FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended July 31, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission File No. 001-08772
HUGHES SUPPLY, INC.
(Exact name of registrant as specified in its charter)
Florida 59-0559446
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
20 North Orange Avenue, Suite 200, Orlando, Florida 32801
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: 407/841-4755
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the registrant was required to
file such reports), and (2) has been subject to such filing
requirements for the past 90 days. YES [X] NO [ ]
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date.
Common Stock Outstanding as of August 31, 1998
$1 Par Value 23,980,631
Page 1
HUGHES SUPPLY, INC.
FORM 10-Q
Index
Page No.
Part I. Financial Information
Item 1. Financial Statements
Consolidated Balance Sheets as of
July 31, 1998 and January 30, 1998 ............ 3 - 4
Consolidated Statements of Income for the
Three Months Ended July 31, 1998 and 1997 ..... 5
Consolidated Statements of Income for the
Six Months Ended July 31, 1998 and 1997 ....... 6
Consolidated Statements of Cash Flows for the
Six Months Ended July 31, 1998 and 1997 ....... 7
Notes to Consolidated Financial Statements .... 8 - 10
Item 2. Management's Discussion and Analysis of
Financial Condition and Results
of Operations ................................. 11 - 17
Part II. Other Information
Item 2. Changes in Securities and Use of Proceeds ..... 18
Item 4. Submission of Matters to a Vote of Security
Holders ....................................... 18
Item 6. Exhibits and Reports on Form 8-K .............. 19 - 23
Signatures .................................... 24
Index of Exhibits Filed with This Report ...... 25
Page 2
HUGHES SUPPLY, INC.
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets (unaudited)
(in thousands, except share data)
July 31, January 30,
1998 1998
---------- ----------
ASSETS
Current Assets:
Cash and cash equivalents $ 9,875 $ 8,204
Accounts receivable, less allowance for
losses of $6,761 and $3,522 369,962 293,837
Inventories 372,655 353,846
Deferred income taxes 9,412 9,708
Other current assets 23,260 18,625
---------- ----------
Total current assets 785,164 684,220
Property and Equipment, Net 115,742 108,068
Excess of Cost over Net Assets Acquired 156,188 153,775
Deferred Income Taxes - 3,438
Other Assets 16,531 16,241
---------- ----------
$1,073,625 $ 965,742
========== ==========
The accompanying notes are an integral part of these consolidated
financial statements.
Page 3
HUGHES SUPPLY, INC.
Consolidated Balance Sheets (unaudited) - continued
(in thousands, except share data)
July 31, January 30,
1998 1998
---------- ----------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Current portion of long-term debt $ 185 $ 674
Accounts payable 183,623 156,209
Accrued compensation and benefits 19,773 21,272
Other current liabilities 28,400 19,959
---------- ----------
Total current liabilities 231,981 198,114
Long-Term Debt 381,955 343,197
Other Noncurrent Liabilities 3,381 2,662
---------- ----------
Total liabilities 617,317 543,973
---------- ----------
Commitments and Contingencies
Shareholders' Equity:
Preferred stock - -
Common stock-23,980,631 and
23,437,039 shares issued 23,981 23,437
Capital in excess of par value 216,636 202,210
Retained earnings 216,900 197,364
Unearned compensation related to
outstanding restricted stock (1,209) (1,242)
---------- ----------
Total shareholders' equity 456,308 421,769
---------- ----------
$1,073,625 $ 965,742
========== ==========
The accompanying notes are an integral part of these consolidated
financial statements.
Page 4
HUGHES SUPPLY, INC.
Consolidated Statements of Income (unaudited)
(in thousands, except per share data)
Three months ended July 31,
1998 1997
---------- ----------
Net Sales $ 674,550 $ 493,801
Cost of Sales 525,709 385,519
---------- ----------
Gross Profit 148,841 108,282
---------- ----------
Operating Expenses:
Selling, general and administrative 106,015 77,781
Depreciation and amortization 5,396 4,495
Provision for doubtful accounts 756 323
---------- ----------
Total operating expenses 112,167 82,599
---------- ----------
Operating Income 36,674 25,683
---------- ----------
Non-Operating Income and (Expenses):
Interest and other income 1,703 1,296
Interest expense (6,353) (4,802)
---------- ----------
(4,650) (3,506)
---------- ----------
Income Before Income Taxes 32,024 22,177
Income Taxes 12,251 8,048
---------- ----------
Net Income $ 19,773 $ 14,129
========== ==========
Earnings Per Share:
Basic $ .83 $ .72
========== ==========
Diluted $ .82 $ .71
========== ==========
Average Shares Outstanding:
Basic 23,925 19,577
========== ==========
Diluted 24,180 19,952
========== ==========
Dividends Per Share $ .080 $ .075
========== ==========
The accompanying notes are an integral part of these consolidated
financial statements.
Page 5
HUGHES SUPPLY, INC.
Consolidated Statements of Income (unaudited)
(in thousands, except per share data)
Six months ended July 31,
1998 1997
---------- ----------
Net Sales $1,276,581 $ 942,643
Cost of Sales 998,463 737,305
---------- ----------
Gross Profit 278,118 205,338
---------- ----------
Operating Expenses:
Selling, general and administrative 205,604 152,193
Depreciation and amortization 11,109 9,199
Provision for doubtful accounts 1,326 816
---------- ----------
Total operating expenses 218,039 162,208
---------- ----------
Operating Income 60,079 43,130
---------- ----------
Non-Operating Income and (Expenses):
Interest and other income 3,229 2,576
Interest expense (12,609) (9,104)
---------- ----------
(9,380) (6,528)
---------- ----------
Income Before Income Taxes 50,699 36,602
Income Taxes 19,323 13,172
---------- ----------
Net Income $ 31,376 $ 23,430
========== ==========
Earnings Per Share:
Basic $ 1.32 $ 1.21
========== ==========
Diluted $ 1.31 $ 1.18
========== ==========
Average Shares Outstanding:
Basic 23,765 19,419
========== ==========
Diluted 24,028 19,844
========== ==========
Dividends Per Share $ .160 $ .148
========== ==========
The accompanying notes are an integral part of these consolidated
financial statements.
Page 6
HUGHES SUPPLY, INC.
Consolidated Statements of Cash Flows (unaudited)
(in thousands)
Six months ended July 31,
1998 1997
---------- ----------
Cash Flows from Operating Activities:
Net income $ 31,376 $ 23,430
Adjustments to reconcile net income
to net cash provided by (used in)
operating activities:
Depreciation and amortization 11,109 9,199
Provision for doubtful accounts 1,326 816
Other, net (275) (302)
Changes in assets and liabilities, net
of effects of business acquisitions:
(Increase) in accounts receivable (70,953) (49,200)
(Increase) in inventories (11,215) (12,457)
(Increase) decrease in other
current assets (4,380) 604
(Increase) in other assets (4,415) (4,251)
Increase in accounts payable and
accrued expenses 24,345 22,637
Increase in accrued interest and
income taxes 3,440 3,880
Increase in other noncurrent
liabilities 719 281
(Increase) decrease in deferred
income taxes 2,014 (1,094)
---------- ----------
Net cash used in operating
activities (16,909) (6,457)
---------- ----------
Cash Flows from Investing Activities:
Capital expenditures (11,985) (15,902)
Proceeds from sale of
property and equipment 5,782 253
Business acquisitions, net of cash (627) (10,168)
---------- ----------
Net cash used in investing
activities (6,830) (25,817)
---------- ----------
Cash Flows from Financing Activities:
Net borrowings (payments) under
short-term debt arrangements (10,051) 45,259
Principal payments on:
Long-term notes (9,509) (4,831)
Capital lease obligations (291) (462)
Proceeds from issuance of long-term debt 50,000 -
Proceeds from stock options exercised 301 651
Purchase of common shares (175) (195)
Dividends paid (4,865) (3,712)
---------- ----------
Net cash provided by financing
activities 25,410 36,710
---------- ----------
Net Increase in Cash and Cash Equivalents 1,671 4,436
Cash and Cash Equivalents:
Beginning of period 8,204 6,619
---------- ----------
End of period $ 9,875 $ 11,055
========== ==========
The accompanying notes are an integral part of these consolidated
financial statements.
Page 7
HUGHES SUPPLY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited) (dollars in thousands, except per share data)
1. In the opinion of Hughes Supply, Inc. (the "Company"), the
accompanying unaudited consolidated financial statements contain
all adjustments (consisting only of normal recurring adjustments)
necessary to present fairly the financial position as of July 31,
1998, the results of operations for the three and six months ended
July 31, 1998 and 1997, and cash flows for the six months then
ended. The results of operations for the three and six months
ended July 31, 1998 are not necessarily indicative of the results
that may be expected for the full year. Prior period financial
statements have been restated to include the accounts of Winn-Lange
Electric, Inc. ("Winn-Lange") acquired and accounted for as a
pooling of interests (see Note 2).
The fiscal year of the Company is a 52-week period ending on the
last Friday in January. The three months ended July 31, 1998 and
1997 each contained 13 weeks and the six months ended July 31, 1998
and 1997 each contained 26 weeks.
The Company adopted Statement of Financial Accounting Standards No.
128, Earnings per Share ("SFAS 128") commencing in the period ended
January 30, 1998. Accordingly, these financial statements include
the presentation of both basic and diluted earnings per share.
Basic earnings per share is calculated by dividing net income by
the weighted-average number of shares outstanding. Diluted
earnings per share is calculated by dividing net income by the
weighted-average number of shares outstanding, adjusted for
dilutive potential common shares. Earnings per share data for
prior periods was restated to give effect to the Company's adoption
of SFAS 128.
The weighted-average number of shares used in calculating basic
earnings per share were 23,925,000 and 19,577,000 for the three
months ended July 31, 1998 and 1997, respectively, and 23,765,000
and 19,419,000 for the six months ended July 31, 1998 and 1997,
respectively. In calculating diluted earnings per share, these
amounts were adjusted to include dilutive potential common shares
of 255,000 and 375,000 for the three months ended July 31, 1998 and
1997, respectively, and 263,000 and 425,000 for the six months
ended July 31, 1998 and 1997, respectively.
Effective February 1, 1998, the Company adopted Statement of
Financial Accounting Standards No. 130, Reporting Comprehensive
Income ("SFAS 130"). SFAS 130 established standards for reporting
and display of comprehensive income and its components in the
financial statements. The adoption of this standard had no impact
on the Company's financial reporting.
Page 8
In the second quarter ended July 31, 1998, the Company changed the
format of its statements of cash flows from the direct method to
the indirect method for purposes of reporting cash flows from
operating activities. Accordingly, the statement of cash flows for
the six months ended July 31, 1997 contains certain
reclassifications which were made to conform to the July 31, 1998
financial statement format.
2. On June 30, 1998, the Company exchanged 936,904 shares of the
Company's common stock for all of the common stock of Winn-Lange.
Winn-Lange is a wholesale distributor of electrical supplies and
equipment with three branches in Texas. Winn-Lange was a
Subchapter S corporation for federal income tax purposes and
accordingly, did not pay U.S. federal income taxes. Winn-Lange
will be included in the Company's U.S. federal income tax return
commencing June 30, 1998.
The above transaction has been accounted for as a pooling of
interests and, accordingly, the consolidated financial statements
for the periods presented have been restated to include the
accounts of Winn-Lange. Winn-Lange's fiscal year end has been
changed to the last Friday in January to conform to the Company's
fiscal year end.
Net sales and net income of the separate companies for the periods
preceding the Winn-Lange merger were as follows:
Unaudited
Pro Forma
Net Net Net
Sales Income Income
--------- -------- ---------
Three months ended
April 30, 1998
Hughes, as previously
reported $ 582,042 $ 10,746 $ 10,746
Winn-Lange 19,989 857 537
--------- -------- ---------
Combined $ 602,031 $ 11,603 $ 11,283
========= ======== =========
Six months ended
July 31, 1997
Hughes, as previously
reported $ 912,686 $ 22,226 $ 21,370
Winn-Lange 29,957 1,204 830
--------- -------- ---------
Combined $ 942,643 $ 23,430 $ 22,200
========= ======== =========
Page 9
Unaudited pro forma net income reflects adjustments to net income
to record an estimated provision for income taxes for each period
presented assuming Winn-Lange was a tax paying entity.
Additionally, in fiscal 1998, the Company merged with Chad Supply,
Inc. ("Chad"), also a Subchapter S corporation. As a Subchapter S
corporation, Chad did not pay U.S. federal income taxes in periods
prior to the merger. Chad was included in the Company's U.S.
federal income tax return effective with their merger with the
Company on January 30, 1998. For purposes of calculating unaudited
pro forma net income, Chad was also assumed to be a tax paying
entity.
During the six months ended July 31, 1998, the Company acquired
three wholesale distributors of materials to the construction
industry that were accounted for as purchases or immaterial
poolings. These acquisitions, individually or in the aggregate,
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.
3. On May 5, 1998, the Company issued $50,000 of senior notes due 2013
in a private placement. The senior notes bear interest at 6.74%
and will be payable in 21 equal semi-annual payments beginning in
2003. Proceeds received by the Company from the sale of the senior
notes were used to reduce indebtedness outstanding under the
Company's revolving credit facility and line of credit agreement
(the "credit agreement").
4. Subsequent events:
On August 19, 1998 the Company's Board of Directors increased the
regular quarterly cash dividend from $.08 per share to $.085 per
share effective for the third quarter dividend which will be
payable on November 20, 1998 to shareholders of record on November
6, 1998.
Page 10
HUGHES SUPPLY, INC.
PART I. FINANCIAL INFORMATION - Continued
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
The following is management's discussion and analysis of certain
significant factors which have affected the financial condition of the
Company as of July 31, 1998, and the results of operations for the three
and six months then ended.
As described in Note 2 of the Notes to Consolidated Financial
Statements, on June 30, 1998 the Company entered into a business
combination with Winn-Lange which was accounted for as a pooling of
interests. Accordingly, all financial data in Management's Discussion
and Analysis of Financial Condition and Results of Operations is
reported as though the companies have always been one entity.
Certain statements set forth in Management's Discussion and Analysis of
Financial Condition and Results of Operations, including, but not
limited to certain statements made regarding the Year 2000 Issue (as
defined below), constitute "forward-looking statements" within the
meaning of Section 27A of the Securities Act of 1933, as amended, and
Section 21E of the Securities Exchange Act of 1934, as amended, and are
subject to the safe harbor created by such sections. When used in this
report, the words "believe," "anticipate," "estimate," "expect," and
similar expressions are intended to identify forward-looking statements.
Although the Company believes that the expectations reflected in such
forward-looking statements are reasonable, it can give no assurance that
such expectations will prove to be correct. The Company's actual
results may differ significantly from the results discussed in such
forward-looking statements. When appropriate, certain factors that
could cause results to differ materially from those projected in the
forward-looking statements are enumerated. This Management's Discussion
and Analysis of Financial Condition and Results of Operations should be
read in conjunction with the Company's consolidated financial statements
and the notes thereto contained herein and in the Company's Form 10-K
for the fiscal year ended January 30, 1998.
Material Changes in Results of Operations
Net Sales
Net sales were $675 million for the quarter ended July 31, 1998, a 37%
increase over the prior year's second quarter. Net sales for the six
months were $1.28 billion, which was 35% ahead of the same period in the
prior year. Same-store sales increased 8% and 7% for the three and six
months ended July 31, 1998, respectively. The remaining increases in
net sales for the three and six month periods are attributable to newly-
opened and acquired wholesale branches.
Page 11
Same-store sales for the quarter were favorably impacted by the warm and
dry weather experienced in regions served by the Company's air
conditioning and pool supply product groups. This was in contrast to
the mild and wet weather that slowed sales for these product groups in
last year's second quarter.
Gross Profit
Gross profit and gross margin for the three and six months ended July
31, 1998 and 1997 were as follows (dollars in thousands):
<TABLE>
<CAPTION>
1998 1997
--------------------- --------------------- Variance
Gross Gross Gross Gross --------
Profit Margin Profit Margin Amount %
--------- ------ --------- ------ -------- -----
<S> <C> <C> <C> <C> <C> <C>
Three months ended $ 148,841 22.1% $ 108,282 21.9% $ 40,559 37.5%
Six months ended $ 278,118 21.8% $ 205,338 21.8% $ 72,780 35.4%
</TABLE>
During the three and six months ended July 31, 1998, the Company
experienced weaker stainless steel pricing in its industrial pipe,
plate, valves and fittings product group related to declining stainless
steel prices in Asian markets, currency fluctuations and the resulting
impact of these factors on domestic stainless steel pricing. This
decline was partially offset by an overall increase in gross margin in
the Company's other product groups which primarily resulted from
expansion of product offerings to lines with better margins,
efficiencies created with central distribution centers and enhanced
purchasing power. Enhanced purchasing power is attributable to
increased volume and concentration of supply sources as part of the
Company's preferred vendor program.
Operating Expenses
Operating expenses for the three and six months ended July 31, 1998 and
1997 were as follows (dollars in thousands):
<TABLE>
<CAPTION>
1998 1997
---------------------- ---------------------- Variance
% of % of --------
Amount Net Sales Amount Net Sales Amount %
--------- --------- --------- --------- -------- -----
<S> <C> <C> <C> <C> <C> <C>
Three months ended $ 112,167 16.6% $ 82,599 16.7% $ 29,568 35.8%
Six months ended $ 218,039 17.1% $ 162,208 17.2% $ 55,831 34.4%
</TABLE>
Approximately 28 and 27 percentage points of the 35.8% and 34.4%
increases in operating expenses for the three and six months ended July
31, 1998, respectively, is attributable to newly-opened wholesale
branches and recent acquisitions. The remainder of the increase is
primarily due to personnel and transportation costs associated with
same-store sales growth.
Page 12
Non-Operating Income and Expenses
Interest and other income increased $.4 million and $.7 million for the
three and six months ended July 31, 1998 over the prior year periods.
The increases are primarily the result of higher levels of accounts
receivable and the related collection of service charge income on
delinquent accounts receivable.
Interest expense was $6.4 million and $12.6 million for the three and
six months ended July 31, 1998 compared to $4.8 million and $9.1 million
for the three and six months ended July 31, 1997, respectively. The
increases are primarily the result of higher borrowing levels, partially
offset by lower interest rates. Expansion through business acquisitions
has been partially funded by debt financing.
Income Taxes
The effective tax rates for the three and six months ended July 31, 1998
and 1997 were as follows:
1998 1997
Three months ended 38.3% 36.3%
Six months ended 38.1% 36.0%
Prior to the mergers with Chad Supply, Inc. ("Chad") on January 30, 1998
and with Winn-Lange on June 30, 1998, these 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 rate is higher for
the three and six months ended July 31, 1998 compared to the prior year
periods. The Company's effective tax rate for the three and six months
ended July 31, 1997 would have been approximately 39.4%, assuming Chad
and Winn-Lange were tax paying entities. The Company's effective tax
rate for the three and six months ended July 31, 1998 would have been
approximately 40.0% and 39.8%, respectively, assuming Winn-Lange was a
tax paying entity.
Net Income
Net income for the second quarter increased 40% to $19.8 million.
Diluted earnings per share for the second quarter were $.82 compared to
$.71 in the prior year, a 15% increase with 21% more average shares
outstanding.
For the six months ended July 31, 1998, net income reached $31.4
million, a 34% increase over the six months ended July 31, 1997.
Diluted earnings per share for the six months ended July 31, 1998 and
1997 were $1.31 and $1.18, respectively. This increase of 11% was on
21% more average shares outstanding.
Page 13
These improved results reflect operating leverage that has been achieved
through the Company's acquisition program and the resulting purchasing
and administrative synergies, as well as through internal growth.
Operating margins (operating income as a percentage of net sales) have
improved to 5.4% and 4.7% for the three and six months ended July 31,
1998, compared to 5.2% and 4.6% for the three and six months ended July
31, 1997, respectively.
Liquidity and Capital Resources
Working capital at July 31, 1998 totaled $553 million compared to $486
million at January 30, 1998. The working capital ratio was 3.4 to 1 and
3.5 to 1 as of July 31, 1998 and January 30, 1998, respectively. The
Company typically becomes more leveraged in expansionary periods.
Consequently, higher levels of inventories and receivables, trade
payables and debt are required to support the growth.
Net cash used in operations was $16.9 million for the six months ended
July 31, 1998 compared to $6.5 million for the six months ended July 31,
1997. This change is primarily due to an increase in accounts
receivable resulting from the Company's growth.
Expenditures for property and equipment were $12.0 million for the six
months ended July 31, 1998 compared to $15.9 million for the six months
ended July 31, 1997. This decrease of $3.9 million is primarily due to
higher levels of expenditures for computer and communications hardware
and related software during the six months ended July 31, 1997. Capital
expenditures for property and equipment, not including amounts for
business acquisitions, are expected to be approximately $24 million for
fiscal year 1999.
Proceeds from the sale of property and equipment were $5.8 million for
the six months ended July 31, 1998 compared to $.3 million for the six
months ended July 31, 1997. This increase is primarily due to the sale
and subsequent lease-back of certain computer hardware during the six
months ended July 31, 1998, which generated proceeds of $5.4 million.
Cash payments for business acquisitions accounted for as purchases
totaled $.6 million for the six months ended July 31, 1998. In
addition, the Company issued approximately 189,000 shares of its common
stock valued at approximately $6.7 million for such purchases.
Principal reductions on long-term debt were $9.5 million for the six
months ended July 31, 1998 compared to $4.8 million for the same period
in the prior year. These amounts are primarily attributable to the
repayment of debt assumed as a result of certain business acquisitions.
Dividend payments were $4.9 million and $3.7 million during the six
months ended July 31, 1998 and 1997, respectively.
Page 14
As discussed in Note 3 of the Notes to Consolidated Financial
Statements, in May 1998 the Company issued $50 million of 6.74% senior
notes due 2013 in a private placement. The proceeds of this private
placement were used to reduce indebtedness outstanding under the
Company's credit agreement.
Management believes that the Company has sufficient borrowing capacity,
with approximately $32 million available under its existing credit
facilities (subject to borrowing limitations under long-term debt
covenants) as of July 31, 1998, to fund ongoing operating requirements
and anticipated capital expenditures. The Company expects to continue
to finance future expansion on a project-by-project basis through
additional borrowing or through the issuance of common stock.
Year 2000 Issue
Many existing computer programs use only two digits to identify a year
in the date field. As the century date change occurs, these programs
may recognize the year 2000 as 1900, or not at all. If not corrected,
many computer systems and applications could fail or create erroneous
results by or at the year 2000 (the "Year 2000 Issue").
The Company has developed plans to address its possible exposures
related to the impact of the Year 2000 Issue on each of its internal
systems and those of third parties. These plans are expected to be
implemented primarily with the use of internal personnel.
The Company's internal systems consist of its central operating and
accounting systems, which handle the majority of its business
transactions, and other remote operating systems, which have resulted
from the Company's acquisition program. Plans to address the Year 2000
Issue with respect to the Company's internal systems include an
assessment phase, a remediation phase and a testing phase.
The Company has completed an assessment of its central operating and
accounting systems. This assessment has resulted in the identification
of certain modifications which were necessary to bring these systems
into year 2000 compliance. These modifications have been made and are
in the final testing phase. Final testing, along with any further
remediation efforts necessary to ensure year 2000 compliance, is
scheduled for completion in fiscal 1999. Based on the results of
initial testing, with respect to these two systems, the Company does not
anticipate that the Year 2000 Issue will materially impact its
operations or operating results.
Page 15
An assessment of the Company's 18 remote operating systems in place as
of July 31, 1998 is also complete. These systems are not year 2000
compliant. All such systems are, however, expected to be converted to
the Company's central operating and accounting systems or to be modified
to ensure year 2000 compliance using vendor-supplied software. The
remediation and testing phases for the remote operating systems
currently in place are expected to be completed by July 31, 1999. As
additional remote operating systems are added as a result of the
Company's acquisition program, they will be assessed, remediated and
tested to the extent that is necessary to ensure year 2000 compliance.
Management believes that total pretax costs incurred to date in
connection with the Year 2000 Issue have not materially impacted the
Company's operating results. Future total pretax costs are estimated to
be approximately $2 million through March 2000. This estimate excludes
the costs of converting remote operating systems to the Company's
central operating and accounting systems, because such costs are not
expected to be material or the conversion is scheduled to be performed
as part of the Company's normal integration activities. Approximately
$1 million of the estimated total pretax costs of $2 million are
personnel and other expenses related to the Company's Year 2000 Project
Team, which is expected to remain intact through the turn of the
century. The remaining estimated cost of $1 million is expected to be
incurred primarily in connection with the remediation and testing of the
Company's remote operating systems.
The Company believes its planning efforts are adequate to address the
Year 2000 Issue and that its greatest risks in this area are primarily
those that it cannot directly control, including the readiness of its
major suppliers, customers and service providers. Failure on the part
of any of these entities to timely remediate their Year 2000 Issues
could result in disruptions in the Company's supply of materials,
disruptions in its customers' ability to conduct business and
interruptions to the Company's daily operations. Management believes
that its exposure to third party risk may be minimized to some extent
because it does not rely significantly on any one supplier or customer.
There can be no guarantee, however, that the systems of other third
parties on which the Company's systems and operations rely will be
corrected on a timely basis and will not have a material adverse effect
on the Company.
Page 16
The Company is in the preliminary stages of contacting its major
suppliers, customers and service providers regarding their Year 2000
Issues and therefore does not currently have adequate information to
assess the risk of these entities not being able to provide goods and
services to the Company. However, because the Company believes this
area is among its greatest risks, as information is received and
evaluated, contingency plans will be established, as the Company deems
necessary, to safeguard its ongoing operations. Such contingency plans
would include identifying alternative suppliers or service providers,
stockpiling certain inventories if alternative sources of supply are not
available, evaluating the impact and credit worthiness of non-compliant
customers and the addition of lending capacity if deemed necessary to
finance higher levels of working capital on an interim basis.
Page 17
HUGHES SUPPLY, INC.
PART II. OTHER INFORMATION
Item 2. Changes in Securities and Use of Proceeds
(c) On June 30, 1998, the Company issued 936,904 shares of common
stock in connection with the merger of Winn-Lange Electric,
Inc. The issuance of these shares was not registered under
the Securities Act of 1933, as amended, in reliance on the
exemption provided by Section 4(2) thereunder for transactions
not involving a public offering.
Item 4. Submission of Matters to a Vote of Security Holders
The 1998 Annual Meeting of Shareholders (the "Annual Meeting") was held
on May 20, 1998. At the Annual Meeting, holders of 17,387,686 shares of
the Company's common stock were present in person or by proxy. At the
Annual Meeting, Messrs. John D. Baker II and A. Stewart Hall, Jr. were
elected directors of the Company to hold office until the 2001 Annual
Meeting and until the election and qualification of their respective
successors or until the earlier of their death, resignation or removal.
The tabulation of the votes present in person or by proxy at the Annual
Meeting with respect to each nominee for office are as follows:
Authority
For Withheld
John D. Baker II 17,323,224 64,462
A. Stewart Hall, Jr. 17,334,827 52,859
Messrs. David H. Hughes, John B. Ellis, Vincent S. Hughes, Robert N.
Blackford and H. Corbin Day each continued their term of office as a
director of the Company after the Annual Meeting.
Page 18
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits Filed
(2) Plan of acquisition, reorganization, arrangement, liquidation
or succession. Not applicable.
(3) Articles of incorporation and by-laws.
3.1 Restated Articles of Incorporation, as amended,
incorporated by reference to Exhibit 3.1 to Form 10-Q for
the quarter ended April 30, 1997 (Commission File No.
001-08772).
3.2 Composite By-Laws, as amended, incorporated by reference
to Exhibit 3.2 to Form 10-K for the fiscal year ended
January 30, 1998 (Commission File No. 001-08772).
(4) Instruments defining the rights of security holders, including
indentures.
4.1 Form of Common Stock Certificate representing shares of
the Registrant's common stock, $1.00 par value,
incorporated by reference to Exhibit 4.1 to Form 10-Q for
the quarter ended July 31, 1997 (Commission File No. 001-
08772).
4.2 Rights Agreement dated as of May 20, 1998 between Hughes
Supply, Inc. and American Stock Transfer & Trust Company,
incorporated by reference to Exhibit 99.2 to Form 8-A
dated May 22, 1998 (Commission File No. 001-08772).
(10) Material contracts.
10.1 Lease Agreements with Hughes, Inc.
(a) Orlando Trucking, Garage and Maintenance Operations
dated December 1, 1971, incorporated by reference
to Exhibit 13(n) to Registration No. 2-43900
(Commission File No. 0-5235). Letter dated April
15, 1992 extending lease from month to month, filed
as Exhibit 10.1(a) to Form 10-K for the fiscal year
ended January 31, 1992 (Commission File No. 0-
5235).
Page 19
(b) Leases effective March 31, 1988, incorporated by
reference to Exhibit 10.1(c) to Form 10-K for the
fiscal year ended January 27, 1989 (Commission File
No. 0-5235).
Sub-Item Property
(1) Clearwater
(2) Daytona Beach
(3) Fort Pierce
(4) Lakeland
(6) Leesburg
(7) Orlando Electrical Operation
(8) Orlando Plumbing Operation
(9) Orlando Utility Warehouse
(11) Sarasota
(12) Venice
(13) Winter Haven
(c) Lease amendment letter between Hughes, Inc. and the
Registrant, dated December 1, 1986, amending
Orlando Truck Operations Center and Maintenance
Garage lease, incorporated by reference to Exhibit
10.1(i) to Form 10-K for the fiscal year ended
January 30, 1987 (Commission File No. 0-5235).
(d) Lease agreement dated June 1, 1987, between Hughes,
Inc. and the Registrant, for additional Sarasota
property, incorporated by reference to Exhibit
10.1(j) to Form 10-K for the fiscal year ended
January 29, 1988 (Commission File No. 0-5235).
(e) Lease dated March 11, 1992, incorporated by
reference to Exhibit 10.1(e) to Form 10-K for the
fiscal year ended January 31, 1992 (Commission File
No. 0-5235).
Sub-Item Property
(2) Gainesville Electrical Operation
(f) Amendments to leases between Hughes, Inc. and
Hughes Supply, Inc., dated April 1, 1998, amending
the leases for the thirteen properties listed in
Exhibit 10.1(b), (d) and (e), incorporated by
reference to Exhibit 10.1 to Form 10-K for the
fiscal year ended January 30, 1998 (Commission File
No. 001-08772).
Page 20
10.2 Hughes Supply, Inc. 1988 Stock Option Plan as amended
March 12, 1996 incorporated by reference to Exhibit 10.2
to Form 10-K for the fiscal year ended January 26, 1996
(Commission File No. 001-08772).
10.3 Form of Supplemental Executive Retirement Plan Agreement
entered into between the Registrant and eight of its
executive officers, incorporated by reference to Exhibit
10.6 to Form 10-K for the fiscal year ended January 30,
1987 (Commission File No. 0-5235).
10.4 Directors' Stock Option Plan, as amended, incorporated by
reference to Exhibit 10.4 to Form 10-K for the fiscal
year ended January 30, 1998 (Commission File No. 001-
08772).
10.5 Written description of senior executives' long-term
incentive bonus plan for fiscal year 1996 incorporated by
reference to the description of the bonus plan set forth
under the caption "Approval of the Stock Award Provisions
of the Senior Executives' Long-Term Incentive Bonus Plan
for Fiscal Year 1996" on pages 26 and 27 of the
Registrant's Proxy Statement for the Annual Meeting of
Shareholders To Be Held May 24, 1994 (Commission File No.
001-08772).
10.6 Hughes Supply, Inc. Amended Senior Executives' Long-Term
Incentive Bonus Plan, adopted January 25, 1996,
incorporated by reference to Exhibit 10.9 to Form 10-K
for the fiscal year ended January 26, 1996 (Commission
File No. 001-08772).
10.7 Amended and Restated Revolving Credit Agreement and Line
of Credit Agreement, dated as of August 18, 1997, by and
among the Company, SunTrust, SouthTrust, NationsBank,
First Union, Barnett and PNC, incorporated by reference
to Exhibit 10.14 to Form 10-Q for the quarter ended July
31, 1997 (Commission File No. 001-08772). The Amended
Credit Agreement contains a table of contents identifying
the contents of Schedules and Exhibits, all of which have
been omitted. The Company agrees to furnish a
supplemental copy of any omitted Schedule or Exhibit to
the Commission upon request.
10.8 Note Purchase Agreement, dated as of August 28, 1997, by
and among the Company and certain purchasers identified
in Schedule A of the Note Purchase Agreement,
incorporated by reference to Exhibit 10.15 to Form 10-Q
for the quarter ended July 31, 1997 (Commission File No.
001-08772).
Page 21
10.9 Hughes Supply, Inc. 1997 Executive Stock Plan (the
"Plan") incorporated by reference to the description of
the Plan set forth under Exhibit A of the Registrant's
Proxy Statement for the Annual Meeting of Shareholders to
be held May 20, 1997 (Commission File No. 001-08772).
10.10 Note Purchase Agreement, dated as of May 29, 1996, by and
among the Company and certain purchasers identified in
Schedule A of the Note Purchase Agreement, incorporated
by reference to Exhibit 10.13 to Form 10-K for the fiscal
year ended January 30, 1998 (Commission File No. 001-
08772).
10.11 Note Purchase Agreement, dated as of May 5, 1998, by and
among the Company and certain purchasers identified in
Schedule A of the Note Purchase Agreement, incorporated
by reference to Exhibit 10.11 to Form 10-Q for the
quarter ended April 30, 1998 (Commission File No. 001-
08772).
(11) Statement re computation of per share earnings. Not
applicable.
(15) Letter re unaudited interim financial information. Not
applicable.
(18) Letter re change in accounting principles. Not applicable.
(19) Report furnished to security holders. Not applicable.
(22) Published report regarding matters submitted to vote of
security holders. Not applicable.
(23) Consents of experts and counsel. Not applicable.
(24) Power of attorney. Not applicable.
(27) Financial data schedule.
27.1 Financial data schedule (filed electronically only).
27.2 Restated financial data schedule (filed electronically
only).
27.3 Restated financial data schedule (filed electronically
only).
(99) Additional exhibits. Not applicable.
Page 22
(b) Reports on Form 8-K
During the quarter ended July 31, 1998, the Company filed a
Current Report on Form 8-K dated May 20, 1998, which reported
under Item 5 (Other Events) that the Board of Directors of the
Company declared a dividend distribution of one right for each
outstanding share of common stock, par value $1.00 per share,
of the Company.
Page 23
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.
HUGHES SUPPLY, INC.
Date: September 9, 1998 By: /s/ David H. Hughes
David H. Hughes, Chairman of
the Board and Chief Executive
Officer
Date: September 9, 1998 By: /s/ J. Stephen Zepf
J. Stephen Zepf, Treasurer,
Chief Financial Officer and
Chief Accounting Officer
Page 24
INDEX OF EXHIBITS FILED WITH THIS REPORT
27.1 Financial data schedule (filed electronically only).
27.2 Restated financial data schedule (filed electronically only).
27.3 Restated financial data schedule (filed electronically only).
Page 25
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<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEET OF HUGHES SUPPLY, INC. AS OF JULY 31, 1998, AND THE
RELATED STATEMENT OF INCOME FOR THE SIX MONTHS THEN ENDED AND IS QUALIFIED IN
ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
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<NAME> HUGHES SUPPLY, INC.
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<FISCAL-YEAR-END> JAN-29-1999
<PERIOD-END> JUL-31-1998
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<RECEIVABLES> 376,723
<ALLOWANCES> 6,761
<INVENTORY> 372,655
<CURRENT-ASSETS> 785,164
<PP&E> 189,520
<DEPRECIATION> 73,778
<TOTAL-ASSETS> 1,073,625
<CURRENT-LIABILITIES> 231,981
<BONDS> 381,955
0
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<COMMON> 23,981
<OTHER-SE> 432,327
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<TOTAL-REVENUES> 1,276,581
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<TOTAL-COSTS> 998,463
<OTHER-EXPENSES> 216,713
<LOSS-PROVISION> 1,326
<INTEREST-EXPENSE> 12,609
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<INCOME-CONTINUING> 31,376
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<EPS-PRIMARY> 1.32
<EPS-DILUTED> 1.31
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THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
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<NAME> HUGHES SUPPLY, INC.
<MULTIPLIER> 1,000
<S> <C> <C> <C> <C> <C>
<PERIOD-TYPE> 3-MOS YEAR 9-MOS 6-MOS 3-MOS
<FISCAL-YEAR-END> JAN-29-1999 JAN-30-1998 JAN-30-1998 JAN-30-1998 JAN-30-1998
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<RECEIVABLES> 346,210 297,359 297,442 269,521 250,317
<ALLOWANCES> 5,847 3,522 6,951 5,969 5,167
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<PP&E> 198,936 186,972 183,188 167,349 153,892
<DEPRECIATION> 79,696 78,904 80,543 74,067 69,735
<TOTAL-ASSETS> 1,043,696 965,742 836,266 789,895 749,342
<CURRENT-LIABILITIES> 239,115 198,114 200,211 187,715 200,716
<BONDS> 362,757 343,197 280,706 269,634 237,630
0 0 0 0 0
0 0 0 0 0
<COMMON> 23,971 23,437 20,930 20,214 19,716
<OTHER-SE> 415,067 398,332 331,807 309,852 288,951
<TOTAL-LIABILITY-AND-EQUITY> 1,043,696 965,742 836,266 789,895 749,342
<SALES> 602,031 1,945,446 1,468,481 942,643 448,842
<TOTAL-REVENUES> 602,031 1,945,446 1,468,481 942,643 448,842
<CGS> 472,754 1,519,323 1,147,849 737,305 351,786
<TOTAL-COSTS> 472,754 1,519,323 1,147,849 737,305 351,786
<OTHER-EXPENSES> 105,302 337,650 248,873 161,392 79,116
<LOSS-PROVISION> 570 1,229 1,408 816 493
<INTEREST-EXPENSE> 6,256 19,257 14,397 9,104 4,302
<INCOME-PRETAX> 18,675 73,824 59,896 36,602 14,425
<INCOME-TAX> 7,072 26,254 21,797 13,172 5,124
<INCOME-CONTINUING> 11,603 47,570 38,099 23,430 9,301
<DISCONTINUED> 0 0 0 0 0
<EXTRAORDINARY> 0 0 0 0 0
<CHANGES> 0 0 0 0 0
<NET-INCOME> 11,603 47,570 38,099 23,430 9,301
<EPS-PRIMARY> .49 2.37 1.93 1.21 .48
<EPS-DILUTED> .49 2.33 1.89 1.18 .48
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<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
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INCOME AS OF AND FOR THE PERIODS ENDED JANUARY 31, 1997, OCTOBER 31, 1996,
JULY 31, 1996, APRIL 30, 1996, AND JANUARY 26, 1996. THIS SCHEDULE IS
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</LEGEND>
<RESTATED>
<CIK> 0000049029
<NAME> HUGHES SUPPLY, INC.
<MULTIPLIER> 1,000
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<SECURITIES> 0 0 0 0 0
<RECEIVABLES> 213,394 239,935 226,769 198,739 172,713
<ALLOWANCES> 4,117 9,133 7,872 6,467 5,221
<INVENTORY> 263,119 237,021 215,386 185,109 179,882
<CURRENT-ASSETS> 505,248 496,946 458,154 402,703 379,825
<PP&E> 148,080 148,265 142,858 137,178 130,448
<DEPRECIATION> 69,671 73,251 69,903 66,396 62,457
<TOTAL-ASSETS> 684,056 663,819 624,462 505,025 474,574
<CURRENT-LIABILITIES> 154,273 173,266 158,538 161,349 144,712
<BONDS> 228,351 201,430 192,069 148,307 139,165
0 0 0 0 0
0 0 0 0 0
<COMMON> 19,576 19,202 18,612 15,092 14,950
<OTHER-SE> 279,657 267,802 253,223 178,378 173,976
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<SALES> 1,619,362 1,229,507 794,343 372,423 1,326,978
<TOTAL-REVENUES> 1,619,362 1,229,507 794,343 372,423 1,326,978
<CGS> 1,276,481 972,392 629,784 297,229 1,052,120
<TOTAL-COSTS> 1,276,481 972,392 629,784 297,229 1,052,120
<OTHER-EXPENSES> 276,921 204,050 133,194 63,956 229,952
<LOSS-PROVISION> 1,023 3,063 1,932 995 2,203
<INTEREST-EXPENSE> 14,842 10,583 6,587 2,786 10,440
<INCOME-PRETAX> 56,336 44,282 26,579 9,114 37,374
<INCOME-TAX> 19,282 15,387 9,090 3,156 11,728
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