- ----------------------------------------------------------------------
1995 ANNUAL REPORT - PAGE 3
MARKET PRICE AND DIVIDEND DATA
Market Price Dividends Per Share (1)
Fiscal Years (2) Fiscal Years (2)
1995 1994 1995 1994
HIGH LOW HIGH LOW
First quarter $ 32 1/4 $ 24 $ 15 3/8 $ 13 1/4 $ .05 $ .03
Second quarter $ 28 3/4 $ 17 $ 17 1/4 $ 13 1/2 $ .05 $ .04
Third quarter $ 21 $ 17 $ 19 1/2 $ 15 3/4 $ .06 $ .04
Fourth quarter $ 19 3/8 $ 15 7/8 $ 24 $ 17 3/8 $ .06 $ .05
-------- --------
Year's high and low $ 32 1/4 $ 15 7/8 $ 24 $ 13 1/4
Total dividends $ .22 $ .16
======== ========
(1) See Note 2 of Notes to Consolidated Financial Statements for dividend restrictions.
(2) The Company's fiscal year ends on the last Friday in January.
SELECTED QUARTERLY FINANCIAL DATA
(in thousands, except per share data)
Earnings Per Share (1) Average Shares (1)
Net Gross Net
Sales Profit Income Primary Fully Diluted Primary Fully Diluted
Fiscal Quarter
1995
First $ 183,901 $ 36,401 $ 1,670 $ .32 $ .31 5,245 5,984
Second 202,619 40,956 3,008 .51 .51 5,943 5,943
Third 210,584 41,422 2,778 .47 .47 5,898 5,899
Fourth 205,341 43,496 2,872 .48 .48 5,962 5,965
--------- --------- ---------
Year $ 802,445 $ 162,275 $ 10,328 $ 1.79 $ 1.76 5,765 5,949
========= ========= =========
Fiscal Quarter
1994
First $ 148,514 $ 28,893 $ 699 $ .15 $ .15 4,605 4,605
Second 163,950 32,746 1,718 .37 .34 4,619 5,718
Third 178,993 34,580 1,843 .40 .36 4,665 5,751
Fourth 169,481 35,001 2,026 .43 .39 4,694 5,820
--------- --------- ---------
Year $ 660,938 $ 131,220 $ 6,286 $ 1.35 $ 1.25 4,649 5,819
========= ========= =========
(1) Calculated independently for each period and, consequently, the sum of the quarters may differ from
the annual amount.
- ---------------------------------------------------------------------
1995 ANNUAL REPORT - PAGE 12
REPORT OF INDEPENDENT
CERTIFIED PUBLIC ACCOUNTANTS
To the Shareholders and Board of Directors
of Hughes Supply, Inc.
In our opinion, the accompanying consolidated balance sheet
and the related consolidated statements of income, share-
holders' equity and of cash flows present fairly, in all material
respects, the financial position of Hughes Supply, Inc. and
its subsidiaries at January 27, 1995, and the results of their
operations and their cash flows for the year then ended in
conformity with generally accepted accounting principles.
These financial statements are the responsibility of the
Company's management; our responsibility is to express an
opinion on these financial statements based on our audit. We
conducted our audit of these statements in accordance with
generally accepted auditing standards which require that we
plan and perform the audit to obtain reasonable assurance
about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the
financial statements, assessing the accounting principles used
and significant estimates made by management, and evaluating
the overall financial statement presentation. We believe that
our audit provides a reasonable basis for the opinion
expressed above.
The financial statements of Hughes Supply, Inc. and its
subsidiaries for the years ended January 28, 1994 and
January 29, 1993 were audited by other independent
accountants whose report dated March 17, 1994
expressed an unqualified opinion on those statements.
/s/ Price Waterhouse LLP
Orlando, Florida
March 15, 1995
- ----------------------------------------------------------------------
1995 ANNUAL REPORT - PAGE 13
CONSOLIDATED STATEMENTS OF INCOME
(in thousands, except per share data)
Fiscal Years Ended
January 27, January 28, January 29,
1995 1994 1993
Net Sales $ 802,445 $ 660,938 $ 555,796
Cost of Sales 640,170 529,718 447,373
---------- ---------- ----------
Gross Profit 162,275 131,220 108,423
---------- ---------- ----------
Operating Expenses:
Selling, general and administrative 132,856 109,760 94,810
Depreciation and amortization 8,773 7,465 6,636
Provision for doubtful accounts 1,185 1,671 1,775
---------- ---------- ----------
Total operating expenses 142,814 118,896 103,221
---------- ---------- ----------
Operating Income 19,461 12,324 5,202
---------- ---------- ----------
Non-Operating Income and (Expenses):
Interest income 2,284 1,856 1,865
Interest expense (4,875) (4,610) (4,760)
Other, net 553 988 1,709
---------- ---------- ----------
(2,038) (1,766) (1,186)
---------- ---------- ----------
Income Before Income Taxes 17,423 10,558 4,016
Income Taxes 7,095 4,272 1,538
---------- ---------- ----------
Net Income $ 10,328 $ 6,286 $ 2,478
========== ========== ==========
Earnings Per Share:
Primary $ 1.79 $ 1.35 $ .54
========== ========== ==========
Fully diluted $ 1.76 $ 1.25 $ .54
========== ========== ==========
Average Shares Outstanding:
Primary 5,765 4,649 4,564
========== ========== ==========
Fully diluted 5,949 5,819 4,592
========== ========== ==========
The accompanying notes are an integral part of these consolidated financial statements.
- ---------------------------------------------------------------------
1995 ANNUAL REPORT - PAGE 14
CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)
January 27, January 28,
1995 1994
ASSETS
Current Assets:
Cash and cash equivalents $ 3,192 $ 1,078
Accounts receivable, less allowance for
losses of $4,787 and $3,914 122,143 97,765
Inventories 119,686 94,223
Deferred income taxes 8,921 4,972
Other current assets 6,479 5,532
---------- ----------
Total current assets 260,421 203,570
---------- ----------
Property, Plant and Equipment, at cost:
Land 13,360 12,353
Buildings and improvements 41,776 37,097
Transportation equipment 19,409 19,674
Furniture, fixtures and equipment 19,738 14,843
Property under capital leases 10,794 10,794
---------- ----------
Total 105,077 94,761
Less accumulated depreciation and amortization (51,846) (45,439)
---------- ----------
Net property, plant and equipment 53,231 49,322
---------- ----------
Deferred Income Taxes 1,999 2,210
Other Assets 13,242 8,303
---------- ----------
$ 328,893 $ 263,405
========== ==========
- ---------------------------------------------------------------------
1995 ANNUAL REPORT - PAGE 15
January 27, January 28,
1995 1994
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Current portion of long-term debt $ 1,019 $ 898
Accounts payable 71,563 52,053
Accrued compensation and benefits 9,723 7,257
Other current liabilities 12,795 8,401
---------- ----------
Total current liabilities 95,100 68,609
---------- ----------
Long-Term Debt, less current portion:
Notes and subordinated debentures 97,857 95,367
Capital lease obligations 3,061 3,859
---------- ----------
Total long-term debt 100,918 99,226
---------- ----------
Other Noncurrent Liabilities 1,540 1,143
---------- ----------
Total liabilities 197,558 168,978
---------- ----------
Commitments and Contingencies
Shareholders' Equity:
Preferred stock, no par value; 10,000,000 shares authorized;
none issued; preferences, limitations and relative rights
to be established by the Board of Directors - -
Common stock, par value $1 per share; 20,000,000
and 10,000,000 shares authorized; 6,148,599
and 5,075,670 shares issued 6,149 5,076
Capital in excess of par value 37,722 15,410
Retained earnings 89,152 80,425
---------- ----------
133,023 100,911
Less treasury stock, 108,988 shares and
418,566 shares, at cost (1,688) (6,484)
---------- ----------
Total shareholders' equity 131,335 94,427
---------- ----------
$ 328,893 $ 263,405
========== ==========
The accompanying notes are an integral part of these consolidated financial statements.
- ---------------------------------------------------------------------
1995 ANNUAL REPORT - PAGE 16
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(dollars in thousands, except per share data)
Capital in
Common Stock Excess of Retained Treasury Stock
Shares Amount Par Value Earnings Shares Amount
Balance, January 31, 1992 5,453,249 $ 5,453 $ 22,410 $ 70,785 901,155 $(13,960)
Net income - - - 2,478 - -
Cash dividends -
$.12 per share - - - (502) - -
Treasury shares issued - - - - (100) 2
--------- ------- --------- -------- -------- --------
Balance, January 29, 1993 5,453,249 5,453 22,410 72,761 901,055 (13,958)
Net income - - - 6,286 - -
Cash dividends -
$.16 per share - - - (724) - -
Issuance of treasury
shares for EDI merger (374,998) (375) (5,434) - (374,998) 5,809
Other acquisition - - (1,557) 2,158 (101,368) 1,570
Treasury shares issued
under stock option plans - - - (18) (6,123) 95
Purchase and retirement
of common shares (2,581) (2) (9) (38) - -
--------- ------- --------- -------- -------- --------
Balance, January 28, 1994 5,075,670 5,076 15,410 80,425 418,566 (6,484)
Net income - - - 10,328 - -
Cash dividends -
$.22 per share - - - (1,290) - -
Treasury shares contributed
to employee benefit plan - - 243 - (16,597) 257
Conversion of subordinated
convertible debentures
into common stock 1,081,146 1,081 21,670 - - -
Treasury shares issued
under stock option plans - - - (141) (44,341) 687
Purchase and retirement
of common shares (8,217) (8) (35) (170) - -
Acquisitions - - 434 - (248,640) 3,852
--------- ------- -------- -------- -------- --------
Balance, January 27, 1995 6,148,599 $ 6,149 $ 37,722 $ 89,152 108,988 $ (1,688)
========= ======= ======== ======== ======== ========
The accompanying notes are an integral part of these financial statements.
- ---------------------------------------------------------------------
1995 ANNUAL REPORT - PAGE 17
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
Fiscal Years Ended
January 27, January 28, January 29,
1995 1994 1993
Increase (Decrease) in Cash and Cash Equivalents:
Cash flows from operating activities:
Cash received from customers $ 789,446 $ 644,667 $ 546,848
Cash paid to suppliers and employees (776,441) (638,724) (535,645)
Interest received 2,284 1,856 1,865
Interest paid (4,441) (4,693) (4,875)
Income taxes paid (8,631) (5,361) (1,677)
Net cash provided by (used in) ---------- ---------- ----------
operating activities 2,217 (2,255) 6,516
---------- ---------- ----------
Cash flows from investing activities:
Proceeds from sale of property, plant
and equipment 734 704 1,810
Capital expenditures (11,841) (8,257) (8,702)
Business acquisitions, net of cash (11,099) (3,934) -
---------- ---------- ----------
Net cash used in investing activities (22,206) (11,487) (6,892)
---------- ---------- ----------
Cash flows from financing activities:
Net borrowings (payments) under short-term
debt arrangements 23,953 16,733 (2,267)
Proceeds from long-term debt - - 1,444
Principal payments on:
Long-term notes (297) (2,918) (1,678)
Capital lease obligations (725) (660) (602)
Proceeds from issuance of common shares
under stock option plans 546 77 -
Purchase of common shares (213) (49) -
Dividends paid (1,161) (616) (502)
Net cash provided by (used in) ---------- ---------- ----------
financing activities 22,103 12,567 (3,605)
---------- ---------- ----------
Net Increase (Decrease) in Cash and
Cash Equivalents 2,114 (1,175) (3,981)
Cash and Cash Equivalents, beginning of year 1,078 2,253 6,234
---------- ---------- ----------
Cash and Cash Equivalents, end of year $ 3,192 $ 1,078 $ 2,253
========== ========== ==========
The accompanying notes are an integral part of these consolidated financial statements.
- ----------------------------------------------------------------------
1995 ANNUAL REPORT - PAGE 18
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except per share data)
Note 1 - Summary of Significant Accounting Policies
Industry
Hughes Supply, Inc. and its subsidiaries (the "Company") are
engaged in the wholesale distribution of a broad range of materials,
equipment and supplies to the construction industry. Major product
lines distributed by the Company include electrical, plumbing and
electric utility equipment, building materials, water and sewer prod-
ucts, heating and air conditioning equipment, and pipe, valves and
fittings. The Company's principal customers are electrical, plumbing
and mechanical contractors, electric utility companies, and munici-
pal and industrial accounts.
Principles of Consolidation
The consolidated financial statements include the Company and its
wholly-owned subsidiaries. All significant intercompany transactions
and accounts have been eliminated. The Company's minority invest-
ment in affiliate is accounted for by the equity method.
Fiscal Year
The Company's fiscal year ends on the last Friday in January. Fiscal
years 1995, 1994 and 1993 each contained 52 weeks.
Cash Equivalents
The Company considers all highly liquid investments with a maturity
of three months or less when purchased to be cash equivalents.
Inventories
Inventories are carried at the lower of cost or market. The cost of
substantially all inventories is determined by the average cost method.
Property, Plant and Equipment
Buildings and equipment are depreciated using both straight-line
and declining-balance methods based on the following estimated
useful lives:
Buildings and improvements 5-40 years
Transportation equipment 2-7 years
Furniture, fixtures and equipment 3-15 years
Property under capital leases 20-40 years
Maintenance and repairs are charged to expense as incurred and
major renewals and betterments are capitalized. Gains or losses are
credited or charged to earnings upon disposition.
Other Assets
The excess of cost over the fair value of net assets of purchased
companies is being amortized by the straight-line method over
15 to 25 years.
Income Taxes
Income taxes are provided for the tax effects of transactions
reported in the financial statements and consist of taxes currently
due plus deferred taxes resulting from temporary differences.
Such temporary differences result from differences in the carrying
value of assets and liabilities for tax and financial reporting purposes.
The deferred tax assets and liabilities represent the future tax
consequences of those differences, which will either be taxable or
deductible when the assets and liabilities are recovered or settled.
Deferred taxes are also recognized for operating losses that are
available to offset future taxable income. Valuation allowances are
established to reduce deferred tax assets to the amount expected
to be realized.
Earnings Per Common Share
Primary earnings per share are based on the weighted average
number of shares outstanding during each year plus the common
stock equivalents issuable upon the exercise of stock options.
Unless the results are antidilutive, fully diluted earnings per share
assumes the conversion of the 7% convertible subordinated deben-
tures (after elimination of related interest expense, net of income
tax effect) and exercise of stock options.
Deferred Employee Benefits
The present value of amounts estimated to be payable under
unfunded supplemental retirement agreements with certain officers
is being accrued over the remaining years of active employment of
the officers and is included in other noncurrent liabilities.
- ----------------------------------------------------------------------
1995 ANNUAL REPORT - PAGE 19
Note 2 - Notes and Debentures Payable
Consolidated notes and debentures payable consist of the following:
January 27, January 28,
1995 1994
7% Convertible subordinated debentures,
due 2011 $ - $ 22,960
Unsecured revolving bank notes under
$130,000 credit agreement, payable
June 30, 1997, fluctuating interest
(6.0% to 6.1% at January 27, 1995) 61,025 45,375
Short-term instruments classified as
long-term debt 34,803 26,500
Other notes payable 2,251 705
--------- ---------
98,079 95,540
Less current portion (222) (173)
--------- ---------
$ 97,857 $ 95,367
========= =========
On March 8, 1994, the Company issued a call for redemption of its
outstanding 7% convertible subordinated debentures to take place
on April 7, 1994. Of the $22,960 debentures outstanding at January
28, 1994, $22,889, or 99.7%, were converted into the Company's
common stock at $21.17 per share or 47.2 common shares for
each $1 face amount of debentures. This conversion resulted in the
issuance of 1,081,146 common shares.
At January 27, 1995, the Company has a revolving credit and line
of credit agreement with a group of banks which permits the
Company to borrow up to $130,000 (subject to borrowing limita-
tions discussed below) - $95,000 long-term, expiring June 30,
1997, and $35,000 line of credit convertible to a term note due
two years from conversion date. The $35,000 line of credit backs
commercial paper. Under the credit facility, interest is payable at
market rates plus applicable margins. Commitment fees of .25%
and .125% are paid on the unused portions of the revolving and
line of credit facilities, respectively.
Loan covenants require the Company to maintain consolidated
working capital of not less than $75,000 and a maximum ratio
of senior funded debt to total capital, as defined, of .50 to 1.0.
The covenants also restrict the Company's activities regarding
investments, liens, borrowing and leasing, and payment of dividends
other than stock. Under the dividend covenant, approximately
$8,360 is available at January 27, 1995 for payment of dividends.
The Company has a bank line of credit for short-term borrowing
aggregating $6,000 at January 27, 1995 and $2,000 at January 28,
1994 (subject to borrowing limitations under the long-term debt
covenants) under which $1,500 was outstanding at January 28,
1994. There were no amounts outstanding at January 27, 1995.
The line provides for interest at market rates. The interest rate
on short-term borrowing as of January 28, 1994 was 3.5%. In
addition, the Company has a commercial paper program backed
by its revolving credit facility. The weighted average interest rate
on outstanding commercial paper borrowings of $34,803 and
$25,000 as of January 27, 1995 and January 28, 1994 was 6.0%
and 3.2%, respectively.
The Company's credit facility enables the Company to refinance
short-term borrowings on a long-term basis to the extent that the
credit facility is unused. Accordingly, $34,803 and $26,500 of
short-term borrowings at January 27, 1995 and January 28, 1994,
respectively, have been classified as long-term debt.
The carrying value of notes payable is a reasonable estimate of fair
value since interest rates are based on prevailing market rates.
Maturities of long-term debt for each of the five years subsequent to
January 27, 1995 and in the aggregate are as follows:
Fiscal Years Ending
1996 $ 222
1997 1,620
1998 96,162
1999 67
2000 8
Later years -
---------
$ 98,079
=========
- ----------------------------------------------------------------------
1995 ANNUAL REPORT - PAGE 20
Note 3 - Income Taxes
The components of deferred tax assets and liabilities are as follows:
January 27, January 28,
1995 1994
Deferred tax assets:
Allowance for doubtful accounts $ 1,854 $ 1,529
Inventories 2,866 1,435
Capital leases 590 646
Property, plant and equipment 744 374
Accrued vacation 667 471
Deferred compensation 597 447
Environmental clean-up costs 216 183
Other accrued liabilities 3,222 2,179
Other 214 250
-------- --------
Total deferred assets 10,970 7,514
-------- --------
Deferred tax liabilities:
Operating leases 42 -
Intangible assets 8 -
Other - 188
-------- --------
Total deferred liabilities 50 188
-------- --------
Net deferred tax asset before
valuation allowance 10,920 7,326
Valuation allowance - (144)
-------- --------
Net deferred tax asset $ 10,920 $ 7,182
======== ========
The net change in the valuation allowance was a decrease of $144, related
to recognition of tax benefits arising from operating loss carryforwards.
The consolidated provision for income taxes consists of the following:
Fiscal Years Ended
January 27, January 28, January 29,
1995 1994 1993
Currently payable:
Federal $ 9,302 $ 4,433 $ 2,998
State 1,531 626 436
-------- -------- --------
10,833 5,059 3,434
-------- -------- --------
Deferred:
Federal (3,545) (978) (1,415)
State (193) 191 (481)
-------- -------- --------
(3,738) (787) (1,896)
-------- -------- --------
$ 7,095 $ 4,272 $ 1,538
======== ======== ========
The following is a reconciliation of tax computed at the statutory
Federal rate to the income tax expense in the consolidated
statements of income:
Fiscal Years Ended
January 27, 1995 January 28, 1994 January 29, 1993
Amount % Amount % Amount %
Tax computed
at statutory
Federal rate $ 6,098 35.0 $ 3,695 35.0 $ 1,365 34.0
Effect of:
State income tax,
net of Federal
benefit 870 5.0 531 5.0 (30) (.7)
Nondeductible
purchase
adjustments 38 .2 24 .2 14 .3
Nondeductible
expenses 330 1.9 117 1.1 103 2.6
Other, net (241) (1.4) (95) (.8) 86 2.1
------- ---- ------- ---- ------- ----
Income tax
expense $ 7,095 40.7 $ 4,272 40.5 $ 1,538 38.3
======= ==== ======= ==== ======= ====
Note 4 - Employee Benefit Plans
Profit Sharing and Employee Stock
Ownership Plans
The Company has a 401(k) profit sharing plan which provides
benefits for substantially all employees of the Company who meet
minimum age and length of service requirements. Under the plan,
employee contributions of not less than 2% to not more than 3% of
each eligible employee's compensation are matched (in cash or
stock) 50% by the Company. Additional annual contributions may be
made at the discretion of the Board of Directors.
The Company has an employee stock ownership plan (ESOP) covering
substantially all employees of the Company who meet minimum age
and length of service requirements. The plan is designed to enable
eligible employees to acquire a proprietary interest in the Company.
Company contributions (whether in cash or stock) are determined
annually by the Board of Directors in an amount not to exceed the
maximum allowable as an income tax deduction. At January 27,
1995 and January 28, 1994, the plan owned approximately 172,000
and 157,000 shares, respectively, of the Company's common stock,
all of which were allocated to participants.
Amounts charged to expense for these plans during the fiscal years
ended in 1995, 1994 and 1993 were $1,157, $1,000 and $405,
respectively.
Bonus Plans
The Company has bonus plans, based on profitability formulas, which
provide incentive compensation for key employees. Amounts charged
to expense for bonuses to executive officers were $935, $533 and
$263 for the fiscal years ended in 1995, 1994 and 1993, respectively.
- ----------------------------------------------------------------------
1995 ANNUAL REPORT - PAGE 21
Stock Option Plans
The Company's stock option plans authorize the granting of both
incentive and non-incentive stock options for an aggregate of
1,635,000 shares of common stock to key executive, management,
and sales employees, and, with respect to 135,000 shares, to direc-
tors. Under the plans, options are granted at prices not less than
market value on the date of grant, and the maximum term of an
option may not exceed ten years. Prices for incentive stock options
granted to employees who own 10% or more of the Company's stock
are at least 110% of market value at date of grant. Options may be
granted from time to time to May 1998, or May 2003 with regard to
directors. An option becomes exercisable at such times and in such
installments as set by the Board of Directors.
The employee plan also permits the granting of stock appreciation
rights (SARs) to holders of options. Such rights permit the optionee
to surrender an exercisable option, in whole or in part, on any date
that the fair market value of the Company's common stock exceeds
the option price for the stock and receive payment in common
stock, or, if the Board of Directors approves, in cash or any combi-
nation of cash and common stock. Such payment would be equal to
the excess of the fair market value of the shares under the surren-
dered option over the option price for such shares. The change in
value of SARs would be reflected in income based upon the market
value of the stock. No SARs have been granted or issued through
January 27, 1995.
A summary of option transactions during each of the three fiscal
years in the period ended January 27, 1995 is shown below:
Number of Option Price
Shares Range
Under option, January 31, 1992
(194,736 shares exercisable) 422,736 $12.25-$19.33
Granted 20,000 $12.00-$12.87
Exercised - -
Cancelled (36,294) $12.25-$19.33
-------
Under option, January 29, 1993
(253,442 shares exercisable) 406,442 $12.00-$17.63
Granted 12,000 $16.25
Exercised (6,023) $12.25-$12.87
Cancelled (12,835) $12.00-$12.63
-------
Under option, January 28, 1994
(297,584 shares exercisable) 399,584 $12.00-$17.63
Granted 115,000 $18.13-$25.37
Exercised (44,241) $12.25-$12.63
Cancelled - -
-------
Under option, January 27, 1995
(339,343 shares exercisable) 470,343 $12.00-$25.37
=======
There were 640,658 and 755,658 shares available for the granting
of options at January 27, 1995 and January 28, 1994, respectively.
Supplemental Executive
Retirement Plan
The Company has entered into agreements with certain key execu-
tive officers, providing for supplemental payments, generally for
periods up to 15 years, upon retirement, disability or death. The
obligations are not funded apart from the Company's general assets.
Amounts charged to expense under the agreements were $390,
$166 and $158 in fiscal 1995, 1994 and 1993, respectively.
Note 5 - Commitments and
Contingencies
Lease Commitments
A portion of the Company's operations are conducted from locations
leased under capital leases from a corporation which is owned by
three of the directors of Hughes Supply, Inc. The leases generally
provide that all expenses related to the properties are to be paid by
the lessee. The leases also generally provide for rental increases at
specified intervals. The leases all expire within ten years; however, it
is expected that they will be renewed. Rents under these agreements
amounted to $1,165 for each of the three years in the period ended
January 27, 1995. Property under capital leases is included in the
consolidated balance sheets as follows:
January 27, January 28,
1995 1994
Property under capital leases
(consisting of land and buildings) $ 10,794 $ 10,794
Accumulated amortization (8,458) (7,864)
-------- --------
$ 2,336 $ 2,930
======== ========
In addition, rents under operating leases paid to this related corpora-
tion were $400, $396 and $399 in 1995, 1994 and 1993, respectively.
- ----------------------------------------------------------------------
1995 ANNUAL REPORT - PAGE 22
Future minimum payments, by year and in the aggregate, under the
aforementioned leases and other noncancelable operating leases with
initial or remaining terms in excess of one year as of January 27,
1995, are as follows:
Capital Operating
Fiscal Years Ending Leases Leases
1996 $ 1,165 $ 6,372
1997 1,165 5,165
1998 1,165 4,774
1999 562 3,749
2000 361 2,458
Later years 584 5,512
-------- --------
Total minimum lease payments 5,002 $ 28,030
========
Less amount representing interest (1,144)
--------
Present value of net minimum
lease payments 3,858
Less current portion (797)
--------
$ 3,061
========
Lease-related expenses are as follows:
Fiscal Years Ended
January 27, January 28, January 29,
1995 1994 1993
Capital lease amortization $ 594 $ 594 $ 594
Capital lease interest expense 440 505 564
Operating lease rentals 6,843 5,872 5,210
Guarantees of Affiliate Debt
A wholly-owned subsidiary of the Company owns a 20% interest in
Accord Industries Company ("Accord"), a joint venture formed
from the Company's sale of its manufacturing operations in 1990.
As partial consideration for the sale, the Company received $2,750
in notes receivable, part of which is convertible into an additional
partnership interest in Accord of up to 29%.
In connection with the investment in Accord, the Company guaran-
teed $500 of Accord's indebtedness to a bank and the Company's
subsidiary as a joint venturer is contingently liable for the remaining
bank debt of approximately $1,840 as of January 27, 1995.
Legal Matters
The Company is involved in various legal proceedings incident to
the conduct of its business. In the opinion of management, none
of the proceedings are material in relation to the Company's
consolidated operations or financial position.
Note 6 - Common Stock
On May 24, 1994, the shareholders approved an amendment to the
articles of incorporation of the Company increasing the number of
authorized shares of common stock to 20,000,000 shares, $1.00
par value per share.
Note 7 - Preferred Stock
The Company's Board of Directors established Series A Junior
Participating Preferred Stock (Series A Stock) consisting of 300,000
shares. Each share of Series A Stock will be entitled to one vote on all
matters submitted to a vote of shareholders. Series A Stock is not
redeemable or convertible into any other security. Each share of Series
A Stock shall have a minimum cumulative preferential quarterly divi-
dend rate equal to the greater of $1.25 per share or 100 times the
aggregate per share amount of the dividend declared on common
stock. In the event of liquidation, shares of Series A Stock will be enti-
tled to the greater of $100 per share plus any accrued and unpaid div-
idend or 100 times the payment to be made per share of common
stock. No shares of Series A Stock are presently outstanding, and no
shares are expected to be issued except in connection with the share-
holder rights plan referred to below.
The Company has a shareholder rights plan. Under the plan, the
Company distributed to shareholders a dividend of one right per share
of the Company's common stock. When exercisable, each right will
permit the holder to purchase from the Company a unit consisting of
one one-hundredth of a share of Series A Stock at a purchase price of
$65 per unit. The rights generally become exercisable if a person or
group acquires 20% or more of the Company's common stock or
commences a tender offer that could result in such person or group
owning 30% or more of the Company's common stock. If certain sub-
sequent events occur after the rights first become exercisable, the
rights may become exercisable for the purchase of shares of common
stock of the Company, or of an acquiring company, having a value
equal to two times the exercise price of the right. The rights may be
redeemed by the Company at $.01 per right at any time prior to ten
days after 20% or more of the Company's stock is acquired by a per-
son or group. The rights expire on June 2, 1998 unless sooner termi-
nated in accordance with the rights plan.
Note 8 - Concentration of Credit Risk
The Company sells its products in the major areas of construction
markets in certain states of the southeast and midwest United States.
Approximately 90% of the Company's sales are credit sales which
are primarily to customers whose ability to pay is dependent upon
the construction industry economics prevailing in the Southeast;
however, concentration of credit risk with respect to trade accounts
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1995 ANNUAL REPORT - PAGE 23
receivable is limited due to the large number of customers comprising
the Company's customer base and no one customer comprises more
than 2% of annual sales. The Company performs ongoing credit evalu-
ations of its customers and in certain situations obtains collateral
sufficient to protect its credit position. The Company maintains
reserves for potential credit losses, and such losses have been within
management's expectations.
Note 9 - Business Combinations
During fiscal years 1995 and 1994, the Company acquired several
wholesale distributors of materials to the construction industry that
were accounted for as purchases. These acquisitions, individually or
in the aggregate, did not have a material effect on the consolidated
financial statements. Results of operations of these companies from
their respective dates of acquisition have been included in the
consolidated financial statements.
The net assets acquired and consideration for acquisitions accounted
for as purchases are summarized below:
Fiscal Years Ended
January 27, January 28,
1995 1994
Fair value of:
Assets acquired $ 28,396 $ 8,421
Liabilities assumed (7,269) (4,487)
---------- ----------
Purchase price $ 21,127 $ 3,934
========== ==========
Consideration in fiscal 1995 included 248,640 shares of common
stock (fair value $4,286) issued, a note for $1,525 and amounts
payable of $4,217.
The following table reflects the unaudited pro forma combined results
of operations, assuming the fiscal 1995 acquisitions had occurred at
the beginning of each year presented:
Fiscal Years Ended
January 27, January 28,
1995 1994
Net sales $ 886,466 $ 724,148
Net income 12,086 6,916
Earnings per share:
Primary 2.02 1.41
Fully diluted 1.98 1.30
The pro forma information does not purport to be indicative of the
results which actually would have occurred had the acquisitions been
in effect during the periods presented, or of results which may occur
in the future.
Note 10 - Supplemental Cash Flows Information
The following is a reconciliation of net income to
net cash provided by (used in) operating activities:
Fiscal Years Ended
January 27, 1995 January 28, 1994 January 29, 1993
Net income $ 10,328 $ 6,286 $ 2,478
Adjustments to reconcile net income to net cash provided
by (used in) operating activities:
Depreciation 7,934 6,703 5,863
Amortization 839 762 773
Provision for doubtful accounts 1,185 1,671 1,775
Gain on sale of property, plant and equipment (284) (264) (1,012)
Undistributed earnings of affiliate (139) (171) (135)
Treasury shares contributed to employee benefit plan 500 - -
Changes in assets and liabilities, net of effects of business acquisitions:
(Increase) decrease in:
Accounts receivable (13,129) (16,824) (9,499)
Inventories (16,057) (4,209) 60
Refundable income taxes - - 530
Other current assets (813) (97) 1,195
Other assets (218) 178 31
Increase (decrease) in:
Accounts payable and accrued expenses 12,776 4,704 7,473
Accrued interest and income taxes 2,636 (461) 1,112
Other noncurrent liabilities 397 178 158
Increase in deferred income taxes (3,738) (711) (1,896)
-------- -------- --------
Net cash provided by (used in) operating activities $ 2,217 $ (2,255) $ 6,516
======== ======== ========
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1995 ANNUAL REPORT - PAGE 24
MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Sales
Net sales were $802.4 million, a 21% increase over fiscal 1994 sales
of $660.9 million. Fiscal 1993 net sales totaled $555.8 million. Newly-
opened and acquired wholesale outlets accounted for approximately
40% of the increase in fiscal 1995 and 16% of the increase in fiscal
1994. The number of wholesale outlets has grown to 170 from 117
at the beginning of fiscal 1993.
During fiscal 1995, construction activity in our markets remained
strong despite rising interest rates. Commercial and industrial
construction activity rebounded in fiscal 1995 while residential con-
struction slowed after a strong fiscal 1994. In fiscal 1994 the markets
were positively impacted by a favorable interest rate environment.
Construction activity is expected to remain strong during fiscal 1996.
Sales for the Company should continue to climb with increased
commercial and industrial construction and the continuation of the
Company's acquisition program.
Gross Margin
Gross margins (gross profit expressed as a percent of sales) for
fiscal years 1995, 1994 and 1993 were 20.2%, 19.9% and 19.5%,
respectively. The improvement in gross margins reflects more
efficient purchasing which is attributable to increased volume and a
greater concentration of supply sources resulting from the Company's
preferred vendor program.
Operating Expenses
Control over operating expenses has continued to improve. As a
percentage of sales, the Company has lowered these expenses to
17.8% in fiscal 1995 from 18.0% and 18.6% in fiscal 1994 and 1993,
respectively. This trend should continue as recent acquisitions are
more completely integrated into our distribution system and with
anticipated sales growth.
As a result of adherence to strict credit standards, charge-offs of
uncollectible accounts has declined. In addition, collection efforts
have produced increased recoveries. Consequently, the provision
for doubtful accounts has decreased to $1.2 million in fiscal 1995
compared to $1.7 million and $1.8 million in fiscal 1994 and
1993, respectively.
Operating expenses in fiscal 1995 were $142.8 million, a 20%
increase over the prior year. Newly-opened wholesale outlets and
recent acquisitions accounted for approximately 45% of the increase.
Most of the remainder of the increase is due to personnel and other
costs, such as transportation and insurance, associated with the
growth in sales. The fiscal 1994 operating expense increase of $15.7
million over fiscal 1993 is attributable to personnel costs supporting
the growth in the Company's operations and newly-opened and
acquired wholesale outlets.
Federal, state and local laws and regulations govern the Company's
operation of underground fuel storage tanks. Rather than incur
additional costs to restore and upgrade tanks as required by
regulations, the Company opted to remove the existing tanks. Over
the past several years the Company has removed these underground
fuel tanks and, in the process, identified certain tanks with leaks
which required remedial cleanups. When the liability for these costs
was determined in a prior year, the Company accrued as an operating
expense the estimated future costs of removing the fuel tanks and
environmental cleanup. During fiscal 1995, 1994 and 1993, there
were no significant expenses associated with the cleanup.
Non-Operating Income and Expenses
Interest income increased to $2.3 million in fiscal 1995 from
$1.9 million in fiscal 1994 primarily as a result of sales growth and
recent acquisitions. The majority of interest income is generated by the
collection of service charge income on delinquent accounts receivable.
Interest expense has fluctuated only moderately over the last three
fiscal years. The increase of $.3 million in fiscal 1995 over 1994 was
attributable to higher interest rates partially offset by lower borrowing
levels (due primarily to the conversion of $23 million of subordinated
debentures). The annual interest savings from the conversion amount
to approximately $1.6 million. Interest expense in fiscal 1994 was
lower by $.2 million compared to the prior year due to lower
borrowing rates even though borrowing levels were higher.
Income Taxes
The effective tax rates were 40.7%, 40.5% and 38.3% in fiscal years
1995, 1994 and 1993, respectively. The increase over the fiscal 1993
rate is primarily due to Federal tax law changes which increased the
statutory Federal tax rate from 34% to 35% in fiscal 1994.
Liquidity and Capital Resources
Working capital has continued to grow, reaching $165.3 million in
fiscal 1995. Fiscal 1994 and 1993 working capital was $135.0 million
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1995 ANNUAL REPORT - PAGE 25
and $113.6 million, respectively. Current assets continue to
comprise more than 75% of total assets. The working capital ratio
was 2.74 to 1, 2.97 to 1 and 2.84 to 1 for fiscal years 1995, 1994
and 1993, respectively.
The Company typically becomes less liquid in expansionary periods
when sales volumes are increasing requiring higher levels of inven-
tories and receivables to support the growth. However, days cost
of sales in average inventory in fiscal 1995 improved to 60.15
compared to 60.86 and 68.26 in fiscal 1994 and 1993, respectively.
Days sales in average receivables was 51.28, 49.85 and 50.05 in
fiscal years 1995, 1994 and 1993, respectively.
The Company generated $2.2 million in cash from operations in
fiscal 1995 compared to cash used of $2.3 million in fiscal 1994
and $6.5 million generated in fiscal 1993. The changes are due
primarily to fluctuations in accounts receivable, inventories and
accounts payable.
In fiscal 1995, the Company invested $11.8 million for property and
equipment and $11.1 million for business acquisitions, which added
20 wholesale outlets to the Company's operations and expanded its
geographic markets to the midwest United States. Capital expendi-
tures for fiscal 1996 are expected to be approximately $12 million.
To finance increases in working capital, capital expenditures and
recent acquisitions, net borrowing under short-term debt arrange-
ments amounted to $24.0 million and $16.7 million in fiscal years
1995 and 1994, respectively, compared to $2.3 million payments in
fiscal year 1993. The Company used $1.2 million to fund dividend
payments during fiscal year 1995. Over the past three years,
the Company's annual dividend has grown from $.12 to $.22 per share.
In March 1994, the Company issued a call for redemption of its
7% convertible subordinated debentures. Substantially all of the
outstanding debentures were converted into common stock,
which resulted in an increase of approximately $23 million in
shareholders' equity and a corresponding decrease of long-term
debt. As a result of the conversion, approximately 1 million new
shares of common stock were issued.
The Company currently maintains sufficient borrowing capacity to
take advantage of growth and business acquisition opportunities.
The Company's bank financing was amended in fiscal 1995 to
increase the Company's borrowing capacity. It now consists of a
$130 million unsecured credit facility, which includes a $95 million
long-term revolving credit facility and a $35 million line of credit
convertible to a term note, as well as a short-term line of credit
totaling $6 million.
The Company's financial condition remains strong. The Company
believes that it has the resources necessary, with approximately
$40 million of unused debt capacity (subject to borrowing
limitations under long-term debt covenants), to fund ongoing
operating requirements. Future expansion will be financed on a
project-by-project basis through additional borrowing or, if circum-
stances are more favorable, through the issuance of common stock.
Inflation and Changing Prices
The Company is cognizant of the potentially adverse effects inflationary
pressures may create through higher asset replacement costs and
related depreciation, higher interest rates and higher material costs.
The Company attempts to minimize these effects through cost
reductions and productivity improvements as well as price increases
to maintain reasonable profit margins. Management believes, however,
that inflation (which has been moderate over the past three years)
and changing prices have not significantly affected the Company's
operating results or markets in the three most recent fiscal years.
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1995 ANNUAL REPORT - PAGE 26
SELECTED FINANCIAL DATA
(in thousands, except per share data and ratios)
Fiscal Years Ended (1)(2)
1995 1994 1993 1992
Net sales $ 802,445 $ 660,938 $ 555,796 $ 509,192
Cost of sales $ 640,170 $ 529,718 $ 447,373 $ 410,132
Gross margin 20.2% 19.9% 19.5% 19.5%
Selling, general and administrative expenses $ 132,856 $ 109,760 $ 94,810 $ 91,114
% of sales 16.6% 16.6% 17.1% 17.9%
Depreciation and amortization $ 8,773 $ 7,465 $ 6,636 $ 7,149
Provision for doubtful accounts $ 1,185 $ 1,671 $ 1,775 $ 2,542
Operating income (loss) $ 19,461 $ 12,324 $ 5,202 $ (1,745)
Operating margin 2.4% 1.9% .9% (.3%)
Interest and other income $ 2,837 $ 2,844 $ 3,574 $ 1,913
Interest expense $ 4,875 $ 4,610 $ 4,760 $ 5,991
Income (loss) before income taxes $ 17,423 $ 10,558 $ 4,016 $ (5,823)
% of sales 2.2% 1.6% .7% (1.1%)
Income taxes (benefits) $ 7,095 $ 4,272 $ 1,538 $ (1,964)
Net income (loss) $ 10,328 $ 6,286 $ 2,478 $ (3,859)
% of sales 1.3% 1.0% .4% (.8%)
Net income (loss) per share
Primary $ 1.79 $ 1.35 $ .54 $ (.85)
Fully diluted $ 1.76 $ 1.25 $ .54 $ (.85)
Average number of shares outstanding
Primary 5,765 4,649 4,564 4,552
Fully diluted 5,949 5,819 4,592 4,552
Cash dividends per share $ .22 $ .16 $ .12 $ .24
Long-term debt, less current portion $ 100,918 $ 99,226 $ 81,320 $ 76,342
Shareholders' equity $ 131,335 $ 94,427 $ 86,666 $ 84,688
Total assets $ 328,893 $ 263,405 $ 230,738 $ 223,721
Return on equity (3) 10.9% 7.3% 2.9% (4.3%)
Leverage(total assets/shareholders' equity) 2.50 2.79 2.66 2.64
Return on assets (3) 3.9% 2.7% 1.1% (1.7%)
Capital expenditures (4) $ 11,841 $ 8,257 $ 8,702 $ 4,992
(1) The Company's fiscal year ends on the last Friday in January.
(2) All data adjusted for fiscal 1986 and fiscal 1994 poolings of interest and three-for-two stock split declared May 17, 1988.
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1995 ANNUAL REPORT - PAGE 27
Fiscal Years Ended (1)(2)
1991 1990 1989 1988 1987 1986 1985
$ 576,388 $ 557,769 $ 529,306 $ 458,079 $ 372,687 $ 351,832 $ 336,466
$ 463,027 $ 443,914 $ 419,890 $ 362,355 $ 300,141 $ 284,259 $ 271,449
19.7% 20.4% 20.7% 20.9% 19.5% 19.2% 19.3%
$ 93,538 $ 86,403 $ 79,538 $ 69,097 $ 52,070 $ 48,385 $ 44,915
16.2% 15.5% 15.0% 15.1% 14.0% 13.8% 13.3%
$ 9,199 $ 9,127 $ 8,759 $ 6,742 $ 5,407 $ 4,793 $ 4,278
$ 2,606 $ 2,529 $ 1,370 $ 1,602 $ 541 $ 1,239 $ 1,139
$ 8,018 $ 15,796 $ 19,749 $ 18,283 $ 14,528 $ 13,156 $ 14,685
1.4% 2.8% 3.7% 4.0% 3.9% 3.7% 4.4%
$ 4,078 $ 2,800 $ 3,615 $ 2,575 $ 2,548 $ 1,761 $ 1,589
$ 8,026 $ 7,360 $ 6,628 $ 4,203 $ 3,447 $ 2,623 $ 3,362
$ 4,070 $ 11,236 $ 16,736 $ 16,655 $ 13,629 $ 12,294 $ 12,912
.7% 2.0% 3.2% 3.6% 3.7% 3.5% 3.8%
$ 1,654 $ 4,443 $ 6,456 $ 7,211 $ 6,701 $ 5,589 $ 5,847
$ 2,416 $ 6,793 $ 10,280 $ 9,444 $ 6,928 $ 6,705 $ 7,065
.4% 1.2% 1.9% 2.1% 1.9% 1.9% 2.1%
$ .51 $ 1.31 $ 1.95 $ 1.76 $ 1.32 $ 1.25 $ 1.34
$ .51 $ 1.24 $ 1.77 $ 1.61 $ 1.24 $ 1.25 $ 1.34
4,731 5,181 5,262 5,376 5,247 5,358 5,268
4,731 6,276 6,372 6,467 6,090 5,358 5,268
$ .36 $ .35 $ .31 $ .27 $ .25 $ .21 $ .21
$ 85,626 $ 82,855 $ 76,122 $ 63,069 $ 36,954 $ 20,908 $ 21,853
$ 89,548 $ 95,411 $ 93,656 $ 85,565 $ 78,826 $ 73,879 $ 68,117
$ 226,019 $ 242,626 $ 230,064 $ 207,618 $ 167,494 $ 139,918 $ 127,671
2.5% 7.3% 12.0% 12.0% 9.4% 9.8% 11.6%
2.52 2.54 2.46 2.43 2.12 1.89 1.87
1.0% 3.0% 5.0% 5.6% 5.0% 5.3% 5.8%
$ 7,172 $ 10,749 $ 9,856 $ 15,234 $ 11,318 $ 5,635 $ 7,866
(3) Ratios based on balance sheet at beginning of year.
(4) Excludes capital leases.
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1995 ANNUAL REPORT - INSIDE BACK COVER
SHAREHOLDER INFORMATION
The shares of Hughes Supply, Inc. common stock are traded on the
New York Stock Exchange under the symbol "HUG." The approximate
number of shareholders of record as of March 1, 1995 was 1,116. A
COPY OF THE HUGHES SUPPLY, INC. ANNUAL REPORT ON FORM 10-K
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION WILL
BE MADE AVAILABLE WITHOUT CHARGE, UPON WRITTEN REQUEST.
REQUESTS SHOULD BE DIRECTED TO:
J. Stephen Zepf
Treasurer and Chief Financial Officer
Hughes Supply, Inc.
Post Office Box 2273
Orlando, Florida 32802
TRANSFER AGENT AND REGISTRAR
American Stock Transfer & Trust Company
40 Wall Street
New York, New York 10005
ANNUAL MEETING
Tuesday, May 23, 1995, at 10:00 AM
3rd floor of Park Building
Sun Bank Center
200 South Orange Avenue
Orlando, Florida 32801
GENERAL COUNSEL
Maguire, Voorhis & Wells, P.A.
Orlando, Florida
AUDITORS
Price Waterhouse LLP
Orlando, Florida
DIRECTORS
David H. Hughes
Chairman of the Board
John D. Baker, II
President, Florida Rock Industries, Inc.
Robert N. Blackford
Attorney, Maguire, Voorhis & Wells, P.A.
John B. Ellis
Retired, formerly Senior Vice President-Finance and
Treasurer, Genuine Parts Company.
A. Stewart Hall, Jr.
Clifford M. Hames
Retired, formerly Vice Chairman of the Board, Sun Bank, N.A.
Russell V. Hughes
Vincent S. Hughes
Herman B. McManaway
Retired, formerly Vice President, Ruddick Corporation and
President, Ruddick Investment Co.
Donald C. Martin
Retired, formerly President, Electrical Distributors, Inc.
CORPORATE HEADQUARTERS
Hughes Supply, Inc.
20 North Orange Avenue
Orlando, Florida 32801
Telephone: 407-841-4755
EXECUTIVE OFFICERS
AND MANAGEMENT
David H. Hughes
Chairman of the Board and
Chief Executive Officer
A. Stewart Hall, Jr.
President and Chief Operating Officer
Robert N. Blackford
Secretary
Jacquel K. Clark
Assistant Secretary & Assistant Treasurer
Jasper L. Holland, Jr.
Regional Vice President
Clyde E. Hughes
Regional Vice President
Russell V. Hughes
Vice President
Vincent S. Hughes
Vice President
Kenneth H. Stephens
Regional Vice President
Sidney J. Strickland, Jr.
Vice President, Purchasing and Administration
Gradie E. Winstead, Jr.
Regional Vice President
Peter J. Zabaski
Regional Vice President
J. Stephen Zepf
Treasurer & Chief Financial Officer