UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
| x | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended April 30, 2004
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 Number 001-08772
HUGHES SUPPLY, INC.
(Exact name of registrant as specified in its charter)
| Florida | 59-0559446 | |
| (State or other jurisdiction of incorporation or organization) |
(I.R.S. Employer Identification No.) |
Corporate Office
One Hughes Way
Orlando, Florida 32805
(Address of principal executive offices)
(407) 841-4755
(Registrant’s telephone number, including area code)
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 by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act).
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 June 4, 2004 | |
| $1 Par Value |
30,734,439 |
FORM 10-Q
INDEX
| Page(s) | ||||
| Item 1. |
||||
| 3 | ||||
| Consolidated Balance Sheets as of April 30, 2004 (unaudited) and January 30, 2004 |
4 | |||
| 5 | ||||
| 6–13 | ||||
| Item 2. |
Management’s Discussion and Analysis of Financial Condition and Results of Operations |
14–24 | ||
| Item 3. |
24 | |||
| Item 4. |
24 | |||
| Item 2. |
Changes in Securities, Use of Proceeds and Issuer Purchases of Equity Securities |
25 | ||
| Item 6. |
25 | |||
| 26 | ||||
2
Consolidated Statements of Income (unaudited)
(in millions, except per share data)
| Three Months Ended |
||||||||
| April 30, 2004 |
May 2, 2003 |
|||||||
| Net Sales |
$ | 992.8 | $ | 782.8 | ||||
| Cost of Sales |
751.7 | 607.4 | ||||||
| Gross Margin |
241.1 | 175.4 | ||||||
| Operating Expenses: |
||||||||
| Selling, general and administrative |
184.5 | 144.4 | ||||||
| Depreciation and amortization |
6.0 | 5.1 | ||||||
| Total operating expenses |
190.5 | 149.5 | ||||||
| Operating Income |
50.6 | 25.9 | ||||||
| Non-Operating Income (Expenses): |
||||||||
| Interest and other income |
1.7 | 1.5 | ||||||
| Interest expense |
(6.3 | ) | (7.7 | ) | ||||
| (4.6 | ) | (6.2 | ) | |||||
| Income Before Income Taxes |
46.0 | 19.7 | ||||||
| Income Taxes |
16.2 | 7.9 | ||||||
| Net Income |
$ | 29.8 | $ | 11.8 | ||||
| Earnings Per Share: |
||||||||
| Basic |
$ | 1.00 | $ | 0.52 | ||||
| Diluted |
$ | 0.97 | $ | 0.51 | ||||
| Weighted-Average Shares Outstanding: |
||||||||
| Basic |
29.9 | 22.8 | ||||||
| Diluted |
30.9 | 23.1 | ||||||
| Dividends Declared Per Share |
$ | 0.13 | $ | 0.10 | ||||
The accompanying notes are an integral part of these consolidated financial statements.
3
Consolidated Balance Sheets
(in millions, except share and per share data)
| April 30, 2004 |
January 30, 2004 |
|||||||
| Assets |
||||||||
| Current Assets: |
||||||||
| Cash and cash equivalents |
$ | 9.4 | $ | 8.3 | ||||
| Accounts receivable, less allowance for doubtful accounts of $7.9 and $6.5 |
572.5 | 493.3 | ||||||
| Inventories |
524.0 | 467.0 | ||||||
| Deferred income taxes |
20.5 | 19.4 | ||||||
| Other current assets |
41.8 | 53.0 | ||||||
| Total current assets |
1,168.2 | 1,041.0 | ||||||
| Property and Equipment, Net |
110.1 | 161.8 | ||||||
| Goodwill |
610.1 | 609.8 | ||||||
| Other Assets |
69.8 | 68.7 | ||||||
| Total assets |
$ | 1,958.2 | $ | 1,881.3 | ||||
| Liabilities and Shareholders’ Equity |
||||||||
| Current Liabilities: |
||||||||
| Current portion of long-term debt |
$ | 45.2 | $ | 44.6 | ||||
| Accounts payable |
406.6 | 308.3 | ||||||
| Accrued compensation and benefits |
20.3 | 39.3 | ||||||
| Other current liabilities |
71.7 | 45.2 | ||||||
| Total current liabilities |
543.8 | 437.4 | ||||||
| Long-Term Debt |
301.7 | 368.7 | ||||||
| Deferred Income Taxes |
54.5 | 55.4 | ||||||
| Other Noncurrent Liabilities |
17.6 | 7.8 | ||||||
| Total liabilities |
917.6 | 869.3 | ||||||
| Commitments and Contingencies |
||||||||
| Shareholders’ Equity: |
||||||||
| Preferred stock, no par value; 10,000,000 shares authorized; none issued |
— | — | ||||||
| Common stock, par value $1 per share; 100,000,000 shares authorized; 30,795,077 and 30,795,577 shares issued |
30.8 | 30.8 | ||||||
| Capital in excess of par value |
533.6 | 533.3 | ||||||
| Retained earnings |
492.1 | 465.1 | ||||||
| Treasury stock, 128,950 and 216,952 shares, at cost |
(3.3 | ) | (5.5 | ) | ||||
| Unearned compensation related to outstanding restricted stock |
(12.6 | ) | (11.7 | ) | ||||
| Total shareholders’ equity |
1,040.6 | 1,012.0 | ||||||
| Total liabilities and shareholders’ equity |
$ | 1,958.2 | $ | 1,881.3 | ||||
The accompanying notes are an integral part of these consolidated financial statements.
4
Consolidated Statements of Cash Flows (unaudited)
(in millions)
| Three Months Ended |
||||||||
| April 30, 2004 |
May 2, 2003 |
|||||||
| Cash Flows from Operating Activities: |
||||||||
| Net income |
$ | 29.8 | $ | 11.8 | ||||
| Adjustments to reconcile net income to net cash provided by (used in) operating activities: |
||||||||
| Depreciation and amortization |
6.0 | 5.1 | ||||||
| Provision for doubtful accounts |
2.8 | 2.0 | ||||||
| Amortization of restricted stock |
0.9 | 0.6 | ||||||
| Deferred income taxes |
(2.0 | ) | 7.4 | |||||
| Other |
(0.1 | ) | 0.2 | |||||
| Changes in assets and liabilities: |
||||||||
| Accounts receivable |
(82.0 | ) | (38.7 | ) | ||||
| Inventories |
(57.0 | ) | (28.0 | ) | ||||
| Other current assets |
11.9 | 6.0 | ||||||
| Other assets |
(0.8 | ) | (1.2 | ) | ||||
| Accounts payable |
106.9 | 44.5 | ||||||
| Accrued compensation and benefits |
(19.0 | ) | (19.7 | ) | ||||
| Other current liabilities |
24.9 | 5.4 | ||||||
| Other noncurrent liabilities |
1.2 | 1.0 | ||||||
| Net cash provided by (used in) operating activities |
23.5 | (3.6 | ) | |||||
| Cash Flows from Investing Activities: |
||||||||
| Capital expenditures |
(4.2 | ) | (5.3 | ) | ||||
| Proceeds from sale of property and equipment |
37.0 | 0.1 | ||||||
| Net cash provided by (used in) investing activities |
32.8 | (5.2 | ) | |||||
| Cash Flows from Financing Activities: |
||||||||
| Net (payments) borrowings under short-term debt arrangements |
(43.7 | ) | 20.8 | |||||
| Principal payments on other debt |
(1.5 | ) | (2.6 | ) | ||||
| Change in book overdrafts |
(8.6 | ) | 0.3 | |||||
| Dividends paid |
(3.1 | ) | (2.4 | ) | ||||
| Purchase of treasury shares |
— | (6.0 | ) | |||||
| Other |
1.7 | (1.0 | ) | |||||
| Net cash (used in) provided by financing activities |
(55.2 | ) | 9.1 | |||||
| Net Increase in Cash and Cash Equivalents |
1.1 | 0.3 | ||||||
| Cash and Cash Equivalents, Beginning of Period |
8.3 | 1.7 | ||||||
| Cash and Cash Equivalents, End of Period |
$ | 9.4 | $ | 2.0 | ||||
The accompanying notes are an integral part of these consolidated financial statements.
5
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
Note 1. Basis of Presentation
In our opinion, the accompanying unaudited consolidated financial statements contain all adjustments (consisting only of normal recurring adjustments) necessary to present fairly our results of operations for the three months ended April 30, 2004 and May 2, 2003, our financial position as of April 30, 2004, and cash flows for the three months ended April 30, 2004 and May 2, 2003. The results of operations for the three months ended April 30, 2004 are not necessarily indicative of the trends or results that may be expected for the full year. Certain information and disclosures normally included in the notes to the annual consolidated financial statements have been omitted from these interim consolidated financial statements. Accordingly, these interim consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in our Annual Report on Form 10-K (the “Annual Report”) for the fiscal year ended January 30, 2004, as filed with the Securities and Exchange Commission.
Business
Founded in 1928, we are one of the largest diversified wholesale distributors of construction, repair and maintenance-related products. We distribute over 350,000 products to more than 100,000 customers through approximately 500 branches located in 38 states. Our principal customers include electrical, plumbing and mechanical contractors; public utilities; property management companies; municipalities; and industrial companies. Although we have a national presence, we operate principally in the southeastern and southwestern United States.
Fiscal Year
Our fiscal year is a 52 or 53-week period ending on the last Friday in January. Fiscal year 2005 is a 52-week period as was fiscal year 2004. The three months ended April 30, 2004 and May 2, 2003 each contained 13 weeks.
Reclassifications
Certain prior year amounts in the consolidated financial statements have been reclassified to conform to the current year presentation. These reclassifications had no net impact on previously reported results of operations.
Recent Accounting Pronouncements
On March 31, 2004, the Financial Accounting Standards Board (“FASB”) issued an exposure draft, Share-Based Payment, an Amendment of FASB Statements No. 123 and 95. The proposed change in accounting would replace existing requirements under Statement of Financial Accounting Standards (“FAS”) 123, Accounting for Stock-Based Compensation, and Accounting Principles Board (“APB”) Opinion 25, Accounting for Stock Issued to Employees. The exposure draft covers a wide range of equity-based compensation arrangements. Under the FASB’s proposal, all forms of share-based payments to employees, including employee stock options, would be treated the same as other forms of compensation by recognizing the related cost in the income statement. The expense of the award would generally be measured at fair value at the grant date. The comment period for the exposure draft ends on June 30, 2004, and final rules are expected to be issued in late 2004. The standard would be applicable for fiscal years beginning after December 15, 2004. We are currently evaluating the impact of the proposed change in accounting, but will not know the ultimate impact until the final rules are issued.
In December 2003, a revision to FASB Interpretation 46, Consolidation of Variable Interest Entities, an Interpretation of ARB No. 51, (“FIN 46R”) was issued to clarify some of the provisions of the interpretation and to exempt certain entities from its requirements. Adoption of the provisions of FIN 46R is required for interim periods ending after March 15, 2004. Our adoption of FIN 46R in the first quarter of fiscal year 2005 did not have an impact on our consolidated financial statements.
6
Note 2. Business Combinations
As more fully disclosed in Note 2 of the notes to the consolidated financial statements in our fiscal year 2004 Annual Report, on December 19, 2003, we acquired Century Maintenance Supply, Inc. (“Century”), a leading supplier of maintenance, repair and operations products serving the multi-family market throughout the United States. The results of Century’s operations have been included in our consolidated statements of income since December 19, 2003. Unaudited operating results of operations for the three months ended April 30, 2004 compared to the pro forma operating results of operations for the three months ended May 2, 2003, assuming the acquisition of Century had been completed as of the beginning of fiscal year 2004, are as follows (in millions except per share data):
| Three Months Ended | ||||||
| April 30, 2004 |
May 2, 2003 | |||||
| Net sales |
$ | 992.8 | $ | 853.3 | ||
| Operating income |
50.6 | 32.0 | ||||
| Net income |
29.8 | 12.8 | ||||
| Earnings per share: |
||||||
| Basic |
$ | 1.00 | $ | 0.56 | ||
| Diluted |
$ | 0.97 | $ | 0.55 | ||
The pro forma results have been prepared for comparative purposes only and do not purport to be indicative of what would have occurred had the acquisition been made at the beginning of the period presented or the results which may occur in the future.
Note 3. Stock-Based Compensation
We account for our stock option plans using the intrinsic value based method of accounting, under which no compensation expense has been recognized for stock option awards granted at fair market value. For purposes of pro forma disclosures under FAS 123, Accounting for Stock-Based Compensation, as amended by FAS 148, Accounting for Stock-Based Compensation- Transition and Disclosure, the estimated fair value of the stock options is amortized to compensation expense over the options’ vesting period. The following table illustrates the effect on net income and earnings per share if the fair value based method had been applied to all outstanding and unvested awards in each period (in millions except per share data):