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, 2000
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 SEPTEMBER 11, 2000
------------ ------------------------------------
$1 Par Value 23,598,205
<PAGE>
HUGHES SUPPLY, INC.
FORM 10-Q
INDEX
PAGE NO.
--------
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets as of
July 31, 2000 and January 28, 2000 ........................... 3 - 4
Consolidated Statements of Income for the
Three Months Ended July 31, 2000 and 1999 .................... 5
Consolidated Statements of Income for the
Six Months Ended July 31, 2000 and 1999 .........................6
Consolidated Statements of Cash Flows for the
Six Months Ended July 31, 2000 and 1999 ...................... 7
Notes to Consolidated Financial Statements ................... 8 - 11
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations ................ 12 - 17
Item 3. Quantitative and Qualitative Disclosures about Market Risks .. 17
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders .......... 18
Item 6. Exhibits and Reports on Form 8-K ............................. 19 - 22
Signatures ................................................... 23
Index of Exhibits Filed with This Report ..................... 24
Page 2
<PAGE>
HUGHES SUPPLY, INC.
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
JULY 31,
2000 JANUARY 28,
(UNAUDITED) 2000
---------- -----------
ASSETS
Current Assets:
Cash and cash equivalents $ 45,291 $ 10,000
Accounts receivable, less allowance for
losses of $6,841 and $2,777 495,606 398,244
Inventories 506,322 495,491
Deferred income taxes 6,885 15,993
Other current assets 33,772 38,050
---------- ----------
Total current assets 1,087,876 957,778
Property and Equipment, Net 155,107 144,945
Excess of Cost over Net Assets Acquired 250,467 243,367
Other Assets 25,249 22,924
---------- ----------
$1,518,699 $1,369,014
========== ==========
The accompanying notes are an integral part of these
consolidated financial statements.
Page 3
<PAGE>
HUGHES SUPPLY, INC.
CONSOLIDATED BALANCE SHEETS - CONTINUED
(IN THOUSANDS, EXCEPT SHARE DATA)
JULY 31,
2000 JANUARY 28,
(UNAUDITED) 2000
----------- -----------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Current portion of long-term debt $ 651 $ 803
Accounts payable 250,723 239,810
Accrued compensation and benefits 26,059 29,590
Other current liabilities 47,118 30,075
----------- -----------
Total current liabilities 324,551 300,278
Long-Term Debt 627,066 535,000
Deferred Income Taxes 5,564 6,027
Other Noncurrent Liabilities 5,353 5,265
----------- -----------
Total liabilities 962,534 846,570
----------- -----------
Commitments and Contingencies
Shareholders' Equity:
Preferred stock -- --
Common stock, 24,242,658 and
24,249,281 shares issued 24,243 24,249
Capital in excess of par value 221,249 221,284
Retained earnings 332,615 300,144
Treasury stock, 644,453 and
668,950 at cost (14,869) (15,434)
Unearned compensation related to
outstanding restricted stock (7,073) (7,799)
----------- -----------
Total shareholders' equity 556,165 522,444
----------- -----------
$ 1,518,699 $ 1,369,014
=========== ===========
The accompanying notes are an integral part of these
consolidated financial statements.
Page 4
<PAGE>
HUGHES SUPPLY, INC.
CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
THREE MONTHS ENDED JULY 31,
2000 1999
--------- ---------
Net Sales $ 874,056 $ 774,888
Cost of Sales 675,824 598,715
--------- ---------
Gross Profit 198,232 176,173
--------- ---------
Operating Expenses:
Selling, general and administrative 141,992 127,822
Depreciation and amortization 7,817 7,295
Provision for doubtful accounts 1,579 883
--------- ---------
Total operating expenses 151,388 136,000
--------- ---------
Operating Income 46,844 40,173
--------- ---------
Non-Operating Income and (Expenses):
Interest and other income 1,978 2,488
Interest expense (10,946) (7,528)
--------- ---------
(8,968) (5,040)
--------- ---------
Income Before Income Taxes 37,876 35,133
Income Taxes 15,529 14,228
--------- ---------
Net Income $ 22,347 $ 20,905
========= =========
Earnings Per Share:
Basic $ .96 $ .90
========= =========
Diluted $ .96 $ .88
========= =========
Average Shares Outstanding:
Basic 23,236 23,300
========= =========
Diluted 23,333 23,686
========= =========
Dividends Per Share $ .085 $ .085
========= =========
The accompanying notes are an integral part of these
consolidated financial statements.
Page 5
<PAGE>
HUGHES SUPPLY, INC.
CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
SIX MONTHS ENDED JULY 31,
2000 1999
---------- ----------
Net Sales $1,705,227 $1,486,184
Cost of Sales 1,322,110 1,153,653
---------- ----------
Gross Profit 383,117 332,531
---------- ----------
Operating Expenses:
Selling, general and administrative 284,507 249,157
Depreciation and amortization 15,505 13,951
Provision for doubtful accounts 3,112 2,270
---------- ----------
Total operating expenses 303,124 265,378
---------- ----------
Operating Income 79,993 67,153
---------- ----------
Non-Operating Income and (Expenses):
Interest and other income 3,194 4,728
Interest expense (20,856) (14,302)
---------- ----------
(17,662) (9,574)
---------- ----------
Income Before Income Taxes 62,331 57,579
Income Taxes 25,556 23,319
---------- ----------
Net Income $ 36,775 $ 34,260
========== ==========
Earnings Per Share:
Basic $ 1.58 $ 1.45
========== ==========
Diluted $ 1.58 $ 1.43
========== ==========
Average Shares Outstanding:
Basic 23,229 23,580
========== ==========
Diluted 23,318 23,954
========== ==========
Dividends Per Share $ .17 $ .17
========== ==========
The accompanying notes are an integral part of these
consolidated financial statements.
Page 6
<PAGE>
HUGHES SUPPLY, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS ENDED JULY 31,
2000 1999
-------- --------
<S> <C> <C>
Cash Flows from Operating Activities:
Net income $ 36,775 $ 34,260
Adjustments to reconcile net income
to net cash provided by
operating activities:
Depreciation and amortization 15,505 13,951
Provision for doubtful accounts 3,112 2,270
Equity in losses of unconsolidated affiliates 2,265 762
Other, net 728 (1,454)
Changes in assets and liabilities, net of effects of
business acquisitions:
(Increase) in accounts receivable (96,223) (53,851)
(Increase) in inventories (6,423) (11,783)
Decrease in other current assets 4,348 2,859
(Increase) in other assets (1,984) (3,503)
Increase in accounts payable and
accrued liabilities 23,245 30,659
Increase (Decrease) in accrued interest and
income taxes (858) 5,266
Increase in other noncurrent liabilities 88 87
Decrease (Increase) in net deferred
income taxes 8,645 (2,042)
-------- --------
Net cash (used in) provided by
operating activities (10,777) 17,481
-------- --------
Cash Flows from Investing Activities:
Capital expenditures (14,233) (15,088)
Proceeds from sale of property and equipment 549 3,168
Investments in unconsolidated affiliates (4,570) --
Business acquisitions, net of cash (23,787) (63,560)
-------- --------
Net cash used in investing
activities (42,041) (75,480)
-------- --------
Cash Flows from Financing Activities:
Net borrowings under short-term
debt arrangements 92,066 98,574
Principal payments on debt of acquired entities (152) (13,455)
Dividends paid (4,010) (4,057)
Purchase of treasury stock -- (20,955)
Other 205 422
-------- --------
Net cash provided by financing
activities 88,109 60,529
-------- --------
Net Increase in Cash and Cash Equivalents 35,291 2,530
Cash and Cash Equivalents:
Beginning of period 10,000 6,010
-------- --------
End of period $ 45,291 $ 8,540
======== ========
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
Page 7
<PAGE>
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, 2000, the results of
operations for the three and six months ended July 31, 2000 and 1999,
and cash flows for the six months then ended. The results of operations
for the three and six months ended July 31, 2000 are not necessarily
indicative of the results that may be expected for the full year.
The fiscal year of the Company is a 52-week period ending on the last
Friday in January. The three and six months ended July 31, 2000 and
1999 each contained 13 and 26 weeks, respectively.
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. The weighted-average number of shares used in calculating basic
earnings per share were 23,236,000 and 23,300,000 for the three months
ended July 31, 2000 and 1999, respectively, and 23,229,000 and
23,580,000 for the six months ended July 31, 2000 and 1999,
respectively. In calculating diluted earnings per share, these amounts
were adjusted to include dilutive potential common shares of 97,000 and
386,000 for the three months ended July 31, 2000 and 1999,
respectively, and 89,000 and 374,000 for the six months ended July 31,
2000 and 1999, respectively.
2. Effective February 1, 2000, the Company was reorganized into five
strategic business units ("SBUs") on a product group basis. The five
SBUs are: Electrical and Electric Utility; Plumbing/HVAC; Industrial
Pipe, Valves & Fittings ("PVF"); Building Materials/Pool and Spa/
Maintenance Supplies; and Water & Sewer.
The operating segments reported below are the segments of the Company
for which separate financial information is available and for which
operating income amounts are evaluated regularly by executive
management in deciding how to allocate resources and in assessing
performance.
Page 8
<PAGE>
Income before income tax amounts evaluated include allocations of
certain costs, including employee benefits, interest expense, corporate
capital charges and property and casualty insurance. These costs are
allocated based on consumption or at a standard rate determined by
management.
As part of the Company's reorganization at the beginning of fiscal
2001, certain administrative groups and assets were re-aligned on an
SBU basis. As a result of the reorganization, the Company restructured
various administrative groups whereby activities previously performed
on a centralized basis are now performed at the SBU level.
Additionally, commencing in fiscal 2001, the Company changed its method
of allocating certain costs (interest expense, rent expense, corporate
capital charge and depreciation and amortization expense) to the SBUs
which has also impacted the comparability of prior year information.
Accordingly, comparative information has only been presented for net
sales and gross profit, which were not impacted by any of the
allocation method changes.
The tables set forth below represent segment results for the three and
six months ended July 31, 2000 for each of the Company's SBUs. When
comparable, information for the three and six months ended July 31,
1999 has also been presented.
<TABLE>
<CAPTION>
BUILDING MATERIALS/
THREE MONTHS ELECTRICAL & PLUMBING/ INDUSTRIAL POOL AND SPA/ WATER & CORPORATE &
ENDED JULY 31 ELECTRIC UTILITY HVAC PVF MAINTENANCE SUPPLIES SEWER ELIMINATIONS TOTAL
--------------- ----------- ---------- -------------------- --------- ------------ ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Net Sales
2000 $ 150,236 $ 271,231 $ 76,038 $ 136,334 $ 247,536 $ (7,319) $ 874,056
1999 150,365 249,767 69,599 126,394 185,234 (6,471) 774,888
Gross Profit
2000 29,638 60,132 21,015 37,236 50,211 -- 198,232
1999 27,362 60,919 16,319 32,448 39,125 -- 176,173
Depreciation and
Amortization Expense
2000 591 1,874 729 948 1,899 1,776 7,817
Interest and
Other Income
2000 280 1,066 61 1,026 805 (1,260) 1,978
Interest Expense
2000 690 2,619 2,538 1,545 3,554 -- 10,946
Income Before
Income Taxes
2000 7,803 4,090 5,032 9,387 13,621 (2,057) 37,876
</TABLE>
Page 9
<PAGE>
<TABLE>
<CAPTION>
BUILDING MATERIALS/
SIX MONTHS ELECTRICAL & PLUMBING/ INDUSTRIAL POOL AND SPA/ WATER & CORPORATE &
ENDED JULY 31 ELECTRIC UTILITY HVAC PVF MAINTENANCE SUPPLIES SEWER ELIMINATIONS TOTAL
---------------- -------- ---------- --------------------- --------- ------------ -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Net Sales
2000 $ 296,753 $ 530,407 $ 156,601 $ 252,077 $ 481,575 $ (12,186) $ 1,705,227
1999 291,839 488,085 148,188 228,558 339,755 (10,241) 1,486,184
Gross Profit
2000 58,005 117,489 43,619 68,178 95,826 -- 383,117
1999 52,033 116,506 33,840 58,854 71,298 -- 332,531
Depreciation and
Amortization Expense
2000 1,147 3,707 1,465 1,890 3,771 3,525 15,505
Interest and
Other Income
2000 560 1,972 128 1,306 1,493 (2,265) 3,194
Interest Expense
2000 1,477 4,925 5,033 2,810 6,611 -- 20,856
Income Before
Income Taxes
2000 13,230 6,946 11,723 12,941 23,390 (5,899) 62,331
</TABLE>
Page 10
<PAGE>
The table set forth below represents the investment in inventories and
accounts receivable, less allowance for losses, for each strategic
business unit at July 31, 2000 and January 28, 2000.
<TABLE>
<CAPTION>
JULY 31, 2000 JANUARY 28, 2000
------------------------------------------- -----------------------------------------
ACCOUNTS TOTAL ACCOUNTS TOTAL
INVENTORY RECEIVABLE INVESTMENT INVENTORY RECEIVABLE INVESTMENT
--------- ---------- ---------- --------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Electrical & Electric Utility $ 60,290 $ 79,491 $ 139,781 $ 53,617 $ 67,544 $ 121,161
Plumbing/HVAC 157,829 145,202 303,031 171,448 115,357 286,805
Industrial PVF 127,627 39,023 166,650 118,455 42,303 160,758
Building Materials/Pool and Spa/
Maintenance Supplies 67,077 60,557 127,634 62,245 43,506 105,751
Water & Sewer 93,499 176,014 269,513 89,726 132,282 222,008
--------- --------- ----------- --------- --------- ----------
506,322 500,287 1,006,609 495,491 400,992 896,483
Corporate and eliminations - (4,681) (4,681) - (2,748) (2,748)
--------- --------- ----------- --------- --------- ----------
Total $ 506,322 $ 495,606 1,001,928 $ 495,491 $ 398,244 893,735
========= ========= ========= =========
Cash and Cash Equivalents 45,291 10,000
Deferred Income Taxes 6,885 15,993
Other Current Assets 33,772 38,050
Property and Equipment, Net 155,107 144,945
Excess of Cost Over Net Assets Acquired 250,467 243,367
Other Assets 25,249 22,924
----------- ----------
Total Assets $ 1,518,699 $1,369,014
=========== ==========
</TABLE>
Page 11
<PAGE>
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, 2000, and the results of operations for the three and six months then ended.
Certain statements set forth in Management's Discussion and Analysis of
Financial Condition and Results of Operations, 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," "may," "will,"
"should," "plan," "intend," "potential," "predict," "forecast," 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 28, 2000.
MATERIAL CHANGES IN RESULTS OF OPERATIONS
NET SALES
Net sales were $874 million for the quarter ended July 31, 2000, a 13% increase
over the prior year's second quarter. Approximately 59% of the increase in net
sales was attributable to same-store sales growth over the prior year's second
quarter. The remainder of the increase was attributable to branches acquired or
opened after January 31, 1999. Net sales for the six months ended July 31, 2000
were $1.7 billion, a 15% increase over the prior fiscal year's first six months.
Approximately 55% of the increase in net sales was attributable to same-store
sales growth over the prior fiscal year's first six months, with the remainder
of the increase attributable to branches acquired or opened after January 31,
1999.
Electrical and Electric Utility
Net sales were $150.2 million and $296.8 million for the three and six months
ended July 31, 2000, respectively, compared to $150.4 million and $291.8 million
for the same periods in fiscal 2000. Overall, the markets that the electrical
and electric utility group serve have not had significant growth in fiscal 2001,
which has led to the relatively flat sales in comparison to prior periods.
Plumbing/HVAC
Net sales increased from $249.8 million for the three months ended July 31,
1999 to $271.2 million for the three months ended July 31, 2000, a 9% increase.
For the six months ended July 31, 1999 and 2000, net sales increased from $488.1
million to $530.4 million, an increase of 9%. The growth in sales for the three
and six month periods was due to a 7% increase in same-store sales resulting
from improved market penetration and the continued strength of the construction
market.
Page 12
<PAGE>
Industrial PVF
For the quarter ended July 31, 2000, net sales were $76.0 million compared to
$69.6 million in the second quarter of fiscal 2000. The sales increase was due
to a 9% increase in same-store sales primarily driven by an increase in
stainless steel and nickel alloy prices in fiscal 2001. For the six months ended
July 31, 2000 and July 31, 1999, net sales were $156.6 million and $148.2
million, respectively. The increase was primarily due to same-store sales
increasing 6% as a result of commodity price increases in stainless steel and
nickel alloy products in fiscal 2001.
Building Materials/Pool and Spa/Maintenance Supplies
Net sales increased from $126.4 million for the three months ended July 31, 1999
to $136.3 million for the three months July 31, 2000. For the six months ended
July 31, 1999 and July 31, 2000, sales increased 10% from $228.6 million to
$252.1 million. Of the $9.9 million second quarter increase, $7.5 million was
attributable to same-store sales growth, with the remainder coming from newly
opened or acquired branches. Of the $23.5 million year-to-date increase, $16.0
million was attributable to same-store sales growth. The increase in same-store
sales was primarily due to (i) improved market penetration in pool and spa
products, (ii) strong demand for construction rental materials, and (iii)
expansion of appliance product lines in the maintenance supply branches.
Water & Sewer
Water & Sewer sales increased $62.2 million from $185.2 million in the second
quarter of fiscal 2000 to $247.5 million in the second quarter of fiscal 2001, a
34% increase. For the six months ended July 31, 2000, sales increased $141.8
million to $481.6 million. Of the increases, $29.9 million of the second quarter
increase and $62.1 million of the year-to-date increase were from increased
sales in same-store branches. The remainder was due to branches opened or
acquired after January 31, 1999. The increase in same-store sales was due to (i)
several large contracts and a general increase in overall activity through all
Water & Sewer markets in fiscal 2001, and (ii) increased spending on
infrastructure by municipalities.
Page 13
<PAGE>
GROSS PROFIT AND GROSS MARGIN
Gross profit and gross margin for the three and six months ended July 31, 2000
and July 31, 1999 were as follows (dollars in thousands):
<TABLE>
<CAPTION>
GROSS PROFIT GROSS MARGIN
---------------------------- -----------------------------
THREE THREE THREE THREE
MONTHS MONTHS MONTHS MONTHS
ENDED JULY ENDED JULY ENDED JULY ENDED JULY
31, 2000 31, 1999 31, 2000 31, 1999
---------- ---------- ---------- -----------
<S> <C> <C> <C> <C>
Electrical and Electric Utility $ 29,638 $ 27,362 19.7% 18.2%
Plumbing/HVAC 60,132 60,919 22.2% 24.4%
Industrial PVF 21,015 16,319 27.6% 23.4%
Building Materials/Pool and Spa/Maintenance Supplies 37,236 32,448 27.3% 25.7%
Water & Sewer 50,211 39,125 20.3% 21.1%
---------- ---------- ---------- ----------
$ 198,232 $ 176,173 22.7% 22.7%
========== ========== ========== ==========
<CAPTION>
GROSS PROFIT GROSS MARGIN
--------------------------------- -------------------------------
SIX SIX SIX SIX
MONTHS MONTHS MONTHS MONTHS
ENDED JULY ENDED JULY ENDED JULY ENDED JULY
31, 2000 31, 1999 31, 2000 31, 1999
---------- ---------- ---------- -----------
<S> <C> <C> <C> <C>
Electrical and Electric Utility $ 58,005 $ 52,033 19.5% 17.8%
Plumbing/HVAC 117,489 116,506 22.2% 23.9%
Industrial PVF 43,619 33,840 27.9% 22.8%
Building Materials/Pool and Spa/Maintenance Supplies 68,178 58,854 27.0% 25.8%
Water & Sewer 95,826 71,298 19.9% 21.0%
---------- ---------- ---------- ----------
$ 383,117 $ 332,531 22.5% 22.4%
========== ========== ========== ==========
</TABLE>
Electrical and Electric Utility
Gross margin increased approximately 150 basis points from the second quarter of
fiscal 2000 to the second quarter of fiscal 2001. For the six month periods
ended July 31, 1999 and July 31, 2000, gross margin increased approximately 170
basis points. The primary cause of the increased margins was a shift in sales
mix to higher margin products, with the remainder being attributable to enhanced
purchasing power within this SBU.
Plumbing/HVAC
Gross margin decreased approximately 220 basis points from the second quarter of
fiscal 2000 to the second quarter of fiscal 2001. When compared to the first six
months of fiscal 2000, gross margins for the six months ended July 31, 2000 have
decreased by approximately 170 basis points. The decreases were primarily
attributable to an erosion of margins as the Company sought to protect market
share in certain areas.
Page 14
<PAGE>
Industrial PVF
Gross margin and gross profit within the Industrial PVF segment are closely tied
to the pricing of certain commodity based products (primarily stainless steel
and nickel alloys). In the first two quarters of fiscal 2001, the price of these
commodity items increased which improved the Company's gross margin for these
products. The Company anticipates margins within this segment decreasing in the
second half of fiscal 2001 as the inventories purchased prior to recent price
increases are depleted.
Building Materials/Pool and Spa/Maintenance Supplies
Gross margin increased approximately 160 basis points from the second quarter of
fiscal 2000 to the second quarter of fiscal 2001. For the six months ended July
31, 1999 and July 31, 2000, gross margin increased approximately 120 basis
points. The increases were primarily due to a shift in sales mix resulting from
increased equipment rentals and increased emphasis on specialty product sales.
The remainder of the increase was largely due to improved purchasing power in
fiscal 2001.
Water & Sewer
For the three and six months ended July 31, 2000, gross margin in the Water &
Sewer segment declined approximately 80 and 110 basis points, respectively, when
compared to the same periods in the prior year. The decreases were primarily due
to an increase in large direct shipment orders which generate lower gross
margins.
OPERATING EXPENSES
Operating expenses for the three and six months ended July 31, 2000 and 1999
were as follows (dollars in thousands):
Three Months Ended July 31,
2000 1999 VARIANCE
---------- ---------- --------
Operating expenses $ 151,388 $ 136,000 $15,388
Percentage of net sales 17.3% 17.6% 11%
Six Months Ended July 31,
2000 1999 VARIANCE
---------- ---------- --------
Operating expenses $ 303,124 $ 265,378 $37,746
Percentage of net sales 17.8% 17.9% 14%
Approximately $6.2 million (40%) of the $15.4 million increase in operating
expenses for the three months ended July 31, 2000 and $15.3 million (40%) of the
$37.8 million six month increase was attributable to branches acquired and
opened after January 31, 1999. The remainder of the increase for these periods
was primarily due to (i) higher personnel costs associated with same-store sales
growth, (ii) increased transportation costs brought about by same-store growth
and increased fuel costs, and (iii) increased information technology costs as
the Company continues to upgrade its information technology systems.
INTEREST AND OTHER INCOME
Interest and other income decreased from $2.5 million for the three months July
31, 1999 to $2.0 million for the three months ended July 31, 2000. For the six
months ended July 31, 1999 and 2000, interest and other income decreased from
$4.7 million to $3.2 million, respectively. For the three and six months ended
July 31, 2000, the decrease was primarily due to losses from the Company's
equity investment in bestroute.com. These losses were partially offset by
increased income from the Company's other equity interests and increased service
charge income.
Page 15
<PAGE>
INTEREST EXPENSE
Interest expense was $10.9 million and $7.5 million for the three months ended
July 31, 2000 and 1999, respectively, a 45% increase. Interest expense increased
from $14.3 million for the six months ended July 31, 1999 to $20.9 million for
the six months ended July 31, 2000. The increase in interest expense for both
the three and six month periods was primarily the result of higher borrowing
levels, coupled with increased interest rates. The higher borrowing levels were
primarily due to the Company's (i) higher working capital investments resulting
from accelerated sales growth, (ii) expansion through business acquisitions,
which has been partially funded by debt financing, and (iii) share repurchases.
INCOME TAXES
The effective income tax rates for the three months and six months ended July
31, 2000 and 1999 were 41.0% and 40.5%, respectively. The increase in the
effective rate was primarily due to increases in non-deductible goodwill and
other non-deductible costs.
NET INCOME
Net income was $22.3 million for the second quarter compared to $20.9 million
for the prior year's second quarter, a 7% increase. Net income for the six
months ended July 31, 2000 increased from $34.3 million in fiscal 2000 to $36.8
million in fiscal 2001, a 7% increase. Diluted earnings per share for the three
and six months ended July 31, 2000 was $.96 and $1.58, respectively, compared to
$.88 and $1.43 for the three and six month periods ended July 31, 1999. The
factors impacting net income and diluted earnings per share have been enumerated
above in the material changes in results of operations section of Management's
Discussion and Analysis of Financial Condition and Results of Operations.
LIQUIDITY AND CAPITAL RESOURCES
Working capital at July 31, 2000 totaled $763 million compared to $658 million
at January 28, 2000. The working capital ratio was 3.4 to 1 and 3.2 to 1 as of
July 31, 2000 and January 28, 2000, respectively. Due to the seasonality of the
Company's business, inventories, receivables and trade payables are highest in
the spring and summer in order to support, and as a direct result of sales
increases.
Net cash used in operations was $10.8 million for the six months ended July 31,
2000 compared to net cash provided by operations of $17.5 million for the six
months ended July 31, 1999. This change was primarily the result of increased
inventories and accounts receivable levels, partially offset by an increase in
accounts payable.
The Company's expenditures for property and equipment were $14.2 million for the
six months ended July 31, 2000 compared to $15.1 million for the six months
ended July 31, 1999. Capital expenditures for property and equipment, excluding
amounts for business acquisitions, are expected to be approximately $30 million
for fiscal 2001.
Cash payments for business acquisitions accounted for as purchases totaled $23.8
million for the six months ended July 31, 2000 compared to $63.6 million for the
six months ended July 31, 1999.
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Principal reductions on long-term debt were $0.2 million for the six months
ended July 31, 2000 and $13.5 million for the six months ended July 31, 1999.
The amounts were primarily attributable to the repayment of debt assumed as a
result of certain business acquisitions. Dividend payments were $4.0 million and
$4.1 million during the six months ended July 31, 2000 and 1999, respectively.
As of July 31, 2000, the Company had approximately $45.3 million of cash and $11
million of unused borrowing capacity (subject to borrowing limitations under
long-term debt covenants) to fund ongoing operating requirements and anticipated
capital expenditures. The Company also believes it has sufficient borrowing
capacity and cash on hand to take advantage of growth and business acquisition
opportunities in the near term. 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.
Item 3. Quantitative and Qualitative Disclosures about Market Risks
The Company is exposed to market risk from changes in (i) interest rates on
outstanding variable-rate debt and (ii) the prices of certain of the Company's
products whose manufacturers are reliant on certain commodities.
INTEREST RATE RISK
At July 31, 2000, the Company had approximately $399.1 million of outstanding
variable-rate debt. Based upon an assumed 10% increase or decrease in interest
rates from their July 31, 2000 levels, the market risk with respect to the
Company's variable-rate debt would not be material. The Company manages its
interest rate risk by maintaining a combination of fixed-rate and variable-rate
debt.
COMMODITY PRICE RISK
The Company is affected by price fluctuations in stainless steel, nickel alloys,
copper, aluminum, resin and other commodities. Such commodity price fluctuations
have from time to time created cyclicality in the financial performance of the
Company and could continue to do so in the future. The Company seeks to minimize
the effects of commodity price fluctuations through (i) economies of purchasing
and inventory management resulting in cost reductions, maintenance of minimum
economic reorder points, and productivity improvements and (ii) price increases
to maintain reasonable profit margins. Additional information with respect to
the Company's commodity price risk is set forth under the caption "Management's
Discussion and Analysis of Financial Condition and Results of Operations" in
Part I, Item 2 of this report.
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HUGHES SUPPLY, INC.
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders.
The 2000 Annual Meeting of Shareholders (the "Annual Meeting") was held on May
16, 2000. At the Annual Meeting, holders of 14,628,610 shares of the Company's
common stock were present in person or by proxy. At the Annual Meeting, Messrs.
Robert N. Blackford and H. Corbin Day were elected directors of the Company to
hold office until the 2003 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 was as
follows:
AUTHORITY
NAME FOR WITHHELD
---- --- ---------
Robert N. Blackford 13,892,980 735,630
H. Corbin Day 13,981,088 647,522
Messrs. William P. Kennedy, David H. Hughes, Vincent S. Hughes, John D. Baker II
and A. Stewart Hall, Jr., each continued their respective terms of office as a
director of the Company after the Annual Meeting.
The shareholders of the Company also voted on a proposal ("Proposal Two") to
amend the Hughes Supply, Inc. 1997 Executive Stock Plan (the "1997 Executive
Stock Plan") to increase by 1,000,000 to 1,750,000 the number of shares of
common stock reserved for use under the 1997 Executive Stock Plan and to
increase by 500,000 to 875,000 the number of shares which may, but need not be,
granted as restricted shares of common stock under the 1997 Executive Stock
Plan. The tabulation of votes with respect to Proposal Two was as follows:
FOR AGAINST ABSTAIN
--- ------- -------
Proposal Two 13,476,623 1,047,362 104,625
These were the only matters voted upon at the Annual Meeting.
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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-Q for the quarter
ended October 31, 1999 (Commission File No.
001-08772).
3.3 Form of Articles of Amendment to Restated Articles of
Incorporation of the Company, incorporated by
reference to Exhibit 99.2 to Form 8-A dated May 22,
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).
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<PAGE>
(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).
(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
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<PAGE>
(f) Amendments to leases between Hughes, Inc.
and the Registrant, 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).
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-Q for the quarter ended October 31, 1999
(Commission File No. 001-08772).
10.5 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).
10.6 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).
10.7(a) Hughes Supply, Inc. 1997 Executive Stock Plan,
incorporated by reference to Exhibit 10.7 to
Form 10-K for the fiscal year ended January 28,
2000 (Commission File No. 001-08772).
10.7(b) Amendment No. 1 to the Hughes Supply, Inc. 1997
Executive Stock Plan, incorporated by reference to
Exhibit 10.7(b) to Form 10-Q for the quarter ended
April 30, 2000 (Commission File No. 001-08772).
10.8 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).
10.9 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).
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<PAGE>
10.10 Revolving Credit Agreement, dated as of January 26,
1999 and amended on September 29, 1999, by and among
the Company and a group of banks, incorporated by
reference to Exhibit 10.11 to Form 10-Q for the
quarter ended October 31, 1999 (Commission File No.
001-08772). The Revolving 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.
10.11 Line of Credit Agreement, dated as of January 26,
1999 and amended on September 29, 1999, by and among
the Company and a group of banks, incorporated by
reference to Exhibit 10.12 to Form 10-Q for the
quarter ended October 31, 1999 (Commission File No.
001-08772). The Line of 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.
10.12 Bridge Revolving Credit Agreement, dated as of
November 30, 1999, by and between the Company and
SunTrust Bank, Central Florida, N.A., incorporated by
reference to Exhibit 10.12 to Form 10-K for the
fiscal year ended January 28, 2000 (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).
(99) Additional exhibits. Not applicable.
(b) REPORTS ON FORM 8-K
There were no reports on Form 8-K filed during the quarter
ended July 31, 2000.
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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 14, 2000 By: /s/ DAVID H. HUGHES
-----------------------------------
David H. Hughes, Chairman of
the Board and Chief Executive
Officer
Date: September 14, 2000 By: /s/ J. STEPHEN ZEPF
-----------------------------------
J. Stephen Zepf, Treasurer,
Chief Financial Officer and Chief
Accounting Officer
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INDEX OF EXHIBITS FILED WITH THIS REPORT
----------------------------------------
27.1 Financial Data Schedule (filed electronically only).
Page 24
