FORM 10-Q SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 (Mark One) [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended July 31, 1995 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from .........to........ Commission File No. 001-08772 HUGHES SUPPLY, INC. Incorporated in the State I.R.S. Employer I.D. of Florida Number 59-0559446 Post Office Box 2273 20 North Orange Avenue, Suite 200 Orlando, Florida 32802 Registrant's Telephone Number, including area code: 407/841-4755 Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES [X] NO [ ] Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date. Common Stock Outstanding as of August 14, 1995 $1 Par Value 6,549,837 Page 1 HUGHES SUPPLY, INC. FORM 10-Q Index Page No. Part I. Financial Information Item 1. Financial Statements Consolidated Balance Sheets as of July 31, 1995 and January 27, 1995 3 - 4 Consolidated Statements of Income for the Three Months Ended July 31, 1995 and 1994 5 Consolidated Statements of Income for the Six Months Ended July 31, 1995 and 1994 6 Consolidated Statements of Cash Flows for the Six Months Ended July 31, 1995 and 1994 7 Notes to Consolidated Financial Statements 8 - 9 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 10 - 12 Part II. Other Information Item 4. Submission of Matters to a Vote of Security Holders 13 Item 6. Exhibits and Reports on Form 8-K 13 - 17 Signatures 18 Index of Exhibits Filed with This Report 19 Page 2 HUGHES SUPPLY, INC. PART I. FINANCIAL INFORMATION Item 1. Financial Statements Consolidated Balance Sheets (dollars in thousands) July 31, January 27, 1995 1995 ----------- ------------ (unaudited) ASSETS Current Assets: Cash and cash equivalents $ 2,802 $ 3,192 Accounts receivable, less allowance for losses of $6,334 and $4,787 137,149 122,143 Inventories 121,137 119,686 Deferred income taxes 9,886 8,921 Other current assets 3,408 6,479 --------- --------- Total current assets 274,382 260,421 --------- --------- Property, Plant and Equipment, at cost: Land 13,482 13,360 Buildings and improvements 45,253 41,776 Transportation equipment 19,403 19,409 Furniture, fixtures and equipment 20,654 19,738 Property under capital leases 10,794 10,794 --------- --------- Total 109,586 105,077 Less accumulated depreciation and amortization (54,018) (51,846) --------- --------- Net property, plant and equipment 55,568 53,231 --------- --------- Deferred Income Taxes 2,148 1,999 Other Assets 20,624 13,242 --------- --------- $ 352,722 $ 328,893 ========= ========= The accompanying notes are an integral part of these consolidated financial statements. Page 3 HUGHES SUPPLY, INC. Consolidated Balance Sheets - continued (dollars in thousands) July 31, January 27, 1995 1995 ----------- ----------- (unaudited) LIABILITIES AND SHAREHOLDERS' EQUITY Current Liabilities: Current portion of long-term debt $ 1,031 $ 1,019 Accounts payable 71,771 71,563 Accrued compensation and benefits 9,833 9,723 Other current liabilities 15,214 12,795 --------- --------- Total current liabilities 97,849 95,100 --------- --------- Long-Term Debt, less current portion: Notes and subordinated debentures 109,196 97,857 Capital lease obligations 2,583 3,061 --------- --------- Total long-term debt 111,779 100,918 --------- --------- Other Noncurrent Liabilities 1,742 1,540 --------- --------- Total liabilities 211,370 197,558 --------- --------- Commitments and Contingencies Shareholders' Equity: Preferred stock - - Common stock-6,318,048 and 6,148,599 shares issued 6,318 6,149 Capital in excess of par value 41,152 37,722 Retained earnings 94,856 89,152 --------- --------- 142,326 133,023 Less treasury stock-62,841 and 108,988 shares, at cost (974) (1,688) --------- --------- Total shareholders' equity 141,352 131,335 --------- --------- $ 352,722 $ 328,893 ========= ========= The accompanying notes are an integral part of these consolidated financial statements. Page 4 HUGHES SUPPLY, INC. Consolidated Statements of Income (unaudited) (in thousands, except per share data) Three months ended July 31, 1995 1994 ----------- ----------- Net Sales $ 260,474 $ 202,619 Cost of Sales 207,574 161,663 --------- --------- Gross Profit 52,900 40,956 --------- --------- Operating Expenses: Selling, general and administrative 41,805 32,706 Depreciation and amortization 2,314 2,093 Provision for doubtful accounts 726 727 --------- --------- Total operating expenses 44,845 35,526 --------- --------- Operating Income 8,055 5,430 --------- --------- Non-Operating Income and (Expenses): Interest and other income, net 1,193 700 Interest expense (1,943) (1,119) --------- --------- (750) (419) --------- --------- Income Before Income Taxes 7,305 5,011 Income Taxes 3,075 2,003 --------- --------- Net Income $ 4,230 $ 3,008 ========= ========= Earnings Per Share: Primary $ .66 $ .51 ========= ========= Fully diluted $ .66 $ .51 ========= ========= Average Shares Outstanding: Primary 6,385 5,943 ========= ========= Fully diluted 6,401 5,943 ========= ========= Dividends Per Share $ .07 $ .05 ========= ========= The accompanying notes are an integral part of these consolidated financial statements. Page 5 HUGHES SUPPLY, INC. Consolidated Statements of Income (unaudited) (in thousands, except per share data) Six months ended July 31, 1995 1994 ----------- ----------- Net Sales $ 494,239 $ 386,520 Cost of Sales 393,762 309,163 --------- --------- Gross Profit 100,477 77,357 --------- --------- Operating Expenses: Selling, general and administrative 81,693 63,077 Depreciation and amortization 4,552 4,142 Provision for doubtful accounts 1,189 1,412 --------- --------- Total operating expenses 87,434 68,631 --------- --------- Operating Income 13,043 8,726 --------- --------- Non-Operating Income and (Expenses): Interest and other income, net 2,060 1,443 Interest expense (3,678) (2,254) --------- --------- (1,618) (811) --------- --------- Income Before Income Taxes 11,425 7,915 Income Taxes 4,744 3,237 --------- --------- Net Income $ 6,681 $ 4,678 ========= ========= Earnings Per Share: Primary $ 1.06 $ .84 ========= ========= Fully diluted $ 1.06 $ .81 ========= ========= Average Shares Outstanding: Primary 6,299 5,596 ========= ========= Fully diluted 6,321 5,961 ========= ========= Dividends Per Share $ .14 $ .10 ========= ========= The accompanying notes are an integral part of these consolidated financial statements. Page 6 HUGHES SUPPLY, INC. Consolidated Statements of Cash Flows (unaudited) (in thousands) Six months ended July 31, 1995 1994 ----------- ----------- Increase (Decrease) in Cash and Cash Equivalents: Cash flows from operating activities: Cash received from customers $ 481,450 $ 375,082 Cash paid to suppliers and employees (472,033) (375,816) Interest received 1,501 1,108 Interest paid (3,457) (1,731) Income taxes paid (7,191) (2,139) --------- --------- Net cash provided by (used in) operating activities 270 (3,496) --------- --------- Cash flows from investing activities: Proceeds from sale of property, plant and equipment 553 446 Capital expenditures (6,110) (6,788) Business acquisitions, net of cash (4,532) (905) --------- --------- Net cash used in investing activities (10,089) (7,247) --------- --------- Cash flows from financing activities: Net borrowing under short-term debt arrangements 11,386 12,701 Principal payments on: Long-term notes (844) (106) Capital lease obligations (398) (363) Proceeds from issuance of common shares under stock option plans 150 528 Purchase of common shares (65) (210) Dividends paid (800) (523) --------- --------- Net cash provided by financing activities 9,429 12,027 --------- --------- Net Increase (Decrease) in Cash and Cash Equivalents (390) 1,284 Cash and Cash Equivalents: Beginning of period 3,192 1,078 --------- --------- End of period $ 2,802 $ 2,362 ========= ========= The accompanying notes are an integral part of these consolidated financial statements. Page 7 HUGHES SUPPLY, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited) (dollars in thousands, except per share data) 1. In the opinion of the Company, the accompanying unaudited consolidated financial statements contain all adjustments (consisting only of normal recurring accruals) necessary to present fairly the financial position as of July 31, 1995, the results of operations for the three months and six months ended July 31, 1995 and 1994, and cash flows for the six months then ended. 2. During the six months ended July 31, 1995, the Company acquired several wholesale distributors of materials to the construction industry for cash and common stock. These acquisitions have been accounted for as purchases and 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. 3. On August 1, 1995 the Company acquired all the common stock of Moore Electric Supply, Inc. ("Moore") in exchange for approximately 291,000 shares of the Company's common stock. Moore is a wholesale distributor of electrical products with five outlets in North Carolina and South Carolina. The merger will be accounted for as a pooling of interests and, accordingly, historical financial data will be restated to include Moore. The following pro forma data summarizes the combined results of operations of the Company and Moore as though the merger had occurred at the beginning of fiscal year 1995. Three months ended July 31, 1995 1994 ----------- ----------- Net sales $ 277,913 $ 216,621 Net income 4,780 3,154 Earnings per share: Primary .71 .51 Fully diluted .71 .51 Six months ended July 31, 1995 1994 ----------- ----------- Net sales $ 526,535 $ 413,124 Net income 7,604 4,891 Earnings per share: Primary 1.15 .83 Fully diluted 1.15 .81 Page 8 HUGHES SUPPLY, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued (unaudited) (dollars in thousands, except per share data) 4. On July 31, 1995, the Company's revolving credit and line of credit agreement with a group of banks was amended. The agreement, as amended, now permits the Company to borrow up to $160,000 (subject to borrowing limitations under the agreement) - $125,000 long-term, expiring June 30, 1998, and $35,000 line of credit convertible to a term note due two years from conversion date. 5. The following is a reconciliation of net income to net cash provided by (used in) operating activities: Six months ended July 31, 1995 1994 ---------- ---------- Net income $ 6,681 $ 4,678 Adjustments to reconcile net income to net cash provided by (used in) operating activities: Depreciation 3,854 3,718 Amortization 698 424 Provision for doubtful accounts 1,189 1,412 (Gain) on sale of property, plant and equipment (308) (154) Undistributed (earnings) losses of affiliate 46 (65) Changes in assets and liabilities: net of effects of acquisitions: (Increase) decrease in: Accounts receivable (13,086) (11,554) Inventories 3,107 (14,410) Other current assets 3,099 2,635 Other assets (860) 326 Increase (decrease) in: Accounts payable and accrued expenses (2,126) 7,730 Accrued interest and income taxes (1,112) 2,836 Other noncurrent liabilities 202 143 Decrease (increase) in deferred income taxes (1,114) (1,215) ---------- ---------- Net cash provided by (used in) operating activities $ 270 $ (3,496) ========== ========== Page 9 HUGHES SUPPLY, INC. PART I. FINANCIAL INFORMATION - continued Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Material Changes in Results of Operations Net Sales: Net sales were $260.5 million for the quarter ended July 31, 1995, an increase of 29% over the prior year second quarter. Net sales for the six months were $494.2 million which was 28% ahead of last year. Although the economy has been slowing throughout much of the Southeast, commercial and industrial construction activity has improved over the past two years. Newly-acquired and opened wholesale outlets provided 20 and 17 percentage points of the 29% and 28% increases for the three and six month periods, respectively. Management expects commercial construction activity to continue at current levels and believes that recent declines in interest rates should positively impact residential construction for the remainder of the year which should have a positive impact on the Company's results. Gross Profit: Gross profit and gross margin for the three and six months ended July 31, 1995 and 1994 were as follows (dollars in thousands): 1995 1994 Gross Gross Gross Gross Variance Profit Margin Profit Margin Amount % Three months ended $ 52,900 20.3% $ 40,956 20.2% $ 11,944 29.2% Six months ended $ 100,477 20.3% $ 77,357 20.0% $ 23,120 29.9% The improvement in gross margins continues to be due to heightened construction activity as well as purchasing economies from increased volume. Operating Expenses: Operating expenses for the three and six month periods ended July 31, 1995 and 1994 were as follows (dollars in thousands): 1995 1994 % of % of Variance Amount Net Sales Amount Net Sales Amount % Three months ended $ 44,845 17.2% $ 35,526 17.5% $ 9,319 26.2% Six months ended $ 87,434 17.7% $ 68,631 17.8% $ 18,803 27.4% Approximately 19 and 15 percentage points of the 26% and 27% increases in operating expenses for the three and six months ended July 31, 1995, Page 10 respectively, are attributable to recent acquisitions and newly-opened wholesale outlets. Higher insurance and transportation costs continue to be primarily responsible for operating expenses increasing over expected amounts (due to sales growth) in existing operations. Labor costs associated with new product offerings (i.e. primarily pool supplies) has also contributed to higher operating expenses. As sales of the new products develop, the percentage of operating expenses to net sales should show further improvement. Non-Operating Income and Expenses: Interest expense increased from $1.1 million for the three months ended July 31, 1994 to $1.9 million for the three months ended July 31, 1995. Approximately 32% of the increase is attributable to higher interest rates. Higher average borrowing resulting from growth accounted for 68% of the increase. Interest expense for the six months ended July 31, 1995 was $3.7 million compared to $2.3 million in the prior year. Higher interest rates were responsible for approximately 54% of the increase and higher borrowing levels for the remainder. Income Taxes: The effective tax rates for the three and six months ended July 31, 1995 and 1994 were as follows: 1995 1994 Three months ended 42.1% 40.0% Six months ended 41.5% 40.9% The change in rates is due to fluctuations of nondeductible expenses. Net Income: Net income for the second quarter increased 41% to $4.2 million. Fully-diluted earnings per share for the second quarter were $.66 compared to $.51 in the prior year. For the six months ended July 31, 1995 net income reached $6.7 million, a 43% increase over the six months ended July 31, 1994. Fully-diluted earnings per share for the six months ended July 31, 1995 and 1994 were $1.06 and $.81, respectively. Liquidity and Capital Resources The Company continues to maintain greater than 75% of total assets as current assets. Working capital at July 31, 1995 amounted to $176.5 million compared to $165.3 million at January 27, 1995. The working capital ratio remained relatively unchanged - 2.8 to 1 at July 31, 1995 compared to 2.7 to 1 at January 27, 1995. Accounts receivable and inventories at July 31, 1995 were $15.0 million and $1.5 million higher, Page 11 respectively, than at January 27, 1995. Despite these increases, turnover for these assets improved. Inventory turnover was 6.5 and 6.1 times for the six months ended July 31, 1995 and 1994, respectively. Accounts receivable turnover for these periods was 7.3 and 7.2 times, respectively. Cash payments for business acquisitions totaled $4.5 million for the six months ended July 31, 1995. Funding was provided by borrowing under existing credit arrangements. In addition, approximately 207,000 shares of common stock valued at $4.1 million were issued for the acquisitions. The acquisitions were for wholesale distributors of electrical, electric utility, pool equipment and supplies, and water systems with facilities in Pennsylvania, Ohio, Georgia, Alabama and South Carolina. These operations are expected to positively impact results of operations over the remainder of the fiscal year. The Company completed the acquisition of Moore Electric Supply, Inc. on August 1, 1995 (see Note 3 of the Notes to Consolidated Financial Statements). This acquisition will be accounted for as a pooling of interests in the Company's third quarter. Expenditures for property and equipment were $6.1 million for the six months ended July 31, 1995 compared to $6.8 million for the six months ended July 31, 1994. These expenditures are expected to be approximately $10 million for fiscal year 1996. The Company's bank financing has been amended to increase the Company's borrowing capacity. It now consists of $160 million unsecured credit facility, which includes a $125 million long-term revolving credit facility and a $35 million line of credit convertible to a term note, as well as a $6 million short-term line of credit. The Company's financial condition remains strong and the Company has the resources necessary, with approximately $59 million in unused debt capacity (subject to borrowing limitations under long-term debt covenants), to take advantage of growth and business acquisition opportunities and to fund ongoing operating requirements. Future expansion will continue to be financed on a project-by-project basis through additional borrowing, or, as circumstances allow, through the issuance of common stock. Page 12 HUGHES SUPPLY, INC. PART II. OTHER INFORMATION Item 4. Submission of Matters to a Vote of Security Holders (a) Annual Meeting of Shareholders. The Company's 1995 Annual Meeting of Shareholders (the "Annual Meeting") was held on May 23, 1995. (b) Election of Directors. Proxies for the Annual Meeting were solicited by management pursuant to Regulation 14 under the Securities Exchange Act of 1934 ("Regulation 14") and there was no solicitation of proxies in opposition to managements nominees listed in the Proxy Statement. All of management's nominees listed in the Proxy Statement were elected. (c) Other Matters Voted Upon. In addition to the election of directors referred to above, the following matter was voted upon at the Annual Meeting: Approval of Stock Award Provisions of Senior Executives' Long-Term Incentive Bonus Plan. Shareholders approved the stock award provisions of the Senior Executives' Long-Term Incentive Bonus Plan ("the Long-Term Plan"). The Long-Term Plan was adopted by the Board of Directors on March 15, 1995 as an ongoing long-term performance based incentive bonus plan which would permit the Board to provide incentive compensation to reward key senior executives for achieving specified Company performance goals adopted by the Board. The shareholders approved the stock award provisions of the Long-Term Plan by the following vote: 4,658,211 shares voted for approval; 257,127 shares voted against approval; and 30,166 shares abstaining from voting. A written description of the Long-Term Plan is set forth under "Approval of Stock Award Provisions of Senior Executives' Long-Term Incentive Bonus Plan" in the Proxy Statement. The Long-Term Plan is filed as Exhibit 10.9 to this Report and, by this reference, is incorporated herein. Item 6. Exhibits and Reports on Form 8-K (a) Exhibits Filed. (2) Plan of acquisition, reorganization, arrangement, liquidation or succession - not applicable. Page 13 (3) Articles of incorporation and by-laws. 3.1 Articles of incorporation, as amended, filed as Exhibit 3.1 to Form 10-Q for the quarter ended July 31, 1994. 3.2 Composite By-Laws, as amended, filed as Exhibit 3.2 to Form 10-Q for the quarter ended July 31, 1994. (4) Instruments defining the rights of security holders, including indentures. 4.1 Specimen Stock Certificate representing shares of the Company's common stock, $1.00 par value, filed as Exhibit 4.2 to form 10-Q for the quarter ended October 31, 1984. 4.2 Resolution Approving and Implementing Shareholder Rights Plan filed as Exhibit 4.4 to Form 8-K dated May 17, 1988. (10) Material contracts. 10.1 Lease Agreements with Hughes, Inc. (a) Orlando Trucking, Garage and Maintenance Operations dated December 1, 1971, filed as Exhibit 13(n) to Registration No. 2-43900. Letter dated April 15, 1992 extending lease from month to month, filed as exhibit 10.1(a) to Form 10-K for the fiscal year ended January 31, 1992. (b) Leases effective March 31, 1988, filed as exhibit 10.1(c) to Form 10-K for the fiscal year ended January 27, 1989; Sub-item Property (1) Clearwater (2) Daytona Beach (3) Fort Pierce (4) Lakeland (5) Lakeland - Lightstyle (6) Leesburg (7) Orlando Electrical Operation (8) Orlando Plumbing Operation (9) Orlando Utility Warehouse (10) St. Petersburg (11) Sarasota (12) Venice (13) Winter Haven Page 14 (c) Lease amendment letter between Hughes, Inc. and the Registrant, dated December 1, 1986, amending Orlando Truck Operations Center and Maintenance Garage lease, filed as Exhibit 10.1(i) to Form10-K for the fiscal year ended January 30, 1987. (d) Lease agreement dated June 1, 1987, between Hughes, Inc. and the Registrant, for additional Sarasota property, filed as Exhibit 10.1(j) to Form 10-K for the fiscal year ended January 29, 1988. (e) Leases dated March 11, 1992, filed as Exhibit 10.1(e) to Form 10-K for the fiscal year ended January 31, 1992. Sub-item Property (1) Tallahassee Electrical Operation (2) Gainesville Electrical Operation (3) Valdosta Electrical Operation 10.2 Hughes Supply, Inc. 1988 Stock Option Plan filed as Exhibit A to Prospectus included in Registration No. 33-26468. 10.3 Form of Supplemental Executive Retirement Plan Agreement entered into between the Registrant and eight of its executive officers, filed as Exhibit 10.6 to Form 10-K for fiscal year ended January 30, 1987. 10.4 Directors' Stock Option Plan, as amended, filed as Exhibit 10.4 to Form 10-Q for the quarter ended July 31, 1994. 10.5 Asset Purchase Agreement with Accord Industries Company, dated October 9, 1990, for sale of Registrant's manufacturing operations, filed as Exhibit 10.7 to Form 10-K for fiscal year ended January 25, 1991. 10.6 Lease Agreement dated June 30, 1993 between Donald C. Martin and Electrical Distributors, Inc., filed as Exhibit 10.6 to Form 10-K for fiscal year ended January 28, 1994. Page 15 10.7 Consulting Agreement dated June 30, 1993 between Hughes Supply, Inc. and Donald C. Martin, filed as Exhibit 10.7 to Form 10-K for fiscal year ended January 28, 1994. 10.8 Written description of senior executives' long-term incentive bonus plan for fiscal year 1996 incorporated by reference to the description of the bonus plan set forth under the caption "Approval of the Stock Award Provisions of the Senior Executives' Long- Term Incentive Bonus Plan for Fiscal Year 1996" on pages 26 and 27 of the Registrant's Proxy Statement Annual Meeting of Shareholders To Be Held May 24, 1994. 10.9 Senior Executives' Long-Term Incentive Bonus Plan, including the senior executives' long- term incentive bonus plan for fiscal year 1997 (the "1997 Performance Plan") and the senior executives' long-term incentive bonus plan for fiscal year 1998 (the "1998 Performance Plan") incorporated by reference therein, filed as Exhibit 10.9 to Form 10-K for the fiscal year ended January 27, 1995. 10.10 Lease Agreement dated June 30, 1994 between Donald C. Martin and Electrical Distributors, Inc., filed as Exhibit 10.10 to Form 10-K for the fiscal year ended January 27, 1995. (11) Statement re computation of per share earnings. 11.1 Summary schedule of earnings per share calculation. (15) Letter re unaudited interim financial information - not applicable. (18) Letter re change in accounting principles - not applicable. (19) Report furnished to security holders - not applicable. (22) Published report regarding matters submitted to vote of security holders - not applicable. (23) Consents of experts and counsel - not applicable. (24) Power of attorney - not applicable. Page 16 (27) Financial Data Schedule. 27.1 Financial Data Schedule (filed electronically only). (99) Additional exhibits - not applicable. (b) Reports on Form 8-K. There were no reports on Form 8-K filed during the quarter ended July 31, 1995. Page 17 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. HUGHES SUPPLY, INC. Date: September 7, 1995 By: /s/ David H. Hughes David H. Hughes, Chairman of the Board and Chief Executive Officer Date: September 7, 1995 By: /s/ J. Stephen Zepf J. Stephen Zepf, Treasurer, Chief Financial Officer and Chief Accounting Officer Page 18 INDEX OF EXHIBITS FILED WITH THIS REPORT 11.1 Summary schedule of earnings per share calculations. 27.1 Financial Data Schedule (filed electronically only). Page 19