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, 1999
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 29, 1999
------------ -----------------------------------
$1 Par Value 23,522,539
Page 1
HUGHES SUPPLY, INC.
FORM 10-Q
INDEX
PAGE NO.
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets as of
October 31, 1999 and January 29, 1999 .......................... 3-4
Consolidated Statements of Income for the
Three Months Ended October 31, 1999 and 1998 ................... 5
Consolidated Statements of Income for the
Nine Months Ended October 31, 1999 and 1998 .................... 6
Consolidated Statements of Cash Flows for the
Nine Months Ended October 31, 1999 and 1998..................... 7
Notes to Consolidated Financial Statements ....................... 8-9
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations .................... 10-15
Item 3. Quantitative and Qualitative Disclosures about Market Risk ....... 16
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K ................................. 17-20
Signatures ....................................................... 21
Index of Exhibits Filed with this Report.......................... 22
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 29,
1999 1999
----------- -----------
ASSETS
Current Assets:
Cash and cash equivalents $ 8,026 $ 6,010
Accounts receivable, less allowance for losses of $8,989 and $2,809 439,531 341,109
Inventories 476,564 409,734
Deferred income taxes 12,354 8,520
Other current assets 32,436 31,346
----------- -----------
Total current assets 968,911 796,719
Property and Equipment, Net 142,233 127,632
Excess of Cost over Net Assets Acquired 241,495 181,622
Other Assets 21,372 17,540
---------- ----------
$ 1,374,011 $ 1,123,513
=========== ===========
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 29,
1999 1999
---------- -----------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Current portion of long-term debt $ 270 $ 39
Accounts payable 244,679 176,234
Accrued compensation and benefits 32,236 25,029
Other current liabilities 45,923 27,982
----------- -----------
Total current liabilities 323,108 229,284
Long-Term Debt 529,350 402,203
Deferred Income Taxes 3,687 4,711
Other Noncurrent Liabilities 5,140 3,359
----------- -----------
Total liabilities 861,285 639,557
----------- -----------
Commitments and Contingencies
Shareholders' Equity:
Preferred stock -- --
Common stock - 24,253,489 and 24,183,834 shares issued 24,253 24,184
Capital in excess of par value 221,274 219,558
Retained earnings 291,029 242,730
Treasury stock, 730,950 and no shares, at cost (16,865) --
Unearned compensation related to outstanding restricted stock (6,965) (2,516)
----------- -----------
Total shareholders' equity 512,726 483,956
----------- -----------
$ 1,374,011 $ 1,123,513
=========== ===========
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,
1999 1998
--------- ---------
Net Sales $ 786,379 $ 659,045
Cost of Sales 607,731 512,406
--------- ---------
Gross Profit 178,648 146,639
--------- ---------
Operating Expenses:
Selling, general and administrative 130,056 104,012
Depreciation and amortization 7,549 5,810
Provision for doubtful accounts 785 562
--------- ---------
Total operating expenses 138,390 110,384
--------- ---------
Operating Income 40,258 36,255
--------- ---------
Non-Operating Income and (Expenses):
Interest and other income 2,000 1,518
Interest expense (8,235) (6,341)
--------- ---------
(6,235) (4,823)
--------- ---------
Income Before Income Taxes 34,023 31,432
Income Taxes 13,780 12,282
--------- ---------
Net Income $ 20,243 $ 19,150
========= =========
Earnings Per Share:
Basic $ .87 $ .80
========= =========
Diluted $ .87 $ .79
========= =========
Average Shares Outstanding:
Basic 23,214 23,989
========= =========
Diluted 23,349 24,204
========= =========
Dividends Per Share $ .085 $ .085
========= =========
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,
1999 1998
----------- -----------
Net Sales $ 2,272,563 $ 1,935,626
Cost of Sales 1,761,384 1,510,869
----------- -----------
Gross Profit 511,179 424,757
----------- -----------
Operating Expenses:
Selling, general and administrative 379,213 309,616
Depreciation and amortization 21,500 16,919
Provision for doubtful accounts 3,055 1,888
----------- -----------
Total operating expenses 403,768 328,423
----------- -----------
Operating Income 107,411 96,334
----------- -----------
Non-Operating Income and (Expenses):
Interest and other income 6,728 4,747
Interest expense (22,537) (18,950)
----------- -----------
(15,809) (14,203)
----------- -----------
Income Before Income Taxes 91,602 82,131
Income Taxes 37,099 31,605
----------- -----------
Net Income $ 54,503 $ 50,526
----------- -----------
Earnings Per Share:
Basic $ 2.32 $ 2.12
=========== ===========
Diluted $ 2.31 $ 2.10
=========== ===========
Average Shares Outstanding:
Basic 23,458 23,840
=========== ===========
Diluted 23,606 24,085
=========== ===========
Dividends Per Share $ .255 $ .245
=========== ===========
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,
1999 1998
--------- ---------
Cash Flows from Operating Activities:
Net income $ 54,503 $ 50,526
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation and amortization 21,500 16,919
Provision for doubtful accounts 3,055 1,888
Other, net (728) (249)
Changes in assets and liabilities, net of effects of business acquisitions:
(Increase) in accounts receivable (73,708) (69,053)
(Increase) in inventories (48,407) (18,327)
(Increase) in other current assets (407) (9,589)
(Increase) in other assets (6,236) (3,809)
Increase in accounts payable and accrued liabilities 65,296 17,258
Increase in accrued interest and income taxes 11,585 7,573
Increase in other noncurrent liabilities 43 3,652
(Increase) decrease in net deferred income taxes (4,155) 1,049
--------- ---------
Net cash provided by (used in) operating activities 22,341 (2,162)
--------- ---------
Cash Flows from Investing Activities:
Capital expenditures (23,704) (20,753)
Proceeds from sale of property and equipment 4,049 6,216
Business acquisitions, net of cash (86,501) (9,507)
--------- ---------
Net cash used in investing activities (106,156) (24,044)
--------- ---------
Cash Flows from Financing Activities:
Net borrowings (payments) under short-term debt arrangements 127,072 (5,145)
Principal payments on debt of acquired entities (14,646) (11,345)
Proceeds from issuance of long-term debt -- 50,000
Dividends paid (6,043) (6,783)
Purchase of treasury stock (21,229) --
Other 677 (712)
--------- ---------
Net cash provided by financing activities 85,831 26,015
--------- ---------
Net Increase (Decrease) in Cash and Cash Equivalents 2,016 (191)
Cash and Cash Equivalents, Beginning of Period 6,010 8,204
--------- ---------
Cash and Cash Equivalents, End of Period $ 8,026 $ 8,013
========= =========
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, 1999, the results of
operations for the three and nine months ended October 31, 1999 and
1998, and cash flows for the nine months then ended. The results of
operations for the three and nine months ended October 31, 1999 are not
necessarily indicative of the results that may be expected for the full
year.
The fiscal year of the Company is a 52-week period ending on the last
Friday in January. The three and nine months ended October 31, 1999 and
1998 each contained 13 weeks and 39 weeks, respectively.
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. In calculating diluted earnings per share, the weighted-average
number of shares outstanding was adjusted to include dilutive potential
common shares of 135,000 and 215,000 for the three months ended October
31, 1999 and 1998, respectively, and 148,000 and 245,000 for the nine
months ended October 31, 1999 and 1998, respectively.
2. During the nine months ended October 31, 1999, the Company acquired six
wholesale distributors of materials to the construction industry that
were accounted for as purchases. Cash payments for these acquisitions
totaled $86.5 million, which resulted in $64.5 million being recorded as
the excess of cost over the fair value of net assets acquired. This
excess of cost over net assets acquired is being amortized by the
straight-line method over 15 to 40 years. These acquisitions,
individually and in the aggregate, did not have a material effect on the
consolidated financial statements of the Company. Results of operations
of these companies from their respective dates of acquisition have been
included in the consolidated financial statements.
3. On March 15, 1999, the Board of Directors authorized the Company to
repurchase up to 2.5 million of its outstanding shares of common stock.
During the nine months ended October 31, 1999, the Company repurchased
921,100 shares of its common stock for a total cost of $21.2 million at
an average purchase price of $23.05 per share.
Page 8
HUGHES SUPPLY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(UNAUDITED) (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
4. On March 1, 1999, the Company entered into two new lines of credit for
short-term borrowing totaling $25,000. These lines of credit in effect
replace the Company's $25,000 line of credit established on September
30, 1998. There were no amounts outstanding under these lines of credit
as of October 31, 1999.
On September 29, 1999, the Company executed amendments to its January
26, 1999 credit agreement. As a result of these amendments, the
revolving credit facility was increased by $50,000 and the termination
date of the line of credit agreement was extended to July 24, 2000.
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 affected the financial condition of the Company as of October 31,
1999, and the results of operations for the three and nine months then ended.
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 subsequently defined),
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 29,
1999.
MATERIAL CHANGES IN RESULTS OF OPERATIONS
NET SALES
Net sales were $786 million for the quarter ended October 31, 1999, a 19%
increase over the prior year's third quarter. Net sales for the nine months
ended October 31, 1999 were $2.3 billion, a 17% increase over the first nine
months of the prior fiscal year. The majority of the increase in net sales for
the three and nine month periods was attributable to branches acquired and
opened after January 31, 1998. The remainder of the increase was attributable to
same-store sales, which were up 8% and 6% for the three and nine months ended
October 31, 1999, respectively.
The increase in same-store sales for the nine month period was attributable to
the (i) continued overall strength of the construction market, (ii) increases in
pool and spa product sales due to increased market penetration and (iii) growth
in electric utility product sales resulting from increased spending by utility
companies due to the anticipated deregulation within their industry. These
increases were partially offset by declines in industrial product demand and
deflationary pricing within certain of the Company's commodity-based products.
For the third
Page 10
quarter, same-store sales growth improved by five percentage points to 8%, up
from the 3% growth experienced in the Company's second quarter. This increase
was attributable to the (i) continued overall strength of the construction
markets, (ii) the receipt of water and sewer products that were in a shortage of
supply during the second quarter and (iii) improved pricing with respect to
certain of the Company's commodity-based products.
GROSS PROFIT
Gross profit and gross margin for the three and nine months ended October 31,
1999 and 1998 were as follows (dollars in thousands):
1999 1998
------------------ ------------------ VARIANCE
GROSS GROSS GROSS GROSS -----------------
PROFIT MARGIN PROFIT MARGIN AMOUNT %
-------- ------ -------- ------ -------- -----
Three months ended $178,648 22.7% $146,639 22.3% $ 32,009 21.8%
Nine months ended $511,179 22.5% $424,757 21.9% $ 86,422 20.3%
The improvement in gross margins resulted from several factors, including the
Company's expansion of higher-margin product groups through acquisitions,
efficiencies created with central distribution centers and enhanced purchasing
power. The enhanced purchasing power was attributable to increased volume and
concentration of supply sources as part of the Company's preferred vendor
program.
Although the gross margin percentage increased for the nine months ended October
31, 1999, total gross profit dollars for the period was negatively impacted by
declines in pricing of certain commodity-based products. The lower pricing was
the result of deflationary pressure over the past year on the pricing of certain
of the Company's products whose manufacture is reliant on certain commodities,
including stainless steel, nickel alloys, copper, aluminum and plastic. For the
third quarter, the Company experienced a slight overall improvement in pricing
for these products, which resulted in a positive effect on total gross profit
dollars.
OPERATING EXPENSES
Operating expenses for the three and nine months ended October 31, 1999 and 1998
were as follows (dollars in thousands):
1999 1998
------------------- ------------------- VARIANCE
% OF % OF ------------------
AMOUNT NET SALES AMOUNT NET SALES AMOUNT %
-------- --------- -------- --------- -------- -----
Three months ended $138,390 17.6% $110,384 16.7% $ 28,006 25.4%
Nine months ended $403,768 17.8% $328,423 17.0% $ 75,345 22.9%
The increases in operating expenses as a percent of net sales for the three and
nine month periods ended October 31, 1999 were primarily due to (i) higher
personnel costs in connection with increased personnel headcount resulting from
higher volume levels of activity, wage increases, and the Company's employee
retention activities and (ii) increased information technology spending and
conversion costs as the Company continues its program of upgrading
Page 11
information technology systems. The Company believes its investment in these
initiatives will provide a platform for future growth and enable it to realize
more administrative synergies from past and future acquisitions.
INTEREST EXPENSE
Interest expense was $8.2 million and $22.5 million for the three and nine month
periods ended October 31, 1999, respectively, compared to $6.3 million and $19.0
million for the same periods in the prior year, respectively. The increases were
primarily the result of higher borrowing levels, partially offset by lower
interest rates. The higher borrowing levels were primarily due to the Company's
(i) expansion through business acquisitions, which has been funded by debt
financing, and (ii) share repurchases.
INCOME TAXES
The effective income tax rates for the three and nine month periods ended
October 31, 1999 and 1998 were as follows:
1999 1998
------ ------
Three months ended 40.5% 39.1%
Nine months ended 40.5% 38.5%
The increases in effective rates for the three and nine month periods are
primarily the result of increased levels of non-deductible goodwill associated
with the Company's acquisition program. Another factor in the increase for the
nine month period was the Company's merger with Winn-Lange Electric, Inc.
("Winn-Lange") on June 30, 1998. Prior to the merger, Winn-Lange was a
Subchapter S corporation and therefore, not subject to corporate income tax.
Winn-Lange's Subchapter S corporation status terminated upon the merger with the
Company.
NET INCOME
Net income for the third quarter increased 6% to $20.2 million. Diluted earnings
per share for the quarter was $0.87 compared to $0.79, a 10% increase over the
prior year period.
For the nine months ended October 31, 1999, net income was $54.5 million, an 8%
increase over the prior year's comparable period. Diluted earnings per share for
the nine months ended October 31, 1999 increased 10% to $2.31, up from $2.10 in
the prior year's comparable period.
LIQUIDITY AND CAPITAL RESOURCES
Net cash provided by operations was $22.3 million for the nine months ended
October 31, 1999 compared to $2.2 million of net cash used in operations for the
nine months ended October 31, 1998. This change was primarily the result of an
increase in accounts payable and accrued liabilities resulting from the
Company's cash management efforts.
Page 12
The Company's expenditures for property and equipment were $23.7 million for the
nine months ended October 31, 1999 compared to $20.8 million for the nine months
ended October 31, 1998. Of these expenditures, $3.3 million and $4.3 million,
respectively, were related to information technology outlays. Capital
expenditures for property and equipment, excluding amounts for business
acquisitions, are expected to be approximately $30 million for fiscal 2000.
Proceeds from the sale of property and equipment decreased from $6.2 million for
the nine months ended October 31, 1998 to $4.0 million for the nine months ended
October 31, 1999. This decrease was primarily due to the $5.4 million in
proceeds received from the sale and subsequent lease-back of certain computer
hardware during the nine months ended October 31, 1998, as compared to the $2.5
million in proceeds received during the nine months ended October 31, 1999 from
the sale and subsequent lease-back of certain computer hardware.
Cash payments for business acquisitions accounted for as purchases totaled $86.5
million for the nine months ended October 31, 1999 compared to $9.5 million in
the prior year period. These outlays represent six wholesale distributors
acquired and accounted for as purchases in the current nine month period and
three wholesale distributors acquired as such in the prior year period.
Principal reductions on debt of acquired entities were $14.6 million for the
nine months ended October 31, 1999 compared to $11.3 million for the same period
in the prior year. Dividend payments were $6.0 million and $6.8 million during
the nine months ended October 31, 1999 and 1998, respectively. Dividend payments
of $6.8 million during the nine months ended October 31, 1998 included cash
dividends of pooled companies totaling $1.2 million.
On March 15, 1999, the Board of Directors authorized the Company to repurchase
up to 2.5 million of its outstanding shares of common stock. During the nine
months ended October 31, 1999, the Company repurchased 921,100 shares of its
common stock for a total cost of $21.2 million at an average purchase price of
$23.05 per share.
In March 1999, the Company entered into two new lines of credit for short-term
borrowing totaling $25,000. These lines of credit in effect replace the
Company's $25,000 line of credit established on September 30, 1998. There were
no amounts outstanding under these lines of credit as of October 31, 1999.
In September 1999, the Company executed amendments to its January 26, 1999
credit agreement. As a result of these amendments, the revolving credit facility
was increased by $50,000 and the termination date of the line of credit
agreement was extended to July 24, 2000.
As of October 31, 1999, the Company had approximately $74 million of unused
borrowing capacity (subject to borrowing limitations under long-term debt
covenants) to fund ongoing operating requirements and anticipated capital
expenditures. The Company also believes it has sufficient borrowing capacity to
take advantage of growth and business acquisition opportunities and to fund
share repurchases in the near term. The Company expects to continue to finance
Page 13
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 were implemented using internal personnel.
The Company's internal systems consist of its main 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.
All required modifications to the Company's main operating system were completed
in December 1998. This system was thoroughly tested and the modifications were
implemented into the production environment. The Company has installed an
upgraded, vendor-certified year 2000 compliant version of its accounting system.
The Company's own internal verification and validation testing for year 2000
compliance of the accounting system was completed in May 1999. With respect to
these two systems, the Company does not anticipate that the Year 2000 Issue will
materially impact its operations or operating results.
As of November 11, 1999, the Company had 14 remote operating systems in place.
One of these systems utilizes a customized business software application that
the Company has successfully tested for year 2000 compliance. The remaining 13
systems utilize commercially available business software applications that are
certified year 2000 compliant by their vendors.
The Company has successfully completed its own internal verification and
validation testing for year 2000 compliance on nine of the thirteen
vendor-certified year 2000 compliant systems that are expected to be in use on
January 1, 2000. The tested systems support over 98% of the Company's business
volume. Vendor certification has been accepted on the remaining four systems and
no internal verification and validation testing will be performed by the
Company.
With respect to all the business systems and the accounting system, the Company
does not anticipate that the Year 2000 Issue will materially impact its
operations or operating results.
Currently, the Company does not anticipate the addition of any remote operating
systems after November 11, 1999. In the event any additional 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, or converted to one of the Company's systems that is expected to be
year 2000 compliant.
Page 14
Management estimates total pretax costs relating to the Year 2000 Issue to be
approximately $2 million. Approximately 55% of these costs were incurred through
October 31, 1999 and the remaining costs are expected to be incurred through
March 2000. The estimate of $2 million excludes certain costs of converting
remote operating systems to the Company's other year 2000 compliant 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 has contacted its major suppliers, customers and service providers
regarding their Year 2000 Issues to assess the risk of these entities not being
able to continue to provide goods and services to the Company. The Company will
continue to evaluate the year 2000 readiness of its major suppliers, customers
and service providers.
The Company believes its planning efforts are adequate to address the Year 2000
Issue. There are, however, certain risks that the Company 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. There can be no guarantee 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.
As the Company receives and evaluates additional information provided by third
parties regarding their year 2000 readiness, 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 creditworthiness of non-compliant
customers and the addition of borrowing capacity if deemed necessary to finance
higher levels of inventory or working capital on an interim basis.
Page 15
HUGHES SUPPLY, INC.
PART I. FINANCIAL INFORMATION - CONTINUED
Item 3. Quantitative and Qualitative Disclosures about Market Risk
The Company is exposed to market risk from changes in (i) interest rates on
outstanding variable-rate debt and (ii) the prices of certain of the Company's
products whose manufacture is reliant on certain commodities.
INTEREST RATE RISK
At October 31, 1999, the Company had approximately $301.3 million of outstanding
variable-rate debt. Based upon an assumed 10% increase or decrease in interest
rates from their October 31, 1999 levels, the market risk with respect to the
Company's variable-rate debt would not be material. The Company manages its
interest rate risk by maintaining a combination of fixed-rate and variable-rate
debt.
COMMODITY PRICE RISK
The Company is affected by price fluctuations in stainless steel, nickel alloys,
copper, aluminum, plastic and other commodities. Such commodity price
fluctuations have from time to time created cyclicality in the financial
performance of the Company and could continue to do so in the future. The
Company seeks to minimize the effects of commodity price fluctuations through
(i) economies of purchasing and inventory management resulting in cost
reductions, maintenance of minimum economic reorder points, and productivity
improvements and (ii) price increases to maintain reasonable profit margins.
Additional information with respect to the Company's commodity price risk is set
forth under the caption "Management's Discussion and Analysis of Financial
Condition and Results of Operations" in Part I, Item 2 of this report.
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.
3.3 Form of Articles of Amendment to Restated Articles of
Incorporation of the Company, incorporated by reference to
Exhibit 99.2 to Form 8-A dated May 22, 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 the
Registrant, 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).
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).
Page 18
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.
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 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).
10.8 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).
10.9 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).
10.10 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).
Page 19
10.11 Revolving Credit Agreement, dated as of January 26, 1999 and
amended on September 29, 1999, by and among the Company and a
group of banks. The Revolving 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.
10.12 Line of Credit Agreement, dated as of January 26, 1999 and
amended on September 29, 1999, by and among the Company and a
group of banks. The Line of 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.
(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.
(b) REPORTS ON FORM 8-K
-------------------
There were no reports on Form 8-K filed during the quarter ended
October 31, 1999.
Page 20
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 13, 1999 By: /S/ DAVID H. HUGHES
-----------------------
David H. Hughes, Chairman of
the Board and Chief Executive
Officer
Date: December 13, 1999 By: /S/ J. STEPHEN ZEPF
-----------------------
J. Stephen Zepf, Treasurer,
Chief Financial Officer and
Chief Accounting Officer
Page 21
INDEX OF EXHIBITS FILED WITH THIS REPORT
----------------------------------------
3.2 Composite By-Laws, as amended.
10.4 Directors' Stock Option Plan, as amended.
10.11 Revolving Credit Agreement, dated as of January 26, 1999 and amended
on September 29, 1999, by and among the Company and a group of banks.
The Revolving 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.
10.12 Line of Credit Agreement, dated as of January 26, 1999 and amended on
September 29, 1999, by and among the Company and a group of banks. The
Line of 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.
27.1 Financial Data Schedule (filed electronically only).
Page 22