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 October 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 November 30, 1998
$1 Par Value 24,113,963
Page 1
HUGHES SUPPLY, INC.
FORM 10-Q
Index
Page No.
Part I. Financial Information
Item 1. Financial Statements
Consolidated Balance Sheets as of
October 31, 1998 and January 30, 1998 ......... 3 - 4
Consolidated Statements of Income for the
Three Months Ended October 31, 1998 and 1997 .. 5
Consolidated Statements of Income for the
Nine Months Ended October 31, 1998 and 1997 .... 6
Consolidated Statements of Cash Flows for the
Nine Months Ended October 31, 1998 and 1997 .... 7
Notes to Consolidated Financial Statements .... 8 - 9
Item 2. Management's Discussion and Analysis of
Financial Condition and Results
of Operations ................................. 10 - 16
Part II. Other Information
Item 6. Exhibits and Reports on Form 8-K .............. 17 - 21
Signatures .................................... 22
Index of Exhibits Filed with This Report ...... 23
Page 2
HUGHES SUPPLY, INC.
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets (unaudited)
(in thousands, except share data)
October 31, January 30,
1998 1998
---------- ----------
ASSETS
Current Assets:
Cash and cash equivalents $ 8,013 $ 8,204
Accounts receivable, less allowance for
losses of $7,811 and $3,522 372,164 293,837
Inventories 382,235 353,846
Deferred income taxes 10,377 9,708
Other current assets 28,514 18,625
---------- ----------
Total current assets 801,303 684,220
Property and Equipment, Net 121,707 108,068
Excess of Cost over Net Assets Acquired 160,253 153,775
Deferred Income Taxes - 3,438
Other Assets 16,267 16,241
---------- ----------
$1,099,530 $ 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)
October 31, January 30,
1998 1998
---------- ----------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Current portion of long-term debt $ 185 $ 674
Accounts payable 171,705 156,209
Accrued compensation and benefits 27,693 21,272
Other current liabilities 32,858 19,959
---------- ----------
Total current liabilities 232,441 198,114
Long-Term Debt 386,963 343,197
Other Noncurrent Liabilities 6,314 2,662
---------- ----------
Total liabilities 625,718 543,973
---------- ----------
Commitments and Contingencies
Shareholders' Equity:
Preferred stock - -
Common stock-24,070,963 and
23,437,039 shares issued 24,071 23,437
Capital in excess of par value 216,864 202,210
Retained earnings 234,050 197,364
Unearned compensation related to
outstanding restricted stock (1,173) (1,242)
---------- ----------
Total shareholders' equity 473,812 421,769
---------- ----------
$1,099,530 $ 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 October 31,
1998 1997
---------- ----------
Net Sales $ 659,045 $ 525,838
Cost of Sales 512,406 410,544
---------- ----------
Gross Profit 146,639 115,294
---------- ----------
Operating Expenses:
Selling, general and administrative 104,012 82,711
Depreciation and amortization 5,810 4,770
Provision for doubtful accounts 562 592
---------- ----------
Total operating expenses 110,384 88,073
---------- ----------
Operating Income 36,255 27,221
---------- ----------
Non-Operating Income and (Expenses):
Interest and other income 1,518 1,366
Interest expense (6,341) (5,293)
---------- ----------
(4,823) (3,927)
---------- ----------
Income Before Income Taxes 31,432 23,294
Income Taxes 12,282 8,625
---------- ----------
Net Income $ 19,150 $ 14,669
========== ==========
Earnings Per Share:
Basic $ .80 $ .72
========== ==========
Diluted $ .79 $ .71
========== ==========
Average Shares Outstanding:
Basic 23,989 20,318
========== ==========
Diluted 24,204 20,647
========== ==========
Dividends Per Share $ .085 $ .080
========== ==========
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)
Nine months ended October 31,
1998 1997
---------- ----------
Net Sales $1,935,626 $1,468,481
Cost of Sales 1,510,869 1,147,849
---------- ----------
Gross Profit 424,757 320,632
---------- ----------
Operating Expenses:
Selling, general and administrative 309,616 234,904
Depreciation and amortization 16,919 13,969
Provision for doubtful accounts 1,888 1,408
---------- ----------
Total operating expenses 328,423 250,281
---------- ----------
Operating Income 96,334 70,351
---------- ----------
Non-Operating Income and (Expenses):
Interest and other income 4,747 3,942
Interest expense (18,950) (14,397)
---------- ----------
(14,203) (10,455)
---------- ----------
Income Before Income Taxes 82,131 59,896
Income Taxes 31,605 21,797
---------- ----------
Net Income $ 50,526 $ 38,099
========== ==========
Earnings Per Share:
Basic $ 2.12 $ 1.93
========== ==========
Diluted $ 2.10 $ 1.89
========== ==========
Average Shares Outstanding:
Basic 23,840 19,722
========== ==========
Diluted 24,085 20,113
========== ==========
Dividends Per Share $ .245 $ .228
========== ==========
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)
Nine months ended October 31,
1998 1997
---------- ----------
Cash Flows from Operating Activities:
Net income $ 50,526 $ 38,099
Adjustments to reconcile net income
to net cash provided by (used in)
operating activities:
Depreciation and amortization 16,919 13,969
Provision for doubtful accounts 1,888 1,408
Other, net (249) (382)
Changes in assets and liabilities, net
of effects of business acquisitions:
(Increase) in accounts receivable (69,053) (67,278)
(Increase) in inventories (18,327) (10,489)
(Increase) in other current assets (9,589) (3,116)
(Increase) in other assets (3,809) (6,320)
Increase in accounts payable and
accrued liabilities 17,258 29,067
Increase in accrued interest and
income taxes 7,573 5,918
Increase in other noncurrent
liabilities 3,652 413
Decrease in deferred income taxes 1,049 1,575
---------- ----------
Net cash (used in) provided by
operating activities (2,162) 2,864
---------- ----------
Cash Flows from Investing Activities:
Capital expenditures (20,753) (22,685)
Proceeds from sale of
property and equipment 6,216 429
Business acquisitions, net of cash (9,507) (16,220)
---------- ----------
Net cash (used in) investing
activities (24,044) (38,476)
---------- ----------
Cash Flows from Financing Activities:
Net payments under short-term
debt arrangements (5,145) (24,777)
Principal payments on long-term debt (12,183) (11,505)
Proceeds from issuance of long-term debt 50,000 80,000
Proceeds from stock options exercised 327 891
Purchase of common shares (201) (285)
Dividends paid (6,783) (3,976)
---------- ----------
Net cash provided by financing
activities 26,015 40,348
---------- ----------
Net (Decrease) Increase in Cash and
Cash Equivalents (191) 4,736
Cash and Cash Equivalents:
Beginning of period 8,204 6,619
---------- ----------
End of period $ 8,013 $ 11,355
========== ==========
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 October
31, 1998, the results of operations for the three and nine months
ended October 31, 1998 and 1997, and cash flows for the nine months
then ended. The results of operations for the three and nine
months ended October 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 October 31, 1998
and 1997 each contained 13 weeks and the nine months ended October
31, 1998 and 1997 each contained 39 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 23,989,000 and 20,318,000 for the three
months ended October 31, 1998 and 1997, respectively, and
23,840,000 and 19,722,000 for the nine months ended October 31,
1998 and 1997, respectively. In calculating diluted earnings per
share, these amounts were adjusted to include dilutive potential
common shares of 215,000 and 329,000 for the three months ended
October 31, 1998 and 1997, respectively, and 245,000 and 391,000
for the nine months ended October 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 nine months ended October 31, 1997 contains certain
reclassifications which were made to conform to the October 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.
During the nine months ended October 31, 1998, the Company acquired
five 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").
On September 30, 1998, the Company executed a new $25,000 line of
credit for short-term borrowing. There were no amounts outstanding
under this line of credit as of October 31, 1998.
4. Subsequent events:
On November 11, 1998, the Company entered into an unsecured $50,000
Bridge Credit Agreement with two banks. The Bridge Credit
Agreement matures on January 31, 1999 and provides for interest at
London Interbank Offered Rates (LIBOR) plus an applicable margin.
Page 9
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 October 31, 1998, and the results of operations for the
three and nine 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 $659 million for the quarter ended October 31, 1998, a
25% increase over the prior year's third quarter. Net sales for the
nine months were $1.94 billion, which was 32% ahead of the same period
in the prior year. Same-store sales increased 4% and 6% for the three
and nine months ended October 31, 1998, respectively. The remaining
increases in net sales for the three and nine month periods are
attributable to branches opened and acquired after February 1, 1997.
Page 10
The same-store sales increases for the three and nine months ended
October 31, 1998 are primarily attributable to (i) continued growth in
construction markets and (ii) the favorable impact of warm and dry
weather conditions experienced in certain regions served by the
Company's air conditioning and pool supply product groups. These
increases were partially offset, however, by the impact of declining
prices in certain commodity items.
Gross Profit
Gross profit and gross margin for the three and nine months ended
October 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 $ 146,639 22.3% $ 115,294 21.9% $ 31,345 27.2%
Nine months ended $ 424,757 21.9% $ 320,632 21.8% $104,125 32.5%
The improvement in gross margins has resulted from several factors,
including the Company's overall expansion of higher-margin products
resulting primarily from its acquisition program, 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. The gross margin increases for the three and nine
months ended October 31, 1998 were partially offset by deflationary
pressures on certain of the Company's commodity-priced products,
including stainless steel, copper, aluminum and plastic.
Operating Expenses
Operating expenses for the three and nine months ended October 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 $ 110,384 16.7% $ 88,073 16.7% $ 22,311 25.3%
Nine months ended $ 328,423 17.0% $ 250,281 17.0% $ 78,142 31.2%
Approximately 22 and 25 percentage points of the 25.3% and 31.2%
increases in operating expenses for the three and nine months ended
October 31, 1998, respectively, are attributable to branches opened and
acquired after February 1, 1997. The remainder of the increase is
primarily due to personnel and transportation costs associated with
same-store sales growth.
Page 11
Non-Operating Income and Expenses
Interest and other income increased $.2 million and $.8 million for the
three and nine months ended October 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 $6.3 million and $19.0 million for the three and
nine months ended October 31, 1998 compared to $5.3 million and $14.4
million for the three and nine months ended October 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 nine months ended October 31,
1998 and 1997 were as follows:
1998 1997
Three months ended 39.1% 37.0%
Nine months ended 38.5% 36.4%
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 were 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 nine months ended October 31, 1998 compared to the prior
year periods. The Company's effective tax rate for the three and nine
months ended October 31, 1997 and the nine months ended October 31, 1998
would have been approximately 39.5% assuming Chad and Winn-Lange were
tax paying entities.
Net Income
Net income for the third quarter increased 31% to $19.2 million.
Diluted earnings per share for the third quarter were $.79 compared to
$.71 in the prior year, an 11% increase with 17% more average shares
outstanding.
For the nine months ended October 31, 1998, net income reached $50.5
million, a 33% increase over the nine months ended October 31, 1997.
Diluted earnings per share for the nine months ended October 31, 1998
and 1997 were $2.10 and $1.89, respectively. This increase of 11% was
on 20% more average shares outstanding.
Page 12
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 5.5% and 5.0% for the three and nine months ended October
31, 1998, compared to 5.2% and 4.8% for the three and nine months ended
October 31, 1997, respectively.
Liquidity and Capital Resources
Working capital at October 31, 1998 totaled $569 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 October 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 $2.2 million for the nine months ended
October 31, 1998 compared net cash provided by operations of $2.9
million for the nine months ended October 31, 1997. This change is
primarily due to increases in accounts receivable and inventories
resulting from the Company's growth.
Expenditures for property and equipment were $20.8 million for the nine
months ended October 31, 1998 compared to $22.7 million for the nine
months ended October 31, 1997. This decrease of $1.9 million is
primarily due to higher levels of expenditures for computer and
communications hardware and related software during the nine months
ended October 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 $6.2 million for
the nine months ended October 31, 1998 compared to $.4 million for the
nine months ended October 31, 1997. This increase is primarily due to
the sale and subsequent lease-back of certain computer hardware during
the second quarter ended July 31, 1998, which generated proceeds of $5.4
million.
Cash payments for business acquisitions accounted for as purchases
totaled $9.5 million for the nine months ended October 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 $12.2 million for the nine
months ended October 31, 1998 compared to $11.5 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 $6.8 million and $4.0 million
during the nine months ended October 31, 1998 and 1997, respectively.
Page 13
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.
In November 1998, the Company entered into an unsecured $50 million
Bridge Credit Agreement with two banks. This facility provides the
Company with an interim source of financing pending anticipated future
amendments to its existing credit agreement to allow for additional
borrowing capacity. Future amendments are expected to increase the
Company's existing credit agreement from $180 million to $275 million
with an option to increase the capacity to $325 million. The amendments
are expected to close in January 1999.
As of October 31, 1998, the Company had approximately $52 million of
unused borrowing capacity (subject to borrowing limitations under long-
term debt covenants) without giving effect to the $50 million Bridge
Credit Agreement discussed above. With this facility and the $50
million Bridge Credit Agreement, management believes that the Company
has sufficient borrowing capacity to take advantage of growth and
business acquisition opportunities in the near term and has the
resources necessary 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.
Page 14
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.
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 these remote operating systems are
expected to be completed by July 31, 1999. All additional remote
operating systems added after July 31, 1998 as a result of the Company's
acquisition program will be assessed, remediated and tested to the
extent that is necessary to ensure year 2000 compliance.
Management estimates total pretax costs relating to the Year 2000 Issue
to be approximately $2 million. Approximately 3% of these costs were
incurred through October 31, 1998 and the remaining costs are expected
to be incurred through March 2000. The estimate of $2 million excludes
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 15
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, the Company intends to develop contingency plans, as
deemed necessary, to safeguard its ongoing operations. Such
contingency plans may 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 inventory or
working capital on an interim basis.
Page 16
HUGHES SUPPLY, INC.
PART II. OTHER INFORMATION
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 17
(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 18
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 19
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).
10.12 Bridge Credit Agreement, dated as of November 11, 1998,
by and among the Company, SunTrust and First Union. The
Bridge Credit Agreement contains a table of contents
identifying the contents of Exhibits, all of which have
been omitted. The Company agrees to furnish a
supplemental copy of any omitted Exhibit to the
Commission upon request.
(11) Statement re computation of per share earnings. Not
applicable.
(15) Letter re unaudited interim financial information. Not
applicable.
(18) Letter re change in accounting principles. Not applicable.
(19) Report furnished to security holders. Not applicable.
(22) Published report regarding matters submitted to vote of
security holders. Not applicable.
(23) Consents of experts and counsel. Not applicable.
(24) Power of attorney. Not applicable.
(27) Financial data schedule.
27.1 Financial data schedule (filed electronically only).
(99) Additional exhibits. Not applicable.
Page 20
(b) Reports on Form 8-K
There were no reports on Form 8-K filed during the quarter
ended October 31, 1998.
Page 21
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
HUGHES SUPPLY, INC.
Date: December 14, 1998 By: /s/ David H. Hughes
David H. Hughes, Chairman of
the Board and Chief Executive
Officer
Date: December 14, 1998 By: /s/ J. Stephen Zepf
J. Stephen Zepf, Treasurer,
Chief Financial Officer and
Chief Accounting Officer
Page 22
INDEX OF EXHIBITS FILED WITH THIS REPORT
10.12 Bridge Credit Agreement, dated as of November 11, 1998, by and
among the Company, SunTrust and First Union. The Bridge
Credit Agreement contains a table of contents identifying the
contents of Exhibits, all of which have been omitted. The
Company agrees to furnish a supplemental copy of any omitted
Exhibit to the Commission upon request.
27.1 Financial data schedule (filed electronically only).
Page 23