10-Q

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q

(Mark One)
þ	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended July 31, 2005
OR
o	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from          to

Commission File Number 001-08772

HUGHES SUPPLY, INC.

(Exact name of registrant as specified in its charter)

Florida	59-0559446
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)

Corporate Office

One Hughes Way

Orlando, Florida 32805

(Address of principal executive offices)

(407) 841-4755

(Registrant’s telephone number, including area code)

     Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.     Yes þ          No o

      Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act).     Yes þ          No o

      Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).     Yes o          No þ

      Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

Common Stock	Outstanding as of September 6, 2005
$1 Par Value	66,716,351

HUGHES SUPPLY, INC.

FORM 10-Q

INDEX

		Page(s)
PART I. FINANCIAL INFORMATION
Item 1.	Financial Statements
	Consolidated Statements of Income (unaudited) for the Three and Six Months Ended July 31, 2005 and July 30, 2004		3
	Consolidated Balance Sheets as of July 31, 2005 (unaudited) and January 31, 2005		4
	Consolidated Statements of Cash Flows (unaudited) for the Six Months Ended July 31, 2005 and July 30, 2004		5
	Notes to Consolidated Financial Statements (unaudited)		6-17
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		18-33
Item 3.	Quantitative and Qualitative Disclosures about Market Risk		34
Item 4.	Controls and Procedures		35
PART II. OTHER INFORMATION
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds		36
Item 4.	Submission of Matters to a Vote of Security Holders		37
Item 6.	Exhibits		37
SIGNATURES			38

2

PART I. FINANCIAL INFORMATION

Item 1.     Financial Statements

HUGHES SUPPLY, INC.

Consolidated Statements of Income (unaudited)

(in millions, except per share data)

			Three Months Ended						Six Months Ended
			July 31,			July 30,			July 31,			July 30,
			2005			2004			2005			2004
Net Sales			$	1,333.0		$	1,143.1		$	2,572.7		$	2,135.9
Cost of Sales				1,042.2			872.5			2,005.6			1,623.7
Gross Margin				290.8			270.6			567.1			512.2
Operating Expenses:
	Selling, general and administrative			211.5			193.4			417.5			378.4
	Depreciation and amortization			8.3			6.7			16.1			12.7
		Total operating expenses		219.8			200.1			433.6			391.1
Operating Income				71.0			70.5			133.5			121.1
Non-Operating (Expense) Income:
	Interest expense			(8.8	)		(7.5	)		(17.8	)		(13.8	)
	Interest and other income			2.1			1.6			4.3			3.3
				(6.7	)		(5.9	)		(13.5	)		(10.5	)
Income Before Income Taxes				64.3			64.6			120.0			110.6
Income Taxes				25.1			25.2			46.8			41.4
Net Income			$	39.2		$	39.4		$	73.2		$	69.2
Earnings Per Share:
	Basic		$	0.61		$	0.66		$	1.13		$	1.15
	Diluted		$	0.59		$	0.63		$	1.10		$	1.12
Weighted-Average Shares Outstanding:
	Basic			64.6			60.0			64.6			60.0
	Diluted			66.6			62.0			66.6			61.9
Dividends Declared Per Share			$	0.090		$	0.065		$	0.180		$	0.130

The accompanying notes are an integral part of these consolidated financial statements.

3

HUGHES SUPPLY, INC.

Consolidated Balance Sheets

(in millions, except share and per share data)

				July 31,
				2005			January 31,
				(unaudited)			2005
Assets
Current Assets:
	Cash and cash equivalents			$	218.3		$	213.2
	Accounts receivable, less allowance for doubtful accounts of $11.8 and $10.3				733.8			625.3
	Inventories				675.6			633.9
	Deferred income taxes				26.6			25.1
	Other current assets				70.1			89.0
		Total current assets			1,724.4			1,586.5
Property and equipment, net					107.8			92.8
Goodwill					728.6			718.6
Other assets					142.2			132.4
			Total assets	$	2,703.0		$	2,530.3
Liabilities and Shareholders’ Equity
Current Liabilities:
	Current portion of long-term debt			$	48.2		$	45.2
	Accounts payable				589.3			503.9
	Accrued compensation and benefits				44.1			58.7
	Other current liabilities				69.2			63.4
		Total current liabilities			750.8			671.2
Long-term debt					489.2			500.5
Deferred income taxes					105.9			72.3
Other noncurrent liabilities					36.6			32.4
		Total liabilities			1,382.5			1,276.4
Shareholders’ Equity:
	Preferred stock, no par value; 10,000,000 shares authorized; none issued				—			—
	Common stock, par value $1 per share; 200,000,000 shares authorized; 66,685,034 and 66,214,127 shares issued				66.7			66.2
	Capital in excess of par value				639.2			629.4
	Retained earnings				634.5			573.3
	Accumulated other comprehensive income, net of tax				1.9			2.0
	Unearned compensation related to outstanding restricted stock				(21.8	)		(17.0	)
		Total shareholders’ equity			1,320.5			1,253.9
			Total liabilities and shareholders’ equity	$	2,703.0		$	2,530.3

The accompanying notes are an integral part of these consolidated financial statements.

4

HUGHES SUPPLY, INC.

Consolidated Statements of Cash Flows (unaudited)

(in millions)

				Six Months Ended
				July 31,			July 30,
				2005			2004
Cash Flows from Operating Activities:
	Net income			$	73.2		$	69.2
	Adjustments to reconcile net income to net cash provided by (used in) operating activities:
		Depreciation and amortization			16.1			12.7
		Provision for doubtful accounts			3.9			5.5
		Restricted stock expense			3.7			2.2
		Deferred income taxes			31.9			5.9
		Other			(4.1	)		2.3
	Changes in assets and liabilities, net of businesses acquired:
		Accounts receivable			(109.2	)		(124.9	)
		Inventories			(40.2	)		(70.3	)
		Other current assets			19.0			(3.6	)
		Other assets			(14.6	)		(3.6	)
		Accounts payable			93.4			91.2
		Accrued compensation and benefits			(14.7	)		(6.3	)
		Other current liabilities			3.8			21.4
		Other noncurrent liabilities			7.6			(2.8	)
			Net cash provided by (used in) operating activities		69.8			(1.1	)
Cash Flows from Investing Activities:
	Capital expenditures				(31.5	)		(11.3	)
	Proceeds from sale of property and equipment				5.7			38.5
	Business acquisitions, net of cash acquired				(12.3	)		(98.2	)
	Net investment in corporate owned life insurance				—			(11.4	)
			Net cash used in investing activities		(38.1	)		(82.4	)
Cash Flows from Financing Activities:
	Net borrowings under short-term debt arrangements				—			113.4
	Principal payments on other debt				(9.6	)		(10.6	)
	Change in book overdrafts				(9.6	)		(6.0	)
	Dividends paid				(10.3	)		(7.0	)
	Other				2.9			3.6
			Net cash (used in) provided by financing activities		(26.6	)		93.4
Net Increase in Cash and Cash Equivalents					5.1			9.9
Cash and Cash Equivalents, Beginning of Period					213.2			8.3
Cash and Cash Equivalents, End of Period				$	218.3		$	18.2

The accompanying notes are an integral part of these consolidated financial statements.

5

HUGHES SUPPLY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

Note 1. Basis of Presentation

      In our opinion, the accompanying unaudited consolidated financial statements contain all adjustments (consisting only of normal recurring adjustments) necessary to present fairly our results of operations for the three and six months ended July 31, 2005 and July 30, 2004, our financial position as of July 31, 2005, and cash flows for the six months ended July 31, 2005 and July 30, 2004. The results of operations for the three and six months ended July 31, 2005 are not necessarily indicative of the trends or results that may be expected for the full year. Certain information and disclosures normally included in the notes to the annual consolidated financial statements have been omitted from these interim consolidated financial statements. Accordingly, these interim consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in our Annual Report on Form 10-K (the “Annual Report”) for the fiscal year ended January 31, 2005, as filed with the Securities and Exchange Commission (“SEC”).

      On August 24, 2004, our Board of Directors approved a two-for-one stock split in the form of a stock dividend that was paid on September 22, 2004 to shareholders of record as of the close of business on September 15, 2004. All share and per share amounts set forth in this report have been adjusted for the two-for-one stock split.

Business

      Founded in 1928, we are one of the nation’s largest diversified wholesale distributors of construction, repair and maintenance-related products with over 500 branches located in 40 states, as well as one branch located in Canada. Our customers include water and sewer, plumbing, electrical, and mechanical contractors; public utilities; municipalities; property management companies; and industrial companies. Although we have a national presence, we operate principally in the southeastern and southwestern United States. Our fiscal year is a 52-week period ending on January 31, with our quarters ending on the last calendar day of each quarter. Prior to fiscal year 2005, our fiscal years were 52- or 53-week periods ending on the last Friday in January. During fiscal year 2005 and prior, our quarters were 13- or 14-week periods ending on the last Friday of the quarter.

Reclassifications

      Certain prior year amounts in the consolidated financial statements and the notes thereto have been reclassified to conform to current year presentation. These reclassifications had no net income impact on previously reported consolidated results of operations.

Stock-Based Compensation

      We account for our stock option plans using the intrinsic value based method of accounting, under which no compensation expense has been recognized for stock option awards granted at fair market value. For purposes of pro forma disclosures under Statement of Financial Accounting Standards (“SFAS”) No. 123, Accounting for Stock-Based Compensation, as amended by SFAS No. 148, Accounting for Stock-Based Compensation — Transition and Disclosure, the estimated fair value of the stock options is amortized to compensation expense over the options’ vesting periods with the impact of forfeitures recognized as they occur.

6

      The following table illustrates the effect on net income and earnings per share if the fair value based method had been applied to all outstanding and unvested awards in each period (in millions, except per share data):

		Three Months Ended						Six Months Ended
		July 31,			July 30,			July 31,			July 30,
		2005			2004			2005			2004
Net income as reported		$	39.2		$	39.4		$	73.2		$	69.2
Add: Stock-based compensation expense included in reported net income, net of related tax effects			1.3			0.8			2.3			1.3
Deduct: Total stock-based compensation expense determined under the fair value based method for all awards, net of related tax effects			(2.1	)		(1.7	)		(3.9	)		(3.3	)
Pro forma net income		$	38.4		$	38.5		$	71.6		$	67.2
Earnings per share:
	Basic — as reported	$	0.61		$	0.66		$	1.13		$	1.15
	Basic — pro forma	$	0.59		$	0.64		$	1.11		$	1.12
	Diluted — as reported	$	0.59		$	0.63		$	1.10		$	1.12
	Diluted — pro forma	$	0.58		$	0.62		$	1.08		$	1.09

      The fair value of each stock option is estimated on the date of grant using the Black-Scholes option-pricing model with the following weighted average assumptions for grants issued in the periods presented:

	Stock Options Granted During the
	Three Months Ended					Six Months Ended
	July 31,			July 30,		July 31,			July 30,
Assumptions	2005			2004(1)		2005			2004
Risk-free interest rate		3.7	%		—		4.0	%		3.0	%
Average expected life of stock options (in years)		4.8			—		4.8			5.0
Expected volatility of common stock		34.0	%		—		34.0	%		43.2	%
Expected annual dividend yield on common stock		1.2	%		—		1.2	%		1.0	%
Weighted average fair value of stock options granted	$	8.85		$	—	$	9.81		$	9.65

⁽¹⁾  There were no stock options granted during the three months ended July 30, 2004.

Recent Accounting Pronouncements

      In December 2004, the Financial Accounting Standards Board (“FASB”) issued SFAS No. 123R, Share-Based Payment (“SFAS 123R”), which supersedes Accounting Principles Board (APB) Opinion No. 25, Accounting for Stock Issued to Employees, and its related implementation guidance. This statement requires that the compensation cost related to share-based payment transactions be recognized in the financial statements based on the estimated fair value of the equity-based compensation awards issued as of the grant date. The related compensation expense will be based on the estimated number of awards expected to vest and will be recognized over the period during which an employee is required to provide services in exchange for the award. The statement requires the use of assumptions and judgments about future events, and some of the inputs to the valuation models will require considerable judgment by management. We will be required to adopt the provisions of SFAS 123R on February 1, 2006. We are currently evaluating the impact that the ultimate adoption of SFAS 123R will have on our financial position and results of operations. The Stock-Based Compensation section provided above contains the pro forma impact on net income and earnings per share if the fair value based method under SFAS 123 had been applied to all outstanding and unvested awards during the first half of fiscal years 2006 and 2005.

7

      In June 2005, the FASB issued SFAS No. 154, Accounting Changes and Error Corrections (“SFAS 154”) a replacement of APB Opinion No. 20, Accounting Changes, and SFAS No. 3, Reporting Accounting Changes in Interim Financial Statements. SFAS 154 will require companies to account for and apply changes in accounting principles retrospectively to prior periods’ financial statements, instead of recording a cumulative effect adjustment within the period of the change, unless it is impracticable to determine the effects of the change to each period being presented. SFAS 154 is effective for accounting changes made in annual periods beginning after December 15, 2005. We will adopt the new accounting provisions effective February 1, 2006. We do not expect the adoption of SFAS 154 to have a material effect on our financial position, results of operations or cash flows.

Note 2. Segment Information

      We manage our business on a product line basis and report the results of our operations in seven operating segments and an Other category. The operating segments are Water & Sewer; Plumbing/ Heating, Ventilating and Air Conditioning (“HVAC”); Utilities; Maintenance, Repair and Operations (“MRO”); Electrical; Industrial Pipe, Valves and Fittings (“PVF”); and Building Materials. We include our Fire Protection and Mechanical product lines in the Other category.

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

      The following tables present net sales and other financial information by segment for the three and six months ended July 31, 2005 and July 30, 2004, respectively (in millions):

									Depreciation and
	Net Sales				Operating Income				Amortization
	Three Months Ended				Three Months Ended				Three Months Ended
	July 31,		July 30,		July 31,		July 30,		July 31,		July 30,
	2005		2004		2005		2004		2005		2004
Water & Sewer	$	349.6	$	323.2	$	17.2	$	18.5	$	0.8	$	1.0
Plumbing/ HVAC		286.9		270.3		4.6		8.2		1.3		1.4
Utilities		210.9		108.7		8.6		4.5		1.2		0.3
MRO		128.8		126.4		11.1		13.1		1.0		1.1
Electrical		119.2		117.8		3.5		2.7		0.2		0.2
Industrial PVF		112.5		85.6		16.2		12.4		0.2		0.2
Building Materials		74.2		65.8		5.4		6.4		0.2		0.2
Other		50.9		45.3		2.3		4.4		0.1		0.1
Corporate(1)		—		—		2.1		0.3		3.3		2.2
Total	$	1,333.0	$	1,143.1	$	71.0	$	70.5	$	8.3	$	6.7

8

									Depreciation and
	Net Sales				Operating Income				Amortization
	Six Months Ended				Six Months Ended				Six Months Ended
	July 31,		July 30,		July 31,		July 30,		July 31,		July 30,
	2005		2004		2005		2004		2005		2004
Water & Sewer	$	669.9	$	594.8	$	31.2	$	29.0	$	1.7	$	1.7
Plumbing/ HVAC		561.2		480.9		10.2		12.8		2.6		2.1
Utilities		405.2		208.8		15.4		7.3		2.5		0.6
MRO		229.2		233.3		18.6		20.8		2.0		2.3
Electrical		234.7		230.4		6.9		6.5		0.3		0.4
Industrial PVF		230.2		168.3		34.1		23.8		0.3		0.4
Building Materials		142.8		124.9		10.4		11.4		0.4		0.4
Other		99.5		94.5		3.7		9.2		0.2		0.2
Corporate(1)		—		—		3.0		0.3		6.1		4.6
Total	$	2,572.7	$	2,135.9	$	133.5	$	121.1	$	16.1	$	12.7

⁽¹⁾  The $2.1 million and $3.0 million of operating income in the Corporate category in the second quarter and first six months of fiscal year 2006, respectively, primarily related to gains from the sale of surplus properties (Note 9) partially offset in the second quarter of fiscal year 2006 by an environmental liability associated with the anticipated remediation of chlorinated hydrocarbons discovered at one of our branches (Note 8). We recognized net gains from the sale of surplus properties totaling $0.6 million and $2.3 million in the second quarter and first six months of fiscal year 2005, respectively, with the $2.3 million partly offset by a $1.3 million loss associated with a sale-leaseback transaction completed on April 30, 2004 for a portfolio of properties associated with 18 different branches. Prior to the second quarter of fiscal year 2005, all surplus property activity was allocated to our operating segments and the Other category.

9

      The following tables include our investment in assets (accounts receivable less allowance for doubtful accounts, inventories and goodwill) and accounts payable for each segment as of July 31, 2005 and January 31, 2005 (in millions):

	As of July 31, 2005
	Accounts						Segment		Accounts
	Receivable		Inventories		Goodwill		Assets		Payable
Water & Sewer	$	231.3	$	130.6	$	112.2	$	474.1	$	150.9
Plumbing/ HVAC		154.6		148.9		91.6		395.1		150.8
Utilities		79.7		101.8		126.0		307.5		74.0
MRO		67.9		62.8		273.0		403.7		56.3
Electrical		71.9		36.6		9.0		117.5		54.2
Industrial PVF		59.1		152.8		56.4		268.3		46.9
Building Materials		36.5		22.6		30.0		89.1		23.8
Other		32.8		19.5		30.4		82.7		20.8
Corporate		—		—		—		—		11.6
Total	$	733.8	$	675.6	$	728.6		2,138.0	$	589.3
Cash and cash equivalents								218.3
Deferred income taxes								26.6
Other current assets								70.1
Property and equipment, net								107.8
Other assets								142.2
Total Assets							$	2,703.0

	As of January 31, 2005
	Accounts						Segment		Accounts
	Receivable		Inventories		Goodwill		Assets		Payable
Water & Sewer	$	193.8	$	137.6	$	112.2	$	443.6	$	137.4
Plumbing/ HVAC		140.5		156.6		87.1		384.2		126.2
Utilities		62.0		84.8		123.4		270.2		53.9
MRO		50.8		49.0		273.0		372.8		40.8
Electrical		64.7		28.6		9.0		102.3		43.2
Industrial PVF		50.5		136.3		56.4		243.2		43.6
Building Materials		31.1		22.8		27.1		81.0		22.5
Other		31.9		18.2		30.4		80.5		15.6
Corporate		—		—		—		—		20.7
Total	$	625.3	$	633.9	$	718.6		1,977.8	$	503.9
Cash and cash equivalents								213.2
Deferred income taxes								25.1
Other current assets								89.0
Property and equipment, net								92.8
Other assets								132.4
Total Assets							$	2,530.3

10

Note 3. Goodwill and Intangible Assets

      On May 1, 2005, we completed the acquisition of National Construction Products, Inc. (“National”), a small privately owned distributor of construction materials serving the Atlanta, Georgia area. The acquisition of National enables us to become a leader in the tilt wall construction market throughout the metro Atlanta area. The results of National’s operations have been included in our consolidated statements of income since May 1, 2005.

      On June 30, 2005, we acquired Ram Pipe and Supply, Inc. (“Ram Pipe”), a distributor of plumbing and water and sewer products serving the Yuma, Arizona area. The acquisition of Ram Pipe allows us to expand our leadership position in the plumbing and waterworks market in an attractive geographic market. The results of Ram Pipe’s operations have been included in our consolidated statements of income since June 30, 2005.

      The combined purchase price associated with the acquisitions of National and Ram Pipe consisted of $12.3 million of net cash paid for National and Ram Pipe’s net assets along with the assumption of accounts payable, accrued and other liabilities, which collectively totaled $1.9 million, subject to finalization of working capital adjustments in accordance with the respective purchase agreements. The total cost of the acquisitions was allocated to the assets acquired and liabilities assumed based on their respective preliminary fair values in accordance with SFAS No. 141, Business Combinations. Goodwill, all of which is deductible for tax purposes, and other intangible assets recorded in connection with the transactions totaled $7.0 million and $2.2 million, respectively. The goodwill and intangible assets associated with the National and Ram Pipe acquisitions were assigned entirely to our Building Materials and Plumbing/ HVAC segments, respectively. The intangible assets are subject to amortization and consist primarily of shareholder relationships, corporate customer relationships, employment agreements, and non-compete agreements that are amortized on a straight-line basis over a weighted-average useful life of approximately 9.7 years. The purchase price allocations for these acquisitions have not been finalized because the post closing settlements have not been completed and our initial determinations of fair values assigned to intangible assets other than goodwill is ongoing. The purchase price allocations are therefore subject to change based upon continuing review. Pro forma results of operations reflecting these acquisitions have not been presented because the results of operations of National and Ram Pipe are not material to our consolidated results of operations on either an individual or aggregate basis.

      During the second quarter of fiscal year 2006, we finalized working capital adjustments associated with our acquisitions of Todd Pipe and Supply (“Todd Pipe”) and Southwest Power, Inc. and Western States Electric, Inc. and their subsidiary entities (collectively referred to as “SWP/ WSE”). Todd Pipe was acquired on May 28, 2004 and is included in our Plumbing/ HVAC segment. SWP/ WSE was acquired on November 1, 2004 and is included in our Utilities segment.

      A summary of the changes in the carrying amount of goodwill by reportable segment during the six months ended July 31, 2005 is as follows (in millions):

	Water &		Plumbing/								Industrial		Building
	Sewer		HVAC		Utilities		MRO		Electrical		PVF		Materials		Other		Total
Balance at January 31, 2005	$	112.2	$	87.1	$	123.4	$	273.0	$	9.0	$	56.4	$	27.1	$	30.4	$	718.6
Goodwill acquired		—		4.1		—		—		—		—		2.9		—		7.0
Finalization of purchase accounting		—		0.4		2.6		—		—		—		—		—		3.0
Balance at July 31, 2005	$	112.2	$	91.6	$	126.0	$	273.0	$	9.0	$	56.4	$	30.0	$	30.4	$	728.6

11

      As of July 31, 2005 and January 31, 2005, our intangible assets were classified as follows (in millions):

			As of July 31, 2005							As of January 31, 2005
			Gross							Gross
			Carrying		Accumulated					Carrying		Accumulated
			Value		Amortization			Net		Value		Amortization			Net
Amortized intangible assets
	Acquired customer contracts		$	56.8	$	(6.9	)	$	49.9	$	56.8	$	(4.7	)	$	52.1
	Corporate customer relationships			15.5		(1.6	)		13.9		15.2		(0.8	)		14.4
	Non-compete/employment agreements			8.5		(3.4	)		5.1		8.3		(2.0	)		6.3
	Shareholder relationships			5.9		(0.5	)		5.4		4.2		(0.3	)		3.9
		Total amortized		86.7		(12.4	)		74.3		84.5		(7.8	)		76.7
Unamortized intangible assets
	Private label tradenames			5.9		—			5.9		5.9		—			5.9
		Total intangible assets	$	92.6	$	(12.4	)	$	80.2	$	90.4	$	(7.8	)	$	82.6

      Amortization expense for amortized intangible assets was $2.3 million and $4.6 million for the three months and six months ended July 31, 2005, respectively. Estimated aggregate future amortization expense for acquisition-related intangible assets for the six months ending January 31, 2006 and future fiscal years is as follows (in millions):

	Six
	Months
	Ending		Fiscal Years ending January 31,
	January 31,
	2006		2007		2008		2009		2010		Total
Amortization expense	$	4.8	$	8.6	$	7.2	$	6.7	$	6.3	$	33.6

Note 4. Branch Closures and Consolidation Activities

      As more fully disclosed in Note 6 to the consolidated financial statements in our fiscal year 2005 Annual Report, we approved plans to close and consolidate certain branches that did not strategically fit into our core businesses and/or did not perform to our expectations. The liability balance, included in other current liabilities, related to these activities as of July 31, 2005 and January 31, 2005 was as follows (in millions):

			July 31,			January 31,
			2005			2005
Beginning balance			$	2.9		$	4.1
	Provision			0.3			1.7
	Cash Expenditures:
		Lease payments		(1.1	)		(2.9	)
		Other		(0.4	)		—
Ending balance			$	1.7		$	2.9

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Note 5. Long-Term Debt

      Long-term debt as of July 31, 2005 and January 31, 2005 consisted of the following (in millions):

	July 31,			January 31,
	2005			2005
8.27% senior notes, due 2005	$	5.6		$	5.6
8.42% senior notes, due 2007		61.8			61.8
7.96% senior notes, due 2011		56.0			60.7
7.14% senior notes, due 2012		26.7			28.6
7.19% senior notes, due 2012		40.0			40.0
6.74% senior notes, due 2013		38.1			40.5
5.50% senior notes, due 2014		300.0			300.0
Fair value hedge carrying value adjustment		1.7			1.4
Other notes payable with varying interest rates of 2.1% to 6.9% at July 31, 2005, with due dates from 2005 to 2014		9.0			8.7
Total debt		538.9			547.3
Less discount on debt issuance		(1.5	)		(1.6	)
Total debt less discount		537.4			545.7
Less current portion		(48.2	)		(45.2	)
Total long-term debt	$	489.2		$	500.5

      As of July 31, 2005, we were in compliance with all financial and non-financial covenants.

      On October 12, 2004, we issued $300.0 million in original principal amount of 5.5% senior notes (the “notes”) due on October 15, 2014 in a private placement pursuant to Rule 144A under the Securities Act. The notes were issued at 99.468% of their par value and are reflected in our consolidated balance sheet net of a $1.5 million and $1.6 million discount as of July 31, 2005 and January 31, 2005, respectively. On May 10, 2005, we filed an exchange offer registration statement with the SEC on Form S-4 to exchange the notes for a new issue of substantially identical notes registered under the Securities Act. On July 21, 2005 the SEC declared our registration effective, and on July 22, 2005 we announced the commencement of the exchange offer. Subsequently, on August 22, 2005, all of the original notes were tendered for the registered new notes, which are guaranteed by substantially all of our subsidiaries. Separate financial statements of the subsidiary guarantors are not provided because our parent company (issuer of the notes) has no independent assets or operations and the subsidiary guarantees are full and unconditional and joint and several. There are no significant restrictions on our parent company or subsidiaries’ ability to obtain funds from our subsidiaries by dividend or loan. Additionally, any of our subsidiaries not guaranteeing the note issuance are minor (i.e., represent less than 3% of total consolidated assets, shareholders’ equity, net sales, income before income taxes and cash flows from operating activities).

      On November 10, 2004 and November 30, 2004, we entered into separate interest rate swap contracts with two distinct financial institutions that each effectively converted $50.0 million (i.e., an aggregate of $100.0 million) of our $300.0 million in original principal amount of 5.50% notes, due October 15, 2014, to floating rate debt based on the six-month LIBOR rate plus 0.6985% and 0.79%, respectively, with semi-annual settlements through October 15, 2014. The interest rate swap contracts were designated as fair value hedges of the changes in fair value of the respective $50.0 million of 5.50% notes due to changes in the benchmark interest rate (i.e., six-month LIBOR rate). We settled the interest rate swap contracts during the second quarter of fiscal year 2006, receiving approximately $1.8 million in cash. The corresponding fair value hedge carrying value adjustment of $1.8 million recognized as a component of debt is being amortized as a favorable adjustment to interest expense over the same period in which the related interest costs on the $300.0 million notes are recognized in earnings. Approximately $0.2 million of

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the fair value hedge carrying value adjustment will be recognized as an adjustment to interest expense during the next twelve months.

Note 6. Comprehensive Income

      Total comprehensive income, net of tax, was as follows (in millions):

		Three Months Ended					Six Months Ended
		July 31,			July 30,		July 31,			July 30,
		2005			2004		2005			2004
Net income		$	39.2		$	39.4	$	73.2		$	69.2
Other comprehensive income:
	Net change in cash flow hedge — treasury lock		(0.1	)		—		(0.1	)		—
Total comprehensive income, net of tax		$	39.1		$	39.4	$	73.1		$	69.2

      Accumulated other comprehensive income, net of tax, totaled $1.9 million as of July 31, 2005, and consisted of the net unrealized gain associated with the settlement of our ten-year treasury rate lock contract on October 5, 2004. Approximately $0.3 million of the gain will be recognized in earnings as an adjustment to interest expense during the next twelve months.

Note 7. Earnings Per Share

      Basic earnings per share is calculated by dividing net income by the weighted-average number of shares outstanding. Diluted earnings per share includes the additional dilutive effect of our potential common shares, which include certain employee and director stock options and unvested shares of restricted stock. The following summarizes the incremental shares from these potentially dilutive common shares, calculated using the treasury method, as included in the calculation of diluted weighted-average shares (in millions):

		Three Months Ended				Six Months Ended
		July 31,		July 30,		July 31,		July 30,
		2005		2004		2005		2004
Basic weighted-average shares outstanding			64.6		60.0		64.6		60.0
Incremental shares resulting from:
	Stock options		0.7		1.0		0.7		0.9
	Restricted stock		1.3		1.0		1.3		1.0
Diluted weighted-average shares outstanding			66.6		62.0		66.6		61.9

      Excluded from the above computations of diluted weighted-average shares outstanding during the second quarter of fiscal year 2006 were 8,000 unvested shares of restricted common stock at an average price of $32.71 per share, because their effect would have been anti-dilutive. Options to purchase 388,221 shares of common stock at an average exercise price of $30.63 during the three and six months ended July 31, 2005 were excluded from the above computations of diluted weighted-average shares outstanding because their effect would have been anti-dilutive. All stock options and restricted stock outstanding as of July 30, 2004 were dilutive and, therefore, included in the computation of diluted weighted-average shares outstanding for the three and six months ended July 30, 2004.

Note 8. Commitments and Contingencies

Legal Matters

      We are involved in various legal proceedings arising in the normal course of our business. In our opinion, none of the proceedings that have not been disclosed or recognized in our consolidated financial statements are material in relation to our consolidated operations, cash flows or financial position.

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      In 1979, we acquired property that has since been used to support a branch of our Electrical business. Recently, small traces of chlorinated hydrocarbons (“hydrocarbons”) were discovered in limited soil samples. Subsequent testing of the soil revealed larger amounts of hydrocarbons that now require remediation. We currently estimate the amount of remediation to range from $1.0 million to $2.3 million, with no amount in that range being a better estimate than any other amount in that range. We are currently evaluating all available recourse related to the cost of the cleanup, and believe the previous owners caused the contamination. As it is not currently probable that we will be successful in recovering amounts from other third parties, including the previous owners and any insurance carriers, we have accrued a $1.0 million liability as of July 31, 2005 for environmental remediation, of which approximately $0.2 million relates to capitalizable equipment to be used to improve the safety of the property over its original condition.

      Based on currently available information and analysis, we believe that it is still possible that costs associated with such liabilities or as yet unknown liabilities may exceed current reserves in amounts or a range of amounts that could be material but cannot be estimated as of July 31, 2005. There can be no assurance that activities identified in the future will not result in additional investigations or remedial actions being required.

Note 9. Supplemental Cash Flows Information

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

	Six Months Ended
	July 31,		July 30,
	2005		2004
Income taxes paid, net	$	4.4	$	28.1
Interest paid		17.2		12.9
Debt paid with sale-leaseback proceeds (non-cash activity)		—		23.0
Assets acquired with debt (non-cash activity)		—		1.7

      On July 25, 2005 our Board of Directors declared a quarterly cash dividend of $0.09 per share that was paid on August 22, 2005 to shareholders of record on August 8, 2005. Dividends declared but not paid totaled $6.0 million and $4.0 million at July 31, 2005 and July 30, 2004, respectively.

      During the first six months of fiscal year 2006, net gains totaling approximately $3.3 million were recognized on the sale of surplus properties, for which we received approximately $5.7 million of cash proceeds. During the first six months of fiscal year 2005, proceeds from the sale of property and equipment consisted primarily of $32.7 million of net cash received from the sale-leaseback of a portfolio of properties associated with 18 different branches that were leased back pursuant to 15-year minimum term operating leases. The resulting leases qualified for operating lease treatment.

      On March 16, 2004, we entered into a sale-leaseback transaction in which we sold our corporate headquarters building in Orlando, Florida, excluding certain furniture and fixtures and other office equipment relating to the property, to a subsidiary of Wachovia Development Corporation (“WDC”) for $23.0 million and leased the property back for a period of 20 years. The proceeds from the sale approximated the net book value of the property sold and were paid by WDC to SunTrust Bank (“SunTrust”) for application against amounts outstanding under a separate real estate term credit agreement we had previously executed on June 5, 2002 with SunTrust.

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Note 10. Stock-Based Compensation

Stock Plans

      The Amended 2005 Executive Stock Plan (the “2005 Stock Plan”) is our only active stock plan at July 31, 2005. The Amended and Restated 1997 Executive Stock Plan (the “1997 Stock Plan”), established to grant both incentive and non-incentive stock options to key employees, is replaced by the 2005 Stock Plan, and no further shares are expected to be issued under the 1997 Stock Plan. The 2005 Stock Plan authorizes the Compensation Committee of the Board of Directors (the “Compensation Committee”) to grant key employees and non-employee directors options to purchase stock, grants of stock appreciation rights (“SAR”) and grants of restricted stock, including performance-based restricted stock, for an aggregate of 2,200,000 shares of common stock. Under certain conditions the Chief Executive Officer is also authorized to make stock grants to key employees. Incentive stock options (“ISO”) are granted at prices not less than the market value on the date of grant, and non-incentive stock options are issued by the Compensation Committee, which is authorized to establish any option price at its sole discretion. The maximum term of an ISO may not exceed ten years; however, if the ISO is issued to a key employee who owns 10% or more of our stock, the maximum term of an option may not exceed five years.

      An option becomes exercisable at such times and in such installments as set forth by the Compensation Committee. Under the 2005 Stock Plan, a key employee or non-employee director may be granted one or more options, or one or more SAR, or one or more options and SAR in any combination which, individually or in the aggregate, relate to no more than 250,000 shares of stock in any calendar year. Also, no more than 250,000 shares of performance-based restricted stock may be granted to a key employee or non-employee director in any calendar year. These shares are subject to certain transfer restrictions, and vesting may be dependent upon continued employment, the satisfaction of performance objectives, or both.

Restricted Stock

      Performance-based shares: Performance-based shares are used as an incentive to increase shareholder returns with actual awards based on various criteria, including increases in the price of our common shares, earnings per share, shareholder value and net income. Compensation expense for the number of shares issued is recognized over the vesting period.

      During the first quarter of fiscal year 2006, the Compensation Committee authorized the grant of 145,288 performance-based restricted stock grants under the 1997 Stock Plan. Subsequently, during the second quarter of fiscal year 2006, the Compensation Committee authorized the grant of an additional 60,622 performance-based grants under the 2005 Stock Plan. The aggregate amount of performance-based restricted stock issued during the first six months of fiscal year 2006 totaled 205,910. These performance-based restricted stock grants provide for graded vesting only if a comparison of our total shareholder return equals or exceeds the cumulative total shareholder return of the Standard & Poor’s 500 Composite Stock Index (the “S&P index”) over a three-year period ending March 1, 2008. The market value of the performance-based restricted shares awarded during the first half of fiscal year 2006, which is based on the number of shares expected to ultimately vest in light of our performance against the S&P index and our stock price, totaled $3.5 million and was recorded as unearned compensation, a component of shareholders’ equity. A portion of the unearned compensation is expensed each reporting period based on the vesting period. The expense associated with these performance-based shares could be reversed or increase should it either become unlikely that the expected number of shares will vest or if future estimates indicate that a greater number of shares will vest, respectively.

      Non-performance based shares: During the first quarter of fiscal year 2006, the Compensation Committee authorized the grant of 19,000 non-performance based restricted stock grants under the 1997 Stock Plan. Subsequently, during the second quarter of fiscal year 2006, the Compensation Committee authorized the grant of an additional 157,500 shares of non-performance based restricted stock under the 2005 Stock Plan. The market value of the non-performance based restricted shares awarded during the

16

first half of fiscal year 2006 totaled $4.9 million, was recorded as unearned compensation and is being charged to expense over five year vesting periods from the date of the grants.

      During the second quarter of fiscal year 2006, we also awarded 14,400 restricted shares to non-employee directors that immediately vested under the 2005 Stock Plan. The market value of these shares totaled $0.4 million and was recognized in our consolidated results of operations during the second quarter of fiscal year 2006.

      During the first six months of fiscal year 2006, we cancelled 19,450 restricted shares previously granted, with market values at the date of grant of $0.3 million according to the provisions of the grant.

Note 11. Subsequent Events

      On August 29, 2005, we completed the acquisition of TVESCO, Inc., a Tennessee based distributor of electric utility and electrical products. TVESCO, Inc. had annual sales of approximately $138 million in its latest fiscal year ended December 31, 2004, and employs 170 full-time associates. We believe the acquisition of TVESCO will strengthen the geographic footprint of our Utilities business by expanding it into the Tennessee Valley region.

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

      Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) is intended to provide information to assist the reader in better understanding and evaluating our business and results of operations. This information is a discussion and analysis of certain significant factors that have affected our results of operations for the three and six months ended July 31, 2005 and July 30, 2004, and our financial condition as of July 31, 2005. MD&A should be read in conjunction with our consolidated financial statements and the notes thereto contained herein and in our Annual Report on Form 10-K (the “Annual Report”) for the fiscal year ended January 31, 2005.

      On August 24, 2004, our Board of Directors approved a two-for-one stock split in the form of a stock dividend that was paid on September 22, 2004 to shareholders of record as of the close of business on September 15, 2004. All share and per share amounts set forth in this report have been adjusted for the two-for-one stock split.

Forward-Looking Statements

      Certain statements made by us or incorporated by reference in this report constitute “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, and are subject to the safe harbor provisions created by such sections. When used in this report, the words “believe,” “anticipate,” “estimate,” “expect,” “may,” “will,” “should,” “plan,” “intend,” “project,” and similar expressions are intended to identify forward-looking statements. Although we believe that the expectations reflected in such forward-looking statements are reasonable, our expectations may not prove to be correct. Actual results or events may differ significantly from those indicated in our forward-looking statements as a result of various important factors. These factors are discussed under the caption “Item 1. Business — Risk Factors” in our Annual Report for the fiscal year ended January 31, 2005. All forward-looking statements are qualified by and should be read in conjunction with those risk factors. Except as may be required by applicable law, we undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.

Business

      Founded in 1928, we are one of the largest diversified wholesale distributors of construction, repair and maintenance-related products in the United States. We distribute over 350,000 products to more than 100,000 customers through over 500 branches located in 40 states, as well as one branch located in Canada. Our principal customers include water and sewer, plumbing, electrical, and mechanical contractors; public utilities; municipalities; property management companies; and industrial companies. Although we have a national presence, we operate principally in the southeastern and southwestern United States. Our fiscal year is a 52-week period ending on January 31, with our quarters ending on the last calendar day of each quarter. Prior to fiscal year 2005, our fiscal years were 52- or 53- week periods ending on the last Friday in January. During fiscal year 2005 and prior, our quarters were 13- or 14- week periods ending on the last Friday of the quarter.

Segment Information

      We manage our business on a product line basis and report the results of our operations in seven operating segments and an Other category. The operating segments are Water & Sewer; Plumbing/ Heating, Ventilating and Air Conditioning (“HVAC”); Utilities; Maintenance, Repair and Operations (“MRO”); Electrical; Industrial Pipe, Valves and Fittings (“PVF”); and Building Materials. We include our Fire Protection and Mechanical product lines in the Other category.

      The Corporate category includes corporate level expenses not allocated to our operating segments or the Other category. Inter-segment sales are excluded from net sales presented for each segment and the Other category. Operating income for each segment and the Other category includes certain corporate

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expense allocations for corporate overhead expenses, employee benefits, data processing expenses and insurance. These allocations are based on consumption or at a standard rate determined by management.

Results of Operations

Overview

      Net sales increased 16.6% to $1,333.0 million in the second quarter of fiscal year 2006, compared to $1,143.1 million reported in the same period last year, with $108.6 million of the increase relating to the impact from the acquisitions of Southwest Power, Inc./ Western States Electric, Inc. (“SWP/WSE”), Todd Pipe & Supply (“Todd Pipe”), National Construction Products, Inc. (“National”), and Ram Pipe and Supply, Inc (“Ram Pipe”). Organic sales increased 8.2%, with positive growth reported by all of our segments other than our Plumbing/ HVAC segment, which reported slightly lower organic sales mainly due to non-recurring large project work, competitive pressures and sales initiatives that were not as effective as planned, partly offset by an increase in residential projects in California, Colorado and Arizona. A higher average cost of inventory sold, a change in business mix, and some selling price weakness contributed to a 190 basis point reduction in our overall gross margin percentage to 21.8%, compared to the same period in the prior year. The decrease in the gross margin percentage was partly offset by a 100 basis point reduction in operating expenses as a percentage of net sales due primarily to leverage obtained from higher net sales, productivity improvements (including lower corporate costs), a moderation in investment spending, business mix, and net gains from the sale of surplus property. Net income decreased $0.2 million or 0.5% in the second quarter of fiscal year 2006 to $39.2 million, as compared to the prior year’s second quarter net income of $39.4 million. Diluted earnings per share in the second quarter of fiscal year 2006 totaled $0.59 on 66.6 million weighted-average shares outstanding, compared to $0.63 per diluted share reported in the prior year on 62.0 million weighted-average shares outstanding. The increase of 4.6 million weighted-average shares outstanding was primarily the result of our equity offering in October 2004, at which time an additional 4.0 million shares were issued.

      Net sales increased 20.5% to $2,572.7 million in the first six months of fiscal year 2006, compared to $2,135.9 million reported in the same period last year, with $277.6 million of the increase relating to the impact from the acquisitions of SWP/WSE, Todd Pipe, Standard Wholesale Supply Company (“Standard”), National, and Ram Pipe. Organic sales increased 8.6%, with positive growth reported by Water & Sewer, Utilities, Electrical, Industrial PVF, Building Materials, and the two product lines comprising our Other category. Our Plumbing/ HVAC and MRO segments reported flat or slightly lower organic sales. A higher average cost of inventory sold, a change in business mix and some selling price weakness contributed to a 200 basis point reduction in our overall gross margin percentage to 22.0%, compared to the same period in the prior year. The decrease in the gross margin percentage was partly offset by a 140 basis point reduction in operating expenses as a percentage of net sales due primarily to the leverage obtained from higher net sales, productivity improvements (including lower corporate costs), a moderation in investment spending, business mix, and net gains from the sale of surplus property. Net income in the first six months of fiscal year 2006 totaled $73.2 million, a $4.0 million or 5.8% increase compared to the prior year’s first six months net income of $69.2 million. Diluted earnings per share in the first six months of fiscal year 2006 totaled $1.10 on 66.6 million weighted-average shares outstanding, compared to $1.12 per diluted share reported in the prior year on 61.9 million weighted-average shares outstanding. The increase of 4.7 million weighted-average shares outstanding was primarily the result of our equity offering in October 2004.

Net Sales

      Net sales are affected by numerous factors, including, but not limited to, commodity pricing, changes in demand, seasonality, weather, competition and construction cycles. The following table presents the

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major components of our consolidated net sales in the second quarter and first six months of fiscal years 2006 and 2005 (dollars in millions):

	Three Months Ended									Six Months Ended
	July 31,			July 30,			Percentage			July 31,			July 30,			Percentage
	2005			2004			Variance			2005			2004			Variance
Existing sales base	$	1,218.5		$	1,125.8			8.2	%	$	2,286.7		$	2,096.1			9.1	%
Branch openings		5.9			—						7.2			—
Branch closures		—			14.5						—			33.2
Acquisitions		111.2			94.0						286.7			247.9
Organic sales(1)		1,335.6			1,234.3			8.2	%		2,580.6			2,377.2			8.6	%
Excluded (divested) branches(2)		0.5			2.8						2.3			6.6
Less: Pre-acquisition pro forma sales		(3.1	)		(94.0	)					(10.2	)		(247.9	)
Reported net sales	$	1,333.0		$	1,143.1			16.6	%	$	2,572.7		$	2,135.9			20.5	%

(1)

Organic sales is a measure used by management to assess the sales performance associated with branches we have had during each of the last two years (i.e., existing sales base), branches we have opened or closed within the last two years, and branches we have acquired during the last two years. Branches of any divested business are excluded from our calculation. For comparative purposes, prior period sales are reported on a pro forma basis to include pre-acquisition sales activity. We believe the methodology reflects the current sales performance of all of our branches, including those newly acquired.

(2)

During the second quarter of fiscal year 2006, we sold the assets associated with both a branch in our Other category (Mechanical product line) and a branch in our Utilities segment for a combined total of approximately $1.6 million, respectively. Additionally, during the third quarter of fiscal year 2005, we sold a business within our MRO segment for $2.6 million, which resulted in a gain of approximately $0.1 million. These businesses were sold because they were not core operations. As a result, the related second quarter sales of $0.5 million and $2.8 million for fiscal years 2006 and 2005, respectively, and $2.3 million and $6.6 million for the first six months of fiscal years 2006 and 2005, respectively, have been excluded from our organic sales.

      Net sales in the second quarter of fiscal year 2006 totaled $1,333.0 million, an increase of $189.9 million or 16.6%, compared to the prior year’s second quarter net sales of $1,143.1 million. Organic sales increased by $101.3 million or 8.2%, with positive growth reported by all of our segments other than our Plumbing/ HVAC segment, which reported slightly lower organic sales due mainly to non-recurring large project work, competitive pressures and sales initiatives that were not as effective as planned, partly offset by an increase in residential projects in California, Colorado and Arizona. The increase in net sales included approximately $108.6 million from our acquisitions completed during the past year including SWP/WSE (completed in the fourth quarter of fiscal year 2005), Todd Pipe (completed in the second quarter of fiscal year 2005), National (completed in the second quarter of fiscal year 2006) and Ram Pipe (completed in the second quarter of fiscal year 2006). The remaining increase in net sales was primarily due to continued strength in commercial and residential construction; increases in project-related activity from large industrial and engineering customers in the petrochemical, power, and oil markets; and increased industrial activity. Price changes for commodity-based products were mixed, resulting in a modest price impact to our total reported net sales in the second quarter of fiscal year 2006.

      Net sales in the first six months of fiscal year 2006 totaled $2,572.7 million, an increase of $436.8 million or 20.5%, compared to the prior year’s first six months net sales of $2,135.9 million. Organic sales increased by $203.4 million or 8.6%, with positive growth reported by Water & Sewer, Utilities, Electrical, Industrial PVF, Building Materials, and the two product lines comprising our Other category. Our Plumbing/ HVAC and MRO segments reported flat or slightly lower sales. The increase in net sales included approximately $277.6 million from our acquisitions of SWP/WSE, Todd Pipe, Standard,

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National, and Ram Pipe. The remaining increase in net sales was primarily due to continued strength across the commercial, residential, industrial and infrastructure end markets. Price changes for commodity-based products were mixed, resulting in a modest price impact to our total reported net sales during the first six months of fiscal year 2006.

Gross Margin

      Gross margin is affected by numerous factors, including, but not limited to product mix changes, commodity pricing, competition, vendor rebates and direct shipments compared to stock sales. Gross margin and gross margin ratio to net sales in the second quarter and first six months of fiscal years 2006 and 2005 were as follows (dollars in millions):

	Three Months Ended
							Percentage and
	July 31,			July 30,			Basis Point
	2005			2004			Variance
Gross margin	$	290.8		$	270.6			7.5	%
Gross margin ratio to net sales		21.8	%		23.7	%		(190	)

	Six Months Ended
							Percentage and
	July 31,			July 30,			Basis Point
	2005			2004			Variance
Gross margin	$	567.1		$	512.2			10.7	%
Gross margin ratio to net sales		22.0	%		24.0	%		(200	)

      Gross margin ratio to net sales totaled 21.8% and 23.7% in the second quarter of fiscal years 2006 and 2005, respectively, and 22.0% and 24.0% in the first six months of fiscal years 2006 and 2005, respectively. The decreases were mainly attributable to higher product costs, business mix and some selling price weakness. The higher product costs were primarily the result of the favorable impact in the prior year periods of higher selling prices resulting from a steep increase in commodity prices while the commensurate increase in product costs was not incurred until the inventory was replaced in subsequent months. Approximately 60 basis points of the gross margin decrease was due to a greater mix of our Utilities business, which carries a lower gross margin, but also lower expenses, as a result of the SWP/WSE acquisition. The Utilities business comprised 15.8% and 9.5% of our net sales during the second quarter of fiscal years 2006 and 2005, respectively, and 15.8% and 9.8% of our net sales during the first six months of fiscal years 2006 and 2005, respectively. Partially offsetting these negative impacts were improved purchasing leverage, resulting in higher vendor rebate income, and a slight increase in our business mix of our Industrial PVF business, which has historically generated higher margins than our other businesses.

Operating Expenses

      Operating expenses and percentage of net sales for the second quarter and first six months of fiscal years 2006 and 2005 were as follows (dollars in millions):

	Operating Expenses							Percentage of Net Sales
	Three Months Ended							Three Months Ended
	July 31,		July 30,		Percentage			July 31,			July 30,			Basis Point
	2005		2004		Variance			2005			2004			Variance
Personnel expenses	$	140.9	$	130.8		7.7	%		10.6	%		11.4	%		(80	)
Other selling, general and administrative expenses		70.6		62.6		12.8	%		5.3	%		5.5	%		(20	)
Depreciation and amortization		8.3		6.7		23.9	%		0.6	%		0.6	%		—
Total	$	219.8	$	200.1		9.8	%		16.5	%		17.5	%		(100	)

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	Operating Expenses							Percentage of Net Sales
	Six Months Ended							Six Months Ended
	July 31,		July 30,		Percentage			July 31,			July 30,			Basis Point
	2005		2004		Variance			2005			2004			Variance
Personnel expenses	$	281.1	$	251.2		11.9	%		10.9	%		11.7	%		(80	)
Other selling, general and administrative expenses		136.4		127.2		7.2	%		5.3	%		5.9	%		(60	)
Depreciation and amortization		16.1		12.7		26.8	%		0.6	%		0.6	%		—
Total	$	433.6	$	391.1		10.9	%		16.9	%		18.3	%		(140	)

      Personnel expenses during the second quarter of fiscal year 2006 increased by $10.1 million or 7.7% as compared to the second quarter of fiscal year 2005. Of the $10.1 million increase, approximately $5.7 million was the result of the SWP/WSE and Todd Pipe acquisitions. Our workforce increased approximately 4.4%, from approximately 9,100 employees at July 30, 2004 to approximately 9,500 employees at July 31, 2005, primarily as a result of prior year acquisitions. Excluding the impact of these acquisitions, our workforce increased by approximately 1% compared to the prior year’s second quarter. The $4.4 million or 3.4% increase in personnel expenses during the second quarter of fiscal year 2006, excluding the impact of the acquisitions, was primarily the result of a $7.3 million or 9.3% increase in salaries and wages as a result of the increase in headcount (which included a number of key management additions) as well as normal annual increases, a $2.0 million increase in temporary labor and overtime primarily related to various system conversions as well as increased sales, and an $0.8 million increase in additional restricted stock amortization associated with fiscal year 2005 and fiscal year 2006 restricted stock grants. These increases were partially offset by a reduction in employee health insurance expenses of $3.1 million due to lower claims activity and a change in our healthcare provider effective January 1, 2005, and a reduction in bonus expense of $2.7 million due to a decline in performance measures as compared against strong results in the first six months of the prior fiscal year.

      As a percentage of net sales, personnel expenses were 10.9% and 11.7% during the first six months of fiscal years 2006 and 2005, respectively, with $16.2 million of the $29.9 million increase in costs primarily relating to the SWP/WSE, Todd Pipe and Standard acquisitions. Personnel expenses during the first six months of fiscal year 2006, excluding the impact of acquisitions, increased by $13.7 million primarily due to the factors identified in the analysis of the second quarter’s results.

      Other selling, general and administrative expenses increased $8.0 million or 12.8% as compared to the second quarter of fiscal year 2005. Of the increase, the acquisitions of SWP/WSE and Todd Pipe accounted for $2.0 million. Excluding the impact of these acquisitions, other selling, general and administrative expenses increased $6.0 million or 9.6%, primarily as a result of a $1.4 million increase in fuel costs due to increased prices and sales; a $1.3 million increase in professional fees related to various facilities management and credit reporting improvements; a $1.1 million increase in building rents due in part to the sale-leaseback transactions completed in April and December of fiscal year 2005; an $0.8 million environmental charge associated with the anticipated remediation of chlorinated hydrocarbons discovered at one of our branches; and other increases that were consistent with the 16.6% increase in net sales. These increases in other selling, general and administrative costs were partially offset by $1.7 million of additional net gains from the sale of surplus property as compared to the prior year.

      Other selling, general and administrative expenses increased $9.2 million or 7.2% as compared to the first six months of fiscal year 2005, primarily related to the Todd Pipe, SWP/WSE, and Standard acquisitions, which collectively added $6.5 million of other selling, general and administrative expenses. Excluding the impact of these acquisitions, other selling, general and administrative expenses increased $2.7 million or 2.1% during the first six months of fiscal year 2006 primarily due to a $3.1 million increase in building rents due in part to the sale-leaseback transactions completed in April and December of fiscal year 2005; a $2.1 million increase in fuel costs due to increased prices and sales; a $1.4 million increase in professional fees related to various facilities management and credit reporting improvements; an $0.8 million environmental charge associated with the anticipated remediation of chlorinated hydrocarbons

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discovered at one of our branches; and other increases that were consistent with the 20.5% increase in net sales, partly offset by various favorable reductions as compared to the prior year period. The favorable reductions include a $2.6 million decrease in marketing expenses primarily as a result of expanded vendor involvement in our marketing promotions and events; $2.5 million associated with additional net gains from the sale of surplus property as compared to the prior year and losses from the sale-leaseback transactions completed during the first quarter of fiscal year 2005; and a $1.3 million reduction in the provision for doubtful accounts despite increased net sales due to an improvement in the credit quality of our accounts receivable through enhanced credit policies and management of past due accounts as well as a non-recurring write-off of $0.6 million in the Industrial PVF segment in the prior year.

      The increase in depreciation and amortization expense of $1.6 million and $3.4 million during the second quarter and first six months of fiscal year 2006 compared to the second quarter and first six months of fiscal year 2005, respectively, was primarily a result of incremental amortization expense associated with the intangible assets related to the SWP/WSE, Todd Pipe, National, and Ram Pipe acquisitions. As a percentage of net sales, depreciation and amortization expenses remained flat at 0.6% for the second quarter and first six months of fiscal year 2006 and the same periods of fiscal year 2005.

      We are primarily a fixed cost business; consequently a percentage change in our net sales can have a greater percentage effect on our operating expense ratio. Operating expenses as a percentage of net sales decreased 100 basis points from 17.5% in the second quarter fiscal year 2005 to 16.5% in the second quarter of fiscal year 2006. For the first six months of fiscal year 2006, operating expenses as a percentage of net sales decreased 140 basis points to 16.9% from 18.3% in the prior year’s period. These improvements are due primarily to the leverage obtained from higher net sales; productivity improvements (including lower corporate costs); a moderation in investment spending; business mix, including an improvement in the Utilities segment that was primarily related to the SWP/WSE acquisition; and net gains from the sale of surplus property.

Operating Income

      Operating income is affected significantly by fluctuations in net sales as well as changes in business and product mix. Operating income for the second quarter and first six months of fiscal years 2006 and 2005 was as follows (dollars in millions):

	Operating Income							Percentage of Net Sales
	Three Months Ended							Three Months Ended
	July 31,		July 30,		Percentage			July 31,			July 30,			Basis Point
	2005		2004		Variance			2005			2004			Variance
Operating income	$	71.0	$	70.5		0.7	%		5.3	%		6.2	%		(90	)

	Operating Income							Percentage of Net Sales
	Six Months Ended							Six Months Ended
	July 31,		July 30,		Percentage			July 31,			July 30,			Basis Point
	2005		2004		Variance			2005			2004			Variance
Operating income	$	133.5	$	121.1		10.2	%		5.2	%		5.7	%		(50	)

      Operating income during the second quarter of fiscal year 2006 totaled $71.0 million, increasing $0.5 million or 0.7% despite last year’s strong second quarter. Operating income as a percentage of net sales decreased 90 basis points to 5.3% due primarily to a 190 basis point reduction in our gross margin percentage resulting from a higher average cost of inventory sold, a change in business mix, and some selling price weakness, partially offset by a 100 basis point reduction in operating expenses as a percentage of net sales, resulting from the leverage obtained from higher net sales, productivity improvements (including lower corporate costs), a moderation in investment spending, business mix, and net gains from the sale of surplus property.

      Operating income during the first six months of fiscal year 2006 totaled $133.5 million, increasing $12.4 million or 10.2%, compared to the prior year’s first six months operating income total of $121.1 million, due primarily to a 200 basis point reduction in our gross margin percentage, partially offset

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by a 140 basis point reduction in operating expenses as a percentage of net sales, for reasons consistent with those identified in the analysis of the second quarter of fiscal year 2006.

Interest Expense

      Interest expense totaled $8.8 million and $7.5 million in the second quarter of fiscal years 2006 and 2005, respectively, and totaled $17.8 million and $13.8 million in the first six months of fiscal years 2006 and 2005, respectively. Interest expense increased during the second quarter and first six months of fiscal year 2006 primarily as a result of a $40.2 million or 8.1% and $79.6 million or 17.3% increase in our weighted-average outstanding debt balances, and a 126 and 99 basis point increase in our weighted-average interest rates, respectively. These increases were mainly attributable to our private placement of $300.0 million in original principal amount of 5.5% senior notes in October 2004, a portion of the proceeds from which were used to pay off amounts outstanding from lower cost variable borrowings under our revolving credit agreement.

Interest and Other Income

      Interest and other income totaled $2.1 million and $1.6 million in the second quarter of fiscal years 2006 and 2005, respectively, and $4.3 million and $3.3 million in the first six months of fiscal years 2006 and 2005, respectively. The increase in the second quarter and the first six months of fiscal year 2006 was mainly due to additional interest income resulting from an increased level of cash, primarily resulting from strong operating cash flow and our equity and debt offerings in October 2004.

Income Taxes

      Our effective tax rate was 39% in the second quarter of fiscal years 2006 and 2005, and 39% and 37.4% in the first six months of fiscal years 2006 and 2005, respectively. The increase in our effective tax rate during the first six months of fiscal year 2006 was primarily attributable to a $1.7 million tax benefit realized in the first quarter of fiscal year 2005 related to federal income tax filing amendments associated with prior fiscal years. Our effective tax rate is expected to be 39% for fiscal year 2006.

Segment Results

      Consolidated net sales and organic sales by segment in the second quarter and first six months of fiscal years 2006 and 2005 were as follows (dollars in millions):

	Consolidated Net Sales							Organic Sales
	Three Months Ended							Three Months Ended
	July 31,		July 30,		Percentage			July 31,		July 30,		Percentage
	2005		2004		Variance			2005(1)		2004(2)		Variance
Water & Sewer	$	349.6	$	323.2		8.2	%	$	349.6	$	323.2		8.2	%
Plumbing/HVAC		286.9		270.3		6.1	%		290.0		292.2		(0.8)	%
Utilities		210.9		108.7		94.0	%		210.4		178.7		17.7	%
MRO		128.8		126.4		1.9	%		128.8		124.9		3.1	%
Electrical		119.2		117.8		1.2	%		119.2		117.8		1.2	%
Industrial PVF		112.5		85.6		31.4	%		112.5		85.6		31.4	%
Building Materials		74.2		65.8		12.8	%		74.2		67.9		9.3	%
Other		50.9		45.3		12.4	%		50.9		44.0		15.7	%
Total	$	1,333.0	$	1,143.1		16.6	%	$	1,335.6	$	1,234.3		8.2	%

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	Consolidated Net Sales							Organic Sales
	Six Months Ended							Six Months Ended
	July 31,		July 30,		Percentage			July 31,		July 30,		Percentage
	2005		2004		Variance			2005(3)		2004(4)		Variance
Water & Sewer	$	669.9	$	594.8		12.6	%	$	669.9	$	614.9		8.9	%
Plumbing/HVAC		561.2		480.9		16.7	%		569.1		568.8		0.1	%
Utilities		405.2		208.8		94.1	%		404.1		344.4		17.3	%
MRO		229.2		233.3		(1.8)	%		229.2		230.5		(0.6)	%
Electrical		234.7		230.4		1.9	%		234.7		230.4		1.9	%
Industrial PVF		230.2		168.3		36.8	%		230.2		168.3		36.8	%
Building Materials		142.8		124.9		14.3	%		145.1		129.2		12.3	%
Other		99.5		94.5		5.3	%		98.3		90.7		8.4	%
Total	$	2,572.7	$	2,135.9		20.5	%	$	2,580.6	$	2,377.2		8.6	%

(1)	Organic sales during the second quarter of fiscal year 2006 includes $3.1 million of pre-acquisition pro forma sales in the Plumbing/ HVAC segment (Ram Pipe) and excludes $0.5 million of net sales associated with a divested branch in our Utilities business.
(2)	Organic sales during the second quarter of fiscal year 2005 includes $21.9 million, $70.0 million and $2.1 million of pre-acquisition pro forma sales in the Plumbing/ HVAC segment (Todd Pipe and Ram Pipe), the Utilities segment (SWP/WSE) and the Building Materials segment (National), respectively, and excludes $1.5 million and $1.3 million of net sales associated with a divested business in our MRO segment and a branch in the Mechanical product line within our Other category, respectively.
(3)	Organic sales for the first six months of fiscal year 2006 includes $7.9 million and $2.3 million of pre- acquisition pro forma sales in the Plumbing/ HVAC segment (Ram Pipe) and the Building Materials segment (National), respectively, and excludes $1.1 million and $1.2 million of net sales associated with a divested branch in our Utilities segment and a branch in the Mechanical product line within our Other category, respectively.
(4)	Organic sales during the first six months of fiscal year 2005 includes $20.1 million, $87.9 million, $135.6 million and $4.3 million of pre-acquisition pro forma sales in the Water & Sewer segment (Standard), Plumbing/ HVAC segment (Todd Pipe and Ram Pipe), Utilities segment (SWP/WSE), and the Building Materials segment (National), respectively, and excludes $2.8 million and $3.8 million of net sales associated with a divested business in our MRO segment and a branch in the Mechanical product line within our Other category, respectively.

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      Operating income by segment and as a percentage of net sales for the second quarter and first six months of fiscal years 2006 and 2005 were as follows (dollars in millions):

	Operating Income							Percentage of Net Sales
	Three Months Ended							Three Months Ended
	July 31,		July 30,		Percentage			July 31,			July 30,			Basis Point
	2005		2004		Variance			2005			2004			Variance
Water & Sewer	$	17.2	$	18.5		(7)	%		4.9	%		5.7	%		(80	)
Plumbing/HVAC		4.6		8.2		(44)	%		1.6	%		3.0	%		(140	)
Utilities		8.6		4.5		91	%		4.1	%		4.1	%		—
MRO		11.1		13.1		(15)	%		8.6	%		10.4	%		(180	)
Electrical		3.5		2.7		30	%		2.9	%		2.3	%		60
Industrial PVF		16.2		12.4		31	%		14.4	%		14.5	%		(10	)
Building Materials		5.4		6.4		(16)	%		7.3	%		9.7	%		(240	)
Other		2.3		4.4		(48)	%		4.5	%		9.7	%		(520	)
Corporate(1)		2.1		0.3					—			—			—
Total	$	71.0	$	70.5		1	%		5.3	%		6.2	%		(90	)

	Operating Income							Percentage of Net Sales
	Six Months Ended							Six Months Ended
	July 31,		July 30,		Percentage			July 31,			July 30,			Basis Point
	2005		2004		Variance			2005			2004			Variance
Water & Sewer	$	31.2	$	29.0		8	%		4.7	%		4.9	%		(20	)
Plumbing/HVAC		10.2		12.8		(20)	%		1.8	%		2.7	%		(90	)
Utilities		15.4		7.3		111	%		3.8	%		3.5	%		30
MRO		18.6		20.8		(11)	%		8.1	%		8.9	%		(80	)
Electrical		6.9		6.5		6	%		2.9	%		2.8	%		10
Industrial PVF		34.1		23.8		43	%		14.8	%		14.1	%		70
Building Materials		10.4		11.4		(9)	%		7.3	%		9.1	%		(180	)
Other		3.7		9.2		(60)	%		3.7	%		9.7	%		(600	)
Corporate(1)		3.0		0.3					—			—			—
Total	$	133.5	$	121.1		10	%		5.2	%		5.7	%		(50	)

⁽¹⁾  The $2.1 million and $3.0 million of operating income in the Corporate category in the second quarter and first six months of fiscal year 2006, respectively, primarily related to gains from the sale of surplus properties partially offset in the second quarter of fiscal year 2006 by an environmental liability associated with the anticipated remediation of chlorinated hydrocarbons discovered at one of our branches. We recognized net gains from the sale of surplus properties totaling $0.6 million and $2.3 million in the second quarter and first six months of fiscal year 2005, respectively, with the $2.3 million partly offset by a $1.3 million loss associated with a sale-leaseback transaction completed on April 30, 2004 for a portfolio of properties associated with 18 different branches. Prior to the second quarter of fiscal year 2005, all surplus property activity was allocated to our operating segments and the Other category.

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

Water & Sewer

      Net sales: Net sales in the second quarter of fiscal year 2006 totaled $349.6 million, an increase of $26.4 million or 8.2%, compared to the prior year’s second quarter net sales of $323.2 million. A higher

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volume of private and public infrastructure projects, particularly in Arizona, Florida, Colorado, the Pacific Northwest and Midwest, and higher prices for PVC and ductile iron pipe drove the 8.2% organic growth rate during the second quarter of fiscal year 2006.

      Net sales for the first six months of fiscal year 2006 totaled $669.9 million, an increase of $75.1 million or 12.6%. This increase included net sales of $23.8 million from the Standard acquisition completed in May 2004. The organic sales growth rate of 8.9% during the first six months of fiscal year 2006 was primarily due to demand for residential, commercial and municipal projects particularly in Arizona, Florida, Texas, the Midwest and Pacific Northwest and higher prices for PVC and ductile iron pipe.

      Operating Income: As a percentage of net sales, operating income decreased to 4.9% and 4.7% in the second quarter and first six months of fiscal year 2006 from 5.7% and 4.9% in the comparable prior year periods, respectively. The decreases in operating income as a percentage of net sales were the result of decreased gross margins attributable to higher product costs, competitive pricing pressures in certain markets, and higher levels of direct shipments.

Plumbing/HVAC

      Net sales: Net sales in the second quarter of fiscal year 2006 totaled $286.9 million, an increase of $16.6 million or 6.1%, compared to the prior year’s second quarter net sales of $270.3 million. The entire increase is attributable to the acquisitions of Todd Pipe and Ram Pipe, which contributed $20.6 million and $0.9 million, respectively, to net sales in the second quarter of fiscal year 2006. Organic sales declined by 0.8% due mainly to non-recurring large project work, competitive pricing pressures, primarily in Florida, Georgia and Texas, and sales initiatives that were not as effective as planned. Partially offsetting these declines was an increase in residential projects in California, Colorado and Arizona.

      Net sales in the first six months of fiscal year 2006 totaled $561.2 million, an increase of $80.3 million or 16.7% compared to the prior year’s first six months net sales total of $480.9 million. The acquisitions of Todd Pipe and Ram Pipe contributed $83.5 million and $0.9 million, respectively, to the net sales increase in the first six months of fiscal year 2006. Organic sales during the first six months of fiscal year 2006 remained flat with the comparable prior year period primarily due to the factors identified above.

      Operating income: As a percentage of net sales, operating income decreased to 1.6% and 1.8% in the second quarter and first six months of fiscal year 2006 from 3.0% and 2.7% in the comparable prior year periods, respectively. The 140 and 90 basis point decreases were directly attributable to declines in gross margin resulting from higher product costs and competitive pricing pressures in certain markets.

Utilities

      Net sales: Net sales in the second quarter of fiscal year 2006 totaled $210.9 million, an increase of $102.2 million or 94.0%, compared to the prior year second quarter net sales of $108.7 million. This increase included net sales of $84.9 million from the SWP/WSE acquisition completed in November 2004. The organic sales growth rate of 17.7% during the second quarter of fiscal year 2006 was driven primarily by new and expanded alliance contracts, higher meter sales, and increased project work across all regions, with particular strength in the Florida, Texas and Illinois markets.

      Net sales for the first six months of fiscal year 2006 totaled $405.2 million, an increase of $196.4 million or 94.1%, compared to the net sales for the first six months of fiscal year 2005 of $208.8 million. The increase included $167.2 million of net sales from the SWP/WSE acquisition. The organic sales growth rate of 17.3% during the first six months of fiscal year 2006 was driven primarily by new and expanded alliance contracts with large electric utility companies, higher meter sales, and increased project work across all regions.

      Operating income: As a percentage of net sales, operating income was 4.1% for the second quarter of fiscal years 2006 and 2005. During the first six months of fiscal year 2006, operating income as a percentage of net sales totaled 3.8% as compared to a ratio of 3.5% during the first six months of fiscal

27

year 2005. The 30 basis point increase was primarily due to leverage from the higher net sales associated with the SWP/WSE acquisition along with a decline in the ratio of operating expenses to net sales as a result of costs incurred last year to establish the infrastructure necessary to support additional business from alliance customers.

MRO

      Net sales: Net sales in the second quarter of fiscal year 2006 totaled $128.8 million, an increase of $2.4 million or 1.9%, compared to the prior year’s second quarter total of $126.4 million. Organic sales increased $3.9 million or 3.1% compared to the second quarter of fiscal year 2005, which excluded sales from divested operations of $1.5 million. The organic sales growth was primarily attributable to a higher level of renovation business, along with higher fabrication and window covering sales. Increased sales of appliances, water heaters and HVAC equipment also contributed to net sales growth, but resulted in lower margins during the quarter. The MRO segment’s southeast markets experienced the strongest growth during the quarter, as apartment occupancy rates improved both in the region and nationally.

      Net sales in the first six months of fiscal year 2006 totaled $229.2 million, a decrease of $4.1 million or 1.8% compared to the prior year’s first six months net sales total of $233.3 million. Organic sales decreased $1.3 million or 0.6% compared to the first six months of fiscal year 2005 amount, which excluded sales of $2.8 million from divested operations. The slight decline in organic sales during the first six months of fiscal year 2006 was primarily due to the disruptive impact of integration and system conversion initiatives resulting from the Century Maintenance Supply, Inc. (“Century”) acquisition and, while improving, weakness in the multi-family housing market.

      Operating income: As a percentage of net sales, operating income decreased to 8.6% in the second quarter of fiscal year 2006 from 10.4% in the prior year’s second quarter. During the first six months of fiscal year 2006, operating income as a percentage of net sales decreased to 8.1%, as compared to 8.9% during the prior year period. The 180 and 80 basis point declines during the second quarter and first half of fiscal year 2006, respectively, were primarily driven by a decrease in gross margin in the second quarter. Increases in lower margin product lines such as appliances, water heaters, and HVAC equipment contributed to net sales growth, but a higher mix of these items as well as a very competitive pricing environment diluted the overall margin.

Electrical

      Net sales: Net sales in the second quarter of fiscal year 2006 totaled $119.2 million, an increase of $1.4 million or 1.2%, compared to the prior year’s second quarter total of $117.8 million. During the first six months of fiscal year 2006, net sales totaled $234.7 million, an increase of $4.3 million or 1.9% compared to the prior year. Sales growth experienced in both the second quarter and first six months of fiscal year 2006 as compared to the prior year periods was primarily the result of continued strength in commercial and residential construction in Florida. This was mostly offset by lower sales in Texas, due to a weak commercial market in Houston, and a lower level of large project work in select markets of Georgia and the Carolinas from the previous year.

      Operating income: As a percentage of net sales, operating income increased to 2.9% in the second quarter of fiscal year 2006 from 2.3% in the prior year’s second quarter. During the first six months of fiscal year 2006, operating income as a percentage of net sales increased to 2.9%, as compared to a ratio of 2.8% during the prior year period. The 60 basis point improvement in the second quarter of fiscal year 2006 was primarily due to improved efficiencies resulting from the closure of the distribution center serving this business. The efficiency improvements made in the second quarter of fiscal year 2006 were offset on a year to date basis by lower gross margins in the first quarter of fiscal year 2006 compared to the comparable prior year period resulting from stabilizing commodity prices.

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Industrial PVF

      Net sales: Net sales in the second quarter of fiscal year 2006 totaled $112.5 million, an increase of $26.9 million or 31.4%, compared to the prior year’s second quarter net sales total of $85.6 million. The increase in net sales for the second quarter of fiscal year 2006 as compared to the prior year was primarily attributable to continued strength in selling prices, combined with higher demand from fabricators and end users.

      Net sales in the first six months of fiscal year 2006 totaled $230.2 million, an increase of $61.9 million or 36.8% compared to the prior year’s first six months net sales total of $168.3 million. The increase in net sales during the first six months of fiscal year 2006 as compared to the prior year was primarily attributable to continued strength in selling prices over the comparable prior year period and increased demand from fabricators and end users.

      Operating income: As a percentage of net sales, operating income decreased 10 basis points to 14.4% in the second quarter of fiscal year 2006, from 14.5% in the prior year’s second quarter. Operating income for the first six months of fiscal year 2006 as a percentage of net sales increased 70 basis points to 14.8%, as compared to a ratio of 14.1% during the prior year period. The increase of 70 basis points for first six months of fiscal year 2006 was primarily the result of an increase in gross margin attributable to continued strength in selling prices for commodity-based products and higher demand over fiscal year 2005 levels, partly offset by increases in moving average costs for commodity-based products.

Building Materials

      Net sales: Net sales in the second quarter of fiscal year 2006 totaled $74.2 million, an increase of $8.4 million or 12.8%, compared to the prior year’s second quarter total of $65.8 million. This increase included net sales of $2.2 million from the National acquisition completed on May 1, 2005. The organic sales growth rate of 9.3% during the second quarter of fiscal year 2006 was primarily the result of strong commercial construction activity, mainly in Florida.

      Net sales in the first six months of fiscal year 2006 totaled $142.8 million, an increase of $17.9 million or 14.3% compared to the prior year’s first six months net sales total of $124.9 million. The organic sales growth rate of 12.3% during the first six months of fiscal year 2006 was primarily a result of strong commercial construction activity, mainly in Florida.

      Operating income: As a percentage of net sales, operating income decreased to 7.3% in the second quarter of fiscal year 2006 from 9.7% in the prior year’s second quarter. The 240 basis point decrease was primarily attributable to higher average cost inventory compared to the prior year’s quarter resulting from a steep increase in commodity prices for steel and lumber in the second quarter of fiscal year 2005 and competitive pricing pressures in certain markets.

      During the first six months of fiscal year 2006, operating income as a percentage of net sales decreased by 180 basis points to 7.3%, as compared to a ratio of 9.1% during the prior year period. The 180 basis point decline was primarily attributable to the factors identified in the analysis of the second quarter of fiscal year 2006.

Other

      Net sales: In the Other category, net sales in the second quarter of fiscal year 2006 totaled $50.9 million, an increase of $5.6 million or 12.4%, compared to the prior year’s second quarter net sales of $45.3 million. Organic sales totaled $50.9 million and $44.0 million in the second quarter of fiscal years 2006 and 2005, respectively, an increase of $6.9 million or 15.7%. Net sales in the first six months of fiscal year 2006 totaled $99.5 million, an increase of $5.0 million or 5.3% compared to the prior year’s net sales of $94.5 million. Organic sales totaled $98.3 million and $90.7 million during the first six months of fiscal years 2006 and 2005, respectively, an increase of $7.6 million or 8.4%.

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      The Fire Protection product line had net sales growth of $4.2 million or 11.4% during the second quarter of fiscal year 2006 and net sales growth of $5.8 million or 7.8% during the first six months of fiscal year 2006. The increase in net sales was primarily driven by the opening of a fabrication facility in the fourth quarter of fiscal year 2005 that expanded business in the Carolinas, combined with increased demand, particularly in California.

      The Mechanical product line had sales growth of 33.2% and 10.1% during the second quarter and first six months of fiscal year 2006, respectively, due primarily to expanded business with a large commercial customer in Florida. Excluded from organic sales were $1.3 million during the second quarter of fiscal year 2005 and $1.2 million and $3.8 million during the first six months of fiscal years 2006 and 2005, respectively, related to the divestiture of a mechanical branch in Louisiana.

      Operating income: As a percentage of net sales, operating income decreased to 4.5% in the second quarter of fiscal year 2006 from 9.7% in the prior year’s second quarter. During the first six months of fiscal year 2006, operating income as a percentage of net sales decreased 600 basis points to 3.7%, as compared to a ratio of 9.7% during the prior year period. The 520 and 600 basis point declines during the second quarter and the first six months of fiscal year 2006, respectively, were primarily the result of higher average cost inventory over the prior fiscal year.

Liquidity and Capital Resources

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

	Six Months Ended
	July 31,			July 30,
	2005			2004
Net cash provided by (used in) operating activities	$	69.8		$	(1.1	)
Net cash used in investing activities		(38.1	)		(82.4	)
Net cash (used in) provided by financing activities		(26.6	)		93.4

	July 31,			January 31,
	2005			2005
Working capital	$	973.6		$	915.3
Current ratio		2.3 to 1			2.4 to 1
Debt to total capital		28.9	%		30.3	%

Working Capital

      Compared to January 31, 2005, working capital increased $58.3 million or 6.4% during the first half of fiscal year 2006. The increase in working capital was primarily attributable to higher accounts receivable balances driven by net sales growth, as well as lower compensation and benefits accruals as a result of bi-weekly payroll payment timing and annual bonus payments, which are made during the first quarter of every year. These working capital increases were offset by lower levels of owned inventories (inventories less accounts payable) resulting from improved inventory and payables management and reduced other current asset balances due to collections of vendor rebate receivables.

Operating Activities

      During the first six months of fiscal years 2006 and 2005, net cash provided by (used in) operating activities totaled $69.8 million and ($1.1) million, respectively. The $70.9 million increase was partly due to the timing of disbursements, including federal income tax payments, which will result in lower operating cash flow in the third and fourth quarters. The remainder of the increase primarily relates to the factors contributing to our improvement in working capital.

      Going forward, we expect operating cash flows to be positive as we continue to improve our working capital efficiency.

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Investing Activities

      Our expenditures for property and equipment totaled $31.5 million and $11.3 million during the first six months of fiscal years 2006 and 2005, respectively. Of the total $31.5 million of capital expenditures, $12.9 million were outlays for information technology. Also included in our capital expenditures during the first six months of fiscal year 2006 were investments in land for future megacenter development and for expansion of our corporate facilities. We anticipate entering into subsequent sale-leasebacks for these transactions and therefore expect that our annual capital expenditures, net of sale-leaseback activity, will be approximately $35 million.

      Proceeds from the sale of property and equipment totaled $5.7 million and $38.5 million during the first six months of fiscal years 2006 and 2005, respectively. During the first six months of fiscal year 2006, net gains of approximately $3.3 million were recognized on the sale of surplus properties, for which we received approximately $5.7 million of cash proceeds. During the first six months of fiscal year 2005, proceeds from the sale of property and equipment consisted primarily of $32.7 million of net cash received from the sale-leaseback of a portfolio of properties associated with 18 different branches that were leased back pursuant to 15-year minimum term operating leases. The resulting leases qualified for operating lease treatment.

      Cash payments for business acquisitions totaled $12.3 million and $98.2 million during the first six months of fiscal years 2006 and 2005, respectively. The cash payments for business acquisitions during the current year relate to the acquisitions of National on May 1, 2005 and Ram Pipe on June 30, 2005, with consideration including the assumption of accounts payable, accrued and other current liabilities, which collectively totaled $1.9 million, subject to finalization of working capital adjustments in accordance with the respective purchase agreements. National is a distributor of construction materials serving the Atlanta, Georgia area, and Ram Pipe is a distributor of plumbing and water and sewer products serving the Yuma, Arizona area. The cash payments for business acquisitions during the prior year period related to the Standard and Todd Pipe acquisitions, both of which were completed in May 2004.

      On June 30, 2004, we made an $11.4 million investment in our corporate owned life insurance (“COLI”) policies to partially fund enhancements made in the first quarter of fiscal year 2005 to our supplemental executive retirement plan (“SERP”), which provides supplemental benefits for certain key executive officers. While the SERP obligation is not funded by our general assets and thus the value of our COLI policies is not restricted to funding the SERP obligation, the interest income generated by our COLI policies helps to offset the additional net periodic benefit costs associated with our SERP, as amended in the first quarter of fiscal year 2005.

Financing Activities

      During the first six months of fiscal years 2006 and 2005, net cash (used in) provided by financing activities totaled ($26.6) million and $93.4 million, respectively. The net decrease of $120.0 million in financing cash flows, compared to the prior year period, was primarily a result of $113.4 million of net borrowings under short-term debt arrangements made during the first six months of fiscal year 2005, which were used to help fund the acquisitions of Standard and Todd Pipe in May 2004. There were no borrowings under short-term debt arrangements during the first six months of fiscal year 2006, given our cash position of over $200 million primarily resulting from our equity and debt offerings in October 2004.

      Dividend payments totaled $10.3 million and $7.0 million during the first six months of fiscal years 2006 and 2005, respectively. The higher dividend payments in fiscal year 2006 were primarily attributable to an increase in our common stock outstanding due to the sale of 4.0 million shares in a public offering during the third quarter of fiscal year 2005 in addition to a 38% higher dividend rate per share. On July 25, 2005, our Board of Directors declared a quarterly dividend of $0.09 per share that was paid on August 22, 2005 to shareholders of record on August 8, 2005. Dividends declared but not paid totaled $6.0 million and $4.0 million at July 31, 2005 and July 30, 2004, respectively.

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      On October 12, 2004, we issued $300.0 million in original principal amount of 5.5% senior notes (the “notes”) due on October 15, 2014 in a private placement pursuant to Rule 144A under the Securities Act. The notes were issued at 99.468% of their par value and are reflected in our consolidated balance sheet net of a $1.5 million and $1.6 million discount as of July 31, 2005 and January 31, 2005, respectively. On May 10, 2005, we filed an exchange offer registration statement with the SEC on Form S-4 to exchange the notes for a new issue of substantially identical notes registered under the Securities Act. On July 21, 2005 the SEC declared our registration effective, and on July 22, 2005 we announced the commencement of the exchange offer. Subsequently, on August 22, 2005, all of the original notes were tendered for the new registered notes.

      On November 10, 2004 and November 30, 2004, we entered into separate interest rate swap contracts with two distinct financial institutions that each effectively converted $50.0 million (i.e., an aggregate of $100.0 million) of our $300.0 million in original principal amount of 5.50% notes, due October 15, 2014, to floating rate debt based on the six-month LIBOR rate plus 0.6985% and 0.79%, respectively, with semi-annual settlements through October 15, 2014. The interest rate swap contracts were designated as fair value hedges of the changes in fair value of the respective $50.0 million of 5.50% notes due to changes in the benchmark interest rate (i.e., six-month LIBOR rate). We settled the interest rate swap contracts during the second quarter of fiscal year 2006, receiving approximately $1.8 million in cash. The corresponding fair value hedge carrying value adjustment of $1.8 million recognized as a component of debt is being amortized as a favorable adjustment to interest expense over the same period in which the related interest costs on the $300.0 million notes are recognized in earnings. Approximately $0.2 million of the fair value hedge carrying value adjustment will be recognized as an adjustment to interest expense during the next twelve months.

      On March 15, 1999, our Board of Directors authorized us to repurchase up to 5.0 million shares of our outstanding common stock to be used for general corporate purposes. Since March 15, 1999, we have repurchased a total of 3.7 million shares at an average price of $11.45 per share. There were no shares repurchased during the first six months of fiscal years 2006 or 2005.

      As of July 31, 2005, we had $218.3 million of cash and $499.6 million of unused borrowing capacity on our revolving credit agreement (subject to borrowing limitations under long-term debt covenants) to fund ongoing operating requirements, scheduled principal amortization and interest on our senior notes due 2005 through 2014, anticipated capital expenditures, future acquisitions of businesses and other general corporate purposes. We also have an effective shelf registration statement on Form S-3 on file with the SEC for the offer and sale, from time-to-time, of up to an aggregate of $700.0 million of equity and/or debt securities, less the approximately $120.0 million of gross proceeds associated with our common stock offering on October 12, 2004.

      Our financing initiatives allow us to further develop our capital structure as the business expands, and together with continued strong financial performance, will provide us with the ability to fund and achieve our strategic growth goals. We believe we have sufficient borrowing capacity and cash on hand to take advantage of growth and business opportunities.

Off-balance Sheet Arrangements

      As more fully disclosed in our fiscal year 2005 Annual Report, we have entered into operating leases for certain facilities, vehicles and equipment. Many of our vehicle and equipment leases typically contain set residual values and residual value guarantees. We believe that the likelihood of any material amounts being funded in connection with these commitments is remote. There have been no material changes outside of the ordinary course of business in our off-balance sheet arrangements set forth in the Management’s Discussion and Analysis of Financial Condition and Results of Operations section of our fiscal year 2005 Annual Report.

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Contractual Obligations

      There have been no material changes outside of the ordinary course of business in our contractual obligations set forth in the Management’s Discussion and Analysis of Financial Condition and Results of Operations section of our fiscal year 2005 Annual Report.

Recent Accounting Pronouncements

      In December 2004, the Financial Accounting Standards Board (“FASB”) issued SFAS No. 123R, Share-Based Payment (“SFAS 123R”), which supersedes Accounting Principles Board (APB) Opinion No. 25, Accounting for Stock Issued to Employees, and its related implementation guidance. This statement requires that the compensation cost related to share-based payment transactions be recognized in the financial statements based on the estimated fair value of the equity-based compensation awards issued as of the grant date. The related compensation expense will be based on the estimated number of awards expected to vest and will be recognized over the period during which an employee is required to provide services in exchange for the award. The statement requires the use of assumptions and judgments about future events and some of the inputs to the valuation models will require considerable judgment by management. We will be required to adopt the provisions of SFAS 123R on February 1, 2006. We are currently evaluating the impact that the ultimate adoption of SFAS 123R will have on our financial position and results of operations. The Stock-Based Compensation section in Note 1 to the consolidated financial statements contains the pro forma impact on net income and earnings per share if the fair value based method under SFAS 123 had been applied to all outstanding and unvested awards during the first half of fiscal years 2006 and 2005.

      In June 2005, the FASB issued SFAS No. 154, Accounting Changes and Error Corrections (“SFAS 154”) a replacement of APB Opinion No. 20, Accounting Changes, and SFAS No. 3, Reporting Accounting Changes in Interim Financial Statements. SFAS 154 will require companies to account for and apply changes in accounting principles retrospectively to prior periods’ financial statements instead of recording a cumulative effect adjustment within the period of the change unless it is impracticable to determine the effects of the change to each period being presented. SFAS 154 is effective for accounting changes made in annual periods beginning after December 15, 2005. We will adopt the new accounting provisions effective February 1, 2006. We do not expect the adoption of SFAS 154 to have a material effect on our financial position, results of operations or cash flows.

Critical Accounting Policies

      Our significant accounting policies are more fully described in the notes to our consolidated financial statements included in our fiscal year 2005 Annual Report. Certain of our accounting policies require the application of significant judgment by management in selecting the appropriate assumptions for calculating financial estimates. As with all judgments, they are subject to an inherent degree of uncertainty. These judgments are based on historical experience, current economic trends in the industry, information provided by customers and vendors, information available from other outside sources and management’s estimates, as appropriate. Our critical accounting policies relating to the allowance for doubtful accounts, inventories, consideration received from vendors, impairment of long-lived assets, and self-insurance reserves are described in the Annual Report. During the six months ended July 31, 2005, there were no material changes to any of our critical accounting policies.

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Item 3. Quantitative and Qualitative Disclosures about Market Risk

      We are exposed to market risk from changes in the prices of certain of our products that result from commodity price fluctuations and from changes in interest rates on outstanding variable-rate debt.

Commodity Price Risk

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

      As discussed above, our results of operations during the first six months of fiscal year 2005 were favorably impacted by our ability to pass increases in the prices of certain commodity-based products to our customers. Price changes for commodity-based products were mixed during the first six months of fiscal year 2006 as compared to the prior year, resulting in a modest price impact to our total reported net sales during the current year, the impact from which was offset by a higher average cost of inventory sold. Such commodity price fluctuations have from time-to-time created cyclicality in our financial performance and could continue to do so in the future.

Interest Rate Risk

      As a result of the repayment of amounts outstanding under our $500.0 million revolving credit agreement during October 2004 with $203.5 million of the proceeds from our issuance on October 12, 2004 of $300.0 million in original principal amount of 5.50% notes due on October 15, 2014, all of our outstanding debt as of July 31, 2005 was fixed-rate debt. On November 10, 2004 and November 30, 2004, we entered into separate interest rate swap contracts with two distinct financial institutions that each effectively converted $50.0 million (i.e., an aggregate of $100.0 million) of our $300.0 million in original principal amount of 5.50% notes, due October 15, 2014, to floating rate debt based on the six-month LIBOR rate plus 0.6985% and 0.79%, respectively, with semi-annual settlements through October 15, 2014. The interest rate swap contracts were designated as fair value hedges of the changes in fair value of the respective $50.0 million of 5.50% notes due to changes in the benchmark interest rate (i.e., six-month LIBOR rate). We settled the interest rate swap contracts during the second quarter of fiscal year 2006, receiving approximately $1.8 million in cash. The corresponding fair value hedge carrying value adjustment of $1.8 million recognized as a component of debt is being amortized as a favorable adjustment to interest expense over the same period in which the related interest costs on the $300.0 million notes are recognized in earnings. Approximately $0.2 million of the fair value hedge carrying value adjustment will be recognized as an adjustment to interest expense during the next twelve months.

      We manage our interest rate risk by maintaining a balance between fixed-and variable-rate debt in accordance with our formally documented interest rate risk management policy, with a targeted ratio of 60% fixed and 40% variable rate debt. We are currently evaluating alternatives in order to achieve our targeted ratio, including the use of additional derivative instruments. Based upon our current capital structure, a hypothetical 10% increase or decrease in interest rates from their July 31, 2005 levels would not have a material impact on our results of operations but would have an impact on the fair value of our outstanding debt, which has an average interest rate of approximately 6.4%.

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Item 4. Controls and Procedures

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

      During the first six months of fiscal year 2006, there were no changes in internal control over financial reporting that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting other than the information systems changes currently ongoing. These information systems changes involve the design of our computer system architecture and the implementation of the Oracle Financial System (“Oracle Financials”). We have completed the first phase of our Oracle Financials implementation, which includes the general ledger, credit management, and fixed assets modules. The second phase of our Oracle Financials implementation, expected to be completed in early to mid calendar year 2006, involves the implementation of the incentive compensation, collections, customer payment processing, treasury, and accounts payable disbursement modules. These changes in our systems and their design will provide us better visibility across all our businesses, facilitating our ability to operate more efficiently and effectively by streamlining various financial processes and eliminating many of the manual and redundant tasks previously performed using the old systems.

      We believe the conversion and implementation of these initiatives further strengthens our internal control over financial reporting, as well as automates a number of our processes and activities.

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

35

PART II. OTHER INFORMATION

HUGHES SUPPLY, INC.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

      On March 15, 1999, our Board of Directors authorized us to repurchase up to 5.0 million shares of our outstanding common stock to be used for general corporate purposes. Since March 15, 1999, we have repurchased approximately 3.7 million shares at an average price of $11.45 per share. We have not repurchased any shares since fiscal year 2004 under the aforementioned share repurchase plan.

      The following table sets forth our repurchases of equity securities registered under Section 12 of the Exchange Act that have occurred during the three months ended July 31, 2005.

							Maximum
					Total number		number (or
					of shares		approximate
					(or units)		dollar value) of
	Total				purchased as		shares (or units)
	number of				part of publicly		that may yet be
	shares		Average		announced		purchased under
	(or units)		price paid		plans or		the plans or
Period	purchased		per share		programs		programs
May 2005		—		—		—		1,337,200
(May 1 — May 28)
June 2005		—		—		—		1,337,200
(May 29 — June 25)
July 2005		—		—		—		1,337,200
(June 26 — July 31)

      Dividends have been paid quarterly since 1980 with an increase in the dividend rate per share each fiscal year beginning in fiscal year 2003. Payment of future dividends, if any, will be at the discretion of our Board of Directors, after taking into account various factors, including earnings, capital requirements and surplus, financial position, contractual restrictions and other relevant business considerations. Accordingly, there can be no assurance that dividends will be declared or paid any time in the future. Dividend covenants in our debt agreements at July 31, 2005 limit the amount of retained earnings available for the payment of dividends to $166.1 million.

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Item 4. Submission of Matters to a Vote of Security Holders

      The 2005 Annual Meeting of Shareholders (the “annual meeting”) was held on May 19, 2005, pursuant to notice given to shareholders of record on March 25, 2005 at which date holders of 62,879,234 shares of our common stock were present in person or by proxy. At the annual meeting, David H. Hughes, Vincent S. Hughes, and Amos R. McMullian were elected directors of the Company with terms to expire at the 2008 annual meeting and until the election and qualification of their respective successors or until the earlier of their death, resignation, or removal.

      Our shareholders voted to amend and restate our Restated Articles of Incorporation to increase the number of authorized shares of common stock from 100,000,000 to 200,000,000 and to remove historical provisions in the Restated Articles of Incorporation that describe our purposes and powers.

      Our shareholders also voted to approve the Hughes Supply, Inc. 2005 Executive Stock Plan, an incentive program under which 2,200,000 common shares are reserved to provide for grants of options to purchase common shares, award restricted shares, and grant stock appreciation rights to our key employees and directors.

      Our shareholders also voted to approve the Hughes Supply, Inc. 2005 Annual Incentive Plan, the purpose of which is to motivate and reward short-term performance by providing cash bonus payments to executive officers designated by the Compensation Committee, based upon the achievement of pre-established and objective performance goals. The 2005 Annual Incentive Plan also provides for discretionary bonus awards.

      The tabulation of the votes present in person or by proxy at the annual meeting with respect to the above matters was as follows:

			Against/
Matters Voted	For		Withheld		Abstained		Broker Non Vote
Election of David H. Hughes		59,276,863		3,602,371		—		—
Election of Vincent S. Hughes		58,512,491		4,366,743		—		—
Election of Amos R. McMullian		60,347,475		2,531,759		—		—
Approval to amend and restate the Restated Articles of Incorporation		55,231,919		7,505,891		141,424		—
Approval of the Hughes Supply, Inc. 2005 Executive Stock Plan		47,513,335		8,831,613		1,665,484		4,868,802
Approval of the Hughes Supply, Inc. 2005 Annual Incentive Plan		58,530,406		2,684,595		1,664,233		—

Item 6. Exhibits

10	.1	Amended and Restated Hughes Supply, Inc. 1997 Executive Stock Plan.
10	.2	Amended Hughes Supply, Inc. 2005 Executive Stock Plan.
31	.1	Rule 13a-14(a)/15d-14(a) Certification of President and Chief Executive Officer.
31	.2	Rule 13a-14(a)/15d-14(a) Certification of Executive Vice President and Chief Financial Officer.
32	.1	Certification Pursuant to Section 1350 of Chapter 63 of Title 18 of the United States Code by the President and Chief Executive Officer.
32	.2	Certification Pursuant to Section 1350 of Chapter 63 of Title 18 of the United States Code by the Executive Vice President and Chief Financial Officer.

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SIGNATURES

      Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

	Hughes Supply, Inc.
Date: September 9, 2005	By: /s/ THOMAS I. MORGAN
	Thomas I. Morgan     President and Chief Executive Officer
Date: September 9, 2005	By: /s/ DAVID BEARMAN
	David Bearman Executive Vice President and Chief Financial Officer (Principal Financial Officer and Principal Accounting Officer)

38 EX-10.1 2 g97277exv10w1.htm AMENDED & RESTATED 1997 EXECUTIVE STOCK PLAN

Exhibit 10.1

HUGHES SUPPLY, INC. 1997 EXECUTIVE STOCK PLAN

Amended and Restated Plan
(as amended through March 1, 2005)

SECTION 1. BACKGROUND AND PURPOSE

     The name of this Plan is the Hughes Supply, Inc. 1997 Executive Stock Plan (the “Plan”). The purpose of this Plan is to promote the interest of the Company and its Subsidiaries through grants to Key Employees and Non-Employee Directors of Options to purchase Stock, grants of stock appreciation rights and grants of Restricted Stock, including Performance-Based Restricted Stock, in order (1) to attract and retain Key Employees and Non-Employee Directors, (2) to provide an additional incentive to Key Employees and Non-Employee Directors to work to increase the value of Stock and (3) to establish or increase Key Employees’ and Non-Employee Directors’ stake in the future of the Company which corresponds to the stake of the Company’s shareholders.

SECTION 2. DEFINITIONS

     Each term set forth in this Section 2 shall have the meaning set forth opposite such term for purposes of this Plan and, for purposes of such definitions, the singular shall include the plural and the plural shall include the singular.

     2.1 Board — means the Board of Directors of the Company.

     2.2 Cause — means any of the following:

     (a) willful or gross neglect by the Key Employee of his duties;

     (b) conviction of the Key Employee of any felony, or of any lesser crime or offense materially and adversely affecting the property, reputation or goodwill of the Company or its successors;

     (c) any material breach by the Key Employee of the terms of an employment agreement between the Key Employee and the Company;

     (d) willful misconduct by the Key Employee in connection with the performance of his duties;

     (e) theft or misappropriation of business assets of the Company or of any existing or prospective customer of the Company;

     (f) poor or inadequate work performance, which has not been cured within thirty (30) days following written notice;

1

     (g) excessive tardiness;

     (h) violation of any securities laws as determined by the Company;

or

     (i) any other conduct detrimental to the business of the Company, including, without limitation, the failure by the Key Employee to comply with the policies and procedures of the Company which may be in effect from time to time.

     2.3 Change in Control — means the first to occur of the following events:

     (a) any one person, or more than one person acting as a group, acquires ownership of stock of the Company that, together with stock held by such person or group, possesses more than fifty percent (50%) of the total Fair Market Value or total voting power of the stock of the Company; provided, however, that if any one person, or more than one person acting as a group, is considered to own more than fifty percent (50%) of the total Fair Market Value or total voting power of the stock of the Company, the acquisition of additional stock by the same person or persons will not be considered a Change in Control. Notwithstanding the foregoing, an increase in the percentage of stock of the Company owned by any one person, or persons acting as a group, as a result of a transaction in which the Company acquires its stock in exchange for property will be treated as an acquisition of stock of the Company for purposes of this subsection (a);

     (b) during any period of twelve (12) consecutive months, individuals who at the beginning of such period constituted the Board (together with any new or replacement directors whose election by the Board, or whose nomination for election by the Company’s shareholders, was approved by a vote of at least a majority of the directors then still in office who were either directors at the beginning of such period or whose election or nomination for election was previously so approved) cease for any reason to constitute a majority of the directors then in office; or

     (c) any one person, or more than one person acting as a group, acquires (or has acquired during the 12-month period ending on the date of the most recent acquisition by the person or persons) assets from the Company, outside of the ordinary course of business, that have a gross fair market value equal to or more than forty percent (40%) of the total gross fair market value of all of the assets of the Company immediately prior to such acquisition or acquisitions. For purposes of this subsection (c), “gross fair market value” means the value of the assets of the Company, or the value of the assets being disposed of, determined without regard to any liabilities associated with such assets. Notwithstanding anything to the contrary in this Plan, the following shall not be treated as a Change in Control under this subsection (c):

2

     (i) a transfer of assets from the Company to a shareholder of the Company (determined immediately before the asset transfer);

     (ii) a transfer of assets from the Company to an entity, fifty percent (50%) or more of the total value or voting power of which is owned, directly or indirectly, by the Company;

     (iii) a transfer of assets from the Company to a person, or more than one person acting as a group, that owns, directly or indirectly, fifty percent (50%) or more of the total value or voting power of all the outstanding stock of the Company; or

     (iv) a transfer of assets from the Company to an entity, at least fifty percent (50%) of the total value or voting power of which is owned, directly or indirectly, by a person described in (iii) above.

     2.4 Change in Control Price — means, as determined by the Board,

     (a) the highest Fair Market Value of a share of Stock within the 60-day period immediately preceding the date of determination of the Change in Control Price by the Board (the “60-Day Period”), or

     (b) the highest price paid or offered per share of Stock, as determined by the Board, in any bona fide transaction or bona fide offer related to the Change in Control, at any time within the 60-Day Period, or

     (c) some lower price as the Board, in its discretion, determines to be a reasonable estimate of the Fair Market Value of a share of Stock.

     2.5 Chief Executive Officer — means the Chief Executive Officer of the Company.

     2.6 Code — means the Internal Revenue Code of 1986, as amended.

     2.7 Committee — means the Compensation Committee of the Board to which the responsibility to administer this Plan is delegated by the Board and which shall consist of at least two members of the Board all of whom are “outside directors” within the meaning of Code Section 162(m).

     2.8 Company — means Hughes Supply, Inc., a Florida company, and any successor to such corporation.

     2.9 Disability — has the same meaning as provided in the long-term disability plan or policy maintained or, if applicable, most recently maintained, by the Company or, if applicable, any affiliate of the Company for the Grantee. If no

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long-term disability plan or policy was ever maintained on behalf of the Grantee or, if the determination of Disability relates to an ISO, Disability shall mean that condition described in Code Section 22(e)(3), as amended from time to time. In the event of a dispute, the determination of Disability shall be made by the Board and shall be supported by advice of a physician competent in the area to which such Disability relates.

     2.10 Exchange Act — means the Securities Exchange Act of 1934, as amended.

     2.11 Fair Market Value — refers to the determination of value of a share of Stock. If the Stock is actively traded on any national securities exchange or any Nasdaq quotation or market system, Fair Market Value shall mean the closing price at which sales of Stock shall have been sold on the most recent trading date immediately prior to the date of determination, as reported by any such exchange or system selected by the Committee on which the shares of Stock are then traded. If the shares of Stock are not actively traded on any such exchange or system, Fair Market Value shall mean the arithmetic mean of the bid and asked prices for the shares of Stock on the most recent trading date within a reasonable period prior to the determination date as reported by such exchange or system. If there are no bid and asked prices within a reasonable period or if the shares of Stock are not traded on any exchange or system as of the determination date, Fair Market Value shall mean the fair market value of a share of Stock as determined by the Committee taking into account such facts and circumstances deemed to be material by the Committee to the value of the Stock in the hands of the Grantee; provided that, for purposes of granting awards other than ISOs, Fair Market Value of a share of Stock may be determined by the Committee by reference to the average market value determined over a period certain or as of specified dates, to a tender offer price for the shares of Stock (if settlement of an award is triggered by such an event) or to any other reasonable measure of fair market value and provided further that, for purposes of granting ISOs, Fair Market Value of a share of Stock shall be determined in accordance with the valuation principles described in the regulations promulgated under Code Section 422.

     2.12 Family Member — means any child, stepchild, grandchild, parent, stepparent, grandparent, spouse, former spouse, sibling, niece, nephew, mother-in-law, father-in-law, son-in-law, brother-in-law, or sister-in-law of the Grantee, including adoptive relationships, any person sharing the Grantee’s household (other than a tenant or employee), a trust in which these persons have more than fifty percent of the beneficial interest, a foundation in which these persons (or the Grantee) control the management of assets, and any other entity in which these persons (or the Grantee) own more than fifty percent of the voting interests.

     2.13 Grantee — means a Key Employee or Non-Employee Director who receives a grant of an Option, a SAR or Restricted Stock.

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     2.14 ISO — means an option granted under this Plan to purchase Stock which is evidenced by an Option Agreement which provides that the option is intended to satisfy the requirements for an incentive stock option under Section 422 of the Code.

     2.15 Key Employee — means any employee of the Company or any Subsidiary, or any Outside Consultant, who, in the judgment of the Committee acting in its absolute discretion is a key to the success of the Company or such Subsidiary.

     2.16 Non-Employee Director — means a member of the Board who, on the date of determination, is not an employee of the Company.

     2.17 NQO — means an option granted under this Plan to purchase Stock which is evidenced by an Option Agreement which provides that the option shall not be treated as an incentive stock option under Section 422 of the Code.

     2.18 Option — means an ISO or a NQO.

     2.19 Option Agreement — means the written agreement or instrument which sets forth the terms of an Option granted to a Grantee under Section 7 of this Plan.

     2.20 Option Price — means the price which shall be paid to purchase one share of Stock upon the exercise of an Option granted under this Plan.

     2.21 Outside Consultant — means an independent contractor that regularly performs services for, provides goods to, or purchases goods or services from, the Company or any Subsidiary.

     2.22 Parent Corporation — means any corporation which is a parent of the Company within the meaning of Section 424(e) of the Code.

     2.23 Performance-Based Restricted Stock — means Stock granted to a Grantee under Section 8.2 of this Plan.

     2.24 Plan — means this Hughes Supply, Inc. 1997 Executive Stock Plan, as amended from time to time.

     2.25 Restricted Stock — means Stock granted to a Grantee under Section 8 of this Plan, including Performance-Based Restricted Stock.

     2.26 Restricted Stock Agreement — means the written agreement or instrument which sets forth the terms of a Restricted Stock grant to a Grantee under Section 8 of this Plan.

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     2.27 Retirement — means a Key Employee’s termination of employment, other than a termination for Cause, after the attainment of age fifty-five (55) if the sum of the Key Employee’s age and number of years of full-time employment by the Company equals or exceeds seventy (70); provided, however, that the Committee shall have the authority, but not the obligation, to treat a Key Employee’s termination of employment, other than a termination for Cause, as a Retirement notwithstanding the fact that the Key Employee has not attained age fifty-five (55), or the sum of the Key Employee’s age and number of years of full-time employment by the Company does not equal or exceed seventy (70), if the Committee, acting in its absolute discretion determines that such action is appropriate under the circumstances.

     2.28 Rule 16b-3 — means the exemption under Rule 16b-3 to Section 16(b) of the Exchange Act or any successor to such rule.

     2.29 SAR — means a right which is granted pursuant to the terms of Section 7 of this Plan to the appreciation in the Fair Market Value of a share of Stock in excess of the SAR Share Value for such a share.

     2.30 SAR Agreement — means the written agreement or instrument which sets forth the terms of a SAR granted to a Grantee under Section 7 of this Plan.

     2.31 SAR Share Value — means the figure which is set forth in each SAR Agreement and which is no less than the Fair Market Value of a share of Stock on the date the related SAR is granted.

     2.32 Stock — means the One Dollar ($1.00) par value common stock of the Company.

     2.33 Subsidiary — means any corporation which is a subsidiary corporation (within the meaning of Section 424(f) of the Code) of the Company except a corporation which has subsidiary corporation status under Section 424(e) of the Code exclusively as a result of the Company or its subsidiary holding stock in such corporation as a fiduciary with respect to any trust, estate, conservatorship, guardianship or agency.

     2.34 Ten Percent Shareholder — means a person who owns (after taking into account the attribution rules of Section 424(d) of the Code) more than ten percent of the total combined voting power of all classes of stock of either the Company, a Subsidiary or a Parent Corporation.

     2.35 Vesting Date — means:

     (a) with respect to an Option, the date on which the Option grant would become fully vested in accordance with the terms set forth in the Option

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Agreement pursuant to Section 7.7(a) without regard to termination of the Grantee’s employment prior to such date; or

     (b) with respect to Restricted Stock, the date on which the Restricted Stock would become fully vested as a result of satisfaction of the forfeiture conditions set forth in the Restricted Stock Agreement pursuant to Section 8.2(d) or Section 8.3(c) without regard to termination of the Grantee’s employment prior to such date.

SECTION 3. SHARES RESERVED UNDER PLAN

     There shall be 6,500,000 shares of Stock reserved for use under this Plan. All such shares of Stock shall be reserved to the extent that the Company deems appropriate from authorized but unissued shares of Stock and from shares of Stock which have been reacquired by the Company. Furthermore, any shares of Stock subject to an Option which remain unissued after the cancellation, expiration or exchange of such Option and any Restricted Shares which are forfeited thereafter shall again become available for use under this Plan, but any shares of Stock used to satisfy a withholding obligation under Section 14.3 shall not again become available for use under this Plan. The exercise of a SAR or a surrender right in an Option with respect to any shares of Stock shall be treated for purposes of this Section 3 the same as the exercise of an Option for the same number of shares of Stock.

SECTION 4. EFFECTIVE DATE

     This Plan was originally effective on April 2, 1997, and was amended and restated effective April 9, 2003. The Plan shall be amended and restated effective March 1, 2005.

SECTION 5. COMMITTEE

     This Plan shall be administered by the Committee. The Committee acting in its absolute discretion shall exercise such powers and take such action as expressly called for under this Plan and, further, the Committee shall have the power to interpret this Plan and (subject to Section 11, Section 12 and Section 13) to take such other action in the administration and operation of this Plan as the Committee deems equitable under the circumstances, which action shall be binding on the Company, on each affected Key Employee or Non-Employee Director and on each other person directly or indirectly affected by such action. The Committee shall use its best efforts to grant Options, SARs and Restricted Stock under this Plan to a Grantee which will qualify as “performance-based compensation” for purposes of Section 162(m) of the Code, except where the Committee deems that the Company’s interests when viewed broadly will be better served by a grant which is free of the

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conditions required to so qualify any such grant for purposes of Section 162(m) of the Code.

SECTION 6. ELIGIBILITY

     Only Key Employees and Non-Employee Directors shall be eligible for the grant of Options, SARs or Restricted Stock under this Plan.

SECTION 7. OPTIONS AND SARs

     7.1 Options. The Committee acting in its absolute discretion shall have the right to grant Options to Key Employees and Non-Employee Directors under this Plan from time to time to purchase shares of Stock; provided, however, the Committee shall not grant an ISO to an Outside Consultant or a Non-Employee Director. Each grant of an Option shall be evidenced by an Option Agreement, and each Option Agreement shall set forth whether the Option is an ISO or a NQO and shall set forth such other terms and conditions of such grant as the Committee acting in its absolute discretion deems consistent with the terms of this Plan.

     7.2 $100,000 Limit. The aggregate Fair Market Value of ISOs granted to a Key Employee under this Plan and incentive stock options granted to such Key Employee under any other stock option plan adopted by the Company, a Subsidiary or a Parent Corporation which first become exercisable in any calendar year shall not exceed $100,000; provided, however, that if the limitation is exceeded, the ISOs which cause the limitation to be exceeded will be treated as NQOs. Such Fair Market Value figure shall be determined by the Committee on the date the ISO or other incentive stock option is granted, and the Committee shall interpret and administer the limitation set forth in this Section 7.2 in accordance with Section 422(d) of the Code.

     7.3 Share Limitation. A Key Employee or Non-Employee Director may be granted in any calendar year one or more Options, or one or more SARs, or one or more Options and SARs in any combination which, individually or in the aggregate, relate to no more than 100,000 shares of Stock.

     7.4 Option Price. Subject to adjustment in accordance with Section 11, the Option Price for each share of Stock subject to an Option must be set forth in the applicable Option Agreement. In no event shall the Option Price for each share of Stock subject to an ISO be less than the Fair Market Value of a share of Stock on the date the Option ISO is granted. With respect to each grant of an ISO to a Key Employee who is a Ten Percent Shareholder, the Option Price must not be less than 110% of the Fair Market Value of a share of Stock as of the date the Option is granted. With respect to each grant of a NQO, the Committee is authorized to establish any Option Price, in its sole discretion. The Option Price may not be

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amended or modified after the grant of the Option, and an Option may not be surrendered in consideration of or exchanged for a grant of a new Option having an Option Price below that of the Option which was surrendered or exchanged.

     7.5 Payment. The Option Price shall be payable in full upon the exercise of any Option, and an Option Agreement at the discretion of the Committee can provide for the payment of the Option Price:

     (a) in cash or by a check acceptable to the Company or its designee,

     (b) through the delivery or attestation to the ownership of Stock which has been held by the Grantee for a period acceptable to the Company and which Stock or attestation is otherwise acceptable to the Company or its designee,

     (c) through a broker facilitated exercise procedure acceptable to the Company, or

     (d) in any combination of the three methods described in this Section 7.5 which is acceptable to the Company or its designee.

Any payment made in or by attestation to the ownership of Stock shall be treated as equal to the Fair Market Value of such Stock on the date the indicia of ownership of such Stock or the attestation is delivered to the Company or its designee in a form acceptable to the Company or its designee.

     7.6 Exercise Period. Any ISO granted to a Key Employee who is not a Ten Percent Shareholder is not exercisable after the expiration of ten (10) years after the date the Option is granted. Any ISO granted to a Key Employee who is a Ten Percent Shareholder is not exercisable after the expiration of five (5) years after the date the Option is granted. The term of any NQO must be specified in the applicable Option Agreement. The date an Option is granted is the date on which the Committee has approved the terms and conditions of the Option and has determined the recipient of the Option and the number of Shares of Stock covered by the Option.

     7.7 Conditions to Exercise of an Option.

     (a) Each Option granted under the Plan is exercisable by whom, at such time or times, or upon the occurrence of such event or events, and in such amounts as the Committee shall specify in the Option Agreement; provided, however, that subsequent to the grant of an Option, the Committee, at any time before complete termination of the Option, may accelerate the time or times at which such Option may be exercised in whole or in part, including, without limitation, upon a Change in Control and may permit the Grantee or any other

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designated person to exercise the Option, or any portion thereof, for all or part of the remaining Option term, notwithstanding any provisions in the Option Agreement to the contrary.

     (b) In the event of termination of employment of a Key Employee due to Retirement prior to the Vesting Date of the Option held by such Key Employee:

     (1) on the Vesting Date, such Option will become partially vested, with the vested percentage of such Option determined by the ratio that the period from the date such Option is granted to the date of Retirement bears to the period from the date such Option is granted to the Vesting Date;

     (2) on the date of Retirement, the portion of such Option that will not become vested in accordance with Section 7.7(b)(1) will immediately expire and terminate; and

     (3) the portion of such Option that becomes vested in accordance with Section 7.7(b)(1) will expire, terminate and become unexercisable one (1) year after the Vesting Date.

     7.8 Termination of an ISO. Except as otherwise provided above in Section 7.7(b), with respect to an ISO, in the event of termination of employment of a Key Employee, the Option or portion thereof held by the Key Employee which is unexercised will expire, terminate, and become unexercisable no later than the expiration of three (3) months after the date of termination of employment; provided, however, that in the case of a holder whose termination of employment is due to death or Disability, one (1) year shall be substituted for such three (3) month period. For purposes of this Section 7.8, termination of employment by the Key Employee will not be deemed to have occurred if the Key Employee is employed by another corporation (or a parent or subsidiary corporation of such other corporation) which has assumed the ISO of the Key Employee in a transaction to which Code Section 424(a) is applicable.

     7.9 Special Provisions for Certain Substitute Options. Notwithstanding anything to the contrary in Section 7, any Option issued in substitution for an option previously issued by another entity, which substitution occurs in connection with a transaction to which Code Section 424(a) is applicable, may provide for an exercise price computed in accordance with Code Section 424(a) and the regulations thereunder and may contain such other terms and conditions as the Committee may prescribe to cause substitute Option to contain as nearly as possible the same terms and conditions (including the applicable vesting and termination provisions) as those conditions in the previously issued option being replaced thereby.

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     7.10 Nontransferability. Except to the extent the Committee deems permissible under Section 422(b) of the Code and consistent with the best interests of the Company, neither an Option granted under this Plan, and any related surrender rights, nor a SAR granted under this Plan shall be transferable by a Grantee other than by will or by the laws of descent and distribution, and such Option and any such surrender rights and any such SAR shall be exercisable during a Grantee’s lifetime only by the Grantee. To the extent authorized by the Committee in its sole discretion, an Option granted under this Plan, and any related surrender rights, or a SAR granted under this Plan may be transferred or assigned to one or more Family Members of the Grantee, provided any such transfer or assignment is made without consideration to the Grantee. The Family Member or Family Members to whom an Option or a SAR is transferred thereafter shall be treated as the Grantee under this Plan.

     7.11 SARs and Surrender Rights.

     (a) SARs. The Committee acting in its absolute discretion may grant a Key Employee or Non-Employee Director a SAR which will give the Grantee the right to the appreciation in one, or more than one, share of Stock, and any such appreciation shall be measured from the related SAR Share Value. The Committee shall have the right to make any such grant subject to such additional terms as the Committee deems appropriate, and such terms shall be set forth in the related SAR Agreement.

     (b) Option Surrender Rights. The Committee acting in its absolute discretion also may incorporate a provision in an Option Agreement to give a Grantee the right to surrender his or her Option in whole or in part in lieu of the exercise (in whole or in part) of that Option to purchase Stock on any date that

     (1) the Fair Market Value of the Stock subject to such Option exceeds the Option Price for such Stock, and

     (2) the Option to purchase such Stock is otherwise exercisable.

     (c) Procedure. The exercise of a SAR or a surrender right in an Option shall be effected by the delivery of the related SAR Agreement or Option Agreement to the Committee (or to its delegate) together with a statement signed by the Grantee which specifies the number of shares of Stock as to which the Grantee, as appropriate, exercises his or her SAR or exercises his or her right to surrender his or her Option and (at the Grantee’s option) how he or she desires payment to be made with respect to such shares.

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     (d) Payment. A Grantee who exercises his or her SAR or right to surrender his or her Option shall (to the extent consistent with the exemption under Rule 16b-3) receive a payment in cash or in Stock, or in a combination of cash and Stock, equal in amount on the date such exercise is effected to: (i) the number of shares of Stock with respect to which, as applicable, the SAR or the surrender right is exercised times (ii) the excess of the Fair Market Value of a share of Stock on such date over, as applicable, the SAR Share Value for a share of Stock subject to the SAR or the Option Price for a share of stock subject to an Option. Unless otherwise specified by the Committee acting in its absolute discretion, the Company shall determine the form and timing of such payment, and the Company shall have the right (1) to take into account whatever factors the Company deems appropriate under the circumstances, including any written request made by the Grantee and delivered to the Company and (2) to forfeit a Grantee’s right to payment of cash in lieu of a fractional share of stock if the Company deems such forfeiture necessary in order for the surrender of his or her Option under this Section 7.11 to come within the exemption under Rule 16b-3. Any cash payment under this Section 7.11 shall be made from the Company’s general assets, and a Grantee shall be no more than a general and unsecured creditor of the Company with respect to such payment.

     (e) Restrictions. Each SAR Agreement and each Option Agreement which incorporates a provision to allow a Grantee to surrender his or her Option shall incorporate such additional restrictions on the exercise of such SAR or surrender right as the Committee deems necessary to satisfy the conditions to the exemption under Rule 16b-3.

SECTION 8. RESTRICTED STOCK

     8.1 Committee Action. The Committee acting in its absolute discretion shall have the right to grant Restricted Stock to Key Employees and Non-Employee Directors under this Plan from time to time. However, no more than 3,250,000 shares of Stock shall be granted as Restricted Stock from the shares otherwise available for grants under this Plan. Each Restricted Stock grant shall be evidenced by a Restricted Stock Agreement, and each Restricted Stock Agreement shall set forth the conditions, if any, which will need to be timely satisfied before the grant will be effective and the conditions, if any, under which the Grantee’s interest in the related Stock will be forfeited. The Committee may make grants of Performance-Based Restricted Stock and grants of Restricted Stock which is not Performance-Based Restricted Stock.

     8.2 Performance-Based Restricted Stock.

     (a) Effective Date. A grant of Performance-Based Restricted Stock shall be effective as of the date the Committee certifies that the applicable conditions described in Section 8.2(c) have been timely satisfied.

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     (b) Share Limitation. No more than 150,000 shares of Performance-Based Restricted Stock may be granted to a Key Employee or Non-Employee Director in any calendar year.

     (c) Grant Conditions. The Committee, acting in its absolute discretion, may select from time to time Key Employees and Non-Employee Directors to receive grants of Performance-Based Restricted Stock in such amounts as the Committee may, in its absolute discretion, determine, subject to any limitations provided in this Plan. The Committee shall make each grant subject to the attainment of certain performance targets. The Committee shall determine the performance targets which will be applied with respect to each grant of Performance-Based Restricted Stock at the time of grant, but in no event later than ninety (90) days after the commencement of the period of service to which the performance targets relate. The performance criteria applicable to Performance-Based Restricted Stock grants will be one or more of the following criteria: (i) Stock price; (ii) average annual growth in earnings per share; (iii) increase in shareholder value; (iv) earnings per share; (v) net income; (vi) return on assets; (vii) return on shareholders’ equity; (viii) increase in cash flow; (ix) operating profit or operating margins; (x) revenue growth of the Company; and (xi) operating expenses. The related Restricted Stock Agreement shall set forth the applicable performance criteria and the deadline for satisfying the performance criteria. Shares of Performance-Based Restricted Stock shall be unavailable under Section 3 for the period which begins on the date as of which such grant is made and, if a Performance-Based Restricted Stock grant fails to become effective in whole or in part under Section 8.2, such period shall end on the date of such failure (i) for the related shares of Stock subject to such grant (if the entire grant fails to become effective) or (ii) for the related shares of Stock subject to that part of the grant which fails to become effective (if only part of the grant fails to become effective). If such period ends for any such shares of Stock, such shares shall be treated under Section 3 as forfeited at the end of such period and shall again become available under Section 3.

     (d) Forfeiture Conditions. The Committee may make each Performance-Based Restricted Stock grant (if, when and to the extent that the grant becomes effective) subject to one, or more than one, objective employment, performance or other forfeiture condition which the Committee acting in its absolute discretion deems appropriate under the circumstances for Key Employees or Non-Employee Directors generally or for a Grantee in particular, and the related Restricted Stock Agreement shall set forth each such condition and the deadline for satisfying each such forfeiture condition. A Grantee’s nonforfeitable interest in the shares of Stock related to a Performance-Based Restricted Stock grant shall depend on the extent to which each such condition is timely satisfied. Each share of Stock related to a Performance-Based Restricted Stock grant shall again become available under Section 3 after such grant becomes effective if such share is forfeited as a

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result of a failure to timely satisfy a forfeiture condition, in which event such share of Stock shall again become available under Section 3 as of the date of such failure. A Stock certificate shall be issued (subject to the conditions, if any, described in this Section 8.2) to, or for the benefit of, the Grantee with respect to the number of shares for which a grant has become effective as soon as practicable after the date the grant becomes effective.

     (e) In the event of termination of employment of a Key Employee due to Retirement after satisfaction of the grant conditions established pursuant to Section 8.2(c) but prior to the Vesting Date of the Performance-Based Restricted Stock granted to such Key Employee:

     (1) on the Vesting Date, such Performance-Based Restricted Stock grant will become partially vested, with the vested percentage determined by the ratio that the period from the date such Performance-Based Restricted Stock is granted to the date of Retirement bears to the period from the date such Performance-Based Restricted Stock is granted to the Vesting Date; and

     (2) the portion of the Performance-Based Restricted Stock that may be mathematically determined, based on the date of Retirement, to be unable to vest on the Vesting Date, will be forfeited on the date of Retirement; and

     (3) the portion of such Performance-Based Restricted Stock that does not become vested in accordance with Section 8.2(e)(1) will be forfeited.

     8.3 Restricted Stock Other Than Performance-Based Restricted Stock

     (a) Effective Date. A Restricted Stock grant which is not a grant of Performance-Based Restricted Stock shall be effective (a) as of the date set by the Committee when the grant is made or, if the grant is made subject to one, or more than one, condition, (b) as of the date the Company determines that such conditions have been timely satisfied.

     (b) Grant Conditions. The Committee acting in its absolute discretion may make the grant of Restricted Stock which is not Performance-Based Restricted Stock to a Grantee subject to the satisfaction of one, or more than one, objective employment, performance or other grant condition which the Committee deems appropriate under the circumstances for Key Employees or Non-Employee Directors generally or for a Grantee in particular, and the related Restricted Stock Agreement shall set forth each such condition and the deadline for satisfying each such grant condition. If a Restricted Stock grant which is not a grant of Performance-Based Restricted Stock will become effective only upon the satisfaction of one, or more than one, condition, the related shares of Stock shall be unavailable under Section 3 for the period which begins on the date as of which such grant is made and, if a Restricted Stock grant which is not a grant of Performance-Based

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Restricted Stock fails to become effective in whole or in part under Section 8.3, such period shall end on the date of such failure (i) for the related shares of Stock subject to such grant (if the entire grant fails to become effective) or (ii) for the related shares of Stock subject to that part of the grant which fails to become effective (if only part of the grant fails to become effective). If such period ends for any such shares of Stock, such shares shall be treated under Section 3 as forfeited at the end of such period and shall again become available under Section 3.

     (c) Forfeiture Conditions. The Committee may make each grant of Restricted Stock which is not a grant of Performance-Based Restricted Stock (if, when and to the extent that the grant becomes effective) subject to one, or more than one, objective employment, performance or other forfeiture condition which the Committee acting in its absolute discretion deems appropriate under the circumstances for Key Employees or Non-Employee Directors generally or for a Grantee in particular, and the related Restricted Stock Agreement shall set forth each such condition and the deadline for satisfying each such forfeiture condition. A Grantee’s nonforfeitable interest in the shares of Stock related to a grant of Restricted Stock which is not a grant of Performance-Based Restricted Stock shall depend on the extent to which each such condition is timely satisfied. Each share of Stock related to a Restricted Stock grant which is not a grant of Performance-Based Restricted Stock shall again become available under Section 3 after such grant becomes effective if such share is forfeited as a result of a failure to timely satisfy a forfeiture condition, in which event such share of Stock shall again become available under Section 3 as of the date of such failure. A Stock certificate shall be issued (subject to the conditions, if any, described in this Section 8.3) to, or for the benefit of, the Grantee with respect to the number of shares for which a grant has become effective as soon as practicable after the date the grant becomes effective.

     (d) In the event of termination of employment of a Key Employee due to Retirement after satisfaction of the grant conditions established pursuant to Section 8.3(b) but prior to the Vesting Date of the Restricted Stock which is not a grant of Performance-Based Restricted Stock:

     (1) on the Vesting Date, such Restricted Stock grant will become partially vested, with the vested percentage determined by the ratio that the period from the date such Restricted Stock is granted to the date of Retirement bears to the period from the date such Restricted Stock is granted to the Vesting Date; and

     (2) the portion of the Restricted Stock that may be mathematically determined, based on the date of Retirement, to be unable to vest on the Vesting Date, will be forfeited on the date of Retirement; and

     (3) the portion of such Restricted Stock that does not become vested in accordance with Section 8.3(d)(1) will be forfeited.

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     8.4 Dividends and Voting Rights.

     (a) Each Restricted Stock Agreement shall state whether the Grantee shall have a right to receive any cash dividends which are paid with respect to his or her Restricted Stock after the date his or her Restricted Stock grant has become effective and before the first day that the Grantee’s interest in such stock is forfeited completely or becomes completely nonforfeitable. If a Restricted Stock Agreement provides that a Grantee has no right to receive a cash dividend when paid, such agreement shall set forth the conditions, if any, under which the Grantee will be eligible to receive one, or more than one, payment in the future to compensate the Grantee for the fact that he or she had no right to receive any cash dividends on his or her Restricted Stock when such dividends were paid. If a Restricted Stock Agreement calls for any such payments to be made, the Company shall make such payments from the Company’s general assets, and the Grantee shall be no more than a general and unsecured creditor of the Company with respect to such payments.

     (b) If a Stock dividend is declared on such a share of Stock after the grant is effective but before the Grantee’s interest in such Stock has been forfeited or has become nonforfeitable, such Stock dividend shall be treated as part of the grant of the related Restricted Stock, and a Grantee’s interest in such Stock dividend shall be forfeited or shall become nonforfeitable at the same time as the Stock with respect to which the Stock dividend was paid is forfeited or becomes nonforfeitable.

     (c) If a dividend is paid other than in cash or Stock, the disposition of such dividend shall be made in accordance with such rules as the Committee shall adopt with respect to each such dividend.

     (d) A Grantee shall have the right to vote the Stock related to his or her Restricted Stock grant after the grant is effective with respect to such Stock but before his or her interest in such Stock has been forfeited or has become nonforfeitable.

     8.5 Satisfaction of Forfeiture Conditions. A share of Stock shall cease to be Restricted Stock at such time as a Grantee’s interest in such Stock becomes nonforfeitable under this Plan, and the certificate representing such share shall be reissued as soon as practicable thereafter without any further restrictions related to Section 8.2 or Section 8.3 and shall be transferred to the Grantee.

     8.6 Transferability. To the extent authorized by the Committee in its sole discretion, Restricted Stock granted under this Plan may be transferred or assigned to one or more Family Members of the Grantee, provided any such transfer

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or assignment is made without consideration to the Grantee. The Family Member or Family Members to whom Restricted Stock is transferred thereafter shall be treated as the Grantee under this Plan.

     8.7 Deferral of Receipt of Shares. The Company may permit a Grantee to defer receipt of the delivery of shares that would otherwise be due by virtue of the grant of or the lapse or waiver of restrictions with respect to Restricted Stock in accordance with such deferred compensation plans, agreements, rules and procedures established by the Company for such deferral.

SECTION 9. SECURITIES REGISTRATION AND ESCROW OF SHARES

     9.1 Securities Registration. Each Option Agreement, SAR Agreement and Restricted Stock Agreement shall provide that, upon the receipt of shares of Stock as a result of the exercise of an Option (or any related surrender right) or a SAR or the satisfaction of the forfeiture conditions under a Restricted Stock Agreement, the Grantee shall, if so requested by the Company, hold such shares of Stock for investment and not with a view of resale or distribution to the public and, if so requested by the Company, shall deliver to the Company a written statement satisfactory to the Company to that effect. As for Stock issued pursuant to this Plan, the Company at its expense shall take such action as it deems necessary or appropriate to register the original issuance of such Stock to a Grantee under the Securities Act of 1933, as amended, or under any other applicable securities laws or to qualify such Stock for an exemption under any such laws prior to the issuance of such Stock to a Grantee; however, the Company shall have no obligation whatsoever to take any such action in connection with the transfer, resale or other disposition of such Stock by a Grantee.

     9.2 Escrow of Shares. Any certificates representing the shares of Stock issued under the Plan shall be issued in the Grantee’s name, but, if the applicable Option Agreement, SAR Agreement or Restricted Stock Agreement (the “Agreement”) so provides, the shares of Stock will be held by a custodian designated by the Company (the “Custodian”). Each applicable Agreement providing for the transfer of shares of Stock to the Custodian shall appoint the Custodian as attorney-in-fact for the Grantee for the term specified in the applicable Agreement, with full power and authority in the Grantee’s name, place and stead to transfer, assign and convey to the Company any shares of Stock held by the Custodian for such Grantee, if the Grantee forfeits the shares of Stock under the terms of the applicable Agreement. During the period that the Custodian holds the shares subject to this Section, the Grantee will be entitled to all rights, except as provided in the applicable Agreement, applicable to shares of Stock not so held. Subject to Section 8.4 of this Plan, any dividends declared on shares of Stock held by the Custodian will, as provided in the applicable Agreement, be paid directly to the Grantee or, in the alternative, be retained by the Custodian or by the Company until the

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expiration of the term specified in the applicable Agreement and will then be delivered, together with any proceeds, with the shares of Stock to the Grantee or to the Company, as applicable.

SECTION 10. LIFE OF PLAN

     No Option or SAR or Restricted Stock shall be granted under this Plan after March 7, 2015, after which this Plan otherwise thereafter shall continue in effect until all outstanding Options (and any related surrender rights) and SAR have been exercised in full or no longer are exercisable and all Restricted Stock grants under this Plan have been forfeited or the forfeiture conditions on the related Stock have been satisfied in full.

SECTION 11. ADJUSTMENT

     The number of shares of Stock reserved under Section 3 of this Plan, the number of shares of Stock related to Restricted Stock grants under this Plan and any related grant conditions and forfeiture conditions, the number of shares of Stock subject to Options granted under this Plan and the Option Price of such Options and the SAR Grant Value and the number of shares of Stock related to any SAR all shall be adjusted by the Board in an equitable manner to reflect any change in the capitalization of the Company, including, but not limited to, such changes as stock dividends or stock splits. Furthermore, the Board shall have the right to adjust (in a manner which satisfies the requirements of Section 424(a) of the Code) the number of shares of Stock reserved under Section 3 of this Plan, the number of shares of Stock related to Restricted Stock grants under this Plan and any related grant conditions and forfeiture conditions, the number of shares subject to Options granted under this Plan and the Option Price of such Options and the SAR Grant Value and the number of shares of Stock related to any SAR in the event of any corporate transaction described in Section 424(a) of the Code which provides for the substitution or assumption of such Options, SARs or Restricted Stock grants. If any adjustment under this Section 11 would create a fractional share of Stock or a right to acquire a fractional share of Stock, such fractional share shall be disregarded and the number of shares of Stock reserved under this Plan and the number subject to any Options or related to any SARs or Restricted Stock grants under this Plan shall be the next lower number of shares of Stock, rounding all fractions downward. An adjustment made under this Section 11 by the Board shall be conclusive and binding on all affected persons.

SECTION 12. CHANGE IN CONTROL

     If there is a Change in Control and the Board determines that no adequate provision has been made as part of such Change in Control for either the assumption of the Options, SARs and Restricted Stock grants outstanding under

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this Plan or for the granting of comparable, substitute stock options, stock appreciation rights and restricted stock grants,

     (1) each outstanding Option and SAR at the direction and discretion of the Board

     (a) may (subject to such conditions, if any, as the Board deems appropriate under the circumstances) be cancelled unilaterally by the Company in exchange for the number of whole shares of Stock (and cash in lieu of a fractional share), if any, which each Grantee would have received if on the date set by the Board he or she had exercised his or her SAR in full or if he or she had exercised a right to surrender his or her outstanding Option in full under Section 7.11 of this Plan, or

     (b) may (subject to such conditions, if any, as the Board deems appropriate under the circumstances) be cancelled unilaterally by the Company in exchange for a cash payment equal to the Change in Control Price (reduced by the exercise price applicable to such Options or SARs), or

     (c) may be cancelled unilaterally by the Company if the Option Price or SAR Share Value equals or exceeds the Fair Market Value of a share of Stock on such date, and

     (2) the grant conditions, if any, and forfeiture conditions on all outstanding Restricted Stock grants may be deemed completely satisfied on the date set by the Board.

SECTION 13. AMENDMENT OR TERMINATION

     This Plan may be amended by the Board from time to time to the extent that the Board deems necessary or appropriate; provided, however, that any such amendment may be conditioned on shareholder approval if the Committee determines such approval is necessary and desirable for compliance with Section 422 of the Code or Rule 16b-3 under the Exchange Act or with any other applicable law, rule or regulation, including requirements of any exchange or quotation system on which the Stock is listed or quoted. The Board also may suspend the granting of Options, SARs and Restricted Stock under this Plan at any time and may terminate this Plan at any time; provided, however, the Company shall not have the right to modify, amend or cancel any Option, SAR or Restricted Stock granted before such suspension or termination unless (1) the Grantee consents in writing to such modification, amendment or cancellation or (2) there is a dissolution or liquidation of the Company or a transaction described in Section 11 or Section 12 of this Plan.

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SECTION 14. MISCELLANEOUS

     14.1 Shareholder Rights. No Grantee shall have any rights as a shareholder of the Company as a result of the grant of an Option or a SAR under this Plan or his or her exercise of such Option or SAR pending the actual delivery of the Stock subject to such Option to such Grantee. Subject to Section 8, a Grantee’s rights as a shareholder in the shares of Stock related to a Restricted Stock grant which is effective shall be set forth in the related Restricted Stock Agreement.

     14.2 No Contract of Employment or Service. The grant of an Option, SAR or Restricted Stock to a Grantee under this Plan shall not constitute a contract of employment or service and shall not confer on a Grantee any rights upon termination of his or her employment or service with the Company in addition to those rights, if any, expressly set forth in the Option Agreement which evidences his or her Option, the SAR Agreement which evidences his or her SAR or the Restricted Stock Agreement related to his or her Restricted Stock.

     14.3 Withholding. The Company shall deduct from all cash distributions under the Plan any taxes required to be withheld by federal, state or local government. Whenever the Company proposes or is required to issue or transfer shares of Stock under the Plan, the Company shall have the right to require the recipient to remit to the Company an amount sufficient to satisfy any federal, state and local withholding tax requirements prior to the delivery of any certificate or certificates for such shares. A Grantee may satisfy this withholding obligation by paying the full amount of the withholding obligation in cash or check acceptable to the Company or its designee. If the Employee fails to make such payment of the withholding taxes within the time specified by the Company or its designee, the number of shares of Stock that the Grantee is to receive shall be reduced by the smallest number of whole shares of common stock of the Company which, when multiplied by the fair market value of the common stock on the date on which the amount of tax required to be withheld is determined, is sufficient to satisfy the amount of the federal, state and local withholding tax obligations imposed on the Company by reason of the exercise or payment of a grant under this Plan.

     14.4 Construction. This Plan shall be construed under the laws of the State of Florida, to the extent not preempted by federal law, without reference to the principles of conflict of laws.

     14.5 Compliance with Code. All ISOs to be granted hereunder are intended to comply with Code Section 422, and all provisions of the Plan and all ISOs granted hereunder shall be construed in such manner as to effectuate that intent.

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     14.6 Non-alienation of Benefits. Other than as specifically provided herein, no benefit under the Plan shall be subject in any manner to anticipation, alienation, sale, transfer, assignment, pledge, encumbrance or charge; and any attempt to do so shall be void. No such benefit shall, prior to receipt by the Grantee, be in any manner liable for or subject to the debts, contracts, liabilities, engagements or torts of the Grantee.

     14.7 Listing and Legal Compliance. The Committee may suspend the exercise or payment of any incentive granted under this Plan so long as it determines that securities exchange listing or registration or qualification under any securities laws is required in connection therewith and has not been completed on terms acceptable to the Committee.

HUGHES SUPPLY, INC.
By:	/s/ Jay Romans
	Jay Romans Senior Vice President of Human Resources

ATTEST:

By:	/s/ John Z. Pare’
		John Z. Pare’  Secretary
	[CORPORATE SEAL]

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EX-10.1

Amended & Restated 1997 Executive Stock Plan

EX-10.2

Exhibit 10.2

HUGHES SUPPLY, INC. 2005 EXECUTIVE STOCK PLAN
(as amended through May 19, 2005)

SECTION 1. BACKGROUND AND PURPOSE

     The name of this Plan is the Hughes Supply, Inc. 2005 Executive Stock Plan (the “Plan”). The purpose of this Plan is to promote the interest of the Company and its Subsidiaries through grants to Key Employees and Non-Employee Directors of Options to purchase Stock, grants of stock appreciation rights and grants of Restricted Stock, including Performance-Based Restricted Stock, in order (1) to attract and retain Key Employees and Non-Employee Directors, (2) to provide an additional incentive to Key Employees and Non-Employee Directors to work to increase the value of Stock and (3) to establish or increase Key Employees’ and Non-Employee Directors’ stake in the future of the Company which corresponds to the stake of the Company’s shareholders.

SECTION 2. DEFINITIONS

     Each term set forth in this Section 2 shall have the meaning set forth opposite such term for purposes of this Plan and, for purposes of such definitions, the singular shall include the plural and the plural shall include the singular.

     2.1 Board — means the Board of Directors of the Company.

     2.2 Cause — means any of the following:

     (a) willful or gross neglect by the Key Employee of his duties;

     (b) conviction of the Key Employee of any felony, or of any lesser crime or offense materially and adversely affecting the property, reputation or goodwill of the Company or its successors;

     (c) any material breach by the Key Employee of the terms of an employment agreement between the Key Employee and the Company;

     (d) willful misconduct by the Key Employee in connection with the performance of his duties;

     (e) theft or misappropriation of business assets of the Company or of any existing or prospective customer of the Company;

     (f) poor or inadequate work performance, which has not been cured within thirty (30) days following written notice;

     (g) excessive tardiness;

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     (h) violation of any securities laws as determined by the Company;

or

     (i) any other conduct detrimental to the business of the Company, including, without limitation, the failure by the Key Employee to comply with the policies and procedures of the Company which may be in effect from time to time.

     2.3 Change in Control — means the first to occur of the following events:

     (a) any one person, or more than one person acting as a group, acquires ownership of stock of the Company that, together with stock held by such person or group, possesses more than fifty percent (50%) of the total Fair Market Value or total voting power of the stock of the Company; provided, however, that if any one person, or more than one person acting as a group, is considered to own more than fifty percent (50%) of the total Fair Market Value or total voting power of the stock of the Company, the acquisition of additional stock by the same person or persons will not be considered a Change in Control. Notwithstanding the foregoing, an increase in the percentage of stock of the Company owned by any one person, or persons acting as a group, as a result of a transaction in which the Company acquires its stock in exchange for property will be treated as an acquisition of stock of the Company for purposes of this subsection (a);

     (b) during any period of twelve (12) consecutive months, individuals who at the beginning of such period constituted the Board (together with any new or replacement directors whose election by the Board, or whose nomination for election by the Company’s shareholders, was approved by a vote of at least a majority of the directors then still in office who were either directors at the beginning of such period or whose election or nomination for election was previously so approved) cease for any reason to constitute a majority of the directors then in office; or

     (c) any one person, or more than one person acting as a group, acquires (or has acquired during the 12-month period ending on the date of the most recent acquisition by the person or persons) assets from the Company, outside of the ordinary course of business, that have a gross fair market value equal to or more than forty percent (40%) of the total gross fair market value of all of the assets of the Company immediately prior to such acquisition or acquisitions. For purposes of this subsection (c), “gross fair market value” means the value of the assets of the Company, or the value of the assets being disposed of, determined without regard to any liabilities associated with such assets. Notwithstanding anything to the contrary in this Plan, the following shall not be treated as a Change in Control under this subsection (c):

     (i) a transfer of assets from the Company to a shareholder of the Company (determined immediately before the asset transfer);

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     (ii) a transfer of assets from the Company to an entity, fifty percent (50%) or more of the total value or voting power of which is owned, directly or indirectly, by the Company;

     (iii) a transfer of assets from the Company to a person, or more than one person acting as a group, that owns, directly or indirectly, fifty percent (50%) or more of the total value or voting power of all the outstanding stock of the Company; or

     (iv) a transfer of assets from the Company to an entity, at least fifty percent (50%) of the total value or voting power of which is owned, directly or indirectly, by a person described in (iii) above.

     2.4 Change in Control Price — means, as determined by the Board,

     (a) the highest Fair Market Value of a share of Stock within the 60-day period immediately preceding the date of determination of the Change in Control Price by the Board (the “60-Day Period”), or

     (b) the highest price paid or offered per share of Stock, as determined by the Board, in any bona fide transaction or bona fide offer related to the Change in Control, at any time within the 60-Day Period, or

     (c) some lower price as the Board, in its discretion, determines to be a reasonable estimate of the Fair Market Value of a share of Stock.

     2.5 Chief Executive Officer — means the Chief Executive Officer of the Company.

     2.6 Code — means the Internal Revenue Code of 1986, as amended.

     2.7 Committee — means the Compensation Committee of the Board to which the responsibility to administer this Plan is delegated by the Board and which shall consist of at least two members of the Board all of whom are “outside directors” within the meaning of Code Section 162(m).

     2.8 Company — means Hughes Supply, Inc., a Florida company, and any successor to such corporation.

     2.9 Disability — has the same meaning as provided in the long-term disability plan or policy maintained or, if applicable, most recently maintained, by the Company or, if applicable, any affiliate of the Company for the Grantee. If no long-term disability plan or policy was ever maintained on behalf of the Grantee or, if the determination of Disability relates to an ISO, Disability shall mean that condition described in Code Section 22(e)(3), as amended from time to time. In the

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event of a dispute, the determination of Disability shall be made by the Board and shall be supported by advice of a physician competent in the area to which such Disability relates.

     2.10 Exchange Act — means the Securities Exchange Act of 1934, as amended.

     2.11 Fair Market Value — refers to the determination of value of a share of Stock. If the Stock is actively traded on any national securities exchange or any Nasdaq quotation or market system, Fair Market Value shall mean the closing price at which sales of Stock shall have been sold on the most recent trading date immediately prior to the date of determination, as reported by any such exchange or system selected by the Committee on which the shares of Stock are then traded. If the shares of Stock are not actively traded on any such exchange or system, Fair Market Value shall mean the arithmetic mean of the bid and asked prices for the shares of Stock on the most recent trading date within a reasonable period prior to the determination date as reported by such exchange or system. If there are no bid and asked prices within a reasonable period or if the shares of Stock are not traded on any exchange or system as of the determination date, Fair Market Value shall mean the fair market value of a share of Stock as determined by the Committee taking into account such facts and circumstances deemed to be material by the Committee to the value of the Stock in the hands of the Grantee; provided that, for purposes of granting awards other than ISOs, Fair Market Value of a share of Stock may be determined by the Committee by reference to the average market value determined over a period certain or as of specified dates, to a tender offer price for the shares of Stock (if settlement of an award is triggered by such an event) or to any other reasonable measure of fair market value and provided further that, for purposes of granting ISOs, Fair Market Value of a share of Stock shall be determined in accordance with the valuation principles described in the regulations promulgated under Code Section 422.

     2.12 Family Member — means any child, stepchild, grandchild, parent, stepparent, grandparent, spouse, former spouse, sibling, niece, nephew, mother-in-law, father-in-law, son-in-law, brother-in-law, or sister-in-law of the Grantee, including adoptive relationships, any person sharing the Grantee’s household (other than a tenant or employee), a trust in which these persons have more than fifty percent of the beneficial interest, a foundation in which these persons (or the Grantee) control the management of assets, and any other entity in which these persons (or the Grantee) own more than fifty percent of the voting interests.

     2.13 Grantee — means a Key Employee or Non-Employee Director who receives a grant of an Option, a SAR or Restricted Stock.

     2.14 ISO — means an option granted under this Plan to purchase Stock which is evidenced by an Option Agreement which provides that the option is

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intended to satisfy the requirements for an incentive stock option under Section 422 of the Code.

     2.15 Key Employee — means any employee of the Company or any Subsidiary, or any Outside Consultant, who, in the judgment of the Committee, or the Chief Executive Officer in accordance with Section 7.1(b) or Section 8.1(b), or an authorized officer in accordance with Section 7.1(c) or 8.1(c), acting in its absolute discretion, is a key to the success of the Company or such Subsidiary.

     2.16 Non-Employee Director — means a member of the Board who, on the date of determination, is not an employee of the Company.

     2.17 NQO — means an option granted under this Plan to purchase Stock which is evidenced by an Option Agreement which provides that the option shall not be treated as an incentive stock option under Section 422 of the Code.

     2.18 Option — means an ISO or a NQO.

     2.19 Option Agreement — means the agreement, notice or instrument, documented in such form (including by electronic communication) as may be approved by the Committee, which sets forth the terms of an Option granted to a Grantee under Section 7 of this Plan. The Committee may require as a condition to any Option Agreement’s effectiveness that the Option Agreement be executed by the Grantee, including by electronic signature or other electronic indication of acceptance.

     2.20 Option Price — means the price which shall be paid to purchase one share of Stock upon the exercise of an Option granted under this Plan.

     2.21 Outside Consultant — means an independent contractor that regularly performs services for, provides goods to, or purchases goods or services from, the Company or any Subsidiary.

     2.22 Parent Corporation — means any corporation which is a parent of the Company within the meaning of Section 424(e) of the Code.

     2.23 Performance-Based Restricted Stock — means Stock granted to a Grantee under Section 8.2 of this Plan.

     2.24 Plan — means this Hughes Supply, Inc. 2005 Executive Stock Plan, as amended from time to time.

     2.25 Restricted Stock — means Stock granted to a Grantee under Section 8 of this Plan, including Performance-Based Restricted Stock.

     2.26 Restricted Stock Agreement — means the agreement, notice or instrument, documented in such form (including by electronic communication) as

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may be approved by the Committee, which sets forth the terms of a Restricted Stock grant to a Grantee under Section 8 of this Plan. The Committee may require as a condition to any Restricted Stock Agreement’s effectiveness that the Restricted Stock Agreement be executed by the Grantee, including by electronic signature or other electronic indication of acceptance.

     2.27 Retirement — means a Key Employee’s termination of employment, other than a termination for Cause, after the attainment of age fifty-five (55) if the sum of the Key Employee’s age and number of years of full-time employment by the Company equals or exceeds seventy (70); provided, however, that the Committee shall have the authority, but not the obligation, to treat a Key Employee’s termination of employment, other than a termination for Cause, as a Retirement notwithstanding the fact that the Key Employee has not attained age fifty-five (55), or the sum of the Key Employee’s age and number of years of full-time employment by the Company does not equal or exceed seventy (70), if the Committee, acting in its absolute discretion determines that such action is appropriate under the circumstances.

     2.28 Rule 16b-3 — means the exemption under Rule 16b-3 to Section 16(b) of the Exchange Act or any successor to such rule.

     2.29 SAR — means a right which is granted pursuant to the terms of Section 7 of this Plan to the appreciation in the Fair Market Value of a share of Stock in excess of the SAR Share Value for such a share.

     2.30 SAR Agreement — means the agreement, notice or instrument, documented in such form (including by electronic communication) as may be approved by the Committee, which sets forth the terms of a SAR granted to a Grantee under Section 7 of this Plan. The Committee may require as a condition to any SAR Agreement’s effectiveness that the SAR Agreement be executed by the Grantee, including by electronic signature or other electronic indication of acceptance.

     2.31 SAR Share Value — means the figure which is set forth in each SAR Agreement and which is no less than the Fair Market Value of a share of Stock on the date the related SAR is granted.

     2.32 Stock — means the One Dollar ($1.00) par value common stock of the Company.

     2.33 Subsidiary — means any corporation which is a subsidiary corporation (within the meaning of Section 424(f) of the Code) of the Company except a corporation which has subsidiary corporation status under Section 424(e) of the Code exclusively as a result of the Company or its subsidiary holding stock in such corporation as a fiduciary with respect to any trust, estate, conservatorship, guardianship or agency.

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     2.34 Ten Percent Shareholder — means a person who owns (after taking into account the attribution rules of Section 424(d) of the Code) more than ten percent of the total combined voting power of all classes of stock of either the Company, a Subsidiary or a Parent Corporation.

     2.35 Vesting Date — means:

     (a) with respect to an Option, the date on which the Option grant would become fully vested in accordance with the terms set forth in the Option Agreement pursuant to Section 7.7(a) without regard to termination of the Grantee’s employment prior to such date; or

     (b) with respect to Restricted Stock, the date on which the Restricted Stock would become fully vested as a result of satisfaction of the forfeiture conditions set forth in the Restricted Stock Agreement pursuant to Section 8.2(d) or Section 8.3(c) without regard to termination of the Grantee’s employment prior to such date.

SECTION 3. SHARES RESERVED UNDER PLAN

     There shall be 2,200,000 shares of Stock reserved for use under this Plan. All such shares of Stock shall be reserved to the extent that the Company deems appropriate from authorized but unissued shares of Stock and from shares of Stock which have been reacquired by the Company. Furthermore, any shares of Stock subject to an Option which remain unissued after the cancellation, expiration or exchange of such Option and any Restricted Shares which are forfeited thereafter shall again become available for use under this Plan, but any shares of Stock used to satisfy a withholding obligation under Section 14.3 shall not again become available for use under this Plan. The exercise of a SAR or a surrender right in an Option with respect to any shares of Stock shall be treated for purposes of this Section 3 the same as the exercise of an Option for the same number of shares of Stock.

SECTION 4. EFFECTIVE DATE

     The Plan shall be effective March 8, 2005, the date of the adoption of the Plan by the Board, provided the shareholders of the Company (acting at a duly called meeting of such shareholders) approve the adoption of the Plan within twelve (12) months after such date and such approval satisfies the requirements for shareholder approval under Code Section 422(b)(1) and Code Section 162(m). Any Restricted Stock, any Option, and any SAR granted under this Plan before such shareholder approval automatically shall be granted subject to such shareholder approval.

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SECTION 5. COMMITTEE

     This Plan shall be administered by the Committee. The Committee acting in its absolute discretion shall exercise such powers and take such action as expressly called for under this Plan and, further, the Committee shall have the power to interpret this Plan and (subject to Section 11, Section 12 and Section 13) to take such other action in the administration and operation of this Plan as the Committee deems equitable under the circumstances, which action shall be binding on the Company, on each affected Key Employee or Non-Employee Director and on each other person directly or indirectly affected by such action. The Committee shall use its best efforts to grant Options, SARs and Restricted Stock under this Plan to a Grantee which will qualify as “performance-based compensation” for purposes of Section 162(m) of the Code, except where the Committee deems that the Company’s interests when viewed broadly will be better served by a grant which is free of the conditions required to so qualify any such grant for purposes of Section 162(m) of the Code.

SECTION 6. ELIGIBILITY

     Only Key Employees and Non-Employee Directors shall be eligible for the grant of Options, SARs or Restricted Stock under this Plan.

SECTION 7. OPTIONS AND SARs

     7.1 Options.

     (a) Authorization of Committee to Grant Options. Except as otherwise provided below in Sections 7.1(b) and (c), the Committee acting in its absolute discretion shall have the right to grant Options to Key Employees and Non-Employee Directors under this Plan from time to time to purchase shares of Stock; provided, however, the Committee shall not grant an ISO to an Outside Consultant or a Non-Employee Director. Each grant of an Option shall be evidenced by an Option Agreement, and each Option Agreement shall set forth whether the Option is an ISO or a NQO and shall set forth such other terms and conditions of such grant as the Committee acting in its absolute discretion deems consistent with the terms of this Plan.

     (b) Authorization of Chief Executive Officer to Grant Options. In accordance with Applicable Law, the Chief Executive Officer shall have the right to designate Key Employees (excluding the Chief Executive Officer) to be Grantees of Options and determine the number of Options to be granted to such Key Employees; provided, however, that a resolution adopted by the Board shall specify the total number and the terms (including the exercise price, which may include a formula by which such price may be determined) of Options the Chief Executive Officer may so grant. The Chief Executive Officer shall not grant an ISO to an Outside Consultant.

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Each grant of an Option shall be evidenced by an Option Agreement, and each Option Agreement shall set forth whether the Option is an ISO or a NQO and shall set forth such other terms and conditions of such grant as the Chief Executive Officer, acting in his absolute discretion, deems consistent with the terms of this Plan and the applicable resolution adopted by the Board.

     (c) Authorization of Officers to Grant Options. In accordance with Applicable Law, the Board may, by a resolution adopted by the Board, authorize one or more officers of the Company other than the Chief Executive Officer to designate Key Employees (excluding the officer so authorized) to be Grantees of Options and determine the number of Options to be granted to such Key Employees; provided, however, that the resolution adopted by the Board so authorizing such officer or officers of the Company shall specify the total number and the terms (including the exercise price, which may include a formula by which such price may be determined) of Options such officer or officers may so grant. An authorized officer shall not grant an ISO to an Outside Consultant. Each grant of an Option shall be evidenced by an Option Agreement, and each Option Agreement shall set forth whether the Option is an ISO or a NQO and shall set forth such other terms and conditions of such grant as the authorized officer or officers, acting in his or their absolute discretion, deems consistent with the terms of this Plan and the resolution adopted by the Board so authorizing such officer or officers.

     7.2 $100,000 Limit. The aggregate Fair Market Value of ISOs granted to a Key Employee under this Plan and incentive stock options granted to such Key Employee under any other stock option plan adopted by the Company, a Subsidiary or a Parent Corporation which first become exercisable in any calendar year shall not exceed $100,000; provided, however, that if the limitation is exceeded, the ISOs which cause the limitation to be exceeded will be treated as NQOs. Such Fair Market Value figure shall be determined by the Committee on the date the ISO or other incentive stock option is granted, and the Committee shall interpret and administer the limitation set forth in this Section 7.2 in accordance with Section 422(d) of the Code.

     7.3 Share Limitation. A Key Employee or Non-Employee Director may be granted in any calendar year one or more Options, or one or more SARs, or one or more Options and SARs in any combination which, individually or in the aggregate, relate to no more than 250,000 shares of Stock.

     7.4 Option Price. Subject to adjustment in accordance with Section 11, the Option Price for each share of Stock subject to an Option must be set forth in the applicable Option Agreement. In no event shall the Option Price for each share of Stock subject to an ISO be less than the Fair Market Value of a share of Stock on the date the Option ISO is granted. With respect to each grant of an ISO to a Key Employee who is a Ten Percent Shareholder, the Option Price must not be less than

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110% of the Fair Market Value of a share of Stock as of the date the Option is granted. With respect to each grant of a NQO, the Committee is authorized to establish any Option Price, in its sole discretion. The Chief Executive Officer, or an officer who is authorized to grant a NQO in accordance with Section 7.1(c), shall establish the Option Price in accordance with the Option terms specified by the Board. The Option Price may not be amended or modified after the grant of the Option, and an Option may not be surrendered in consideration of or exchanged for a grant of a new Option having an Option Price below that of the Option which was surrendered or exchanged.

     7.5 Payment. The Option Price shall be payable in full upon the exercise of any Option, and an Option Agreement at the discretion of the Committee, or in accordance with Section 7.1(b) for an Option granted by the Chief Executive Officer or Section 7.1(c) for an Option granted by an authorized officer, can provide for the payment of the Option Price:

     (a) in cash or by a check acceptable to the Company or its designee,

     (b) through the delivery or attestation to the ownership of Stock which has been held by the Grantee for a period acceptable to the Company and which Stock or attestation is otherwise acceptable to the Company or its designee,

     (c) through a broker facilitated exercise procedure acceptable to the Company, or

     (d) in any combination of the three methods described in this Section 7.5 which is acceptable to the Company or its designee.

Any payment made in or by attestation to the ownership of Stock shall be treated as equal to the Fair Market Value of such Stock on the date the indicia of ownership of such Stock or the attestation is delivered to the Company or its designee in a form acceptable to the Company or its designee.

     7.6 Exercise Period. Any ISO granted to a Key Employee who is not a Ten Percent Shareholder is not exercisable after the expiration of ten (10) years after the date the Option is granted. Any ISO granted to a Key Employee who is a Ten Percent Shareholder is not exercisable after the expiration of five (5) years after the date the Option is granted. The term of any NQO must be specified in the applicable Option Agreement. The date an Option is granted is the date on which the Committee, or the Chief Executive Officer in accordance with Section 7.1(b), or authorized officer in accordance with Section 7.1(c), has approved the terms and conditions of the Option and has determined the recipient of the Option and the number of Shares of Stock covered by the Option.

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     7.7 Conditions to Exercise of an Option.

     (a) Each Option granted under the Plan is exercisable by whom, at such time or times, or upon the occurrence of such event or events, and in such amounts as the Committee, or the Chief Executive Officer in accordance with Section 7.1(b), or an authorized officer in accordance with Section 7.1(c), shall specify in the Option Agreement; provided, however, that subsequent to the grant of an Option, the Committee, at any time before complete termination of the Option, may accelerate the time or times at which such Option may be exercised in whole or in part, including, without limitation, upon a Change in Control and may permit the Grantee or any other designated person to exercise the Option, or any portion thereof, for all or part of the remaining Option term, notwithstanding any provisions in the Option Agreement to the contrary.

     (b) In the event of termination of employment of a Key Employee due to Retirement prior to the Vesting Date of the Option held by such Key Employee:

     (1) on the Vesting Date, such Option will become partially vested, with the vested percentage of such Option determined by the ratio that the period from the date such Option is granted to the date of Retirement bears to the period from the date such Option is granted to the Vesting Date;

     (2) on the date of Retirement, the portion of such Option that will not become vested in accordance with Section 7.7(b)(1) will immediately expire and terminate; and

     (3) the portion of such Option that becomes vested in accordance with Section 7.7(b)(1) will expire, terminate and become unexercisable one (1) year after the Vesting Date.

     7.8 Termination of an ISO. Except as otherwise provided above in Section 7.7(b), with respect to an ISO, in the event of termination of employment of a Key Employee, the Option or portion thereof held by the Key Employee which is unexercised will expire, terminate, and become unexercisable no later than the expiration of three (3) months after the date of termination of employment; provided, however, that in the case of a holder whose termination of employment is due to death or Disability, one (1) year shall be substituted for such three (3) month period. For purposes of this Section 7.8, termination of employment by the Key Employee will not be deemed to have occurred if the Key Employee is employed by another corporation (or a parent or subsidiary corporation of such other corporation) which has assumed the ISO of the Key Employee in a transaction to which Code Section 424(a) is applicable.

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     7.9 Special Provisions for Certain Substitute Options. Notwithstanding anything to the contrary in Section 7, any Option issued in substitution for an option previously issued by another entity, which substitution occurs in connection with a transaction to which Code Section 424(a) is applicable, may provide for an exercise price computed in accordance with Code Section 424(a) and the regulations thereunder and may contain such other terms and conditions as the Committee may prescribe to cause substitute Option to contain as nearly as possible the same terms and conditions (including the applicable vesting and termination provisions) as those conditions in the previously issued option being replaced thereby.

     7.10 Nontransferability. Except to the extent the Committee deems permissible under Section 422(b) of the Code and consistent with the best interests of the Company, neither an Option granted under this Plan, and any related surrender rights, nor a SAR granted under this Plan shall be transferable by a Grantee other than by will or by the laws of descent and distribution, and such Option and any such surrender rights and any such SAR shall be exercisable during a Grantee’s lifetime only by the Grantee. To the extent authorized by the Committee in its sole discretion, an Option granted under this Plan, and any related surrender rights, or a SAR granted under this Plan may be transferred or assigned to one or more Family Members of the Grantee, provided any such transfer or assignment is made without consideration to the Grantee. The Family Member or Family Members to whom an Option or a SAR is transferred thereafter shall be treated as the Grantee under this Plan.

     7.11 SARs and Surrender Rights.

     (a) SARs. The Committee acting in its absolute discretion may grant a Key Employee or Non-Employee Director a SAR which will give the Grantee the right to the appreciation in one, or more than one, share of Stock, and any such appreciation shall be measured from the related SAR Share Value. The Committee shall have the right to make any such grant subject to such additional terms as the Committee deems appropriate, and such terms shall be set forth in the related SAR Agreement.

     (b) Option Surrender Rights. The Committee acting in its absolute discretion also may incorporate a provision in an Option Agreement to give a Grantee the right to surrender his or her Option in whole or in part in lieu of the exercise (in whole or in part) of that Option to purchase Stock on any date that

     (1) the Fair Market Value of the Stock subject to such Option exceeds the Option Price for such Stock, and

     (2) the Option to purchase such Stock is otherwise exercisable.

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     (c) Procedure. The exercise of a SAR or a surrender right in an Option shall be effected by the delivery of the related SAR Agreement or Option Agreement to the Committee (or to its delegate) together with a statement signed by the Grantee which specifies the number of shares of Stock as to which the Grantee, as appropriate, exercises his or her SAR or exercises his or her right to surrender his or her Option and (at the Grantee’s option) how he or she desires payment to be made with respect to such shares.

     (d) Payment. A Grantee who exercises his or her SAR or right to surrender his or her Option shall (to the extent consistent with the exemption under Rule 16b-3) receive a payment in cash or in Stock, or in a combination of cash and Stock, equal in amount on the date such exercise is effected to: (i) the number of shares of Stock with respect to which, as applicable, the SAR or the surrender right is exercised times (ii) the excess of the Fair Market Value of a share of Stock on such date over, as applicable, the SAR Share Value for a share of Stock subject to the SAR or the Option Price for a share of stock subject to an Option. Unless otherwise specified by the Committee acting in its absolute discretion, the Company shall determine the form and timing of such payment, and the Company shall have the right (1) to take into account whatever factors the Company deems appropriate under the circumstances, including any written request made by the Grantee and delivered to the Company and (2) to forfeit a Grantee’s right to payment of cash in lieu of a fractional share of stock if the Company deems such forfeiture necessary in order for the surrender of his or her Option under this Section 7.11 to come within the exemption under Rule 16b-3. Any cash payment under this Section 7.11 shall be made from the Company’s general assets, and a Grantee shall be no more than a general and unsecured creditor of the Company with respect to such payment.

     (e) Restrictions. Each SAR Agreement and each Option Agreement which incorporates a provision to allow a Grantee to surrender his or her Option shall incorporate such additional restrictions on the exercise of such SAR or surrender right as the Committee deems necessary to satisfy the conditions to the exemption under Rule 16b-3.

SECTION 8. RESTRICTED STOCK

     8.1 Authorization to Grant Restricted Stock.

     (a) Authorization of Committee to Grant Restricted Stock. Except as otherwise provided below in Sections 8.1(b) and (c), the Committee acting in its absolute discretion shall have the right to grant Restricted Stock to Key Employees and Non-Employee Directors under this Plan from time to time. Each Restricted Stock grant shall be evidenced by a Restricted Stock Agreement, and each Restricted Stock Agreement shall set forth the conditions, if any, which will need to be timely satisfied before the grant will be effective and the conditions, if any, under

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which the Grantee’s interest in the related Stock will be forfeited. The Committee may make grants of Performance-Based Restricted Stock and grants of Restricted Stock which is not Performance-Based Restricted Stock.

     (b) Authorization of Chief Executive Officer to Grant Restricted Stock. In accordance with Applicable Law, the Board may, by a resolution adopted by the Board, the Chief Executive Officer shall have the right to designate Key Employees (excluding the Chief Executive Officer) to be Grantees of Restricted Stock which is not Performance-Based Restricted Stock. A resolution adopted by the Board shall specify the total number of shares and the terms of Restricted Stock the Chief Executive Officer may so grant. Each Restricted Stock grant shall be evidenced by a Restricted Stock Agreement, and each Restricted Stock Agreement shall set forth the conditions, if any, which will need to be timely satisfied before the grant will be effective and the conditions, if any, under which the Grantee’s interest in the related Stock will be forfeited. The Chief Executive Officer may not make grants of Performance-Based Restricted Stock.

     (c) Authorization of Officers to Grant Restricted Stock. In accordance with Applicable Law, the Board may, by a resolution adopted by the Board, authorize one or more officers of the Company to designate Key Employees (excluding the officer so authorized) to be Grantees of Restricted Stock which is not Performance-Based Restricted Stock. The resolution adopted by the Board so authorizing such officer or officers of the Company shall specify the total number of shares and the terms of Restricted Stock such officer or officers may so grant. Each Restricted Stock grant shall be evidenced by a Restricted Stock Agreement, and each Restricted Stock Agreement shall set forth the conditions, if any, which will need to be timely satisfied before the grant will be effective and the conditions, if any, under which the Grantee’s interest in the related Stock will be forfeited. Such officer or officers may not make grants of Performance-Based Restricted Stock.

     8.2 Performance-Based Restricted Stock.

     (a) Effective Date. A grant of Performance-Based Restricted Stock shall be effective as of the date the Committee certifies that the applicable conditions described in Section 8.2(c) have been timely satisfied.

     (b) Share Limitation. No more than 250,000 shares of Performance-Based Restricted Stock may be granted to a Key Employee or Non-Employee Director in any calendar year.

     (c) Grant Conditions. The Committee, acting in its absolute discretion, may select from time to time Key Employees and Non-Employee Directors to receive grants of Performance-Based Restricted Stock in such amounts as the Committee may, in its absolute discretion, determine, subject to any limitations provided in this Plan. The Committee shall make each grant subject to

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the attainment of certain performance targets. The Committee shall determine the performance targets which will be applied with respect to each grant of Performance-Based Restricted Stock at the time of grant, but in no event later than ninety (90) days after the commencement of the period of service to which the performance targets relate. The performance criteria applicable to Performance-Based Restricted Stock grants will be one or more of the following criteria: (i) Stock price; (ii) average annual growth in earnings per share; (iii) increase in shareholder value; (iv) earnings per share; (v) net income; (vi) return on assets; (vii) return on shareholders’ equity; (viii) increase in cash flow; (ix) operating profit or operating margins; (x) revenue growth of the Company; and (xi) operating expenses. The related Restricted Stock Agreement shall set forth the applicable performance criteria and the deadline for satisfying the performance criteria. Shares of Performance-Based Restricted Stock shall be unavailable under Section 3 for the period which begins on the date as of which such grant is made and, if a Performance-Based Restricted Stock grant fails to become effective in whole or in part under Section 8.2, such period shall end on the date of such failure (i) for the related shares of Stock subject to such grant (if the entire grant fails to become effective) or (ii) for the related shares of Stock subject to that part of the grant which fails to become effective (if only part of the grant fails to become effective). If such period ends for any such shares of Stock, such shares shall be treated under Section 3 as forfeited at the end of such period and shall again become available under Section 3.

     (d) Forfeiture Conditions. The Committee may make each Performance-Based Restricted Stock grant (if, when and to the extent that the grant becomes effective) subject to one, or more than one, objective employment, performance or other forfeiture condition which the Committee acting in its absolute discretion deems appropriate under the circumstances for Key Employees or Non-Employee Directors generally or for a Grantee in particular, and the related Restricted Stock Agreement shall set forth each such condition and the deadline for satisfying each such forfeiture condition. A Grantee’s nonforfeitable interest in the shares of Stock related to a Performance-Based Restricted Stock grant shall depend on the extent to which each such condition is timely satisfied. Each share of Stock related to a Performance-Based Restricted Stock grant shall again become available under Section 3 after such grant becomes effective if such share is forfeited as a result of a failure to timely satisfy a forfeiture condition, in which event such share of Stock shall again become available under Section 3 as of the date of such failure. A Stock certificate shall be issued (subject to the conditions, if any, described in this Section 8.2) to, or for the benefit of, the Grantee with respect to the number of shares for which a grant has become effective as soon as practicable after the date the grant becomes effective.

     (e) In the event of termination of employment of a Key Employee due to Retirement after satisfaction of the grant conditions established pursuant to

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Section 8.2(c) but prior to the Vesting Date of the Performance-Based Restricted Stock granted to such Key Employee:

     (1) on the Vesting Date, such Performance-Based Restricted Stock grant will become partially vested, with the vested percentage determined by the ratio that the period from the date such Performance-Based Restricted Stock is granted to the date of Retirement bears to the period from the date such Performance-Based Restricted Stock is granted to the Vesting Date; and

     (2) the portion of the Performance-Based Restricted Stock that may be mathematically determined, based on the date of Retirement, to be unable to vest on the Vesting Date, will be forfeited on the date of Retirement; and

     (3) the portion of such Performance-Based Restricted Stock that does not become vested in accordance with Section 8.2(e)(1) will be forfeited.

     8.3 Restricted Stock Other Than Performance-Based Restricted Stock

     (a) Effective Date. A Restricted Stock grant which is not a grant of Performance-Based Restricted Stock shall be effective (a) as of the date set by the Committee, or by the Chief Executive Officer in accordance with Section 8.1(b), or by an authorized officer in accordance with Section 8.1(c), when the grant is made or, if the grant is made subject to one, or more than one, condition, (b) as of the date the Company determines that such conditions have been timely satisfied.

     (b) Grant Conditions. The Committee acting in its absolute discretion, or the Chief Executive Office in accordance with Section 8.1(b), or an authorized officer in accordance with Section 8.1(c), may make the grant of Restricted Stock which is not Performance-Based Restricted Stock to a Grantee subject to the satisfaction of one, or more than one, objective employment, performance or other grant condition which the Committee, or the Chief Executive Officer in accordance with Section 8.1(b), or authorized officer in accordance with Section 8.1(c), deems appropriate under the circumstances for Key Employees or Non-Employee Directors generally or for a Grantee in particular, and the related Restricted Stock Agreement shall set forth each such condition and the deadline for satisfying each such grant condition. If a Restricted Stock grant which is not a grant of Performance-Based Restricted Stock will become effective only upon the satisfaction of one, or more than one, condition, the related shares of Stock shall be unavailable under Section 3 for the period which begins on the date as of which such grant is made and, if a Restricted Stock grant which is not a grant of Performance-Based Restricted Stock fails to become effective in whole or in part under Section 8.3, such period shall end on the date of such failure (i) for the related shares of Stock subject to such grant (if the entire grant fails to become effective) or (ii) for the related shares of Stock subject to that part of the grant which fails to become effective (if only part of the grant fails to become effective). If such period ends for

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any such shares of Stock, such shares shall be treated under Section 3 as forfeited at the end of such period and shall again become available under Section 3.

     (c) Forfeiture Conditions. The Committee, or the Chief Executive Officer in accordance with Section 8.1(b), or an authorized officer in accordance with Section 8.1(c), may make each grant of Restricted Stock which is not a grant of Performance-Based Restricted Stock (if, when and to the extent that the grant becomes effective) subject to one, or more than one, objective employment, performance or other forfeiture condition which the Committee acting in its absolute discretion, or the Chief Executive Officer in accordance with Section 8.1(b), or the authorized officer in accordance with Section 8.1(c), deems appropriate under the circumstances for Key Employees or Non-Employee Directors generally or for a Grantee in particular, and the related Restricted Stock Agreement shall set forth each such condition and the deadline for satisfying each such forfeiture condition. A Grantee’s nonforfeitable interest in the shares of Stock related to a grant of Restricted Stock which is not a grant of Performance-Based Restricted Stock shall depend on the extent to which each such condition is timely satisfied. Each share of Stock related to a Restricted Stock grant which is not a grant of Performance-Based Restricted Stock shall again become available under Section 3 after such grant becomes effective if such share is forfeited as a result of a failure to timely satisfy a forfeiture condition, in which event such share of Stock shall again become available under Section 3 as of the date of such failure. A Stock certificate shall be issued (subject to the conditions, if any, described in this Section 8.3) to, or for the benefit of, the Grantee with respect to the number of shares for which a grant has become effective as soon as practicable after the date the grant becomes effective.

     (d) In the event of termination of employment of a Key Employee due to Retirement after satisfaction of the grant conditions established pursuant to Section 8.3(b) but prior to the Vesting Date of the Restricted Stock which is not a grant of Performance-Based Restricted Stock:

     (1) on the Vesting Date, such Restricted Stock grant will become partially vested, with the vested percentage determined by the ratio that the period from the date such Restricted Stock is granted to the date of Retirement bears to the period from the date such Restricted Stock is granted to the Vesting Date; and

     (2) the portion of the Restricted Stock that may be mathematically determined, based on the date of Retirement, to be unable to vest on the Vesting Date, will be forfeited on the date of Retirement; and

     (3) the portion of such Restricted Stock that does not become vested in accordance with Section 8.3(d)(1) will be forfeited.

     8.4 Dividends and Voting Rights.

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     (a) Each Restricted Stock Agreement shall state whether the Grantee shall have a right to receive any cash dividends which are paid with respect to his or her Restricted Stock after the date his or her Restricted Stock grant has become effective and before the first day that the Grantee’s interest in such stock is forfeited completely or becomes completely nonforfeitable. If a Restricted Stock Agreement provides that a Grantee has no right to receive a cash dividend when paid, such agreement shall set forth the conditions, if any, under which the Grantee will be eligible to receive one, or more than one, payment in the future to compensate the Grantee for the fact that he or she had no right to receive any cash dividends on his or her Restricted Stock when such dividends were paid. If a Restricted Stock Agreement calls for any such payments to be made, the Company shall make such payments from the Company’s general assets, and the Grantee shall be no more than a general and unsecured creditor of the Company with respect to such payments.

     (b) If a Stock dividend is declared on such a share of Stock after the grant is effective but before the Grantee’s interest in such Stock has been forfeited or has become nonforfeitable, such Stock dividend shall be treated as part of the grant of the related Restricted Stock, and a Grantee’s interest in such Stock dividend shall be forfeited or shall become nonforfeitable at the same time as the Stock with respect to which the Stock dividend was paid is forfeited or becomes nonforfeitable.

     (c) If a dividend is paid other than in cash or Stock, the disposition of such dividend shall be made in accordance with such rules as the Committee shall adopt with respect to each such dividend.

     (d) A Grantee shall have the right to vote the Stock related to his or her Restricted Stock grant after the grant is effective with respect to such Stock but before his or her interest in such Stock has been forfeited or has become nonforfeitable.

     8.5 Satisfaction of Forfeiture Conditions. A share of Stock shall cease to be Restricted Stock at such time as a Grantee’s interest in such Stock becomes nonforfeitable under this Plan, and the certificate representing such share shall be reissued as soon as practicable thereafter without any further restrictions related to Section 8.2 or Section 8.3 and shall be transferred to the Grantee.

     8.6 Transferability. To the extent authorized by the Committee in its sole discretion, Restricted Stock granted under this Plan may be transferred or assigned to one or more Family Members of the Grantee, provided any such transfer or assignment is made without consideration to the Grantee. The Family Member or Family Members to whom Restricted Stock is transferred thereafter shall be treated as the Grantee under this Plan.

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     8.7 Deferral of Receipt of Shares. The Company may permit a Grantee to defer receipt of the delivery of shares that would otherwise be due by virtue of the grant of or the lapse or waiver of restrictions with respect to Restricted Stock in accordance with such deferred compensation plans, agreements, rules and procedures established by the Company for such deferral.

SECTION 9. SECURITIES REGISTRATION AND ESCROW OF SHARES

     9.1 Securities Registration. Each Option Agreement, SAR Agreement and Restricted Stock Agreement shall provide that, upon the receipt of shares of Stock as a result of the exercise of an Option (or any related surrender right) or a SAR or the satisfaction of the forfeiture conditions under a Restricted Stock Agreement, the Grantee shall, if so requested by the Company, hold such shares of Stock for investment and not with a view of resale or distribution to the public and, if so requested by the Company, shall deliver to the Company a written statement satisfactory to the Company to that effect. As for Stock issued pursuant to this Plan, the Company at its expense shall take such action as it deems necessary or appropriate to register the original issuance of such Stock to a Grantee under the Securities Act of 1933, as amended, or under any other applicable securities laws or to qualify such Stock for an exemption under any such laws prior to the issuance of such Stock to a Grantee; however, the Company shall have no obligation whatsoever to take any such action in connection with the transfer, resale or other disposition of such Stock by a Grantee.

     9.2 Escrow of Shares. Any certificates representing the shares of Stock issued under the Plan shall be issued in the Grantee’s name, but, if the applicable Option Agreement, SAR Agreement or Restricted Stock Agreement (the “Agreement”) so provides, the shares of Stock will be held by a custodian designated by the Company (the “Custodian”). Each applicable Agreement providing for the transfer of shares of Stock to the Custodian shall appoint the Custodian as attorney-in-fact for the Grantee for the term specified in the applicable Agreement, with full power and authority in the Grantee’s name, place and stead to transfer, assign and convey to the Company any shares of Stock held by the Custodian for such Grantee, if the Grantee forfeits the shares of Stock under the terms of the applicable Agreement. During the period that the Custodian holds the shares subject to this Section, the Grantee will be entitled to all rights, except as provided in the applicable Agreement, applicable to shares of Stock not so held. Subject to Section 8.4 of this Plan, any dividends declared on shares of Stock held by the Custodian will, as provided in the applicable Agreement, be paid directly to the Grantee or, in the alternative, be retained by the Custodian or by the Company until the expiration of the term specified in the applicable Agreement and will then be delivered, together with any proceeds, with the shares of Stock to the Grantee or to the Company, as applicable.

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SECTION 10. LIFE OF PLAN

     No Option or SAR or Restricted Stock shall be granted under this Plan after March 7, 2015, after which this Plan otherwise thereafter shall continue in effect until all outstanding Options (and any related surrender rights) and SAR have been exercised in full or no longer are exercisable and all Restricted Stock grants under this Plan have been forfeited or the forfeiture conditions on the related Stock have been satisfied in full.

SECTION 11. ADJUSTMENT

     The number of shares of Stock reserved under Section 3 of this Plan, the number of shares of Stock related to Restricted Stock grants under this Plan and any related grant conditions and forfeiture conditions, the number of shares of Stock subject to Options granted under this Plan and the Option Price of such Options and the SAR Grant Value and the number of shares of Stock related to any SAR all shall be adjusted by the Board in an equitable manner to reflect any change in the capitalization of the Company, including, but not limited to, such changes as stock dividends or stock splits. Furthermore, the Board shall have the right to adjust (in a manner which satisfies the requirements of Section 424(a) of the Code) the number of shares of Stock reserved under Section 3 of this Plan, the number of shares of Stock related to Restricted Stock grants under this Plan and any related grant conditions and forfeiture conditions, the number of shares subject to Options granted under this Plan and the Option Price of such Options and the SAR Grant Value and the number of shares of Stock related to any SAR in the event of any corporate transaction described in Section 424(a) of the Code which provides for the substitution or assumption of such Options, SARs or Restricted Stock grants. If any adjustment under this Section 11 would create a fractional share of Stock or a right to acquire a fractional share of Stock, such fractional share shall be disregarded and the number of shares of Stock reserved under this Plan and the number subject to any Options or related to any SARs or Restricted Stock grants under this Plan shall be the next lower number of shares of Stock, rounding all fractions downward. An adjustment made under this Section 11 by the Board shall be conclusive and binding on all affected persons.

SECTION 12. CHANGE IN CONTROL

     If there is a Change in Control and the Board determines that no adequate provision has been made as part of such Change in Control for either the assumption of the Options, SARs and Restricted Stock grants outstanding under this Plan or for the granting of comparable, substitute stock options, stock appreciation rights and restricted stock grants,

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     (1) each outstanding Option and SAR at the direction and discretion of the Board

     (a) may (subject to such conditions, if any, as the Board deems appropriate under the circumstances) be cancelled unilaterally by the Company in exchange for the number of whole shares of Stock (and cash in lieu of a fractional share), if any, which each Grantee would have received if on the date set by the Board he or she had exercised his or her SAR in full or if he or she had exercised a right to surrender his or her outstanding Option in full under Section 7.11 of this Plan, or

     (b) may (subject to such conditions, if any, as the Board deems appropriate under the circumstances) be cancelled unilaterally by the Company in exchange for a cash payment equal to the Change in Control Price (reduced by the exercise price applicable to such Options or SARs), or

     (c) may be cancelled unilaterally by the Company if the Option Price or SAR Share Value equals or exceeds the Fair Market Value of a share of Stock on such date, and

     (2) the grant conditions, if any, and forfeiture conditions on all outstanding Restricted Stock grants may be deemed completely satisfied on the date set by the Board.

SECTION 13. AMENDMENT OR TERMINATION

     This Plan may be amended by the Board from time to time to the extent that the Board deems necessary or appropriate; provided, however, that any such amendment may be conditioned on shareholder approval if the Committee determines such approval is necessary and desirable for compliance with Section 422 of the Code or Rule 16b-3 under the Exchange Act or with any other applicable law, rule or regulation, including requirements of any exchange or quotation system on which the Stock is listed or quoted. The Board also may suspend the granting of Options, SARs and Restricted Stock under this Plan at any time and may terminate this Plan at any time; provided, however, the Company shall not have the right to modify, amend or cancel any Option, SAR or Restricted Stock granted before such suspension or termination unless (1) the Grantee consents in writing to such modification, amendment or cancellation or (2) there is a dissolution or liquidation of the Company or a transaction described in Section 11 or Section 12 of this Plan.

SECTION 14. MISCELLANEOUS

     14.1 Shareholder Rights. No Grantee shall have any rights as a shareholder of the Company as a result of the grant of an Option or a SAR under this Plan or his or her exercise of such Option or SAR pending the actual delivery of

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the Stock subject to such Option to such Grantee. Subject to Section 8, a Grantee’s rights as a shareholder in the shares of Stock related to a Restricted Stock grant which is effective shall be set forth in the related Restricted Stock Agreement.

     14.2 No Contract of Employment or Service. The grant of an Option, SAR or Restricted Stock to a Grantee under this Plan shall not constitute a contract of employment or service and shall not confer on a Grantee any rights upon termination of his or her employment or service with the Company in addition to those rights, if any, expressly set forth in the Option Agreement which evidences his or her Option, the SAR Agreement which evidences his or her SAR or the Restricted Stock Agreement related to his or her Restricted Stock.

     14.3 Withholding. The Company shall deduct from all cash distributions under the Plan any taxes required to be withheld by federal, state or local government. Whenever the Company proposes or is required to issue or transfer shares of Stock under the Plan, the Company shall have the right to require the recipient to remit to the Company an amount sufficient to satisfy any federal, state and local withholding tax requirements prior to the delivery of any certificate or certificates for such shares. A Grantee may satisfy this withholding obligation by paying the full amount of the withholding obligation in cash or check acceptable to the Company or its designee. If the Employee fails to make such payment of the withholding taxes within the time specified by the Company or its designee, the number of shares of Stock that the Grantee is to receive shall be reduced by the smallest number of whole shares of common stock of the Company which, when multiplied by the fair market value of the common stock on the date on which the amount of tax required to be withheld is determined, is sufficient to satisfy the amount of the federal, state and local withholding tax obligations imposed on the Company by reason of the exercise or payment of a grant under this Plan.

     14.4 Construction. This Plan shall be construed under the laws of the State of Florida, to the extent not preempted by federal law, without reference to the principles of conflict of laws.

     14.5 Compliance with Code. All ISOs to be granted hereunder are intended to comply with Code Section 422, and all provisions of the Plan and all ISOs granted hereunder shall be construed in such manner as to effectuate that intent.

     14.6 Non-alienation of Benefits. Other than as specifically provided herein, no benefit under the Plan shall be subject in any manner to anticipation, alienation, sale, transfer, assignment, pledge, encumbrance or charge; and any attempt to do so shall be void. No such benefit shall, prior to receipt by the Grantee, be in any manner liable for or subject to the debts, contracts, liabilities, engagements or torts of the Grantee.

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     14.7 Listing and Legal Compliance. The Committee may suspend the exercise or payment of any incentive granted under this Plan so long as it determines that securities exchange listing or registration or qualification under any securities laws is required in connection therewith and has not been completed on terms acceptable to the Committee.

HUGHES SUPPLY, INC.
By:	/s/ Jay Romans
	Jay Romans
	Senior Vice President of Human Resources

ATTEST:

By:	/s/ John Z. Pare’
	John Z. Pare’
	Secretary
	[CORPORATE SEAL]

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EX-31.1

Exhibit 31.1

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

I, Thomas I. Morgan, the President and Chief Executive Officer of Hughes Supply, Inc., certify that:

1.	I have reviewed this Quarterly Report on Form 10-Q of Hughes Supply, Inc.;
2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations, and cash flows of the registrant as of, and for, the periods presented in this report;
4.	The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a)	Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b)	Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c)	Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d)	Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

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

a)	All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b)	Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: September 9, 2005	By: /s/ THOMAS I. MORGAN
	Thomas I. Morgan     President and Chief Executive Officer

EX-31.2

Exhibit 31.2

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

I, David Bearman, the Executive Vice President and Chief Financial Officer of Hughes Supply, Inc., certify that:

1.	I have reviewed this Quarterly Report on Form 10-Q of Hughes Supply, Inc.;
2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations, and cash flows of the registrant as of, and for, the periods presented in this report;
4.	The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a)	Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b)	Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c)	Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d)	Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

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

a)	All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b)	Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: September 9, 2005	By: /s/ DAVID BEARMAN
	David Bearman Executive Vice President and Chief Financial Officer (Principal Financial Officer and Principal Accounting Officer)

EX-32.1

Exhibit 32.1

Form of Certification Pursuant to Section 1350 of Chapter 63

of Title 18 of the United States Code

      I, Thomas I. Morgan, President and Chief Executive Officer of Hughes Supply, Inc., certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

(1)	the Interim Report on Form 10-Q for the quarter ended July 31, 2005 (the “Periodic Report”) which this statement accompanies fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 (15 U.S.C. 78m or 78o(d)); and
(2)	information contained in the Periodic Report fairly presents, in all material respects, the financial condition and results of operations of Hughes Supply, Inc.

Date: September 9, 2005	By: /s/ THOMAS I. MORGAN
	Thomas I. Morgan     President and Chief Executive Officer

EX-32.2

Exhibit 32.2

Form of Certification Pursuant to Section 1350 of Chapter 63

of Title 18 of the United States Code

      I, David Bearman, the Executive Vice President and Chief Financial Officer of Hughes Supply, Inc., certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

(1)	the Interim Report on Form 10-Q for the quarter ended July 31, 2005 (the “Periodic Report”) which this statement accompanies fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 (15 U.S.C. 78m or 78o(d)); and
(2)	information contained in the Periodic Report fairly presents, in all material respects, the financial condition and results of operations of Hughes Supply, Inc.

Date: September 9, 2005	By: /s/ DAVID BEARMAN
	David Bearman Executive Vice President and Chief Financial Officer (Principal Financial Officer and Principal Accounting Officer)