-----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, I8YTpFQM4/OQ8kyVEIlgu80AaDIx9homZcKXboXgC9qGmAHgrNpKItwcITOTf75T aByq7MIrunbwz/AYVcfglw== 0000950144-96-001728.txt : 19960423 0000950144-96-001728.hdr.sgml : 19960423 ACCESSION NUMBER: 0000950144-96-001728 CONFORMED SUBMISSION TYPE: S-3/A PUBLIC DOCUMENT COUNT: 6 FILED AS OF DATE: 19960422 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: HUGHES SUPPLY INC CENTRAL INDEX KEY: 0000049029 STANDARD INDUSTRIAL CLASSIFICATION: WHOLESALE-ELECTRICAL APPARATUS & EQUIPMENT, WIRING SUPPLIES [5063] IRS NUMBER: 590559446 STATE OF INCORPORATION: FL FISCAL YEAR END: 0125 FILING VALUES: FORM TYPE: S-3/A SEC ACT: 1933 Act SEC FILE NUMBER: 333-02215 FILM NUMBER: 96549330 BUSINESS ADDRESS: STREET 1: 20 N ORANGE AVE, STE 200 STREET 2: P O BOX 2273 CITY: ORLANDO STATE: FL ZIP: 32802-2273 BUSINESS PHONE: 4078414755 S-3/A 1 HUGHES SUPPLY S-3/A 1 AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON APRIL 22, 1996. REGISTRATION NO. 333-02215 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 --------------------- AMENDMENT NO. 1 TO FORM S-3 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 --------------------- HUGHES SUPPLY, INC. (Exact Name of Registrant as Specified in its Charter) FLORIDA 59-0559446 (State or Other Jurisdiction of Incorporation or (I.R.S. Employer Identification No.) Organization)
20 NORTH ORANGE AVENUE, SUITE 200 ORLANDO, FLORIDA 32801 (407) 841-4755 (Address, Including Zip Code, and Telephone Number, Including Area Code, of Registrant's Principal Executive Offices) --------------------- DAVID H. HUGHES CHAIRMAN OF THE BOARD AND CHIEF EXECUTIVE OFFICER HUGHES SUPPLY, INC. 20 NORTH ORANGE AVENUE, SUITE 200 ORLANDO, FLORIDA 32801 (407) 841-4755 (Name, Address, Including Zip Code, and Telephone Number, Including Area Code, of Agent for Service) --------------------- COPIES OF COMMUNICATIONS TO: ROBERT N. BLACKFORD, ESQ. G. WILLIAM SPEER, ESQ. MAGUIRE, VOORHIS & WELLS, P.A. POWELL, GOLDSTEIN, FRAZER & MURPHY 2 SOUTH ORANGE AVENUE 16TH FLOOR ORLANDO, FLORIDA 32801 191 PEACHTREE STREET, N.E. (407) 244-1100 ATLANTA, GEORGIA 30303 (404) 572-6600
--------------------- APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as practicable after the effective date of this Registration Statement. If the only securities being registered on this form are being offered pursuant to dividend or interest reinvestment plans, please check the following box. / / If any of the securities being registered on this form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, as amended (the "Securities Act"), other than securities offered only in connection with dividend or interest reinvestment plans, check the following box. / / If this form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. / /___________ If this form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. / /____________ If the delivery of the Prospectus is expected to be made pursuant to Rule 434, please check the following box. / /____________ --------------------- THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A), MAY DETERMINE. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- 2 INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE. SUBJECT TO COMPLETION, DATED APRIL 22, 1996 PROSPECTUS 1,929,926 SHARES [HUGHLES SUPPLY, INC. LOGO] COMMON STOCK ------------------ Of the 1,929,926 shares of Common Stock offered hereby, 1,250,000 shares are being sold by Hughes Supply, Inc. ("Hughes Supply" or the "Company") and 679,926 shares are being sold by certain shareholders (the "Selling Shareholders"). See "Principal and Selling Shareholders." The Company will not receive any of the proceeds from the sale of shares of Common Stock by the Selling Shareholders. This offering is contingent upon consummation of the PVF Acquisition (as defined herein). The Company's Common Stock is traded on the New York Stock Exchange, Inc. (the "NYSE") under the symbol "HUG." The last reported sale price of the Company's Common Stock on the NYSE on April 19, 1996 was $29.875 per share. SEE "RISK FACTORS" BEGINNING ON PAGE 7 OF THIS PROSPECTUS FOR A DISCUSSION OF CERTAIN FACTORS THAT SHOULD BE CONSIDERED IN EVALUATING AN INVESTMENT IN THE COMMON STOCK OFFERED HEREBY. ------------------ THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
- ------------------------------------------------------------------------------------------------------------- - ------------------------------------------------------------------------------------------------------------- UNDERWRITING PROCEEDS TO DISCOUNTS AND PROCEEDS TO SELLING PRICE TO PUBLIC COMMISSIONS(1) COMPANY(2) SHAREHOLDERS - ------------------------------------------------------------------------------------------------------------- Per Share $ $ $ $ - ------------------------------------------------------------------------------------------------------------- Total(3) $ $ $ $ - ------------------------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------------------------
(1) For information regarding indemnification of the Underwriters, see "Underwriting." (2) Before deducting expenses estimated at $425,000, all of which is payable by the Company. (3) The Company and one of the Selling Shareholders have granted the Underwriters 30-day options to purchase up to 236,989 and 52,500 additional shares of Common Stock, respectively, solely to cover over-allotments, if any. See "Underwriting." If such option is exercised in full, the total Price to Public, Underwriting Discounts and Commissions and Proceeds to Company will be $ , $ and $ , respectively. ------------------ The shares of Common Stock are offered by the several Underwriters named herein, subject to prior sale, when, as and if accepted by them and subject to certain other conditions. It is expected that certificates for the shares of Common Stock offered hereby will be available for delivery on or about , 1996, at the offices of Smith Barney Inc., 14 Wall Street, New York, New York 10005. ------------------ SMITH BARNEY INC. ROBERT W. BAIRD & CO. INCORPORATED , 1996 3 The following map shows the locations of the Company's branches and distribution centers and the branch locations of two companies to be acquired by the Company. [MAP] IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK OFFERED HEREBY AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH TRANSACTIONS MAY BE EFFECTED ON THE NEW YORK STOCK EXCHANGE OR OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME. 2 4 PROSPECTUS SUMMARY The following summary is qualified in its entirety by the more detailed information and the financial statements and related notes thereto included elsewhere or incorporated by reference in this Prospectus. As used in this Prospectus, unless the context indicates otherwise, (i) the terms "Company" and "Hughes Supply" mean Hughes Supply, Inc., its subsidiaries and its predecessors, and (ii) the information in this Prospectus assumes that the Underwriters' over-allotment option is not exercised. The Company's fiscal year ends on the last Friday in January of each year. THE COMPANY Hughes Supply is one of the largest diversified wholesale distributors of materials, equipment and supplies for the construction and industrial markets operating primarily in the southeastern and midwestern United States. The Company distributes more than 100,000 products through 221 branches located in 15 states and Puerto Rico. The Company's customers are subcontractors, general contractors, utilities, municipalities and manufacturers. Management believes that the Company holds significant market share in a majority of its local markets and is one of the largest distributors of its range of products in the southeastern and midwestern United States. The Company's largest geographic market is Florida (representing approximately 43% of fiscal 1996 net sales), which is one of the largest commercial and residential construction markets in the United States. The products which the Company distributes are used in new construction for commercial, residential, utility and industrial applications and for replacement and renovation projects. Such products include materials and supplies associated with the Company's nine major product groups, as follows: electrical; plumbing; water and sewer; air conditioning and heating; industrial pipe, valves and fittings; building materials; electric utilities; water systems; and pool equipment and supplies. Each product group is sold by the Company's own specialized and experienced sales force consisting of outside sales representatives and inside account executives. Management believes that the Company's mix of commercial, residential, utility and industrial business, geographic diversification and multiple product groups reduces the impact of economic cycles on the Company's net sales and profitability. Management believes that no other company competes against it across all of its product groups. The Company's principal business objective is to achieve profitable growth, both internally and through selective acquisitions, primarily in existing and contiguous geographic markets. The Company has grown internally through increases in comparable branch net sales, new branch openings and the addition of new product groups. Since January 29, 1993, the Company has opened 25 new branches. In addition, the Company continues to pursue an active acquisition program to capitalize on the opportunities presented by the substantial size and highly fragmented ownership structure of its industry. Based upon estimates available to the Company, industry sales in the United States of products sold by the Company exceeded $100 billion in 1995, and no wholesale distributor of these products accounted for more than 2% of the total market. Since January 29, 1993, the Company has completed 23 acquisitions representing 68 branches, excluding the PVF Acquisition (as defined herein). In addition to increased geographic penetration, acquisitions often provide opportunities for the Company to gain market share and to enhance and diversify product offerings. Management believes that the most cost effective way for the Company to enter new geographic markets is through acquisitions. All of the Company's significant acquisitions have been accretive to the Company's earnings per share. The Company's acquisition strategy is to acquire profitable distribution businesses with strong management and well-developed market positions and customer franchises. Acquisitions can generally be categorized as fill-in acquisitions or new market acquisitions. Fill-in acquisitions are generally smaller in size and represent new branches within existing product groups and existing geographic markets. Since January 29, 1993, the Company has completed fill-in acquisitions of 28 branches, and management believes that significant additional fill-in acquisition opportunities are available. New market acquisitions represent the addition of new product groups, within related commercial construction and industrial product categories, or the entry into new geographic markets, or both. During the last three fiscal years, the Company has increasingly focused on new market acquisitions with the goal of adding products and product groups with higher gross margins, increasing sales to the replacement and 3 5 industrial markets (which tend to be less cyclical than new construction markets), achieving greater geographic diversification and developing additional opportunities for future fill-in acquisitions and new branch openings. Recent new market acquisitions completed by the Company include (i) The Treaty Distribution Group, resulting in a significant increase in the Company's water and sewer products business in new geographic markets, (ii) Moore Electric Supply, Inc., resulting in a significant increase in the Company's electrical products business in new geographic markets, and (iii) Florida Pipe & Supply Company, the Company's initial entry into the industrial pipe, valve and fitting market. The Company's operating strategy is based on decentralizing customer related functions at the branch level, such as sales and local inventory management, and centralizing certain administrative functions at the corporate level, such as credit, human resources, finance and accounting, and management information systems. Other key elements of the Company's operating strategy include: - Comprehensive and diversified product groups; - Superior customer service; - Local market focus; - Well-trained and experienced workforce; and - Volume purchasing power. Hughes Supply differentiates itself from consumer-oriented, large format, do-it-yourself ("DIY") home center retailers with respect to the type of customer served, breadth of products offered and level of service provided. Management believes that the Company's customers, unlike DIY customers, are typically professionals who choose their building materials suppliers primarily on the basis of product availability, price, relationships with sales personnel, and the quality and scope of services offered by such suppliers. Furthermore, professional customers generally buy in large volumes, are involved in ongoing jobs or projects lasting months or years resulting in repeat buying situations, and require specialized services not typically provided by large format DIY home center retailers. Customer services provided by the Company include credit, design assistance, material specifications, scheduled job site delivery, job site visits to ensure satisfaction, technical product services, including blueprint take-off and computerized order quotes, and assistance with product returns. Accordingly, the Company has been able to serve customer groups that large format DIY home center retailers generally do not emphasize. As a result of the Company's operating and acquisition strategies, net sales increased to $1.1 billion in fiscal 1996 from $735.0 million in fiscal 1994, a compound annual growth rate of 21.3%; operating income increased to $29.9 million in fiscal 1996 from $13.1 million in fiscal 1994, a compound annual growth rate of 51.0%; and the number of branches increased to 212 branches at the end of fiscal 1996 from 143 branches at the end of fiscal 1994, a compound annual growth rate of 21.8%. Hughes Supply was founded as a general partnership in Orlando, Florida in 1928 and was incorporated as a Florida corporation in 1947. The Company's executive offices are located at 20 North Orange Avenue, Suite 200, Orlando, Florida 32801, and its telephone number is (407) 841-4755. THE PVF ACQUISITION On March 27, 1996, the Company entered into an asset purchase agreement to acquire substantially all of the assets, properties and business of PVF Holdings, Inc. ("PVF") and its subsidiaries and to assume certain of their liabilities (the "PVF Acquisition"). The aggregate consideration to be paid in the PVF Acquisition is approximately $106 million, consisting of cash in the amount of $74.4 million, the issuance of 669,956 shares of Common Stock and the assumption of up to $13 million of bank debt. The PVF Acquisition is scheduled to close on May 13, 1996. This offering is contingent upon the consummation of the PVF Acquisition. Concurrently, the Company is offering privately (the "Notes Offering") an aggregate of $100 million of Senior Notes (the "Notes"), approximately $74.4 million of the proceeds of which will be used to partially fund the PVF Acquisition. The balance of the proceeds will be used to repay a portion of the Company's bank debt. See "Use of Proceeds" and "Description of Notes." PVF, a privately owned company headquartered in Houston, Texas, is a specialty distributor of stainless steel and nickel alloy based pipe, valve and fitting products to industrial customers. PVF is one of the leading 4 6 providers of pipe, valve and fitting products for use by industrial companies that operate manufacturing processes involving highly corrosive or high temperature fluids, such as those of the petrochemical, food and beverage, and paper industries. Management of the Company believes that PVF carries one of the country's broadest and deepest inventories of such products, consisting of more than 15,000 different items sold to approximately 4,000 active accounts. PVF sells both directly to end-users and to supply houses that sell to end-users through 16 regional branch locations concentrated in the southeastern and southwestern United States. For the 12 months ended December 31, 1995, PVF had net sales of $109.2 million and operating income of $27.7 million. On a pro forma basis, giving effect to the PVF Acquisition, the Company's fiscal 1996 net sales were $1.2 billion, operating income was $57.0 million and, as of the end of fiscal 1996, the Company had 228 branches located in 19 states and Puerto Rico. See "Selected Unaudited Pro Forma Consolidated Financial Data." The PVF Acquisition is a new market acquisition which provides the Company with several strategic benefits, including: (i) a well-established position in the stainless steel and specialty alloy sector of the pipe, valve and fitting products market; (ii) a higher gross margin product group than the Company's other product groups; (iii) greater focus on targeted industrial and replacement markets; (iv) a strong management team; and (v) new opportunities for additional fill-in acquisitions. Additional growth opportunities for the Company related to the PVF Acquisition include incremental sales of complementary valve products (which represented only 2% of PVF's fiscal 1995 net sales) and new branch openings, including the expected opening of a branch in Southern California. RISK FACTORS For a discussion of certain factors that should be considered by prospective purchasers of the Common Stock offered hereby, see "Risk Factors." FORWARD-LOOKING STATEMENTS This Prospectus, including the information incorporated by reference herein, includes "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933, as amended (the "Securities Act") and Section 21E of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and is subject to the safe-harbor created by such sections. The Company's actual results may differ significantly from the results discussed in such forward-looking statements. Certain factors that might cause such differences include, but are not limited to, the "Risk Factors" described herein. THE OFFERING Common Stock being offered by: The Company............................................... 1,250,000 shares The Selling Shareholders.................................. 679,926 shares Common Stock to be outstanding after this offering.......... 9,222,864 shares(1) Use of proceeds............................................. To repay indebtedness under the Company's revolving credit facility and line of credit agreement. See "Use of Proceeds." NYSE symbol................................................. HUG
- --------------- (1) Based on the number of shares of Common Stock outstanding on April 1, 1996 and including an estimated aggregate of 1,155,749 shares of Common Stock to be issued in the PVF Acquisition and the acquisition of Elasco Inc. Does not include 485,941 shares of Common Stock issuable upon the exercise of stock options outstanding as of April 1, 1996. 5 7 SUMMARY CONSOLIDATED FINANCIAL AND OPERATING DATA (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
FISCAL YEAR ENDED --------------------------------------------------------------------- JAN. 26, 1996 ------------------------- JAN. 31, JAN. 29, JAN. 28, JAN. 27, PRO FORMA AS 1992(1) 1993 1994 1995 ACTUAL ADJUSTED(2) -------- -------- -------- -------- ---------- ------------ STATEMENT OF INCOME DATA: Net sales...................... $558,299 $600,185 $734,958 $875,459 $1,082,179 $1,258,842 Gross profit................... 106,523 115,111 144,492 176,327 223,606 277,580 Operating expenses............. 107,958 109,352 131,383 154,693 193,718 217,897 Operating income (loss)........ (1,435) 5,759 13,109 21,634 29,888 59,683 Interest expense............... 6,439 5,117 5,055 5,284 7,484 12,823 Interest and other income...... 2,058 3,743 2,981 2,848 4,605 5,542 Income (loss) before income taxes................. (5,816) 4,385 11,035 19,198 27,009 52,402 Net income (loss).............. $ (3,856) $ 2,841 $ 6,524 $ 11,485 $ 16,050 $ 31,133 ======== ======== ======== ======== ========= ========== Earnings (loss) per share Primary...................... $ (0.76) $ 0.56 $ 1.27 $ 1.83 $ 2.34 $ 3.36 ======== ======== ======== ======== ========= ========== Fully diluted................ $ (0.76) $ 0.56 $ 1.19 $ 1.81 $ 2.31 $ 3.33 ======== ======== ======== ======== ========= ========== OPERATING DATA: Branches at end of period...... 124 130 143 173 212 240 Comparable branch sales increases (decrease)(3)...... (14)% 3% 17% 13% 8%
AS OF JANUARY 26, 1996 ----------------------------------- ACTUAL PRO FORMA AS ADJUSTED(4) -------- ------------------------ BALANCE SHEET DATA: Working capital.............................................. $180,512 $234,120 Total assets................................................. $379,096 $516,415 Long-term debt, less current portion......................... $106,215 $169,681 Shareholders' equity......................................... $154,143 $211,659
- --------------- (1) Fiscal 1992 represents a 53-week fiscal year. (2) Gives effect to the following as if each had occurred as of January 28, 1995: (i) the PVF Acquisition; (ii) the acquisitions completed by the Company on or after January 27, 1996 through April 1, 1996 and the pending acquisition of Elasco Inc. (the "Fiscal 1997 Acquisitions"); and (iii) this offering, the Notes Offering and the application of the net proceeds therefrom by the Company. See "Selected Unaudited Pro Forma Consolidated Financial Data." (3) Comparable branch sales increases are calculated for each period presented by comparing the net sales results in a fiscal year with the net sales results for the prior fiscal year (for those branches that were open for the entire fiscal year and the entire prior fiscal year). (4) Gives effect to the following as if each had occurred as of January 26, 1996: (i) the PVF Acquisition; (ii) the Fiscal 1997 Acquisitions; and (iii) this offering, the Notes Offering and the application of the net proceeds therefrom by the Company. 6 8 RISK FACTORS In addition to the other information included or incorporated by reference in this Prospectus, prospective investors should consider carefully the following information relating to the Company and the Common Stock before making an investment in the Common Stock offered hereby. RISKS OF ACQUISITION STRATEGY A significant portion of the Company's growth strategy is based upon the acquisition of other building products businesses. During the normal course of its business, the Company pursues suitable acquisition opportunities in selected markets. There can be no assurance, however, that the Company will be able to continue to identify and acquire appropriate businesses or obtain financing for such acquisitions on satisfactory terms. In addition, no assurance can be given that the Company will be successful in integrating the business obtained in the PVF Acquisition or any other acquired business into its existing operations, or that such integration will not result in unforeseen operational difficulties or require a disproportionate amount of management's attention. Future acquisitions may be financed through the incurrence of additional indebtedness or through the issuance of Common Stock or the issuance of equity-linked securities, which may be dilutive to the Company's shareholders. Furthermore, there can be no assurance that competition for acquisition opportunities in the building products industry will not escalate, thereby increasing the cost to the Company of making further acquisitions or causing the Company to refrain from making further acquisitions. See "Business -- Acquisition Strategy" and "-- The PVF Acquisition." DEPENDENCE ON CONSTRUCTION MARKETS, ESPECIALLY IN FLORIDA Demand for the Company's products depends to a significant degree on the commercial, residential and industrial construction markets. The level of activity in the commercial construction market depends largely on vacancy and absorption rates, interest rates, regional economic outlooks, the availability of financing and general economic conditions. The level of activity in the residential construction market depends on new housing starts and residential renovation projects, which are a function of many factors, including interest rates, availability of financing, housing affordability, unemployment, demographic trends, gross domestic product growth and consumer confidence. The level of activity in the industrial construction market is linked to the industrial economic outlook, corporate profitability, interest rates and capacity utilization. Consequently, the level of activity in the commercial, residential and industrial construction markets is determined by factors that are not within the Company's control. Moreover, since such markets are sensitive to cyclical changes in the economy, future downturns in the economy or lack of further improvement in the economy could negatively affect the Company's results of operations, especially in Florida where approximately 43% of the Company's net sales were derived in fiscal 1996. UNCERTAINTY OF SUPPLY AND PRICE OF PRODUCTS The Company distributes construction materials and supplies manufactured by over 5,500 manufacturers and suppliers, no one of which accounted for more than 6% of the Company's total purchases during fiscal 1996. Although the Company has a widely diversified base of suppliers, future supply shortages may occur from time to time as a result of unanticipated demand or production difficulties. In such cases, suppliers often allocate products among distributors, which could have a short-term adverse effect on the Company's results of operations. Although the Company has entered into strategic partnerships with certain suppliers, if the Company fails to maintain such strategic partnerships or if such suppliers cease to offer competitive pricing terms, the Company's results of operations may be adversely affected. Furthermore, the future financial performance of PVF is directly influenced by the cost of stainless steel which, as a commodity item, can be volatile. A significant fluctuation in the price of stainless steel could have a material adverse effect on PVF's future profitability and could create cyclicality in PVF's operating performance. See "Business -- Operating Strategy -- Volume Purchasing Power" and "-- Customers and Suppliers." 7 9 COMPETITION The building products industry is highly competitive and fragmented. The principal competitive factors in the Company's business are availability of materials and supplies, pricing of products, availability of credit, technical product knowledge as to application and usage, and advisory and other service capabilities. The Company competes with other wholesalers, manufacturers who sell certain lines directly to contractors and other of the Company's customers and, to a limited extent, retailers in the markets for plumbing, electrical fixtures and supplies, building materials, pool supplies and contractor's tools. The Company's competition varies by product line, customer classification and geographic market. No assurance can be given that the Company will be able to respond effectively to the competitive pressures created by those entities, especially since certain of those entities have substantially greater financial and other resources than those of the Company. See "Business -- Competition." RELIANCE ON EXECUTIVE OFFICERS The Company is highly dependent upon the skills, experience and efforts of its executive officers. Loss of the services of one or more of the Company's executive officers could have a material adverse effect on the Company's business and development. The Company's continued growth also depends in part on its ability to attract and retain qualified managers, salespersons and other key employees and on its executive officers' ability to manage growth successfully. No assurance can be given that the Company will be able to attract and retain such employees or that such executive officers will be able to manage growth successfully. See "Management." SUBSTANTIAL INCREASE IN SHARES OUTSTANDING; LIMITATIONS ON PAYMENT OF DIVIDENDS This offering, the PVF Acquisition and the acquisition of Elasco Inc. will substantially increase the number of shares of Common Stock outstanding. The amount of future dividends, as well as the decision to pay any dividends, in respect of the Common Stock will depend on the Company's results of operations, capital requirements and financial condition and other factors that the Board of Directors deems relevant. In addition, certain debt instruments and agreements to which the Company and its subsidiaries are or may in the future become parties contain or may contain restrictive covenants and provisions that limit the amount of dividends payable by the Company. See "Price Range of Common Stock and Dividends" and "Description of Notes." VOLATILITY OF MARKET PRICE FOR COMMON STOCK From time to time after this offering, there may be significant volatility in the market price for the Common Stock. Operating results of the Company or of other companies participating in the building products industry, changes in general economic conditions and the financial markets, or other developments affecting the Company or its competitors could cause the market price for the Common Stock to fluctuate substantially. See "-- Dependence on Construction Markets, Especially in Florida" above and "Price Range of Common Stock and Dividends." 8 10 USE OF PROCEEDS The net proceeds to the Company from the sale of 1,250,000 shares of Common Stock offered hereby are estimated to be approximately $33.9 million (approximately $40.4 million if the Underwriters' over-allotment option is exercised in full). This assumes a public offering price of $29.00 per share of Common Stock, the last reported sale price of the Common Stock on the NYSE on April 1, 1996, and expenses payable by the Company estimated at $425,000. The Company expects to apply the net proceeds from this offering to reduce indebtedness outstanding under its revolving credit facility and line of credit agreement. At the end of fiscal 1996, such indebtedness had a weighted average interest rate of 6.29% per annum and becomes payable on June 30, 1998. The net proceeds to the Company from the sale of the Notes are estimated to be approximately $100 million. The Company expects to apply approximately $74.4 million of the net proceeds of the Notes Offering to partially fund the PVF Acquisition. The remaining net proceeds therefrom will be used to further repay indebtedness outstanding under the Company's revolving credit facility and line of credit agreement. See "Business -- The PVF Acquisition" and "Description of Notes." This offering and the Notes Offering are contingent upon the consummation of the PVF Acquisition. If the Company is unable to secure financing through the Notes Offering (or if the Notes Offering is consummated after the PVF Acquisition), the Company has secured a commitment for interim financing of $55 million from its bank syndication group which, along with interim financing from the sellers in the PVF Acquisition of $30 million, would be utilized to fund the PVF Acquisition. The Company will not receive any of the proceeds from the sale of Common Stock by the Selling Shareholders. CAPITALIZATION The following table sets forth the consolidated capitalization of the Company (i) as of January 26, 1996 and (ii) pro forma as adjusted to give effect to the following as if each had occurred as of January 26, 1996: the PVF Acquisition; the Fiscal 1997 Acquisitions; and this offering (assuming a public offering price of $29.00 per share of Common Stock, the last reported sale price of the Common Stock on the NYSE on April 1, 1996), the Notes Offering and the application of the net proceeds therefrom by the Company. See "Use of Proceeds," "Selected Unaudited Pro Forma Consolidated Financial Data," and the Company's Consolidated Financial Statements and related notes included in this Prospectus.
JANUARY 26, 1996 ---------------------- PRO FORMA ACTUAL AS ADJUSTED -------- ----------- (DOLLARS IN THOUSANDS) Current portion of long-term debt....................................... $ 2,551 $ 2,551 -------- ----------- Long-term debt, less current portion: Unsecured revolving bank notes........................................ 68,300 31,766 Short-term instruments classified as long-term debt................... 35,200 35,200 Other notes payable................................................... 558 558 Capital lease obligations............................................. 2,157 2,157 % Senior Notes...................................................... -- 100,000 -------- ----------- Total long-term debt, less current portion.................... 106,215 169,681 -------- ----------- Shareholders' equity: Preferred Stock, no par value; 10,000,000 shares authorized; none issued; preferences, limitations and relative rights to be established by Board of Directors -- -- Common Stock, par value $1 per share; 20,000,000 shares authorized; 6,798,462 and 9,204,211 issued..................................... 6,798 9,204 Capital in excess of par value........................................ 40,553 91,586 Retained earnings..................................................... 106,792 110,869 -------- ----------- Total shareholders' equity.................................... 154,143 211,659 -------- ----------- Total capitalization..................................... $262,909 $ 383,891 ======== =========
9 11 PRICE RANGE OF COMMON STOCK AND DIVIDENDS The Common Stock is listed on the NYSE under the symbol "HUG." The following table sets forth the high and low sale prices of the Common Stock, as reported on the NYSE for, and the dividends per share declared in, the periods indicated.
PRICE RANGE -------------- DIVIDENDS HIGH LOW PER SHARE ---- --- --------- Year Ended January 27, 1995: 1st Quarter.................................................... $32 1/4 $24 $ .05 2nd Quarter.................................................... 28 3/4 17 .05 3rd Quarter.................................................... 21 17 .06 4th Quarter.................................................... 19 3/8 15 7/8 .06 Year Ended January 26, 1996: 1st Quarter.................................................... 20 7/8 17 3/4 .07 2nd Quarter.................................................... 22 3/8 18 7/8 .07 3rd Quarter.................................................... 27 1/4 21 3/8 .07 4th Quarter.................................................... 30 1/2 23 5/8 .09 Year Ending January 31, 1997: 1st quarter (through April 19, 1996)........................... 30 26 5/8 .09
The closing sale price of the Common Stock, as reported on the NYSE, on April 19, 1996 was $29.875 per share. As of April 1, 1996, there were 1,114 holders of record of the Common Stock. The amount of future dividends, as well as the decision to pay any dividends, in respect of the Common Stock will depend on the Company's results of operations, capital requirements and financial condition and other factors that the Board of Directors deems relevant. In addition, certain debt instruments and agreements to which the Company and its subsidiaries are or may in the future become parties contain or may contain restrictive covenants and provisions that limit the amount of dividends payable by the Company. See "Description of Notes." 10 12 SELECTED UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL DATA The unaudited Pro Forma Consolidated Balance Sheet of the Company as of January 26, 1996 gives effect to the following as if each had occurred as of January 26, 1996: (i) the PVF Acquisition; (ii) the Fiscal 1997 Acquisitions; and (iii) this offering, the Notes Offering and the application of the net proceeds therefrom by the Company. The unaudited Pro Forma Consolidated Statement of Income of the Company for the fiscal year ended January 26, 1996 gives effect to the following as if each had occurred on January 28, 1995: (i) the PVF Acquisition; (ii) the Fiscal 1997 Acquisitions; and (iii) this offering, the Notes Offering and the application of the net proceeds therefrom by the Company. The PVF Acquisition was accounted for under the purchase method of accounting. The total purchase price was allocated to tangible and identifiable intangible assets and liabilities based on management's estimate of their fair values with the excess of cost over the fair value of the net assets acquired allocated to goodwill. The unaudited Pro Forma Consolidated Balance Sheet and Statement of Income have been prepared by the Company based on the Consolidated Financial Statements of the Company and PVF included in this Prospectus. The unaudited Pro Forma Consolidated Balance Sheet and Statement of Income are presented for illustration purposes only and do not purport to be indicative of the combined financial condition or results of operations that actually would have occurred if the transactions described above had been effected at the dates indicated or to project future financial condition or results of operations for any future period. In particular, PVF's gross margin may be adversely affected by fluctuations in prices for stainless steel and nickel alloy. In addition, the volatility of prices for stainless steel and nickel alloy may create cyclicality in PVF's operating performance. Therefore, management believes that the pro forma consolidated financial data are not necessarily indicative of future performance. The unaudited Pro Forma Consolidated Balance Sheet and Statement of Income should be read in conjunction with the Company's Consolidated Financial Statements and the Consolidated Financial Statements of PVF and related notes thereto included in this Prospectus. 11 13 HUGHES SUPPLY, INC. UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET AS OF JANUARY 26, 1996 (IN THOUSANDS)
COMMON STOCK PRO FORMA PRO FORMA OFFERING AND ADJUSTMENTS ADJUSTMENTS NOTES HUGHES PVF FISCAL 1997 FISCAL 1997 PRO FORMA OFFERING PRO FORMA SUPPLY PVF ACQUISITION ACQUISITIONS ACQUISITIONS COMBINED ADJUSTMENTS AS ADJUSTED -------- ------- ----------- ------------ ------------ --------- ------------ ----------- (A) (A) (B) (B) ASSETS Current assets: Cash and cash equivalents... $ 3,432 $ 204 $ -- $ 274 $ -- $ 3,910 $ -- $ 3,910 Accounts receivable, net........ 143,354 12,584 -- 8,516 (62)(i) 164,392 -- 164,392 Inventories... 132,524 39,829 -- 8,572 -- 180,925 -- 180,925 Other current assets..... 18,175 747 (747)(c) 44 (16)(i) 18,203 -- 18,203 -------- ------- ----------- ------------ ------------ --------- ------------ ----------- Total current assets... 297,485 53,364 (747) 17,406 (78) 367,430 -- 367,430 Property and equipment, net.......... 57,697 1,295 500(d) 3,107 (1,385)(i) 61,214 -- 61,214 Goodwill....... 16,637 -- 58,167(n) -- 4,327(o) 79,131 -- 79,131 Other assets... 7,277 1,270 (132)(e) 597 (500)(i) 8,512 128(l) 8,640 -------- ------- ----------- ------------ ------------ --------- ------------ ----------- $379,096 $55,929 $ 57,788 $ 21,110 $ 2,364 $516,287 $ 128 $ 516,415 ======== ======= ========== ========= ========= ======== ========== ========= LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Accounts payable.... $ 84,875 $ 8,233 $ -- $ 5,717 $ -- $ 98,825 $ -- $ 98,825 Other current liabilities... 32,098 8,126 (6,595)(f) 1,062 (206)(i) 34,485 -- 34,485 -------- ------- ----------- ------------ ------------ --------- ------------ ----------- Total current liabilities... 116,973 16,359 (6,595) 6,779 (206) 133,310 -- 133,310 Long-term debt......... 106,215 7,084 78,269(g)(p) 7,405 5,018(j) 203,991 (34,310)(m)(p) 169,681 Other noncurrent liabilities... 1,765 -- -- 605 (605)(i) 1,765 -- 1,765 -------- ------- ----------- ------------ ------------ --------- ------------ ----------- Total liabilities... 224,953 23,443 71,674 14,789 4,207 339,066 (34,310) 304,756 -------- ------- ----------- ------------ ------------ --------- ------------ ----------- Shareholders' equity: Capital stock...... 6,798 10 660(h) 521 (35)(k) 7,954 1,250(m) 9,204 Capital in excess of par value...... 40,553 2,021 15,909(h) 85 (170)(k) 58,398 33,188(m) 91,586 Retained earnings... 106,792 30,455 (30,455)(h) 5,715 (1,638)(k) 110,869 -- 110,869 -------- ------- ----------- ------------ ------------ --------- ------------ ----------- Total shareholders' equity... 154,143 32,486 (13,886) 6,321 (1,843) 177,221 34,438 211,659 -------- ------- ----------- ------------ ------------ --------- ------------ ----------- $379,096 $55,929 $ 57,788 $ 21,110 $ 2,364 $516,287 $ 128 $ 516,415 ======== ======= ========== ========= ========= ======== ========== =========
See notes to unaudited pro forma consolidated balance sheet. 12 14 NOTES TO UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET (DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) (a) The Company has entered into an agreement to acquire certain assets and liabilities of PVF for cash consideration of $74,400 and Common Stock consideration of $18,600. (b) The Company has acquired certain assets and liabilities of two entities accounted for under the purchase method of accounting, and has entered into an agreement to acquire a third entity which will be accounted for under the poolings of interests method. Cash consideration of $5,430 has been paid and Common Stock consideration of $13,250 will be issued for these acquisitions. These acquisitions are immaterial individually and in the aggregate. (c) Elimination of other current assets of PVF not being acquired. (d) Adjustment to write-up property and equipment acquired in the PVF Acquisition to its estimated fair value. (e) Adjustment to record the elimination of $504 of other assets of PVF not being acquired and to record debt issuance costs of $372 incurred on the issuance of $74,772 of Notes. (f) Adjustment to accrue for professional fees of $500 associated with the PVF Acquisition, to eliminate $2,818 of other current liabilities which are not being assumed, and to reclassify $4,277 of the current portion of PVF debt to long term as it will be replaced by the Company's line of credit. (g) Adjustment to reflect the issuance of $74,772 of Notes (assuming an interest rate of 7.75% and debt issuance costs of $372) to be issued in connection with the PVF Acquisition, the elimination of $780 of PVF debt which is not being assumed, and the reclassification of $4,277 of the current portion of PVF debt to long term as it will be replaced by the Company's line of credit. (h) Elimination of the shareholders' equity accounts of PVF and to reflect the issuance of 669,956 shares of Common Stock in connection with the PVF Acquisition at $27.76 per share, which approximates the estimated fair value of the Common Stock at the date the terms of the acquisition were agreed upon. (i) Elimination of assets/liabilities of the Fiscal 1997 Acquisitions which are not being acquired or assumed. (j) Adjustment to reflect the borrowing of $5,430 under the Company's line of credit facility to fund a portion of the purchase price for the Fiscal 1997 Acquisitions and the elimination of $412 of long-term debt of the acquired companies which is not being assumed. (k) Adjustment to reflect the issuance of 485,793 shares of Common Stock for one of the Fiscal 1997 Acquisitions to be accounted for under the poolings of interest method of accounting and the elimination of the capital accounts of the Fiscal 1997 Acquisitions which have been accounted for under the purchase method of accounting. (l) Adjustment to reflect the balance of the debt issue costs to be incurred upon the issuance of $25,228 of Notes. (m) Adjustment to reflect the issuance of $25,228 of Notes (assuming an interest rate of 7.75% and net proceeds to the Company of $25,100) and the issuance of 1,250,000 shares of Common Stock at an assumed price of $29.00 per share (estimated net proceeds to the Company of $27.55 per share and $34,438 in the aggregate) with the net proceeds from these offerings being used to reduce amounts outstanding under the Company's line of credit facility. (n) Adjustment to record the excess of the acquisition cost over the fair value of net assets acquired (goodwill) of PVF of $58,167. (o) Adjustment to reflect the excess of the acquisition cost over the fair value of net assets acquired (goodwill) of $4,327. (p) Included in the adjustment to long-term debt is $74,772 and $25,228 for the private placement of $100,000 of Notes with an assumed final maturity in 2011. Proceeds from the issuance of the Notes will be used to partially fund the PVF Acquisition and to provide additional working capital to the Company. Should the Notes Offering not be consummated, the Company intends to finance the PVF Acquisition through a $55,000 bridge loan with the Company's bank syndication group and issuance of a $30,000 promissory note to the sellers. The bridge loan will carry interest at approximately the same rate as the Company's line of credit facility (an average rate of 6.29% in fiscal 1996) for the first six months, and will increase 1% for months six through nine and increase an additional 1% after nine months. The sellers' promissory note will bear interest at 6% for the first six months, then will increase to prime for the next six months. Thereafter, interest on such note will be at prime plus 1/2%. The sellers' note will mature on May 31, 1998. See "Description of Notes." 13 15 HUGHES SUPPLY, INC. UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF INCOME FOR THE YEAR ENDED JANUARY 26, 1996 (IN THOUSANDS, EXCEPT PER SHARE DATA)
PRO FORMA PRO FORMA ADJUSTMENTS ADJUSTMENTS HUGHES PVF FISCAL 1997 FISCAL 1997 SUPPLY PVF ACQUISITION ACQUISITIONS ACQUISITIONS ------------ ----------- ----------- ------------ --------------- (A) (A) Net sales................ $1,082,179 $ 109,159 $ -- $ 67,690 $ (186)(f) Cost of sales............ 858,573 66,428 -- 56,261 -- ------------ ----------- ----------- ------------ --------------- Gross profit........... 223,606 42,731 -- 11,429 (186) Operating expenses....... 183,133 14,349 (3,264)(b) 9,064 (1,036)(g) Depreciation & amortization........... 10,585 673 3,878(c) 266 249(h) ------------ ----------- ----------- ------------ --------------- Total operating expenses............... 193,718 15,022 614 9,330 (787) ------------ ----------- ----------- ------------ --------------- Operating income....... 29,888 27,709 (614) 2,099 601 Interest and other income................. 4,605 175 -- 762 -- Interest expense......... (7,484) (965) (5,537)(d)(j) (615) -- ------------ ----------- ----------- ------------ --------------- Income before taxes.... 27,009 26,919 (6,151) 2,246 601 Income taxes............. 10,959 10,910 (2,478)(e) 23 1,133(e) ------------ ----------- ----------- ------------ --------------- Net income............. $ 16,050 $ 16,009 $(3,673) $ 2,223 $ (532) =========== ========== =========== =========== ============= Earnings per share: Primary................ $ 2.34 =========== Fully diluted.......... $ 2.31 =========== Average shares outstanding: Primary................ 6,856 =========== Fully diluted.......... 6,935 =========== COMMON AND NOTES PRO FORMA OFFERING PRO FORMA COMBINED ADJUSTMENTS AS ADJUSTED ---------------- ----------- ----------- Net sales................ $ 1,258,842 $ -- $ 1,258,842 Cost of sales............ 981,262 -- 981,262 ---------------- ----------- ----------- Gross profit........... 277,580 -- 277,580 Operating expenses....... 202,246 -- 202,246 Depreciation & amortization........... 15,651 -- 15,651 ---------------- ----------- ----------- Total operating expenses............... 217,897 -- 217,897 ---------------- ----------- ----------- Operating income....... 59,683 -- 59,683 Interest and other income................. 5,542 -- 5,542 Interest expense......... (14,601) 1,778(i)(j) (12,823) ---------------- ----------- ----------- Income before taxes.... 50,624 1,778 52,402 Income taxes............. 20,547 722(e) 21,269 ---------------- ----------- ----------- Net income............. $ 30,077 $ 1,056 $ 31,133 ========== =========== ========== Earnings per share: Primary................ $ 3.36 ========== Fully diluted.......... $ 3.33 ========== Average shares outstanding: Primary................ 9,262 ========== Fully diluted.......... 9,342 ==========
See notes to unaudited pro forma consolidated statement of income. 14 16 NOTES TO UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF INCOME (DOLLARS IN THOUSANDS) (a) Amounts represent results of acquired companies for the 12 months ended December 31, 1995. (b) Adjustments to operating expenses to eliminate overhead allocation from PVF's parent of $2,341 and personnel costs of $923 which will be reduced/eliminated as a result of the acquisition. (c) Adjustment to reflect amortization on goodwill of $58,167 on a straight-line basis over 15 years. (d) Adjustment to interest expense as a result of the PVF Acquisition: Interest on $74,772 of Notes (including $372 of debt issuance costs) to be issued in connection with the PVF Acquisition, assuming an interest rate of 7.75%............................................ $5,795 Reduction of interest on PVF average borrowings of $10,651 at average rate of 9.06% replaced by the Company's line of credit with an average rate of 6.29%..................................... (295) Amortization of debt issuance costs................................. 37 ------ $5,537 ======
(e) Federal income tax adjustments relating to the acquisitions using the Company's annual effective tax rate of 40.6%. This amount also reflects the effect on income taxes for earnings on a sub-chapter S corporation. (f) Elimination of sales generated from assets which were not acquired. (g) Adjustment to reflect a reduction in personnel costs of $855 as a result of the acquisitions and the elimination of expenses of $181 associated with assets which were not acquired. (h) Adjustment to eliminate depreciation charges of $39 for plant and equipment which was not acquired and to reflect amortization of $288 on $4,327 of goodwill recorded on the acquisitions on a straight-line basis over 15 years. (i) Adjustment to interest expense as a result of this offering and the Notes Offering: Use of proceeds from this offering to reduce amounts outstanding under the Company's line of credit facility....................... $2,159 Increase in interest expense resulting from replacing amounts outstanding under the line of credit facility with the Notes...... (381) ------ $1,778 ======
(j) If the Company is unable to secure financing through the Notes Offering, the Company has secured a commitment for interim financing of $55,000 from its bank syndication group which along with interim financing from the sellers of $30,000 would be utilized to fund the PVF Acquisition. The alternative financing would result in the Company incurring an estimated additional $187 of interest expense compared to the amount assumed with respect to the Notes Offering. 15 17 SELECTED CONSOLIDATED FINANCIAL AND OPERATING DATA (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA) The following selected consolidated financial data have been derived from audited consolidated financial statements of the Company. The following data should be read in conjunction with "Management's Discussion and Analysis of Financial Condition and Results of Operations" and the Company's Consolidated Financial Statements and related notes included in this Prospectus.
FISCAL YEAR ENDED ------------------------------------------------------ JAN. 31, JAN. 29, JAN. 28, JAN. 27, JAN. 26, 1992(1) 1993 1994 1995 1996 -------- -------- -------- -------- ---------- STATEMENT OF INCOME DATA: Net sales.................................. $558,299 $600,185 $734,958 $875,459 $1,082,179 Cost of sales.............................. 451,776 485,074 590,466 699,132 858,573 -------- -------- -------- -------- ---------- Gross profit............................... 106,523 115,111 144,492 176,327 223,606 Operating expenses......................... 107,958 109,352 131,383 154,693 193,718 -------- -------- -------- -------- ---------- Operating income (loss).................... (1,435) 5,759 13,109 21,634 29,888 Interest expense........................... 6,439 5,117 5,055 5,284 7,484 Interest and other income.................. 2,058 3,743 2,981 2,848 4,605 -------- -------- -------- -------- ---------- Income (loss) before income taxes.......... (5,816) 4,385 11,035 19,198 27,009 Income taxes (benefits).................... (1,960) 1,544 4,511 7,713 10,959 -------- -------- -------- -------- ---------- Net income (loss).......................... $ (3,856) $ 2,841 $ 6,524 $ 11,485 $ 16,050 ======== ======== ======== ======== ========= Earnings (loss) per share: Primary.................................. $ (0.76) $ 0.56 $ 1.27 $ 1.83 $ 2.34 ======== ======== ======== ======== ========= Fully diluted............................ $ (0.76) $ 0.56 $ 1.19 $ 1.81 $ 2.31 ======== ======== ======== ======== ========= Cash dividends per share................... $ 0.24 $ 0.12 $ 0.16 $ 0.22 $ 0.30 ======== ======== ======== ======== ========= Shares outstanding: Primary.................................. 5,046 5,058 5,143 6,259 6,856 Fully diluted............................ 5,046 5,086 6,313 6,443 6,935 OPERATING DATA: Branches at end of period.................. 124 130 143 173 212 Comparable branch sales increases (decrease)(2)............................ (14)% 3% 17% 13% 8% BALANCE SHEET DATA (END OF PERIOD): Working capital............................ $112,984 $120,522 $142,392 $172,794 $180,512 Total assets............................... 234,723 246,249 279,390 346,116 379,096 Long-term debt, less current portion....... 77,240 86,258 104,692 105,243 106,215 Shareholders' equity....................... 86,829 90,080 98,066 136,104 154,143
- --------------- (1) Fiscal 1992 represents a 53-week fiscal year. (2) Comparable branch sales increases are calculated for each period presented by comparing the net sales results in a fiscal year with the net sales results for the prior fiscal year (for those branches that were open for the entire fiscal year and the entire prior fiscal year). 16 18 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Hughes Supply is one of the largest diversified wholesale distributors of materials, equipment and supplies for construction and industrial markets operating primarily in the southeastern and midwestern United States. The Company distributes more than 100,000 products, through 221 branches located in 15 states and Puerto Rico. The Company's customers are subcontractors, general contractors, electric utilities, municipalities and manufacturers. Management believes that the Company holds significant market share in a majority of its local markets and is one of the largest distributors of its range of products in the southeastern and midwestern United States. Since January 29, 1993, the Company has completed 23 acquisitions representing 68 branches, excluding the PVF Acquisition. In addition to increased geographical penetration, acquisitions often provide opportunities for the Company to gain market share and to enhance and diversify product offerings. Management believes that the most cost effective way for the Company to enter new geographic markets is through acquisitions. On March 27, 1996, the Company entered into an asset purchase agreement to acquire substantially all of the assets, properties and business of PVF and its subsidiaries and to assume certain of their liabilities. The aggregate consideration to be paid in the PVF Acquisition is approximately $106 million, consisting of cash in the amount of $74.4 million, the issuance of 669,956 shares of Common Stock and the assumption of up to $13 million of bank debt. The PVF Acquisition is scheduled to close on May 13, 1996. This offering is contingent upon the consummation of the PVF Acquisition. On February 5, 1996, the Company acquired Waldorf Supply Inc. ("Waldorf"), a wholesale distributor of plumbing supplies and materials in Waldorf, Maryland. Waldorf has one location and had annual sales of approximately $6.2 million in its last fiscal year. Waldorf is a fill-in acquisition. On March 22, 1996, the Company acquired West Virginia Water and Waste Supply Co. ("West Virginia Water"), a wholesale distributor of water and sewer products in Charleston, West Virginia. West Virginia Water has two locations and had annual sales of approximately $17.9 million in its last fiscal year. West Virginia Water represents a new market acquisition. The Company expects to acquire Elasco Inc., a wholesale distributor of electric utility products in Mattoon, Illinois in May 1996. Elasco Inc. has three locations and had annual sales of approximately $43.6 million in its last fiscal year. Elasco Inc. is a new market acquisition in the Midwest and will be accounted for as a poolings of interest. The acquisitions of Waldorf, West Virginia Water and Elasco Inc. are collectively referred to as the "Fiscal 1997 Acquisitions." As described in Note 2 of the Notes to the Company's Consolidated Financial Statements, in fiscal 1996 the Company entered into business combinations with Moore Electric Supply, Inc. and Florida Pipe & Supply Company, and such business combinations were accounted for as poolings of interests. Accordingly, all financial data in this discussion and analysis is reported as though the companies had always been combined. In addition to the business combinations accounted for as poolings of interests referred to above, in fiscal 1996 the Company purchased nine wholesale distributor businesses for an aggregate amount of approximately $13 million ($10 million in cash and $3 million in Common Stock). In fiscal 1995, amounts paid for acquisitions totaled approximately $21 million ($11 million in cash, $4 million in Common Stock and $6 million in other consideration), and amounts paid for acquisitions in fiscal 1994 totaled approximately $4 million in cash. The results of these acquired operations are included in the Company's Consolidated Financial Statements from their respective dates of acquisition. See "Business -- Acquisition Strategy." 17 19 RESULTS OF OPERATIONS The following table sets forth, for the periods indicated, the percentage of net sales represented by certain items in the Company's Consolidated Statements of Income:
FISCAL YEAR ENDED ------------------------------ JAN. 28, JAN. 27, JAN. 26, 1994 1995 1996 -------- -------- -------- STATEMENTS OF INCOME DATA: Net sales..................................................... 100.0% 100.0% 100.0% Cost of sales................................................. 80.3 79.9 79.3 Gross profit................................................ 19.7 20.1 20.7 Operating expenses............................................ 17.9 17.7 17.9 Operating income............................................ 1.8 2.5 2.8 Interest and other income..................................... 0.4 0.3 0.4 Interest expense.............................................. 0.7 0.6 0.7 Income before income taxes.................................. 1.5 2.2 2.5 Income taxes.................................................. 0.6 0.9 1.0 Net income.................................................. 0.9 1.3 1.5
NET SALES Net sales were $1.1 billion in fiscal 1996, representing a 23.6% increase over fiscal 1995 net sales of $875.5 million. Fiscal 1995 net sales represented a 19.1% increase over fiscal 1994 net sales of $735.0 million. Newly-opened and acquired branches accounted for approximately 66% of the increase in net sales in fiscal 1996 and 40% of the increase in net sales in fiscal 1995. The remainder of the increase in each period was a result of sales increases in existing branches. The Company's strategy of expansion and diversification has contributed to the above-mentioned sales gains along with growth in comparable branch sales. Although residential construction activity decreased in fiscal 1995 and fiscal 1996 following a period of substantial residential construction activity in fiscal 1994, this decrease was offset by an increase in commercial and industrial construction activity in fiscal 1995 which continued through fiscal 1996. Construction activity, especially commercial construction activity in the Southeast, is expected to remain strong during fiscal 1997. Management believes that the continuing favorable construction markets together with the Company's acquisition program and growth in comparable branch sales should result in continued sales growth. GROSS PROFIT Gross profit was $223.6 million in fiscal 1996, representing a 26.8% increase over fiscal 1995 gross profit of $176.3 million. Fiscal 1995 gross profit increased 22.0% over fiscal 1994 gross profit of $144.5 million. Gross margins have improved steadily over the past three fiscal years. The improvement has resulted from several factors, including the introduction of product offerings with better margins, efficiencies resulting from the Company's use of central distribution centers, and increased volume and concentration of supply sources in connection with the implementation of the Company's preferred vendor program. OPERATING EXPENSES Operating expenses were $193.7 million in fiscal 1996, representing a 25.2% increase over fiscal 1995 operating expenses of $154.7 million. Newly-opened and acquired branches accounted for approximately 60% of the increase. The remainder of the increase was due primarily to personnel and transportation costs associated with growth in the Company's sales. The 17.7% increase in fiscal 1995 operating expenses over fiscal 1994 operating expenses of $131.4 million was primarily attributable (approximately 45%) to branches opened and acquisitions made during fiscal 1995, as well as to an increase in costs, such as personnel, 18 20 transportation and insurance, associated with sales growth. Operating expenses as a percentage of sales remained relatively constant over the three-year period. NON-OPERATING INCOME AND EXPENSES Interest and other income increased to $4.6 million in fiscal 1996 compared to $2.8 million in fiscal 1995, representing a 61.7% increase. This increase is primarily the result of improved collection of service charge income on delinquent accounts receivable. In fiscal 1995, interest and other income decreased to $2.8 million compared to $3.0 million in fiscal 1994, representing a 4.5% decrease. Interest expense increased to $7.5 million in fiscal 1996, representing a 41.6% increase over fiscal 1995 interest expense of $5.3 million. Higher interest rates and higher average borrowing levels were equally responsible for the increase. Fiscal 1995 interest expense was $200,000 higher than fiscal 1994 interest expense of $5.1 million, representing a 4.5% increase. This increase was attributable to higher interest rates which were partially offset by lower borrowing levels resulting in part from the conversion of $23.0 million of subordinated debentures in April, 1994. NET INCOME As a result of the foregoing factors, net income in fiscal 1996 increased by 39.7% to $16.1 million from $11.5 million in fiscal 1995. In fiscal 1996, fully diluted earnings per share increased 27.6% to $2.31 compared to $1.81 in fiscal 1995. Net income in fiscal 1995 increased by 76% from $6.5 million in fiscal 1994. In fiscal 1995, fully diluted earnings per share increased by 52.1% from $1.19 in fiscal 1994. LIQUIDITY AND CAPITAL RESOURCES Working capital at the end of fiscal 1996 amounted to $180.5 million compared to $172.8 million and $142.4 million at the end of fiscal 1995 and fiscal 1994, respectively. The Company continues to maintain more than 75% of total assets as current assets. The working capital ratio was 2.54 to 1, 2.67 to 1 and 2.89 to 1 for fiscal 1996, fiscal 1995 and fiscal 1994, respectively. During periods of expansion when sales volumes are increasing, the Company is required to carry higher levels of inventories and receivables to support its growth. The Company strives to maintain inventories at levels that support, but not exceed, its current sales activity through (i) increased use of its central distribution facilities and (ii) investment in resources to improve the efficiency and service capability of such facilities. As a result, the inventory turnover rate has been in excess of six turns for each of the last three fiscal years, ranging from a low of 6.2 turns in fiscal 1995 to a high of 6.7 turns in fiscal 1996. During the same period, the accounts receivable turnover rate has been in excess of seven turns, ranging from a low of 7.1 turns in fiscal 1995 to a high of 7.6 turns in fiscal 1996. Net cash provided by operations was $20.3 million in fiscal 1996 compared to $3.7 million in fiscal 1995 and cash used in operations in fiscal 1994 was $2.2 million. The foregoing changes are due primarily to fluctuations in accounts receivable, inventories and accounts payable. Because of an increase in the amount of cash generated in fiscal 1996, net borrowings under short-term debt instruments decreased to $6.2 million compared to $23.8 million in fiscal 1995 and $16.7 million in fiscal 1994. The Company invested $11.9 million in property and equipment and $10.0 million in business acquisitions in fiscal 1996. These business acquisitions added 20 branches to the Company's operations. Capital expenditures, not including amounts which may be paid for business acquisitions in fiscal 1997, are expected to be approximately $12 million. During fiscal 1996, the Company's revolving credit facility and line of credit agreement with a group of banks was amended in order to expand the Company's maximum borrowings thereunder from $130 million to $160 million (see Note 4 of Notes to the Company's Consolidated Financial Statements). After giving effect to this offering (assuming a public offering price of $29.00 per share of Common Stock, the last reported sale price of the Common Stock on the NYSE on April 1, 1996) and approximately $25.2 million from the Notes 19 21 Offering to reduce bank debt, the Company will have approximately $96.8 million available under this agreement. Management believes that the Company has sufficient borrowing capacity to take advantage of growth and business acquisition opportunities and has the resources necessary (subject to certain covenants related to the Notes and in the revolving credit facility and line of credit agreement) to fund ongoing operating requirements and anticipated capital expenditures. Future expansion will continue to be financed on a project-by-project basis through the incurrence of additional indebtedness or, as circumstances allow, through the issuance of Common Stock or equity-linked securities. INFLATION AND CHANGING PRICES The Company is aware of the potentially unfavorable effects inflationary pressures may create as a result of higher asset replacement costs and related depreciation, higher interest rates and higher material costs. The Company seeks to minimize these effects by taking advantage of economies of scale in purchasing and inventory management which result in cost reductions and improved productivity. In addition, from time to time the Company will also implement price increases in order to maintain reasonable profit margins. Management believes, however, that inflation (which has been moderate over the past few years) and changing prices have not significantly affected the Company's results of operations or markets in its three most recent fiscal years. SEASONALITY The Company experiences some seasonality in its business. The Company's net sales and net income during the first quarter and, to a lesser extent, the fourth quarter of its fiscal year are generally lower than the second and third quarters of its fiscal year. The first and fourth quarter are typically adversely affected by winter construction cycles and weather patterns as the level of activity in both the home improvement and new construction markets decreases. The Company has a concentration of locations in the southeastern United States, which can offset to some degree the effects of winter weather in other states. Management closely monitors operating expenses and inventory levels during seasonally affected periods and, to the extent possible, controls variable operating costs. 20 22 BUSINESS GENERAL Hughes Supply is one of the largest diversified wholesale distributors of materials, equipment and supplies for the construction and industrial markets operating primarily in the southeastern and midwestern United States. The Company distributes more than 100,000 products through 221 branches located in 15 states and Puerto Rico. The Company's customers are subcontractors, general contractors, utilities, municipalities and manufacturers. Management believes that the Company holds significant market share in a majority of its local markets and is one of the largest distributors of its range of products in the southeastern and midwestern United States. The Company's largest geographic market is Florida (representing approximately 43% of fiscal 1996 net sales), which is one of the largest commercial and residential construction markets in the United States. The products which the Company distributes are used in new construction for commercial, residential, utility and industrial applications and for replacement and renovation projects. Such products include materials and supplies associated with the Company's nine major product groups, as follows: electrical; plumbing; water and sewer; air conditioning and heating; industrial pipe, valves and fittings; building materials; electric utilities; water systems; and pool equipment and supplies. Each product group is sold by the Company's own specialized and experienced sales force consisting of outside sales representatives and inside account executives. Management believes that the Company's mix of commercial, residential, utility and industrial business, geographic diversification and multiple product groups reduces the impact of economic cycles on the Company's net sales and profitability. Management believes that no other company competes against it across all of its product groups. The Company's principal business objective is to achieve profitable growth, both internally and through selective acquisitions, primarily in existing and contiguous geographic markets. The Company has grown internally through increases in comparable branch net sales, new branch openings and the addition of new product groups. Since January 29, 1993, the Company has opened 25 new branches. In addition, the Company continues to pursue an active acquisition program to capitalize on the opportunities presented by the substantial size and highly fragmented ownership structure of its industry. Since January 29, 1993, the Company has completed 23 acquisitions representing 68 branches, excluding the PVF Acquisition. In addition to increased geographic penetration, acquisitions often provide opportunities for the Company to gain market share and to enhance and diversify product offerings. Management believes that the most cost effective way for the Company to enter new geographic markets is through acquisitions. All of the Company's significant acquisitions have been accretive to the Company's earnings per share. As a result of the Company's operating and acquisition strategies, net sales increased to $1.1 billion in fiscal 1996 from $735.0 million in fiscal 1994, a compound annual growth rate of 21.3%; operating income increased to $29.9 million in fiscal 1996 from $13.1 million in fiscal 1994, a compound annual growth rate of 51.0%; and the number of branches increased to 212 branches at the end of fiscal 1996 from 143 branches at the end of fiscal 1994, a compound annual growth rate of 21.8%. INDUSTRY OVERVIEW Based on estimates available to the Company, industry sales in the United States of products sold by the Company exceeded $100 billion in 1995, and no wholesale distributor of these products accounted for more than 2% of the total market. As a result of their smaller size, many of the local or regional distributors generally lack the purchasing power of a larger entity, may lack the resources to offer broad product lines and multiple brands, and may not possess sophisticated inventory management and control systems necessary to operate multiple branches efficiently. As a result, during the past decade many of the large wholesale distributors, including the Company, have grown considerably through acquisitions. However, many independent distributors are still privately owned, relationship-based companies that emphasize service, delivery and reliability to their customers. Further, a majority of independent distributors focus on a particular size or type of customer and a particular product 21 23 group. In contrast, the Company services various sizes and types of customers and multiple product groups and diversifies its sales across various types of construction and users of its products. Due to its strong competitive position, its size and its management infrastructure, management also believes that the Company is well-positioned to continue to benefit from consolidation trends within the wholesale distribution business. Hughes Supply differentiates itself from consumer-oriented, large format, do-it-yourself ("DIY") home center retailers with respect to the type of customer served, breadth of products offered and level of service provided. Management believes that the Company's customers, unlike DIY customers, are typically professionals who choose their building materials suppliers primarily on the basis of product availability, price, relationships with sales personnel, and the quality and scope of services offered by such suppliers. Furthermore, professional customers generally buy in large volumes, are involved in ongoing jobs or projects lasting months or years resulting in repeat buying situations, and require specialized services not typically provided by large format DIY home center retailers. Customer services provided by the Company include credit, design assistance, material specifications, scheduled job site delivery, job site visits to ensure satisfaction, technical product services, including blueprint take-off and computerized order quotes, and assistance with product returns. Accordingly, the Company has been able to serve customer groups that large format DIY home center retailers generally do not emphasize. ACQUISITION STRATEGY The Company's acquisition strategy is to acquire profitable distribution businesses with strong management and well-developed market positions and customer franchises. Acquisitions can generally be categorized as fill-in acquisitions or new market acquisitions. Fill-in acquisitions are generally smaller in size and represent new branches within existing product groups and existing geographic markets. Since January 29, 1993, the Company has completed fill-in acquisitions of 28 branches, and management believes that significant additional fill-in acquisition opportunities are available. New market acquisitions represent the addition of new product groups, within related commercial construction and industrial products categories, or the entry into new geographic markets, or both. During the last three fiscal years, the Company has increasingly focused on new market acquisitions with the goal of adding products and product groups with higher gross margins, increasing sales to the replacement and industrial markets (which tend to be less cyclical than new construction markets), achieving greater geographic diversification and developing additional opportunities for future fill-in acquisitions and new branch openings. Recent new market acquisitions completed by the Company include (i) The Treaty Distribution Group, resulting in a significant increase in the Company's water and sewer products business in new geographic markets, (ii) Moore Electric Supply, Inc., resulting in a significant increase in the Company's electrical products business in new geographic markets, and (iii) Florida Pipe & Supply Company, the Company's initial entry into the industrial pipe, valve and fitting market. 22 24 The following table summarizes the fill-in and new market acquisitions completed, or to be completed, by the Company since January 29, 1993:
TYPE OF DATE OF NUMBER OF STATE(S)/TERRITORY MAJOR PRODUCT ACQUISITION ACQUISITION ACQUISITION BRANCHES OF OPERATION GROUPS - --------------------- ----------- ---------------- --------- ----------------- --------------------- Virginia branch...... Fill-in June, 1993 1 VA Plumbing Florida and Georgia branches........... Fill-in June, 1993 3 FL, GA Electrical and Electric Utilities Electrical Distributors, Inc.*.............. New market June, 1993 1 GA Electrical Alabama Water Works Supply, Inc........ New market July, 1993 3 AL Water and Sewer Florida branches..... Fill-in December, 1993 2 FL Building Materials Swaim Supply Company*........... New market January, 1994 8 NC, VA Plumbing, Air Conditioning and Heating Florida and Georgia branches(1)........ Fill-in February- 4 FL, GA Water and Sewer, September, 1994 Plumbing and Electrical Treaty Distribution Group branches..... New market January, 1995 16 IN, OH Water and Sewer, Plumbing, Air Conditioning and Heating Olander & Brophy, Inc................ New market March, 1995 4 OH, PA Pool Equipment and Supplies, Water Systems Port City Electrical Supply, Inc........ Fill-in March, 1995 3 GA, SC Electrical Elec-Tel Supply Company............ Fill-in April, 1995 1 GA Electric Utilities Various branches(1)........ Fill-in July, 1995 9 AL, FL, KY, MD, Electrical, Pool February, 1996 NC, NJ, SC, TN, Equipment and VA Supplies, Plumbing Moore Electric Supply, Inc.*...... New market August, 1995 5 NC, SC Electrical Atlantic Pump & Equipment Companies.......... Fill-in September, 1995 4 FL, PR Pool Equipment and Supplies Florida Pipe & Supply Company*........... New market December, 1995 1 FL Industrial Pipe, Valves and Fittings Waldorf Supply Inc................ Fill-in February, 1996 1 MD Plumbing West Virginia Water and Waste Supply Co................. New market March, 1996 2 WV Water and Sewer Elasco Inc.*......... New market Pending 3 IL, OH Electric Utilities PVF.................. New market Pending 16 AL, GA, IL, LA, Industrial Pipe, MO, NC, NJ, TN, Valves and Fittings TX, UT, WA -- TOTAL....... 87 ==========
- --------------- * Accounted for, or to be accounted for, as pooling of interests. (1) Facilities acquired in purchases of assets from four entities. 23 25 OPERATING STRATEGY The Company's operating strategy is based on decentralizing customer related functions at the branch level, such as sales and local inventory management, and centralizing certain administrative functions at the corporate level, such as credit, human resources, finance and accounting, and management information systems. Key elements of the Company's operating strategy include: Comprehensive and Diversified Product Groups. As part of its emphasis on superior customer service, the Company offers more than 100,000 products in nine product groups at competitive prices. Distribution of a wide variety of products within product groups assists the Company's customers in managing their inventory, arranging for consolidated delivery requirements and providing a greater portion of total job specifications. The depth and breadth of the Company's product groups allows it to make add on sales of higher margin, non-commodity items. The Company is diversified across nine product groups and various sectors of the construction industry (such as commercial, residential, utility and industrial), which lessens its dependence upon market conditions applicable to any one of its products groups or any single sector of the construction industry. Further, the Company's product diversification allows it to participate in multiple phases of construction projects. Superior Customer Service. Substantially all of the Company's sales are to professional customers with whom the Company has developed long-term relationships. These relationships are largely based on the Company's history of providing superior service. Customer services provided by the Company include credit, design assistance, material specifications, scheduled job site delivery, job site visits to ensure satisfaction, technical product services, including blueprint take-off and computerized order quotes, and assistance with product returns. Local Market Focus. The Company has organized its branches as autonomous, decentralized branches capable of meeting local market needs and offering competitive prices. Each branch handles one or more of the Company's product groups and operates as a separate profit center with its own sales force. Each branch manager has the authority and responsibility to set pricing and tailor the product offering and mix, as well as the nature of services offered, to meet the local market demand. In addition, each branch manager is responsible for purchasing, maintenance of adequate inventory levels, cost controls and customer relations. The Company has been able to tailor its branch size and product offerings to perceived market demand. As a result, the Company has successfully operated branches in secondary cities where management believes it has achieved significant market share and in larger metropolitan areas where it has established a sound market presence. Well-Trained and Experienced Workforce. The Company has implemented extensive employee training and recruiting programs to ensure that its employees have the skill levels necessary to compete effectively in today's marketplace. The Company utilizes in-depth training seminars covering basic and advanced product knowledge, and selling, purchasing, negotiating and management skills. The Company has also developed a recruiting and training program to increase the number of qualified applicants introduced into its management and sales ranks. The Company has experienced a low rate of turnover among its employees and, as a result, the Company's corporate management group, branch managers, outside sales representatives and inside sales account executives have considerable experience with the Company. Centralized Administrative Functions. The Company has centralized certain administrative functions such as credit, human resources, finance and accounting and management information systems. The Company's credit function is essential to its success. All credit decisions are researched, analyzed and approved by a group of regional credit managers to ensure conformity and quality of credit decisions across the Company's operations. Management believes that its credit function has enabled it to be recognized as an industry leader due to its consistently low level of bad debt expense. Centralization of human resources, finance and accounting functions ensure conformity in policy and lower overall cost of 24 26 administration. The Company's comprehensive management information system is based on point of sale information and provides managers with real time inventory, receivables, purchasing, pricing, credit and margin information. This management information system allows the Company's branches to more effectively manage their inventory and receivables and respond more quickly and accurately to specific customer needs and local market demand. Volume Purchasing Power. The Company, as one of the largest diversified wholesale distributors of construction products in its markets, is able to achieve significant volume discounts and rebates from its vendors. The Company established its Preferred Vendor Program in 1991 to more effectively leverage its purchasing power. This program has reduced the number of vendors and has resulted in stronger, more strategic relationships with a more concentrated group of vendors. The concentration of vendors has also improved the Company's ability to assure more timely delivery, reduce errors, and to obtain better terms and greater financial incentives. Other programs currently being employed with vendors include vendor managed inventory systems, bar coding, and electronic exchange of purchase orders and invoices, each of which has resulted in a reduction in transaction costs and an improvement in operating efficiency. PRODUCTS The Company distributes products in the following nine major product groups: - Electrical: Electrical supplies, including wire, cable, cords, boxes, covers, wiring devices, conduit, raceway duct, safety switches, motor controls, breakers, panels, fuses and related supplies and accessories, residential, commercial and industrial electrical fixtures and other special use fixtures. - Plumbing: Plumbing fixtures and related fittings, residential, commercial and industrial water heaters, and plumbing accessories and supplies. - Water and Sewer: Water works and industrial supplies, including large diameter plastic (PVC) and cast iron pipe, fire hydrants, water meters, valves, backflow prevention devices and related hardware and accessories. - Air Conditioning and Heating: Air conditioning and heating equipment, furnaces, heaters, heat pumps, condensing units, duct, pipe, fittings, registers, grills, freon, insulation and other refrigeration equipment, supplies and service parts. - Industrial Pipe, Valves and Fittings: Mechanical and weld pipe, valves and related fittings, fire protection systems and supplies, high performance valves, specialty pipe, stainless steel and other high alloy pipe, valves and fittings. - Building Materials: Reinforcing wire, reinforcing steel, plyform, lumber, concrete chemicals, concrete forming accessories, road and bridge products, masonry accessories and other building materials, hand tools, power tools and equipment for all mechanical and building trades. - Electric Utilities: Transformers, conductor cable, insulators, prestressed concrete transmission and distribution poles, and other electric utility supplies and related hardware, accessories and tools. - Water Systems: Jet and submersible pumps and tanks, residential and commercial water treatment, well liners, wire, poly pipe, accessories and environmental products. - Pool Equipment and Supplies: Above ground and in-ground pool packages, pumps, filters, heaters, lights, slides, diving boards, skimmers, drains, chemicals, solar equipment, pool liners and in-ground pool walls, deck products and cleaning equipment. 25 27 The following chart shows the Company's fiscal 1996 sales by product category on a pro forma basis, giving effect to the PVF Acquisition and the Fiscal 1997 Acquisitions: [CHART] SALES AND PURCHASING The Company employs approximately 400 outside sales representatives who call on customers and who also work with architects, engineers, and manufacturers' representatives for major construction projects. For each outside sales representative there are generally two inside account executives who expedite orders, deliveries, quotations, and requests for pricing. Most orders are received by telephone, and materials are delivered by the Company's trucks to the customer's office or job site. The Company's purchasing agents in its branches use a computerized inventory system to monitor stock levels, while central distribution centers in Orlando, Florida, College Park, Georgia, Hendersonville, North Carolina, Monroe, North Carolina, Greenville, Ohio and Nashville, Tennessee provide purchasing assistance as well as a broad stock of inventory which supplements the inventory of the branches. CUSTOMERS AND SUPPLIERS The Company currently serves over 50,000 customers, and no single customer accounts for more than 1% of total sales annually. Orders for larger construction projects normally require long-term delivery schedules throughout the period of construction, which in some cases may continue for several years. The substantial majority of customer orders are shipped from inventory at the Company's branches. The Company also accommodates special orders from its customers and facilitates the shipment of certain large volume orders directly from the manufacturer to the customer. The Company regularly purchases from over 5,500 manufacturers and suppliers, of which 550 are currently part of the Company's Preferred Vendor Program. No single supplier accounted for more than 6% of the Company's total purchases during fiscal 1996. 26 28 COMPETITION Management believes that the Company is one of the largest wholesale distributors of its range of products in the southeastern and midwestern United States. However, there is strong competition in each product group distributed by the Company. The main sources of competition are other wholesalers, manufacturers who sell certain lines directly to contractors and, to a limited extent, retailers in the markets for plumbing, electrical fixtures and supplies, building materials, pool supplies and contractor's tools. The principal competitive factors in the Company's business are product availability, pricing, technical product knowledge as to application and usage, and advisory and other service capabilities. EMPLOYEES As of January 26, 1996, the Company had approximately 3,350 employees consisting of approximately 15 executives, 550 managers, 950 sales personnel, and 1,835 other employees, including truck drivers, warehouse personnel, office and clerical workers. Over the last year, the Company's work force has increased by approximately 20% compared to the prior year as a result of increased sales volume and completed business acquisitions. None of the Company's employees is represented by a union or covered by a collective bargaining agreement; 13 of Elasco Inc.'s employees are represented by a union and are covered by a collective bargaining agreement. The Company considers its relationship with its employees to be excellent. PROPERTIES The Company leases approximately 31,000 square feet of an office building in Orlando, Florida for its headquarters. In addition, the Company owns or leases 214 facilities in 15 states and Puerto Rico. The typical sales branch consists of a combined office and warehouse facility ranging in size from 3,000 to 40,000 square feet, with paved parking and storage areas. The Company also operates a computer center, five central distribution warehouses, and a garage and trucking terminal. LEGAL PROCEEDINGS The Company is involved in various legal proceedings incidental to the ordinary conduct of its business. Management believes that none of these proceedings will have a material adverse impact on its financial condition, results of operations or cash flows. THE PVF ACQUISITION General. On March 27, 1996, the Company entered into an asset purchase agreement to acquire substantially all of the assets, properties and business of PVF and its subsidiaries and to assume certain of their liabilities. The aggregate consideration to be paid in the PVF Acquisition is approximately $106 million, consisting of cash in the amount of $74.4 million, the issuance of 669,956 shares of Common Stock and the assumption of up to $13 million of bank debt. The amount of aggregate consideration to be paid is subject to increase or decrease (on a dollar for dollar basis) for the difference between the book value of net assets acquired, adjusted for certain inventory and accounts receivable items, and the book value of such net assets at December 31, 1995. The PVF Acquisition is scheduled to close on May 13, 1996. This offering is contingent upon the consummation of the PVF Acquisition. PVF, a privately owned company headquartered in Houston, Texas, is a specialty distributor of stainless steel and nickel alloy based pipe, valve and fitting products to industrial customers, and conducts its business through its principal subsidiaries Southwest Stainless, Inc., Multalloy, Inc., a Texas corporation, and Multalloy, Inc., a New Jersey corporation. PVF is one of the leading providers of pipe, valve and fitting products for use by industrial companies that operate manufacturing processes involving highly corrosive or high temperature fluids, such as those of the petrochemical, food and beverage, and paper industries. Management of the Company believes that PVF carries one of the country's broadest and deepest inventories of such products, consisting of more than 15,000 different items sold to approximately 4,000 active accounts. PVF sells both directly to end-users and to supply houses that sell to end-users through 16 regional branch locations concentrated in the southeastern and southwestern United States. 27 29 For the 12 months ended December 31, 1995, PVF had net sales of $109.2 million and operating income of $27.7 million. On a pro forma basis, giving effect to the PVF Acquisition, the Company's fiscal 1996 net sales were $1.2 billion, operating income was $57.0 million and, as of the end of fiscal 1996, the Company had 228 branches located in 19 states and Puerto Rico. See "Unaudited Pro Forma Consolidated Financial Data." The PVF Acquisition is a new market acquisition which provides the Company with several strategic benefits, including: (i) a well-established position in the stainless steel and specialty alloy sector of the pipe, valve and fitting products market; (ii) a higher gross margin product group than the Company's other product groups; (iii) greater focus on targeted industrial and replacement markets; (iv) a strong management team; and (v) new opportunities for additional fill-in acquisitions. Additional growth opportunities for the Company related to the PVF Acquisition include incremental sales of complementary valve products (which represented only 2% of PVF's fiscal 1995 net sales) and new branch openings, including the expected opening of a branch in Southern California. Products. PVF carries over 15,000 different items in its inventory of pipe, valve and fitting products. These products are differentiated on the basis of size, material content, performance specifications and manufacturer. Industrial pipe, valve and fitting products generally do not grow obsolete over time, allowing PVF to maintain an extensive inventory of such products. The substantial majority of PVF's products are used in the replacement market, including a significant number in emergency applications. The majority of PVF's products are made of stainless steel. Other nickel alloy based products, however, represent a growing share of PVF's sales. PVF entered the specialty alloy products market in 1993 to take advantage of a market opportunity created by the limited number of sources of these products. These specialty alloy products typically offer performance standards superior to stainless steel products, sell at higher prices and higher margins and are offered by a limited number of distributors. Management of the Company believes that PVF's sales of specialty alloy products should continue to grow if, as in the past, an increasing number of customers move from stainless steel products to specialty alloy products and as PVF extends its product line to include new specialty alloy products. Sales. PVF's sales force includes 19 outside salespeople and 31 inside salespeople. Outside salespeople visit end-users and supply house customers at their offices and work to develop good business relationships. The inside sales force works on-site at PVF and handles the bulk of PVF's orders, as most of PVF's sales come from a customer calling an inside salesperson directly with an order. PVF sells its products through its 50-person sales force and through 16 branches in 11 states. PVF's salespeople have substantial authority to set prices within guidelines established by senior management. PVF is well-represented in Texas, the largest end-user market for stainless steel pipe, valve and fitting products. PVF has a single branch location in New Jersey, which is the second largest end-user market in the United States and which management of the Company believes represents an opportunity for increased distribution of PVF's products. Customers and Suppliers. The end-users of products sold by PVF generally are manufacturers that operate plants involving the use of highly corrosive or high temperature fluids. PVF sells both to supply houses that resell to end-users and directly to end-users. Supply houses typically carry narrower inventory than PVF in any particular PVF product group. Many of PVF's end-user customers are Fortune 500 companies that have highly structured purchasing organizations that typically prefer large, professional suppliers, such as PVF or the Company. PVF has approximately 4,000 active accounts, and for its most recent fiscal year ended June 30, 1995 the largest customer accounted for less than 4% of PVF's sales, while its top ten customers accounted for less than 15% of sales. Many of the 15,000 products sold by PVF require long manufacturing lead times. Consequently, a large investment in inventory is often required. PVF's financial strength combined with its product experience allows it to purchase products in large volumes at favorable terms and maintain the large investment in inventory required to be competitive. For its most recent fiscal year ended June 30, 1995, PVF purchased from approximately 400 vendors, and no single vendor accounted for more than 7% of PVF's purchases in such period. 28 30 The future financial performance of PVF will be directly influenced by the cost of stainless steel and nickel alloy which, as a commodity item, can be volatile. Significant fluctuations in the prices of stainless steel and nickel alloy could have an effect on PVF's future profitability and could create cyclicality in PVF's operating performance. In addition, while PVF has not experienced difficulty in obtaining specialty alloy products, PVF currently purchases certain specialty alloy products from one of only two available sources worldwide. Properties. Headquartered in Houston, Texas, PVF has 17 facilities, including 16 distribution centers located in 11 states. PVF owns two of its facilities and leases 15 facilities. Ten of these leases are for properties owned by third parties and five are leased from affiliates of PVF. 29 31 MANAGEMENT The following table sets forth certain information as of April 1, 1996 concerning executive officers and directors of the Company:
NAME AGE POSITION ---------------------------------- --- -------------------------------------------------- David H. Hughes(1)................ 52 Chairman of the Board and Chief Executive Officer A. Stewart Hall, Jr.(1)........... 53 President, Chief Operating Officer and Director Russell V. Hughes(1).............. 70 Vice President and Director Vincent S. Hughes(1).............. 55 Vice President and Director Jasper L. Holland, Jr............. 54 Regional Vice President Clyde E. Hughes, III.............. 48 Regional Vice President James C. Plyler, Jr............... 52 Regional Vice President Kenneth H. Stephens............... 55 Regional Vice President Sidney J. Strickland, Jr.......... 46 Regional Vice President Gradie E. Winstead, Jr............ 46 Regional Vice President Peter J. Zabaski.................. 47 Regional Vice President J. Stephen Zepf................... 46 Treasurer and Chief Financial Officer John D. Baker, II(2).............. 47 Director Robert N. Blackford(1)(3)......... 59 Secretary and Director John B. Ellis(2).................. 71 Director Clifford M. Hames(3).............. 70 Director Donald C. Martin(2)............... 59 Director Herman B. McManaway(3)............ 70 Director
- --------------- (1) Member of the Executive Committee (2) Member of the Compensation Committee (3) Member of the Audit Committee David H. Hughes has served as the Company's Chairman of the Board and Chief Executive Officer since November, 1986, as a director since August, 1968, and has been employed with the Company since June, 1959. Mr. Hughes served as President of the Company from June, 1972 until March, 1994. Mr. Hughes is also a director of SunTrust Banks, Inc. and Lithium Technologies Corp. A. Stewart Hall, Jr. has served as President, Chief Operating Officer and a director since March, 1994, and has been employed with the Company since August, 1973. Mr. Hall served as Executive Vice President of the Company from January, 1988 until March, 1994. Russell V. Hughes has served as Vice President since February, 1971, as a director since May, 1964, and has been employed with the Company since March, 1949. Vincent S. Hughes has served as Vice President since April, 1972, as a director since April, 1966, and has been employed with the Company since June, 1957. Jasper L. Holland, Jr. has served as Regional Vice President since June, 1994, and as a Vice President since February, 1980. Mr. Holland has been employed by the Company since March, 1965. Clyde E. Hughes, III has served as Regional Vice President since June, 1994. Previously, Mr. Hughes served as Regional Manager from December, 1990 to June, 1994. Mr. Hughes has been employed by the Company since June, 1966. James C. Plyler, Jr. has served as Regional Vice President since February, 1996. Prior to serving in this capacity, Mr. Plyler served as President of USCO Incorporated, one of the Company's subsidiaries, from January, 1973 to February, 1996. Mr. Plyler has been employed by the Company since May, 1972. Kenneth H. Stephens has served as Regional Vice President, since June, 1994, and as a Vice President since February, 1983. Mr. Stephens has been employed by the Company since June, 1961. 30 32 Sidney J. Strickland, Jr. has served as Vice President of Purchasing and Administration since August, 1994. Previously, Mr. Strickland served as Director of Corporate Services from February, 1994 to August, 1994. Prior to serving as Director of Corporate Services, Mr. Strickland served as Director of Human Resources from September, 1989 to August 1994. Mr. Strickland has been employed by the Company since October, 1979. Gradie E. Winstead, Jr. has served as Regional Vice President since June, 1994. Previously, Mr. Winstead served as Regional Manager from March, 1990 to June, 1994. Mr. Winstead has been employed by the Company since September, 1975. Peter J. Zabaski has served as Regional Vice President since June, 1994. Previously, Mr. Zabaski served as President of One Stop Supply, Inc., a subsidiary of the Company, from January, 1990 to June, 1994. Mr. Zabaski has been employed by the Company since June, 1982. J. Stephen Zepf has served as Treasurer and Chief Financial Officer since April, 1984, and has been employed by the Company since May, 1983. John D. Baker, II has served as a director since March, 1994. Mr. Baker currently serves as President, Chief Executive Officer and director of Florida Rock Industries, Inc. Mr. Baker is also a director of FRP Properties, Inc. Robert N. Blackford was elected Secretary of the Company in February, 1974, and has served as a director since December, 1970. Mr. Blackford is an attorney with the firm of Maguire, Voorhis & Wells, P.A., in Orlando, Florida, where he has practiced since 1968. John B. Ellis has been a director since November, 1986. Mr. Ellis is retired. Prior to retiring in January, 1986, Mr. Ellis served as Senior Vice President Finance and Treasurer of Genuine Parts Company for a period of 11 years. Mr. Ellis is also a director of Interstate/Johnson Lane Corporation, Flowers Industries, Inc., Oxford Industries, Inc., Scotty's, Inc., Intermet Corporation and Integrity Music, Inc., and is a director emeritus of Genuine Parts Company. Clifford M. Hames has been a director since February, 1972. He has been retired from Sun Bank, N.A., in Orlando, Florida since 1989 where he served as Vice Chairman of the Board for a period of 14 years. Donald C. Martin has been a director since August, 1993. Mr. Martin provides consulting services to the Company and has done so since July, 1993. Prior to July, 1993, Mr. Martin served as President of Electrical Distributors, Inc. ("EDI") from April, 1963 until June, 1993. EDI was acquired by the Company in June, 1993. Herman B. McManaway has been a director since October, 1985. Prior to retiring in January, 1987, Mr. McManaway served as Vice President of Ruddick Corporation for a period of 13 years and as President of Ruddick Investment Co. for a period of 13 years. Mr. McManaway is also a director of Versa Technologies, Inc. The following family relationships exist between directors of the Company: David H. Hughes and Vincent S. Hughes are brothers; and Russell V. Hughes is a first cousin of David H. Hughes and Vincent S. Hughes. Clyde E. Hughes, III is not related to any of the Hughes family members named above. 31 33 PRINCIPAL AND SELLING SHAREHOLDERS The following table sets forth, as of March 15, 1996, certain information regarding the ownership of the Common Stock by (i) each of the Selling Shareholders, (ii) each person known by the Company who is, or may be deemed to be, the beneficial owner of more than 5% of the outstanding shares of Common Stock, and (iii) all officers and directors of the Company as a group. Except as otherwise indicated, each of the following shareholders has sole voting and investment power with respect to shares beneficially owned by such shareholder.
BENEFICIAL OWNERSHIP BENEFICIAL OWNERSHIP PRIOR TO THE OFFERING AFTER THE OFFERING --------------------------- ----------------------- PERCENT OF PERCENT OF NUMBER OF OUTSTANDING SHARES NUMBER OF OUTSTANDING NAME OF BENEFICIAL OWNER SHARES SHARES OFFERED SHARES SHARES(10) - ------------------------------------ --------- ----------- ------- --------- ----------- The Employees' Retirement Plan of Consolidated Electrical Distributors, Inc.(1)............. 1,012,438 14.9 214,926 447,512 4.9 Edmundson International, Inc.(2).... 754,901 11.1 350,000 404,901 4.4 John V. Moore(3).................... 251,703 3.7 20,000 231,703 2.5 Russell V. Hughes(4)................ 229,460 3.4 20,000 209,460 2.3 Donald C. Martin(5)................. 259,397 3.8 30,000 229,397 2.5 John E. Petterson(6)................ 96,148 1.4 25,000 71,148 * John F. Caswell, Jr.(7)............. 64,099 * 20,000 44,099 * All directors and officers as a group (18 persons)(8)............. 1,293,171 18.2(9) 1,243,171 13.0
- --------------- * Indicates less than one percent ownership. (1) In Amendment No. 14 to Schedule 13D dated March 3, 1995 and filed with the Securities and Exchange Commission (the "Commission"), The Employees' Retirement Plan of Consolidated Electrical Distributors, Inc. (the "Plan") reported aggregate beneficial ownership of 1,012,438 shares. Of the shares reported as beneficially owned, 214,926 were reported as held with sole voting and investment power, and 797,512 were reported as held by affiliated entities with shared voting and investment power. The address of the Plan is 1516 Pontius Avenue, No. 201, Los Angeles, California 90025. (2) Edmundson International, Inc. ("Edmundson") is an affiliate of the Plan. Edmundson has shared voting and investment power with respect to 754,901 shares. The shares held by Edmundson are included in the shares shown in the table as owned by the Plan. The address of Edmundson is 1516 Pontius Avenue, Los Angeles, California 90025. (3) The address of Mr. Moore is 3531 Castellaine Drive, Charlotte, North Carolina 28226. (4) Mr. Hughes has shared voting power with respect to 189,033 shares and shared investment power with respect to 190,033 shares. The ownership figure reported for Mr. Hughes includes options exercisable within 60 days. The address of Mr. Hughes is 20 North Orange Avenue, Suite 200, Orlando, Florida 32801. (5) Mr. Martin has shared voting and investment power with respect to 56,569 shares. The ownership figure reported for Mr. Martin includes options exercisable within 60 days. The address of Mr. Martin is 1303 Henderson Mill Road, Mansfield, Georgia 30255. (6) The address of Mr. Petterson is 71 Shadow Lane, Lakeland, Florida 33813. (7) The address of Mr. Caswell is 510 Goldenrod Court, Lakeland, Florida 33813. (8) Includes an aggregate of 305,441 shares subject to options under the Hughes Supply, Inc. 1988 Stock Option Plan which are exercisable within 60 days, 84,000 shares subject to options under the Directors' Stock Option Plan, and 19,377 shares credited to the accounts of directors and officers under the Hughes Supply, Inc. Employee Stock Ownership Plan. All officers and directors as a group hold sole voting power with respect to 937,060 shares, shared voting power with respect to 356,111 shares, sole investment power with respect to 917,683 shares and shared investment power with respect to 375,488 shares. (9) Calculated on the basis of 7,122,456 shares, including 6,817,015 outstanding shares and 305,441 shares subject to options exercisable within 60 days. (10) Calculated on the basis of 9,222,864 shares of Common Stock outstanding, including an estimated aggregate of 1,155,749 shares of Common Stock to be issued in the PVF Acquisition and acquisition of Elasco Inc. and, with respect to the share ownership of officers and directors as a group, includes options exercisable within 60 days. 32 34 DESCRIPTION OF CAPITAL STOCK The authorized capital stock of the Company consists of 20,000,000 shares of Common Stock, $1.00 par value per share, and 10,000,000 shares of Preferred Stock, no par value (the "Preferred Stock"). COMMON STOCK All holders of Common Stock have the right to cast one vote for each share held of record on matters coming before the shareholders for a vote. Holders of Common Stock have no cumulative voting rights with respect to the election of directors and have no preemptive or other rights to purchase additional securities of the Company. The holders of Common Stock are entitled to receive dividends, if any, as and if declared from time to time by the Board of Directors in its discretion out of assets legally available therefore and subject to the prior dividend rights of holders of any Preferred Stock then outstanding. In the event of the liquidation, dissolution or winding up of the Company, holders of Common Stock will be entitled to share equally and ratably in the assets available for distribution after the payment of the liabilities, subject to any prior rights of holders of any Preferred Stock then outstanding. All outstanding shares of Common Stock are, and the shares offered hereby upon payment therefor will be, validly issued, fully paid and non-assessable. PREFERRED STOCK The Board of Directors has the authority to issue up to 10,000,000 shares of Preferred Stock in one or more series, and to fix the number of shares constituting such series and the rights and preferences thereof, including dividend rights, voting rights, terms of redemption and liquidation preferences, without further vote or action by the shareholders. The Board of Directors has established a Series A Junior Participating Preferred Stock, no par value per share (the "Series A Stock"), consisting of 300,000 shares. No shares of Series A Stock or any other shares of Preferred Stock have been issued or are presently outstanding. The issuance of Preferred Stock with voting and conversion rights may adversely affect the voting power of the holders of Common Stock. SHAREHOLDER RIGHTS PLAN The Company has a shareholder rights plan. Under the plan, the Company distributed to shareholders a dividend of one right per share of the Common Stock. When exercisable, each right will permit the holder to purchase from the Company a unit consisting of one one-hundredth of a share of Series A Stock at a purchase price of $65 per unit (the "Rights"). The Rights generally become exercisable if a person or group acquires 20% or more of the Common Stock or commences a tender offer that could result in such person or group owning 30% or more of the Common Stock. If certain subsequent events occur after the Rights first become exercisable, the Rights may become exercisable for the purchase of shares of Common Stock of the Company, or of an acquiring company, having a value equal to two times the exercise price of the Right. The Rights may be redeemed by the Company at $.01 per Right at any time prior to ten days after 20% or more of the Common Stock is acquired by a person or group. The Rights expire on June 2, 1998 unless sooner terminated in accordance with the rights plan. CERTAIN PROVISIONS OF THE RESTATED ARTICLES OF INCORPORATION Under the Restated Articles of Incorporation of the Company (the "Articles"), directors are classified with respect to the time for which they severally hold office by being divided into three classes, each consisting of as near to one-third of the whole number of directors as practicable, with directors in each class being elected every third year. The provisions of the Florida Business Corporation Act (the "Florida Act") permit any vacancy occurring on the Board of Directors, including any vacancy created by reason of an increase in the number of directors, to be filled by a director elected by the affirmative vote of a majority of the remaining directors. Any such director elected by the remaining directors shall hold office until the next meeting of the shareholders at which directors are elected. The Articles also provide that no plan of consolidation or merger in which the Company is a constituent corporation but not the surviving corporation shall be deemed approved by the shareholders unless such plan 33 35 of consolidation or merger shall have been approved by the affirmative vote of the holders of two-thirds of the total number of shares of voting stock of the Company entitled to vote. The Articles also require the affirmative vote of two-thirds of the outstanding shares of the Company's voting stock to approve certain business combinations involving Company and any 10% shareholder unless approved by a majority of the directors not affiliated with such shareholder or unless certain price and procedural requirements are met; to require the affirmative vote of at least 80% of the outstanding shares to remove directors without cause; to provide that the size of the Board of Directors may be determined by the affirmative vote of 80% or more of the outstanding shares; to require the affirmative vote of at least 80% of the outstanding shares to alter the provisions of the Articles in relating to the number, classification and terms of office of directors; to require that special meetings called by the shareholders be called by an 80% vote of shareholders; and to prohibit the shareholders of the Company from taking action by means of a written consent. These provisions may have the effect of delaying or preventing transactions involving a change of control of the Company, including transactions in which shareholders might otherwise receive a substantial premium for their shares over then current market prices, and may limit the ability of shareholders to approve transactions that they may deem to be in their best interests. CERTAIN PROVISIONS OF FLORIDA LAW The Company is subject to several anti-takeover provisions under the Florida Act that apply to a public corporation organized under Florida law unless the corporation has elected to opt out of such provisions in its Articles or (depending on the provision in question) its Bylaws. The Company has not elected to opt out of these provisions. The Florida Act contains a provision that prohibits the voting of shares in a publicly-held Florida corporation which are acquired in a "control share acquisition" unless the holders of a majority of the corporation's voting shares (exclusive of shares held by officers of the corporation, inside directors or the acquiring party) approve the granting of voting rights as to the shares acquired in the control share acquisition. A control share acquisition is defined as an acquisition that immediately thereafter entitled the acquiring party to vote in the election of directors within each of the following ranges of voting power: (i) one-fifth or more but less than one-third of such voting power; (ii) one-third or more but less than a majority of such voting power and (iii) more than a majority of such voting power. The Florida Act also contains an "affiliated transaction" provision that prohibits a publicly-held Florida corporation from engaging in a broad range of business combinations or other extraordinary corporate transactions with an "interested shareholder" unless (i) the transaction is approved by a majority of disinterested directors before the person becomes an interested shareholder or (ii) the interested shareholder has owned at least 80% of the corporation's outstanding voting shares other than those owned by the interested shareholder. An interested shareholder is defined as a person who together with affiliates and associates beneficially owns more than 10% of the corporation's outstanding voting shares. TRANSFER AGENT AND REGISTRAR The Transfer Agent and Registrar for the Company's Common Stock is American Stock Transfer & Trust Company. 34 36 DESCRIPTION OF NOTES Concurrently with this offering, the Company is offering privately the Notes in an aggregate principal amount of $100 million. The Notes will be issued pursuant to a Note Agreement between the Company and SunTrust Capital Markets, Inc., as agent for the participating lenders (the "Note Agreement"). The following is a summary of the assumed terms of the Notes, but there can be no assurance that the Notes will be issued on such terms, or that the Notes Offering will be consummated. This offering is not contingent upon consummation of the Notes Offering. General. The Notes will mature on or around May 30, 2011, will be limited to $100 million aggregate principal amount, and will be pari passu to the Company's revolving credit facility and line of credit agreement. The Notes will bear interest at %, payable in cash semi-annually in arrears, and will be amortized in 20 equal semi-annual payments beginning May, 2001. Sinking Fund. The Note Agreement will not provide for a sinking fund. Optional Redemption. The Notes may be redeemed at the Company's option, in whole or in part, on a pro rata basis, on any interest payment date for the sum of (i) the greater of par or the present value of all, remaining interest and principal payments, such present value to be determined using a discount rate equal to the sum of (a) 50 basis points and (b) the yield on a U.S. Treasury obligation having a maturity date corresponding with the remaining average life of the Notes being prepaid, and (ii) accrued interest at the date of redemption. Certain Covenants. The Note Agreement will contain a number of covenants restricting the operations of the Company and its subsidiaries, including covenants with respect to the following matters: (i) limitation on indebtedness; (ii) limitation on restricted payments (in the form of the declaration or payment of certain dividends or distributions, the purchase, redemption or other acquisition of any capital stock of the Company (or any affiliate thereof); (iii) limitation on transactions with affiliates; (iv) limitation on liens and subsidiary debt; (v) limitation on sales of assets; (vi) limitation on issuance of guarantees of and pledges for indebtedness; and (vii) limitation on consolidations, mergers and sale of all or substantially all assets of the Company. Events of Default. The events of default ("Events of Default") under the Note Agreement will include provisions that are typical of senior debt financing, including a default by the Company or any subsidiary on any indebtedness that has an aggregate principal amount of not less than $5 million resulting in such indebtedness becoming or being declared due and payable prior to the date on which it would otherwise become due and payable. Upon the occurrence of an Event of Default, the holders of not less than 50% in principal amount of the outstanding Notes may immediately accelerate the maturity of all the Notes as provided in the Note Agreement. Interim Financing. In the event the Notes Offering cannot be consummated concurrently with the PVF Acquisition, the Company intends to finance the PVF Acquisition through a $55 million bridge loan with the Company's bank syndication group and a $30 million note to be issued by the Company to the sellers. The bridge loan will carry interest at approximately the same rate as the Company's line of credit facility (an average rate of 6.29% in fiscal 1996) for the first six months. The sellers' promissory note will bear interest at 6% for the first six months, then will increase to prime for the next six months. Thereafter, interest on such note will be at prime plus 1/2%. The sellers' note will mature on May 31, 1998. 35 37 UNDERWRITING Upon the terms and subject to the conditions stated in the Underwriting Agreement dated the date hereof (the "Underwriting Agreement"), each of the underwriters named below (the "Underwriters"), for whom Smith Barney Inc. and Robert W. Baird & Co. Incorporated are acting as representatives (the "Representatives"), has severally agreed to purchase, and the Company and the Selling Shareholders have agreed to sell to such Underwriter, the number of shares of Common Stock set forth opposite the name of such Underwriter.
NUMBER UNDERWRITERS OF SHARES - ---------------------------------------------------------------------------------- --------- Smith Barney Inc.................................................................. Robert W. Baird & Co. Incorporated................................................ --------- Total................................................................... ========
The Underwriting Agreement provides that the obligations of the several Underwriters to pay for and accept delivery of the shares of Common Stock offered hereby are subject to approval of certain legal matters by counsel and to certain other conditions. The Underwriters are obligated to take and pay for all of the shares of Common Stock offered hereby (other than those covered by the over-allotment option described below) if any such shares are taken. The Underwriters initially propose to offer part of the shares of Common Stock directly to the public at the public offering price set forth on the cover page of this Prospectus and part of such shares to certain dealers at a price which represents a concession not in excess of $ per share below the public offering price. The Underwriters may allow, and such dealers may reallow, a concession not in excess of $ per share to certain other dealers. After the offering, the public offering price and such concessions may be changed by the Underwriters. The Company and one of the Selling Shareholders have granted the Underwriters options, exercisable for 30 days from the date of this Prospectus, to purchase up to 236,989 and 52,500 additional shares of Common Stock, respectively, at the public offering price set forth on the cover page of this Prospectus less the underwriting discounts and commissions. The Underwriters may exercise such options solely for the purpose of covering over-allotments, if any, in connection with the offering of the shares of Common Stock offered hereby. To the extent such options are exercised, each Underwriter will become obligated, subject to certain conditions, to purchase approximately the same percentage of such additional shares as the number of shares set forth opposite each Underwriter's name in the preceding table bears to the total number of shares listed in such table. The Company and its officers and directors have agreed that, for a period of 180 days from the date of this Prospectus, they will not, without the prior written consent of Smith Barney Inc., offer, sell, contract to sell, or otherwise dispose of, any shares of Common Stock or any securities convertible into, or exercisable or 36 38 exchangeable for, Common Stock, or grant any options or warrants to purchase Common Stock, except for the shares of Common Stock offered hereby, the grant of options and the issuance shares of Common Stock pursuant to the Company's existing stock option plans and the surrender of Common Stock in payment of the exercise price of stock options. Further, the Selling Shareholders and certain other shareholders of the Company designated by the Representatives have agreed that, for a period of 90 days from the date of this Prospectus, they will not, without the prior written consent of Smith Barney Inc., offer, sell, contract to sell, or otherwise dispose of, any shares of Common Stock or any securities convertible into, or exercisable or exchangeable for, Common Stock, or grant any options or warrants to purchase Common Stock, except for the shares of Common Stock offered hereby. The Company, the Selling Shareholders, and the Underwriters have agreed to indemnify each other against certain liabilities, including liabilities under the Securities Act. LEGAL MATTERS The validity, authorization and issuance of the shares of Common Stock offered hereby will be passed upon for the Company by Maguire, Voorhis & Wells, P.A., Orlando, Florida. Robert N. Blackford, a member of Maguire, Voorhis & Wells, P.A. is Secretary and a director of the Company. As of April 1, 1996, certain members of Maguire, Voorhis & Wells, P.A. beneficially owned 24,237 shares of the Company's Common Stock. Certain legal matters will be passed upon for the Underwriters by Powell, Goldstein, Frazer & Murphy, Atlanta, Georgia. Powell, Goldstein, Frazer & Murphy will rely upon the opinion of Maguire, Voorhis & Wells, P.A., as to all matters of Florida law. EXPERTS The Consolidated Balance Sheets as of January 26, 1996 and January 27, 1995, and the Consolidated Statements of Income, Shareholders' Equity and Cash Flows of the Company for each of the two years in the period ended January 26, 1996, included in this Prospectus and incorporated in this Prospectus by reference to the Company's Annual Report on Form 10-K for the year ended January 26, 1996, have been so included and incorporated in reliance on the report of Price Waterhouse LLP, independent certified public accountants, given on the authority of said firm as experts in auditing and accounting. The Company's Consolidated Statements of Income, Shareholders' Equity and Cash Flows for the year ended January 28, 1994, included in this Prospectus and incorporated in this Prospectus by reference to the Company's Annual Report on Form 10-K for the year ended January 26, 1996, have been so included and incorporated in reliance on the reports of Price Waterhouse LLP, independent certified public accountants, and Coopers & Lybrand, independent accountants, given on the authority of said firms as experts in auditing and accounting. The Consolidated Balance Sheets of PVF as of June 30, 1994 and June 30, 1995 and the Consolidated Statements of Income, Stockholders' Equity and Cash Flows of PVF for each of the three years in the period ended June 30, 1995 have been included herein in reliance upon the report of Deloitte & Touche LLP, independent certified public accountants, given on the authority of that firm as experts in accounting and auditing. AVAILABLE INFORMATION The Company is subject to the informational requirements of the Exchange Act, and in accordance therewith files reports, proxy statements and other information with the Commission. Such reports, proxy statements and other information may be inspected without charge at, and copies thereof may be obtained at prescribed costs from, the public reference facilities maintained by the Commission at Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549, and at the following regional offices of the Commission: New York Regional Office, 7 World Trade Center, Suite 1300, New York, New York 10048; and Chicago 37 39 Regional Office, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661. In addition, the aforementioned materials may also be inspected at the offices of the NYSE, 20 Broad Street, New York, New York 10005. This Prospectus, which constitutes part of a registration statement on Form S-3 (the "Registration Statement") filed by the Company with the Commission under the Securities Act, omits certain of the information contained in the Registration Statement and the exhibits and schedules thereto. Reference is hereby made to the Registration Statement and to the exhibits and schedules relating thereto for further information with respect to the Company and the Common Stock offered hereby. Statements contained herein concerning the provisions of documents are necessarily summaries of such documents, and each such statement is qualified in its entirety by reference to the copy of the applicable document filed with the Commission. The Rights are attached to each share of Common Stock currently outstanding and each share of Common Stock to be sold pursuant to this offering. Any reference herein made to the Common Stock shall include the Rights. INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE The Company's (i) Annual Report on Form 10-K for the fiscal year ended January 26, 1996, (ii) Proxy Statement for the 1996 Annual Meeting of Shareholders and (iii) Current Report on Form 8-K dated March 27, 1996 have been filed with the Commission and are incorporated in this Prospectus by reference and made a part hereof. All documents filed by the Company pursuant to Sections 13(a), 13(c), 14 and 15(d) of the Exchange Act subsequent to the date of this Prospectus and prior to the termination of this offering shall be deemed to be incorporated by reference in this Prospectus and to be a part hereof from the respective dates of filing of such documents. Any statement contained in a document incorporated or deemed to be incorporated by reference herein shall be deemed to be modified or superseded for purposes of this Prospectus to the extent that a statement contained herein or in any other subsequently filed document incorporated or deemed to be incorporated by reference herein modifies or supersedes such statement. Any such statement so modified or superseded shall not be deemed, except as so modified or superseded, to constitute part of this Prospectus. The Company undertakes to provide without charge to each person, including any beneficial owner of Common Stock, to whom a copy of this Prospectus has been delivered, upon written or oral request, a copy of any or all information incorporated by reference in this Prospectus (not including exhibits to such information, unless such exhibits are specifically incorporated by reference into such information). Such requests should be directed to Hughes Supply, Inc., Attention: J. Stephen Zepf, Treasurer and Chief Financial Officer, at 20 North Orange Avenue, Suite 200, Orlando, Florida 32801, telephone number (407) 841-4755. 38 40 INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
PAGE ---- HUGHES SUPPLY, INC. Report of Price Waterhouse LLP, Independent Certified Public Accountants.............. F-2 Report of Coopers and Lybrand L.L.P., Independent Accountants......................... F-3 Consolidated Balance Sheets as of January 27, 1995 and January 26, 1996............... F-4 Consolidated Statements of Income for the fiscal years ended January 28, 1994, January 27, 1995 and January 26, 1996....................................................... F-5 Consolidated Statements of Shareholders' Equity for the fiscal years ended January 28, 1994, January 27, 1995 and January 26, 1996......................................... F-6 Consolidated Statements of Cash Flows for the fiscal years ended January 28, 1994, January 27, 1995 and January 26, 1996............................................... F-7 Notes to Consolidated Financial Statements............................................ F-8 PVF HOLDINGS, INC. Report of Deloitte & Touche LLP, Independent Auditors................................. F-20 Consolidated Balance Sheets as of June 30, 1994, June 30, 1995 and December 31, 1995 (unaudited)......................................................................... F-21 Consolidated Statements of Income for the fiscal years ended June 30, 1993, 1994 and 1995, and for the six months ended December 31, 1994 and 1995 (unaudited)........... F-22 Consolidated Statements of Stockholders' Equity for the fiscal years ended June 30, 1993, 1994 and 1995, and for the six months ended December 31, 1995 (unaudited)..... F-23 Consolidated Statements of Cash Flows for the fiscal years ended June 30, 1993, 1994 and 1995, and for the six months ended December 31, 1994 and 1995 (unaudited)....... F-24 Notes to Consolidated Financial Statements............................................ F-25
F-1 41 REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS To the Shareholders and Board of Directors of Hughes Supply, Inc. In our opinion, the accompanying consolidated balance sheets and the related consolidated statements of income, shareholders' equity and of cash flows present fairly, in all material respects, the financial position of Hughes Supply, Inc. and its subsidiaries at January 26, 1996 and January 27, 1995, and the results of their operations and their cash flows for the years ended January 26, 1996 and January 27, 1995, in conformity with generally accepted accounting principles. These financial statements are the responsibility of the Company's management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these statements in accordance with generally accepted auditing standards which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for the opinion expressed above. The consolidated financial statements of Hughes Supply, Inc. and its subsidiaries for the year ended January 28, 1994, prior to restatement, were audited by other independent accountants whose report dated March 17, 1994 expressed an unqualified opinion on those financial statements. The financial statements for 1994 have been restated to reflect the poolings of interests described in Note 2. We have audited the restatement adjustments described in Note 2 that were applied to restate the 1994 financial statements. In our opinion, such adjustments are appropriate and have been properly applied to the 1994 financial statements. PRICE WATERHOUSE LLP Orlando, Florida March 14, 1996 F-2 42 REPORT OF INDEPENDENT ACCOUNTANTS Shareholders and Board of Directors Hughes Supply, Inc. We have audited the consolidated statements of income, shareholders' equity, and cash flows of Hughes Supply, Inc. and subsidiaries for the fiscal year ended January 28, 1994 (not presented herein). These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated results of operations and cash flows of Hughes Supply, Inc. and subsidiaries for the fiscal year ended January 28, 1994 (prior to the retroactive restatement to account for the poolings of interests), in conformity with generally accepted accounting principles. COOPERS & LYBRAND Orlando, Florida March 17, 1994 F-3 43 HUGHES SUPPLY, INC. CONSOLIDATED BALANCE SHEETS (IN THOUSANDS, EXCEPT SHARE DATA)
JANUARY 27, JANUARY 26, 1995 1996 ----------- ----------- ASSETS Current Assets: Cash and cash equivalents............................................. $ 3,485 $ 3,432 Accounts receivable, less allowance for losses of $5,042 and $4,671... 131,907 143,354 Inventories........................................................... 125,159 132,524 Deferred income taxes................................................. 8,921 10,397 Other current assets.................................................. 6,551 7,778 ----------- ----------- Total current assets.......................................... 276,023 297,485 Property and Equipment, Net............................................. 54,618 57,697 Deferred Income Taxes................................................... 2,095 2,430 Other Assets............................................................ 13,380 21,484 ----------- ----------- $ 346,116 $ 379,096 ======== ======== LIABILITIES AND SHAREHOLDERS' EQUITY Current Liabilities: Current portion of long-term debt..................................... $ 1,393 $ 2,551 Accounts payable...................................................... 78,275 84,875 Accrued compensation and benefits..................................... 9,823 12,622 Other current liabilities............................................. 13,738 16,925 ----------- ----------- Total current liabilities..................................... 103,229 116,973 Long-Term Debt.......................................................... 105,243 106,215 Other Noncurrent Liabilities............................................ 1,540 1,765 ----------- ----------- Total liabilities............................................. 210,012 224,953 ----------- ----------- Commitments and Contingencies (Note 7) Shareholders' Equity: Preferred stock, no par value; 10,000,000 shares authorized; none issued; preferences, limitations and relative rights to be established by the Board of Directors.............................. -- -- Common stock, par value $1 per share; 20,000,000 shares authorized; 6,613,757 and 6,798,462 shares issued.............................. 6,614 6,798 Capital in excess of par value........................................ 37,653 40,553 Retained earnings..................................................... 93,525 106,792 ----------- ----------- 137,792 154,143 Less treasury stock, 108,988 shares and no shares, at cost............ (1,688) -- ----------- ----------- Total shareholders' equity.................................... 136,104 154,143 ----------- ----------- $ 346,116 $ 379,096 ======== ========
The accompanying notes are an integral part of these consolidated financial statements. F-4 44 HUGHES SUPPLY, INC. CONSOLIDATED STATEMENTS OF INCOME (IN THOUSANDS, EXCEPT PER SHARE DATA)
FISCAL YEARS ENDED --------------------------------------- JANUARY 28, JANUARY 27, JANUARY 26, 1994 1995 1996 ----------- ----------- ----------- Net Sales.................................................... $ 734,958 $ 875,459 $ 1,082,179 Cost of Sales................................................ 590,466 699,132 858,573 ----------- ----------- ----------- Gross Profit................................................. 144,492 176,327 223,606 ----------- ----------- ----------- Operating Expenses: Selling, general and administrative........................ 121,645 144,256 181,284 Depreciation and amortization.............................. 7,800 9,056 10,585 Provision for doubtful accounts............................ 1,938 1,381 1,849 ----------- ----------- ----------- Total operating expenses........................... 131,383 154,693 193,718 ----------- ----------- ----------- Operating Income............................................. 13,109 21,634 29,888 ----------- ----------- ----------- Non-Operating Income and (Expenses): Interest and other income.................................. 2,981 2,848 4,605 Interest expense........................................... (5,055) (5,284) (7,484) ----------- ----------- ----------- (2,074) (2,436) (2,879) ----------- ----------- ----------- Income Before Income Taxes................................... 11,035 19,198 27,009 Income Taxes................................................. 4,511 7,713 10,959 ----------- ----------- ----------- Net Income................................................... $ 6,524 $ 11,485 $ 16,050 ======== ======== ========= Earnings Per Share: Primary.................................................... $ 1.27 $ 1.83 $ 2.34 ======== ======== ========= Fully diluted.............................................. $ 1.19 $ 1.81 $ 2.31 ======== ======== ========= Average Shares Outstanding: Primary.................................................... 5,143 6,259 6,856 ======== ======== ========= Fully diluted.............................................. 6,313 6,443 6,935 ======== ======== =========
The accompanying notes are an integral part of these consolidated financial statements. F-5 45 HUGHES SUPPLY, INC. CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
COMMON STOCK CAPITAL IN TREASURY STOCK ------------------ EXCESS OF RETAINED ------------------- SHARES AMOUNT PAR VALUE EARNINGS SHARES AMOUNT --------- ------ ---------- -------- -------- -------- Balance, January 29, 1993, as previously reported............... 5,453,249 $5,453 $ 22,410 $ 72,761 901,055 $(13,958) Adjustment for poolings of interests....................... 439,057 439 (276) 3,251 -- -- --------- ------ ---------- -------- -------- -------- Balance, January 29, 1993, as restated........................... 5,892,306 5,892 22,134 76,012 901,055 (13,958) Net income......................... -- -- -- 6,524 -- -- Cash dividends -- $.16 per share.................. -- -- -- (724) -- -- Pooled company.................. -- -- -- (13) -- -- Issuance of treasury shares for EDI merger.......................... (374,998) (375) (5,434) -- (374,998) 5,809 Other acquisition.................. -- -- (1,557) 2,158 (101,368) 1,570 Treasury shares issued under stock option plans.................... -- -- -- (18) (6,123) 95 Purchase and retirement of common shares.......................... (2,581) (2) (9) (38) -- -- --------- ------ ---------- -------- -------- -------- Balance, January 28, 1994............ 5,514,727 5,515 15,134 83,901 418,566 (6,484) Net income......................... -- -- -- 11,485 -- -- Cash dividends -- $.22 per share.................. -- -- -- (1,290) -- -- Pooled company.................. -- -- -- (27) -- -- Treasury shares contributed to employee benefit plan........... -- -- 243 -- (16,597) 257 Conversion of subordinated convertible debentures into common stock.................... 1,081,146 1,081 21,670 -- -- -- Stock dividend by pooled company... 26,101 26 207 (233) -- -- Treasury shares issued under stock option plans.................... -- -- -- (141) (44,341) 687 Purchase and retirement of common shares.......................... (8,217) (8) (35) (170) -- -- Other acquisitions................. -- -- 434 -- (248,640) 3,852 --------- ------ ---------- -------- -------- -------- Balance, January 27, 1995............ 6,613,757 6,614 37,653 93,525 108,988 (1,688) Net income......................... -- -- -- 16,050 -- -- Cash dividends -- $.30 per share.................. -- -- -- (1,971) -- -- Pooled company.................. -- -- -- (15) -- -- Stock dividend by pooled company... 28,710 29 260 (289) -- -- Shares issued under stock option plans........................... 6,657 6 74 (154) (86,984) 1,347 Purchase and retirement of common shares.......................... (19,642) (20) (146) (354) -- -- Other acquisitions................. 168,980 169 2,712 -- (22,004) 341 --------- ------ ---------- -------- -------- -------- Balance, January 26, 1996............ 6,798,462 $6,798 $ 40,553 $106,792 -- $ -- ======== ====== ======= ======== ======== ========
The accompanying notes are an integral part of these consolidated financial statements. F-6 46 HUGHES SUPPLY, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (IN THOUSANDS)
FISCAL YEARS ENDED --------------------------------------- JANUARY 28, JANUARY 27, JANUARY 26, 1994 1995 1996 ----------- ----------- ----------- Increase (Decrease) in Cash and Cash Equivalents: Cash flows from operating activities: Cash received from customers.......................... $ 718,603 $ 861,732 $ 1,073,951 Cash paid to suppliers and employees.................. (712,125) (846,357) (1,034,589) Interest received..................................... 2,001 2,323 3,454 Interest paid......................................... (5,134) (4,825) (7,273) Income taxes paid..................................... (5,544) (9,181) (15,230) ----------- ----------- ----------- Net cash provided by (used in) operating activities....................................... (2,199) 3,692 20,313 ----------- ----------- ----------- Cash flows from investing activities: Capital expenditures.................................. (8,885) (11,915) (11,853) Proceeds from sale of property and equipment.......... 709 743 1,228 Business acquisitions, net of cash.................... (3,934) (11,099) (10,009) ----------- ----------- ----------- Net cash used in investing activities............... (12,110) (22,271) (20,634) ----------- ----------- ----------- Cash flows from financing activities: Net borrowings under short-term debt arrangements..... 16,733 23,832 6,245 Proceeds from issuance of long-term debt.............. 580 -- -- Principal payments on: Long-term notes..................................... (2,918) (1,266) (4,150) Capital lease obligations........................... (660) (725) (844) Proceeds from issuance of common shares under stock option plans........................................ 77 546 1,273 Purchase of common shares............................. (49) (213) (520) Dividends paid........................................ (629) (1,188) (1,736) ----------- ----------- ----------- Net cash provided by financing activities........... 13,134 20,986 268 ----------- ----------- ----------- Net Increase (Decrease) in Cash and Cash Equivalents....... (1,175) 2,407 (53) Cash and Cash Equivalents, beginning of year............... 2,253 1,078 3,485 ----------- ----------- ----------- Cash and Cash Equivalents, end of year..................... $ 1,078 $ 3,485 $ 3,432 ========= ========= ==========
The accompanying notes are an integral part of these consolidated financial statements. F-7 47 HUGHES SUPPLY, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA) NOTE 1 -- DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES INDUSTRY Hughes Supply, Inc. and its subsidiaries (the "Company") are engaged in the wholesale distribution of a broad range of materials, equipment and supplies primarily to the construction industry. Major product lines distributed by the Company include electrical, plumbing and electric utility equipment, building materials, pool equipment and supplies, water and sewer products, heating and air conditioning equipment and supplies, water systems and industrial pipe, valves and fittings. The Company's principal customers are electrical, plumbing and mechanical contractors, electric utility companies, municipal and industrial accounts. PRINCIPLES OF CONSOLIDATION The consolidated financial statements include the Company and its wholly-owned subsidiaries. All significant intercompany transactions and accounts have been eliminated. Prior period financial statements have been restated to include the accounts of companies acquired and accounted for as poolings of interests. Results of operations of companies purchased and immaterial poolings are included from dates of acquisition. The Company's minority investment in affiliate is accounted for by the equity method. FISCAL YEAR The Company's fiscal year ends on the last Friday in January. Fiscal years 1994, 1995 and 1996 each contained 52 weeks. CASH EQUIVALENTS The Company considers all highly liquid investments with a maturity of three months or less when purchased to be cash equivalents. INVENTORIES Inventories are carried at the lower of cost or market. The cost of substantially all inventories is determined by the average cost method. PROPERTY AND EQUIPMENT Buildings and equipment are depreciated using both straight-line and declining-balance methods based on the following estimated useful lives: Buildings and improvements................................... 5-40 years Transportation equipment..................................... 2-7 years Furniture, fixtures and equipment............................ 3-10 years Property under capital leases................................ 20-40 years
Maintenance and repairs are charged to expense as incurred and major renewals and betterments are capitalized. Gains or losses are credited or charged to earnings upon disposition. OTHER ASSETS The excess of cost over the fair value of net assets of purchased companies ($8,806 and $16,637 at January 27, 1995 and January 26, 1996, respectively, net of accumulated amortization) is being amortized by the straight-line method over 15 to 25 years. F-8 48 HUGHES SUPPLY, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA) IMPAIRMENT OF LONG-LIVED ASSETS In the event that facts and circumstances indicate that the excess of cost over the fair value of net assets of purchased companies or other assets may be impaired, an evaluation of recoverability would be performed. If an evaluation is required, the estimated future undiscounted cash flows associated with the asset would be compared to the asset's carrying amount to determine if a write-down to market value or discounted cash flow is required. REVENUE RECOGNITION The Company recognizes revenue from product sales when goods are received by customers. INCOME TAXES Income taxes are provided for the tax effects of transactions reported in the financial statements and consist of taxes currently due plus deferred taxes resulting from temporary differences. Such temporary differences result from differences in the carrying value of assets and liabilities for tax and financial reporting purposes. The deferred tax assets and liabilities represent the future tax consequences of those differences, which will either be taxable or deductible when the assets and liabilities are recovered or settled. Deferred taxes are also recognized for operating losses that are available to offset future taxable income. EARNINGS PER COMMON SHARE Primary earnings per share are based on the weighted average number of shares outstanding during each year plus the common stock equivalents issuable upon the exercise of stock options. Fully diluted earnings per share assumes the conversion of 7% convertible subordinated debentures (after elimination of related interest expense, net of income tax effect) and exercise of stock options. DEFERRED EMPLOYEE BENEFITS The present value of amounts estimated to be payable under unfunded supplemental retirement agreements with certain officers is being accrued over the remaining years of active employment of the officers and is included in other noncurrent liabilities. ESTIMATES The preparation of financial statements in conformity with generally accepted accounting principles necessarily requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. NOTE 2 -- BUSINESS COMBINATIONS On August 1, 1995, the Company acquired all the common stock of Moore Electric Supply, Inc. ("Moore") in exchange for 316,000 shares of the Company's common stock. Moore is a wholesale distributor of electrical products with five outlets in North Carolina and South Carolina. On December 18, 1995, the Company acquired all the common stock of Florida Pipe & Supply Company ("FPS") in exchange for 178,000 shares of the Company's common stock. FPS is a wholesale distributor of industrial pipe, valves and fittings with one outlet in Florida. F-9 49 HUGHES SUPPLY, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA) The above transactions have been accounted for as poolings of interests and, accordingly, the consolidated financial statements for the periods presented have been restated to include the accounts of Moore and FPS. Moore's and FPS's fiscal year ends have been changed to the last Friday in January to conform to the Company's fiscal year end. Net sales and net income of the separate companies for the periods preceding the acquisitions were as follows:
NET NET SALES INCOME -------- ------- Six months ended July 31, 1995 (unaudited): Hughes, as previously reported.................................. $494,239 $ 6,681 Moore........................................................... 32,297 1,023 -------- ------- Combined........................................................ $526,536 $ 7,704 ======== ======= Nine months ended October 31, 1995 (unaudited): Hughes, as previously reported.................................. $805,575 $11,732 FPS............................................................. 14,762 520 -------- ------- Combined........................................................ $820,337 $12,252 ======== ======= Fiscal year ended January 27, 1995: Hughes, as previously reported.................................. $802,445 $10,328 Moore........................................................... 54,115 423 FPS............................................................. 18,899 734 -------- ------- Combined........................................................ $875,459 $11,485 ======== ======= Fiscal year ended January 28, 1994: Hughes, as previously reported.................................. $660,938 $ 6,286 Moore........................................................... 54,854 358 FPS............................................................. 19,166 (120) -------- ------- Combined........................................................ $734,958 $ 6,524 ======== =======
During fiscal years 1994, 1995 and 1996, the Company acquired several wholesale distributors of materials to the construction industry that were accounted for as purchases. These acquisitions, individually or in the aggregate, did not have a material effect on the consolidated financial statements. Results of operations of these companies from their respective dates of acquisition have been included in the consolidated financial statements. F-10 50 HUGHES SUPPLY, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA) NOTE 3 -- PROPERTY AND EQUIPMENT Property and equipment consist of the following:
1995 1996 -------- -------- Land........................................................... $ 13,415 $ 14,380 Buildings and improvements..................................... 42,850 45,996 Transportation equipment....................................... 19,930 20,265 Furniture, fixtures and equipment.............................. 21,045 24,129 Property under capital leases.................................. 10,794 10,551 -------- -------- 108,034 115,321 Less accumulated depreciation and amortization................. (53,416) (57,624) -------- -------- $ 54,618 $ 57,697 ======== ========
NOTE 4 -- LONG-TERM DEBT Long-term debt consists of the following:
1995 1996 -------- -------- Unsecured revolving bank notes under $160,000 credit agreement, payable June 30, 1998, fluctuating interest (6.3% to 6.4% at January 26, 1996)............................................ $ 61,025 $ 68,300 Short-term instruments classified as long-term debt............ 34,803 35,200 Other notes payable............................................ 6,950 2,252 Capital lease obligations...................................... 3,858 3,014 -------- -------- 106,636 108,766 Less current portion........................................... (1,393) (2,551) -------- -------- $105,243 $106,215 ======== ========
On July 31, 1995, the Company's revolving credit and line of credit agreement with a group of banks was amended. The agreement, as amended, now permits the Company to borrow up to $160,000 (subject to borrowing limitations under the agreement) -- $125,000 long-term, expiring June 30, 1998, and $35,000 line of credit convertible to a term note due two years from conversion date. The $35,000 line of credit backs commercial paper. Under the credit facility, interest is payable at market rates plus applicable margins. Commitment fees of .25% and .125% are paid on the unused portions of the revolving and line of credit facilities, respectively. Loan covenants require the Company to maintain consolidated working capital of not less than $75,000 and a maximum ratio of funded debt to total capital, as defined, of .55 to 1.0. The covenants also restrict the Company's activities regarding investments, liens, borrowing and leasing, and payment of dividends other than stock. Under the dividend covenant, approximately $13,480 is available at January 26, 1996 for payment of dividends. The Company has a bank line of credit for short-term borrowing aggregating $6,000 (subject to borrowing limitations under the long-term debt covenants) under which $200 was outstanding at January 26, 1996. There were no amounts outstanding at January 27, 1995. The line provides for interest at market rates. The interest rate on short-term borrowings as of January 26, 1996 was 5.9%. In addition, the Company has a commercial paper program backed by its revolving credit facility. The weighted average interest rate on F-11 51 HUGHES SUPPLY, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA) outstanding commercial paper borrowings of $34,803 and $35,000 as of January 27, 1995 and January 26, 1996 was 6.0% and 5.9%, respectively. The Company's credit facility enables the Company to refinance short-term borrowings on a long-term basis to the extent that the credit facility is unused. Accordingly, $34,803 and $35,200 of short-term borrowings at January 27, 1995 and January 26, 1996, respectively, have been classified as long-term debt. The carrying value of notes payable is a reasonable estimate of fair value since interest rates are based on prevailing market rates. Maturities of long-term debt, excluding capital lease obligations, for each of the five years subsequent to January 26, 1996 and in the aggregate are as follows:
FISCAL YEARS ENDING ------------------------------------------------------------------ 1997......................................................... $ 1,694 1998......................................................... 408 1999......................................................... 103,615 2000......................................................... 31 2001......................................................... 4 Later years.................................................. -- -------- $105,752 ========
NOTE 5 -- INCOME TAXES The components of deferred tax assets and liabilities are as follows:
1995 1996 ------- ------- Deferred tax assets: Allowance for doubtful accounts................................ $ 1,854 $ 1,809 Inventories.................................................... 2,866 1,757 Capital leases................................................. 590 503 Property and equipment......................................... 744 1,148 Accrued vacation............................................... 667 911 Deferred compensation.......................................... 597 681 Environmental clean-up costs................................... 216 268 Operating leases............................................... -- 276 Other accrued liabilities...................................... 3,222 5,106 Other.......................................................... 310 389 ------- ------- Total deferred tax assets.............................. 11,066 12,848 ------- ------- Deferred tax liabilities: Operating leases............................................... 42 -- Intangible assets.............................................. 8 21 ------- ------- Total deferred tax liabilities......................... 50 21 ------- ------- Net deferred tax asset........................................... $11,016 $12,827 ======= =======
No valuation allowance has been provided for these deferred tax assets at January 27, 1995 and January 26, 1996 as full realization of these assets is expected. F-12 52 HUGHES SUPPLY, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA) The consolidated provision for income taxes consists of the following:
FISCAL YEARS ENDED ------------------------------ 1994 1995 1996 ------ ------- ------- Currently payable: Federal.............................................. $4,567 $ 9,927 $11,091 State................................................ 645 1,635 1,679 ------ ------- ------- 5,212 11,562 12,770 ------ ------- ------- Deferred: Federal.............................................. (906) (3,650) (1,555) State................................................ 205 (199) (256) ------ ------- ------- (701) (3,849) (1,811) ------ ------- ------- $4,511 $ 7,713 $10,959 ====== ======= =======
The following is a reconciliation of tax computed at the statutory Federal rate to the income tax expense in the consolidated statements of income:
FISCAL YEARS ENDED ---------------------------------------------- 1994 1995 1996 ------------- ------------- -------------- AMOUNT % AMOUNT % AMOUNT % ------ ---- ------ ---- ------- ---- Tax computed at statutory Federal rate...... $3,862 35.0 $6,719 35.0 $ 9,453 35.0 Effect of: State income tax, net of Federal income tax benefit............................ 552 5.0 933 4.9 925 3.4 Nondeductible purchase adjustments........ 24 .2 38 .2 43 .2 Nondeductible expenses.................... 117 1.1 330 1.7 396 1.5 Other, net................................ (44) (.4) (307) (1.6) 142 .5 ------ ---- ------ ---- ------- ---- Income tax expense.......................... $4,511 40.9 $7,713 40.2 $10,959 40.6 ====== ==== ====== ==== ======= ====
NOTE 6 -- EMPLOYEE BENEFIT PLANS PROFIT SHARING AND EMPLOYEE STOCK OWNERSHIP PLANS The Company has a 401(k) profit sharing plan which provides benefits for substantially all employees of the Company who meet minimum age and length of service requirements. Under the plan, employee contributions of not less than 2% to not more than 3% of each eligible employee's compensation are matched (in cash or stock) 50% by the Company. Additional annual contributions may be made at the discretion of the Board of Directors. The Company has an employee stock ownership plan (ESOP) covering substantially all employees of the Company who meet minimum age and length of service requirements. The plan is designed to enable eligible employees to acquire a proprietary interest in the Company. Company contributions (whether in cash or stock) are determined annually by the Board of Directors in an amount not to exceed the maximum allowable as an income tax deduction. At January 27, 1995 and January 26, 1996, the plan owned approximately 172,000 and 184,000 shares, respectively, of the Company's common stock, all of which were allocated to participants. Amounts charged to expense for these and other similar plans during the fiscal years ended in 1994, 1995 and 1996 were $1,000, $1,157 and $1,710, respectively. F-13 53 HUGHES SUPPLY, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA) BONUS PLANS The Company has bonus plans, based on profitability formulas, which provide incentive compensation for key employees. Amounts charged to expense for bonuses to executive officers were $533, $935 and $1,354 for the fiscal years ended in 1994, 1995 and 1996, respectively. STOCK OPTION PLANS The Company's stock option plans authorize the granting of both incentive and non-incentive stock options for an aggregate of 1,635,000 shares of common stock to key executive, management, and sales employees, and, with respect to 135,000 shares, to non-employee directors. Under the plans, options are granted at prices not less than market value on the date of grant, and the maximum term of an option may not exceed ten years. Prices for incentive stock options granted to employees who own 10% or more of the Company's stock are at least 110% of market value at date of grant. Options may be granted from time to time to May 1998, or May 2003 with regard to directors. An option becomes exercisable at such times and in such installments as set by the Board of Directors. The employee plan also permits the granting of stock appreciation rights (SARs) to holders of options. Such rights permit the optionee to surrender an exercisable option, in whole or in part, on any date that the fair market value of the Company's common stock exceeds the option price for the stock and receive payment in common stock, or, if the Board of Directors approves, in cash or any combination of cash and common stock. Such payment would be equal to the excess of the fair market value of the shares under the surrendered option over the option price for such shares. The change in value of SARs would be reflected in income based upon the market value of the stock. No SARs have been granted or issued through January 26, 1996. A summary of option transactions during each of the three fiscal years in the period ended January 26, 1996 is shown below:
NUMBER OF OPTION PRICE SHARES RANGE --------- ------------- Under option, January 29, 1993 (253,442 shares exercisable)............................ 406,442 $12.00 - $17.63 Granted................................................ 12,000 $16.25 Exercised.............................................. (6,023) $12.25 - $12.87 Cancelled.............................................. (12,835) $12.00 - $12.63 --------- Under option, January 28, 1994 (297,584 shares exercisable)............................ 399,584 $12.25 - $17.63 Granted................................................ 115,000 $18.13 - $25.37 Exercised.............................................. (44,241) $12.25 - $12.63 --------- Under option, January 27, 1995 (339,343 shares exercisable)............................ 470,343 $12.25 - $25.37 Granted................................................ 15,000 $19.25 Exercised.............................................. (93,541) $12.25 - $20.25 Cancelled.............................................. (1,861) $12.25 - $12.63 --------- Under option, January 26, 1996 (329,941 shares exercisable)............................ 389,941 $12.25 - $25.37 ========
There were 640,658 and 627,519 shares available for the granting of options at January 27, 1995 and January 26, 1996, respectively. F-14 54 HUGHES SUPPLY, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA) STOCK-BASED COMPENSATION The Company accounts for compensation cost related to employee stock options and other forms of employee stock-based compensation plans in accordance with the requirements of Accounting Principles Board Opinion 25 ("APB 25"). APB 25 requires compensation cost for stock-based compensation plans to be recognized based on the difference, if any, between the fair market value of the stock on the date of grant and the option exercise price. In October 1995, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 123, Accounting for Stock-Based Compensation ("SFAS 123"). SFAS 123 established a fair value-based method of accounting for compensation cost related to stock options and other forms of stock-based compensation plans. However, SFAS 123 allows an entity to continue to measure compensation costs using the principles of APB 25 if certain pro forma disclosures are made. SFAS 123 is effective for fiscal years beginning after December 15, 1995. The Company intends to adopt the provisions for pro forma disclosure requirements of SFAS 123 in fiscal 1997. SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN The Company has entered into agreements with certain key executive officers providing for supplemental payments, generally for periods up to 15 years, upon retirement, disability or death. The obligations are not funded apart from the Company's general assets. Amounts charged to expense under the agreements were $166, $390 and $238 in fiscal years ended 1994, 1995 and 1996, respectively. NOTE 7 -- COMMITMENTS AND CONTINGENCIES LEASE COMMITMENTS A portion of the Company's operations are conducted from locations leased under capital leases from a corporation which is owned by three of the directors of Hughes Supply, Inc. The leases generally provide that all expenses related to the properties are to be paid by the lessee. The leases also generally provide for rental increases at specified intervals. The leases all expire within ten years; however, it is expected that they will be renewed. Rents under these agreements amounted to $1,165 for fiscal years ended 1994 and 1995 and $1,149 in fiscal year ended 1996. Property under capital leases is included in the consolidated balance sheets as follows:
1995 1996 ------- ------- Property under capital leases (consisting of land and buildings)................................................... $10,794 $10,551 Accumulated amortization....................................... (8,458) (8,840) ------- ------- $ 2,336 $ 1,711 ======= =======
In addition, rents under operating leases paid to this related corporation were $396, $400 and $358 in 1994, 1995 and 1996, respectively. F-15 55 HUGHES SUPPLY, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA) Future minimum payments, by year and in the aggregate, under the aforementioned leases and other noncancellable operating leases with initial or remaining terms in excess of one year as of January 26, 1996, are as follows:
CAPITAL OPERATING FISCAL YEARS ENDING LEASES LEASES --------------------------------------------------------------- ------- --------- 1997...................................................... $ 1,141 $ 9,122 1998...................................................... 1,141 8,238 1999...................................................... 558 6,540 2000...................................................... 360 4,755 2001...................................................... 325 3,201 Later years............................................... 258 5,221 ------- --------- Total minimum lease payments................................... 3,783 $37,077 ======= Less amount representing interest.............................. (769) ------- Present value of net minimum lease payments.................... 3,014 Less current portion........................................... (857) ------- $ 2,157 ======
Lease-related expenses are as follows:
FISCAL YEARS ENDED ----------------------------- 1994 1995 1996 ------ ------ ------- Capital lease amortization...................................... $ 594 $ 594 $ 584 Capital lease interest expense.................................. 505 440 364 Operating lease rentals (excluding month-to-month rents)........ 6,397 7,412 12,090
GUARANTEES OF AFFILIATE DEBT A wholly-owned subsidiary of the Company owns a 20% interest in Accord Industries Company ("Accord"), a joint venture formed from the Company's sale of its manufacturing operations in 1990. As partial consideration for the sale, the Company received $2,750 in notes receivable, part of which is convertible into an additional partnership interest in Accord of up to 29%. In connection with the investment in Accord, the Company guaranteed $500 of Accord's indebtedness to a bank and the Company's subsidiary as a joint venturer is contingently liable for the remaining bank debt of approximately $1,100 as of January 26, 1996. LEGAL MATTERS The Company is involved in various legal proceedings incident to the conduct of its business. In the opinion of management, none of the proceedings are material in relation to the Company's consolidated operations or financial position. NOTE 8 -- CAPITAL STOCK COMMON STOCK On May 24, 1994, the shareholders approved an amendment to the articles of incorporation of the Company increasing the number of authorized shares of common stock to 20,000,000 shares, $1.00 par value per share. F-16 56 HUGHES SUPPLY, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA) On March 8, 1994, the Company issued a call for redemption of its outstanding 7% convertible subordinated debentures to take place on April 7, 1994. Of the $22,960 debentures outstanding at January 28, 1994, $22,889, or 99.7%, were converted into the Company's common stock at $21.17 per share or 47.2 common shares for each $1 face amount of debentures. This conversion resulted in the issuance of 1,081,146 common shares. PREFERRED STOCK The Company's Board of Directors established Series A Junior Participating Preferred Stock (Series A Stock) consisting of 300,000 shares. Each share of Series A Stock will be entitled to one vote on all matters submitted to a vote of shareholders. Series A Stock is not redeemable or convertible into any other security. Each share of Series A Stock shall have a minimum cumulative preferential quarterly dividend rate equal to the greater of $1.25 per share or 100 times the aggregate per share amount of the dividend declared on common stock. In the event of liquidation, shares of Series A Stock will be entitled to the greater of $100 per share plus any accrued and unpaid dividend or 100 times the payment to be made per share of common stock. No shares of Series A Stock are presently outstanding, and no shares are expected to be issued except in connection with the shareholder rights plan referred to below. The Company has a shareholder rights plan. Under the plan, the Company distributed to shareholders a dividend of one right per share of the Company's common stock. When exercisable, each right will permit the holder to purchase from the Company a unit consisting of one one-hundredth of a share of Series A Stock at a purchase price of $65 per unit. The rights generally become exercisable if a person or group acquires 20% or more of the Company's common stock or commences a tender offer that could result in such person or group owning 30% or more of the Company's common stock. If certain subsequent events occur after the rights first become exercisable, the rights may become exercisable for the purchase of shares of common stock of the Company, or of an acquiring company, having a value equal to two times the exercise price of the right. The rights may be redeemed by the Company at $.01 per right at any time prior to ten days after 20% or more of the Company's stock is acquired by a person or group. The rights expire on June 2, 1998 unless sooner terminated in accordance with the rights plan. NOTE 9 -- CONCENTRATION OF CREDIT RISK The Company sells its products in the major areas of construction markets in certain states of the eastern half of the United States. Approximately 90% of the Company's sales are credit sales which are primarily to customers whose ability to pay is dependent upon the construction industry economics prevailing in these areas; however, concentration of credit risk with respect to trade accounts receivable is limited due to the large number of customers comprising the Company's customer base and no one customer comprises more than 1% of annual sales. The Company performs ongoing credit evaluations of its customers and in certain situations obtains collateral sufficient to protect its credit position. The Company maintains reserves for potential credit losses, and such losses have been within management's expectations. F-17 57 HUGHES SUPPLY, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA) NOTE 10 -- SUPPLEMENTAL CASH FLOWS INFORMATION The following is a reconciliation of net income to net cash provided by (used in) operating activities:
FISCAL YEARS ENDED ------------------------------- 1994 1995 1996 -------- -------- ------- Net income............................................ $ 6,524 $ 11,485 $16,050 Adjustments to reconcile net income to net cash provided by (used in) operating activities: Depreciation..................................... 7,038 8,217 8,669 Amortization..................................... 762 839 1,916 Provision for doubtful accounts.................. 1,938 1,381 1,849 Gain on sale of property and equipment........... (270) (294) (621) Undistributed (earnings) losses of affiliate..... (171) (139) 115 Treasury shares contributed to employee benefit plan........................................... -- 500 -- Changes in assets and liabilities, net of effects of business acquisitions: (Increase) decrease in -- Accounts receivable......................... (16,894) (13,819) (8,872) Inventories................................. (4,688) (16,539) 1,129 Other current assets........................ (81) (835) (1,119) Other assets................................ 178 (262) (1,063) Increase (decrease) in -- Accounts payable and accrued expenses....... 4,399 13,770 6,095 Accrued interest and income taxes........... (487) 2,840 (2,249) Other noncurrent liabilities................ 178 397 225 Increase in deferred income taxes.............. (625) (3,849) (1,811) -------- -------- ------- Net cash provided by (used in) operating activities... $ (2,199) $ 3,692 $20,313 ======== ======== =======
NONCASH INVESTING AND FINANCING ACTIVITIES The net assets acquired and consideration for acquisitions accounted for as purchases are summarized below:
FISCAL YEARS ENDED ------------------------------- 1994 1995 1996 -------- -------- ------- Fair value of: Assets acquired..................................... $ 8,421 $ 28,396 $22,600 Liabilities assumed................................. (4,487) (7,269) (9,369) -------- -------- ------- Purchase price........................................ $ 3,934 $ 21,127 $13,231 ======== ======== =======
Consideration in fiscal 1995 included 249,000 shares of common stock (fair value $4,286), a note for $1,525 and amounts payable of $4,217. Consideration in fiscal 1996 included 191,000 shares of common stock (fair value $3,222). Additional common stock was issued in fiscal year 1995 upon the conversion of $22,889 convertible subordinated debentures. F-18 58 HUGHES SUPPLY, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA) NOTE 11 -- SUBSEQUENT EVENT (UNAUDITED) On March 27, 1996, the Company entered into an asset purchase agreement to acquire substantially all of the assets, properties and business of PVF Holdings, Inc. and its subsidiaries and to assume certain of their liabilities. The aggregate consideration to be paid is approximately $106 million, consisting of cash in the amount of $74.4 million, the issuance of 669,956 shares of common stock and the assumption of bank debt not to exceed $13 million. F-19 59 INDEPENDENT AUDITORS' REPORT To The Board of Directors of PVF Holdings, Inc.: We have audited the accompanying consolidated balance sheets of PVF Holdings, Inc. and subsidiaries as of June 30, 1994 and 1995, and the related consolidated statements of income, stockholders' equity, and cash flows for each of the three years in the period ended June 30, 1995. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of PVF Holdings, Inc. and subsidiaries as of June 30, 1994 and 1995, and the results of their operations and their cash flows for each of the three years in the period ended June 30, 1995 in conformity with generally accepted accounting principles. DELOITTE & TOUCHE LLP Birmingham, Alabama September 25, 1995 (October 25, 1995 and March 27, 1996 as to Note 9) F-20 60 PVF HOLDINGS, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS
JUNE 30, ------------------------- DECEMBER 31, 1994 1995 1995 ----------- ----------- ------------ (UNAUDITED) ASSETS (NOTE 4) CURRENT ASSETS: Cash.................................................. $ 197,118 $ 183,182 $ 203,512 Accounts receivable, less allowance for doubtful accounts of $75,000 (June 30, 1994), $110,000 (June 30, 1995) and $120,000 (December 31, 1995)............................................ 8,590,232 12,346,105 12,583,641 Inventories........................................... 23,006,950 37,487,362 39,829,495 Prepaid expenses...................................... 33,457 21,020 74,946 Deferred income taxes (Note 5)........................ 231,468 576,000 672,000 ----------- ----------- ------------ Total current assets.......................... 32,059,225 50,613,669 53,363,594 PROPERTY, PLANT AND EQUIPMENT -- NET (Note 2)........... 1,426,187 1,278,274 1,294,929 INVESTMENT IN AND LOANS TO AFFILIATE (Note 3)........... 183,740 636,108 688,157 GOODWILL, NET........................................... 530,400 494,560 476,633 OTHER ASSETS............................................ 163,189 121,244 105,874 ----------- ----------- ------------ TOTAL......................................... $34,362,741 $53,143,855 $ 55,929,187 ========== ========== ========== LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES: Revolving line of credit -- bank (Note 4)............. $ 6,738,000 $ 3,583,000 $ 3,423,000 Accounts payable...................................... 8,191,188 10,852,719 8,233,078 Accrued management fees (Note 3)...................... 265,466 1,866,118 750,494 Other accrued expenses (Note 3)....................... 745,836 1,887,870 1,884,228 Income taxes payable.................................. 82,269 2,456,746 985,157 Current portion of long-term debt (Note 4)............ 3,193,549 1,058,540 1,083,249 Current portion of subordinated debt (Note 4)......... 175,000 -- -- ----------- ----------- ------------ Total current liabilities..................... 19,391,308 21,704,993 16,359,206 LONG-TERM DEBT (Note 4)................................. 462,660 6,719,230 6,384,126 SUBORDINATED DEBT (Notes 3 and 4)....................... 700,000 700,000 700,000 COMMITMENTS (Note 6) STOCKHOLDER'S EQUITY (Notes 4 and 8): Series A preferred stock; nonvoting and cumulative; par value $1 per share; 9,500 shares authorized, issued and outstanding............................. 9,500 9,500 9,500 Series B preferred stock; nonvoting, cumulative and convertible; par value $1 per share; 310 shares authorized; 310 (June 30, 1994 and 1995) and -0- (December 31, 1995) shares issued and outstanding........................................ 310 310 -- Common Stock; par value $.01 per share; 100,000 shares authorized; 19,000 (June 30, 1994 and 1995) and 50,000 (December 31, 1995) shares issued and outstanding........................................ 190 190 500 Additional paid-in-capital............................ 2,021,000 2,021,000 2,021,000 Retained earnings..................................... 12,013,447 21,988,632 30,454,855 Unearned compensation relating to stock award......... (235,674) -- -- ----------- ----------- ------------ Total stockholders' equity.................... 13,808,773 24,019,632 32,485,855 ----------- ----------- ------------ TOTAL......................................... $34,362,741 $53,143,855 $ 55,929,187 ========== ========== ==========
See notes to consolidated financial statements. F-21 61 PVF HOLDINGS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME
SIX MONTHS ENDED YEAR ENDED JUNE 30, DECEMBER 31, --------------------------------------- ------------------------- 1993 1994 1995 1994 1995 ----------- ----------- ----------- ----------- ----------- (UNAUDITED) NET SALES....................... $48,297,228 $60,930,776 $92,790,481 $39,808,900 $56,514,677 ----------- ----------- ----------- ----------- ----------- COSTS AND EXPENSES: Cost of goods sold............ 37,105,439 46,211,087 60,423,904 28,957,788 34,982,987 Operating expenses (Notes 3, 6, 7 and 8)................ 8,514,457 9,878,622 14,339,683 6,303,462 7,127,306 Interest expense (Note 3)..... 730,858 830,638 997,709 486,019 453,161 ----------- ----------- ----------- ----------- ----------- Total costs and expenses............ 46,350,754 56,920,347 75,761,296 35,747,269 42,563,454 ----------- ----------- ----------- ----------- ----------- INCOME BEFORE INCOME TAXES...... 1,946,474 4,010,429 17,029,185 4,061,361 13,951,223 INCOME TAXES (Note 5)........... 706,000 1,419,000 7,054,000 1,629,000 5,485,000 ----------- ----------- ----------- ----------- ----------- NET INCOME...................... $ 1,240,474 $ 2,591,429 $ 9,975,185 $ 2,432,631 $ 8,466,223 ========== ========== ========== ========== ==========
See notes to consolidated financial statements. F-22 62 PVF HOLDINGS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
SERIES A SERIES B UNEARNED PREFERRED STOCK PREFERRED STOCK COMMON STOCK ADDITIONAL COMPENSATION --------------- --------------- --------------- PAID-IN RETAINED RELATING TO SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT CAPITAL EARNINGS STOCK AWARD TOTAL ------ ------ ------ ------ ------ ------ ---------- ----------- ------------ ----------- BALANCE, JULY 1, 1992.............. 9,500 $9,500 310 $ 310 19,000 $190 $2,021,000 $ 8,181,544 $ (471,567) $ 9,740,977 Net income........ 1,240,474 1,240,474 Amortization of shares vested under stock award (Note 8)............. 117,923 117,923 ------ ------ ------ ------ ------ ------ ---------- ----------- ------------ ----------- BALANCE, JUNE 30, 1993.............. 9,500 9,500 310 310 19,000 190 2,021,000 9,422,018 (353,644) 11,099,374 Net income........ 2,591,429 2,591,429 Amortization of shares vested under stock award (Note 8)............. 117,970 117,970 ------ ------ ------ ------ ------ ------ ---------- ----------- ------------ ----------- BALANCE, JUNE 30, 1994.............. 9,500 9,500 310 310 19,000 190 2,021,000 12,013,447 (235,674) 13,808,773 Net income........ 9,975,185 9,975,185 Amortization of shares vested under stock award (Note 8)............. 235,674 235,674 ------ ------ ------ ------ ------ ------ ---------- ----------- ------------ ----------- BALANCE, JUNE 30, 1995.............. 9,500 9,500 310 310 19,000 190 2,021,000 21,988,632 -- 24,019,632 Conversion of Series B preferred stock into common stock (Note 8)............. (310) (310 ) 31,000 310 Net income (unaudited).... 8,466,223 8,466,223 ------ ------ ------ ------ ------ ------ ---------- ----------- ------------ ----------- BALANCE, DECEMBER 31, 1995 (unaudited)....... 9,500 $9,500 -- $ -- 50,000 $500 $2,021,000 $30,454,855 $ -- $32,485,855 ===== ====== ===== ====== ====== ====== ========= ========== ========== ==========
See notes to consolidated financial statements. F-23 63 PVF HOLDINGS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS
SIX MONTHS ENDED YEAR ENDED JUNE 30, DECEMBER 31, ---------------------------------------- ------------------------- 1993 1994 1995 1994 1995 ----------- ----------- ------------ ----------- ----------- (UNAUDITED) OPERATING ACTIVITIES: Net income......................................... $ 1,240,474 $ 2,591,429 $ 9,975,185 $ 2,432,631 $ 8,466,223 Adjustments to reconcile net income to net cash provided by (used in) operating activities: Depreciation..................................... 332,387 385,457 414,770 207,386 207,900 Amortization..................................... 259,684 148,459 98,512 49,188 31,829 Compensation expense relating to stock award and performance stock plan......................... 117,923 117,970 418,916 280,673 209,260 Provision for losses on accounts receivable...... 59,119 73,228 97,630 39,832 (4,212) Equity in net income of affiliate................ (104,143) (16,920) (52,049) (Gain) loss on disposal of fixed assets......................................... (8,478) 1,377 Changes in assets and liabilities provided (used) cash: Accounts receivable.............................. (1,624,606) (2,425,405) (3,853,503) (1,136,628) (233,324) Inventories...................................... (5,734,882) (1,385,973) (14,480,412) (4,447,040) (2,342,133) Prepaid expenses................................. (12,232) 29,695 12,437 (14,383) (53,926) Deferred income taxes............................ (75,000) 1,000 (344,532) (147,532) (96,000) Accounts payable and accrued expenses............ 2,131,773 1,124,603 5,220,975 1,692,347 (3,948,167) Income taxes payable............................. 7,084 73,282 2,374,477 211,577 (1,471,589) Other............................................ (18,271) (11,856) (20,727) (16,603) 1,469 ----------- ----------- ------------ ----------- ----------- Net cash provided by (used in) operating activities..................................... (3,316,547) 721,889 (198,893) (865,472) 716,658 ----------- ----------- ------------ ----------- ----------- INVESTING ACTIVITIES: Capital expenditures............................... (596,967) (165,801) (271,779) (133,931) (225,933) Investment in and loans to affiliates.............. (183,740) (348,225) (348,225) Proceeds from the sale of fixed assets............. 13,400 ----------- ----------- ------------ ----------- ----------- Net cash used in investing activities............ (596,967) (349,541) (606,604) (482,156) (225,933) ----------- ----------- ------------ ----------- ----------- FINANCING ACTIVITIES: Net borrowings (payments) under line of credit..... 4,934,000 772,000 (3,155,000) (3,245,000) (160,000) Proceeds from issuance of long-term debt........... 28,412 7,500,000 7,500,000 147,045 Payments on long-term debt......................... (1,270,393) (1,187,364) (3,553,439) (2,947,905) (457,440) ----------- ----------- ------------ ----------- ----------- Net cash provided by (used in) financing activities..................................... 3,692,019 (415,364) 791,561 1,307,095 (470,395) ----------- ----------- ------------ ----------- ----------- NET INCREASE (DECREASE) IN CASH...................... (221,495) (43,016) (13,936) (40,533) 20,330 CASH, BEGINNING OF PERIOD............................ 461,629 240,134 197,118 197,118 183,182 ----------- ----------- ------------ ----------- ----------- CASH, END OF PERIOD.................................. $ 240,134 $ 197,118 $ 183,182 $ 156,585 $ 203,512 ========== ========== =========== ========== ========== SUPPLEMENTAL CASH FLOW DISCLOSURES: Cash paid for: Interest......................................... $ 782,082 $ 882,922 $ 967,059 $ 483,159 $ 406,188 ========== ========== =========== ========== ========== Income taxes..................................... $ 828,735 $ 1,346,059 $ 5,113,069 $ 1,549,411 $ 7,058,914 ========== ========== =========== ========== ==========
See notes to consolidated financial statements. F-24 64 PVF HOLDINGS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. SIGNIFICANT ACCOUNTING POLICIES a. Principles of Consolidation -- The consolidated financial statements include the accounts of PVF Holdings, Inc. ("PVF"), Southwest Stainless, Inc. ("SWS"), Coastline Products, Inc. ("Coastline"), Houston Products and Machine ("HPM"), and Multalloy, Inc., ("Multalloy") (hereinafter collectively referred to as the "Company"). The Company's investment in C. F. Fluid Controls Inc. ("C.F. Fluid") a 50% owned unconsolidated investee, is accounted for on the equity method (see Note 3). All significant intercompany accounts and transactions have been eliminated in consolidation. b. Description of the Company -- PVF was incorporated in Delaware on November 30, 1989. At that time, it issued 19,000 shares of common stock, 9,500 shares of Series A preferred stock and 310 shares of Series B convertible preferred stock for all of the similar shares of SWS, of which Coastline was a wholly-owned subsidiary, in a non-taxable exchange. SWS and Coastline were surviving companies from a purchase acquisition in 1988. In 1992, the Company acquired the assets of HPM and, in 1994, it incorporated its Multalloy division. The Company is a wholesale distributor, selling to customers located primarily in the Southeastern and Southwestern United States, of stainless and special-alloy pipe, valves and accessories for use primarily in the chemical, paper and textile industries. Effective June 30, 1992, Jemison industries, Inc. ("Industries"), a majority-owned subsidiary of Jemison Investment Co., Inc. ("Investment"), transferred its interest in PVF to Investment. The stockholders of the Company at June 30, 1995 include, among others, Investment, which is a 49% shareholder, and certain management members and shareholders of Investment and Industries. As of July 1, 1995, Investment increased its ownership of the Company to 80.5% by converting all of its Series B preferred stock (see Note 8). c. Inventories -- Inventories, which consist of purchased materials, are valued at average cost (using the weighted average method) and are stated at the lower of cost or market. d. Property, Plant and Equipment -- Property, plant and equipment is stated at cost. Depreciation is computed using the straight-line method over the estimated useful lives of the assets. e. Goodwill -- Goodwill is being amortized on a straight-line basis primarily over 40 years. Accumulated amortization of goodwill was $179,000 and $215,000 at June 30, 1994 and 1995, respectively. f. Income Taxes -- Effective July 1, 1993, the Company adopted Statement of Financial Accounting Standards ("SFAS") No. 109, Accounting for Income Taxes. SFAS No. 109 requires that deferred income taxes be determined under an asset and liability method. Under this method, deferred tax assets and liabilities are based on the expected future tax consequences of temporary differences between the book and tax bases of assets and liabilities. Previously, deferred income taxes were determined under Accounting Principles Board Opinion No. 11, Accounting for Income Taxes ("APB No. 11"). Under APB No. 11, deferred income taxes were based on the historical tax effects of timing differences between book and taxable income. The impact of adopting SFAS No. 109 was immaterial to the Company's consolidated financial statements. Deferred income taxes are provided for temporary differences between financial and tax reporting, primarily attributable to capitalization of inventory costs under uniform capitalization regulations. g. Interim Period Presentation -- The unaudited consolidated financial statements for the six months ended December 31, 1994 and 1995 have been prepared on a basis substantially consistent with that of the audited financial statements included herein. In the opinion of management, such unaudited financial statements include all adjustments (consisting of only normal recurring accruals) necessary for a fair presentation of the results of operations and cash flows. The results of operations for the six months ended December 31, 1995 are not necessarily indicative of results that may be expected for the year ending June 30, 1996. F-25 65 PVF HOLDINGS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) h. Reclassifications -- Certain reclassifications have been made to the 1994 balance sheet amounts to conform to the 1995 presentation. i. New Accounting Standards Not Yet Adopted -- In December 1991, SFAS No. 107, Disclosures About Fair Value of Financial Instruments was issued by the Financial Accounting Standards Board ("FASB"). In October 1994, SFAS No. 107 was amended by SFAS No. 119, Disclosure about Derivative Financial Instruments and Fair Value of Financial Instruments. SFAS Nos. 107 and 119 require various disclosures relating to nonderivative financial instruments and derivative financial instruments. These statements are effective for fiscal years ending after December 15, 1995 for entities with less than $150 million in total assets. The adoption of these statements will impact the Company's financial statements only in terms of increased disclosures regarding the affected instruments. The FASB has also issued SFAS No. 121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of. This statement establishes accounting standards for the impairment of long-lived assets, certain identifiable intangibles, and goodwill related to those assets to be held and used, and for long-lived assets and certain identifiable intangibles to be disposed of. This statement is effective for fiscal years beginning after December 15, 1995. Management believes there would be no impact on the Company's consolidated financial statements if this Statement were adopted currently. 2. PROPERTY, PLANT AND EQUIPMENT Property, plant and equipment consists of the following:
JUNE 30, ------------------------- DECEMBER 31, 1994 1995 1995 ---------- ---------- ------------ (UNAUDITED) Land and buildings............................ $ 278,040 $ 278,040 $ 278,040 Furniture and fixtures........................ 149,918 167,610 175,360 Machinery and equipment....................... 1,720,451 1,914,347 2,008,807 Transportation equipment...................... 203,055 210,985 210,277 Leasehold improvements........................ 110,180 136,260 148,278 ---------- ---------- ------------ 2,461,644 2,707,242 2,820,762 Less accumulated depreciation and amortization................................ 1,035,457 1,428,968 1,525,833 ---------- ---------- ------------ Total............................... $1,426,187 $1,278,274 $1,294,929 ========= ========= ==========
3. RELATED PARTY TRANSACTIONS The Company owes $700,000 to Investment, which until November 3, 1994 was guaranteeing certain of the Company's other debt. Interest of $70,000 was incurred on this obligation in 1993, 1994 and 1995. In exchange for these guarantees and certain management services, the Company paid Investment an annual consultant and guarantee fee based upon 5% of the Company's adjusted pre-tax income. For the years ended June 30, 1993, 1994 and 1995, the Company incurred approximately $160,000, $265,000 and $1,866,000, respectively, of these fees, including in 1995 a special management fee of $900,000. The Company leases certain branch facilities from related parties consisting of its President, the Chairman of Investment and Investment. Related party rents of approximately $266,000, $370,000 and $384,000 were incurred in 1993, 1994 and 1995, respectively. At June 30, 1995, the Company has $348,000 in notes receivable from C. F. Fluid plus $20,000 accrued interest on these notes. During 1995, the Company purchased inventory from C.F. Fluid totaling $634,000, and as of June 30, 1995 had related accounts payable of $200,000. F-26 66 PVF HOLDINGS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 4. LONG-TERM DEBT The Company's long-term debt consists of:
JUNE 30, ------------------------- DECEMBER 31, 1994 1995 1995 ---------- ---------- ------------ (UNAUDITED) Note payable to bank, refinanced in 1995 to include additional borrowings, bearing interest at prime (9% at June 30, 1995) due in quarterly principal installments of $187,500 through October 1, 1999 and a final payment of $3,750,000 due January 1, 2000... $2,873,864 $7,125,000 $6,750,000 Two notes payable to former owners of Coastline, due in annual installment of $100,650 (including 14% interest) through November 30, 1998........................... 345,538 293,264 233,671 Note payable to Investment in monthly installments of $2,492 (including 11.5% interest) through December 1, 1999.......... 121,476 104,673 98,713 Dividends payable to stockholders, due June 30, 1996........................... 210,107 210,107 210,107 Other......................................... 105,224 44,726 174,884 ---------- ---------- ------------ 3,656,209 7,777,770 7,467,375 Less current portion.......................... 3,193,549 1,058,540 1,083,249 ---------- ---------- ------------ Total............................... $ 462,660 $6,719,230 $6,384,126 ========= ========= ==========
The short-term revolving line of credit (under which the Company may borrow up to $10,000,000 as of June 30, 1995, with interest payable at the prime rate) and long-term note payable agreements with the bank contain various restrictive covenants which among others, require the Company to maintain a net working capital of not less than $8,000,000, a tangible net worth of not less than $10,000,000, and a debt-to-equity ratio of not more than 1.5:1. The Company must also maintain a current ratio of not less than 1.5:1 and no dividends in excess of 10% of the prior fiscal year's net income may be paid. The Company is also limited on acquisitions of capital assets and its incurrence of additional debt. At June 30, 1994, the Company was in violation of certain of these covenants and, accordingly, $2,173,864 of long-term obligations were classified as current liabilities in the accompanying 1994 consolidated balance sheet. The Company was in compliance with these covenants as of June 30, 1995. Substantially all of the Company's assets are pledged as collateral on this indebtedness. At June 30, 1995, the future maturities of long-term debt were as follows: 1996............................................................. $1,058,540 1997............................................................. 863,804 1998............................................................. 851,132 1999............................................................. 864,848 2000............................................................. 4,139,446 ---------- Total.................................................. $7,777,770 =========
F-27 67 PVF HOLDINGS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) Subordinated Debt The Company is obligated under an unsecured $700,000 note payable to Investment, with 10% interest payable quarterly. The entire principal amount is due on January 1, 2009. At June 30, 1994 the Company was also obligated under 8% notes payable to former stockholders totaling $175,000 which matured in December 1994. All principal payments relating to these notes are subordinate to the bank debt. 5. INCOME TAXES Provision (benefit) for income taxes consist of:
1993 1994 1995 -------- ---------- ---------- Current: Federal........................................... $726,000 $1,338,000 $6,684,532 State............................................. 55,000 80,000 714,000 -------- ---------- ---------- 781,000 1,418,000 7,398,532 -------- ---------- ---------- Deferred: Federal........................................... (70,000) 1,000 (321,532) State............................................. (5,000) -- (23,000) -------- ---------- ---------- (75,000) 1,000 (344,532) -------- ---------- ---------- $706,000 $1,419,000 $7,054,000 ======== ========= =========
Provision (benefit) for income taxes differ from the amounts computed by applying the statutory federal income tax rate to income before income taxes as follows:
1993 1994 1995 -------- ---------- ---------- Federal income tax at statutory rate................ $681,000 $1,404,000 $6,471,000 Effect of graduated rates........................... (19,000) (40,000) (171,000) State income taxes, net of federal taxes............ 32,000 53,000 449,000 Nondeductible expenses.............................. 35,000 24,000 66,000 Other............................................... (23,000) (22,000) 239,000 -------- ---------- ---------- $706,000 $1,419,000 $7,054,000 ======== ========= =========
F-28 68 PVF HOLDINGS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) The approximate tax effects of temporary differences that give rise to the deferred tax assets and liabilities at June 30, 1994 and 1995 are as follows:
1994 1995 -------- -------- Deferred tax assets: Inventory valuation............................................ $356,000 $581,000 Performance stock plan expense................................. -- 70,000 Provision for bad debts........................................ 27,000 42,000 Other.......................................................... 16,468 29,000 -------- -------- Gross deferred tax assets...................................... 399,468 722,000 -------- -------- Deferred tax liabilities: Depreciation................................................... 97,000 106,000 Compensation expense related to stock award.................... 65,000 -- Other.......................................................... 6,000 40,000 -------- -------- Gross deferred tax liabilities................................. 168,000 146,000 -------- -------- Net deferred tax asset......................................... $231,468 $576,000 ======== ========
6. LEASE ARRANGEMENTS The Company leases its branch facilities and offices under operating lease agreements. Several leases provide for multiple renewal options covering periods of up to nine years. In most cases, management expects that in the normal course of business, leases will be renewed or replaced by other leases. Minimum lease commitments at June 30, 1995 for all noncancelable operating leases, excluding renewal periods, are as follows: 1996........................................................... $288,000 1997........................................................... 201,000 1998........................................................... 66,000 1999........................................................... 55,000 2000........................................................... 27,000 -------- Total................................................ $637,000 ========
Total rent expense was $557,000 (1993), $670,000 (1994) and $821,000 (1995). 7. EMPLOYEE BENEFIT PROGRAMS 401(k) Plan The Company has elected to participate in the Jemison Multi-Company 401(k) Plan (the "Plan"). Under the Plan, the Company has the option to contribute up to 6% of a participant's earnings. Contributions by the Company for the years ended June 30, 1993, 1994, and 1995 totaled $216,000, $250,000 and $288,000, respectively. Performance Stock Plan Effective July 1, 1994 the Company established the PVF Holdings, Inc. Performance Stock Plan under which certain designated employees are granted performance shares to provide long-term incentives. The performance shares are valued based on the greater of the Company's common stock book value per share or F-29 69 PVF HOLDINGS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) six times the average of the previous five years' net income per share. Participants vest 50% upon seven years of employment and continue to vest 10% annually, becoming fully vested at twelve years of employment. Participants are paid their vested balance upon termination of employment; however, if the award exceeds $50,000 the Company may elect to pay $50,000 upon termination and the balance in annual or quarterly installments, plus interest of 7% per annum. Compensation expense related to this plan is recognized over the vesting period and was $183,000 for the year ended June 30, 1995 and $209,000 (unaudited) for the six-months ended December 31, 1995. 8. CAPITAL STOCK The Company has three types of preferred stock authorized at June 30, 1995: (a) Series A preferred stock has a dividend rate of $16 per share per year as declared by the board of directors, a liquidation preference of $200 per share ($1,900,000 total) held plus any unpaid accumulated dividends whether or not declared, and is redeemable at the option of the Company for the liquidation preference. Dividend arrearages were $848,667 (1995) and $696,667 (1994). (b) Series B preferred stock has a dividend rate of $18 per share per year as declared by the board of directors, a liquidation preference of $300 per share ($93,000 total) held plus any unpaid accumulated dividends (whether or not declared) but subject to the preferential rights of holders of Series A preferred stock, and is redeemable at the option of the Company for the liquidation preference. Dividend arrearages were $31,155 (1995) and $25,575 (1994). Effective July 1, 1995, the Series B preferred stock was converted into 31,000 shares of the Company's common stock. (c) Other preferred stock, par $1.00, 10,190 shares authorized (none of which have been issued), which the Board of Directors of the Company has the authority to divide into series and to fix and determine the relative rights and preferences of any series so established. Pursuant to a stock restriction agreement, unless a shareholder obtains written consent from Investment to sell his or her stock, Investment has first option to purchase any or all of the preferred or common shares offered. Stock Award In December 1991, the Company issued 5,000 shares of common stock to a key officer of the Company to satisfy a deferred compensation liability of approximately $152,000 and to provide the officer additional compensation for past and future services. Compensation expense related to this stock award was recognized in accordance with the vesting schedule specified in the agreement, which was 40% vested at June 30, 1992 (including the deferred compensation amount) with an additional 15% vesting occurring annually through June 30, 1996. In connection with the adoption of the Performance Stock Plan (see Note 7), the key officer was deemed 100% vested as of August 15, 1994 and the remaining unearned portion ($235,674) was charged to operations in 1995. Related compensation expense of approximately $118,000 was charged to operations in 1993 and 1994. 9. SUBSEQUENT EVENTS On October 25, 1995, the Company renewed its bank line of credit to provide for maximum borrowings of $12 million. On March 27, 1996, the Company entered into an agreement with Hughes Supply, Inc. ("Hughes") to sell substantially all of its assets, properties and business and to convey certain of its liabilities to Hughes. The aggregate consideration is approximately $106 million, consisting of cash of $74.4 million, 669,956 shares of common stock of Hughes, and the assumption by Hughes of up to $13 million of the Company's bank debt. F-30 70 ------------------------------------------------------ ------------------------------------------------------ NO DEALER, SALESPERSON OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS IN CONNECTION WITH THE OFFER MADE BY THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY, ANY OF THE SELLING SHAREHOLDERS OR ANY OF THE UNDERWRITERS. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF ANY OFFER TO BUY ANY SECURITY OTHER THAN THE COMMON STOCK OFFERED BY THIS PROSPECTUS, NOR DOES IT CONSTITUTE AN OFFER TO SELL OR SOLICITATION OF ANY OFFER TO BUY THE COMMON STOCK OFFERED HEREBY BY ANYONE IN ANY JURISDICTION IN WHICH SUCH OFFER OR SOLICITATION IS NOT AUTHORIZED, OR IN WHICH THE PERSON MAKING SUCH OFFER OR SOLICITATION IS NOT QUALIFIED TO DO SO, OR TO ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE OF SUCH INFORMATION. ------------------ TABLE OF CONTENTS
PAGE ---- Prospectus Summary.................... 3 Risk Factors.......................... 7 Use of Proceeds....................... 9 Capitalization........................ 9 Price Range of Common Stock and Dividends........................... 10 Selected Unaudited Pro Forma Consolidated Financial Data......... 11 Selected Consolidated Financial and Operating Data...................... 16 Management's Discussion and Analysis of Financial Condition and Results of Operations....................... 17 Business.............................. 21 Management............................ 30 Principal and Selling Shareholders.... 32 Description of Capital Stock.......... 33 Description of Notes.................. 35 Underwriting.......................... 36 Legal Matters......................... 37 Experts............................... 37 Available Information................. 37 Incorporation of Certain Documents by Reference........................... 38 Index to Consolidated Financial Statements.......................... F-1
------------------------------------------------------ ------------------------------------------------------ ------------------------------------------------------ ------------------------------------------------------ 1,929,926 SHARES [HUGHES SUPPLY, INC. LOGO] COMMON STOCK ------------ PROSPECTUS , 1996 ------------ SMITH BARNEY INC. ROBERT W. BAIRD & CO. INCORPORATED ------------------------------------------------------ ------------------------------------------------------ 71 PART II INFORMATION NOT REQUIRED IN PROSPECTUS ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION. It is estimated that the Company will incur the following expenses in connection with the offering of the securities being registered: SEC registration fee.............................................................. $ 22,295 NYSE additional listing fee....................................................... 29,500 NASD filing fee................................................................... 6,936 Accounting fees and expenses...................................................... 80,000 Legal fees and expenses........................................................... 50,000 Blue sky fees and expenses........................................................ 6,000 Printing and engraving expenses................................................... 165,000 Miscellaneous expenses............................................................ 65,269 -------- Total................................................................... $425,000 ========
The foregoing items, except for the SEC registration fee, the NYSE additional listing fee, the NASD filing fee and blue sky fees and expenses, are estimated. The Company has agreed to bear all expenses (other than underwriting discounts and commissions) in connection with the registration and sale of the shares of Common Stock. ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS. Section 607.0850 of the Florida Business Corporation Act permits, and in some cases requires, the Company as a Florida corporation to indemnify a director, officer, employee, or agent of the Company, or any person serving at the request of the Company in any such capacity with respect to another entity against certain expenses and liabilities incurred as a party to any proceeding brought against such person by reason of the fact that such person is or was a director, officer, employee, or agent of the Company or is or was serving in such capacity with respect to another entity at the request of the Company. With respect to actions, other than in the right of the Company, such indemnification is permitted if such person acted in good faith and in a manner such person reasonably believed to be in, or not opposed to, the best interests of the Company, and with respect to any criminal action or proceeding, if such person had no reasonable cause to believe his or her conduct was unlawful. Termination of any such action by judgment, order, settlement or conviction or a plea of nolo contendere, or its equivalent shall not, of itself, create a presumption that such person did not act in good faith and in a manner he or she reasonably believed to be in, or not opposed to, the best interests of the Company, or with respect to any criminal action or proceeding, had reasonable cause to believe that his or her conduct was unlawful. With respect to any action threatened, pending or completed in the right of the Company to procure a judgment in its favor against any such person, the Company may indemnify any such person against expenses actually and reasonably incurred by him or her in connection with the defense or settlement of such action or suit, including the appeal thereof, if he or she acted in good faith and in a manner he or she reasonably believed to be in, or not opposed to, the best interests of the Company, except that no indemnification shall be made in respect of any claim, issue or matter as to which any such person shall have been adjudged to be liable for negligence or misconduct in the performance of his or her duties to the Company unless the Court in which the action was brought determines that despite the adjudication of liability, but in view of all the circumstances in the case, such person is fairly and reasonably entitled to indemnity for such expenses. Section 607.0850 also provides that if any such person has been successful on the merits or otherwise in defense of any action, suit or proceeding, whether brought in the right of the Company or otherwise, such person shall be indemnified against expenses actually and reasonably incurred by him or her in connection therewith. II-1 72 If any director or officer does not succeed upon the merits or otherwise in defense of an action, suit or proceeding, then unless pursuant to a determination made by a court, indemnification by the Company shall be made only as authorized in the specific case upon a determination that indemnification of the director or officer is proper because he or she has met the applicable standard of conduct. Any such determination may be made: (a) By the Board of Directors by a majority vote of a quorum consisting of directors who are not parties to such action, suit, or proceeding; (b) If such a quorum is not obtainable or, even if obtainable, by a majority vote of a committee duly designated by the Board of Directors (in which directors who are parties may participate) consisting solely of two or more directors not at the time parties to the proceeding; (c) By independent legal counsel selected by the Board of Directors prescribed in paragraph (a) or the committee prescribed in paragraph (b); or if a quorum of the directors cannot be obtained for paragraph (a) or the committee cannot be designated under paragraph (b) selected by a majority vote of the full Board of Directors (in which directors who are parties may participate); or (d) By the shareholders by a majority vote of a quorum consisting of shareholders who were not parties to the proceeding or, if no such quorum is obtainable, by a majority vote of shareholders who were not parties to such proceedings. Section 607.0850 also contains a provision authorizing corporations to purchase and maintain liability insurance on behalf of its directors and officers. For some years the Company has maintained an insurance policy which insures directors and officers of the Company against amounts the director or officer is obligated to pay in respect of his legal liability, whether actual or asserted, for any negligent act, any error, any omission or any breach of duty which, subject to the applicable limits and terms of the policy, include damages, judgments, settlements, costs of investigation, and costs, charges and expenses incurred in the defense of actions, suits, or proceedings or appeals thereto, subject to the exceptions, limitations and conditions set forth in the policy. ITEM 16. EXHIBITS. The following items are filed as exhibits to this registration statement:
EXHIBIT NO. DESCRIPTION - ------- ------------------------------------------------------------------------------------ 1 -- Form of Underwriting Agreement by and among the Company, the Selling Shareholders named therein and Smith Barney Inc. and Robert W. Baird & Co. Incorporated, as representatives of the several underwriters, dated May , 1996. 2 -- Asset Purchase Agreement by and among the Company, Jemison Investment Co., Inc., PVF Holdings, Inc., Southwest Stainless, Inc., Multalloy, Inc. (Texas), Multalloy, Inc. (New Jersey) and Houston Products & Machine, Inc., dated March 27, 1996* 4.1 -- Restated Articles of Incorporation of the Company, as amended(1) 4.2 -- Composite By-Laws of the Company(2) 4.3 -- Specimen Stock Certificate representing shares of the Company's Common Stock(3) 4.4 -- Resolution approving and implementing Shareholder Rights Plan together with a copy thereof(4) 5 -- Opinion of Maguire, Voorhis & Wells, P.A. 11 -- Summary Schedule of Earnings Per Share Calculations* 23.1 -- Consent of Maguire, Voorhis & Wells, P.A. (See Exhibit 5 hereto)
II-2 73
EXHIBIT NO. DESCRIPTION - ------- ------------------------------------------------------------------------------------ 23.2 -- Consent of Coopers & Lybrand L.L.P. 23.3 -- Consent of Deloitte & Touche LLP 23.4 -- Consent of Price Waterhouse LLP 24 -- Power of Attorney*
- --------------- * Previously filed. (1) Incorporated by reference to Exhibit 3.1 to the Company's Quarterly Report on Form 10-Q filed for the quarter ended July 31, 1994. (2) Incorporated by reference to Exhibit 3.2 to the Company's Quarterly Report on Form 10-Q filed for the quarter ended July 31, 1994. (3) Incorporated by reference to Exhibit 4.2 to the Company's Quarterly Report on Form 10-Q filed for the quarter ended October 31, 1984. (4) Incorporated by reference to Exhibit 4.4 to the Company's Current Report on Form 8-K dated May 17, 1988. ITEM 17. UNDERTAKINGS. The undersigned registrant hereby undertakes that, for purposes of determining any liability under the Securities Act of 1933, each filing of the registrant's annual report pursuant to Section 13(a) or Section 15(d) of the Securities Exchange Act of 1934 (and, where applicable, each filing of an employee benefit plan's annual report pursuant to Section 15(d) of the Securities Exchange Act of 1934) that is incorporated by reference in this registration statement shall be deemed to be a new registration statement relating to the securities offered herein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers and controlling persons of the registrant pursuant to the provisions described under Item 15 above or otherwise, the registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the registrant of expenses incurred or paid by a director, officer or controlling person of the registrant in the successful defense of any action, suit or proceeding) is asserted against the registrant by such director, officer or controlling person in connection with the securities being registered, the registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Act and will be governed by the final adjudication of such issue. The undersigned registrant hereby undertakes that: (1) For purposes of determining any liability under the Securities Act of 1933, the information omitted from the form of prospectus filed as part of this registration statement in reliance upon Rule 430A and contained in a form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or 497(h) under the Securities Act of 1933 shall be deemed to be part of this registration statement as of the time it was declared effective. (2) For the purpose of determining any liability under the Securities Act of 1933, each post-effective amendment that contains a form of prospectus shall be deemed to be a new registration statement relating to the securities offered therein and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. II-3 74 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, the registrant certifies that it has reasonable grounds to believe that it meets all of the requirements for filing on Form S-3 and has duly caused this amendment to this registration statement to be signed on its behalf by the undersigned, thereunto duly authorized in the City of Orlando, State of Florida, on this 22nd day of April, 1996. HUGHES SUPPLY, INC. By: /s/ J. STEPHEN ZEPF ------------------------------------ J. Stephen Zepf Treasurer and Chief Financial Officer Pursuant to the requirements of the Securities Act of 1933, this amendment to this registration statement has been signed by the following persons in the capacities and on the dates indicated.
SIGNATURE TITLE DATE - --------------------------------------------- ------------------------------- --------------- * Chairman of the Board and Chief April 22, 1996 - --------------------------------------------- Executive Officer David H. Hughes * Director April 22, 1996 - --------------------------------------------- John D. Baker, II /s/ ROBERT N. BLACKFORD Director April 22, 1996 - --------------------------------------------- Robert N. Blackford * Director April 22, 1996 - --------------------------------------------- John B. Ellis * Director April 22, 1996 - --------------------------------------------- A. Stewart Hall, Jr. * Director April 22, 1996 - --------------------------------------------- Clifford M. Hames * Director April 22, 1996 - --------------------------------------------- Russell V. Hughes * Director April 22, 1996 - --------------------------------------------- Vincent S. Hughes * Director April 22, 1996 - --------------------------------------------- Herman B. McManaway
II-4 75
SIGNATURE TITLE DATE - --------------------------------------------- ------------------------------- --------------- * Director April 22, 1996 - --------------------------------------------- Donald C. Martin /s/ J. STEPHEN ZEPF Treasurer and Chief Financial April 22, 1996 - --------------------------------------------- Officer (Principal and J. Stephen Zepf Accounting Officer) *By: /s/ J. STEPHEN ZEPF - --------------------------------------------- J. Stephen Zepf Attorney-in-Fact
II-5 76 EXHIBIT INDEX
EXHIBIT NO. DESCRIPTION PAGE - ------- ------------------------------------------------------------------------------ ---- 1 -- Form of Underwriting Agreement by and among the Company, the Selling Shareholders named therein and Smith Barney Inc. and Robert W. Baird & Co. Incorporated, as representatives of the several underwriters, dated May , 1996.......................................................................... 2 -- Asset Purchase Agreement by and among the Company, Jemison Investment Co., Inc., PVF Holdings, Inc., Southwest Stainless, Inc., Multalloy, Inc. (Texas), Multalloy, Inc. (New Jersey) and Houston Products & Machine, Inc., dated March 27, 1996*..................................................................... 4.1 -- Restated Articles of Incorporation of the Company, as amended(1).............. 4.2 -- Composite By-Laws of the Company(2)........................................... 4.3 -- Specimen Stock Certificate representing shares of the Company's Common Stock(3)...................................................................... 4.4 -- Resolution approving and implementing Shareholder Rights Plan together with a copy thereof(4)............................................................... 5 -- Opinion of Maguire, Voorhis & Wells, P.A...................................... 11 -- Summary Schedule of Earnings Per Share Calculations*.......................... 23.1 -- Consent of Maguire, Voorhis & Wells, P.A. (See Exhibit 5 hereto).............. 23.2 -- Consent of Coopers & Lybrand L.L.P............................................ 23.3 -- Consent of Deloitte & Touche LLP.............................................. 23.4 -- Consent of Price Waterhouse LLP............................................... 24 -- Power of Attorney*............................................................
- --------------- * Previously filed. (1) Incorporated by reference to Exhibit 3.1 to the Company's Quarterly Report on Form 10-Q filed for the quarter ended July 31, 1994. (2) Incorporated by reference to Exhibit 3.2 to the Company's Quarterly Report on Form 10-Q filed for the quarter ended July 31, 1994. (3) Incorporated by reference to Exhibit 4.2 to the Company's Quarterly Report on Form 10-Q filed for the quarter ended October 31, 1984. (4) Incorporated by reference to Exhibit 4.4 to the Company's Current Report on Form 8-K dated May 17, 1988. EX-1 2 FORM OF UNDERWRITING AGREEMENT 1 PGFM DRAFT OF April 22, 1996 1,929,926 Shares HUGHES SUPPLY, INC. Common Stock UNDERWRITING AGREEMENT May ___, 1996 SMITH BARNEY INC. ROBERT W. BAIRD & CO. INCORPORATED As Representatives of the Several Underwriters c/o SMITH BARNEY INC. 388 Greenwich Street New York, New York 10013 Dear Sirs: Hughes Supply, Inc., a Florida corporation (the "Company"), proposes to issue and sell an aggregate of 1,250,000 shares of its common stock, par value $1.00 per share, to the several Underwriters named in Schedule II hereto (the "Underwriters"), and the persons named in Part A of Schedule I hereto (the "Selling Shareholders") propose to sell to the several Underwriters an aggregate of 679,926 shares of common stock of the Company. The Company and the Selling Shareholders are hereinafter sometimes referred to as the "Sellers." The Company's common stock, par value $1.00 per share, is hereinafter referred to as the "Common Stock" and the 1,250,000 shares of Common Stock to be issued and sold to the Underwriters by the Company and the 679,926 shares of Common Stock to be sold to the Underwriters by the Selling Shareholders are hereinafter referred to as the "Firm Shares." The Company and the Selling Shareholder listed in Part B of Schedule I hereto also propose to sell to the Underwriters, upon the terms and conditions set forth in Section 2 hereof, up to an additional 289,489 shares (the "Additional Shares") of Common Stock. The Firm Shares and the Additional Shares are hereinafter collectively referred to as the "Shares." The offering of the Shares pursuant to this Agreement is contingent upon the consummation of the transactions contemplated by the PVF Acquisition Agreement (as defined in Section 7(x) hereof). The Company and the Selling Shareholders wish to confirm as follows their respective agreements with you (the "Representatives") and the other several Underwriters on whose behalf you are acting, in connection with the several purchases of the Shares by the Underwriters. 1. Registration Statement and Prospectus. The Company has prepared and filed with the Securities and Exchange Commission (the "Commission") in accordance with the provisions of 2 the Securities Act of 1933, as amended, and the rules and regulations of the Commission thereunder (collectively, the "Act"), a registration statement on Form S-3 under the Act (the "registration statement"), including a prospectus subject to completion relating to the Shares. The term "Registration Statement" as used in this Agreement means the registration statement (including all financial schedules and exhibits), as amended at the time it becomes effective, or, if the registration statement became effective prior to the execution of this Agreement, as supplemented or amended prior to the execution of this Agreement. If it is contemplated, at the time this Agreement is executed, that a post-effective amendment to the registration statement will be filed and must be declared effective before the offering of the Shares may commence, the term "Registration Statement" as used in this Agreement means the registration statement as amended by said post-effective amendment. The term "Prospectus" as used in this Agreement means the prospectus in the form included in the Registration Statement, or, if the prospectus included in the Registration Statement omits information in reliance on Rule 430A under the Act and such information is included in a prospectus filed with the Commission pursuant to Rule 424(b) under the Act, the term "Prospectus" as used in this Agreement means the prospectus in the form included in the Registration Statement as supplemented by the addition of the Rule 430A information contained in the prospectus filed with the Commission pursuant to Rule 424(b). The term "Prepricing Prospectus" as used in this Agreement means the prospectus subject to completion in the form included in the registration statement at the time of the initial filing of the registration statement with the Commission, and as such prospectus shall have been amended from time to time prior to the date of the Prospectus. Any reference in this Agreement to the registration statement, the Registration Statement, any Prepricing Prospectus or the Prospectus shall be deemed to refer to and include the documents incorporated by reference therein pursuant to Item 12 of Form S-3 under the Act, as of the date of the registration statement, the Registration Statement, such Prepricing Prospectus or the Prospectus, as the case may be, and any reference to any amendment or supplement to the registration statement, the Registration Statement, any Prepricing Prospectus or the Prospectus shall be deemed to refer to and include any documents filed after such date under the Securities Exchange Act of 1934, as amended (the "Exchange Act") which, upon filing, are incorporated by reference therein, as required by paragraph (b) of Item 12 of Form S-3. As used herein, the term "Incorporated Documents" means the documents which at the time are incorporated by reference in the registration statement, the Registration Statement, any Prepricing Prospectus, the Prospectus, or any amendment or supplement thereto. 2. Agreements to Sell and Purchase. Subject to such adjustments as you may determine in order to avoid fractional shares, the Company hereby agrees, subject to all the terms and conditions set forth herein, to issue and sell to each Underwriter and, upon the basis of the representations, warranties and agreements of the Company and the Selling Shareholders herein contained and subject to all the terms and conditions set forth herein, each Underwriter agrees, severally and not jointly, to purchase from the Company, at a purchase price of $______ per Share (the "purchase price per share"), the number of Firm Shares which bears the same proportion to the aggregate number of Firm Shares to be issued and sold by the Company as the number of Firm Shares set forth opposite the name of such Underwriter in Schedule II hereto (or such number of Firm Shares increased as set forth in Section 12 hereof) bears to the aggregate number of Firm Shares to be sold by the Company and the Selling Shareholders. -2- 3 Subject to such adjustments as you may determine in order to avoid fractional shares, each Selling Shareholder agrees, subject to all the terms and conditions set forth herein, to sell to each Underwriter and, upon the basis of the representations, warranties and agreements of the Company and the Selling Shareholders herein contained and subject to all the terms and conditions set forth herein, each Underwriter, severally and not jointly, agrees to purchase from each Selling Shareholder at the purchase price per share that number of Firm Shares which bears the same proportion to the number of Firm Shares set forth opposite the name of such Selling Shareholder in Schedule I hereto as the number of Firm Shares set forth opposite the name of such Underwriter in Schedule II hereto (or such number of Firm Shares increased as set forth in Section 12 hereof) bears to the aggregate number of Firm Shares to be sold by the Company and the Selling Shareholders. The Company and the Selling Shareholder listed in Part B of Schedule I hereto also agree, subject to all the terms and conditions set forth herein, to sell to the Underwriters, and, upon the basis of the representations, warranties and agreements of the Company and the Selling Shareholder herein contained and subject to all the terms and conditions set forth herein, the Underwriters shall have the right to purchase from the Company and the Selling Shareholder listed in Part B of Schedule I hereto, at the purchase price per share, pursuant to an option (the "over-allotment option") which may be exercised at any time and from time to time prior to 9:00 P.M., New York City time, on the 30th day after the date of the Prospectus (or, if such 30th day shall be a Saturday or Sunday or a holiday, on the next business day thereafter when the New York Stock Exchange is open for trading), up to an aggregate of 236,989 Additional Shares from the Company and up to an aggregate of 52,500 shares from the Selling Shareholder listed in Part B of Schedule I hereto (the maximum number of Additional Shares which each of them agrees to sell upon the exercise by the Underwriters of the over-allotment option is set forth opposite their respective names in Part B of Schedule I). Additional Shares may be purchased only for the purpose of covering over-allotments made in connection with the offering of the Firm Shares. The number of Additional Shares which the Underwriters elect to purchase upon any exercise of the over-allotment option shall be provided by the Company and by each Selling Shareholder who has agreed to sell Additional Shares in proportion to the respective maximum numbers of Additional Shares which the Company and each such Selling Shareholder has agreed to sell. Upon any exercise of the over-allotment option, each Underwriter, severally and not jointly, agrees to purchase from the Company and each Selling Shareholder who has agreed to sell Additional Shares the number of Additional Shares (subject to such adjustments as you may determine in order to avoid fractional shares) which bears the same proportion to the number of Additional Shares to be sold by the Company and each Selling Shareholder who has agreed to sell Additional Shares as the number of Firm Shares set forth opposite the name of such Underwriter in Schedule II hereto (or such number of Firm Shares increased as set forth in Section 12 hereof) bears to the aggregate number of Firm Shares to be sold by the Company and the Selling Shareholders. Certificates in transferable form for the Shares (including any Additional Shares) which each of the Selling Shareholders agrees to sell pursuant to this Agreement have been placed in custody with Maguire, Voorhis & Wells, P.A. (the "Custodian") for delivery under this Agreement pursuant to a Custody Agreement and Power of Attorney (the "Custody Agreement") executed by each of the Selling Shareholders appointing J. Stephen Zeph and Robert N. Blackford as agents and attorneys-in-fact (the "Attorneys-in-Fact"). Each Selling Shareholder agrees that (i) the Shares -3- 4 represented by the certificates held in custody pursuant to the Custody Agreement are subject to the interests of the Underwriters, the Company and each other Selling Shareholder, (ii) the arrangements made by the Selling Shareholders for such custody are, except as specifically provided in the Custody Agreement, irrevocable, and (iii) the obligations of the Selling Shareholders hereunder and under the Custody Agreement shall not be terminated by any act of such Selling Shareholder or by operation of law, whether by the death or incapacity of any Selling Shareholder or the occurrence of any other event. If any Selling Shareholder shall die or be incapacitated or if any other event shall occur before the delivery of the Shares hereunder, certificates for the Shares of such Selling Shareholder shall be delivered to the Underwriters by the Attorneys-in-Fact in accordance with the terms and conditions of this Agreement and the Custody Agreement as if such death or incapacity or other event had not occurred, regardless of whether or not the Attorneys-in-Fact or any Underwriter shall have received notice of such death, incapacity or other event. Each Attorney-in-Fact is authorized, on behalf of each of the Selling Shareholders, to execute this Agreement and any other documents necessary or desirable in connection with the sale of the Shares to be sold hereunder by such Selling Shareholder, to make delivery of the certificates for such Shares, to receive the proceeds of the sale of such Shares, to give receipts for such proceeds, to pay therefrom any expenses to be borne by such Selling Shareholder in connection with the sale and public offering of such Shares, to distribute the balance thereof to such Selling Shareholder, and to take such other action as may be necessary or desirable in connection with the transactions contemplated by this Agreement. Each Attorney-in-Fact agrees to perform his duties under the Custody Agreement. 3. Terms of Public Offering. The Sellers have been advised by you that the Underwriters propose to make a public offering of their respective portions of the Shares as soon after the Registration Statement and this Agreement have become effective as in your judgment is advisable and initially to offer the Shares upon the terms set forth in the Prospectus. 4. Delivery of the Shares and Payment Therefor. Delivery to the Underwriters of and payment for the Firm Shares shall be made at the office of Smith Barney Inc., 388 Greenwich Street, New York, NY 10013, at 10:00 A.M., New York City time, on May ___, 1996 (the "Closing Date"). The place of closing for the Firm Shares and the Closing Date may be varied by agreement among you, the Company and the Attorneys-in-Fact. Delivery to the Underwriters of and payment for any Additional Shares to be purchased by the Underwriters shall be made at the aforementioned office of Smith Barney Inc. at such time on such date (the "Option Closing Date"), which may be the same as the Closing Date but shall in no event be earlier than the Closing Date nor earlier than two nor later than ten business days after the giving of the notice hereinafter referred to, as shall be specified in a written notice from you on behalf of the Underwriters to the Company and the Attorneys-in-Fact of the Underwriters' determination to purchase a number, specified in such notice, of Additional Shares. The place of closing for any Additional Shares and the Option Closing Date for such Shares may be varied by agreement among you, the Company and the Attorneys-in-Fact. Certificates for the Firm Shares and for any Additional Shares to be purchased hereunder shall be registered in such names and in such denominations as you shall request prior to 9:30 A.M., New York City time, on the second business day preceding the Closing Date or any Option Closing -4- 5 Date, as the case may be. Such certificates shall be made available to you in New York City for inspection and packaging not later than 9:30 A.M., New York City time, on the business day next preceding the Closing Date or the Option Closing Date, as the case may be. The certificates evidencing the Firm Shares and any Additional Shares to be purchased hereunder shall be delivered to you on the Closing Date or the Option Closing Date, as the case may be, against payment of the purchase price therefor in immediately available funds to the order of the Company and the Attorneys-in-Fact. 5. Agreements of the Company. The Company agrees with the several Underwriters as follows: (a) If, at the time this Agreement is executed and delivered, it is necessary for the Registration Statement or a post-effective amendment thereto to be declared effective before the offering of the Shares may commence, the Company will endeavor to cause the Registration Statement or such post-effective amendment to become effective as soon as possible and will advise you promptly and, if requested by you, will confirm such advice in writing, when the Registration Statement or such post-effective amendment has become effective. (b) The Company will advise you promptly and, if requested by you, will confirm such advice in writing: (i) of any request by the Commission for amendment of or a supplement to the Registration Statement, any Prepricing Prospectus or the Prospectus or for additional information; (ii) of the issuance by the Commission of any stop order suspending the effectiveness of the Registration Statement or of the suspension of qualification of the Shares for offering or sale in any jurisdiction or the initiation of any proceeding for such purpose; and (iii) within the period of time referred to in paragraph (f) below, of any change in the Company's condition (financial or other), business, prospects, properties, net worth or results of operations, or of the happening of any event, which makes any statement of a material fact made in the Registration Statement or the Prospectus (as then amended or supplemented) untrue or which requires the making of any additions to or changes in the Registration Statement or the Prospectus (as then amended or supplemented) in order to state a material fact required by the Act or the regulations thereunder to be stated therein or necessary in order to make the statements therein not misleading, or of the necessity to amend or supplement the Prospectus (as then amended or supplemented) to comply with the Act or any other law. If at any time the Commission shall issue any stop order suspending the effectiveness of the Registration Statement, the Company will make every reasonable effort to obtain the withdrawal of such order at the earliest possible time. (c) The Company will furnish to you, without charge (i) four signed copies of the registration statement as originally filed with the Commission and of each amendment thereto, including financial statements and all exhibits to the registration statement, (ii) such number of conformed copies of the registration statement as originally filed and of each amendment thereto, but without exhibits, as you may request, (iii) such number of copies of the Incorporated Documents, without exhibits, as you may request, and (iv) four copies of the exhibits to the Incorporated Documents. -5- 6 (d) The Company will not file any amendment to the Registration Statement or make any amendment or supplement to the Prospectus or, prior to the end of the period of time referred to in the first sentence in subsection (f) below, file any document which, upon filing becomes an Incorporated Document, of which you shall not previously have been advised or to which, after you shall have received a copy of the document proposed to be filed, you shall reasonably object. (e) Prior to the execution and delivery of this Agreement, the Company has delivered to you, without charge, in such quantities as you have requested, copies of each form of the Prepricing Prospectus. The Company consents to the use, in accordance with the provisions of the Act and with the securities or Blue Sky laws of the jurisdictions in which the Shares are offered by the several Underwriters and by dealers, prior to the date of the Prospectus, of each Prepricing Prospectus so furnished by the Company. (f) As soon after the execution and delivery of this Agreement as possible and thereafter from time to time for such period as in the opinion of counsel for the Underwriters a prospectus is required by the Act to be delivered in connection with sales by any Underwriter or dealer, the Company will expeditiously deliver to each Underwriter and each dealer, without charge, as many copies of the Prospectus (and of any amendment or supplement thereto) as you may request. The Company consents to the use of the Prospectus (and of any amendment or supplement thereto) in accordance with the provisions of the Act and with the securities or Blue Sky laws of the jurisdictions in which the Shares are offered by the several Underwriters and by all dealers to whom Shares may be sold, both in connection with the offering and sale of the Shares and for such period of time thereafter as the Prospectus is required by the Act to be delivered in connection with sales by any Underwriter or dealer. If during such period of time any event shall occur that in the judgment of the Company or in the opinion of counsel for the Underwriters is required to be set forth in the Prospectus (as then amended or supplemented) or should be set forth therein in order to make the statements therein, in the light of the circumstances under which they were made, not misleading, or if it is necessary to supplement or amend the Prospectus (or to file under the Exchange Act any document which, upon filing, becomes an Incorporated Document) in order to comply with the Act or any other law, the Company will forthwith prepare and, subject to the provisions of paragraph (d) above, file with the Commission an appropriate supplement or amendment thereto (or to such document), and will expeditiously furnish to the Underwriters and dealers a reasonable number of copies thereof. In the event that the Company and you, as Representatives of the several Underwriters, agree that the Prospectus should be amended or supplemented, the Company, if requested by you, will promptly issue a press release announcing or disclosing the matters to be covered by the proposed amendment or supplement. (g) The Company will cooperate with you and with counsel for the Underwriters in connection with the registration or qualification of the Shares for offering and sale by the several Underwriters and by dealers under the securities or Blue Sky laws of such jurisdictions as you may designate and will file such consents to service of process or other documents necessary or appropriate in order to effect such registration or qualification; provided that in no event shall the Company be obligated to qualify to do business in any jurisdiction where it is not now so qualified -6- 7 or to take any action which would subject it to service of process in suits, other than those arising out of the offering or sale of the Shares, in any jurisdiction where it is not now so subject. (h) The Company will make generally available to its security holders a consolidated earnings statement, which need not be audited, covering a twelve-month period commencing after the effective date of the Registration Statement and ending not later than 15 months thereafter, as soon as practicable after the end of such period, which consolidated earnings statement shall satisfy the provisions of Section 11(a) of the Act. (i) During the period of five years hereafter, the Company will furnish to you (i) as soon as available, a copy of each report of the Company mailed to shareholders or filed with the Commission, and (ii) from time to time such other information concerning the Company as you may request. (j) If this Agreement shall terminate or shall be terminated after execution pursuant to any provisions hereof (otherwise than pursuant to the second paragraph of Section 12 hereof or by notice given by you terminating this Agreement pursuant to Section 12 or Section 13 hereof) or if this Agreement shall be terminated by the Underwriters because of any failure or refusal on the part of the Company or the Selling Shareholders to comply with the terms or fulfill any of the conditions of this Agreement, the Company agrees to reimburse the Representatives for all out-of-pocket expenses (including fees and expenses of counsel for the Underwriters) incurred by you in connection herewith. (k) The Company will apply the net proceeds from the sale of the Shares to be sold by it hereunder substantially in accordance with the description set forth in the Prospectus. (l) If Rule 430A of the Act is employed, the Company will timely file the Prospectus pursuant to Rule 424(b) under the Act and will advise you of the time and manner of such filing. (m) Except as provided in this Agreement, the Company will not offer, sell, contract to sell or otherwise dispose of any shares of Common Stock or any securities convertible into or exercisable or exchangeable for Common Stock, or grant any options or warrants to purchase Common Stock, except for the sale of shares to the Underwriters pursuant to this Agreement and except for the grant of options and the issuance of shares of Common Stock pursuant to the Company's existing stock option plans and the surrender of shares of Common Stock in payment of the exercise price of stock options, for a period of 180 days after the date of the Prospectus, without the prior written consent of Smith Barney Inc. (n) The Company has furnished or will furnish to you "lock-up" letters, in form and substance satisfactory to you, signed by each of its current officers and directors and each of its shareholders designated by you. (o) Except as stated in this Agreement and in the Prepricing Prospectus and Prospectus, the Company has not taken, nor will it take, directly or indirectly, any action designed -7- 8 to or that might reasonably be expected to cause or result in stabilization or manipulation of the price of the Common Stock to facilitate the sale or resale of the Shares. (p) The Company will use its best efforts to have the shares of Common Stock which it agrees to sell under this Agreement listed, subject to notice of issuance, on the New York Stock Exchange on or before the Closing Date. 6. Agreements of the Selling Shareholders. Each of the Selling Shareholders agrees with the several Underwriters as follows: (a) Such Selling Shareholder will cooperate to the extent necessary to cause the registration statement or any post-effective amendment thereto to become effective at the earliest possible time. (b) Such Selling Shareholder will pay all Federal and other taxes, if any on the transfer or sale of the Shares being sold by the Selling Shareholder to the Underwriters. (c) Such Selling Shareholder will do or perform all things required to be done or performed by the Selling Shareholder prior to the Closing Date or any Option Closing Date, as the case may be, to satisfy all conditions precedent to the delivery of the Shares pursuant to this Agreement. (d) Such Selling Shareholder has executed or will execute a "lock-up" letter as provided in Section 5(n) above and will not offer, sell, contract to sell or otherwise dispose of any shares of Common Stock, except for the sale of Shares to the Underwriters pursuant to this Agreement, prior to the expiration of 90 days after the date of the Prospectus, without the prior written consent of Smith Barney Inc. (e) Except as stated in this Agreement and in the Prepricing Prospectus and the Prospectus, such Selling Shareholder will not take, directly or indirectly, any action designed to or that might reasonably be expected to cause or result in stabilization or manipulation of the price of the Common Stock to facilitate the sale or resale of the Shares. (f) Such Selling Shareholder will advise you promptly, and if requested by you, will confirm such advice in writing, within the period of time referred to in Section 5(f) hereof, of any change in the Company's condition (financial or other), business, prospects, properties, net worth or results of operations or of any change in information relating to such Selling Shareholder or the Company or any new information relating to the Company or relating to any matter stated in the Prospectus or any amendment or supplement thereto which comes to the attention of such Selling Shareholder that suggests that any statement made in the Registration Statement or the Prospectus (as then amended or supplemented, if amended or supplemented) is or may be untrue in any material respect or that the Registration Statement or Prospectus (as then amended or supplemented, if amended or supplemented) omits or may omit to state a material fact or a fact necessary to be stated therein in order to make the statements therein not misleading in any material respect, or of the -8- 9 necessity to amend or supplement the Prospectus (as then amended or supplemented, if amended or supplemented) in order to comply with the Act or any other law. 7. Representations and Warranties of the Company. The Company represents and warrants to each Underwriter that: (a) Each Prepricing Prospectus included as part of the registration statement as originally filed or as part of any amendment or supplement thereto, or filed pursuant to Rule 424 under the Act, complied when so filed in all material respects with the provisions of the Act. The Commission has not issued any order preventing or suspending the use of any Prepricing Prospectus. (b) The Company and the transactions contemplated by this Agreement meet the requirements for using Form S-3 under the Act. The registration statement in the form in which it became or becomes effective and also in such form as it may be when any post-effective amendment thereto shall become effective and the prospectus and any supplement or amendment thereto when filed with the Commission under Rule 424(b) under the Act, complied or will comply in all material respects with the provisions of the Act and will not at any such times contain an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading, except that this representation and warranty does not apply to statements in or omissions from the registration statement or the prospectus made in reliance upon and in conformity with information relating to any Underwriter furnished to the Company in writing by or on behalf of any Underwriter through you expressly for use therein. (c) The Incorporated Documents heretofore filed, when they were filed (or, if any amendment with respect to any such document was filed, when such amendment was filed), conformed in all material respects with the requirements of the Exchange Act and the rules and regulations thereunder, and any further Incorporated Documents so filed will, when they are filed, conform in all material respects with the requirements of the Exchange Act and the rules and regulations thereunder; no such document, when it was filed (or, if an amendment with respect to any such document was filed, when such amendment was filed), contained an untrue statement of a material fact or omitted to state a material fact required to be stated therein or necessary in order to make the statements therein not misleading; and no such further document, when it is filed, will contain an untrue statement of a material fact or will omit to state a material fact required to be stated therein or necessary in order to make the statements therein not misleading. (d) All the outstanding shares of Common Stock of the Company have been duly authorized and validly issued, are fully paid and nonassessable and are free of any preemptive or similar rights; the Shares to be issued and sold by the Company have been duly authorized and, when issued and delivered to the Underwriters against payment therefor in accordance with the terms hereof, will be validly issued, fully paid and nonassessable and free of any preemptive or similar rights; and the capital stock of the Company conforms to the description thereof in the registration statement and the prospectus. (e) The Company is a corporation duly organized and validly existing in good standing under the laws of the State of Florida with full corporate power and authority to own, lease -9- 10 and operate its properties and to conduct its business as described in the Registration Statement and the Prospectus, and is duly registered and qualified to conduct its business and is in good standing in each jurisdiction or place where the nature of its properties or the conduct of its business requires such registration or qualification, except where the failure so to register or qualify does not have a material adverse effect on the condition (financial or other), business, properties, net worth or results of operations of the Company and the Subsidiaries (as hereinafter defined) taken as a whole. (f) All the Company's subsidiaries (collectively, the "Subsidiaries") are listed in an exhibit to the Company's Annual Report on Form 10-K which is incorporated by reference into the Registration Statement. Each Subsidiary is a corporation duly organized, validly existing and in good standing in the jurisdiction of its incorporation, with full corporate power and authority to own, lease and operate its properties and to conduct its business as described in the Registration Statement and the Prospectus, and is duly registered and qualified to conduct its business and is in good standing in each jurisdiction or place where the nature of its properties or the conduct of its business requires such registration or qualification, except where the failure so to register or qualify does not have a material adverse effect on the condition (financial or other), business, properties, net worth or results of operations of such Subsidiary; all the outstanding shares of capital stock of each of the Subsidiaries have been duly authorized and validly issued, are fully paid and nonassessable, and are owned by the Company directly, or indirectly through one of the other Subsidiaries, free and clear of any lien, adverse claim, security interest, equity or other encumbrance. (g) There are no legal or governmental proceedings pending or, to the knowledge of the Company, threatened, against the Company or any of the Subsidiaries, or to which the Company or any of the Subsidiaries, or to which any of their respective properties is subject, that are required to be described in the Registration Statement or the Prospectus but are not described as required, and there are no agreements, contracts, indentures, leases or other instruments that are required to be described in the Registration Statement or the Prospectus or to be filed as an exhibit to the Registration Statement or any Incorporated Document that are not described or filed as required by the Act or the Exchange Act. (h) Neither the Company nor any of the Subsidiaries is in violation of its certificate or articles of incorporation or by-laws, or other organizational documents, or of any law, ordinance, administrative or governmental rule or regulation applicable to the Company or any of the Subsidiaries or of any decree of any court or governmental agency or body having jurisdiction over the Company or any of the Subsidiaries, or in default in any material respect in the performance of any obligation, agreement or condition contained in any bond, debenture, note or any other evidence of indebtedness or in any material agreement, indenture, lease or other instrument to which the Company or any of the Subsidiaries is a party or by which any of them or any of their respective properties may be bound. (i) Neither the issuance and sale of the Shares to be sold by the Company, the execution, delivery or performance of this Agreement by the Company nor the consummation by the Company of the transactions contemplated hereby (i) requires any consent, approval, authorization or other order of or registration or filing with, any court, regulatory body, administrative agency or -10- 11 other governmental body, agency or official (except such as may be required for the registration of the Shares under the Act and the Exchange Act and compliance with the securities or Blue Sky laws of various jurisdictions, all of which have been or will be effected in accordance with this Agreement) or conflicts or will conflict with or constitutes or will constitute a breach of, or a default under, the certificate or articles of incorporation or bylaws, or other organizational documents, of the Company or any of the Subsidiaries or (ii) conflicts or will conflict with or constitutes or will constitute a breach of, or a default under, any agreement, indenture, lease or other instrument to which the Company or any of the Subsidiaries is a party or by which any of them or any of their respective properties may be bound, or violates or will violate any statute, law, regulation or filing or judgment, injunction, order or decree applicable to the Company or any of the Subsidiaries or any of their respective properties, or will result in the creation or imposition of any lien, charge or encumbrance upon any property or assets of the Company or any of the Subsidiaries pursuant to the terms of any agreement or instrument to which any of them is a party or by which any of them may be bound or to which any of the property or assets of any of them is subject. (j) The accountants, Price Waterhouse LLP, Coopers and Lybrand L.L.P. and Deloitte & Touche LLP, who have certified or shall certify the financial statements included or incorporated by reference in the Registration Statement and the Prospectus (or any amendment or supplement thereto) are independent public accountants as required by the Act. (k) The consolidated historical and pro forma financial statements, together with related schedules and notes, set forth in the Prospectus and the Registration Statement comply as to form in all material respects with the requirements of the Act. Such historical financial statements fairly present the consolidated financial position of the Company and the Subsidiaries at the respective dates indicated and the results of their operations and their cash flows for the respective periods indicated, in accordance with generally accepted accounting principles ("GAAP") consistently applied throughout such periods. Such pro forma financial statements have been prepared on a basis consistent with such historical statements, except for the pro forma adjustments specified therein, and give effect to assumptions made on a reasonable basis and present fairly the historical and proposed transactions contemplated by the Prospectus and this Agreement. The other financial and statistical information and data included in the Prospectus and in the Registration Statement, both historical and pro forma, are, in all material respects, accurately presented and prepared on a basis consistent with such financial statements and the books and records of the Company. (l) The execution and delivery of, and the performance by the Company of its obligations under, this Agreement have been duly and validly authorized by the Company, and this Agreement has been duly executed and delivered by the Company and constitutes the valid and legally binding agreement of the Company, enforceable against the Company in accordance with its terms, except as rights to indemnity and contribution hereunder may be limited by federal or state securities laws. (m) Except as disclosed in the Registration Statement and the Prospectus (or any amendment or supplement thereto), subsequent to the respective dates as of which such information is given in the Registration Statement and the Prospectus (or any amendment or supplement thereto), neither the Company nor any of the Subsidiaries has incurred any liability or obligation, direct or -11- 12 contingent, or entered into any transaction, not in the ordinary course of business, that is material to the Company and the Subsidiaries taken as a whole, and there has not been any change in the capital stock, or material increase in the short-term debt or long-term debt, of the Company or any of the Subsidiaries, or any material adverse change, or any development involving or which may reasonably be expected to involve, a prospective material adverse change, in the condition (financial or other), business, net worth or results of operations of the Company and the Subsidiaries taken as a whole. (n) Each of the Company and the Subsidiaries has good and marketable title to all property (real and personal) described in the Prospectus as being owned by it, free and clear of all liens, claims, security interests or other encumbrances, except such as are described in the Registration Statement and the Prospectus or in a document filed as an exhibit to the Registration Statement, and all the property described in the Prospectus as being held under lease by each of the Company and the Subsidiaries is held by it under valid, subsisting and enforceable leases. (o) The Company has not distributed and, prior to the later to occur of (i) the Closing Date and (ii) completion of the distribution of the Shares, will not distribute any offering material in connection with the offering and sale of the Shares other than the Registration Statement, the Prepricing Prospectus, the Prospectus or other materials, if any, permitted by the Act. (p) The Company and each of the Subsidiaries has such permits, licenses, franchises and authorizations of governmental or regulatory authorities ("permits") as are necessary to own its respective properties and to conduct its business in the manner described in the Prospectus, subject to such qualifications as may be set forth in the Prospectus; the Company and each of the Subsidiaries has fulfilled and performed all its material obligations with respect to such permits and no event has occurred which allows, or after notice or lapse of time would allow, revocation or termination thereof or results in any other material impairment of the rights of the holder of any such permit, subject in each case to such qualification as may be set forth in the Prospectus; and, except as described in the Prospectus, none of such permits contains any restriction that is materially burdensome to the Company or any of the Subsidiaries. (q) The Company maintains a system of internal accounting controls sufficient to provide reasonable assurances that (i) transactions are executed in accordance with management's general or specific authorization, (ii) transactions are recorded as necessary to permit preparation of financial statements in conformity with generally accepted accounting principles and to maintain accountability for assets, (iii) access to assets is permitted only in accordance with management's general or specific authorization, and (iv) the recorded accountability for assets is compared with existing assets at reasonable intervals and appropriate action is taken with respect to any differences. (r) To the Company's knowledge, neither the Company nor any of its Subsidiaries nor any employee or agent of the Company or any Subsidiary has made any payment of funds of the Company or any Subsidiary or received or retained any funds in violation of any law, rule or regulation, which payment, receipt or retention of funds is of a character required to be disclosed in the Prospectus. -12- 13 (s) The Company and each of the Subsidiaries have filed all tax returns required to be filed, which returns are complete and correct, and neither the Company nor any Subsidiary is in default in the payment of any taxes which were payable pursuant to said returns or any assessments with respect thereto. (t) No holder of any security of the Company has any right to require registration of shares of Common Stock or any other security of the Company because of the filing of the registration statement or consummation of the transactions contemplated by this Agreement. (u) The Company and the Subsidiaries own or possess all patents, trademarks, trademark registration, service marks, service mark registrations, trade names, copyrights, licenses, inventions, trade secrets and rights described in the Prospectus as being owned by them or any of them or necessary for the conduct of their respective businesses, and the Company is not aware of any claim to the contrary or any challenge by any other person to the rights of the Company and the Subsidiaries with respect to the foregoing. (v) The Company has complied with all provisions of Florida Statutes, Section 517.075, relating to issuers doing business with Cuba. (w) Each of the Company and the Subsidiaries has fulfilled its obligations, if any, under the minimum funding standards of Section 302 of the United States Employee Retirement Income Security Act of 1974 ("ERISA") and the regulations and published interpretations thereunder with respect to each "plan" (as defined in ERISA and such regulations and published interpretations) in which employees of the Company and the Subsidiaries are eligible to participate and each such plan is in compliance in all material respects with the presently applicable provisions of ERISA and such regulations and published interpretations, and has not incurred any unpaid liability to the Pension Benefit Guaranty Corporation (other than for the payment of premiums in the ordinary course) or to any such plan under Title IV of ERISA. (x) The copy of the Asset Purchase Agreement dated March 27, 1996 by and among the Company, Jemison Investment Co., Inc., PVF Holdings, Inc., Southwest Stainless, Inc., Multalloy, Inc., a New Jersey corporation, Multalloy, Inc., a Texas corporation, and Houston Products & Machine, Inc., including the related agreements, certificates and opinions which appear as exhibits thereto (collectively, the "PVF Acquisition Agreement"), delivered by the Company to the Underwriters is a true and correct copy of the PVF Acquisition Agreement and there have been no amendments, alterations, modifications or waivers thereto or in the exhibits or schedules thereto. The execution and delivery of, and the performance by the Company of its obligations under, the PVF Acquisition Agreement have been duly and validly authorized, and the PVF Acquisition Agreement has been duly executed and delivered by the Company and constitutes the valid and legally binding agreement of the Company, enforceable against the Company in accordance with its terms, except as rights to indemnity and contribution thereunder may be limited by Federal or state securities laws. There exists no condition that would permit any of the parties to the PVF Acquisition Agreement the right to terminate the transactions contemplated by the PVF Acquisition Agreement pursuant to Article XIV thereof, or otherwise, and the Company has no reason to believe -13- 14 that the transactions contemplated by the PVF Acquisition Agreement will not be consummated on or prior to the Closing Date. 8. Representations and Warranties of the Selling Shareholders. Each Selling Shareholder represents and warrants to each Underwriter that: (a) Such Selling Shareholder now has, and on the Closing Date and, with respect to the Selling Shareholder listed in Part B of Schedule I hereto, any Option Closing Date, will have, valid and marketable title to the Shares to be sold by such Selling Shareholder, free and clear of any lien, claim, security interest or other encumbrance, including, without limitation, any restriction on transfer. (b) Such Selling Shareholder now has, and on the Closing Date and, with respect to the Selling Shareholder listed in Part B of Schedule I hereto, any Option Closing Date, will have, full legal right, power and authorization, and any approval required by law, to sell, assign transfer and deliver such Shares in the manner provided in this Agreement, and upon delivery of and payment for such Shares hereunder, the several Underwriters will acquire valid and marketable title to such Shares free and clear of any lien, claim, security interest, or other encumbrance. (c) This Agreement and the Custody Agreement have been duly authorized, executed and delivered by or on behalf of such Selling Shareholder and are the valid and binding agreements of such Selling Shareholder enforceable against such Selling Shareholder in accordance with their terms. (d) Neither the execution and delivery of this Agreement or the Custody Agreement by or on behalf of such Selling Shareholder nor the consummation of the transactions herein or therein contemplated by or on behalf of such Selling Shareholder requires any consent, approval, authorization or order of, or filing or registration with, any court, regulatory body, administrative agency or other governmental body, agency or official (except such as may be required under the Act and the Exchange Act or such as may be required under state securities or Blue Sky laws governing the purchase and distribution of the Shares) or conflicts or will conflict with or constitutes or will constitute a breach of, or default under, or violates or will violate, any agreement, indenture or other instrument to which such Selling Shareholder is a party or by which such Selling Shareholder is or may be bound or to which any of such Selling Shareholder's property or assets is subject, or any statute, law, rule, regulation, ruling, judgment, injunction, order or decree applicable to such Selling Shareholder or to any property or assets of such Selling Shareholder. (e) The Registration Statement and the Prospectus, insofar as they relate to such Selling Shareholder, do not and will not contain an untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein not misleading. (f) Such Selling Shareholder does not have any knowledge or any reason to believe that the Registration Statement or the Prospectus (or any amendment or supplement thereto) -14- 15 contains any untrue statement of a material fact or omits to state any material fact required to be stated therein or necessary to make the statements therein not misleading. (g) The representations and warranties of such Selling Shareholder in the Custody Agreement are, and on the Closing Date and any Option Closing Date will be, true and correct. (h) Such Selling Shareholder has not taken, directly or indirectly, any action designed to or that might reasonably be expected to cause or result in stabilization or manipulation of the price of the Common Stock to facilitate the sale or resale of the Shares, except for the lock-up arrangements described in the Prospectus. 9. Indemnification and Contribution. (a) The Company and each of Russell V. Hughes and Donald C. Martin (Messrs. Hughes and Martin for purposes of this Section 9 are collectively referred to as "Indemnifying Selling Shareholders"), jointly and severally, agree to indemnify and hold harmless each of you and each other Underwriter and each person, if any, who controls any Underwriter within the meaning of Section 15 of the Act or Section 20(a) of the Exchange Act from and against any and all losses, claims, damages, liabilities and expenses (including reasonable costs of investigation) arising out of or based upon any untrue statement or alleged untrue statement of a material fact contained in any Prepricing Prospectus or in the Registration Statement or the Prospectus or in any amendment or supplement thereto, or arising out of or based upon any omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, except insofar as such losses, claims, damages, liabilities or expenses arise out of or are based upon any untrue statement or omission or alleged untrue statement or omission which has been made therein or omitted therefrom in reliance upon and in conformity with the information relating to such Underwriter furnished in writing to the Company by or on behalf of any Underwriter through you expressly for use in connection therewith; provided, however, that the indemnification contained in this paragraph (a) with respect to any Prepricing Prospectus shall not inure to the benefit of any Underwriter (or to the benefit of any person controlling such Underwriter) on account of any such loss, claim, damage, liability or expense arising from the sale of the Shares by such Underwriter to any person if a copy of the Prospectus shall not have been delivered or sent to such person within the time required by the Act and the regulations thereunder, and the untrue statement or alleged untrue statement or omission or alleged omission of a material fact contained in such Prepricing Prospectus was corrected in the Prospectus, provided that the Company has delivered the Prospectus to the several Underwriters in requisite quantity on a timely basis to permit such delivery or sending. The foregoing indemnity agreement shall be in addition to any liability which the Company or any Selling Shareholder may otherwise have. (b) If any action, suit or proceeding shall be brought against any Underwriter or any person controlling any Underwriter in respect of which indemnity may be sought against the Company or any Selling Shareholder, such Underwriter or such controlling person shall promptly notify the parties against whom indemnification is being sought (the "indemnifying parties"), and such indemnifying parties shall assume the defense thereof, including the employment of counsel and payment of all fees and expenses. Such Underwriter or any such controlling person shall have the right to employ separate counsel in any such action, suit or proceeding and to participate in the defense thereof, but the fees and expenses of such counsel shall be at the expense of such -15- 16 Underwriter or such controlling person unless (i) the indemnifying parties have agreed in writing to pay such fees and expenses, (ii) the indemnifying parties have failed to assume the defense and employ counsel, or (iii) the named parties to any such action, suit or proceeding (including any impleaded parties) include both such Underwriter or such controlling person and the indemnifying parties and such Underwriter or such controlling person shall have been advised by its counsel that representation of such indemnified party and any indemnifying party by the same counsel would be inappropriate under applicable standards of professional conduct (whether or not such representation by the same counsel has been proposed) due to actual or potential differing interests between them (in which case the indemnifying party shall not have the right to assume the defense of such action, suit or proceeding on behalf of such Underwriter or such controlling person). It is understood, however, that the indemnifying parties shall, in connection with any one such action, suit or proceeding or separate but substantially similar or related actions, suits or proceedings in the same jurisdiction arising out of the same general allegations or circumstances, be liable for the reasonable fees and expenses of only one separate firm of attorneys (in addition to any local counsel) at any time for all such Underwriters and controlling persons not having actual or potential differing interests with you or among themselves, which firm shall be designated in writing by Smith Barney Inc., and that all such fees and expenses shall be reimbursed as they are incurred. The indemnifying parties shall not be liable for any settlement of any such action, suit or proceeding effected without their written consent, but if settled with such written consent, or if there be a final judgment for the plaintiff in any such action, suit or proceeding, the indemnifying parties agree to indemnify and hold harmless any Underwriter, to the extent provided in the preceding paragraph, and any such controlling person from and against any loss, claim, damage, liability or expense by reason of such settlement or judgment. (c) Each of The Employees' Retirement Plan of Consolidated Electrical Distributors, Inc., Edmundson International, Inc., John V. Moore, John E. Petterson and John F. Caswell, Jr. (collectively referred to as "Passive Selling Shareholders") agrees, severally and not jointly, to indemnify and hold harmless each of you and each other Underwriter and each person, if any, who controls any Underwriter within the meaning of Section 15 of the Act or Section 20(a) of the Exchange Act, the Company, its directors, its officers who sign the Registration Statement, and any person who controls the Company within the meaning of Section 15 of the Act or Section 20(a) of the Exchange Act to the same extent as the foregoing indemnity from the Company and the Indemnifying Selling Shareholders to each Underwriter, but only with respect to the information furnished in writing by or on behalf of such Passive Selling Shareholder expressly for use in the Registration Statement, the Prospectus or any Prepricing Prospectus, or any amendment or supplement thereto. If any action, suit or proceeding shall be brought against any Underwriter, any such controlling person of any Underwriter, the Company, any of its directors, any such officer, or any such controlling person of the Company, based on the Registration Statement, the Prospectus or any Prepricing Prospectus or any amendment or supplement thereto, and in respect of which indemnity may be sought against any Passive Selling Shareholder pursuant to this paragraph (c), such Passive Selling Shareholder shall have the rights and duties given to the Company by paragraph (b) above (except that if the Company shall have assumed the defense thereof, such Passive Selling Shareholder shall not be required to do so, but may employ separate counsel therein and participate in the defense thereof, but the fees and expenses of such counsel shall be at such Passive Selling Shareholder's expense), and each Underwriter, each such controlling person of any Underwriter, the -16- 17 Company, its directors, any such officer, and any such controlling person of the Company shall have the rights and duties given to the Underwriters by paragraph (b) above. The foregoing indemnity agreement shall be in addition to any liability which any Passive Selling Shareholder may otherwise have. (d) Each Underwriter agrees, severally and not jointly, to indemnify and hold harmless the Company, its directors, its officers who sign the Registration Statement, each Selling Shareholder, and any person who controls the Company within the meaning of Section 15 of the Act or Section 20(a) of the Exchange Act, to the same extent as the foregoing indemnity from the Company and the Selling Shareholders to each Underwriter, but only with respect to information relating to such Underwriter furnished in writing by or on behalf of such Underwriter through you expressly for use in the Registration Statement, the Prospectus or any Prepricing Prospectus, or any amendment or supplement thereto. If any action, suit or proceeding shall be brought against the Company, any of its directors, any such officer, any Selling Shareholder, or any such controlling person based on the Registration Statement, the Prospectus or any Prepricing Prospectus, or any amendment or supplement thereto, and in respect of which indemnity may be sought against any Underwriter pursuant to this paragraph (d), such Underwriter shall have the rights and duties given to the Company by paragraph (b) above (except that if the Company shall have assumed the defense thereof such Underwriter shall not be required to do so, but may employ separate counsel therein and participate in the defense thereof, but the fees and expenses of such counsel shall be at such Underwriter's expense), and the Company, its directors, any such officer, the Selling Shareholders, and any such controlling person shall have the rights and duties given to the Underwriters by paragraph (b) above. The foregoing indemnity agreement shall be in addition to any liability which any Underwriter may otherwise have. (e) If the indemnification provided for in this Section 9 is unavailable to an indemnified party under paragraphs (a), (c) or (d) hereof in respect of any losses, claims, damages, liabilities or expenses referred to therein, then an indemnifying party, in lieu of indemnifying such indemnified party, shall contribute to the amount paid or payable by such indemnified party as a result of such losses, claims, damages, liabilities or expenses (i) in such proportion as is appropriate to reflect the relative benefits received by the Company and the Selling Shareholders on the one hand and the Underwriters on the other hand from the offering of the Shares, or (ii) if the allocation provided by clause (i) above is not permitted by applicable law, in such proportion as is appropriate to reflect not only the relative benefits referred to in clause (i) above but also the relative fault of the Company and the Selling Shareholders on the one hand and the Underwriters on the other in connection with the statements or omissions that resulted in such losses, claims, damages, liabilities or expenses, as well as any other relevant equitable considerations. The relative benefits received by the Company and the Selling Shareholders on the one hand and the Underwriters on the other shall be deemed to be in the same proportion as the total net proceeds from the offering (before deducting expenses) received by the Company and the Selling Shareholders bear to the total underwriting discounts and commissions received by the Underwriters, in each case as set forth in the table on the cover page of the Prospectus; provided that, in the event that the Underwriters shall have purchased any Additional Shares hereunder, any determination of the relative benefits received by the Company, the Selling Shareholders or the Underwriters from the offering of the Shares shall include the net proceeds (before deducting expenses) received by the Company and the Selling -17- 18 Shareholders, and the underwriting discounts and commissions received by the Underwriters, from the sale of such Additional Shares, in each case computed on the basis of the respective amounts set forth in the notes to the table on the cover page of the Prospectus. The relative fault of the Company and the Selling Shareholders on the one hand and the Underwriters on the other hand shall be determined by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or the omission or alleged omission to state a material fact relates to information supplied by the Company or the Selling Shareholders on the one hand or by the Underwriters on the other hand and the parties' relative intent, knowledge, access to information and opportunity to correct or prevent such statement or omission. (f) The Company, the Selling Shareholders and the Underwriters agree that it would not be just and equitable if contribution pursuant to this Section 9 were determined by a pro rata allocation (even if the Underwriters were treated as one entity for such purpose) or by any other method of allocation that does not take account of the equitable considerations referred to in paragraph (e) above. The amount paid or payable by an indemnified party as a result of the losses, claims, damages, liabilities and expenses referred to in paragraph (e) above shall be deemed to include, subject to the limitations set forth above, any legal or other expenses reasonably incurred by such indemnified party in connection with investigating any claim or defending any such action, suit or proceeding. Notwithstanding the provisions of this Section 9, no Underwriter shall be required to contribute any amount in excess of the amount by which the total price of the Shares underwritten by it and distributed to the public exceeds the amount of any damages which such Underwriter has otherwise been required to pay by reason of such untrue or alleged untrue statement or omission or alleged omission. No person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Act) shall be entitled to contribution from any person who was not guilty of such fraudulent misrepresentation. The Underwriters' obligations to contribute pursuant to this Section 9 are several in proportion to the respective numbers of Firm Shares set forth opposite their names in Schedule II hereto (or such numbers of Firm Shares increased as set forth in Section 12 hereof) and not joint. (g) No indemnifying party shall, without the prior written consent of the indemnified party, effect any settlement of any pending or threatened action, suit or proceeding in respect of which any indemnified party is or could have been a party and indemnity could have been sought hereunder by such indemnified party, unless such settlement includes an unconditional release of such indemnified party from all liability on claims that are the subject matter of such action, suit or proceeding. (h) Any losses, claims, damages, liabilities or expenses for which an indemnified party is entitled to indemnification or contribution under this Section 9 shall be paid by the indemnifying party to the indemnified party as such losses, claims, damages, liabilities or expenses are incurred. The indemnity and contribution agreements contained in this Section 9 and the representations and warranties of the Company and the Selling Shareholders set forth in this Agreement shall remain operative and in full force and effect, regardless of (i) any investigation made by or on behalf of any Underwriter or any person controlling any Underwriter, the Company, its directors or officers or the Selling Shareholders or any person controlling the Company, (ii) acceptance of any Shares and payment therefor hereunder, and (iii) any termination of this -18- 19 Agreement. A successor to any Underwriter or any person controlling any Underwriter, or to the Company, its directors or officers, or any person controlling the Company, shall be entitled to the benefits of the indemnity, contribution and reimbursement agreements contained in this Section 9. 10. Conditions of Underwriters' Obligations. The several obligations of the Underwriters to purchase the Firm Shares hereunder are subject to the following conditions: (a) If, at the time this Agreement is executed and delivered, it is necessary for the registration statement or a post-effective amendment thereto to be declared effective before the offering of the Shares may commence, the registration statement or such post-effective amendment shall have become effective not later than 5:30 P.M., New York City time, on the date hereof, or at such later date and time as shall be consented to in writing by you, and all filings, if any, required by Rules 424 and 430A under the Act shall have been timely made; no stop order suspending the effectiveness of the registration statement shall have been issued and no proceeding for that purpose shall have been instituted or, to the knowledge of the Company or any Underwriter, threatened by the Commission, and any request of the Commission for additional information (to be included in the registration statement or the prospectus or otherwise) shall have been complied with to your satisfaction. (b) Subsequent to the effective date of this Agreement, there shall not have occurred (i) any change, or any development involving a prospective change, in or affecting the condition (financial or other), business, properties, net worth, or results of operations of the Company or the Subsidiaries not contemplated by the Prospectus, which in your opinion, as Representatives of the several Underwriters, would materially adversely affect the market for the Shares, or (ii) any event or development relating to or involving the Company or any officer or director of the Company or any Selling Shareholder which makes any statement made in the Prospectus untrue or which, in the opinion of the Company and its counsel or the Underwriters and their counsel, requires the making of any addition to or change in the Prospectus in order to state a material fact required by the Act or any other law to be stated therein or necessary in order to make the statements therein not misleading, if amending or supplementing the Prospectus to reflect such event or development would, in your opinion, as Representatives of the several Underwriters, materially adversely affect the market for the Shares. (c) You shall have received on the Closing Date, an opinion of Maguire, Voorhis & Wells, P.A., counsel for the Company and John V. Moore, Russell V. Hughes, Donald C. Martin, John E. Petterson and John F. Caswell, Jr., certain of the Selling Shareholders, dated the Closing Date and addressed to you, as Representatives of the several Underwriters, to the effect that: (i) The Company is a corporation duly incorporated and validly existing in good standing under the laws of the State of Florida with full corporate power and authority to own, lease and operate its properties and to conduct its business as described in the Registration Statement and the Prospectus (and any amendment or supplement thereto), and is duly registered and qualified to conduct its business and is in good standing in each jurisdiction or place where the nature of its properties or the conduct of its business requires such registration or qualification, except where the failure so to register or qualify does not have a material adverse effect on the condition -19- 20 (financial or other), business, properties, net worth or results of operations of the Company and the Subsidiaries taken as a whole; (ii) Each of the Subsidiaries is a corporation duly organized and validly existing in good standing under the laws of the jurisdiction of its organization, with full corporate power and authority to own, lease, and operate its properties and to conduct its business as described in the Registration Statement and the Prospectus (and any amendment or supplement thereto); and all the outstanding shares of capital stock of each of the Subsidiaries have been duly authorized and validly issued, are fully paid and nonassessable, and are owned by the Company directly, or indirectly through one of the other Subsidiaries, free and clear of any perfected security interest, or, to the best knowledge of such counsel after reasonable inquiry, any other security interest, lien, adverse claim, equity or other encumbrance; (iii) The authorized and outstanding capital stock of the Company is as set forth under the caption "Capitalization" in the Prospectus; and the authorized capital stock of the Company conforms in all material respects as to legal matters to the description thereof contained in the Prospectus under the caption "Description of Capital Stock;" (iv) All the shares of capital stock of the Company outstanding prior to the issuance of the Shares to be issued and sold by the Company hereunder, have been duly authorized and validly issued, and are fully paid and nonassessable; (v) The Shares to be issued and sold to the Underwriters by the Company hereunder have been duly authorized and, when issued and delivered to the Underwriters against payment therefor in accordance with the terms hereof, will be validly issued, fully paid and nonassessable and free of any preemptive, or to the best knowledge of such counsel after reasonable inquiry, similar rights that entitle or will entitle any person to acquire any Shares upon the issuance thereof by the Company; (vi) The form of certificates for the Shares conforms to the requirements of the Florida Business Corporation Act; (vii) The Registration Statement and all post-effective amendments, if any, have become effective under the Act and, to the best knowledge of such counsel after reasonable inquiry, no stop order suspending the effectiveness of the Registration Statement has been issued and no proceedings for that purpose are pending before or contemplated by the Commission; and any required filing of the Prospectus pursuant to Rule 424(b) has been made in accordance with Rule 424(b); (viii) The Company has corporate power and authority to enter into this Agreement and to issue, sell and deliver the Shares to be sold by it to the Underwriters as provided herein, and this Agreement has been duly authorized, executed and delivered by the Company and is a valid, legal and binding agreement of the Company, enforceable against the Company in accordance with its terms, except as enforcement of rights to indemnity and contribution hereunder may be limited by Federal or state securities laws or principles of public policy and subject to the -20- 21 qualification that the enforceability of the Company's obligations hereunder may be limited by bankruptcy, fraudulent conveyance, insolvency, reorganization, moratorium, and other laws relating to or affecting creditors' rights generally and by general equitable principles; (ix) Neither the Company nor any of the Subsidiaries is in violation of its respective certificate or articles of incorporation or bylaws, or other organizational documents, or to the best knowledge of such counsel after reasonable inquiry, is in default in the performance of any material obligation, agreement or condition contained in any bond, debenture, note or other evidence of indebtedness, except as may be disclosed in the Prospectus; (x) Neither the offer, sale or delivery of the Shares, the execution, delivery or performance of this Agreement, compliance by the Company with the provisions hereof nor consummation by the Company of the transactions contemplated hereby conflicts or will conflict with or constitutes or will constitute a breach of, or a default under, the certificate or articles of incorporation or bylaws, or other organizational documents, of the Company or any of the Subsidiaries or any agreement, indenture, lease or other instrument to which the Company or any of the Subsidiaries is a party or by which any of them or any of their respective properties is bound that is an exhibit to the Registration Statement or to any Incorporated Document, or is known to such counsel after reasonable inquiry, or will result in the creation or imposition of any lien, charge or encumbrance upon any property or assets of the Company or any of the Subsidiaries, nor will any such action result in any violation of any existing law, regulation, ruling (assuming compliance with all applicable state securities and Blue Sky laws), judgment, injunction, order or decree known to such counsel after reasonable inquiry, applicable to the Company, the Subsidiaries or any of their respective properties; (xi) No consent, approval, authorization or other order of, or registration or filing with, any court, regulatory body, administrative agency or other governmental body, agency, or official is required on the part of the Company (except as have been obtained under the Act and the Exchange Act or such as may be required under state securities or Blue Sky laws governing the purchase and distribution of the Shares) for the valid issuance and sale of the Shares to the Underwriters as contemplated by this Agreement; (xii) The Registration Statement and the Prospectus and any supplements or amendments thereto (except for the financial statements and the notes thereto and the schedules and other financial and statistical data included therein, as to which such counsel need not express any opinion) comply as to form in all material respects with the requirements of the Act; and each of the Incorporated Documents (except for the financial statements and the notes thereto and the schedules and other financial and statistical data included therein, as to which counsel need not express any opinion) complies as to form in all material respects with the Exchange Act and the rules and regulations of the Commission thereunder; (xiii) To the best knowledge of such counsel after reasonable inquiry, (A) other than as described or contemplated in the Prospectus (or any supplement thereto), there are no legal or governmental proceedings pending or threatened against the Company or any of the Subsidiaries, or to which the Company or any of the Subsidiaries, or any of their property, is -21- 22 subject, which are required to be described in the Registration Statement or Prospectus (or any amendment or supplement thereto) and (B) there are no agreements, contracts, indentures, leases or other instruments, that are required to be described in the Registration Statement or the Prospectus (or any amendment or supplement thereto) or to be filed as an exhibit to the Registration Statement or any Incorporated Document that are not described or filed as required, as the case may be; (xiv) To the best knowledge of such counsel after reasonable inquiry, neither the Company nor any of the Subsidiaries is in violation of any law, ordinance, administrative or governmental rule or regulation applicable to the Company or any of the Subsidiaries or of any decree of any court or governmental agency or body having jurisdiction over the Company or any of the Subsidiaries; (xv) The statements in the Registration Statement and Prospectus, insofar as they are descriptions of contracts, agreements or other legal documents, or refer to statements of law or legal conclusions, are accurate and present fairly the information required to be shown; (xvi) This Agreement and the Custody Agreement have each been duly executed and delivered by or on behalf of each such Selling Shareholders and are valid and binding agreements of such Selling Shareholder enforceable against such Selling Shareholders in accordance with their terms; (xvii) To the knowledge of such counsel, each such Selling Shareholder has full legal right, power and authorization, and any approval required by law, to sell, assign, transfer and deliver good and marketable title to the Shares which such Selling Shareholder has agreed to sell pursuant to this Agreement; (xviii) The execution and delivery of this Agreement and the Custody Agreement by such Selling Shareholders and the consummation of the transactions contemplated hereby and thereby will not conflict with, violate, result in a breach of or constitute a default under the terms or provisions of any agreement, indenture, mortgage or other instrument known to such counsel to which any such Selling Shareholder is a party or by which any of them or any of their assets or property is bound, or any court order or decree or any law, rule, or regulation applicable to any such Selling Shareholder or to any of the property or assets of any such Selling Shareholder; (xix) Upon delivery of the Shares by the Company and such Selling Shareholder pursuant to this Agreement and payment therefor as contemplated herein the Underwriters will acquire good and marketable title to such Shares free and clear of any lien, claim, security interest, or other encumbrance, restriction on transfer or other defect in title; and (xx) Although counsel has not undertaken, except as otherwise indicated in their opinion, to determine independently, and does not assume any responsibility for, the accuracy or completeness of the statements in the Registration Statement, such counsel has participated in the preparation of the Registration Statement and the Prospectus, including review and discussion of the contents thereof (including review and discussion of the contents of all Incorporated Documents), and nothing has come to the attention of such counsel that has caused them to believe -22- 23 that the Registration Statement (including the Incorporated Documents) at the time the Registration Statement became effective, or the Prospectus, as of its date and as of the Closing Date or the Option Closing Date, as the case may be, contained an untrue statement of a material fact or omitted to state a material fact required to be stated therein or necessary to make the statements therein not misleading or that any amendment or supplement to the Prospectus, as of its respective date, and as of the Closing Date or the Option Closing Date, as the case may be, contained any untrue statement of a material fact or omitted to state a material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading (it being understood that such counsel need express no opinion with respect to the financial statements and the notes thereto and the schedules and other financial and statistical data included in the Registration Statement or the Prospectus or any Incorporated Document). In rendering their opinion as aforesaid, counsel may rely upon an opinion or opinions, each dated the Closing Date, of other counsel retained by them or the Company as to laws of any jurisdiction other than the United States or the State of Florida, provided that (i) each such local counsel is acceptable to the Representatives, (ii) such reliance is expressly authorized by each opinion so relied upon and a copy of each such opinion is delivered to the Representatives and is in form and substance satisfactory to them and their counsel, and (iii) counsel shall state in their opinion that they believe that they and the Underwriters are justified in relying thereon. (d) You shall have received on the Closing Date, an opinion of Benjamin P. Butterfield, Esq., corporate general counsel for the Company, dated the Closing Date and addressed to you, as Representatives of the several Underwriters, to the effect that: (i) The Company and each of the Subsidiaries has full corporate power and authority, and all necessary governmental authorizations, approvals, orders, licenses, certificates, franchises and permits of and from all governmental regulatory officials and bodies (except where the failure so to have any such authorizations, approvals, orders, licenses, certificates, franchises or permits, individually or in the aggregate, would not have a material adverse effect on the business, properties, operations or financial condition of the Company and the Subsidiaries taken as a whole), to own their respective properties and to conduct their respective businesses as now being conducted, as described in the Prospectus; (ii) Except as disclosed in the Prospectus, the Company owns of record, directly or indirectly, all the outstanding shares of capital stock of each of the Subsidiaries free and clear of any lien, adverse claim, security interest, equity, or other encumbrance; (iii) Other than as described or contemplated in the Prospectus (or any supplement thereto), there are no legal or governmental proceedings pending or threatened against the Company or any of the Subsidiaries, or to which the Company or any of the Subsidiaries, or any of their property, is subject, which are required to be described in the Registration Statement or Prospectus (or any amendment or supplement thereto); (iv) There are no agreements, contracts, indentures, leases or other instruments, that are required to be described in the Registration Statement or the Prospectus (or any -23- 24 amendment or supplement thereto) or to be filed as an exhibit to the Registration Statement or any Incorporated Document that are not described or filed as required, as the case may be; (v) The Company and the Subsidiaries own all patents, trademarks, trademark registrations, service marks, service mark registrations, trade names, copyrights, licenses, inventions, trade secrets and rights described in the Prospectus as being owned by them or any of them or necessary for the conduct of their respective businesses, and such counsel is not aware of any claim to the contrary or any challenge by any other person to the rights of the Company and the Subsidiaries with respect to the foregoing; (vi) Neither the Company nor any of the Subsidiaries is in violation of any law, ordinance, administrative or governmental rule or regulation applicable to the Company or any of the Subsidiaries or of any decree of any court or governmental agency or body having jurisdiction over the Company or any of the Subsidiaries; (vii) Except as described in the Prospectus, there are no outstanding options, warrants or other rights calling for the issuance of, and such counsel does not know of any commitment, plan or arrangement to issue, any shares of capital stock of the Company or any security convertible into or exchangeable or exercisable for capital stock of the Company; (viii) Except as described in the Prospectus, there is no holder of any security of the Company or any other person who has the right, contractual or otherwise, to cause the Company to sell or otherwise issue to them, or to permit them to underwrite the sale of, the Shares or the right to have any Common Stock or other securities of the Company included in the registration statement or the right, as a result of the filing of the registration statement, to require registration under the Act of any shares of Common Stock or other securities of the Company; and (ix) The transactions contemplated by the PVF Acquisition Agreement have been consummated in accordance with the provisions of the PVF Acquisition Agreement. (e) You shall have received on the Closing Date an opinion of ___________________, counsel for The Employees' Retirement Plan of Consolidated Electrical Distributors, Inc. and Edmundson International, Inc., certain of the Selling Shareholders, dated the Closing Date and addressed to you, as Representatives of the several Underwriters, with respect to matters referred to in clauses (xvi), (xvii), (xviii) and (xix) of the foregoing paragraph (c) and such other related matters as you may request. (f) You shall have received on the Closing Date an opinion of Powell, Goldstein, Frazer & Murphy, counsel for the Underwriters, dated the Closing Date and addressed to you, as Representatives of the several Underwriters, with respect to the matters referred to in clauses (v), (vii), (viii), (xii) and (xx) of the foregoing paragraph (c) and such other related matters as you may request. (g) You shall have received letters addressed to you, as Representatives of the several Underwriters, and dated the date hereof and the Closing Date from Price Waterhouse LLP -24- 25 and Deloitte & Touche LLP, independent certified public accountants, substantially in the forms heretofore approved by you. (h)(i) No stop order suspending the effectiveness of the Registration Statement shall have been issued and no proceedings for that purpose shall have been taken or, to the knowledge of the Company, shall be contemplated by the Commission at or prior to the Closing Date; (ii) there shall not have been any change in the capital stock of the Company nor any material increase in the short-term or long-term debt of the Company (other than in the ordinary course of business) from that set forth or contemplated in the Registration Statement or the Prospectus (or any amendment or Supplement thereto); (iii) there shall not have been, since the respective dates as of which information is given in the Registration Statement and the Prospectus (or any amendment or supplement thereto), except as may otherwise be stated in the Registration Statement and Prospectus (or any amendment or supplement thereto), any material adverse change in the condition (financial or other), business, prospects, properties, net worth or results of operations of the Company and the Subsidiaries taken as a whole; (iv) the Company and the Subsidiaries shall not have any liabilities or obligations, direct or contingent (whether or not in the ordinary course of business), that are material to the Company and the Subsidiaries, taken as a whole, other than those reflected in the Registration Statement or the Prospectus (or any amendment or supplement thereto); (v) all the representations and warranties of the Company contained in this Agreement shall be true and correct on and as of the date hereof and on and as of the Closing Date as if made on and as of the Closing Date; and (vi) the transactions contemplated by the PVF Acquisition Agreement shall have been consummated at or prior to the Closing Date, and you shall have received a certificate, dated the Closing Date and signed by the chief executive officer and the chief financial officer of the Company (or such other officers as are acceptable to you), to the effect set forth in this Section 10(h) and in Section 10(i) hereof. (i) The Company shall not have failed at or prior to the Closing Date to have performed or complied with any of its agreements herein contained and required to be performed or complied with by it hereunder at or prior to the Closing Date. (j) All the representations and warranties of the Selling Shareholders contained in this Agreement shall be true and correct on and as of the date hereof and on and as of the Closing Date as if made on and as of the Closing Date, and you shall have received a certificate, dated the Closing Date and signed by or on behalf of the Selling Shareholders to the effect set forth in this Section 10(j) and in Section 10(k) hereof. (k) The Selling Shareholders shall not have failed at or prior to the Closing Date to have performed or complied with any of their agreements herein contained and required to be performed or complied with by them hereunder at or prior to the Closing Date. (l) Prior to the Closing Date the shares of Common Stock which the Company agrees to sell pursuant to this Agreement shall have been listed, subject to notice of issuance, on the New York Stock Exchange. -25- 26 (m) The Sellers shall have furnished or caused to be furnished to you such further certificates and documents as you shall have requested. (n) You shall have received copies of the opinions delivered pursuant to Sections 8.05 and 9.06 of the PVF Acquisition Agreement, together with letters authorizing you to rely thereon as if such opinion letters were addressed to you. All such opinions, certificates, letters and other documents will be in compliance with the provisions hereof only if they are satisfactory in form and substance to you and your counsel. Any certificate or document signed by any officer of the Company or any Attorney-in-Fact or any Selling Shareholder and delivered to you, as Representatives of the Underwriters, or to counsel for the Underwriters, shall be deemed a representation and warranty by the Company, the Selling Shareholders or the particular Selling Shareholder, as the case may be, to each Underwriter as to the statements made therein. The several obligations of the Underwriters to purchase Additional Shares hereunder are subject to the satisfaction on and as of any Option Closing Date of the conditions set forth in this Section 10, except that, if any Option Closing Date is other than the Closing Date, the certificates, opinions and letters referred to in paragraphs (c) through (j) shall be dated the Option Closing Date in question and the opinions called for by paragraphs (c), (d), (e) and (f) shall be revised to reflect the sale of Additional Shares. 11. Expenses. The Sellers (in such proportion (aggregating 100%) as they shall agree among themselves) agree to pay the following costs and expenses and all other costs and expenses incident to the performance by them of their obligations hereunder: (i) the preparation, printing or reproduction, and filing with the Commission of the registration statement (including financial statements and exhibits thereto), each Prepricing Prospectus, the Prospectus, and each amendment or supplement to any of them; (ii) the printing (or reproduction) and delivery (including postage, air freight charges and charges for counting and packaging) of such copies of the registration statement, each Prepricing Prospectus, the Prospectus, the Incorporated Documents, and all amendments or supplements to any of them, as may be reasonably requested for use in connection with the offering and sale of the Shares; (iii) the preparation, printing, authentication, issuance and delivery of certificates for the Shares, including any stamp taxes in connection with the original issuance and sale of the Shares; (iv) the printing (or reproduction) and delivery of this Agreement, the preliminary and supplemental Blue Sky Memoranda and all other agreements or documents printed (or reproduced) and delivered in connection with the offering of the Shares; (v) the listing of the Shares on the New York Stock Exchange; (vi) the registration or qualification of the Shares for offer and sale under the securities or Blue Sky laws of the several states as provided in Section 5(g) hereof (including the reasonable fees, expenses and disbursements of counsel for the Underwriters relating to the preparation, printing or reproduction, and delivery of the preliminary and supplemental Blue Sky Memoranda and such registration and qualification); (vii) the filing fees and the fees and expenses of counsel for the Underwriters in connection with any filings required to be made with the National Association of Securities Dealers, Inc.; (viii) the transportation and other expenses incurred by or on behalf of Company representatives in connection with presentations to prospective purchasers of -26- 27 the Shares; and (ix) the fees and expenses of the Company's accountants and the fees and expenses of counsel (including local and special counsel) for the Company and the Selling Shareholders. 12. Effective Date of Agreement. This Agreement shall become effective: (i) upon the execution and delivery hereof by the parties hereto; or (ii) if, at the time this Agreement is executed and delivered, it is necessary for the registration statement or a post-effective amendment thereto to be declared effective before the offering of the Shares may commence, when notification of the effectiveness of the registration statement or such post-effective amendment has been released by the Commission. Until such time as this Agreement shall have become effective, it may be terminated by the Company, by notifying you, or by you, as Representatives of the several Underwriters, by notifying the Company and the Selling Shareholders. If any one or more of the Underwriters shall fail or refuse to purchase Shares which it or they are obligated to purchase hereunder on the Closing Date, and the aggregate number of Shares which such defaulting Underwriter or Underwriters are obligated but fail or refuse to purchase is not more than one-tenth of the aggregate number of Shares which the Underwriters are obligated to purchase on the Closing Date, each non-defaulting Underwriter shall be obligated, severally, in the proportion which the number of Firm Shares set forth opposite its name in Schedule II hereto bears to the aggregate number of Firm Shares set forth opposite the names of all non-defaulting Underwriters or in such other proportion as you may specify in accordance with Section 20 of the Master Agreement Among Underwriters of Smith Barney Inc., to purchase the Shares which such defaulting Underwriter or Underwriters are obligated, but fail or refuse, to purchase. If any one or more of the Underwriters shall fail or refuse to purchase Shares which it or they are obligated to purchase on the Closing Date and the aggregate number of Shares with respect to which such default occurs is more than one-tenth of the aggregate number of Shares which the Underwriters are obligated to purchase on the Closing Date and arrangements satisfactory to you and the Company for the purchase of such Shares by one or more non-defaulting Underwriters or other party or parties approved by you and the Company are not made within 36 hours after such default, this Agreement will terminate without liability on the part of any non-defaulting Underwriter or the Company. In any such case which does not result in termination of this Agreement, either you or the Company shall have the right to postpone the Closing Date, but in no event for longer than seven days, in order that the required changes, if any, in the Registration Statement and the Prospectus or any other documents or arrangements may be effected. Any action taken under this paragraph shall not relieve any defaulting Underwriter from liability in respect of any such default of any such Underwriter under this Agreement. The term "Underwriter" as used in this Agreement includes, for all purposes of this Agreement, any party not listed in Schedule II hereto who, with your approval and the approval of the Company, purchases Shares which a defaulting Underwriter is obligated, but fails or refuses, to purchase. Any notice under this Section 12 may be given by telegram, telecopy or telephone but shall be subsequently confirmed by letter. 13. Termination of Agreement. This Agreement shall be subject to termination in your absolute discretion, without liability on the part of any Underwriter to the Company or any Selling Shareholder, by notice to the Company, if prior to the Closing Date or any Option Closing Date (if -27- 28 different from the Closing Date and then only as to the Additional Shares), as the case may be, (i) trading in securities generally on the New York Stock Exchange, the American Stock Exchange or the Nasdaq National Market shall have been suspended or materially limited, (ii) a general moratorium on commercial banking activities in New York or Florida shall have been declared by either federal or state authorities, or (iii) there shall have occurred any outbreak or escalation of hostilities or other international or domestic calamity, crisis or change in political, financial or economic conditions, the effect of which on the financial markets of the United States is such as to make it, in your judgment, impracticable or inadvisable to commence or continue the offering of the Shares at the offering price to the public set forth on the cover page of the Prospectus or to enforce contracts for the resale of the Shares by the Underwriters. Notice of such termination may be given to the Company by telegram, telecopy or telephone and shall be subsequently confirmed by letter. 14. Information Furnished by the Underwriters. The statements set forth in the last paragraph on the cover page, the stabilization legend on the inside cover page, and the statements in the first and third paragraphs under the caption "Underwriting" in any Prepricing Prospectus and in the Prospectus, constitute the only information furnished by or on behalf of the Underwriters through you as such information is referred to in Sections 7(b) and 9 hereof. The first paragraph under the caption "Underwriting will contain the names and participations of the underwriters; the third paragraph will contain the selling concession and the reallowance. 15. Miscellaneous. Except as otherwise provided in Sections 5, 12 and 13 hereof, notice given pursuant to any provision of this Agreement shall be in writing and shall be delivered (i) if to the Company, at the office of the Company at 20 North Orange Avenue, Suite 200, Orlando, Florida 32801, Attention: David H. Hughes, Chairman of the Board and Chief Executive Officer; or (ii) if to the Selling Shareholders, c/o J. Stephen Zeph and Robert N. Blackford, Attorneys-in-Fact, c/o Maguire, Voorhis & Wells, P.A., 2 South Orange Avenue, Orlando, Florida 32801, or (iii) if to you, as Representatives of the several Underwriters, care of Smith Barney Inc., 388 Greenwich Street, New York, New York 10013, Attention: Manager, Investment Banking Division. This Agreement has been and is made solely for the benefit of the several Underwriters, the Company, its directors and officers, and the other controlling persons referred to in Section 9 hereof and their respective successors and assigns, to the extent provided herein, and no other person shall acquire or have any right under or by virtue of this Agreement. Neither the term "successor" nor the term "successors and assigns" as used in this Agreement shall include a purchaser from any Underwriter of any of the Shares in his status as such purchaser. 16. Applicable Law; Counterparts. This Agreement shall be governed by and construed in accordance with the laws of the State of New York applicable to contracts made and to be performed within the State of New York. This Agreement may be signed in various counterparts which together constitute one and the same instrument. If signed in counterparts, this Agreement shall not become effective unless at least one counterpart hereof shall have been executed and delivered on behalf of each party hereto. -28- 29 Please confirm that the foregoing correctly sets forth the agreement among the Company, the Selling Shareholders and the several Underwriters. Very truly yours, HUGHES SUPPLY, INC. By: -------------------------------- David H. Hughes Chairman of the Board and Chief Executive Officer Each of the Selling Shareholders named in Schedule I hereto By: -------------------------------- Attorney-in-Fact By: -------------------------------- Attorney-in-Fact Confirmed as of the date first above mentioned on behalf of themselves and the other several Underwriters named in Schedule II hereto. SMITH BARNEY INC. ROBERT W. BAIRD & CO. INCORPORATED As Representatives of the Several Underwriters By SMITH BARNEY INC. By: ------------------------------ Managing Director -29- 30 SCHEDULE I HUGHES SUPPLY, INC.
Part A - Firm Shares Number of Selling Shareholders Firm Shares -------------------- ----------- The Employees' Retirement Plan of Consolidated Electrical Distributors, Inc. . . . . . . . . . . . . . . . 214,926 Edmundson International, Inc. . . . . . . . . . . . . . . . . . . . . . . . 350,000 John V. Moore . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20,000 Russell V. Hughes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20,000 Donald C. Martin . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30,000 John E. Petterson . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25,000 John F. Caswell, Jr. . . . . . . . . . . . . . . . . . . . . . . . . . . . 20,000 ------- Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 679,926 ------- Part B - Additional Shares Number of Selling Shareholders Additional Shares -------------------- ----------------- Edmundson International, Inc. . . . . . . . . . . . . . . . . . . . . . . 52,500 ------- Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52,500 -------
31 SCHEDULE II HUGHES SUPPLY, INC.
Name of Name of Underwriter Firm Shares Underwriter Firm Shares ----------- ----------- ----------- ----------- Smith Barney Inc. . . . . . . . . . . . . . Robert W. Baird & Co. Incorporated . . . . . . . . . . . .
EX-5 3 CONSENT OF MAGUIRE, VOORHIS & WELLS 1 EXHIBIT 5 April 22, 1996 Hughes Supply, Inc. 20 North Orange Avenue Suite 200 Orlando, Florida 32801 RE: Registration Statement on Form S-3; 2,219,415 Shares of Common Stock Gentlemen: We are legal counsel to Hughes Supply, Inc., a Florida corporation (the "Company"), and have acted as such in the preparation and filing of its Registration Statement on Form S-3 (Registration No. 333-02215) dated April 3, 1996, as amended by Amendment No. 1 to the Registration Statement on Form S-3 dated April 22, 1996 (the "Registration Statement"), with the Securities and Exchange Commission (the "SEC") pursuant to the requirements of the Securities Act of 1933, as amended, and the General Rules and Regulations of the SEC promulgated thereunder for the registration of 2,219,415 shares of Common Stock, par value $1.00 per share (the "Common Stock"), of the Company, of which up to 1,486,989 shares of Common Stock will be sold by the Company and up to 732,426 shares of Common Stock will be sold by certain selling shareholders (the "Selling Shareholders"). In connection with the following opinion, we have examined copies of the Company's Articles of Incorporation, including all amendments to the date hereof, and all other corporate records and documents deemed necessary to render this opinion. Based upon the foregoing, it is our opinion that: (1) The shares of Common Stock being offered for the account of the Selling Shareholders were, when issued by the Company, duly authorized, legally and validly issued, fully paid and nonassessable; and (2) The shares of Stock being offered by the Company, when and if issued and sold in the manner set forth in the Registration Statement, will be legally and validly issued, fully paid and nonassessable. We hereby consent (1) to be named in the Registration Statement and in the Prospectus, which constitutes a part thereof, as the attorneys who will pass on the legal matters in connection with the sale of Common Stock by the Company and certain of the Selling Shareholders, and (2) to the filing of this opinion as Exhibit 5 to the Registration Statement. MAGUIRE, VOORHIS & WELLS, P.A. By: /s/ ROBERT N. BLACKFORD ------------------------------------ Robert N. Blackford EX-23.2 4 CONSENT OF COOPERS & LYBRAND 1 CONSENT OF INDEPENDENT ACCOUNTANTS We consent to the inclusion and incorporation by reference in this registration statement on Form S-3 of Coopers & Lybrand's report, dated March 17, 1994, on Coopers & Lybrand's audit of the consolidated statements of income, shareholders' equity, and cash flows of Hughes Supply, Inc. and subsidiaries, for the fiscal year ended January 28, 1994 which report is included in this Prospectus and incorporated by reference in the Company's Annual Report on Form 10-K for the fiscal year ended January 26, 1996. We also consent to the reference to Coopers & Lybrand under the caption "Experts." COOPERS & LYBRAND L.L.P. Orlando, Florida April 19, 1996 EX-23.3 5 CONSENT OF DELOITTE & TOUCHE 1 INDEPENDENT AUDITORS' CONSENT We consent to the use in this Registration Statement of Hughes Supply, Inc. on Form S-3 of our report dated September 25, 1995 (October 25, 1995 and March 27, 1996 as to Note 9) on the consolidated financial statements of PVF Holdings, Inc. and subsidiaries, appearing in the Prospectus, which is part of this Registration Statement. We also consent to the reference to us under the heading "Experts" in such Prospectus. Deloitte & Touche, LLP Birmingham, Alabama April 22, 1996 EX-23.4 6 CONSENT OF PRICE WATERHOUSE 1 CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS We hereby consent to the inclusion and incorporation by reference in the Prospectus constituting part of the Registration Statement on Form S-3 of our report dated March 14, 1996 relating to the consolidated financial statements of Hughes Supply, Inc., which appears in such Prospectus. We also consent to the references to us under the heading "Experts" in such Prospectus. Price Waterhouse LLP Orlando, Florida April 19, 1996 -----END PRIVACY-ENHANCED MESSAGE-----