditures................................... (11,824) (9,652)
Proceeds from sale of property and equipment........... 1,721 1,195
Business acquisitions, net of cash..................... (89,952) (6,945)
----------- ---------
Net cash used in investing activities................ (100,055) (15,402)
----------- ---------
Cash flows from financing activities:
Net borrowing (repayment) under short-term debt
arrangements......................................... (35,182) 10,697
Principal payments on:
Long-term notes...................................... (14,266) (5,417)
Capital lease obligations............................ (843) (598)
Proceeds from issuance of long-term debt............... 98,000 --
Net proceeds from sale of common stock................. 48,197 --
Proceeds from stock options exercised.................. 869 1,036
Purchase of common shares.............................. (395) (409)
Dividends paid......................................... (4,526) (3,896)
----------- ---------
Net cash provided by financing activities............ 91,854 1,413
----------- ---------
Net Decrease in Cash and Cash Equivalents................... (221) (1,982)
Cash and Cash Equivalents, beginning of period.............. 3,644 3,774
----------- ---------
Cash and Cash Equivalents, end of period.................... $ 3,423 $ 1,792
=========== =========
</TABLE>
The accompanying notes are an integral part of these supplemental consolidated
financial statements.
23
<PAGE> 24
HUGHES SUPPLY, INC.
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS -- (UNAUDITED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
1. In the opinion of the Company, the accompanying unaudited supplemental
consolidated financial statements contain all adjustments (consisting only of
normal recurring adjustments) necessary to present fairly the financial position
as of October 31, 1996, the results of operations for the nine months ended
October 31, 1996 and 1995, and cash flows for the nine months then ended. The
supplemental financial statements have been restated to give effect to the
business combinations between the Company and PPSC, Sunbelt and the Metals Group
consummated after October 31, 1996 and accounted for as poolings of interests
(see Note 2).
The fiscal year of the Company is a 52 or 53-week period ending on the last
Friday in January. Fiscal year 1997 will be a 53-week period while fiscal year
1996 was a 52-week period. The nine months ended October 31, 1996 and 1995
contained 40 and 39 weeks, respectively.
The January 26, 1996 balance sheet contains certain reclassifications which
were made to conform to the October 31, 1996 financial statement format. None of
these reclassifications affected net income or shareholders' equity.
2. On April 26, 1996 the Company acquired all the common stock of ELASCO in
exchange for 490,161 shares of the Company's common stock. ELASCO is a wholesale
distributor of electric utility supplies and equipment with three branches in
Illinois and Ohio.
On December 11, 1996 the Company acquired all the common stock of PPSC in
exchange for 155,556 shares of the Company's common stock. PPSC is a wholesale
distributor of water and sewer supplies and equipment with one outlet in West
Virginia.
On December 30, 1996 the Company acquired all the common stock of Sunbelt
in exchange for 483,882 shares of the Company's common stock. Sunbelt is a
wholesale distributor of industrial valves, flanges and fittings with nine
outlets in Texas, Louisiana, Virginia and Florida.
On January 24, 1997 the Company acquired all the common stock of the Metals
Group in exchange for 537,601 shares of the Company's common stock. The Metals
Group is a wholesale distributor of stainless steel, high temperature and
corrosion resistant pipe, bar and flat products with three outlets in Oklahoma,
Alabama and Missouri.
The above transactions have been accounted for as poolings of interests
and, accordingly, the consolidated financial statements for the periods
presented have been restated to include the accounts of ELASCO, PPSC, Sunbelt
and the Metals Group. ELASCO's, PPSC's, Sunbelt's and the Metals Group's fiscal
year ends have been changed to the last Friday in January to conform to the
Company's fiscal year end.
3. On May 13, 1996, the Company acquired substantially all of the assets,
properties and business of PVF. The aggregate consideration paid was $108,832
consisting of cash in the amount of $81,917, the issuance of 737,645 shares of
common stock having an agreed-upon value of $27.763 per share and the assumption
of $6,436 of bank debt. PVF distributes stainless steel pipe, valves and
fittings from 16 locations nationwide, and had sales of approximately $110,000
for calendar year 1995. The transaction has been accounted for as a purchase and
the results of operations of PVF from the date of acquisition are included in
the consolidated financial statements. The excess of cost over net assets
acquired is being amortized over 15 years by the straight-line method.
24
<PAGE> 25
HUGHES SUPPLY, INC.
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS -- (UNAUDITED)
(CONTINUED)
The following table reflects the pro forma combined results of operations,
assuming the PVF acquisition had occurred at the beginning of each period
presented:
<TABLE>
<CAPTION>
NINE MONTHS ENDED
OCTOBER 31,
-----------------------
1996 1995
---------- ----------
<S> <C> <C>
Net sales................................................... $1,183,745 $1,022,957
Net income.................................................. 27,451 27,086
Earnings per share:
Primary................................................... 2.61 2.93
Fully diluted............................................. 2.60 2.91
</TABLE>
The past and future financial performance of PVF will be directly
influenced by the cost of stainless steel and nickel alloy which as a commodity
item can and does fluctuate. Significant fluctuations in the prices of stainless
steel and nickel alloy which have occurred in the first nine months of each
period presented have resulted in gross margins for PVF of 29.6% for the first
nine months of fiscal 1997 compared to 38.2% for the first nine months of fiscal
1996 included in the pro forma information above. As a result of the commodity
price fluctuations and the fact that these significant price fluctuations could
continue to create cyclicality in PVF's future operating performance, management
believes that the pro forma information is not necessarily indicative of future
performance.
4. On May 29, 1996 the Company issued $98,000 of senior notes in a private
placement in connection with the acquisition of PVF. The notes mature in 2011,
bear interest at 7.96% and will be payable in 20 equal semi-annual payments
beginning in 2001. In May, 1996 the Company sold in a public offering 1,486,989
shares of its common stock which generated net proceeds of approximately
$48,197. Proceeds received by the Company in the private placement of the senior
notes and the sale of the Company's common stock were used to partially fund the
PVF acquisition (including satisfaction of the interim note payable to the
sellers) and to reduce indebtedness outstanding under the Company's revolving
credit facility and line of credit agreement.
5. In addition to the acquisitions discussed in Notes 2 and 3 above, during
the nine months ended October 31, 1996, the Company acquired several wholesale
distributors of materials to the construction industry for cash and stock. These
acquisitions have been accounted for as purchases or immaterial poolings and did
not have a material effect on the consolidated financial statements of the
Company. Results of operations of these companies from their respective dates of
acquisition have been included in the consolidated financial statements.
25
<PAGE> 26
HUGHES SUPPLY, INC.
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS -- (UNAUDITED)
(CONTINUED)
The following is a reconciliation of net income to net cash provided by
(used in) operating activities:
<TABLE>
<CAPTION>
NINE MONTHS ENDED
OCTOBER 31,
--------------------
1996 1995
-------- --------
<S> <C> <C>
Net income.................................................. $ 25,136 $ 18,131
Adjustments to reconcile net income to net cash provided
by
(used in) operating activities:
Depreciation........................................... 6,968 6,319
Amortization........................................... 3,670 1,453
Provision for doubtful accounts........................ 2,701 2,454
Gain on sale of property and equipment................. (618) (625)
Undistributed (earnings) losses of affiliate........... (42) 73
Changes in assets and liabilities, net of effects of
business acquisitions:
(Increase) decrease in --
Accounts receivable............................... (38,944) (26,136)
Inventories....................................... (6,340) 2,428
Other current assets.............................. 5,969 6,843
Other assets...................................... (274) (2,622)
Increase (decrease) in --
Accounts payable and accrued expenses............. 6,343 5,293
Accrued interest and income taxes................. 5,500 (275)
Other noncurrent liabilities...................... 348 307
Increase in deferred income taxes.................... (2,437) (1,636)
-------- --------
Net cash provided by operating activities................... $ 7,980 $ 12,007
======== ========
</TABLE>
26
<PAGE> 1
EXHIBIT 99.2
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
As described in Note 2 of the Notes to Supplemental Consolidated Financial
Statements, in fiscal 1996 and 1997 the Company entered into business
combinations with Moore Electric Supply, Inc., Florida Pipe & Supply Company,
Electric Laboratories and Sales Corporation and ELASCO Agency Sales, Inc.
(collectively, "ELASCO"), Panhandle Pipe & Supply Co., Inc. ("PPSC"), Sunbelt
Supply Co. ("Sunbelt") and Metals, Incorporated, Stainless Tubular Products,
Inc. and Metals, Inc. -- Gulf Coast Division (collectively, the "Metals Group")
which were accounted for as poolings of interests. Accordingly, all financial
data in this discussion and analysis is reported as though the companies have
always been one.
NINE MONTHS ENDED OCTOBER 31, 1996 AND 1995
Net Sales
Net sales for the nine months ended October 31, 1996 were $1,150.7 million,
a 23% increase over the nine months ended October 31, 1995. Newly acquired and
opened wholesale outlets provided 10 percentage points of the 23% increase.
Management expects commercial construction activity to continue at current
levels. These favorable conditions coupled with the Company's acquisition
program should result in continued sales growth.
Gross Margin
Gross margin for the nine months ended October 31, 1996 was 20.5% compared
to 20.1% for the nine months ended October 31, 1995. Expansion of product
offerings to lines with better margins, efficiencies created with central
distribution centers, increased volume and concentration of supply sources have
contributed to the improvement.
Operating Expenses
Operating expenses for the nine month period ended October 31, 1996 were
$191.0 million, a 21% increase over the prior year period. Approximately
one-half of this increase is attributable to recent acquisitions and
newly-opened wholesale outlets.
Non-Operating Income and Expenses
Interest and other income increased $.8 million for the nine months ended
October 31, 1996 over the prior year period. The increase is primarily
attributable to gain on sales of property and equipment, and increased
collection of service charges due on delinquent accounts receivable.
Interest expense was $9.6 million for the nine months ended October 31,
1996 compared to $7.1 million for the nine months ended October 31, 1995. The
increase is primarily the result of higher borrowing levels as interest rates
have been essentially unchanged. Expansion through business acquisitions has
been partially funded by debt financing.
Income Taxes
The effective tax rates for the nine months ended October 31, 1996 and 1995
were 37.8% and 33.1%, respectively. Prior to the merger on April 26, 1996 with
ELASCO and January 24, 1997 with Metals, Incorporated and Stainless Tubular
Products, Inc., all three entities were Subchapter S corporations and,
therefore, not subject to corporate income tax. Each entity's Subchapter S
corporation status terminated upon the merger with the Company. As a result, the
Company's effective tax rate will be higher for the year ending January 31, 1997
than for the year ended January 26, 1996.
1
<PAGE> 2
Net Income
For the nine months ended October 31, 1996, net income reached $25.1
million, a 39% increase over the nine months ended October 31, 1995. Fully
diluted earnings per share for the nine months ended October 31, 1996 and 1995
were $2.45 and $2.12, respectively. This increase of 16% was on 20% more shares
outstanding.
FISCAL 1996, 1995 AND 1994
Net Sales
The Company exceeded the one billion dollar mark with net sales of $1.2
billion in fiscal 1996. Net sales increased by 25% over fiscal 1995 net sales of
$994.8 million. Fiscal 1994 net sales totaled $827.3 million. Newly-opened and
acquired wholesale outlets accounted for approximately 60% of the increase in
fiscal 1996 and 40% of the increase in fiscal 1995.
The Company's strategy of expanding and diversifying into more construction
markets (commercial and industrial, as well as geographic) has contributed to
these strong sales gains along with same store sales growth. Although fiscal
1996 and 1995 residential construction activity has been slower following a
strong fiscal 1994, commercial and industrial construction activity rebounded in
fiscal 1995 and continued through fiscal 1996.
Gross Margin
Gross margins have been improving steadily over the past few years. Gross
margins increased to 20.4% in fiscal 1996 compared to 19.9% in fiscal 1995 and
19.7% in fiscal 1994. The improvement has resulted from several factors,
including expansion of product offerings to lines with better margins,
efficiencies created with central distribution centers, increased volume and
concentration of supply sources as part of the Company's preferred vendor
program.
Operating Expenses
Operating expenses in fiscal 1996 were $213.9 million, a 25% increase over
fiscal 1995. Newly-opened wholesale outlets and recent acquisitions accounted
for approximately 50% of the increase. The remainder of the increase is due
primarily to personnel and transportation costs associated with the growth in
sales. Similarly, the $24.9 million increase in fiscal 1995 compared to fiscal
1994 is attributed primarily to newly-opened wholesale outlets and acquisitions
(approximately 45%) and costs, such as personnel, transportation and insurance,
associated with sales growth.
Non-Operating Income and Expenses
Interest and other income increased to $5.0 million in fiscal 1996 compared
to $3.2 million in fiscal 1995 and $3.7 million in fiscal 1994. This increase is
primarily the result of improved collection of service charge income on
delinquent accounts receivable. In addition, gain realized on sales of property
and equipment (primarily transportation equipment) was $.3 million higher in
fiscal 1996.
Interest expense increased by $3.0 million in fiscal 1996 over fiscal 1995.
Higher interest rates and higher average borrowing levels were equally
responsible for the increase. Fiscal 1995 interest expense was only $.4 million
higher than fiscal 1994, which was attributable to higher interest rates
partially offset by lower borrowing levels due primarily to the conversion of
approximately $23 million of subordinated debentures.
Net Income
Net income in fiscal 1996 increased 46% to $23.2 million from $15.9 million
in fiscal 1995, while fully diluted earnings per share increased 36% to $2.70 in
fiscal 1996 compared to $1.98 in fiscal 1995. These results followed fiscal 1995
increases of 63% and 48%, respectively, in net income and fully diluted earnings
per share. Net income and fully diluted earnings per share in fiscal 1994 were
$9.7 million and $1.34, respectively.
2
<PAGE> 3
These improved results reflect operating leverage that has been achieved
through the Company's acquisition and internal growth program. Operating margins
(operating income as a percentage of net sales) have steadily improved to 3.2%
in fiscal 1996, compared to 2.7% and 2.0% in fiscal 1995 and 1994, respectively.
Liquidity and Capital Resources
Working capital at October 31, 1996 amounted to $303 million compared to
$217 million, $197 million and $162 million in fiscal years ended 1996, 1995 and
1994, respectively. The working capital ratio increased to 2.86 to 1 at October
31, 1996 compared to 2.59 to 1, 2.65 to 1 and 2.87 to 1 for fiscal years ended
1996, 1995 and 1994, respectively. During expansionary periods when sales
volumes are increasing, the Company is required to carry higher levels of
inventories and receivables to support the growth. The Company strives to
maintain inventories at levels that support current sales activity but are not
excessive through increased use of central distribution facilities and with
investments in resources to improve the efficiency and service capability of
these facilities.
For the nine months ended October 31, 1996, net cash provided by operations
was $8.0 million. In fiscal 1996, net cash provided by operations was $17.3
million compared to $3.7 million in fiscal 1995 and cash used in operations of
$1.0 million in fiscal 1994. These changes are due primarily to fluctuations in
accounts receivable, inventories and accounts payable. Because additional
amounts of cash were generated in fiscal 1996, net borrowing under short-term
debt decreased to $15.4 million compared to $26.8 million and $17.8 million in
fiscal 1995 and 1994, respectively.
Expenditures for property and equipment were $11.8 million for the nine
months ended October 31, 1996 compared to $9.7 million for the nine months ended
October 31, 1995. The Company invested $90.0 million for property and equipment
in fiscal 1996. Cash payments for business acquisitions totaled $89.9 million
and $10.0 million for the nine months ended October 31, 1996 and the fiscal year
ended January 26, 1996, respectively. Capital expenditures for property and
equipment, not including amounts for business acquisitions, are expected to be
approximately $14 million in fiscal 1997.
As discussed in Note 11 of the Notes to the Supplemental Consolidated
Financial Statements, in May 1996 the Company issued 1,486,989 shares of common
stock in a public offering (generating net proceeds of approximately $48
million, after all expenses) and issued $98 million of senior notes in a private
placement in connection with the purchase of substantially all of the assets,
properties and business of PVF Holdings, Inc. ("PVF"). In addition to funding
the PVF acquisition, the net proceeds of these offerings were used to reduce
indebtedness outstanding under the Company's bank debt.
Management believes that the acquisitions of PVF, Sunbelt and the Metals
Group provide the Company with several strategic benefits, including: (i) a
well-established position in the stainless steel and specialty alloy sector of
the pipe, valve and fitting products market; (ii) a higher gross margin product
group than the Company's other product groups; (iii) greater focus on targeted
industrial and replacement markets; (iv) a strong management team; and (v) new
opportunities for additional acquisitions. Additional growth opportunities for
the Company related to these acquisitions include incremental sales of
complimentary valve products (which had represented only 2% of PVF's fiscal 1995
net sales) and new branch openings.
Principal reductions on long-term debt were $14.3 million for the nine
months ended October 31, 1996 compared to $5.4 million for the prior year nine
months. The increase resulted primarily from paying off debt of recent business
acquisitions. Dividend payments were $4.5 million and $3.9 million during the
nine months ended October 31, 1996 and 1995, respectively. Dividend payments
included $2.4 million and $2.6 million in cash dividends of pooled companies
during the nine months ended October 31, 1996 and 1995, respectively.
In October 1996, the Company's revolving credit and line of credit
agreement with a group of banks was amended. The agreement now permits the
Company to borrow up to $150 million ($160 million previously). With this
facility, the Company has sufficient borrowing capacity to take advantage of
growth and business acquisition opportunities. The Company's financial condition
remains strong and the Company believes that it has the resources necessary,
with approximately $63 million of unused debt capacity (subject to borrowing
3
<PAGE> 4
limitations under long-term debt covenants) as of October 31, 1996, to fund
ongoing operating requirements. Future expansion will continue to be financed on
a project-by-project basis through additional borrowing, or, as circumstances
allow, through the issuance of common stock.
Business Acquisitions
In addition to the business combinations with ELASCO, PPSC, Sunbelt, and
the Metals Group accounted for as poolings of interests as mentioned previously,
during the first nine months of fiscal 1997 the Company acquired several
wholesale distributors for approximately $127 million ($90 million in cash and
$37 million in stock). In fiscal 1996, consideration for acquisitions was
approximately $13 million ($10 million in cash and $3 million in stock). Outlays
for acquisition of wholesale distributors in fiscal 1995 totaled $21 million
($11 million in cash, $4 million in stock and $6 million in other
consideration), while fiscal 1994 expenditures were $4 million in cash. These
acquisitions were accounted for as either purchases or immaterial poolings and
the results of operations of these businesses from their respective dates of
acquisition are included in the Company's supplemental consolidated financial
statements. As a result of these acquisitions, the Company had 266 branches in
24 states as of October 31, 1996, compared to 226 branches in 20 states at last
year end.
Inflation and Changing Prices
The Company is aware of the potentially unfavorable effects inflationary
pressures may create through higher asset replacement costs and related
depreciation, higher interest rates and higher material costs. The Company seeks
to minimize these effects through economies of purchasing and inventory
management resulting in cost reductions and productivity improvements as well as
price increases to maintain reasonable profit margins. Management believes,
however, that inflation (which has been moderate over the past few years) and
changing prices have not significantly affected the Company's operating results
or markets in the three most recent fiscal years.
4
<PAGE> 1
EXHIBIT 99.3
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We hereby consent to the incorporation by reference in the Registration
Statement on Form S-8 (Nos. 2-78323, 33-9082, 33-26468, 33-33701 and 333-19007)
and Form S-3 (No. 333-15675) of Hughes Supply, Inc. of our report dated March
14, 1996, except as to the pooling of interests with Electric Laboratories and
Sales Corporation and ELASCO Agency Sales, Inc., which is as of April 26, 1996,
Panhandle Pipe and Supply Co., Inc., which is as of December 11, 1996, Sunbelt
Supply Co., which is as of December 30, 1996 and Metals, Incorporated, Stainless
Tubular Products, Inc. and Metals, Inc. -- Gulf Coast Division, which is as of
January 24, 1997, appearing in this current report on Form 8-K.
Price Waterhouse LLP
February 12, 1997
<PAGE> 1
EXHIBIT 99.4
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in the registration statement
on Form S-8 (Nos. 2-78323, 33-9082, 33-26468, 33-33701 and 333-19007) and Form
S-3 (No. 333-15675) of Coopers & Lybrand's report dated March 17, 1994, on
Coopers & Lybrand's audit of the consolidated statements of income,
shareholders' equity, and cash flows of Hughes Supply, Inc. and subsidiaries for
the fiscal year ended January 28, 1994, which report is incorporated by
reference in the Company's Annual Report on Form 10-K for the fiscal year ended
January 26, 1996.
Coopers & Lybrand L.L.P.
Orlando, Florida
February 12, 1997
