UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[x] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended October 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 Number 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 Number)
20 North Orange Avenue, Suite 200
Orlando, Florida 32801
(Address of principal executive offices, including zip code)
(407) 841-4755
(Registrant's telephone number, including area code)
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.
|X|Yes |_| 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 December 11, 2000
------------ -----------------------------------
$1 Par Value 24,323,686
<PAGE>
HUGHES SUPPLY, INC.
FORM 10-Q
INDEX
<TABLE>
<CAPTION>
Page
----
PART I. FINANCIAL INFORMATION
<S> <C> <C>
Item 1. Financial Statements
Consolidated Balance Sheets as of
October 31, 2000 and January 28, 2000...................................................... 1
Consolidated Statements of Income for the
Three Months Ended October 31, 2000 and 1999............................................... 2
Consolidated Statements of Income for the
Nine Months Ended October 31, 2000 and 1999................................................ 3
Consolidated Statements of Cash Flows for the
Nine Months Ended October 31, 2000 and 1999................................................ 4
Notes to Consolidated Financial Statements................................................. 5 - 7
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations.................................................................. 8 - 12
Item 3. Quantitative and Qualitative Disclosures about Market Risks................................ 12
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K........................................................... 13
SIGNATURES ........................................................................................... 13
</TABLE>
<PAGE>
PART I. FINANCIAL INFORMATION
HUGHES SUPPLY, INC.
ITEM 1. Financial Statements
Consolidated Balance Sheets
(In thousands, except share and per share data)
<TABLE>
<CAPTION>
October 31,
2000 January 28,
(unaudited) 2000
---------- ----------
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents........................................................... $19,490 $10,000
Accounts receivable, less allowance for losses of $9,484 and $2,777................. 489,789 398,244
Inventories......................................................................... 485,112 495,491
Deferred income taxes............................................................... 7,061 15,993
Other current assets................................................................ 34,860 38,050
---------- ----------
Total current assets.............................................................. 1,036,312 957,778
Property and Equipment, Net......................................................... 155,701 144,945
Excess of Cost Over Net Assets Acquired............................................. 271,652 243,367
Other Assets........................................................................ 23,471 22,924
---------- ----------
$1,487,136 $1,369,014
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Current portion of long-term debt................................................... $471 $803
Accounts payable.................................................................... 223,888 239,810
Accrued compensation and benefits................................................... 35,375 29,590
Other current liabilities........................................................... 50,033 30,075
---------- ----------
Total current liabilities......................................................... 309,767 300,278
Long-Term Debt........................................................................ 577,074 535,000
Deferred Income Taxes................................................................. 7,216 6,027
Other Noncurrent Liabilities.......................................................... 5,439 5,265
---------- ----------
Total liabilities................................................................. 899,496 846,570
---------- ----------
Commitments and Contingencies -- --
Shareholders' Equity:
Preferred stock, no par value; 10,000,000 shares authorized; none issued............ -- --
Common stock, par value $1 per share; 100,000,000 shares authorized; 24,965,841
and 24,249,281 shares issued..................................................... 24,966 24,249
Capital in excess of par value...................................................... 234,862 221,284
Retained earnings................................................................... 349,390 300,144
Treasury stock, 644,453 and 668,950 at cost......................................... (14,869) (15,434)
Unearned compensation related to outstanding restricted stock....................... (6,709) (7,799)
---------- ----------
Total shareholders' equity........................................................ 587,640 522,444
---------- ----------
$1,487,136 $1,369,014
========== ==========
The accompanying notes are an integral part of these consolidated financial statements.
</TABLE>
1
<PAGE>
HUGHES SUPPLY, INC.
Consolidated Statements of Income (Unaudited)
(In thousands, except per share data)
<TABLE>
<CAPTION>
Three Months Ended October 31,
--------------------------------
2000 1999
--------- ---------
<S> <C> <C>
Net Sales.............................................................. $ 863,283 $ 786,379
Cost of Sales.......................................................... 666,993 607,731
------- -------
Gross Profit........................................................... 196,290 178,648
------- -------
Operating Expenses:
Selling, general and administrative.................................. 144,591 130,056
Depreciation and amortization........................................ 7,937 7,549
Provision for doubtful accounts...................................... 2,045 785
----- ---
Total operating expenses.......................................... 154,573 138,390
------- -------
Operating Income....................................................... 41,717 40,258
------ ------
Non-Operating Income and (Expenses):
Interest and other income............................................ 1,508 2,000
Interest expense..................................................... (11,290) (8,235)
-------- -------
(9,782) (6,235)
------- -------
Income Before Income Taxes............................................. 31,935 34,023
Income Taxes........................................................... 13,093 13,780
------ ------
Net Income............................................................. $18,842 $20,243
======= =======
Earnings Per Share:
Basic................................................................ $.80 $.87
==== ====
Diluted.............................................................. $.80 $.87
==== ====
Average Shares Outstanding:
Basic................................................................ 23,511 23,214
====== ======
Diluted.............................................................. 23,617 23,349
====== ======
Dividends Per Share.................................................... $.085 $.085
===== =====
The accompanying notes are an integral part of these consolidated financial statements.
</TABLE>
2
<PAGE>
HUGHES SUPPLY, INC.
Consolidated Statements of Income (Unaudited)
(In thousands, except per share data)
<TABLE>
<CAPTION>
Nine Months Ended October 31,
-----------------------------
2000 1999
---------- -----------
<S> <C> <C>
Net Sales.............................................................. $2,568,510 $2,272,563
Cost of Sales.......................................................... 1,989,103 1,761,384
--------- ---------
Gross Profit........................................................... 579,407 511,179
------- -------
Operating Expenses:
Selling, general and administrative.................................. 429,098 379,213
Depreciation and amortization........................................ 23,442 21,500
Provision for doubtful accounts...................................... 5,157 3,055
----- -----
Total operating expenses.......................................... 457,697 403,768
------- -------
Operating Income....................................................... 121,710 107,411
------- -------
Non-Operating Income and (Expenses):
Interest and other income............................................ 4,702 6,728
Interest expense..................................................... (32,146) (22,537)
------- -------
(27,444) (15,809)
------- -------
Income Before Income Taxes............................................. 94,266 91,602
Income Taxes........................................................... 38,649 37,099
------- -------
Net Income............................................................. $55,617 $54,503
======= =======
Earnings Per Share:
Basic................................................................ $2.38 $2.32
===== =====
Diluted.............................................................. $2.38 $2.31
===== =====
Average Shares Outstanding:
Basic................................................................ 23,323 23,458
====== ======
Diluted.............................................................. 23,413 23,606
====== ======
Dividends Per Share.................................................... $.255 $.255
===== =====
The accompanying notes are an integral part of these consolidated financial statements.
</TABLE>
3
<PAGE>
HUGHES SUPPLY, INC.
Consolidated Statements of Cash Flows (Unaudited)
(In thousands)
<TABLE>
<CAPTION>
Nine Months Ended October 31,
-----------------------------
2000 1999
-------- -------
<S> <C> <C>
Cash Flows from Operating Activities:
Net income............................................................................ $55,617 $54,503
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization........................................................ 23,442 21,500
Provision for doubtful accounts...................................................... 5,157 3,055
Equity in losses (income) of unconsolidated affiliates............................... 3,615 (1,002)
Other, net........................................................................... 1,091 274
Changes in assets and liabilities, net of effects of business acquisitions:
(Increase) in accounts receivable.................................................... (87,566) (73,708)
Decrease (increase) in inventories................................................... 20,885 (48,407)
Decrease (increase) in other current assets.......................................... 3,586 (407)
(Increase) in other assets........................................................... (1,504) (6,236)
(Decrease) increase in accounts payable and accrued liabilities...................... (12,820) 65,296
Increase in accrued interest and income taxes........................................ 13,019 11,585
Increase in other noncurrent liabilities............................................. 174 43
Decrease (increase) in net deferred income taxes..................................... 10,121 (4,155)
------- ------
Net cash provided by operating activities.......................................... 34,817 22,341
------- ------
Cash Flows from Investing Activities:
Capital expenditures.................................................................. (18,957) (23,704)
Proceeds from sale of property and equipment.......................................... 894 4,049
Investments in unconsolidated affiliates.............................................. (6,250) --
Business acquisitions, net of cash.................................................... (34,111) (86,501)
------- ------
Net cash used in investing activities.............................................. (58,424) (106,156)
------- ------
Cash Flows from Financing Activities:
Net borrowings under short-term debt arrangements..................................... 41,894 127,072
Principal payments on long-term debt and debt of acquired entities ................... (2,924) (14,646)
Dividends paid........................................................................ (6,078) (6,043)
Purchase of treasury stock............................................................ -- (21,229)
Other................................................................................. 205 677
------- ------
Net cash provided by financing activities.......................................... 33,097 85,831
------- ------
Net Increase in Cash and Cash Equivalents............................................... 9,490 2,016
Cash and Cash Equivalents:
Beginning of period................................................................... 10,000 6,010
------- ------
End of period......................................................................... $19,490 $8,026
======= ======
The accompanying notes are an integral part of these consolidated financial statements.
</TABLE>
4
<PAGE>
HUGHES SUPPLY, INC.
Notes to Consolidated Financial Statements
(Unaudited) (In thousands, except share and per share data)
1. Basis of Presentation
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 October 31, 2000, the results of
operations for the three and nine months ended October 31, 2000 and 1999,
and cash flows for the nine months ended October 31, 2000 and 1999. The
results of operations for the three and nine months ended October 31, 2000
are not necessarily indicative of the trends or results that may be
expected for the full year. These interim financial statements should be
read in conjunction with the consolidated financial statements and notes
thereto included in the Company's Annual Report on Form 10-K for the year
ended January 28, 2000, as filed with the Securities and Exchange
Commission.
The fiscal year of the Company is a 52-week period ending on the last
Friday in January. The three and nine months ended October 31, 2000 and
1999 each contained 13 and 39 weeks, respectively.
Certain prior year amounts in the consolidated financial statements have
been reclassified to conform to current year presentation. These
reclassifications had no impact on previously reported results of
operations.
2. 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. The
weighted-average number of shares used in calculating basic earnings per
share were 23,511,000 and 23,214,000 for the three months ended October 31,
2000 and 1999, respectively, and 23,323,000 and 23,458,000 for the nine
months ended October 31, 2000 and 1999, respectively. In calculating
diluted earnings per share, these amounts were adjusted to include dilutive
potential common shares of 106,000 and 135,000 for the three months ended
October 31, 2000 and 1999, respectively, and 90,000 and 148,000 for the
nine months ended October 31, 2000 and 1999, respectively.
3. Business Combinations
During the nine months ended October 31, 2000, the Company acquired three
wholesale distributors for $34.1 million in cash. As part of its e-commerce
growth strategy, the Company also acquired the remaining 51% interest of
bestroute.com for 723,183 shares of the Company's common stock. Previously,
the Company owned 49% of bestroute.com, with the initial investment having
been paid in cash. Additionally, in exchange for its 33 1/3% equity
investment in Accord Industries ("Accord"), the Company acquired the net
assets of Accord's rebar fabrication division.
These acquisitions were accounted for as purchases, and accordingly, the
assets and liabilities of the acquired entities have been recorded at their
estimated fair values at the dates of acquisition. The excess of cost over
net assets acquired in the amount of $34.1 million has been recorded and is
being amortized using the straight-line method over 5 to 40 years. These
acquisitions, individually and 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.
4. Long-Term Debt
On May 29, 2000 the Company executed an amendment to its $75 million
syndicated line of credit agreement which extended the maturity date to
January 19, 2001.
On September 13, 2000, the Company entered into a short-term credit
agreement with a bank which provided for borrowings up to $50 million.
On September 14, 2000, the maturity date of the Company's $15 million
line of credit agreement was extended to June 30, 2001.
There were no amounts outstanding under any of the above agreements as of
October 31, 2000.
5
<PAGE>
5. Segment Information
Effective February 1, 2000, the Company was reorganized into five strategic
business units ("SBUs") on a product group basis. The five SBUs are:
Electrical & Electric Utility; Plumbing/HVAC; Industrial Pipe, Valves &
Fittings ("PVF"); Building Materials/Pool & 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.
The "Corporate/Eliminations & Other" category includes corporate level
operating expenses not allocated to the Company's operating segments along
with intercompany eliminations and revenues and expenses for an immaterial
segment.
Income before income tax amounts evaluated include certain expense
allocations for employee benefits, interest expense, corporate capital
charges and property and casualty insurance. These allocations are 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 charges
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 nine
months ended October 31, 2000 for each of the Company's SBUs. When
comparable, information for the three and nine months ended October 31,
1999 has also been presented.
<TABLE>
<CAPTION>
Building
Materials/
Pool & Spa/ Corporate/
Electrical & Plumbing/ Industrial Maintenance Water & Eliminations
Electric Utility HVAC PVF Supplies Sewer & Other Total
Three Months ---------------- ---- --- -------- ----- ------- -----
Ended October 31
<S> <C> <C> <C> <C> <C> <C> <C>
Net Sales
2000 $160,198 $265,403 $79,080 $113,357 $254,945 $(9,700) $863,283
1999 149,668 251,277 75,738 108,901 206,733 (5,938) 786,379
Gross Profit
2000 30,278 59,999 21,059 32,310 52,643 1 196,290
1999 27,869 60,457 17,533 28,969 43,820 -- 178,648
Depreciation and
Amortization
2000 629 1,877 710 989 1,853 1,879 7,937
Interest and Other
Income
2000 345 359 55 466 857 (574) 1,508
Interest Expense
2000 740 2,564 2,709 1,544 3,733 -- 11,290
Income Before Income Taxes
2000 6,795 4,166 5,077 3,421 14,957 (2,481) 31,935
</TABLE>
6
<PAGE>
<TABLE>
<CAPTION>
Building
Materials/
Pool & Spa/ Corporate/
Electrical & Plumbing/ Industrial Maintenance Water & Eliminations
Electric Utility HVAC PVF Supplies Sewer & Other Total
Nine Months ---------------- ---- --- -------- ----- ------- -----
Ended October 31
<S> <C> <C> <C> <C> <C> <C> <C>
Net Sales
2000 $456,951 $795,810 $235,681 $365,434 $736,520 $(21,886) $2,568,510
1999 441,507 739,362 223,926 337,459 546,488 (16,179) 2,272,563
Gross Profit
2000 88,283 177,488 64,678 100,488 148,469 1 579,407
1999 79,902 176,963 51,373 87,823 115,118 -- 511,179
Depreciation and
Amortization
2000 1,776 5,584 2,175 2,879 5,624 5,404 23,442
Interest and Other
Income
2000 905 2,331 183 1,772 2,350 (2,839) 4,702
Interest Expense
2000 2,217 7,489 7,742 4,354 10,344 -- 32,146
Income Before Income
Taxes
2000 20,025 11,112 16,800 16,362 38,347 (8,380) 94,266
</TABLE>
The table set forth below represents the investment in accounts receivable,
less allowance for losses, and inventories, for each SBU at October 31, 2000
and January 28, 2000.
<TABLE>
<CAPTION>
October 31, 2000 January 28, 2000
--------------------------------------- ---------------------------------------
Accounts Total Accounts Total
Receivable Inventories Investment Receivable Inventories Investment
---------- ----------- ---------- ---------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C>
Electrical & Electric Utility $83,620 $60,882 $144,502 $67,544 $53,617 $121,161
Plumbing/HVAC 139,561 157,467 297,028 115,357 171,448 286,805
Industrial PVF 42,452 119,491 161,943 42,303 118,455 160,758
Building Materials/Pool & Spa/
Maintenance Supplies 52,127 59,186 111,313 43,506 62,245 105,751
Water & Sewer 174,665 84,071 258,736 132,282 89,726 222,008
------- ------ ------- ------- ------ -------
492,425 481,097 973,522 400,992 495,491 896,483
Corporate/Eliminations & Other (2,636) 4,015 1,379 (2,748) -- (2,748)
------ ----- ----- ------ ------- ------
Total $489,789 $485,112 974,901 $398,244 $495,491 893,735
======== ======== ======== ========
Cash and Cash Equivalents 19,490 10,000
Deferred Income Taxes 7,061 15,993
Other Current Assets 34,860 38,050
Property and Equipment, Net 155,701 144,945
Excess of Cost Over Net Assets Acquired 271,652 243,367
Other Assets 23,471 22,924
------ ------
Total Assets $1,487,136 $1,369,014
========== ==========
</TABLE>
6. Subsequent Events
The Company's short-term credit agreement, which provided for borrowings
up to $50 million, terminated on November 30, 2000, but was subsequently
amended to extend the termination date to December 15, 2000 and reduce
the maximum borrowings to $10 million.
On December 14, 2000, the Company executed an amendment to its $75 million
syndicated line of credit agreement which extended the maturity date from
January 19, 2001 to July 19, 2001.
7
<PAGE>
PART I. FINANCIAL INFORMATION -- Continued
HUGHES SUPPLY, INC.
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 October
31, 2000, and the results of operations for the three and nine months then
ended. 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 Annual Report on Form 10-K for the fiscal year ended January 28,
2000.
Forward-Looking Statements
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.
Material Changes in Results of Operations
Net Sales
Net sales were $863.3 million for the quarter ended October 31, 2000, a 10%
increase over the prior year's third quarter. Approximately 49% of the increase
in net sales was attributable to same-store sales growth over the prior year's
third quarter. The remainder of the increase was attributable to branches
acquired or opened after January 31, 1999. Net sales for the nine months ended
October 31, 2000 were $2.6 billion, a 13% increase over 1999. Approximately 54%
of the increase in net sales was attributable to same-store sales growth over
the prior fiscal year's first nine months, with the remainder of the increase
attributable to branches acquired or opened after January 31, 1999.
Electrical & Electric Utility
Net sales were $160.2 million and $457.0 million for the three and nine months
ended October 31, 2000, respectively, compared to $149.7 million and $441.5
million for the same periods in fiscal 2000. Of the total $10.5 million third
quarter increase, $8.2 million was attributable to same-store sales growth with
the remainder coming from newly opened or acquired branches. Of the $15.5
million year-to-date increase, $9.2 million was attributable to same-store sales
growth. For the year-to-date period, the markets that the electrical and
electric utility group serve did not have significant growth, which resulted in
relatively flat sales growth. The 6% increase in same-store sales in the third
quarter of fiscal 2001 was primarily due to increased sales associated with
several large commercial jobs.
Plumbing/HVAC
Plumbing/HVAC net sales were $265.4 million and $795.8 million for the three and
nine months ended October 31, 2000, respectively, compared to $251.3 million and
$739.4 million for the same periods in fiscal 2000. The sales increase for both
periods was primarily attributable to newly acquired or opened branches and a
same-store sales increase of $9.6 million (4%) for the third quarter and $44.8
million (6%) for the first nine months of fiscal 2001. The growth in same-store
sales for the three and nine month periods was driven by improved market
penetration and the continued strength of the construction market.
Industrial PVF
For the quarter ended October 31, 2000, net sales were $79.1 million compared to
$75.7 million in the third quarter of fiscal 2000. The sales increase was due to
a 4% increase in same-store sales primarily driven by an increase in stainless
steel and nickel alloy prices in fiscal 2001. For the nine months ended October
31, 2000 and October 31, 1999, net sales were $235.7 million and $223.9 million,
respectively. The increase was primarily due to a 5% same-store sales increase
as a result of commodity price increases in stainless steel and nickel alloy
products in fiscal 2001.
8
<PAGE>
Building Materials/Pool & Spa/Maintenance Supplies
Net sales increased from $108.9 million for the three months ended October 31,
1999 to $113.4 million for the three months October 31, 2000. For the nine
months ended October 31, 1999 and October 31, 2000, sales increased 8% from
$337.5 million to $365.4 million. Of the $4.5 million third quarter increase,
$2.7 million was attributable to same-store sales growth, with the remainder
coming from newly opened or acquired branches. Of the $27.9 million year-to-date
increase, $18.7 million was attributable to same-store sales growth. The 3%
third quarter and 6% year-to-date same-store sales increase 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 $48.2 million from $206.7 million in the third
quarter of fiscal 2000 to $254.9 million in the third quarter of fiscal 2001, a
23% increase. For the nine months ended October 31, 2000, sales increased from
$546.5 million to $736.5 million. Of the increases, $17.4 million of the third
quarter increase and $79.5 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 9% third quarter and 16% year-to-date
same-store sales increase 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.
Gross Profit and Gross Margin
Gross profit and gross margin for the three and nine months ended October 31,
2000 and October 31, 1999 were as follows (dollars in thousands):
<TABLE>
<CAPTION>
Gross Profit Gross Margin
------------ ------------
Three Three Three Three
Months Months Months Months
Ended Oct. Ended Oct. Ended Oct. Ended Oct.
31, 2000 31, 1999 31, 2000 31, 1999
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Electrical & Electric Utility $30,278 $27,869 18.9% 18.6%
Plumbing/HVAC 59,999 60,457 22.6% 24.1%
Industrial PVF 21,059 17,533 26.6% 23.1%
Building Materials/Pool &
Spa/Maintenance Supplies 32,310 28,969 28.5% 26.6%
Water & Sewer 52,643 43,820 20.6% 21.2%
Corporate/Eliminations & Other 1 -- 12.5% --
-- --- ----- ---
$196,290 $178,648 22.7% 22.7%
======== ======== ===== =====
<CAPTION>
Gross Profit Gross Margin
------------ ------------
Nine Nine Nine Nine
Months Months Months Months
Ended Oct. Ended Oct. Ended Oct. Ended Oct.
31, 2000 31, 1999 31, 2000 31, 1999
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Electrical & Electric Utility $88,283 $79,902 19.3% 18.1%
Plumbing/HVAC 177,488 176,963 22.3% 23.9%
Industrial PVF 64,678 51,373 27.4% 22.9%
Building Materials/Pool &
Spa/Maintenance Supplies 100,488 87,823 27.5% 26.0%
Water & Sewer 148,469 115,118 20.2% 21.1%
Corporate/Eliminations & Other 1 -- 12.5% --
-- --- ----- ---
$579,407 $511,179 22.6% 22.5%
======== ======== ===== =====
</TABLE>
Electrical & Electric Utility
Gross margin increased approximately 30 basis points from the third quarter of
fiscal 2000 to the third quarter of fiscal 2001. For the nine months ended
October 31, 2000, gross margin increased approximately 120 basis points compared
to the prior period. 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.
9
<PAGE>
Plumbing/HVAC
Gross margin decreased approximately 150 basis points from the third quarter of
fiscal 2000 to the third quarter of fiscal 2001. When compared to the first nine
months of fiscal 2000, gross margin for the nine months ended October 31, 2000
decreased by approximately 160 basis points. The decreases were primarily
attributable to an erosion of margins as the Company sought to protect market
share in certain geographic areas.
Industrial PVF
Gross margin and gross profit within this 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. There was a slight decrease in margins during the third quarter, and
the Company anticipates margins within this segment to continue decreasing in
the fourth quarter of fiscal 2001 and during fiscal year 2002 as the inventories
purchased prior to recent price increases are depleted.
Building Materials/Pool & Spa/Maintenance Supplies
Gross margin increased approximately 190 basis points from the third quarter of
fiscal 2000 to the third quarter of fiscal 2001. For the nine months ended
October 31, 2000, gross margin increased approximately 150 basis points compared
to the prior period. 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 nine months ended October 31, 2000, gross margin in the water
& sewer segment declined approximately 60 and 90 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 nine months ended October 31, 2000 and 1999
were as follows (dollars in thousands):
<TABLE>
<CAPTION>
2000 1999 Variance
---- ---- --------
<S> <C> <C> <C>
Three Months Ended October 31,
Operating expenses $154,573 $138,390 $16,183
Percentage of net sales 17.9% 17.6% 11.7%
<CAPTION>
2000 1999 Variance
---- ---- --------
<S> <C> <C> <C>
Nine Months Ended October 31,
Operating expenses $457,697 $403,768 $53,929
Percentage of net sales 17.8% 17.8% 13.4%
</TABLE>
Approximately $8.8 million (54%) of the $16.2 million increase in operating
expenses for the three months ended October 31, 2000 and $25.6 million (48%) of
the $53.9 million nine 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 $2.0 million for the three months ended
October 31, 1999 to $1.5 million for the three months ended October 31, 2000.
For the nine months ended October 31, 1999 and 2000, interest and other income
decreased from $6.7 million to $4.7 million, respectively. For the three and
nine months ended October 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 investments
and increased service charge income.
10
<PAGE>
Interest Expense
Interest expense was $11.3 million and $8.2 million for the three months ended
October 31, 2000 and 1999, respectively. Interest expense increased from $22.5
million for the nine months ended October 31, 1999 to $32.1 million for the nine
months ended October 31, 2000. The increase in interest expense for both the
three and nine 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 nine months ended
October 31, 2000 and 1999 were 41.0% and 40.5%, respectively. The increase in
the effective rate was due to increases in non-deductible goodwill and other
non-deductible costs.
Net Income
Net income was $18.8 million for the third quarter compared to $20.2 million for
the prior year's third quarter, a 7% decrease. Net income for the nine months
ended October 31, 2000 increased from $54.5 million in fiscal 2000 to $55.6
million in fiscal 2001, a 2% increase. Diluted earnings per share for the three
and nine months ended October 31, 2000 was $.80 and $2.38, respectively,
compared to $.87 and $2.31 for the three and nine month periods ended October
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 October 31, 2000 totaled $726.5 million compared to $657.5
million at January 28, 2000. The working capital ratio was 3.3 to 1 and 3.2 to 1
as of October 31, 2000 and January 28, 2000, respectively. The increase was
principally driven by increased receivables which were partially offset by
increases in accrued income taxes. The higher accounts receivable include a
seasonal component and reflect sales increases over prior year end. The
increased accrued income taxes resulted from timing differences of estimated tax
payments.
Net cash provided by operations was $34.8 million for the nine months ended
October 31, 2000 compared to net cash provided by operations of $22.3 million
for the nine months ended October 31, 1999. This change was primarily the result
of reduced inventory levels and an increase in net deferred taxes partially
offset by increased accounts receivable and lower accounts payable.
The Company's expenditures for property and equipment were $19.0 million for the
nine months ended October 31, 2000 compared to $23.7 million for the nine months
ended October 31, 1999. Capital expenditures for property and equipment,
excluding amounts for business acquisitions, are expected to be approximately
$26 million for fiscal 2001.
Cash payments for business acquisitions accounted for as purchases totaled $34.1
million for the nine months ended October 31, 2000 compared to $86.5 million for
the nine months ended October 31, 1999. These outlays represent three wholesale
distributors acquired and accounted for as purchases in the current nine month
period and six wholesale distributors acquired in the prior year period. As part
of its e-commerce growth strategy, the Company also acquired the remaining 51%
interest of bestroute.com for 723,183 shares of the Company's common stock.
Previously, the Company owned 49% of bestroute.com, with the initial investment
having been paid in cash. Additionally, in exchange for its 33 1/3% equity
investment in Accord, the Company also acquired the net assets of Accord's rebar
fabrication division.
Principal reductions on long-term debt were $2.9 million for the nine months
ended October 31, 2000 and $14.6 million for the nine months ended October 31,
1999. These amounts were primarily attributable to the repayment of debt assumed
as a result of certain business acquisitions. Dividend payments were $6.1
million and $6.0 million during the nine months ended October 31, 2000 and 1999,
respectively.
On September 13, 2000, the Company entered into a short-term credit agreement
with a bank which provided for borrowings up to $50 million. The short-term
credit agreement terminated on November 30, 2000, but was subsequently amended
to extend the termination date to December 15, 2000 and reduce the maximum
borrowings to $10 million. On September 14, 2000, the maturity date of the
Company's $15 million line of credit agreement was extended to June 30, 2001. On
December 14, 2000, the Company executed an amendment to its $75 million
syndicated line of credit agreement which extended the maturity date from
January 19, 2001 to July 19, 2001. There were no amounts outstanding under any
of these agreements as of October 31, 2000.
11
<PAGE>
As of October 31, 2000, the Company had approximately $19.5 million of cash and
$61.3 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. The Company is in the process
of marketing a $150 million private debt placement and anticipates the closing
of this transaction to occur by December 31, 2000.
Recent Accounting Pronouncements
Statement of Financial Accounting Standards No. 133, Accounting for Derivative
Instruments and Hedging Activities (FAS 133), was issued in June 1998. FAS 133
is effective for the Company in the year beginning January 27, 2001. FAS 133 was
amended in June 2000 by Statement of Financial Accounting Standards No. 138,
Accounting for Certain Derivative Instruments and Certain Hedging Activities
(FAS 138). Both FAS 133 and FAS 138 require that an entity recognize and measure
all derivatives as either assets or liabilities in the balance sheet and measure
those instruments at fair value. The adoption of these standards is not expected
to have a material impact on the Company's financial reporting.
In September 2000, the Emerging Issues Task Force issued EITF 00-10, Accounting
for Shipping and Handling Fees and Costs (EITF 00-10), which requires shipping
and handling fees billed to customers to be classified as revenue and shipping
and handling costs to be either classified as cost of sales or disclosed in the
notes to the consolidated financial statements. The Company includes shipping
and handling fees billed to customers in net sales. The Company will elect to
disclose in the notes to the consolidated financial statements the shipping and
handling costs, which are now included in selling, general and administrative
expenses. The Company is currently assessing the amount required to be
disclosed, and will adopt EITF 00-10 in the fourth quarter of fiscal year 2001.
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 manufacture is reliant on certain commodity price fluctuations.
Interest Rate Risk
At October 31, 2000, the Company had approximately $348.8 million of outstanding
variable-rate debt. Based upon an assumed 10% increase or decrease in interest
rates from their October 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.
12
<PAGE>
PART II. OTHER INFORMATION
HUGHES SUPPLY, INC.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits Filed.
10.11(a) Second Amendment dated May 29, 2000 to 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.
10.13 Short Term Credit Agreement, dated as of September 13, 2000,
by and between the Company and Bank of America, N.A.
27.1 Financial Data Schedule. (filed electronically only).
(b) REPORTS ON FORM 8-K.
There were no reports on Form 8-K filed during the quarter
ended October 31, 2000.
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: December 15, 2000 By: /s/ DAVID H. HUGHES
-------------------
David H. Hughes, Chairman of the
Board and Chief Executive Officer
Date: December 15, 2000 By: /s/ J. STEPHEN ZEPF
---------------------
J. Stephen Zepf, Treasurer, Chief
Financial Officer and Chief
Accounting Officer
13
<PAGE>
Exhibit Index
Exhibit
Page Description
----- -----------
10.11(a) Second Amendment dated May 29, 2000 to 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.
10.13 Short Term Credit Agreement, dated as of September 13, 2000, by and
between the Company and Bank of America, N.A.
27.1 Financial Data Schedule (filed electronically only).
17
