For the quarterly period ended April 30, 2004

-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, U0cL1HSGGHHcGsB4iBB++Wa6PQ4SDOnGQ2jz8Aj13+8Cv3QhmM89WOqRaUxBsa8p vrmNG2AqRB4h6t9dzTH/Vw== 0001193125-04-100965.txt : 20040609 0001193125-04-100965.hdr.sgml : 20040609 20040609170401 ACCESSION NUMBER: 0001193125-04-100965 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 6 CONFORMED PERIOD OF REPORT: 20040430 FILED AS OF DATE: 20040609 FILER: COMPANY DATA: COMPANY CONFORMED NAME: HUGHES SUPPLY INC CENTRAL INDEX KEY: 0000049029 STANDARD INDUSTRIAL CLASSIFICATION: WHOLESALE-HARDWARE & PLUMBING & HEATING EQUIPMENT & SUPPLIES [5070] IRS NUMBER: 590559446 STATE OF INCORPORATION: FL FISCAL YEAR END: 0130 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-08772 FILM NUMBER: 04856484 BUSINESS ADDRESS: STREET 1: CORPORATE OFFICE STREET 2: ONE HUGHES WAY CITY: ORLANDO STATE: FL ZIP: 32805 BUSINESS PHONE: 4078414755 MAIL ADDRESS: STREET 1: CORPORATE OFFICE STREET 2: ONE HUGHES WAY CITY: ORLANDO STATE: FL ZIP: 32805 10-Q 1 d10q.htm FOR THE QUARTERLY PERIOD ENDED APRIL 30, 2004 For the quarterly period ended April 30, 2004

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended April 30, 2004

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

HUGHES SUPPLY, INC.

FORM 10-Q

INDEX


		Page(s)
PART I. FINANCIAL INFORMATION

Item 1.	Financial Statements

	Consolidated Statements of Income (unaudited) for the Three Months Ended April 30, 2004 and May 2, 2003	3

	Consolidated Balance Sheets as of April 30, 2004 (unaudited) and January 30, 2004	4

	Consolidated Statements of Cash Flows (unaudited) for the Three Months Ended April 30, 2004 and May 2, 2003	5

	Notes to Consolidated Financial Statements (unaudited)	6–13

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	14–24

Item 3.	Quantitative and Qualitative Disclosures about Market Risk	24

Item 4.	Controls and Procedures	24

PART II. OTHER INFORMATION

Item 2.	Changes in Securities, Use of Proceeds and Issuer Purchases of Equity Securities	25

Item 6.	Exhibits and Reports on Form 8-K	25

SIGNATURES		26

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

HUGHES SUPPLY, INC.

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.

HUGHES SUPPLY, INC.

Consolidated Balance Sheets

(in millions, except share and per share data)


	April 30, 2004 (unaudited)			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.

HUGHES SUPPLY, INC.

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.

HUGHES SUPPLY, INC.

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.

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):


	Three Months Ended
	April 30, 2004			May 2, 2003
Net income as reported	$	29.8		$	11.8
Deduct: Total stock-based compensation expense determined under the fair value based method for all awards, net of related tax effects		(1.1	)		(0.7	)

Pro forma net income	$	28.7		$	11.1

Earnings per share:
Basic—as reported	$	1.00		$	0.52

Basic—pro forma	$	0.96		$	0.49

Diluted—as reported	$	0.97		$	0.51

Diluted—pro forma	$	0.93		$	0.48

The fair value of each stock option is estimated on the date of grant using the Black-Scholes option-pricing model with the following weighted-average assumptions for grants issued during the three months ended April 30, 2004 and May 2, 2003:


	Three Months Ended
	April 30, 2004		May 2, 2003
Risk-free interest rates	3.0	%	3.6	%
Dividend yield	1.0	%	1.5	%
Expected volatility	43.2	%	42.5	%
Expected stock option lives	5		8

The weighted-average estimated fair value of employee stock options granted was $19.30 and $10.38 per share for the three months ended April 30, 2004 and May 2, 2003, respectively.

The Black-Scholes option-pricing model was developed for use in estimating the fair value of traded options that have no vesting restrictions and are fully transferable. Option-pricing models require the input of highly subjective assumptions, including the expected stock price volatility. Because our stock options have characteristics significantly different from those of traded options, and because changes in the subjective input assumptions could materially affect the fair value estimate, in our opinion, the existing models do not necessarily provide a reliable single measure of the fair value of our stock options.

Note 4. Branch Closures and Consolidation Activities

As more fully disclosed in Note 5 of the notes to the consolidated financial statements in our fiscal year 2004 Annual Report, we approved plans to relocate our corporate offices and to close and consolidate certain branches that did not strategically fit into our core businesses and/or did not perform to our expectations. The liability balance, included in other current liabilities, related to these activities as of the three months ended April 30, 2004 and the year ended January 30, 2004 was as follows (in millions):


	April 30, 2004			January 30, 2004
Beginning balance	$	4.1		$	1.2
Provision		—			4.4
Cash expenditures:
Lease		(0.6	)		(1.4	)
Other		(0.1	)		(0.1	)

Ending balance	$	3.4		$	4.1

Note 5. Long-Term Debt

Long-term debt at April 30, 2004 and January 30, 2004 consisted of the following (in millions):


	April 30, 2004			January 30, 2004
8.27% senior notes, due 2005	$	11.2		$	11.2
8.42% senior notes, due 2007		82.4			82.4
7.96% senior notes, due 2011		70.0			70.0
7.14% senior notes, due 2012		32.4			32.4
7.19% senior notes, due 2012		40.0			40.0
6.74% senior notes, due 2013		45.2			45.2
Unsecured bank notes under $290.0 revolving credit agreement, payable March 26, 2007, with an interest rate of 2.0% at April 30, 2004		23.4			100.0
Commercial paper with an interest rate of 1.5% at April 30, 2004		32.9			—
Other notes payable with varying interest rates of 2.1% to 7.6% at April 30, 2004, with due dates from 2004 to 2010		9.4			32.1

Total debt		346.9			413.3
Less current portion		(45.2	)		(44.6	)

Total long-term debt	$	301.7		$	368.7

On March 16, 2004, we entered into a sale-leaseback transaction in which we sold our corporate headquarters building in Orlando, Florida, excluding certain furniture and fixtures and other office equipment relating to the property, to a subsidiary of Wachovia Development Corporation (“WDC”) for $23.0 million and leased the property back for a period of 20 years. The proceeds from the sale approximated the net book value of the property sold and were paid by WDC to SunTrust Bank (“SunTrust”) for application against amounts outstanding under a separate real estate term credit agreement (the “credit agreement”) we had previously executed on June 5, 2002 with SunTrust. We repaid the remaining amounts outstanding under the credit agreement with SunTrust in the first quarter of fiscal year 2005. The total amount of debt extinguished in the first quarter of fiscal year 2005 under the credit agreement with SunTrust totaled approximately $24.4 million. See Note 8 for further information regarding our lease with WDC.

At April 30, 2004, we were in compliance with all financial and non-financial covenants.

Note 6. 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 includes the additional dilutive effect of our potential common shares, which include certain employee and director stock options and unvested shares of restricted stock. The following summarizes the incremental shares from these potentially dilutive common shares, calculated using the treasury method, as included in the calculation of diluted weighted-average shares:


	Three Months Ended
	April 30, 2004	May 2, 2003
Basic weighted-average shares outstanding	29,930,191	22,844,170
Incremental shares resulting from:
Stock options	457,149	75,301
Restricted stock	478,544	196,852

Diluted weighted-average shares outstanding	30,865,884	23,116,323

Excluded from the above computations of diluted weighted-average shares outstanding were 35,000 and 10,000 unvested shares of restricted common stock at average prices of $56.25 and $31.35 per share during the first quarter of fiscal years 2005 and 2004, respectively, because their effect would have been anti-dilutive. Options to purchase 873,159 shares of common stock at an average exercise price of $33.48 during the first quarter of fiscal year 2004 were excluded from the above computations of diluted weighted-average shares outstanding because their effect would have been anti-dilutive. There were no employee or director stock options that were considered to have an anti-dilutive effect in the first quarter of fiscal year 2005.

Note 7. Capital Stock

Treasury stock of 88,002 and 5,700 shares were issued under stock plans during the first quarter of fiscal years 2005 and 2004, respectively.

Note 8. Commitments and Contingencies

Lease Commitments

As discussed in Note 5, on March 16, 2004, we entered into a sale-leaseback transaction in which we sold our corporate headquarters building in Orlando, Florida to a subsidiary of WDC for $23.0 million and leased the property back for a period of 20 years. The lease expires on March 16, 2024, with five 5-year extensions exercisable at our option upon 12 months notice. We do not have an option to purchase the leased facility at the end of the minimum lease term and have not issued any residual value guarantee on the value of the leased facility. The lease is accounted for as an operating lease with future minimum annual lease payments totaling $1.2 million occurring during fiscal year 2005, $1.4 million per year occurring during fiscal years 2006 through 2009 and $25.6 million occurring thereafter.

On April 30, 2004, we completed a sale-leaseback transaction for a portfolio of properties associated with 18 different branches. The properties were sold at a price of $32.7 million and leased back pursuant to 15-year minimum term operating leases. A loss of approximately $1.3 million resulting from the sale was recognized during the first quarter of fiscal year 2005 for the branches that were sold at a price less than their net book value. A gain of approximately $9.1 million resulting from the sale was deferred and will be amortized over the minimum term of the leases for branches that were sold at a price greater than their net book value. We do not have an option to purchase the leased facilities at the end of the minimum lease terms and have not issued any residual guarantees of the value of the leased facilities. The leases are accounted for as operating leases with future minimum annual lease payments totaling $1.9 million occurring during fiscal year 2005, $2.6 million per year occurring during fiscal years 2006 through 2008, $2.7 million occurring during fiscal year 2009 and $28.8 million occurring thereafter.

Legal Matters

We are involved in various legal proceedings arising in the normal course of our business. In our opinion, none of the proceedings are material in relation to our consolidated operations, cash flows or financial position.

Note 9. Supplemental Cash Flows Information

Additional supplemental information related to the accompanying consolidated statements of cash flows is as follows (in millions):


	Three Months Ended
	April 30, 2004		May 2, 2003
Income taxes paid (refunded), net	$	2.2	$	(0.4	)
Interest paid		0.9		2.5
Debt relieved with sale-leaseback proceeds (Note 5)		23.0		—
Assets acquired with debt		1.8		5.7

During April 2004, we awarded an aggregate of 31,000 restricted shares of our common stock to certain key employees in accordance with our 1997 Executive Stock Plan. The majority of the shares vest five years from the award date. The market value of the restricted shares was $1.8 million at the date of the grant and was recorded as unearned compensation, a component of shareholders’ equity. This amount is being charged ratably to expense over the vesting period. There were no restricted stock grants made to employees during the first quarter of fiscal year 2004.

On March 9, 2004, our Board of Directors declared a quarterly cash dividend of $0.13 per share that was payable on May 14, 2004 to shareholders of record on May 3, 2004. Dividends declared but not paid totaled $4.0 million and $2.3 million at April 30, 2004 and May 2, 2003, respectively.

The income tax benefit of stock options exercised during the first quarter of fiscal year 2005 totaled $0.3 million.

Note 10. Segment Information

We are organized on a product line basis and report the results of our operations associated with our product lines in six operating segments and an Other category. The six operating segments are: Water & Sewer; Plumbing/Heating, Ventilating and Air Conditioning (HVAC); Utilities; Electrical; Maintenance, Repair and Operations (MRO); and Industrial PVF. We include our Building Materials, Fire Protection and Mechanical Industrial product lines in the Other category.

The Corporate category includes corporate level expenses not allocated to our operating segments. Inter-segment sales are excluded from net sales presented for each segment. Operating income for each segment includes certain corporate expense allocations for employee benefits, corporate overhead expenses, data processing expenses and property/casualty insurance. These allocations are based on consumption or at a standard rate determined by management.

The following table presents net sales and other financial information by segment for the first quarter of fiscal years 2005 and 2004 (in millions):


	Net Sales				Operating Income				Depreciation and Amortization
Three Months Ended	April 30, 2004		May 2, 2003		April 30, 2004		May 2, 2003		April 30, 2004		May 2, 2003
Water & Sewer	$	271.6	$	219.0	$	10.6	$	8.9	$	0.7	$	0.7
Plumbing/HVAC		220.9		205.2		5.1		1.1		0.7		0.8
Utilities		100.1		88.9		2.9		3.4		0.3		0.4
Electrical		102.3		90.4		3.6		1.9		0.2		0.3
MRO		106.9		30.6		7.2		1.2		1.2		0.1
Industrial PVF		82.7		73.1		11.5		6.6		0.2		0.2
Other		108.3		75.6		9.7		2.8		0.4		0.5
Corporate		—		—		—		—		2.3		2.1

Total	$	992.8	$	782.8	$	50.6	$	25.9	$	6.0	$	5.1

The following tables include our investment in assets (accounts receivable less allowance for doubtful accounts, inventories and goodwill) and accounts payable for each segment as of April 30, 2004 and January 30, 2004 (in millions):


	As of April 30, 2004
	Accounts Receivable		Inventories		Goodwill		Segment Assets		Accounts Payable
Water & Sewer	$	198.1	$	111.7	$	104.7	$	414.5	$	118.5
Plumbing/HVAC		120.5		127.1		50.1		297.7		98.6
Utilities		35.2		53.7		59.3		148.2		45.5
Electrical		59.7		34.3		9.0		103.0		41.7
MRO		50.2		53.1		273.1		376.4		21.8
Industrial PVF		38.5		109.4		56.4		204.3		17.7
Other		70.3		34.7		57.5		162.5		30.1
Corporate		—		—		—		—		32.7

Total	$	572.5	$	524.0	$	610.1		1,706.6	$	406.6

Cash and cash equivalents								9.4
Deferred income taxes								20.5
Other current assets								41.8
Property and equipment								110.1
Other assets								69.8

Total Assets							$	1,958.2


	As of January 30, 2004
	Accounts Receivable		Inventories		Goodwill		Segment Assets		Accounts Payable
Water & Sewer	$	161.4	$	92.8	$	104.7	$	358.9	$	78.8
Plumbing/HVAC		106.8		114.4		50.1		271.3		79.1
Utilities		30.9		46.8		59.3		137.0		22.2
Electrical		51.6		28.4		9.0		89.0		28.1
MRO		48.7		52.6		272.8		374.1		16.4
Industrial PVF		40.5		103.3		56.4		200.2		27.8
Other		53.4		28.7		57.5		139.6		18.8
Corporate		—		—		—		—		37.1

Total	$	493.3	$	467.0	$	609.8		1,570.1	$	308.3

Cash and cash equivalents								8.3
Deferred income taxes								19.4
Other current assets								53.0
Property and equipment								161.8
Other assets								68.7

Total Assets							$	1,881.3

Note 11. Related Party Transaction

During the first quarter of fiscal year 2005, we approved donations totaling $0.5 million to Hughes Supply Foundation, Inc. (“HSF”), a not-for-profit charitable organization designed to help provide financial assistance for families in need in areas where we operate. The Board of Directors of HSF is comprised of certain of our executives, including the Chairman of the Board, the President and Chief Executive Officer, and the Executive Vice President and Chief Financial Officer.

Note 12. Subsequent Events

On May 3, 2004, we completed the acquisition of Standard Wholesale Supply Company (“Standard”), a distributor of waterworks, electrical and plumbing products primarily serving the residential and infrastructure construction markets in Las Vegas, Nevada. Standard generated sales of approximately $73 million in its latest fiscal year ended December 31, 2003, with product offerings including pipes, hydrants, valves, fittings, poles, street lights, wire and cable, and fixtures. The acquisition of Standard allows us to accelerate our expansion into the high-growth market of Las Vegas, Nevada, and also allows us to invest in a profitable business that is well-aligned with our culture of providing the highest level of service possible to the customer, along with quality products.

On May 28, 2004, we completed the acquisition of Todd Pipe & Supply (“Todd Pipe”), one of the largest independent wholesale plumbing suppliers in Southern California and Las Vegas, Nevada. Todd Pipe generated sales of approximately $211 million during the twelve months ended January 31, 2004. The acquisition of Todd Pipe allows us to expand our geographic footprint into attractive, high-growth markets and to invest in businesses with leadership market positions and superior operating models, thus improving our overall operating portfolio and financial returns.

PART I. FINANCIAL INFORMATION — Continued

HUGHES SUPPLY, INC.

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) is intended to provide information to assist the reader in better understanding and evaluating our business and results of operations. This information is a discussion and analysis of certain significant factors that have affected our results of operations for the three months ended April 30, 2004 and May 2, 2003, and our financial condition as of April 30, 2004. MD&A should be read in conjunction with our consolidated financial statements and the notes thereto contained herein and in our Annual Report on Form 10-K (the “Annual Report”) for the fiscal year ended January 30, 2004.

Forward-Looking Statements

Certain statements made by us or incorporated by reference in this report constitute “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Act of 1934, as amended, and are subject to the safe harbor provisions created by such sections. When used in this report, the words “believe,” “anticipate,” “estimate,” “expect,” “may,” “will,” “should,” “plan,” “intend,” and similar expressions are intended to identify forward-looking statements. Although we believe that the expectations reflected in such forward-looking statements are reasonable, we can give no assurance that such expectations will prove to be correct. Actual results or events may differ significantly from those indicated in such forward-looking statements as a result of various important factors. These factors are discussed under the caption “Item 1. Business—Risk Factors” in our Annual Report on Form 10-K for the year ended January 30, 2004. All forward-looking statements are qualified by and should be read in conjunction with those risk factors. Except as may be required by applicable law, we undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.

Business

Fiscal Year

Segment Information

Inter-segment sales are excluded from the net sales presented for each segment. Operating income for each segment includes certain corporate expense allocations for employee benefits, corporate overhead expenses, data processing expenses and insurance. These allocations are based on consumption or at a standard rate determined by management.

Same-Store Sales Methodology

During the first quarter of fiscal year 2005, we changed our same-store sales methodology to include all branches, including those that are newly opened, closed and acquired during the comparative fiscal periods. For comparative purposes, prior period sales will be reported on a pro forma basis to include pre-acquisition sales activity. Branches of any divested business will continue to be excluded from our calculation. We believe the new methodology more accurately reflects the current sales performance of all our branches, including those newly acquired.

Results of Operations

Our results of operations for the first quarter of fiscal year 2005 reflect strong quarterly net sales, net income and diluted earnings per share growth. Net sales increased 26.8% to $992.8 million in the first quarter of fiscal year 2005, compared to the $782.8 million reported in the prior year’s first quarter. Same-store sales increased 14.3% with good growth reported in all of our segments and the three product lines comprising the Other category. Our gross margin ratio to net sales of 24.3%, our highest ratio in recent history, along with our ability to hold the ratio of operating expenses to net sales flat, were the primary drivers of a 152.5% improvement in net income. Net income in the first quarter of 2005 totaled $29.8 million, an $18.0 million increase compared to the prior year’s first quarter net income of $11.8 million. Diluted earnings per share in the first quarter of fiscal year 2005 totaled $0.97 on 30.9 million shares outstanding, compared to $0.51 per diluted share reported in the prior year on 23.1 million shares outstanding.

Net Sales

Net sales are affected by numerous factors, including, but not limited to, commodity pricing, seasonality, weather, competition and construction cycles. The following table presents the major components of our consolidated net sales during the first quarter of fiscal years 2005 and 2004 (dollars in millions):


	Three Months Ended
	April 30, 2004		May 2, 2003			Percentage Variance
Existing sales base	$	887.9	$	765.2		16.0	%
Newly-opened branches		6.4		—
Closed and/or combined branches		0.7		17.6
Acquisitions ⁽¹⁾		97.8		86.1

Same-store sales		992.8		868.9		14.3	%
Less: Pre-acquisition pro forma sales ⁽¹⁾		—		(86.1	)

Net sales	$	992.8	$	782.8		26.8	%

⁽¹⁾

For comparative purposes, prior periods are reported on a pro forma basis to include pre-acquisition sales activity.

Net sales in the first quarter of fiscal year 2005 totaled $992.8 million, an increase of $210.0 million or 26.8%, compared to the prior year’s first quarter net sales of $782.8 million. This increase was primarily due to the acquisitions of Century Maintenance Supply, Inc. (“Century”) and Marden Susco, LLC (“Marden Susco”) completed during the fourth and third quarters of fiscal year 2004, respectively, in addition to increased demand from a strengthening commercial construction sector and commodity price increases. The Century and Marden Susco acquisitions added $97.8 million of net sales to the first quarter of fiscal year 2005.

The same-store sales increase of $123.9 million or 14.3% primarily reflected increased commercial and public sector construction activity, continued strength in the residential construction market and significant price increases in commodities such as steel, PVC, copper, nickel and lumber. Four of our six segments and the three product lines comprising our Other category (Building Materials, Fire Protection and Mechanical Industrial) reported growth in excess of 10%.

Gross Margin

Gross margin is affected by numerous factors, including, but not limited to product mix changes, commodity pricing, competition, vendor rebates and direct shipments compared to stock sales. Gross margin and gross margin ratio to net sales during the first quarter of fiscal years 2005 and 2004 were as follows (dollars in millions):


	Three Months Ended
	April 30, 2004			May 2, 2003			Percentage and Basis Point Variance
Gross margin	$	241.1		$	175.4		37.5	%
Gross margin ratio to net sales		24.3	%		22.4	%	190

Gross margin ratio to net sales totaled 24.3% and 22.4% in the first quarter of fiscal years 2005 and 2004, respectively. The improvement was mainly attributable to our ability to capitalize on the strong pricing environment and greater demand experienced in most of our businesses, as well as increased rebate income resulting from our continued vendor consolidation efforts and improved programs with our suppliers. Product mix was also a part of the improved gross margin with increased sales from our higher-margin MRO business comprising 10.8% of our net sales in the first quarter of fiscal year 2005 compared to 3.9% in the prior year’s first quarter as a result of the Century acquisition. The Industrial PVF and Building Materials businesses, which have historically generated higher margins than our other businesses, also comprised a greater percentage of our net sales during the first quarter of fiscal year 2005.

Operating Expenses

Operating expenses and percentage of net sales for the first quarter of fiscal years 2005 and 2004 were as follows (dollars in millions):


	Operating Expenses						Percentage of Net Sales
	Three Months Ended						Three Months Ended
	April 30, 2004		May 2, 2003		Percentage Variance		April 30, 2004		May 2, 2003		Basis Point Variance
Personnel expenses	$	120.5	$	95.3	26.4	%	12.1	%	12.2	%	(10	)
Other selling, general and administrative expenses		64.0		49.1	30.3	%	6.4	%	6.3	%	10
Depreciation and amortization		6.0		5.1	17.6	%	0.6	%	0.7	%	(10	)

Total	$	190.5	$	149.5	27.4	%	19.2	%	19.1	%	10

As a percentage of net sales, personnel expenses remained relatively flat at 12.1% and 12.2% for the first quarter of fiscal years 2005 and 2004, respectively, with the $25.2 million increase in costs quarter over quarter primarily relating to the Century and Marden Susco acquisitions and increased employee benefit costs. The Century and Marden Susco acquisitions collectively added $12.1 million of personnel expenses to the first quarter of fiscal year 2005 and contributed to a 15.3% increase in our workforce, from approximately 7,200 employees at May 2, 2003 to approximately 8,300 at April 30, 2004. Employee healthcare insurance expenses increased $4.1 million due to higher enrollment and increasing healthcare costs.

As a percentage of net sales, other selling, general and administrative expenses remained relatively flat at 6.4% and 6.3% for the first quarter of fiscal years 2005 and 2004, respectively, with the $14.9 million increase in costs primarily relating to the Century and Marden Susco acquisitions and various other expense increases. The acquisitions of Century and Marden Susco added $8.8 million of other selling, general and administrative expenses to the first quarter of fiscal year 2005. Other selling, general and administrative costs also increased as a result of $2.4 million of additional tax and tax-related expenses, $1.2 million of additional marketing expenses

due to increased efforts to obtain new business opportunities as well as continued investments in programs that target both customers and vendors, $1.1 million of increased telecommunications costs due to our continued investment in bandwidth capacity and information technology initiatives, and a donation of $0.5 million in the first quarter of fiscal year 2005 to the Hughes Supply Foundation, Inc., a not-for-profit charitable organization.

As a percentage of net sales, depreciation and amortization expenses remained relatively flat at 0.6% and 0.7% for the first quarter of fiscal years 2005 and 2004, respectively. The increase of $0.9 million during the first quarter of fiscal year 2005 compared to the first quarter of fiscal year 2004 was primarily driven by amortization of intangible assets related to the Century and Marden Susco acquisitions.

Operating Income

Operating income is affected significantly by fluctuations in net sales as well as changes in business and product mix. Operating income for the first quarter of fiscal years 2005 and 2004 was as follows (dollars in millions):


	Operating Income						Percentage of Net Sales
	Three Months Ended						Three Months Ended
	April 30, 2004		May 2, 2003		Percentage Variance		April 30, 2004		May 2, 2003		Basis Point Variance
Operating income	$	50.6	$	25.9	95.4	%	5.1	%	3.3	%	180

Operating income during the first quarter of fiscal year 2005 totaled $50.6 million, increasing $24.7 million or 95.4%, compared to the prior year’s first quarter operating income of $25.9 million. The acquisitions of Century and Marden Susco added $9.2 million of operating income to the first quarter of fiscal year 2005. Operating income as a percentage of net sales increased 180 basis points to 5.1% in the first quarter of fiscal year 2005 compared to 3.3% in fiscal year 2004 primarily due to improved product pricing and mix and our continued efforts to manage our expenses to leverage increased net sales.

Interest and Other Income

Interest and other income totaled $1.7 million and $1.5 million in the first quarter of fiscal years 2005 and 2004, respectively. The increase in fiscal year 2005 was primarily due to $0.2 million of interest received during the first quarter relating to the settlement of amended prior year federal income tax filings.

Interest Expense

Interest expense totaled $6.3 million and $7.7 million in the first quarter of fiscal years 2005 and 2004, respectively. The decrease in interest expense was primarily due to a reduction in higher-cost debt balances. Total debt decreased $118.9 million, or 25.5%, from $465.8 million as of May 2, 2003 to $346.9 million as of April 30, 2004 and our weighted-average interest rate for the first quarter of fiscal year 2005 decreased 60 basis points compared to the prior year’s first quarter.

Income Taxes

Our effective tax rate in the first quarter of fiscal years 2005 and 2004 was 35.3% and 40.0%, respectively. The decrease was primarily attributable to a $1.7 million tax benefit realized in the first quarter of fiscal year 2005 related to federal income tax filing amendments associated with prior fiscal years. Our effective tax rate is expected to be 39.0% for the remainder of fiscal year 2005.

Segment Results

Consolidated and same-store sales by segment in the first quarter of fiscal years 2005 and 2004 were as follows (dollars in millions):


	Consolidated Net Sales						Same-Store Sales
	Three Months Ended						Three Months Ended
	April 30, 2004		May 2, 2003		Percentage Variance		April 30, 2004		May 2, 2003		Percentage Variance
Water & Sewer	$	271.6	$	219.0	24.0	%	$	271.6	$	234.7	15.7	%
Plumbing/HVAC		220.9		205.2	7.7	%		220.9		205.2	7.7	%
Utilities		100.1		88.9	12.6	%		100.1		88.9	12.6	%
Electrical		102.3		90.4	13.2	%		102.3		90.4	13.2	%
MRO		106.9		30.6	249.3	%		106.9		101.0	5.8	%
Industrial PVF		82.7		73.1	13.1	%		82.7		73.1	13.1	%
Other		108.3		75.6	43.3	%		108.3		75.6	43.3	%

Total	$	992.8	$	782.8	26.8	%	$	992.8	$	868.9	14.3	%

Operating income by segment and as a percentage of net sales for the first three months of fiscal years 2005 and 2004 was as follows (dollars in millions):


	Operating Income						Percentage of Net Sales
	Three Months Ended						Three Months Ended
	April 30, 2004		May 2, 2003		Percentage Variance		April 30, 2004		May 2, 2003		Basis Points
Water & Sewer	$	10.6	$	8.9	19.1	%	3.9	%	4.1	%	(20	)
Plumbing/HVAC		5.1		1.1	363.6	%	2.3	%	0.5	%	180
Utilities		2.9		3.4	(14.7	)%	2.9	%	3.8	%	(90	)
Electrical		3.6		1.9	89.5	%	3.5	%	2.1	%	140
MRO		7.2		1.2	500.0	%	6.7	%	3.9	%	280
Industrial PVF		11.5		6.6	74.2	%	13.9	%	9.0	%	490
Other		9.7		2.8	246.4	%	9.0	%	3.7	%	530

Total	$	50.6	$	25.9	95.4	%	5.1	%	3.3	%	180

The following is a discussion of factors impacting net sales and operating income for our operating segments:

Water & Sewer

Net sales: Net sales in the first quarter of fiscal year 2005 totaled $271.6 million, an increase of $52.6 million or 24.0%, compared to the prior year’s first quarter net sales of $219.0 million. This increase included sales of $20.3 million from the Marden Susco acquisition completed in August 2003. Same-store sales increased by $36.9 million compared to the first quarter of fiscal year 2004 amount, which includes pro forma sales of $15.7 million for Marden Susco. A higher volume of private and public infrastructure projects, particularly in the West and Southeast markets, and higher prices for PVC and ductile iron pipe drove the 15.7% same-store sales increase in the first quarter of fiscal year 2005.

Operating income: As a percentage of net sales, operating income decreased to 3.9% in the first quarter of fiscal year 2005 from 4.1% in the prior year’s first quarter. The 20 basis point decrease was primarily the result of decreased gross margins resulting from competitive pricing pressures in certain markets partially offset by increased rebate income resulting from continued vendor consolidation efforts and improved programs with our suppliers.

Plumbing/HVAC

Net sales: Net sales and same-store sales in the first quarter of fiscal year 2005 totaled $220.9 million, an increase of $15.7 million or 7.7%, compared to the prior year’s first quarter total of $205.2 million. The segment’s first quarter 2005 results benefited from rising prices for steel, copper and PVC products. Improvement in commercial sector activity and continued strength in residential projects also contributed to the sales growth during the first quarter of fiscal year 2005.

Operating income: As a percentage of net sales, operating income increased to 2.3% in the first quarter of fiscal year 2005 from 0.5% in the prior year’s first quarter. The 180 basis point increase was primarily the result of gross margin improvement resulting from favorable commodity prices, growth in the commercial market, continued strength in residential projects and increased rebate income.

Utilities

Net sales: Net sales and same-store sales in the first quarter of fiscal year 2005 totaled $100.1 million, an increase of $11.2 million or 12.6%, compared to the prior year’s first quarter total of $88.9 million. Sales growth in the first quarter of 2005 was primarily attributable to higher sales resulting from our continued efforts to expand alliances with large electric utility companies, in addition to improved overall market conditions and higher pricing for steel products.

Operating income: As a percentage of net sales, operating income decreased to 2.9% in the first quarter of fiscal year 2005 from 3.8% in the prior year’s first quarter. The 90 basis point decrease was primarily due to a decline in gross margin resulting from a higher percentage of lower margin direct shipment sales in the first quarter of fiscal year 2005, in addition to an overall increase in the ratio of operating expenses to net sales relating to our efforts to put infrastructure in place necessary to support additional business from alliance customers.

Electrical

Net sales: Net sales and same-store sales in the first quarter of fiscal year 2005 totaled $102.3 million, an increase of $11.9 million or 13.2%, compared to the prior year’s first quarter total of $90.4 million. Sales growth benefited from higher prices for steel, copper and PVC-based products, in addition to the strengthening economy and increased commercial construction activity, primarily in Florida.

Operating income: As a percentage of net sales, operating income increased to 3.5% in the first quarter of fiscal year 2005 from 2.1% in the prior year’s first quarter. The 140 basis point increase was primarily attributable to improved gross margin resulting from higher commodity prices and increased utilization of matrix pricing within Eclipse, our distribution management system.

MRO

Net sales: Net sales in the first quarter of fiscal year 2005 totaled $106.9 million, an increase of $76.3 million or 249.3%, compared to the prior year’s first quarter total of $30.6 million. This increase included sales of $77.5 million from the Century acquisition completed in December 2003. Same-store sales increased $5.9 million or 5.8% compared to the first quarter of fiscal year 2004 amount, which included pro forma sales of $70.4 million for Century, due to improved penetration in certain markets and sales initiatives such as a new lighting gallery and sales to the federal government. Sales growth during the first quarter of fiscal year 2005 was impacted by the temporary disruption caused by sales force rationalization in overlapping markets and by integration efforts associated with the Century acquisition.

Operating income: As a percentage of net sales, operating income increased to 6.7% in the first quarter of fiscal year 2005 from 3.9% in the prior year’s first quarter. The 280 basis point increase was primarily the result of the inclusion of Century, which generates a higher return on net sales, partially offset by integration costs.

Industrial PVF

Net sales: Net sales and same-store sales in the first quarter of fiscal year 2005 totaled $82.7 million, an increase of $9.6 million or 13.1%, compared to the prior year’s first quarter net sales and same-store sales of $73.1 million. The sales growth was primarily the result of high nickel and steel prices during the first quarter of fiscal year 2005. The Industrial PVF segment is beginning to experience a slight pick-up in demand from large, petrochemical customers and an increase in metal fabrication work, which we believe can be an early indicator of increased industrial activity.

Operating income: As a percentage of net sales, operating income increased to 13.9% in the first quarter of fiscal year 2005 from 9.0% in the prior year’s first quarter. The 490 basis point increase was primarily the result of an increase in gross margin attributable to higher selling prices related to nickel and steel products experienced during the first quarter of fiscal year 2005, a portion of which was successfully passed along to customers, partially offset by a $0.8 million increase in the provision for doubtful accounts primarily relating to one specific customer.

Other

Net sales: Net sales and same-store sales in the first quarter of fiscal year 2005 totaled $108.3 million, an increase of $32.7 million or 43.3%, compared to the prior year’s first quarter net sales of $75.6 million, with all three product lines comprising the Other category experiencing strong sales growth. The Building Materials product line had sales growth of $16.4 million or 38.4% in the first quarter of fiscal year 2005 as compared to the prior year’s first quarter as a result of significant increases in the price of steel and lumber, along with increased demand from the strengthening commercial construction market, particularly in Florida and North Carolina. The Fire Protection product line had sales growth of $13.6 million or 56.4% during this period as a result of significantly higher steel prices and some accelerated purchasing by customers in anticipation of future price increases and anticipated shortages. The Mechanical Industrial product line had sales growth in the first quarter of fiscal year 2005 of $2.7 million or 30.9%, as compared to the prior year’s first quarter.

Operating income: As a percentage of net sales, operating income increased to 9.0% in the first quarter of fiscal year 2005 from 3.7% in the prior year’s first quarter. The 530 basis point increase was primarily the result of strong sales and gross margin growth in all three product lines in addition to sound expense management.

Liquidity and Capital Resources

The following sets forth certain measures of our liquidity (dollars in millions):


	Three Months Ended
	April 30, 2004			May 2, 2003
Net cash provided by (used in) operating activities	$	23.5		$	(3.6	)
Net cash provided by (used in) investing activities		32.8			(5.2	)
Net cash (used in) provided by financing activities		(55.2	)		9.1

	April 30, 2004			January 30, 2004
Working capital	$	624.4		$	603.6
Current ratio		2.1 to 1			2.4 to 1
Debt to total capital		25.0	%		29.0	%

Working Capital

Compared to January 30, 2004, working capital increased $20.8 million or 3.4% during the first quarter of fiscal year 2005. The increase in working capital was primarily attributable to higher accounts receivable balances driven by net sales growth, and lower compensation and benefits accruals as a result of bi-weekly payroll payment timing combined with annual bonus payments, which are made during the first quarter of every year. These increases to working capital were offset by lower levels of owned inventories (inventories less accounts payable) resulting from improved payables management, reduced other current assets due to collections of vendor rebate receivables and increased other current liabilities caused by the timing of accrued tax and interest payments. We continue to maintain a focus on working capital improvement and have implemented initiatives to improve each element of our working capital.

Operating Activities

During the first quarter of fiscal years 2005 and 2004, cash flows provided by (used in) operating activities totaled $23.5 million and ($3.6) million, respectively. Operating cash flow increased in the first quarter of fiscal year 2005 primarily as a result of the increase in net income and fluctuations in accounts payable and other current liabilities balances. Partially offsetting these operating cash flow increases were fluctuations in accounts receivable and inventories.

Compared to the prior year period, accounts payable balances increased $106.9 million during the first quarter of fiscal year 2005 versus a $44.5 million increase during the first quarter of fiscal year 2004 as a result of our efforts to extend vendor payment terms. Other current liabilities increased $24.9 million during the first quarter of fiscal year 2005 compared to an increase of $5.4 million during the first quarter of fiscal year 2004 due mainly to the timing of accrued tax and interest payments.

Increased net sales primarily drove the accounts receivable increase of $82.0 million during the first quarter of fiscal year 2005 compared to a $38.7 million increase in the first quarter of fiscal year 2004. Overall, days sales outstanding remained essentially flat in both periods, while past due balances as a percentage of total accounts receivable decreased in fiscal year 2005. Compared to the prior year period, inventories increased $57.0 million during the first quarter of fiscal year 2005 versus a $28.0 million increase during the first quarter of fiscal year 2004 mainly due to a seasonal build-up in inventories to support higher sales volumes expected in the spring and summer months in addition to commodity price increases.

Going forward, we expect operating cash flows to continue to be strong as we continue to improve our working capital efficiency to support the sales growth without using cash.

Investing Activities

Our expenditures for property and equipment totaled $4.2 million and $5.3 million during the first quarter of fiscal years 2005 and 2004, respectively. Of the total $4.2 million of capital expenditures during the first quarter of fiscal year 2005, approximately $2.5 million related to information technology (“IT”) outlays, including amounts for the Hughes Unified operating system and the new finance system that are currently being implemented. While there can be no assurance that current expectations will be realized, capital expenditures are expected to be in the range of approximately $20.0 million to $25.0 million during fiscal year 2005.

Proceeds from the sale of property and equipment totaled $37.0 million and $0.1 million in the first quarter of fiscal years 2005 and 2004, respectively. During the first quarter of fiscal year 2005, proceeds from the sale of property and equipment consisted primarily of cash received from the sale-leaseback of a portfolio of properties associated with 18 different branches. The resulting leases have qualified for operating lease treatment.

generated sales of approximately $73 million in its latest fiscal year ended December 31, 2003, with product offerings including pipes, hydrants, valves, fittings, poles, street lights, wire and cable, and fixtures.

On May 28, 2004, we completed the acquisition of Todd Pipe & Supply (“Todd Pipe”), one of the largest independent wholesale plumbing suppliers in the high-growth markets of Southern California and Las Vegas, Nevada. Todd Pipe generated sales of approximately $211 million during the twelve months ended January 31, 2004.

Financing Activities

During the first quarter of fiscal years 2005 and 2004, cash flows (used in) provided by financing activities totaled ($55.2) million and $9.1 million, respectively. Financing activities consisted primarily of borrowings and repayments under our $290 million revolving credit agreement, changes in book overdrafts and dividend payments. Financing cash flows decreased during the first quarter of fiscal year 2005 by $64.3 million primarily reflecting lower amounts due under our revolving credit agreement. Net (payments) borrowings made under our revolving credit agreement totaled ($43.7) million and $20.8 million in the first quarter of fiscal years 2005 and 2004, respectively. Other debt payments, including scheduled payments on our senior notes, totaled $1.5 million and $2.6 million in the first quarter of fiscal years 2005 and 2004, respectively. As of April 30, 2004, we were in compliance with all financial covenants.

Dividend payments totaled $3.1 million and $2.4 million during the first quarter of fiscal years 2005 and 2004, respectively. The higher dividend payments in fiscal year 2005 were primarily attributable to an increase in our common stock outstanding due to the sale of 6,900,000 shares in a public offering during the fourth quarter of fiscal year 2004. On March 9, 2004, our Board of Directors declared a quarterly cash dividend of $0.13 per share that was payable on May 14, 2004 to shareholders of record on May 3, 2004. The $0.13 per share dividend is 30% higher than the $0.10 per share dividend paid in the first quarter of 2004 and 2005.

On March 15, 1999, our Board of Directors authorized us to repurchase up to 2.5 million shares of our outstanding common stock to be used for general corporate purposes. Since March 15, 1999, we have repurchased a total of 1,831,400 shares at an average price of $22.91 per share, of which 258,600 shares at an average price of $23.39 per share were repurchased during the first quarter of fiscal year 2004. Shares repurchased totaled $6.0 million in the first quarter of fiscal year 2004. There were no shares repurchased during the first quarter of fiscal year 2005, and we do not expect to purchase additional shares during the remainder of this fiscal year.

Our liquidity and capital needs have generally been met by cash flows from operating activities and borrowings under our revolving credit agreement. As of April 30, 2004, we had $9.4 million of cash and $232.3 million of unused borrowing capacity (subject to borrowing limitations under long-term debt covenants) to fund ongoing operating requirements and anticipated capital expenditures. The funds necessary to finance the acquisitions of Standard and Todd Pipe were borrowed under our revolving credit agreement. We believe we have sufficient borrowing capacity and cash on hand to take advantage of growth and business opportunities.

Off-balance Sheet Arrangements

As more fully disclosed in our fiscal year 2004 Annual Report, we have entered into operating leases for certain facilities, vehicles and equipment. Many of our vehicle and equipment leases typically contain set residual values and residual value guarantees. We believe that the likelihood of any material amounts being funded in connection with these commitments is remote.

On March 16, 2004, we entered into a sale-leaseback transaction in which we sold our corporate headquarters building in Orlando, Florida to a subsidiary of Wachovia Development Corporation (“WDC”) for $23.0 million and leased the property back for a period of 20 years. The proceeds from the sale approximated the

net book value of the property sold, and were paid by WDC to SunTrust Bank (“SunTrust”) for application against amounts outstanding under a separate real estate term credit agreement we had previously executed on June 5, 2002 with SunTrust. The lease expires on March 16, 2024, with five 5-year extensions exercisable at our option upon 12 months notice. We do not have an option to purchase the leased facility at the end of the minimum lease term and have not issued any residual value guarantee on the value of the leased facility. The lease is accounted for as an operating lease with future minimum annual lease payments totaling $1.2 million occurring during fiscal year 2005, $1.4 million per year occurring during fiscal years 2006 through 2009, and $25.6 million occurring thereafter.

Contractual Obligations

Aside from the two aforementioned sale-leaseback transactions, there have been no material changes outside of the ordinary course of business in our contractual obligations set forth in the Management’s Discussion and Analysis of Financial Condition and Results of Operations section of our fiscal year 2004 Annual Report.

Recent Accounting Pronouncements

Critical Accounting Policies

Our significant accounting policies are more fully described in the notes to our consolidated financial statements included in our fiscal year 2004 Annual Report. Certain of our accounting policies require the application of significant judgment by management in selecting the appropriate assumptions for calculating financial estimates. As with all judgments, they are subject to an inherent degree of uncertainty. These judgments

are based on historical experience, current economic trends in the industry, information provided by customers and vendors, information available from other outside sources and management’s estimates, as appropriate. Our critical accounting policies relating to the allowance for doubtful accounts, inventories, consideration received from vendors, impairment of long-lived assets, and self-insurance reserves are described in the Annual Report. As of April 30, 2004, there have been no material changes to any of the critical accounting policies.

Item 3.

Quantitative and Qualitative Disclosures about Market Risk

The Company is exposed to market risk from changes in the prices of certain of its products that result from commodity price fluctuations and from changes in interest rates on outstanding variable-rate debt.

Commodity Price Risk

We are aware of the potentially unfavorable effects inflationary pressures may create through higher asset replacement costs and related depreciation, higher interest rates and higher material costs. In addition, our operating performance is affected by price fluctuations in stainless steel, plastic, nickel alloy, copper, aluminum, PVC, lumber, and other commodities. We seek to minimize the effects of inflation and changing prices through economies of purchasing and inventory management resulting in cost reductions and productivity improvements as well as price increases to maintain reasonable profit margins.

As discussed above, our results of operations in the first quarter of fiscal year 2005 were favorably impacted by increases in the pricing of certain commodity-based products. Such commodity price fluctuations have from time to time created cyclicality in our financial performance and could continue to do so in the future.

Interest Rate Risk

At April 30, 2004, we had $56.3 million of outstanding variable-rate debt. Based upon a hypothetical 10% increase or decrease in interest rates from their April 30, 2004 levels, the market risk with respect to our variable-rate debt would not be material. We manage our interest rate risk by maintaining a balance between fixed and variable rate debt.

Item 4.

Controls and Procedures

We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in our reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms, and that such information is accumulated and communicated to management, including the Chief Executive Officer and the Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure. In designing and evaluating the disclosure controls and procedures, management recognized that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives and management was required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures.

As of the end of the period covered by this report, management, under the supervision of the Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of the design and operation of our disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended. Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that, as of the end of such period, the disclosure controls and procedures were effective at a level of reasonable assurance to ensure that information required to be disclosed in the reports we file and submit under the Exchange Act is recorded, processed, summarized and reported as and when required.

In addition, there have been no changes in our internal control over financial reporting, as defined in Rules 13a-15(f) or 15d-15(f) under the Securities Exchange Act of 1934, during our first fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II. OTHER INFORMATION

HUGHES SUPPLY, INC.

Item 2. Changes in Securities, Use of Proceeds and Issuer Purchases of Equity Securities

The following table sets forth our repurchases of equity securities registered under Section 12 of the Exchange Act that have occurred during the three months ended April 30, 2004.


Period	Total number of shares (or units) purchased	Average price paid per share	Total number of shares (or units) purchased as part of publicly announced plans or programs	Maximum number (or approximate dollar value) of shares (or units) that may yet be purchased under the plans or programs (1)
February 2004 (January 31 - February 27)	—	—	—	668,600

March 2004 (February 28 - March 26)	—	—	—	668,600

April 2004 (March 27 - April 30)	—	—	—	668,600

Total	—		—

(1)

On March 15, 1999, our Board of Directors authorized us to repurchase up to 2.5 million shares of our outstanding common stock to be used for general corporate purposes.

Item 6. Exhibits and Reports on Form 8-K

(a)

Exhibits



10.1		Hughes Supply, Inc. amended and restated Supplemental Executive Retirement Plan, effective as of February 5, 2004.

31.1		Rule 13a-14(a)/15d-14(a) Certification of President and Chief Executive Officer.

31.2		Rule 13a-14(a)/15d-14(a) Certification of Executive Vice President and Chief Financial Officer.

32.1		Certification Pursuant to Section 1350 of Chapter 63 of Title 18 of the United States Code by the President and Chief Executive Officer.

32.2		Certification Pursuant to Section 1350 of Chapter 63 of Title 18 of the United States Code by the Executive Vice President and Chief Financial Officer.

(b)

Reports on Form 8-K

On February 17, 2004, Hughes Supply, Inc. filed a Form 8-K dated February 17, 2004 to incorporate an exhibit by reference into the Registration Statement on Form S-3 (File No. 333-110150) filed with the Commission on October 31, 2003, amended on December 19, 2003 and December 31, 2003 and declared effective by the Commission on January 2, 2004.

On March 10, 2004, Hughes Supply, Inc. furnished a Current Report on Form 8-K dated March 9, 2004 regarding a news release announcing its operating results for the fourth quarter ended January 30, 2004.

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: June 9, 2004	By:	/s/ THOMAS I. MORGAN
		Thomas I. Morgan
		President and Chief Executive Officer

Date: June 9, 2004	By:	/s/ DAVID BEARMAN
		David Bearman
		Executive Vice President and
		Chief Financial Officer

EX-10.1 2 dex101.htm HUGHES SUPPLY, INC. AMENDED AND RESTATED SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN Hughes Supply, Inc. amended and restated Supplemental Executive Retirement Plan

Exhibit 10.1

HUGHES SUPPLY, INC.

SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN

THIS SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN (the “Plan”), made effective as of February 5, 2004, by HUGHES SUPPLY, INC., a corporation organized and existing under the laws of the State of Florida (hereinafter referred to as the “Company”).

W I T N E S S E T H:

WHEREAS, the Company has entered into various Supplemental Executive Retirement Plan Agreements (the “Prior Agreements”) with certain of its executives to provide for certain supplemental retirement and disability retirement benefits for those executives; and

WHEREAS, the Company and each executive with whom the Company has a Prior Agreement have agreed to cancel and terminate the Prior Agreements and replace the benefits thereunder with the benefits provided under this Plan, subject to the terms and conditions contained in this Plan.

ARTICLE 1

DEFINITIONS

1.1 “Accelerating Termination” shall have the meaning specified in Section 2.4(b) hereof.

1.2 “Administrative Committee” shall mean the administrative committee appointed by the Compensation Committee pursuant to Section 3.1 to perform the administrative duties specified in Article 3 hereof.

1.3 “Affiliate” shall mean an entity that directly or indirectly, through one or more intermediaries, controls, is controlled by or is under common control, with the Company.

1.4 “Average Compensation” shall mean the average of the Compensation paid by the Company and its Affiliates to the Participant for the three full Plan Years of employment with the Company and its Affiliates (or, if the Participant has been employed with the Company and its Affiliates for less than three full Plan Years, the actual number of the Participant’s full Plan Years of employment) that coincides with or immediately precedes the date on which the Participant’s employment with the Company and its Affiliates terminates (or for such other period as the Compensation Committee shall determine).

1.5 “Beneficiary” shall mean the person or persons designated by a Participant, upon such forms as shall be provided by the Company, to receive payments of the Participant’s benefits hereunder, if any, in the event of the Participant’s death. If the Participant shall fail to

designate a Beneficiary, or if for any reason such designation shall be ineffective, or if such Beneficiary shall predecease the Participant or die simultaneously with him, then the Participant’s Beneficiary shall be the Participant’s spouse, so long as such spouse shall live, and thereafter to such person or persons including such spouse’s estate as may be appointed under such spouse’s last will and testament making specific reference hereto. If the Participant is not survived by a spouse, or if the Participant’s spouse shall fail to so appoint, then said payments shall be made to the then living children of the Participant, if any, in equal shares, for their joint and survivor lives, and if none, or after their respective joint and survivor lives, any balance thereof to the Participant’s estate as a lump sum payment.

1.6 “Benefit Percentage” shall mean that benefit percentage designated on Exhibit A attached hereto that is applicable to the Participant, based upon the Participant’s status on the date on which the Participant’s employment with the Company and its Affiliates terminates (or on such other date as the Compensation Committee shall determine).

1.7 “Board” shall mean the board of directors of the Company.

1.8 “Cause” shall have the meaning specified in Section 2.4(c)(ii) hereof.

1.9 “Change in Control” shall have the meaning specified in Section 2.4(c)(i) hereof.

1.10 “Change in Control Benefit” shall have the meaning specified in Section 2.4(c)(iv) hereof.

1.11 “Code” shall mean the Internal Revenue Code of 1986, as amended from time to time.

1.12 “Company” shall mean Hughes Supply Inc., a Florida corporation, and its successors and assigns.

1.13 “Compensation” shall mean the base salary, and any annual cash incentive bonuses approved by the Compensation Committee, that are paid by the Company and its Affiliates to the Participant for a Plan Year. For these purposes, base salary and cash bonus amounts shall be calculated before reduction for compensation deferred pursuant to all qualified, nonqualified and Code Section 125 plans maintained by the Company and its Affiliates.

1.14 “Compensation Committee” shall mean the Compensation Committee of the Board.

1.15 “Death Benefit” shall mean the benefits, if any, payable under this Plan to the Participant’s Beneficiary pursuant to Section 2.3 hereof in the event of the Participant’s death.

1.16 “Disability” shall mean a permanent and total disability such that the Participant is unable to engage in any substantial gainful activity by reason of any medically determinable physical or mental impairment that can be expected to result in death or can be expected to last for a continuous period of not less than 12 months (including any disability resulting from any service in the United States military forces). A Disability shall not be deemed to have been

incurred for purposes of this Plan, however, if it is the result of a willful and intentionally self-inflicted injury or was incurred in connection with the willful and intential commission of a felony. All determinations relating to whether a Participant has suffered a Disability shall be made by the Administrative Committee.

1.17 “Disability Retirement Age” shall mean age 65, or such younger age not earlier than age 55 as may be approved for the Participant by the Compensation Committee.

1.18 “Disability Retirement Benefit” shall mean a monthly benefit, commencing on the first day of the month coincident with or next following the date on which a Disabled Participant attains his or her Disability Retirement Age and continuing for 15 years thereafter, equal to the amount, if any, by which (i) one twelfth of the product of the Participant’s Benefit Percentage (determined as of the Participant’s Disability Retirement Age) multiplied by the Disabled Participant’s Average Compensation, exceeds (ii) the amount, if any, of any monthly benefit payable to the Participant for the month in which the Disability Retirement Benefit is paid under any disability insurance paid for by the Company.

1.19 “Disabled Participant” shall mean a Participant whose employment with the Company and its Affiliates terminates by reason of the Participant’s Disability and who continues to suffer from a Disability until his or her Disability Retirement Age.

1.20 “Effective Date” shall mean February 5, 2004.

1.21 “Employee” shall mean any employee of the Company or any of its Affiliates.

1.22 “ERISA” shall mean the Employee Retirement Income Security Act of 1974, as amended from time to time.

1.23 “Good Reason” shall have the meaning specified in Section 2.4(c)(iii).

1.24 “Normal Retirement Age” shall mean age 65, or such younger age requested by the Participant, that is not earlier than age 55 as may be approved by the Compensation Committee.

1.25 “Normal Retirement Date” shall mean the first day of the calendar month coinciding with or immediately following the later of (i) the date on which the Participant’s employment with the Company and its Affiliates terminates (or such other date as the Compensation Committee shall determine) and (ii) the date on which the Participant attains his or her Normal Retirement Age.

1.26 “Normal Retirement Benefit” means a monthly benefit, commencing on the Participant’s Normal Retirement Date and continuing for 15 years thereafter, equal to one twelfth of the product of the Participant’s Benefit Percentage multiplied by the Participant’s Average Compensation.

1.27 “Participant” shall mean the Chief Executive Officer, the Chairman of the Board, and the Chief Financial Officer of the Company and any other officer of the Company or any Affiliate designated by the Compensation Committee as being eligible to participate in the Plan.

An employee of the Company or an Affiliate shall not be eligible to be a Participant unless he or she is deemed to be among a select group of management or highly compensated employees of the Company or its Affiliates within the meaning of Section 201(2) of ERISA.

1.28 “Plan” shall mean this Hughes Supply, Inc. Supplemental Executive Retirement Plan as herein set forth and as it may be amended from time to time.

1.29 “Plan Year” shall mean the fiscal year of the Company.

1.30 “Trust” shall mean, as to each Participant, the trust created under a separate trust agreement entered into between the Company and Suntrust Bank, as trustee, to fund the Participant’s benefits under this Plan, or such successor trust as the Company may from time to time create for that purpose.

ARTICLE 2

RETIREMENT BENEFITS

2.1 Normal Retirement Benefit. A Participant whose employment with the Company and its Affiliates terminates for any reason, other than by the Company or any of its Affiliates for Cause after the Participant has attained his or her Normal Retirement Age, shall be entitled to receive the Participant’s Normal Retirement Benefit commencing on the Participant’s Normal Retirement Date.

2.2 Disability Retirement Benefit. A Disabled Participant shall be entitled to receive the Participant’s Disability Retirement Benefit commencing on the first day of the calendar month coincident with or next following the date on which the Participant attains his or her Disability Retirement Age.

2.3 Death Benefit.

(a) After Commencement of Payment of Normal Retirement Benefit or Disability Retirement Benefit. If a Participant dies after payment of his or her Normal Retirement Benefit or Disability Retirement Benefit has commenced, but before payment of all Normal Retirement Benefits or Disability Retirement Benefits have been made to the Participant, the Company shall continue to pay the monthly benefits that the Participant would have received during the remainder of the 15 year period if the Participant had survived to the Participant’s Beneficiary, at such times and in such manner as such benefits would have been paid to the Participant if the Participant had survived.

(b) Prior to Commencement of Payment of Normal Retirement Benefit or Disability Retirement Benefit. If a Participant dies while in the employ of the Company or an Affiliate or during any period of continuing Disability that commenced while the Participant was in the employ of the Company or any Affiliate, the Company shall pay to the Participant’s Beneficiary a monthly benefit, commencing on the first day of the second calendar month following the Participant’s death and continuing for 10 years thereafter, equal to one twelfth of the product of the Participant’s Benefit Percentage, determined as if the Participant had died after

attaining the later of age 55 or the actual age of the Participant on the date of the Participant’s death, multiplied by the Participant’s Average Compensation.

2.4 Change in Control.

(a) If a Change in Control occurs after payment of a Participant’s Normal Retirement Benefit or Disability Retirement Benefit has commenced but before payment of all of the Participant’s Normal Retirement Benefits or Disability Retirement Benefits have been made, the Company shall pay the Participant a single lump sum payment, within 30 days after the date on which the Change in Control occurs, equal to the present value, determined using a five percent (5%) discount factor per annum, of the remaining benefits payable to the Participant (or his or her Beneficiary) pursuant to this Plan.

(b) If (i) a Change in Control occurs before payment of a Participant’s Normal Retirement Benefit or Disability Retirement Benefit has commenced, and (ii) within two years after the Change in Control has occurred, the Participant either (x) has his or her employment with the Company and its Affiliates terminated by the Company and its Affiliates without Cause, or (y) terminates his or her employment with the Company and its Affiliates for Good Reason (any such termination sometimes being referred to herein as an “Accelerating Termination”) then the Company shall pay the Participant a single lump sum payment, within 30 days after the termination of the Participant’s employment with the Company and its Affiliates, equal to the present value, determined using a five percent (5%) discount factor per annum, of the Change in Control Benefit.

(i) A “Change in Control” shall mean an event or series of events by which:

(1) any “person” (as such term is used in Section 13(d) and 14(d) of the Securities Exchange Act of 1934) is or becomes the “beneficial owner” (as defined in Rules 13d-3 and 13d-5 under the Exchange Act, except that a person shall be deemed to have “beneficial ownership” of all shares that any such individual or entity has the right to acquire, whether such right is exercisable immediately or only after the passage of time), directly or indirectly (including through ownership of the voting capital stock of an entity owning, directly or indirectly, a majority of the voting capital stock of the Company), of securities representing 49% or more of the combined voting power of the Company’s voting capital stock;

(2) any one person, or more than one person acting as a group, acquires ownership of stock of the Company that, together with stock held by such person or group, possesses more than fifty percent (50%) of the fair market value or total voting power of the stock of the Company; provided, however, that an increase in the percentage of stock of the Company owned by any one person, or persons acting as a group, as a result of a transaction in which the Company acquires its stock in exchange for property will be treated as an acquisition of stock of the Company for purposes of this clause (2);

(3) during any period of 24 consecutive months, individuals who at the beginning of such period constituted the Board of Directors (together with any new or

replacement directors whose election by the Board of Directors, or whose nomination for election by the Company’s shareholders, was approved by a vote of at least a majority of the directors then still in office who were either directors at the beginning of such period or whose election or nomination for election was previously so approved) cease for any reason to constitute a majority of the directors then in office;

(4) substantially all of the Company’s assets shall be sold in any transaction or series of transactions outside of the ordinary course of business unless after such transaction or transactions all or substantially all of the Company’s assets are owned by one or more entities directly or indirectly controlled by, or under common control with, the Company; or

(5) the consolidation or merger of the Company with any other entity (other than a wholly-owned subsidiary of the Company) unless after such transaction (A) the Company’s books, records, and accounting records are maintained as if the Company had remained a separate entity, and (B) there is no commingling of any other entity’s assets or employees with those of the Company.

(ii) “Cause” shall mean:

(a) that the Participant has engaged in acts or omissions with respect to the Company or its Affiliates that constitute intentional misconduct or a knowing violation of law that materially and adversely affects the Company or its Affiliates or the business of the Company or its Affiliates.

(b) that the Participant has personally received a benefit in money, property or services from the Company or its Affiliates or from another person dealing with the Company or its Affiliates in violation of applicable law;

(c) that the Participant has either intentionally or through gross negligence breached his covenants to the Company or its Affiliates relating to confidential or proprietary information (including without limitation any covenants contained in any employment, non-competition, non-solicitation, severance or similar agreement);

(d) that subsequent to the date hereof the Participant has been convicted of a felony or some other crime involving moral turpitude; or

(e) that the Participant has been grossly negligent in the performance of his duties to the Company or its Affiliates.

(iii) “Good Reason” shall mean the occurrence of any one or more of the following events subsequent to the occurrence of a Change in Control:

(a) any reduction by the Company of the Participant’s salary, bonus (which for this purpose shall be the Participant’s potential annual bonus for any fiscal year, based upon reasonable goals) and other compensation or benefits;

(b) loss of the Participant’s title or position with the Company by action of the Company or the Board;

(c) significant diminution of the Participant’s duties and responsibilities with the Company by action of the Company or the Board;

(d) relocation of the principal place of the Company’s business at which the Participant is required to perform his duties hereunder (other than a sporadic or intermittent basis) to a location which is more than 35 miles from the Company’s current address at One Hughes Way, Orlando, FL 32805; or

(e) any requirement that the Participant relocate to adequately perform his or her duties and responsibilities for the Company to a location other than the geographic location where such Participant has historically performed such duties and responsibilities, or any requirement that the Participant perform more of his or her duties from a geographic location which is different from the location where he or she performed most of his duties prior to the Change in Control.

(iv) “Change in Control Benefit” means (a) if at the time of the Accelerating Termination the Participant was age 65 or older, then the Change in Control Benefit shall be equal to the Normal Retirement Benefit that the Participant would have been entitled to receive had he or she retired as of the date of the Accelerating Termination; (b) if at the time of the Accelerating Termination the Participant was age 55 or older (but younger than 65), then the Change in Control Benefit shall be equal to the Normal Retirement Benefit that the Participant would have been entitled to receive had he or she retired as of the date of the Accelerating Termination and such retirement was approved by the Compensation Committee, and (c) if at the time of the Accelerating Termination the Participant was younger than age 55, then the Change in Control Benefit shall be equal to the Normal Retirement Benefit that the Participant would have been entitled to receive had he or she reached age 55 and retired as of the date of the Accelerating Termination and such retirement was approved by the Compensation Committee.

2.5 Forfeiture. In the event that the employment of a Participant is terminated for any reason other than the Participant’s Disability, death, retirement after attaining his Normal Retirement Age, or an Accelerating Termination, then no benefits shall be paid to the Participant or his or her Beneficiary under this Plan.

ARTICLE 3

ADMINISTRATION

3.1 Committee. The Compensation Committee shall appoint an Administrative Committee consisting of at least three persons to administer this Plan. Any Administrative Committee member may, but need not, be an officer or employee of the Company or any Affiliate and each shall serve until his successor shall be appointed in like manner. Any member of the Administrative Committee may resign by delivering his or her written resignation to the Compensation Committee. The Compensation Committee may remove any member of the Administrative Committee at any time for any reason.

3.2 Powers and Duties. Except as otherwise determined from time to time by the Compensation Committee, the Administrative Committee generally shall be responsible for the discretionary management, operation, interpretation and administration of the Plan and shall:

(a) Establish procedures for the allocation of responsibilities with respect to the Plan which are not allocated herein;

(b) Determine the names of those employees of the Company or its Affiliates who are eligible to become Participants, subject to the approval of the Compensation Committee, and such other matters as may be necessary to enable payment under the Plan;

(d) Correct any defect, supply any omission or reconcile any inconsistency that may appear in the Plan or the Trust;

(e) Determine the amount, manner and time of payment of benefits under the Plan and the procedures to be followed by Participants and Beneficiaries to obtain benefits;

(f) Keep adequate records of all meetings and actions taken by the Administrative Committee and report to the Compensation Committee at least annually or more frequently as requested by the Compensation Committee; and

(g) Perform such other functions and take such other actions as may be required by the Plan or as may be necessary or advisable to accomplish the purposes of the Plan.

The Company shall furnish the Administrative Committee with all data and information available which the Administrative Committee may reasonably require in order to perform its functions hereunder. The Administrative Committee may rely without question upon any such data or information furnished by the Company. Any interpretation or other decision made by the Administrative Committee (including without limitation any final determination made by the Administrative Committee pursuant to Section 3.5 hereof) shall be final, binding and conclusive upon all persons in the absence of clear and convincing evidence that the Administrative Committee acted arbitrarily and capriciously.

3.3 Agents. The Administrative Committee may appoint a Secretary who may, but need not, be a member of the Administrative Committee, and may employ such agents for clerical and other services, and such counsel, accountants and other professional advisors as may be required for the purpose of administering the Plan. The Administrative Committee may rely on all tables, valuations, reports, certificates and opinions furnished by its agents.

3.4 Procedures. A majority of the Administrative Committee members shall constitute a quorum for the transaction of business. No action shall be taken except upon a majority vote of the Administrative Committee. An individual shall not vote upon or decide any matter relating solely to himself or vote in any case in which his individual right or claim to any benefit under the Plan is particularly involved. In any case in which a Administrative Committee member is so disqualified to act, and the remaining members cannot agree on an issue, the

Compensation Administrative Committee shall appoint a temporary substitute member to exercise all of the powers of the disqualified member concerning the matter in which he is disqualified.

3.5 Claims Procedure. In the event that any Participant or Beneficiary claims to be entitled to benefits under the Plan and the Administrative Committee determines that such claim should be denied in whole or in part, the Administrative Committee shall, in writing, notify such claimant within 90 days of receipt of such claim that his claim has been denied, setting forth the specific reasons for such denial. Such notification shall be written in a manner reasonably expected to be understood by such Participant or Beneficiary and shall set forth the pertinent sections of the Plan relied on, and where appropriate, an explanation of how the claimant can obtain review of such denial. Within 60 days after the mailing or delivery by the Administrative Committee of such notice, such claimant may request, by mailing or delivery of written notice to the Administrative Committee, a review and/or hearing by the Administrative Committee of the decision denying the claim. If the claimant fails to request such a review and/or hearing within such 60 day period, it shall be conclusively determined for all purposes of this Plan that the denial of such claim by the Administrative Committee is correct. If such claimant requests a hearing within such 60 day period, the Administrative Committee shall designate a time (which time shall not be less than 7 nor more than 60 days from the date of such claimant’s notice to the Administrative Committee) and a place for such hearing, and shall promptly notify such claimant of such time and place. A claimant or his authorized representative shall be entitled to inspect all pertinent Plan documents and to submit issues and comments in writing. If only a review is requested, the claimant shall have 60 days after filing a request for review to submit additional written material in support of the claim. After such review and/or hearing, the Administrative Committee shall promptly determine whether such denial of the claim was correct and shall notify such claimant in writing of its determination with 60 days after such review and/or hearing or after receipt of any additional information submitted.

3.6 Indemnification. The Company shall indemnify each Administrative Committee member, and each employee who assist the Administrative Committee in connection with his or her employment duties against any liability or loss sustained by reason of any act or failure to act made in good faith, including, but not limited to, those in reliance on certificates, reports, tables, opinions or other communications from any company or agents chosen by the Administrative Committee in good faith. Such indemnification shall include attorneys’ fees and other costs and expenses reasonably incurred in defense of any action brought by reason of any such act or failure to act.

ARTICLE 4

TRUST

4.1 Establishment of the Trust In order to provide assets from which to fulfill the Company’s obligations to the Participants and their Beneficiaries under the Plan, the Company may establish a Trust by a trust agreement with a third party who shall serve as the trustee of the Trust. The Company may, in its discretion, contribute cash or other property, including securities issued by the Company, to the Trust in order to provide for the benefits payments under the Plan.

4.2 Interrelationship of the Plan and the Trust The provisions of the Plan shall govern the rights of the Participants and their Beneficiaries to receive distributions pursuant to the Plan. The provisions of the Trust, if any, shall govern the rights of the Company, the Participants and their Beneficiaries and the creditors of the Company to the assets transferred to the Trust. The Company shall at all times remain liable to carry out its obligations under the Plan.

4.3 Distributions From the Trust The Company’s obligations under the Plan may be satisfied with Trust assets distributed pursuant to the terms of the Trust, if any, and any such distribution shall reduce the Company’s obligations under this Plan.

ARTICLE 5

MISCELLANEOUS

5.1 Unfunded Plan. The obligations of the Company under this Plan shall be paid from the general assets of the Company or from the assets of the Trust. Participants shall have the status of general unsecured creditors of the Company, and the Plan constitutes a mere promise by the Company to make benefit payments in the future. It is intended that this Plan shall constitute an “unfunded” plan for a select group of management or highly compensated employees under the ERISA. Any assets acquired by the Company relating to this Plan shall be subject to the claims of the Company’s creditors, and shall not be subject to any claims by any Participant or Beneficiary. The assets of the Trust also shall be subject to the Company’s creditors in the event of the Company’s Insolvency, as defined in the Trust Agreement establishing the Trust. Nothing contained in this Plan shall be interpreted to grant to any Participant or Beneficiary, any right, title or interest in any assets of the Company or the Trust.

5.2 Timing of Company Contributions. For each Plan Year, the Company shall make contributions to the Trust in an amount that the Compensation Committee reasonably determines to be sufficient to fund the benefits that have accrued and have become vested under this Plan during that Plan Year. Notwithstanding the foregoing, in the event of a Change in Control, or if the Compensation Committee determines, in the Compensation Committee’s view, and notifies the Company that a Change in Control is imminent, the Company shall make a contribution to the Trust in an amount equal to the present value determined using a discount factor of five percent (5%) per annum, of all benefits that would be payable under the Plan by reason of the Change in Control.

5.3 Restrictive Covenants. As a condition to a Participant receiving benefits under this Plan, the Compensation Committee may require that the Participant enter into an agreement containing such restrictive covenants as the Compensation Committee may require, including without limitation, covenants relating to the Participant’s non-competition with the business of the Company or its Affiliates, non-solicitation of customers or employees of the Company or its Affiliates, and maintenance of confidential information relating to the Company and its Affiliates. In the event that the Compensation Committee so determines, payment of any benefits under this Plan to any Participant or Beneficiary shall be expressly conditioned upon the Participant’s entering into an agreement that contains such restrictive covenants, and the Participant’s compliance with those restrictive covenants, and any determination by the

Compensation Committee that any of those restrictive covenants have been breached by the Participant, shall be binding and conclusive on all parties.

5.4 Impact on Other Participant Benefits. This Plan shall not be construed to impact or cause the denial of any benefits to which any Participant may be entitled under any other welfare or benefit plan of the Company or any Affiliate. This Plan is intended to, and does in fact, supercede and replace in its entirety, any Supplemental Executive Retirement Plan Agreement between any Participant and the Company or any Affiliate.

5.5 Other Plans. Payments made to Participants under this Plan shall not be includable as salary or compensation for purposes of determining the amount of employee benefits under any other retirement, pension, profit-sharing or welfare benefit plans of the Company.

5.6 Governing Law. To the extent not pre-empted by the laws of the United States, the construction, validity and administration of the Plan shall be governed by the laws of the State of Florida without reference to the principles of conflicts of law therein.

5.7 No Assignment or Other Transfer. The right to receive payment of any benefits under the Plan shall not be subject in any manner to anticipation, sale, alienation, transfer, assignment, pledge, encumbrance, attachment, or garnishment by creditors of a Participant or a Participant’s Beneficiary.

5.8 Taxes. The Company shall withhold from any payment due under the Plan any taxes it deems to be required to be withheld under applicable Federal, state or local tax laws or regulations.

5.9 Severability. If any provision of this Plan is found, held or deemed to be void, unlawful or unenforceable under any applicable statute or other controlling law, the remainder of the Plan shall continue in full force and effect.

5.10 Successors. The provisions of this Plan shall bind and inure to the benefit of the Company and its successors and assigns, and the Participant and the Participant’s Beneficiary.

5.11 Headings and Subheadings. The headings and subheadings of the Plan are for reference only. In the event of a conflict between a heading or subheading and the content of an article or paragraph, the content shall control.

5.12 Gender. The masculine, as used herein, shall be deemed to include the feminine and the singular to include plural, except where the context requires a different construction.

5.13 Amendment and Termination. This Plan may be amended or terminated in any respect at any time by the Compensation Committee; provided, however, that no amendment or termination of the Plan shall be effective to reduce any benefit that accrues before the adoption of such amendment or termination without the prior written consent of the Participants whose benefits would be reduced; and provided further, that after a Change in Control, the Plan may not be amended or terminated in any manner that would reduce the benefits payable to any Participant or Beneficiary hereunder.

5.14 No Employment Contract. This Plan does not constitute a contract of employment or impose on any Participant or the Company or any Affiliate any obligations to retain the Participant as an employee, to change the status of the Participant’s employment, or to change the policies of the Company or any Affiliate regarding termination of employment.

IN WITNESS WHEREOF, the Company has caused the Plan to be executed the day and year first above written.


HUGHES SUPPLY, INC.

By:		/s/ Jay Clark
Name:		Jay Clark
Title:		Treasurer and Assistant Secretary

EXHIBIT A

Benefit Percentage

If the Participant is at the time his or her employment with the Company and its Affiliates terminates, the Chief Executive Officer, the Chairman of the Board or the Chief Financial Officer of the Company, the Benefit Percentage with respect to that Participant shall be determined in accordance with the following chart:


Normal Retirement Age*		Benefit Percentage
65		60.0%
64		57.6%
63		55.2%
62		52.8%
61		50.4%
60		48.0%
59		45.6%
58		43.2%
57		40.8%
56		38.4%
55		36.0%

If the Participant is not the Chief Executive Officer, the Chairman of the Board or Chief Financial Officer of the Company at the time his or her employment with the Company and its Affiliates terminates, the Benefit Percentage with respect to that Participant shall be determined in accordance with the following chart:


Normal Retirement Age*		Benefit Percentage
65		50.0%
64		48.0%
63		46.0%
62		44.0%
61		42.0%
60		40.0%
59		38.0%
58		36.0%
57		34.0%
56		32.0%
55		30.0%

*	This column represents the age on the Participant’s Normal Retirement Date or the date on which a Disabled Participant attains his or her Disability Retirement Age. It should be noted that retirement prior to age 65 requires approval of the Compensation Committee.

EX-31.1 3 dex311.htm 302 CERTIFICATION OF PRESIDENT AND CHIEF EXECUTIVE OFFICER. 302 Certification of President and Chief Executive Officer.

Exhibit 31.1

RULE 13a-14(a)/15d-14(a) CERTIFICATION

I, Thomas I. Morgan, the president and chief executive officer of Hughes Supply, Inc., certify that:

I have reviewed this Quarterly Report on Form 10-Q of Hughes Supply, Inc.;

Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations, and cash flows of the registrant as of, and for, the periods presented in this report;

The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:

a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

c) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent function):

a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.



By:		/s/ THOMAS I. MORGAN
		Thomas I. Morgan President and Chief Executive Officer

Date: June 9, 2004

EX-31.2 4 dex312.htm 302 CERTIFICATION OF EXECUTIVE VICE PRESIDENT AND CHIEF FINANCIAL OFFICER. 302 Certification of Executive Vice President and Chief Financial Officer.

Exhibit 31.2

RULE 13a-14(a)/15d-14(a) CERTIFICATION

I, David Bearman, the executive vice president and chief financial officer of Hughes Supply, Inc., certify that:

I have reviewed this Quarterly Report on Form 10-Q of Hughes Supply, Inc.;

b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

By:

/s/ DAVID BEARMAN

David Bearman

Executive Vice President and Chief Financial Officer

Date: June 9, 2004

EX-32.1 5 dex321.htm 906 CERTIFICATION OF PRESIDENT AND CHIEF EXECUTIVE OFFICER. 906 Certification of President and Chief Executive Officer.

Exhibit 32.1

FORM OF CERTIFICATION PURSUANT TO SECTION 1350 OF CHAPTER 63

OF TITLE 18 OF THE UNITED STATES CODE

I, Thomas I. Morgan, the president and chief executive officer of Hughes Supply, Inc., certify that, to the best of my knowledge, (i) the Form 10-Q for the period ended April 30, 2004 fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 and (ii) the information contained in such Form 10-Q fairly presents, in all material respects, the financial condition and results of operations of Hughes Supply, Inc.

By:

/s/ THOMAS I. MORGAN

Thomas I. Morgan

President and Chief Executive Officer

Date: June 9, 2004

A signed original of this written statement required by Section 906 has been provided to Hughes Supply, Inc. and will be retained by Hughes Supply, Inc. and furnished to the Securities and Exchange Commission or its staff upon request.

EX-32.2 6 dex322.htm 906 CERTIFICATION OF EXECUTIVE VICE PRESIDENT AND CHIEF FINANCIAL OFFICER. 906 Certification of Executive Vice President and Chief Financial Officer.

Exhibit 32.2

FORM OF CERTIFICATION PURSUANT TO SECTION 1350 OF CHAPTER 63

OF TITLE 18 OF THE UNITED STATES CODE

I, David Bearman, the executive vice president and chief financial officer of Hughes Supply, Inc., certify that, to the best of my knowledge, (i) the Form 10-Q for the period ended April 30, 2004 fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 and (ii) the information contained in such Form 10-Q fairly presents, in all material respects, the financial condition and results of operations of Hughes Supply, Inc.



By:		/s/ DAVID BEARMAN
		David Bearman Executive Vice President and Chief Financial Officer

Date: June 9, 2004

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