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