10-K

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

(Mark One)

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

For the fiscal year ended January 31, 2005

OR

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

For the transition period from                     to                     

Commission File No. 001-08772

HUGHES SUPPLY, INC.

(Exact name of registrant as specified in its charter)

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

One Hughes Way Orlando, Florida 32805

(Address of principal executive offices)

(407) 841-4755

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class	Name of each exchange on which registered
Common Stock ($1.00 Par Value)	New York Stock Exchange

Securities registered pursuant to Section 12(g) of the Act:    None

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.  x  Yes    ¨  No

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§ 229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.  ¨

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

The aggregate market value of the voting and non-voting common equity held by non-affiliates computed by reference to the price at which the common equity was last sold, or the average bid and asked price of such common equity, as of the last business day of the registrant’s most recently completed second fiscal quarter ($30.46 per share as of July 30, 2004): $1,795,567,289

Indicate the number of shares outstanding of each of the registrant’s classes of common stock, as of the latest practicable date: 66,421,867 shares of common stock ($1.00 par value) outstanding as of April 6, 2005.

DOCUMENTS INCORPORATED BY REFERENCE

Designated portions of the Definitive Proxy Statement for the 2005 Annual Meeting of Shareholders to be held on May 19, 2005 are incorporated by reference in Part III of this Report.

TABLE OF CONTENTS

PART I
ITEM 1	Business	Page 2
ITEM 2	Properties	Page 17
ITEM 3	Legal Proceedings	Page 17
ITEM 4	Submission of Matters to a Vote of Security Holders	Page 17
PART II
ITEM 5	Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities	Page 18
ITEM 6	Selected Financial Data	Page 19
ITEM 7	Management’s Discussion and Analysis of Financial Condition and Results of Operations	Page 20
ITEM 7A	Quantitative and Qualitative Disclosures About Market Risk	Page 37
ITEM 8	Financial Statements and Supplementary Data	Page 39
ITEM 9	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure	Page 71
ITEM 9A	Controls and Procedures	Page 71
ITEM 9B	Other Information	Page 71
PART III
ITEM 10	Directors and Executive Officers of the Registrant	Page 72
ITEM 11	Executive Compensation	Page 72
ITEM 12	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	Page 72
ITEM 13	Certain Relationships and Related Transactions	Page 72
ITEM 14	Principal Accountant Fees and Services	Page 72
PART IV
ITEM 15	Exhibits and Financial Statement Schedule	Page 72
	Signatures	Page 77
	Index of Exhibits Filed with this Report	Page 78

1.

FORWARD-LOOKING STATEMENTS

Some of the statements set forth or incorporated by reference in this Annual Report on Form 10-K constitute “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934 and are subject to the safe harbor provisions created by those sections. When used in this report and the information incorporated by reference herein and therein, the words “believe,” “anticipate,” “estimate,” “expect,” “may,” “will,” “should,” “plan,” “intend,” “project” or phrases such as “will be well-positioned to,” “will benefit,” “will gain” and similar expressions are intended to identify forward-looking statements. Although we believe that the expectations reflected in our 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, as discussed in the section entitled “Risk Factors” in Item 1. We assume no obligation to publicly update or revise our forward-looking statements, except to the extent required by law. The following should be read in conjunction with our consolidated financial statements and the notes thereto filed as part of this report.

PART I

ITEM 1.  BUSINESS

FISCAL YEAR

Beginning with fiscal year 2005 and thereafter, our fiscal year is a 52-week period ending on January 31. Previously, our fiscal year was a 52- or 53-week period ending on the last Friday in January. The change in our fiscal year ending date was made to simplify reporting and to allow for better comparability between reporting periods. Fiscal year 2005 and fiscal year 2004 each contained 52 weeks while fiscal year 2003 contained 53 weeks. The additional week in fiscal year 2003 was included in the first quarter.

OUR 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 503 branches located in 40 states and two Canadian provinces. 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, from which we derived 48% and 25%, respectively, of our net sales for the fiscal year ended January 31, 2005. We operate in 14 of the 15 fastest growing states in the United States, which collectively contributed 76% of our consolidated net sales during the fiscal year ended January 31, 2005.

We manage our business on a product line basis and report the results of our operations in seven operating segments and an Other category. During the fourth quarter of fiscal year 2005, we revised our segment reporting to include the Building Materials product line as its own separate operating segment due to the growth of and allocation of management resources to this product line. The seven 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. Our segments are complementary, enabling us to be a single-source provider and providing us with opportunities to secure a larger share of our customers’ business. Our customers use our products for commercial, residential, industrial and public infrastructure construction projects, and related maintenance, repair and operations. We believe the diversity of the end-markets we serve and our broad offering of replacement, repair and maintenance products help lessen the impact on us of the seasonality and cyclicality that affect the construction industry as a whole.

2.

ITEM 1. BUSINESS

We believe that our more than 76 years of experience delivering superior customer service, the depth and breadth of our product offerings, and our sales force’s extensive technical expertise, make us a market leader in our businesses. The following table illustrates our estimated domestic market position (based on net sales) in each of our product lines, the primary end-markets served and the principal products sold:

Product Lines	Market Position	Primary End- Markets Served	Principal Products
Water & Sewer	#2 Nationally	Residential, Commercial, Public Infrastructure	Piping products, fire hydrants, water meters, storm drains, irrigation products, concrete vaults
Plumbing/HVAC	#2 Nationally	Residential, Commercial, Industrial	Plumbing fixtures and related fittings, plumbing accessories and supplies, HVAC equipment and parts
Utilities	#1 Nationally	Public Infrastructure	Electrical transmission and distribution equipment, wire and cable, energy products
MRO	#1 Nationally in Apartment MRO Market	Commercial	Plumbing and electrical supplies, appliances and parts, hardware and janitorial supplies, HVAC equipment and parts, door and window parts
Electrical	Market Leader in Southeast	Commercial, Residential, Industrial	Wire management products, electrical distribution equipment, wire and cable, automation equipment, data/communications products
Industrial PVF	Market Leader in Southwest	Industrial	Pipe, valves, flanges, fittings, plate, sheet, tubing
Building Materials	Market Leader in Southeast	Commercial, Industrial, Public Infrastructure	Rebar fabrication, lumber, wire mesh, concrete and masonry supplies, bridge rail, overhang brackets, tilt-up bracing rental and lifting/bracing inserts, bearing pads, sealants, waterproofing and fire-proofing materials
Other	Not Applicable	Commercial, Residential, Industrial	Fire protection products include sprinkler heads/devices, steel pipe and fittings, backflow prevention devices, valves, and hydrants. Mechanical products include pipe, valves, and fittings, steam traps, actuators, valve positioners, gauges

OUR INDUSTRY

Based on industry data and management estimates, we believe that the U.S. wholesale construction, repair and maintenance distribution market collectively generated approximately $200 billion of revenues in 2004 and is highly fragmented. We are one of the largest diversified wholesale distributors in the United States (based on net sales), and we have approximately a 2% overall market share. Spending in the U.S. construction, repair and maintenance industries generally follows trends in the domestic economy, although different factors affect the level of spending in various market segments, which can result in significantly different growth rates across those segments.

We believe that the following industry trends will benefit our business:

– Continued Population Growth in Core Markets.  According to U.S. Department of Commerce estimates, 14 of the 15 fastest growing states, from which we currently derive 76% of our consolidated net sales, will account for 75% of the net population change in the United States from 1995 to 2025. We believe this growth will lead to new residential and commercial construction and will require additions and improvements to public infrastructure.

– Increased Spending on Domestic Public Infrastructure Projects.  According to a 2002 report by the Congressional Budget Office, in order to replace and/or maintain aging public water and wastewater infrastructure, federal, state and local governments will need to spend an aggregate of approximately $300 billion over the next decade. We also anticipate increased spending over the next decade to upgrade electric transmission and distribution systems in the United States.

– Continued Recovery in Commercial Construction and Improved Industrial Activity. Commercial and industrial construction and maintenance spending in the United States decreased significantly in the three-year period from 2001 through 2003. However, in 2004, commercial construction and industrial maintenance activity improved, and we believe that if the domestic economy continues to expand, construction and maintenance spending in the commercial and industrial sectors will continue to increase.

3.

ITEM 1. BUSINESS

– Industry Consolidation.  The highly fragmented nature of our industry is leading to consolidation because larger distributors can more cost-effectively and efficiently meet customers’ needs, due in large part to greater information technology capabilities, financial capacity, purchasing power, national coverage and operating leverage compared to smaller competitors. In addition, larger distributors have the resources necessary to meet the demands of professional customers, such as a broad product offering from industry-leading manufacturers, better overall product expertise and value-added services. We believe that with our strong competitive position, size, strong capital structure, geographic reach and experienced management team, we are well-positioned to continue to benefit from consolidation trends within the wholesale distribution industry.

– Increased Market Share Opportunities for National MRO Distributors.  We believe that the continuing consolidation of large property management companies and the continuing growth in group purchasing organizations will benefit MRO distributors that can provide single-source purchasing and national same- or next-day delivery capabilities. We believe that we are well-positioned to capitalize on these trends as well as additional opportunities in the property management, lodging and hospitality, healthcare, education and government services markets.

OUR COMPETITIVE STRENGTHS

We believe the following competitive strengths are the keys to our success:

– Respected Industry Leader in a Highly Fragmented Market.  As one of the largest and most well-recognized diversified distributors of construction, repair and maintenance-related products in the United States, we have advantages over our smaller competitors. We enjoy economies of scale, such as significant purchasing power with our vendors; a broad offering of products and services; the resources to invest in state-of-the-art information technology and other operating systems to offer value-added services to our customers; and the geographic presence to serve national accounts.

– Comprehensive Product Offering and Loyal Customer Relationships.  As part of our emphasis on superior customer service, we offer more than 350,000 products, providing us with a competitive advantage over smaller distributors that focus on a narrower product range. We believe our broad product offering provides us opportunities to be a single-source supplier to our customers and to participate in multiple phases of construction projects and related repair and maintenance work. We complement our product offering with customer-driven, value-added services, such as integrated supply, kitting, assembly and fabrication services. We believe that our operating history of over 76 years, our broad product and service offering, our highly knowledgeable sales force, our local market focus, our well-known brand name and our reputation for superior customer service have been critical to our ability to shift our customers’ purchasing decision away from one based primarily on price to one also built on expertise, trust, loyalty and service.

– Highly Knowledgeable Sales Force.  We have approximately 2,400 sales personnel who work directly with our branches. The members of our sales force are highly knowledgeable technical professionals, many of whom have engineering or other technical backgrounds. As a result, our customers work directly with sales personnel who have relevant expertise in our customers’ particular disciplines. We believe that our technical expertise and our collaborative working relationship with our customers as well as our delivery capabilities distinguish us from many of our competitors, including large retailers of home improvement products, which we believe are not well-equipped to provide the depth of technical expertise and service that professional customers require.

– Strong Purchasing Power.  Because of our size and market position, we have significant purchasing power with our vendors. We use our preferred vendor program to concentrate a significant portion of our purchasing with a core group that views us as a strategic partner and offers us higher discounts and greater rebates than we would achieve through more diffuse purchasing practices. These discounts and volume rebates enable us to respond effectively to competitive pressures in our local markets.

– Highly Experienced and Proven Senior Management Team.  We believe that our senior management team’s experience with rapidly growing and market-leading distribution companies is a competitive advantage as we seek to expand our business.

– Since May 2003, Tom Morgan has served as President and Chief Executive Officer, and he served as Chief Operating Officer previously from March 2001 until May 2003. Prior to joining us, Mr. Morgan was Chief Executive Officer of U.S. Office Products and spent 22 years at Genuine Parts, an automotive and office products distributor.

– In March 2003, David Bearman joined our company as Executive Vice President and Chief Financial Officer. Mr. Bearman’s experience includes serving as Chief Financial Officer of Cardinal Health, a pharmaceutical distribution company, and NCR, a technology product and services company, and more

4.

ITEM 1. BUSINESS

than 20 years’ prior experience at General Electric Company, where he served as Chief Financial Officer of four different GE subsidiaries.

– In February 2005, Neal Keating joined our company as Chief Operating Officer. Prior to joining us, Mr. Keating was Chief Executive Officer of GKN Aerospace and spent 24 years at Rockwell International, including 19 years at Rockwell Automation/Allen-Bradley where he worked extensively with electrical distributors. He concluded his service at Rockwell Collins as Executive Vice President and Chief Operating Officer of the Commercial Systems division.

– Gradie Winstead has served in a variety of executive positions in his thirty years with our company and is experienced in the construction distribution industry. Mr. Winstead currently serves as Executive Vice President of Strategic Business Development and is responsible for all sales, services, marketing and business development. Previously, he has served as President of Sales and Services and Group President.

OUR BUSINESS STRATEGY

We intend to become the leading diversified distributor of construction, repair and maintenance-related products in the United States. In pursuing that goal, we expect to significantly increase our earnings and return on invested capital, which we believe will lead to increased shareholder value. Management uses internal return on invested capital to measure how effectively capital is allocated to core operations and uses external return on invested capital in assessing potential acquisition candidates. Our multi-year strategy focuses on organic growth; strategic acquisitions; and best-in-class operations.

The key elements of our strategy are to:

– Capitalize on Organic Growth Opportunities. We believe there is potential for organic growth in each of our businesses. In particular, we intend to capture additional MRO business by continuing to expand our geographic footprint, further developing our MRO-specific, web-based catalog business and targeting national accounts serving the property management, lodging and hospitality, healthcare, education and government services markets. In our Water & Sewer business, in addition to capitalizing on population growth trends and the resulting infrastructure needs, federal and state mandates requiring drainage and storm water management compliance present significant opportunities for us. In our Utilities business, we also believe there are opportunities for us to develop and enhance relationships with municipal, cooperative and investor-owned electric utility companies that, in order to gain efficiencies and reduce inventories, are relying more on wholesale distributors for procurement services.

– Pursue Disciplined Acquisition Program.  In addition to our organic growth, we continue to pursue selective acquisitions of companies that complement our current portfolio of businesses. When evaluating acquisition candidates, we seek companies that are market leaders; possess good operations management with compatible sales and services cultures to our own; serve attractive end-markets; generate high returns on invested capital; reduce our exposure to the seasonality and cyclicality of new construction markets; and expand our national footprint. Our acquisitions of Southwest Power, Inc./Western States Electric, Inc. (Utilities), Todd Pipe & Supply (Plumbing/HVAC) and Standard Wholesale Supply Company (Water & Sewer) in fiscal year 2005, of Century Maintenance Supply, Inc. (MRO) and Marden Susco, LLC (Water & Sewer) in fiscal year 2004, and of Utiliserve Holdings, Inc. (Utilities) in fiscal year 2003, demonstrate our ability to identify and consummate acquisitions of companies that meet our selective criteria. We also evaluate our current product lines against these criteria and will make changes to our portfolio as we deem appropriate.

– Focus on Best-in-Class Operations.  Our operating strategy is to buy, operate and sell as one integrated, streamlined organization. Specific actions taken or to be taken include the following:

– The implementation of an integrated, company-wide, industry-leading distribution platform to ensure that our logistics and customer support functions operate on a common system, which is part of the information technology framework we collectively refer to as Hughes Unified;

– The development and implementation of best-in-class financial and analytical systems with a particular emphasis on enhanced management of our accounts receivable and accounts payable to gain transactional efficiencies and on data warehousing to ensure that we are capturing relevant and timely information about our customers and vendors that will aid in decision making;

– The realignment of our management structure and sales force between sales and operations personnel by appointing a President and Vice President of Operations for each major product line in order to provide greater focus on enhancing our sales performance and customer satisfaction while managing our operations and distribution practices in a streamlined and cost effective manner;

5.

ITEM 1. BUSINESS

– The rationalization of our branches, particularly in our Plumbing/HVAC, MRO and Electrical businesses, to maximize branch profitability while continuing to provide our customers with convenient access to our broad product offerings;

– The upgrade of our purchasing system that will provide us with additional purchasing leverage resulting in improved margins and will enhance our working capital efficiency by improving fill rates and inventory turnover;

– The shift in distribution philosophy from maintaining separate branches by product line to opening megacenter facilities that provide multiple product lines within one location, thus providing for easier customer access and cross selling opportunities across our product lines in addition to serving as distribution points for certain product lines;

– The strengthening of our position in the supply chain by further integrating our business with that of our vendors through the use of electronic data interfaces and other technology links and with the businesses of our customers by providing value-added services, such as integrated supply, kitting, assembly and fabrication services; and

– The continued execution of best-in-class marketing programs, targeting both customers and vendors, which are designed to build on the Hughes brand name, to increase incremental revenues, improve customer retention and enhance business relationships across the supply chain.

OUR BUSINESSES

We distribute products and offer services in the following major product categories, which correspond to our reportable operating segments. A summary of net sales, operating income, assets and accounts payable for our operating segments is incorporated herein by reference to Note 2 to the consolidated financial statements in Item 8 of this Form 10-K.

Water & Sewer

We provide a complete line of water, sewer and storm-drain products to serve the needs of both contractors and municipalities in all aspects of the water and wastewater industries. Our waterline products transmit potable and non-potable water from the source to treatment plants, storage towers and pumping stations and ultimately to homes and businesses. Also included in this product category is our concrete business, which complements our Water & Sewer business by manufacturing prefabricated concrete vaults used for sewer and storm drain applications. Because all commercial and residential structures require water and sewer systems, we consider our Water & Sewer business to be a leading indicator of future construction activity. Our Water & Sewer business operates primarily in the southeast, southwest and western United States through 109 branches located in 23 states.

Products and Services.  The products in our Water & Sewer segment include waterworks products such as piping, fire hydrants, water meters, storm drains, irrigation products, backflow prevention devices, concrete sewer products and concrete electrical and telephone vaults. In addition, we offer specialized industry services including leak detection, water system audits, hot tapping, manhole rehabilitation, line stopping, control valve testing and repair and engineered plant products and services.

Customers.  The Water & Sewer segment primarily serves the residential, commercial and public infrastructure markets with customers including underground utility contractors, utility companies, site developers, municipalities and government agencies.

Competition.  We are the second largest distributor of water and sewer products in the United States. Our primary competitors in the water and sewer market include National Waterworks, Inc. and Ferguson Enterprises, Inc. (a subsidiary of Wolseley plc) on a national level and other regional and local distributors.

Plumbing/HVAC

We are one of the nation’s largest distributors of plumbing supplies, offering complete inventories for one-stop service. Our plumbing products are sold primarily to commercial and residential contractors and homebuilders for bathroom and kitchen installation. Also included in this segment is our HVAC business, which distributes air conditioning and heating equipment. Our HVAC products are sold to contractors for the installation and repair of central air conditioners, furnaces and refrigeration systems. Our Plumbing/HVAC business operates primarily in the southeast, southwest and western United States through 158 branches located in 19 states.

Products and Services.  The products in our Plumbing/HVAC segment include residential and commercial water heaters, furnaces, heat pumps, pipe and fittings, air conditioning units, plumbing fixtures, faucets and accessories, pumps and sprinkler heads, mechanical valves and repair parts. In addition, our dedicated technical personnel provide complete plastics fabrication, pipe cutting and threading, project management, procurement and field services.

Customers.  The Plumbing/HVAC segment serves the residential, commercial and industrial markets with customers

6.

ITEM 1. BUSINESS

including plumbing, mechanical, HVAC and remodeling contractors; homebuilders; commercial and industrial purchasing agents; and municipalities.

Competition.  We are the second largest wholesale distributor of plumbing products in the United States. Our primary national competitors in the Plumbing/HVAC market include Ferguson Enterprises, Inc., Noland Company, Hajoca Corporation, Winholesale, Inc. and Watsco Inc.

Utilities

Following our acquisition of Southwest Power, Inc./Western States Electric, Inc. (collectively referred to as “SWP/WSE”) on November 1, 2004, we are the nation’s largest distributor of transmission and distribution products to electric utility companies. We believe that there are opportunities for us to develop enhanced relationships with municipal, cooperative and investor-owned electric utility companies, which we believe the wholesale distribution industry historically has underserved. As utility companies seek ways to gain efficiencies in costs and working capital, they are increasingly turning to wholesale distributors for purchasing and inventory management services. In addition to broad and deep inventories, we offer supply chain management services that lower costs and improve service levels. Our Utilities business operates throughout the United States through 62 branches, serving utility customers in 26 states and one Canadian province.

Products and Services.  The products in our Utilities segment include electrical distribution equipment, wire and cable, energy products, electrical meters and pole line hardware. In addition, we offer value-added services that include warehouse integration and outsourcing; substation, transmission and distribution packaging; meter testing and repair; field-testing; tool repair; and storm and emergency response.

Customers.  The Utilities segment primarily serves the public infrastructure markets with customers including various municipal, cooperative and investor-owned electric utilities.

Competition.  We are the largest distributor of electric utilities products in the United States. Our primary competitors in the electric utilities market are Wesco International, Inc. on a national level and various regional independent distributors.

MRO

Following our acquisition of Century Maintenance Supply, Inc. (“Century”) on December 19, 2003, we are the nation’s largest MRO products supplier in the apartment MRO industry. Currently, there are approximately 20 million apartment units in the United States that continually require routine maintenance and repair in order to retain existing tenants and attract new ones. Though low apartment occupancy levels created a challenging sales environment during fiscal year 2005, the apartment MRO market has historically been less cyclical than new construction markets as maintenance work is required regardless of economic and/or weather conditions. With our full range of MRO supplies that are available to be shipped for same or next-day delivery, we are able to provide our customers with the items they need quickly and efficiently. Our MRO business operates throughout the United States currently through 48 branches located in 28 states.

Products and Services.  The products in our MRO segment include the items needed to maintain an apartment unit or complex in good working condition, such as plumbing and electrical supplies, appliances and parts, hardware, door and window parts, HVAC equipment and parts, pool maintenance supplies, lawn and garden and janitorial supplies. Our services include custom cutting and building of products such as mini-blinds, drawers and screens; lock re-keying for bulk lock orders and customer-specific activities, such as seminars and customized ordering.

Customers.  The MRO segment primarily serves the multi-family housing market with commercial customers that include local, regional and national property management companies that either own or manage apartment complexes.

Competition.  Our primary competitors in the apartment MRO market include Home Depot Supply and Wilmar Industries, Inc. (a subsidiary of Interline Brands, Inc.) on a national level, and other local wholesale and retail hardware and home improvement stores.

Electrical

We were founded over 76 years ago as a distributor of electrical supplies. Our Electrical segment provides electrical construction and maintenance products and related services to the commercial, residential and industrial markets. While we have expanded into other product lines and markets, the Electrical segment remains an important part of our business and an essential complement to our other product lines. Our Electrical business operates primarily in the southeastern and southwestern United States through 38 branches located in 5 states.

Products and Services.  The products and services in our Electrical segment include wire management products, electrical distribution equipment, wire and cable, automation equipment, tools and fasteners, lamps, light fixtures, motor controls, energy products, wiring devices, data/communications products and storeroom/job trailer management.

7.

ITEM 1. BUSINESS

Customers.  The Electrical segment serves the commercial, residential and industrial markets with customers including commercial businesses, electrical contractors, industrial companies and original equipment manufacturers (“OEMs”).

Competition.  We are a market-leading distributor of electrical products in the southeastern United States. Our primary national competitors in the electrical market include Graybar Electric Company, Inc., Consolidated Electrical Distributors, Inc., Rexel, Inc., Wesco International, Inc., GE Supply (a division of General Electric Company), Sonepar USA and numerous smaller electrical distributors.

Industrial PVF

We offer one of the nation’s largest inventories of high quality, specialty stainless and high nickel alloy industrial PVF products for industrial, mechanical and specialty uses. Our extensive depth and breadth of products and key relationships with the world’s leading manufacturers enable us to deliver solutions to a wide range of industrial and commercial customers. Our Industrial PVF business operates primarily in the southwestern United States through 36 branches located in 15 states and one Canadian province.

Products and Services.  The products in our Industrial PVF segment include pipe, valves, flanges, fittings, plate, sheet and tubing, all offered in commodity and specialty materials and in various temperature and pressure ratings. Services include valve automation and repair, piping fabrication and pipe cutting and grooving.

Customers.  The Industrial PVF segment primarily serves the industrial markets with customers that include power, petrochemical, food and beverage, pulp and paper, mining, marine and pharmaceutical companies; industrial and mechanical contractors; fabricators; wholesale distributors; exporters; and OEMs.

Competition.  We are a market-leading distributor of industrial PVF products in the southwestern United States. Our primary national competitors in the Industrial PVF market include Wilson Pipe & Supply Inc., McJunkin Corporation, Ferguson Enterprises, Inc. and Red Man Pipe and Supply Company.

Building Materials

As one of the nation’s largest distributors of specialty construction supplies, we are able to provide our customers with field-tested and proven brand names for a wide range of building materials. Our Building Materials’ business operates in the southeastern United States through 28 branches located in five states.

Products and Services.  Our Building Materials’ segment includes rebar fabrication, lumber, wire mesh, concrete and masonry supplies and accessories, bridge rail, overhang brackets, tilt-up bracing rental and lifting/bracing inserts, bearing pads, sealants, waterproofing and fireproofing materials, commercial washroom specialties, tools and accessories.

Customers.  The Building Materials segment primarily serves the commercial, industrial and public infrastructure markets, with customers such as general contractors and subcontractors, including concrete, masonry and road and bridge contractors.

Competition.  Our primary competitors in the building materials market include White Cap Construction Supply (a division of Home Depot), Construction Materials, Inc., Ram Tool and Supply and numerous smaller distributors.

Other

Our “Other” product category includes our Fire Protection and Mechanical businesses.

Fire Protection.  We are one of the nation’s largest distributors of fire protection products offering complete fire protection pre-fabrication capabilities, which allows us to construct, deliver and install entire fire protection systems for our customers. Our Fire Protection branches and fabrication facilities are located strategically within our large network of Water & Sewer branches, giving our customers access to materials for both aboveground and underground applications. Our Fire Protection business operates throughout the United States through 20 branches located in 13 states.

Products and Services.  Our Fire Protection product line includes sprinkler heads and devices, steel pipe and fittings, backflow prevention devices, valves, hydrants, air compressors and fabrication.

Customers.  The Fire Protection product line serves fire protection contractors, subcontractors and builders in the commercial, residential and industrial markets.

Competition.  Our primary national competitors in the fire protection market include Pacific Fire Safety (a division of Ferguson Enterprises, Inc.), Viking Fire Group, Tyco Fire Products and Reliable Automatic Sprinkler Company, Inc.

Mechanical.  Our Mechanical business offers a complete inventory of valves, actuators and accessories, and a variety of consulting services. Our Mechanical business operates in the southeastern United States through four branches located in three states.

8.

ITEM 1. BUSINESS

Products and Services.  Our Mechanical product line includes carbon, stainless and thermoplastic pipe, valves, fittings and accessories; steam traps; actuators; valve positioners; gauges; sanitary piping systems; valve automation and repair; high density polyethylene (hdpe) pipe fabrication and field installation and pipe cutting and grooving.

Customers.  The Mechanical product line serves the commercial and industrial markets, with customers including fabricators, OEM’s, industrial subcontractors, mechanical contractors, exporters, purchasing agents, maintenance departments, engineering departments and planners.

Competition.  Our primary competitors in the mechanical market include Ferguson Enterprises, Inc., McJunkin Corporation, Winholesale, Inc. and Home Depot Supply.

OUR CUSTOMERS

We currently serve over 100,000 active customers who are typically professionals who choose their vendors primarily on the basis of product availability, relationships with and expertise of sales personnel, price and the quality and scope of services offered. For the year ended January 31, 2005, no single customer accounted for more than 1% of total sales and, as a group, the top ten customers comprised less than 5% of total sales. Additionally, professional customers generally buy in large volumes, are repeat buyers because of their involvement in longer-term projects and require specialized services. We do not market our products to retail consumers. We differentiate ourselves with the depth and breadth of products offered and services provided, including fabrication, integrated supply, kitting, design assistance, material specifications, scheduled job site delivery, follow-up job site visits to ensure satisfaction and technical product services (including blueprint take-off and computerized order quotes).

VENDORS

To be the best customer service company in each of the industries we serve, we must offer, and provide on a timely basis, a broad range of products our customers need, often on a special order basis. To accomplish this, we purchase from over 12,000 vendors; however, approximately 800 vendors comprised over 90% of our consolidated purchases for fiscal year 2005 compared to approximately 900 vendors in fiscal years 2004 and 2003. No single vendor accounted for more than 5% of our total purchases during the fiscal years 2005, 2004 and 2003. We have a centralized merchant relations department, which is dedicated to fostering key vendor relationships, consolidating purchasing volume and refining agreements with our vendors. Key initiatives in this area include:

– Vendor and Purchasing Consolidation.  Our vendor and purchasing consolidation efforts have resulted in significantly higher rebate income over the past several years. In addition to providing higher rebate income, our vendor consolidation efforts for products such as polyvinyl chloride (pvc) pressure fittings (five vendors to one vendor) have increased efficiency by simplifying administrative processes and improving service levels from our vendors, without sacrificing service to our customers.

– Preferred Vendor Program.  Our preferred vendor program has resulted in stronger, more strategic relationships with a more concentrated group of vendors. It leverages our existing vendor relationships by helping to increase sales of our vendors’ products through various initiatives, including sales promotions and cooperative marketing efforts.

– Electronic Data Interchange (EDI).  Our EDI initiative is intended to facilitate the electronic exchange of a full set of transactions such as purchase orders, acknowledgements and invoices from our vendors to our accounts payable processing. This ongoing initiative is expected to result in reduced manual efforts and increased data reliability and accuracy. This initiative requires minimal investment and provides significant opportunities for improved customer service and supply chain efficiencies. We will continue our focus on this and other initiatives to automate our purchasing process and achieve cost savings from the elimination of manual and redundant back-office systems and functions.

We expect the continued development of these vendor initiatives, together with the implementation of our integrated distribution platform and a state-of-the-art purchasing system upgrade, will significantly improve profitability, supply chain efficiencies and customer service, while helping us achieve our goal of efficiently buying, operating and selling as one integrated company.

DISTRIBUTION AND LOGISTICS

Our distribution network consists of over 500 branches and four central Plumbing/HVAC distribution centers in the United States. The efficient operation of our distribution network is critical in providing quality service to our customer base. Our central distribution centers and branches use warehouse management technology to optimize receiving, inventory control and picking, packing and shipping functions. Our purchasing agents in our branches use a computerized inventory system to monitor stock levels, while central distribution centers in our Plumbing/HVAC segment in Arizona, Florida, North Carolina and Ohio provide purchasing assistance as well as a broad stock of inventory that supplements the inventory of our Plumbing/HVAC branches. In addition, we use several of our larger branches in other parts of the United States as distribution points for certain product lines.

9.

ITEM 1. BUSINESS

The majority of customer orders are shipped from inventory at our branches. In order to maintain complete control of the delivery process, we use approximately 3,400 vehicles from our total vehicle fleet to deliver products to our customers. We also accommodate special orders from our customers and facilitate the shipment of certain large volume orders directly from the manufacturer to the customer. Orders for larger construction projects normally require long-term delivery schedules throughout the period of construction, which in some cases may continue for several years.

We are continuously searching for ways to leverage our people, facilities and fleet. In November 2003, we opened a megacenter branch facility in Miami, Florida in which six product lines operate in a two-building campus on 22 acres. The megacenter branch configuration will increase our efficiency and make it easier for the product lines to work together and for customers to purchase from Hughes. Although the product lines share a common facility, their operations will not be fully integrated until the completion of our Hughes Unified implementation, which will allow us to more fully integrate certain functions, including warehousing, administration and fleet operations of our product lines and provide future opportunities for purchasing and inventory management efficiencies. We are currently moving into a similar megacenter facility in the Atlanta area and expect to complete another similar facility in the Orlando area within the next two years. We will continue to evaluate future implementations of this branch configuration in other geographic areas.

SALES

We employ a specialized and experienced sales force for each of our product lines, including approximately 1,000 outside sales representatives who work with contractors, subcontractors, professional buyers, property management companies and municipalities. Our sales representatives provide product specifications and usage data, design solutions and develop job quotes in an effort to help customers fulfill their needs. Additionally, approximately 1,000 inside sales account representatives and 400 counter associates expedite orders, deliveries, quotations, requests for pricing and the release of products for delivery.

MARKETING

Our marketing department’s focus is to develop innovative opportunities that drive incremental sales, increase customer retention and build long-term business relationships across the supply chain. Our marketing programs build Hughes brand awareness and bring value to the supply chain by helping our vendors market their products to a broad customer base. These programs also give our customers best value in quality and cost with special offers/services through our vendor partners. We are continuing to execute our best-in-class marketing programs, and believe the following marketing materials and programs are unparalleled in our industry and differentiate us from our competitors:

– The production of comprehensive product line catalogs with color photos that showcase vendors’ products, illustrate the breadth of product offerings and facilitate routine ordering for customers;

– The creation of best-in-class promotional product brochures and branded market oriented publications that provide our sales force with the tools they need to increase sales, while providing our vendors with an opportunity to market selected offerings to our extensive customer base;

– Unrivaled affinity and customer awards programs that drive incremental sales and build customer loyalty across the supply chain such as the creation of a new, comprehensive web-based program, known as Hughes Ewards, that incorporates travel, merchandise and training opportunities based on customer purchases of select products;

– The hosting of themed marketing events throughout our major markets attended by thousands of our customers, which provides us with the opportunity to show customer appreciation while allowing our vendors to showcase their quality products/services and demonstrate the newest technology and application tips; and

– The development of select private-labeled products and services under the ProValue brand that expand our product offerings and provide our customers with high quality, cost-effective solutions.

INFORMATION TECHNOLOGY

Our information technology (“IT”) systems are capable of supporting numerous operational functions including purchasing, receiving, order processing, shipping, inventory management, sales analysis and accounting. In addition, our customers and sales representatives rely on these systems for real-time information on product pricing, inventory availability and order status. The systems also provide management with information relating to sales, inventory levels, customer payments and other data that is essential for us to operate efficiently and provide a high level of service to our customers.

We believe that our continued investment in upgrading, consolidating and integrating our IT systems is necessary to provide a state-of-the art platform to continue our strategic growth, efficiency and customer service programs. Our IT initiatives will help us increase operational efficiencies, particularly in the area of working capital management; improve information flow,

10.

ITEM 1. BUSINESS

which will aid in decision-making; provide a means for decreasing transaction costs; and provide us with the infrastructure necessary to realize further administrative cost savings associated with past and future business acquisitions.

We continue to implement the Hughes Unified framework, which includes the Eclipse and Sx.Enterprise operating systems. These are e-commerce enabled, customer fulfillment, inventory management, logistics and distribution management systems designed specifically for construction and contractor-oriented distributors. We began implementing the Hughes Unified platform in December 2001 and have made significant progress through fiscal year 2005 with over 80% of our branches on the Hughes Unified platform, representing 74% of our total revenues. We expect implementation to be completed within the next year, providing us with better inventory management capabilities, improved matrix pricing disciplines, and a comprehensive view across all our businesses that will facilitate our ability to buy, operate and sell as one company.

In addition, we are implementing best-in-class applications for financial and data warehousing functions. In fiscal year 2005, we began the implementation of Oracle financial systems, which will provide us with the efficiency of one integrated system for financial transaction processing, consolidation, analysis and reporting. We expect the system to be fully implemented within the next year. Once fully implemented, we expect to achieve selling, general and administrative cost savings from the elimination of manual and redundant back-office systems and functions, as well as improved asset management from the higher functionality in credit and collections, and better financial analytics and reporting. Also in fiscal year 2005, we entered into an agreement with Teradata for a data warehousing and business analytics solution, which will enable us to gather the information from our various systems and perform customer, product and vendor profitability analyses, providing us with key information to strategically grow our businesses. The first data warehousing application was delivered in January 2005, with the implementation continuing over the next several years as we explore new reporting and analysis areas. Lastly, in December 2004, we began a search for a best-in-class purchasing system that, along with integration with our inventory and sales management systems, will allow us to better manage our inventory levels.

SEASONALITY

Our operating results are impacted by seasonality. Historically, sales of our products have been higher in the second and third quarters of each fiscal year due to favorable weather and longer daylight conditions during these periods. Seasonal variations in operating results may also be significantly impacted by inclement weather conditions, such as cold or wet weather, which can delay construction projects.

COMPETITION

We are one of the largest wholesale distributors of our range of products in the United States, and we believe that no other company competes against us across all of our product lines. However, there is significant competition in each of our individual product lines. Our competition includes other wholesalers, manufacturers that sell products directly to their respective customer base and some of our customers that resell our products. To a limited extent, retailers in the markets for plumbing, electrical fixtures and supplies, building materials, MRO supplies and contractors’ tools also compete with us. Competition varies depending on product line, customer classification and geographic market. The principal competitive factors in our business include, but are not limited to, availability of materials and supplies; technical product knowledge and expertise as to application and usage; advisory or other service capabilities; ability to build and maintain customer relationships; same-day delivery capabilities in certain product lines; pricing of products and provision of credit.

INVENTORIES

We are a wholesale distributor of construction, repair and maintenance-related products and therefore maintain extensive inventories to meet the rapid delivery requirements of our customers. Our inventories are based on the needs, delivery schedules and lead times of our customers. We focus on distributing products that leverage our strengths in inventory management, purchasing, specialized sales force, distribution and logistics, credit management and information technology. As of January 31, 2005, our inventories totaled approximately $633.9 million and represented approximately 25% of our total assets.

EMPLOYEES

As of January 31, 2005, we had approximately 9,300 employees. The acquisitions of SWP/WSE, Todd Pipe & Supply, and Standard Wholesale Supply Company added approximately 750 employees to our headcount in fiscal year 2005. We currently have 29 employees who are represented by two labor unions. We consider our relationships with our employees to be good.

ENVIRONMENTAL LAWS

Compliance with federal, state and local environmental protection laws has not, in the past, had a material effect upon our consolidated results of operations and financial condition. As a supplier of construction, repair and maintenance prod - -

11.

ITEM 1. BUSINESS

ucts, we distribute a limited number of chemical materials. These materials are packaged for transportation and storage in a manner that prevents our employees from having direct contact with the materials under normal conditions. Our limited exposure to such materials still requires compliance with applicable OSHA, EPA and DOT regulations for the safe handling, storage, and transportation of chemical materials, and we intend to devote increased resources to the maintenance and improvement of our regulatory compliance programs to further mitigate any such exposure. Compliance with such laws will likely require greater effort and expenditures in the future due to increasingly stringent requirements; however, we do not anticipate compliance having a material affect on our consolidated results of operations or financial condition.

RISK FACTORS

Our business is subject to significant risks. You should carefully consider the risks and uncertainties described below and in the other information included or incorporated by reference in this report, including our consolidated financial statements and the notes to those statements filed as part of this report. If any of the events described below actually occur, our business, financial condition or results of operations could be materially and adversely affected.

Risks Related to Our Business

We operate in a highly competitive marketplace, which may result in decreased demand or prices for our products.

The wholesale construction, repair and maintenance distribution industry is highly competitive and fragmented. The principal competitive factors in our business include, but are not limited to:

– Availability of, and ability to deliver, materials and supplies;

– Technical product knowledge and expertise as to application and usage;

– Advisory or other service capabilities;

– Ability to build and maintain customer relationships;

– Effective use of technology to identify sales and operational opportunities;

– Pricing of products; and

– Availability of credit.

Our competition includes other wholesalers and manufacturers that sell products directly to their respective customer base and some of our customers that resell our products. To a limited extent, retailers in the markets for plumbing, electrical fixtures and supplies, building materials, MRO supplies and contractors’ tools also compete with us. Competition varies depending on product line, customer classification and geographic market. We may not be successful in responding effectively to competitive pressures, particularly from competitors with substantially greater financial and other resources than us. Furthermore, because of the fragmented nature of the markets in which we operate, we are also susceptible to being underbid by local competition.

Delays in the implementation of our new Hughes Unified operating system, or interruptions in the proper functioning of our information systems, could disrupt our operations and cause unanticipated increases in our costs.

We continue to implement our Hughes Unified operating system and expect implementation to be completed for our existing Hughes businesses within the next year. Subsequent acquisitions could extend the time frame an additional year for those businesses exclusively. We believe that this time frame will enable us to reduce implementation-related risk, minimize customer disruption, reduce system outages and disruptions and spread implementation costs. Delays in the successful implementation of the new systems or their failure to meet our expectations could result in adverse consequences, including disruption of operations or unanticipated increases in costs. In addition, the proper functioning of our information systems is critical to the successful operation of our business. Although we protect our information systems through physical and software safeguards and we have back-up remote processing capabilities, these information systems are still vulnerable to natural disasters, power losses, telecommunications failures, physical or internet access intrusions and similar events. If our critical information systems fail or are otherwise unavailable, we would have to accomplish these functions manually, which could temporarily affect our ability to process orders, identify business opportunities, maintain proper levels of inventories, bill accounts receivable and pay expenses.

We rely heavily on our key personnel and the loss of one or more of these individuals could harm our ability to carry out our business strategy.

We believe that our ability to implement our business strategy and our continued success will largely depend upon the efforts, skills, abilities and judgment of our executive management team. Our success also depends to a significant degree upon our ability to recruit and retain our highly knowledgeable and skilled sales personnel and our sales and marketing, operations and other senior managers. We may not be successful in attracting and retaining these employees or in managing our growth successfully, which may in turn have an adverse effect on our results of operations and financial condition.

12.

ITEM 1. BUSINESS

We may not be able to efficiently or effectively integrate newly-acquired businesses into our business or achieve expected profitability from our acquisitions.

Integrating newly-acquired businesses involves a number of risks, including:

– Unforeseen difficulties in integrating operations and systems;

– Problems assimilating and retaining the employees of the acquired company or our employees;

– Challenges in retaining customers of the acquired company or our customers following the acquisition;

– Problems implementing disclosure controls and procedures;

– Unforeseen difficulties extending internal control over financial reporting and performing the required assessment at the newly-acquired business;

– Potential adverse short-term effects on operating results through increased costs or otherwise; and

– The possibility that management may be distracted from regular business concerns by integration activities and related problem-solving.

If we are unable to effectively integrate strategic acquisitions, our business, results of operations and financial condition could be materially and adversely affected.

We may be unable to achieve our enhanced profitability goals.

We have set goals to progressively improve our profitability ratio over time by enhancing our gross margin ratio and reducing our expense ratio. There can be no assurance that we will achieve our enhanced profitability goals. Factors that could significantly adversely affect our efforts to achieve these goals include, but are not limited to, the following:

– Failure to improve our revenue mix by investing (including through acquisitions) in businesses that provide higher margins than we have been able to generate historically;

– Failure to increase our rebates from vendors through our vendor consolidation initiatives;

– Failure to improve our ability to manage prices with customers through the utilization of improved information technology;

– Failure to reduce our overhead and support expenses following the full implementation of our new advanced distribution operating and financial management systems; and

– Delays in implementing, or unexpected costs associated with, the continued rationalization of our branch distribution and support network.

Our results of operations are affected by changes in commodity prices and product demand.

Rising commodity prices can have a positive effect on our gross margins in periods of strong product demand or a negative effect when product demand is weak. During periods of rapid price decline, particularly during periods of weak demand, our net sales and gross margins could be negatively affected. As the value of our inventories and related cost of sales are determined by the moving average cost method, the impact of any commodity price changes on our cost of sales will generally occur later than the impact resulting from such changes on our net sales. Our financial results in fiscal year 2005 benefited from the effect of rising prices in the major commodities used in products we distribute, together with strong product demand. If we are negatively impacted by the factors described above, we may not be able to maintain the level of gross margins experienced in fiscal year 2005.

We have substantial fixed costs and, as a result, our operating income is sensitive to changes in our net sales.

A significant portion of our expenses are fixed costs, which do not fluctuate with net sales. Consequently, a percentage decline in our net sales has a greater percentage effect on our operating income. Any decline in our net sales could cause our profitability to be adversely affected. Moreover, a key element of our strategy is managing our assets, including our substantial fixed assets, more effectively, including through sales or other disposals of excess assets. Though we have been able to successfully leverage and manage our fixed assets in fiscal year 2005 through several sale-leaseback transactions and other asset disposals, our failure to rationalize our fixed assets in the time and within the costs we expect could have an adverse effect on our results of operations and financial condition.

Because our business is working capital intensive, we rely on our ability to manage our product purchasing and customer credit policies.

Our operations are working capital intensive, and our investments in inventories, accounts receivable and accounts payable are significant components of our net asset base. We manage our inventories and accounts payable through our purchasing policies and our accounts receivable through our customer credit policies. Approximately 94% of our net sales are credit sales, and although we take measures to secure lien and bond rights, where available, our customers’ ability to pay may depend on the economic strength of the construction industry and regional economies. If we fail to adequately manage our product purchasing or customer credit policies, our working capital and financial condition may be adversely affected.

13.

ITEM 1. BUSINESS

We depend on our vendors for materials and supplies. Unexpected product shortages could interrupt our operations and adversely affect our results of operations and financial condition.

In total, we purchase materials and supplies from over 12,000 manufacturers and other vendors, no one of which accounted for more than 5% of our total material and supply purchases during fiscal 2005. Despite this widely diversified base of manufacturers and vendors, we may still experience shortages as a result of unexpected industry demand or production difficulties. If this were to occur and we were unable to obtain a sufficient allocation of products from other manufacturers and vendors, there could be a short-term adverse effect on our results of operations and a long-term adverse effect on our customer relationships and reputation. In addition, we have strategic relationships with key vendors. In the event we are unable to maintain those relationships, we may lose some of the competitive pricing advantages that those relationships offer us, which could, in turn, adversely affect our results of operations and financial condition.

We may not be successful in identifying and consummating future acquisitions, which is an important element of our business strategy.

We intend to continue to grow, in part, through strategic acquisitions. We compete with a number of other companies in pursuing acquisitions, and some of those competitors may be more successful than us in completing future strategic acquisitions. Moreover, acquisitions we propose to make may be subject to antitrust reviews and may face other regulatory challenges. In addition, we may require additional debt or equity financing to fund future acquisitions, and financing may not be available or may only be available on terms we consider unfavorable. As a result of these and other factors, our ability to identify and consummate future acquisitions is uncertain.

If we become subject to material liabilities under our self-insured programs, our financial results may be adversely affected.

We provide workers’ compensation, automobile and product/general liability coverage through a program that is partially self-insured. In addition, we provide medical coverage to our employees through a partially self-insured preferred provider organization. Though we believe that we have adequate insurance coverage in excess of self-insured retention levels, our results of operations and financial condition may be adversely affected if the number and severity of insurance claims increase.

Our indebtedness could limit our ability to operate our business, obtain additional financing and pursue other business opportunities.

As of January 31, 2005, our outstanding indebtedness was $545.7 million compared to shareholders’ equity of $1.25 billion. Our debt level may restrict our pursuit of new acquisition opportunities, require us to dedicate a substantial portion of our cash flow from operations to payments on our indebtedness and prevent us from obtaining additional financing. Our failure to make required debt payments could result in an acceleration of our indebtedness, causing our outstanding indebtedness to become immediately due and payable. In addition, our revolving credit agreement requires us to meet specific financial and financial ratio tests on an ongoing basis. Our failure to meet those tests could limit our ability to borrow additional funds under that agreement and could result in an event of default, which, if left uncured, could lead to an acceleration of our indebtedness. We use those borrowings for working capital and general corporate purposes. A limitation on our ability to obtain additional revolving loans could materially and adversely affect our business.

Risks Related to Our Industry

Our operating results depend on the strength of the general economy, which is beyond our control.

Demand for our products and services depend to a significant degree on construction, repair and maintenance spending in the commercial, residential, industrial and public infrastructure markets. The level of activity in these end-markets depends on a variety of factors that we cannot control, including:

– In the commercial market, vacancy rates, interest rates, the availability of financing and regional and general economic conditions;

– In the residential market, new housing starts and residential renovation projects, which are influenced by interest rates, availability of financing, housing affordability, unemployment, demographic trends, gross domestic product growth and consumer confidence;

– In the industrial market, capital spending, the industrial economic outlook, corporate profitability, interest rates and capacity utilization; and

– In the public infrastructure market, interest rates, availability of public funds and general economic conditions.

Weather conditions can also affect the timing of construction and the demand for our products and services. Although we have diversified our business to reduce our exposure to the seasonality and cyclicality of the construction markets

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ITEM 1. BUSINESS

through our focus on expanding our MRO and other replacement-related businesses, we continue to be sensitive to changes in the economy, which may adversely affect our results of operations and financial condition. We are especially susceptible to economic fluctuations in Florida, Texas, Georgia, North Carolina, California and Arizona, which collectively accounted for approximately 64% of our consolidated net sales in fiscal year 2005.

Fluctuating commodity prices may adversely impact our operating results.

The cost of steel, aluminum, copper, nickel alloys, polyvinyl chloride (pvc) and other commodities used in products distributed by us can be volatile. Market demand for these products drives cost volatility, and market demand is beyond our control. Although we attempt to pass increased costs to our customers, we are not always able to do so quickly or at all. Significant fluctuations in the cost of such commodities have adversely affected and in the future may adversely affect our results of operations and financial condition.

The movement of manufacturing facilities overseas may adversely affect our operating results.

The U.S. manufacturing industry has experienced, and is expected to continue to experience, a shift in production to overseas facilities. This shift has resulted in the closings of existing facilities in the United States, which from time to time has reduced, and may in the future reduce, the amount of our business in our Industrial PVF segment. If additional U.S. operations of our customers are moved overseas or if new plant construction in the United States continues to decline, our results of operations and financial condition may be adversely affected.

Risks Related to our Common Stock

Our quarterly results are seasonal and may have an adverse effect on the market price of our common stock.

Our operating results are seasonal. Historically, we have experienced lower operating results in the first and fourth quarters than in the second and third quarters of our fiscal year. Seasonal weather conditions, such as cold or wet weather, can also delay construction projects, further contributing to quarterly fluctuations in our operating results. If our financial results for a quarter fall below investors’ expectations, the market price of our common stock may decline, perhaps significantly.

Dividend payments are restricted and within the discretion of our Board of Directors.

The 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. We are also party to debt instruments and agreements that contain provisions limiting the amount of dividends that we may pay. In the future, we may become a party to debt instruments or agreements that further restrict our ability to pay dividends. Moreover, our Board may decide not to pay, or to reduce the amount of, dividends even when the aforementioned factors are positive.

Our stock price may fluctuate substantially.

Our common stock is traded on the New York Stock Exchange under the symbol “HUG.” The market price of our stock has fluctuated substantially in the past and could fluctuate substantially in the future, based on a variety of factors, including our operating results, availability of capital, changes in general conditions in the economy, the financial markets, the wholesale construction, repair and maintenance industry or other developments affecting us, our customers or our competitors, some of which may be unrelated to our performance. Those fluctuations and demand for our products may adversely affect the price of our stock. In addition, if our results of operations fail to meet the expectations of investors, our stock price could decline.

Furthermore, the stock market in general has experienced volatility that has often been unrelated to the operating performance of companies in our industry. These fluctuations and general economic, political and market conditions may adversely affect the market price of our common stock, regardless of our operating results. The volatility also could impair our ability in the future to offer common stock as a source of additional capital or as consideration in the acquisition of other businesses.

Certain anti-takeover provisions may make our stock less attractive to investors.

Certain provisions of our restated articles of incorporation, as amended, Florida law and our shareholders’ rights plan may make it more difficult for a third party to acquire a controlling interest in us, even if a change in control would benefit shareholders. These provisions may delay or prevent transactions in which shareholders would receive a substantial premium for their shares over then-prevailing market prices. These provisions may also limit shareholders’ ability to approve transactions they may otherwise believe are in their best interests. In particular, these provisions include a provision dividing the Board of Directors into three classes of directors elected for staggered three-year terms; a provision authorizing the issuance of preferred stock without shareholder approval; and a

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ITEM 1. BUSINESS

provision requiring that certain business combinations receive approval by two-thirds of our shares of voting stock.

AVAILABLE INFORMATION

We make our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and amendments to those reports available on our website, www.hughessupply.com, under “Investor Relations,” free of charge, as soon as reasonably practicable after we electronically file or furnish such materials to the SEC. During the period covered by this report, we posted our periodic reports on Form 10-K, Form 10-Q, and our current reports on Form 8-K and any amendments to those documents to our website as soon as reasonably practicable after those reports were filed or furnished electronically with the SEC. The filings are also available through the SEC at the SEC’s Public Reference Room at 450 Fifth Street, N.W. Washington, D.C. 20549, by calling 1-800-SEC-0330, or on the internet at www.sec.gov.

16.

ITEM 2.  PROPERTIES

Our corporate headquarters, a leased facility consisting of approximately 195,000 square feet, is located in Orlando, Florida. In addition, we own or lease approximately 560 properties representing over 500 branches in 40 states and two Canadian provinces. The typical sales branch consists of a combined office and warehouse facility with an average size of 19,000 square feet. We also operate four central distribution centers for our Plumbing/HVAC segment, with an average size of approximately 142,000 square feet. The following table presents the number of properties we leased and owned as of January 31, 2005:

	Leased	Owned
Water & Sewer	93	19
Plumbing/HVAC	145	29
Utilities	65	2
MRO	62	1
Electrical	35	5
Industrial PVF	31	8
Building Materials	24	7
Other	20	1
Corporate	7	6
Consolidated	482	78

We believe that our properties are in good condition and are suitable and adequate to carry out our business. The extent of utilization of such facilities varies based upon the seasonal demand for our products. It is not possible to measure with any degree of certainty or uniformity the extent of utilization of these facilities. We continuously review our anticipated requirements for facilities and, on the basis of that review, may from time to time lease or acquire additional facilities and/or dispose of existing facilities. None of the owned principal properties are subject to any encumbrance that is material to our consolidated results of operations or financial position.

ITEM 3.  LEGAL PROCEEDINGS

We are involved in various legal proceedings arising in the normal course of our business. In the opinion of our management, none of the proceedings are material in relation to our consolidated financial statements.

ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

No matters were submitted to a vote of our security holders during the fourth quarter ended January 31, 2005.

17.

PART II

ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES.

Our common stock is listed on the New York Stock Exchange under the symbol “HUG.” As of April 6, 2005, there were approximately 904 shareholders of record of our common stock, which includes broker dealers holding stock on behalf of approximately 11,600 beneficial owners. The following table presents the high and low intra-day sale prices for shares of our common stock for each quarterly period along with cash dividends per share in fiscal years 2005 and 2004:

Fiscal 2005	Q1		Q2		Q3		Q4		Year
Market price per share:
High	$	30.25	$	30.93	$	31.95	$	34.51	$	34.51
Low		23.18		25.83		27.61		27.84		23.18
Dividends per share	$	0.065	$	0.065	$	0.065	$	0.065	$	0.260
Fiscal 2004
Market price per share:
High	$	14.45	$	19.56	$	20.08	$	25.88	$	25.88
Low		9.89		14.35		16.10		19.30		9.89
Dividends per share	$	0.050	$	0.050	$	0.050	$	0.050	$	0.200

Dividends have been paid quarterly since 1980 with an increase in the dividend rate per share each of the last three years. 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 January 31, 2005 limit the amount of available funds for the payment of dividends to $141.5 million.

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, of which 0.5 million shares at an average price of $11.70 were purchased in fiscal year 2004 and 0.5 million shares at an average price of $13.89 per share were repurchased in fiscal year 2003. We did not repurchase any shares during fiscal year 2005 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 January 31, 2005.

Period	Total number of shares (or units) purchased		Average price paid per share		Total number of shares (or units) purchased as part of publicly announced plans or programs	Maximum number (or approximate dollar value) of shares (or units) that may yet be purchased under the plans or programs
November 2004
(October 30 – November 26)	–			–	–	1,337,200
December 2004
(November 27 – December 31)	–			–	–	1,337,200
January 2005
(January 1, 2005 – January 31, 2005)	2,356	(1)	$	31.26	–	1,337,200

⁽¹⁾    These shares relate to an option exercise whereby the individual delivered 2,356 shares already owned for over one year in exchange for the shares received in the stock option exercise; thus, the transaction relates to a stock-for-stock exchange but is not considered to be purchased under the aforementioned share repurchase plan.

18.

ITEM 6. SELECTED FINANCIAL DATA - in millions, except per share data and ratios

The following selected financial data should be read in conjunction with Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” as well as our financial statements, notes to those statements and other financial information appearing elsewhere in this report.

Fiscal Years (1)	2005 (2),(3)			2004 (3),(4)			2003 (4)			2002			2001
STATEMENTS OF INCOME:
Net sales	$	4,422.6		$	3,253.4		$	3,066.3		$	3,037.7		$	3,310.2
Cost of sales		3,383.3			2,519.7			2,356.6			2,340.6			2,565.1
Gross margin ratio to net sales		23.5	%		22.6	%		23.1	%		22.9	%		22.5	%
Selling, general and administrative expenses	$	791.3		$	589.8		$	568.0		$	564.0		$	590.6
Percentage of net sales		17.9	%		18.1	%		18.5	%		18.6	%		17.8	%
Depreciation and amortization (5)		27.1			21.2			20.5			31.1			32.6
Operating income		220.9			122.7			121.2			101.3			106.3
Operating margin		5.0	%		3.8	%		4.0	%		3.3	%		3.2	%
Interest expense	$	30.6		$	34.6		$	30.3		$	35.9		$	43.3
Interest and other income		8.0			6.4			7.3			9.3			17.7	(6)
Income before income taxes	$	198.3		$	94.5		$	98.2		$	74.7		$	80.7
Percentage of net sales		4.5	%		2.9	%		3.2	%		2.5	%		2.4	%
Income taxes		74.6			36.8			40.1			30.6			34.2
Net income		123.7			57.7			58.1			44.1			46.5
Percentage of net sales		2.8	%		1.8	%		1.9	%		1.5	%		1.4	%
Earnings per share (7):
Basic	$	2.01		$	1.26		$	1.25		$	0.95		$	1.00
Diluted		1.95			1.23			1.23			0.94			0.99
Weighted average shares outstanding (7):
Basic		61.4			45.9			46.4			46.4			46.5
Diluted		63.4			47.0			47.3			46.8			47.2
BALANCE SHEETS:
Working capital (current assets less current liabilities)	$	915.3		$	603.6		$	558.8		$	588.3		$	679.1
Property and equipment, net		92.8			161.8			157.8			145.7			152.1
Goodwill		718.6			609.8			320.1			263.8			249.8
Total assets		2,530.3			1,881.3			1,434.9			1,293.2			1,406.7
Total debt		545.7			413.3			441.9			422.9			531.5
Shareholders’ equity		1,253.9			1,012.0			644.8			594.5			570.0
Current ratio		2.4 to 1			2.4 to 1			2.5 to 1			3.1 to 1			3.2 to 1
Total debt-to-capital		30	%		29	%		41	%		42	%		48	%
OTHER:
Cash dividends per share (7)	$	0.260		$	0.200		$	0.178		$	0.170		$	0.170
Return on average shareholders’ equity		10.9	%		7.0	%		9.4	%		7.6	%		8.5	%

19.

ITEM 6. SELECTED FINANCIAL DATA

⁽¹⁾ Beginning with fiscal year 2005 and thereafter, our fiscal year is a 52-week period ending on January 31. Previously, our fiscal year was a 52 or 53-week period ending on the last Friday in January. Fiscal year 2005 and fiscal year 2004 each contained 52 weeks while fiscal year 2003 contained 53 weeks.

⁽²⁾ Results for fiscal year 2005 include the results of Southwest Power, Inc. and Western States Electric, Inc. and their subsidiaries; Todd Pipe & Supply; and Standard Wholesale Supply Company from the acquisition dates of November 1, 2004, May 28, 2004, and May 3, 2004, respectively.

⁽³⁾ Results for fiscal years 2005 and 2004 include the results of Century Maintenance Supply, Inc. and Marden Susco, LLC from the acquisition dates of December 19, 2003 and August 4, 2003, respectively.

⁽⁴⁾ Results for fiscal years 2004 and 2003 include the results of Utiliserve Holdings, Inc. and its subsidiaries from the acquisition date of August 9, 2002.

⁽⁵⁾ Effective January 26, 2002, we adopted Statement of Financial Accounting Standards (SFAS) 142, Goodwill and Other Intangible Assets. Under SFAS 142, goodwill is no longer amortized.

⁽⁶⁾ Includes an $11.0 million gain on the sale of our Pool and Spa business in January 2001 for $48.0 million.

⁽⁷⁾ Share and per-share data reflect, for all periods presented, the two-for-one stock split effective September 22, 2004.

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

This management’s discussion and analysis of financial condition and results of operations is intended to provide investors with an understanding of our results of operations during fiscal years 2005, 2004 and 2003, our financial condition as of January 31, 2005, and our prospects for the future. This information should be read in conjunction with our consolidated financial statements and notes thereto contained in Item 8 of this Form 10-K. The following sections will be discussed and analyzed herein:

– Our Business

– Consolidated Results of Operations

– Segment Results of Operations

– Liquidity, Capital Resources, and Financial Condition

– Recent Accounting Pronouncements

– Critical Accounting Policies

OUR BUSINESS

Company Overview

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 and two Canadian provinces. We generate revenues, income and cash flows by distributing supplies and providing value-added services to our principal customers. 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.

We manage our business on a product line basis and report the results of our operations in seven operating segments and an Other category. During the fourth quarter of fiscal year 2005, we revised our segment reporting to include the Building Materials product line as its own separate operating segment due to the growth and allocation of management resources to this product line. All prior period segment results have been reclassified to reflect these changes. The seven operating segments are Water & Sewer; Plumbing/HVAC; Utilities; MRO; Electrical; Industrial PVF; and Building Materials. We include our Fire Protection and Mechanical product lines in the Other category. This reporting structure is the basis management uses for making operating decisions and assessing performance and is on a basis consistent with how business activities are reported internally to management and the Board of Directors. A discussion of each respective operating segment is provided in greater detail in Item 1 of this Form 10-K and in Note 2 to the Consolidated Financial Statements.

Beginning with fiscal year 2005 and thereafter, our fiscal year is a 52-week period ending on January 31. Previously, our fiscal year was a 52- or 53-week period ending on the last Friday in January. The change in our fiscal year ending date was made to simplify reporting and to allow for better comparability between reporting periods. Fiscal year 2005 and fiscal year 2004 each contained 52 weeks while fiscal year 2003 contained 53 weeks. The additional week in fiscal year 2003 was included in the first quarter.

20.

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

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 shares and per share amounts set forth in this report have been adjusted for the two-for-one stock split.

Recent Business Acquisitions

On November 1, 2004, we completed the acquisition of Southwest Power, Inc. and Western States Electric, Inc. and their subsidiary entities (collectively referred to as “SWP/WSE”) from a common private ownership group. SWP/WSE was a large privately-owned distributor of electrical transmission and distribution (T&D) supplies and equipment, focused exclusively on the western and southwestern United States and, recently, western Canada. The acquisition of SWP/WSE enables us to become a leader nationally in the electrical utility T&D supplies and equipment distribution market and is aligned with our growth strategy of investing in businesses that expand our national footprint and reduce business cyclicality. The purchase price consisted of $123.1 million of net cash paid for SWP/WSE’s net assets along with the assumption of accounts payable, accrued and other liabilities, which collectively totaled $31.7 million, subject to finalization of working capital adjustments in accordance with the purchase agreement. The results of SWP/WSE’s operations have been included in our consolidated statements of income since November 1, 2004.

On May 28, 2004, we acquired Todd Pipe & Supply (“Todd Pipe”), one of the largest independent wholesale plumbing suppliers in Southern California and Las Vegas, Nevada. Todd Pipe’s historical returns have been higher than those of our other plumbing operations, and its acquisition expands our geographic footprint into higher growth markets. The purchase price consisted of $85.3 million of net cash paid for Todd Pipe’s net assets along with the assumption of accounts payable, accrued and other liabilities, which collectively totaled $43.8 million. Approximately $81.8 million of the total purchase price has been paid through January 31, 2005. The results of Todd Pipe’s operations have been included in our consolidated statements of income since May 28, 2004.

On May 3, 2004, we acquired Standard Wholesale Supply Company (“Standard”), a distributor of waterworks, electrical and plumbing products primarily serving residential and infrastructure water and sewer contractors and customers in Las Vegas, Nevada. The acquisition of Standard allows us to accelerate our expansion into the high-growth market of Las Vegas, Nevada, and also allows us to invest in a business that is well-aligned with our culture of providing the highest level of service possible to the customer, along with quality products. The purchase price consisted of $25.7 million of net cash paid for Standard’s net assets along with the assumption of accounts payable, accrued and other liabilities, which collectively totaled $11.7 million. The results of Standard’s operations have been included in our consolidated statements of income since May 3, 2004.

On December 19, 2003, we acquired Century Maintenance Supply, Inc. (“Century”), a leading supplier of MRO products serving the multi-family apartment market throughout the United States. The acquisition has enabled us to become a leader in the apartment MRO market and has facilitated entry into adjacent customer markets such as hospitality and lodging, assisted living and healthcare, education and government. The purchase price consisted of $260.0 million of net cash paid for Century’s net assets along with the assumption of $31.5 million of accounts payable and accrued liabilities and $101.5 million of debt. The results of Century’s operations have been included in our consolidated statements of income since December 19, 2003.

On August 4, 2003, we acquired substantially all of the net assets of Marden Susco, LLC (“Marden Susco”), a southern California supplier of underground piping products for use in municipal water, sewer and storm drain systems. The acquisition allowed us to expand our Water & Sewer business into California. The purchase price consisted of $19.6 million cash paid for Marden Susco’s net assets along with the assumption of $13.7 million of accounts payable and accrued liabilities and $6.7 million of debt. The results of Marden Susco’s operations have been included in our consolidated statements of income since August 4, 2003.

On August 9, 2002, we acquired all of the capital stock of Utiliserve Holdings, Inc. and its subsidiaries (“Utiliserve”), a wholesale distributor of electrical transmission and distribution products and services to the U.S. electric utility industry. As a result of the acquisition, we became a leading provider of electrical transmission and distribution products and services in the United States. We also expanded our development of customer contracts as a result of Utiliserve’s value-added services, including vendor-managed inventory, collaborative emergency response and job-site delivery. The purchase price consisted of $33.4 million of net cash paid for Utiliserve’s net equity along with the assumption of $54.5 million and $33.2 million of debt and other liabilities, respectively. The results of Utiliserve’s operations have been included in our consolidated statements of income since August 9, 2002.

CONSOLIDATED RESULTS OF OPERATIONS

Overview of Fiscal Year 2005 Results of Operations

Our results of operations for fiscal year 2005 reflected net sales, net income and diluted earnings per share growth

21.

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

driven primarily by strength in commercial and residential construction demand, higher commodity prices across most of our segments, and the impact of recent acquisitions, including Century, Standard, Todd Pipe and SWP/WSE. Net sales increased by 35.9% or $1,169.2 million during fiscal year 2005 to $4,422.6 million from $3,253.4 million reported during fiscal year 2004. Organic sales increased by $640.1 million or 15.6%, with positive organic sales growth reported in all of our product lines and double-digit organic growth reported in seven of our nine product lines during fiscal year 2005. Net income totaled $123.7 million during fiscal year 2005, a $66.0 million or 114.4% increase compared to net income during fiscal year 2004 of $57.7 million. The increase in net income was primarily attributable to the 15.6% increase in organic sales; the impact of our recent acquisitions; a 90 basis point increase in our gross margin ratio to net sales; and a 30 basis point improvement in our ratio of operating expenses to net sales, despite higher expenses for variable compensation and benefits, professional services (particularly for fees related to systems development and Sarbanes-Oxley compliance), insurance and the integration of our acquisitions. Diluted earnings per share in fiscal year 2005 was $1.95 on 63.4 million weighted-average shares outstanding, compared to $1.23 per diluted share reported in the prior year on 47.0 million weighted-average shares outstanding. The 16.4 million increase in weighted-average shares outstanding was primarily the result of our equity offerings in January and October of 2004, at which times an additional 13.8 million and 4.0 million shares were issued, respectively.

Net Sales

Net sales are affected by numerous factors, including, but not limited to, changes in demand, commodity pricing, seasonality, weather, competition and construction cycles. The following table presents the major components of our consolidated net sales in fiscal years 2005, 2004 and 2003:

($ in millions)
Fiscal Years Ended	2005			2004			% Variance
Existing sales base	$	3,628.2		$	3,058.0		18.6%
Branch openings/closures		72.6			128.9
Acquisitions		1,037.9			911.7
Organic sales (1)		4,738.7			4,098.6		15.6%
Excluded (divested) branches (2)		2.9			6.8
Less: Pre-acquisition pro forma sales		(319.0	)		(852.0	)
Reported net sales	$	4,422.6		$	3,253.4		35.9%

($ in millions)
Fiscal Years Ended	2004			2003			% Variance
Existing sales base	$	2,941.4		$	2,885.3		1.9%
Branch openings/closures		25.0			32.3
Acquisitions		604.3			574.4
Organic sales (1)		3,570.7			3,492.0		2.3%
Additional week in FY03		–			53.4
Less: Pre-acquisition pro forma sales		(317.3	)		(479.1	)
Reported net sales	$	3,253.4		$	3,066.3		6.1%

⁽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. During the first quarter of fiscal year 2005, we changed our organic sales methodology to include all branches, including those that were newly opened, closed and those acquired during the comparative fiscal periods; 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 new methodology more accurately reflects the current sales performance of all our branches, including those newly acquired. All organic sales amounts and percentages presented in this report exclude the impact of the additional week of net sales in the first quarter of fiscal year 2003.

⁽²⁾ During the third quarter of fiscal year 2005, we sold a business within the MRO segment for $2.6 million, which resulted in a gain of approximately $0.1 million. This business was sold because it was not a core operation within the MRO segment.

Fiscal Year 2005 Compared to Fiscal Year 2004

Net sales in fiscal year 2005 totaled $4,422.6 million, an increase of $1,169.2 million or 35.9%, compared to fiscal year 2004’s net sales of $3,253.4 million. Organic sales increased by $640.1 million or 15.6%, with positive growth reported by each of our seven business segments and the Other category, with five of our seven business segments and the product lines in our Other category reporting double-digit growth. The increase in net sales included approximately $305.7 million of net sales in fiscal year 2005 from the acquisitions of Standard, Todd Pipe and SWP/WSE in addition to $353.5 million associated with the impact of a full year of sales relating to the acquisitions of Century and Marden Susco in December and August 2003, respectively. The remaining increase in net sales was primarily due to growth in our exist - -

22.

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

ing base of branches as a result of a higher level of commercial construction and industrial activity, continued strength in residential construction, and higher commodity prices across most businesses as compared to fiscal year 2004.

Fiscal Year 2004 Compared to Fiscal Year 2003

Net sales in fiscal year 2004 totaled $3,253.4 million, an increase of $187.1 million or 6.1%, compared to fiscal year 2003’s net sales of $3,066.3 million due partially to the acquisitions of Century, Marden Susco and Utiliserve as well as strong residential construction activity and an improvement in the commercial construction market during the second half of the fiscal year. The Century and Marden Susco acquisitions added net sales of $29.2 million and $31.2 million, respectively, during fiscal year 2004. A full year of Utiliserve activity in fiscal year 2004 increased net sales by $131.3 million. These increases were partially offset by a benefit of $53.4 million included in fiscal year 2003’s consolidated net sales due to the additional week included in its first quarter.

During fiscal year 2004, organic sales increased $78.7 million or 2.3% as compared to fiscal year 2003 due to the procurement of several large subdivision and municipal projects in the midwestern water and sewer markets, an overall improvement in the commercial construction markets served by the Plumbing/HVAC segment and the Building Materials segment in the eastern United States, and market share growth in the MRO segment. These increases were partially offset by lower sales in the Industrial PVF segment due to weak end-market demand and the loss of a large Utilities segment customer during the second quarter of fiscal year 2004.

Gross Margin

Gross margin is affected by numerous factors, including, but not limited to, business and product mix changes, demand, commodity pricing, competition, purchasing rebates and direct shipments compared to stock sales. Gross margin and gross margin ratio to net sales in fiscal years 2005, 2004 and 2003 were as follows:

Gross Margin ($ in millions)							Percentage & Basis Point Variances
Fiscal Years Ended	2005		2004		2003		2005	2004
Gross margin	$	1,039.3	$	733.7	$	709.7	41.7%	3.4%
Gross margin ratio to net sales		23.5%		22.6%		23.1%	90	(50)

Fiscal Year 2005 Compared to Fiscal Year 2004

Gross margin ratio to net sales was 23.5% and 22.6% during fiscal years 2005 and 2004, respectively. The 90 basis point improvement during fiscal year 2005 was mainly attributable to a change in our net sales mix resulting from the acquisition of Century in December 2003, which is a higher margin business; the improved performance of our Industrial PVF and Building Materials segments, traditionally higher margin businesses, resulting from improved market conditions and stronger demand for materials that experienced commodity price inflation; improved purchasing leverage from our continued vendor consolidation efforts and improved programs with our suppliers; and the favorable impact of lower average cost inventory in the first half of fiscal year 2005.

Fiscal Year 2004 Compared to Fiscal Year 2003

The decrease in gross margin ratio to net sales to 22.6% in fiscal year 2004 from 23.1% in fiscal year 2003 was driven primarily by competitive pricing pressures and the mix of our net sales activity. During fiscal year 2004, the Utilities segment, which has historically generated lower gross margins than our other segments, comprised a higher percentage of consolidated net sales, and the Industrial PVF segment, a higher gross margin business, comprised a lower percentage of consolidated net sales. Additionally, an unfavorable margin impact resulting from higher inventory losses and write-downs was partially offset by an increase in vendor rebates resulting from our continued vendor consolidation efforts and improved programs with our suppliers.

Operating Expenses

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 and percentage of net sales for fiscal years 2005, 2004 and 2003 were as follows:

Operating Expenses ($ in millions)							Percentage of Net Sales
Fiscal Years Ended	2005		2004		2003		2005	2004		2003
Personnel expenses	$	523.4	$	386.1	$	379.8	11.8%	11.9	%	12.4	%
Other selling, general and administrative expenses		267.9		203.7		188.2	6.1%	6.3	%	6.1	%
Depreciation and amortization		27.1		21.2		20.5	0.6%	0.7	%	0.7	%
Total operating expenses	$	818.4	$	611.0	$	588.5	18.5%	18.8	%	19.2	%

Fiscal Year 2005 Compared to Fiscal Year 2004

As a percentage of net sales, personnel expenses remained relatively consistent at 11.8% and 11.9% in fiscal year 2005 and 2004, respectively, with approximately one-half of the $137.3 million increase in personnel expenses year over year primarily relating to the Standard, Todd Pipe and SWP/WSE acquisitions completed during fiscal year 2005 and the incremental impact of a full year of operations for Century and Marden Susco. Our workforce increased 10.7% from approx - -

23.

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

imately 8,400 employees at January 31, 2004 to approximately 9,300 employees at January 31, 2005 primarily as a result of acquisitions. Excluding the impact of the acquisitions, personnel expenses increased $68.4 million or 17.7% during fiscal year 2005 primarily as a result of the following factors:

– A $36.8 million or 11.4% increase in salaries, wages, payroll taxes, and other employee-related costs, including an increase in employee health insurance expenses due to higher enrollment and increasing healthcare costs;

– A $19.3 million increase in variable compensation (i.e., bonuses and commissions) due to the net sales and earnings growth;

– The impact of the change in our vacation policy adopted in fiscal year 2004 to allow employees to earn vacation ratably during the year ($8.1 million). Prior to this change, vacation was granted at the beginning of the year;

– An increase in restricted stock expense of approximately $2.3 million mainly attributable to the award of 355,400 shares of restricted stock during fiscal year 2005 slightly offset by the impact of restricted stock that fully vested and restricted stock cancellations during fiscal year 2005; and

– A $1.9 million increase in expenses associated with the supplemental executive retirement plan due to enhancements made to the plan in the first quarter of fiscal year 2005.

As a percentage of net sales, other selling, general and administrative expenses decreased 20 basis points to 6.1% in fiscal year 2005 compared to 6.3% in fiscal year 2004, primarily as a result of the operating leverage obtained from the increase in net sales. Over one-half of the $64.2 million increase in expenses related to the current year acquisitions of Standard, Todd Pipe and SWP/WSE and the incremental impact of a full year of operations for the acquisitions of Marden Susco and Century that occurred in August and December of 2003. Excluding the acquisitions, other selling, general and administrative expenses increased $27.6 million or 13.5% during fiscal year 2005 primarily as a result of the following factors:

– A $4.8 million increase in vehicle and equipment lease expense due primarily to our initiative to lease vehicles upon replacement of owned vehicles and due to our increased IT lease expenses for servers and other equipment related to our Oracle implementation and system conversions;

– A $4.8 million increase in property and sales tax related items;

– A $3.4 million increase in the provision for doubtful accounts resulting primarily from the net sales growth and the impact of fiscal year 2004 recoveries of previously written-off receivables;

– A $3.2 million increase in professional service expenses primarily related to systems development and Sarbanes-Oxley compliance;

– A $3.2 million increase in travel related expenses resulting from systems development and conversions across our segments, Sarbanes-Oxley compliance, and the net sales growth;

– A $2.9 million increase in fuel and freight due to higher prices and the net sales growth;

– A $2.5 million increase in insurance expenses, due to a higher level of larger claims;

– Expenses of $2.2 million associated with the closure of an Electrical distribution center in Orlando, Florida and the closure of seven branches in the MRO segment resulting from the integration of the Century acquisition; and

– An $0.8 million increase in donations to the Hughes Supply Foundation, Inc., a not-for-profit charitable foundation.

As a percentage of net sales, depreciation and amortization expenses remained relatively flat at 0.6% of net sales in fiscal year 2005 compared to 0.7% of net sales in fiscal year 2004. The increase of $5.9 million during fiscal year 2005 compared to fiscal year 2004 was primarily a result of the incremental amortization expense associated with the intangible assets related to the Century, Standard, Todd Pipe and SWP/WSE acquisitions. Depreciation expense was relatively consistent with the prior year with the increase in depreciation from capital expenditures primarily offset by the decrease in depreciation associated with sale-leaseback transactions that occurred in April and December of fiscal year 2005.

Fiscal Year 2004 Compared to Fiscal Year 2003

As a percentage of net sales, personnel expenses were 11.9% and 12.4% in fiscal years 2004 and 2003, respectively. Our workforce increased 16.7% from approximately 7,200 employees at January 31, 2003 to approximately 8,400 employees at January 30, 2004 primarily as a result of the acquisitions of Century and Marden Susco. Century and Marden Susco added $7.7 million of personnel expenses to fiscal year 2004, and a full year of Utiliserve activity during the year additionally increased personnel expenses by $6.1 million. Excluding the acquisitions, personnel expenses decreased during fiscal year 2004 primarily as a result of the following factors:

– An $8.1 million decrease in vacation expense as a result of a change in our vacation policy during fiscal year 2004 to allow employees to earn vacation ratably during the year. Previously, vacation was granted at the beginning of the year; and

24.

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

– A $7.2 million decrease due to the additional week in the first quarter of fiscal year 2003; the total of which was partially offset by

– An increase of $3.6 million in employee healthcare insurance expenses due to increased enrollment and higher rates.

As a percentage of net sales, other selling, general and administrative expenses were 6.3% and 6.1% in fiscal years 2004 and 2003, respectively. The increase was primarily attributable to the following factors:

– A $5.3 million increase in shipping and freight costs resulting from higher fuel prices;

– A $2.2 million increase for lease obligations related to the closure of seven Plumbing/HVAC branches and our Texas distribution center;

– A $2.2 million increase associated with the relocation of our corporate offices;

– A $1.7 million increase in marketing expenses related to enhanced customer award programs;

– A $1.6 million increase in telecommunications expenses attributable to increased bandwidth capacity; and

– A $1.3 million increase in insurance expense due primarily to higher insurance premiums; the total of which was partially offset by

– A $4.5 million decrease in our provision for doubtful accounts due primarily to lower write-offs of uncollectible customer accounts and higher recoveries of previously written off receivables; and

– A $1.2 million decrease due to the additional week included in the first quarter of fiscal year 2003.

Operating Income

Operating income is affected by numerous factors, including, but not limited to, fluctuations in net sales as well as changes in business and product mix. Operating income for fiscal years 2005, 2004, and 2003 were as follows:

Operating Income ($ in millions)							Percentage of Net Sales
Fiscal Years Ended	2005		2004		2003		2005	2004	2003
Operating income	$	220.9	$	122.7	$	121.2	5.0%	3.8%	4.0%

Fiscal Year 2005 Compared to Fiscal Year 2004

Operating income in fiscal year 2005 totaled $220.9 million, increasing $98.2 million or 80.0%, compared to fiscal year 2004’s operating income total of $122.7 million, due in part to the acquisitions of Century, Standard, Todd Pipe and SWP/WSE. As a percentage of sales, operating income increased 120 basis points primarily due to the leverage obtained from the increased net sales, higher gross margins, our continued efforts to manage our expenses and the overall higher return contributions from our recent acquisitions.

Fiscal Year 2004 Compared to Fiscal Year 2003

Operating income in fiscal year 2004 totaled $122.7 million, increasing $1.5 million or 1.2%, compared to fiscal year 2003’s operating income of $121.2 million. Operating income as a percentage of net sales decreased 20 basis points to 3.8% in fiscal year 2004 compared to 4.0% in fiscal year 2003 due primarily to a decline in Industrial PVF net sales and profitability as a result of the significant downturn in the petrochemical and power industries, and the additional week included in the first quarter of fiscal year 2003, which improved the prior year’s operating income leverage by $4.6 million. Partially offsetting these decreases was operating income from the acquisitions of Century and Marden Susco, which collectively added $3.2 million of operating income to fiscal year 2004. A full year of Utiliserve activity in fiscal year 2004 also increased operating income $5.7 million.

Interest Expense

Fiscal Year 2005 Compared to Fiscal Year 2004

Interest expense totaled $30.6 million and $34.6 million during fiscal years 2005 and 2004, respectively. Interest expense for fiscal year 2005 included an $0.8 million write-off of unamortized loan origination costs related to our $290.0 million revolving credit agreement, which was replaced by a new $500.0 million revolving credit agreement on June 14, 2004. Excluding the $0.8 million charge, interest expense decreased by $4.8 million in fiscal year 2005 compared to the prior year due primarily to a 30 basis point decrease in the weighted-average interest rate partially offset by a slight increase in our weighted-average outstanding debt balance, which was primarily the result of our $300.0 million debt issuance in October of 2004. The decrease in the weighted-average interest rate was primarily attributable to an increase in the mix of lower-cost variable-rate borrowings under our revolving credit agreement during fiscal year 2005, in addition to a lower weighted-average interest rate associated with our fixed rate notes resulting from principal payments on higher cost notes and the impact of a lower fixed rate borrowing related to the aforementioned $300.0 million debt issuance.

Fiscal Year 2004 Compared to Fiscal Year 2003

In fiscal year 2004 and fiscal year 2003, interest expense totaled $34.6 million and $30.3 million, respectively. The increase was primarily due to approximately $2.6 million of debt issuance costs associated with an interim $250.0 million

25.

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

senior unsecured term loan (the “term loan”) and additional borrowings under our $290.0 million revolving credit agreement used to initially fund the acquisition of Century. We used the proceeds from the issuance of our common stock in January 2004 to repay the term loan in full. We also expensed $1.1 million of loan origination fees in connection with the amendment of our revolving credit agreement to permit the new term loan borrowings and to make its financial and other covenants essentially the same as the term loan agreement. These increases were partially offset by lower average interest rates and lower outstanding debt balances in fiscal year 2004. Total debt decreased $28.6 million or 6.5% from $441.9 million as of January 31, 2003 to $413.3 million of January 30, 2004 and our weighted-average interest rate for fiscal year 2004 decreased 110 basis points compared to the prior year.

Interest and Other Income

Interest and other income totaled $8.0 million, $6.4 million, and $7.3 million in fiscal years 2005, 2004 and 2003, respectively. The $1.6 million increase during fiscal year 2005 was primarily due to additional interest income resulting from increased levels of cash during the second half of fiscal year 2005; interest received during the first quarter of fiscal year 2005 related to the settlement of amended prior year federal income tax filings; and slightly increased service charge income; the total of which was partially offset by a favorable legal settlement in the prior year. The increased levels of cash during the second half of fiscal year 2005 were primarily the result of the net proceeds received on October 12, 2004 from our debt and equity offerings. The decrease in fiscal year 2004 versus fiscal year 2003 was primarily due to reduced collections of service charge income on past due or delinquent accounts.

Income Taxes

Our effective tax rate was 37.6%, 38.9% and 40.9% in fiscal years 2005, 2004 and 2003, respectively. The decrease during fiscal year 2005 was primarily attributable to a $1.7 million tax benefit recognized in the first quarter of fiscal year 2005 related to federal income tax filing amendments associated with prior fiscal years and the release of tax reserves related to expiring statutes of limitations and to state income tax benefits received, the total of which was partially offset by a $1.0 million tax benefit recognized in the prior year related to a discontinued operation in Mexico. The decrease in the effective tax rate during fiscal year 2004 was primarily attributable to a lower effective state income tax rate and the aforementioned tax benefit related to the discontinued operation in Mexico.

SEGMENT RESULTS OF OPERATIONS

The organic sales amounts by segment denoted below are non-GAAP financial measures. Please refer to page 22 for the reconciliation of organic sales to consolidated net sales for fiscal years 2005, 2004, and 2003. Net sales and organic sales by segment in fiscal years 2005, 2004 and 2003 were as follows:

Consolidated Net Sales ($ in millions)
Fiscal Years Ended	2005		2004		2003		% Variance 2005 to 2004	% Variance 2004 to 2003
Water & Sewer	$	1,200.0	$	922.4	$	877.2	30.1%	5.2%
Plumbing/HVAC		1,051.8		842.1		826.9	24.9%	1.8%
Utilities		500.1		363.8		248.3	37.5%	46.5%
MRO		442.5		158.7		118.9	178.8%	33.5%
Electrical		425.3		362.8		375.5	17.2%	(3.4)%
Industrial PVF		362.7		283.2		313.9	28.1%	(9.8)%
Building Materials		254.0		181.4		167.8	40.0%	8.1%
Other		186.2		139.0		137.8	34.0%	0.9%
	$	4,422.6	$	3,253.4	$	3,066.3	35.9%	6.1%

26.

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Organic Sales ($ in millions)
Fiscal Years Ended	2005		2004 (1)		Dollar Variance			% Variance 2005 to 2004
Water & Sewer	$	1,220.1	$	1,031.5	$	188.6		18.3%
Plumbing/HVAC		1,133.4		1,053.5		79.9		7.6%
Utilities		717.4		611.3		106.1		17.4%
MRO		439.6		435.9		3.7		0.8%
Electrical		425.3		362.8		62.5		17.2%
Industrial PVF		362.7		283.2		79.5		28.1%
Building Materials		254.0		181.4		72.6		40.0%
Other		186.2		139.0		47.2		34.0%
	$	4,738.7	$	4,098.6	$	640.1		15.6%
Organic Sales ($ in millions)
Fiscal Years Ended	2004 (1)		2003		Dollar Variance			% Variance 2004 to 2003
Water & Sewer	$	955.7	$	924.3	$	31.4		3.4 %
Plumbing/HVAC		842.1		811.8		30.3		3.7 %
Utilities		363.8		371.1		(7.3	)	(2.0	)%
MRO		442.7		408.8		33.9		8.3 %
Electrical		362.8		368.0		(5.2	)	(1.4	)%
Industrial PVF		283.2		308.1		(24.9	)	(8.1	)%
Building Materials		181.4		164.7		16.7		10.1 %
Other		139.0		135.2		3.8		2.8 %
	$	3,570.7	$	3,492.0	$	78.7		2.3 %

⁽¹⁾ The difference in organic sales amounts for fiscal year 2004 is due to our organic sales methodology. See footnote 1 to the consolidated organic sales table on page 22 for a description of our organic sales methodology.

Operating income by segment and as a percentage of net sales in fiscal years 2005, 2004 and 2003 was as follows:

Operating Income ($ in millions)
							Percentage of Net Sales
Fiscal Years Ended	2005		2004		2003		2005	2004	2003
Water & Sewer	$	53.0	$	44.8	$	40.4	4.4%	4.9%	4.6%
Plumbing/HVAC		22.8		9.4		14.0	2.2%	1.1%	1.7%
Utilities		16.6		13.7		10.2	3.3%	3.8%	4.1%
MRO		32.4		9.4		8.8	7.3%	5.9%	7.4%
Electrical		8.8		8.2		8.1	2.1%	2.3%	2.2%
Industrial PVF		52.3		23.0		31.7	14.4%	8.1%	10.1%
Building Materials		21.5		7.6		3.6	8.5%	4.2%	2.1%
Other		13.5		6.6		4.4	7.3%	4.7%	3.2%
	$	220.9	$	122.7	$	121.2	5.0%	3.8%	4.0%

27.

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Water & Sewer

Net Sales:  Net sales in fiscal year 2005 totaled $1,200.0 million, an increase of $277.6 million or 30.1% compared to fiscal year 2004’s net sales of $922.4 million. This increase included net sales of $60.2 million from the Standard acquisition completed in May 2004 and incremental sales of $41.5 million from the Marden Susco acquisition completed in August 2003. Organic sales increased $188.6 million or 18.3% compared to fiscal year 2004, with double-digit growth in organic sales experienced across all regions due to a higher volume of private and public infrastructure projects and higher prices for PVC, ductile iron pipe and steel products.

Net sales in fiscal year 2004 totaled $922.4 million, an increase of $45.2 million or 5.2% compared to fiscal year 2003’s net sales of $877.2 million. This increase was partially due to the acquisition of Marden Susco, which resulted in additional net sales of $31.2 million in fiscal year 2004. Organic sales increased $31.4 million or 3.4% as a result of increased subdivision projects and increased sewer and waterline projects during fiscal year 2004. Partially offsetting these increases was a $14.5 million decrease resulting from the additional week in the first quarter of fiscal year 2003 and a $6.3 million decrease related to branch closures.

Operating income:  As a percentage of net sales, operating income decreased to 4.4% in fiscal year 2005 from 4.9% in fiscal year 2004. The 50 basis point decrease in fiscal year 2005 was due primarily to decreased gross margins attributable to competitive pricing pressures in certain markets partially offset by the leverage obtained from the increase in net sales in addition to increased rebate income resulting from continued vendor consolidation efforts and improved programs with our suppliers.

Operating income as a percentage of net sales increased to 4.9% in fiscal year 2004 from 4.6% in fiscal year 2003. The 30 basis points increase in fiscal year 2004 was due primarily to increased sales volume and stable margins on large-scale projects in relation to fixed expenses.

Plumbing/HVAC

Net Sales:  Net sales in fiscal year 2005 totaled $1,051.8 million, an increase of $209.7 million or 24.9% compared to fiscal year 2004’s net sales of $842.1 million. This increase included sales of $170.5 million from the Todd Pipe acquisition completed in May 2004. Organic sales increased $79.9 million or 7.6% compared to fiscal year 2004 primarily as a result of higher prices in steel, copper and PVC products, continued strength in residential projects and increased demand in the commercial sector partially offset by the closure of seven underperforming branches in the Southwest region in the fourth quarter of fiscal year 2004.

Net sales in fiscal year 2004 totaled $842.1 million, an increase of $15.2 million or 1.8% compared to fiscal year 2003’s net sales of $826.9 million. This increase was primarily due to organic sales growth of $30.3 million or 3.7% due to increased business on several large accounts resulting from improved market penetration in fiscal year 2004 and overall improvement in the commercial plumbing market. These increases were offset partially by the additional week in the first quarter of fiscal year 2003, which added $15.1 million to fiscal year 2003’s net sales.

Operating income:  As a percentage of net sales, operating income increased to 2.2% in fiscal year 2005 from 1.1% in fiscal year 2004. The 110 basis point increase in fiscal year 2005 was due primarily to gross margin improvement resulting from favorable commodity prices and increased vendor rebate income resulting from our vendor consolidation efforts in addition to the inclusion of Todd Pipe in the segment’s operating results beginning in May 2004, which generated a higher return on sales than our Plumbing/HVAC business prior to the acquisition.

Operating income as a percentage of net sales decreased to 1.1% of net sales in the fiscal year 2004 from 1.7% of net sales in fiscal year 2003. The 60 basis point decrease during fiscal year 2004 was primarily due to lower gross margin direct shipments comprising a higher percentage of the sales mix as well as increased selling, general and administrative expenses driven by costs associated with the closing of seven underperforming branches and our Texas distribution center during January 2004. These decreases were partially offset by lower personnel expenses resulting from headcount reductions. Additionally, fiscal year 2003’s performance was favorably impacted by the leverage gained from the additional week in its first quarter.

Utilities

Net Sales:  Net sales in fiscal year 2005 totaled $500.1 million, an increase of $136.3 million or 37.5% compared to fiscal year 2004’s net sales of $363.8 million. This increase included sales of $75.0 million from the SWP/WSE acquisition completed in November 2004. Organic sales increased $106.1 million or 17.4% compared to fiscal year 2004 primarily resulting from new and expanded alliance contracts with large electric utility companies and higher commodity prices for steel, aluminum, copper and PVC products.

Net sales in fiscal year 2004 totaled $363.8 million, an increase of $115.5 million or 46.5% compared to the fiscal year 2003’s net sales of $248.3 million. A full year of Utiliserve activity in fiscal year 2004 increased net sales by $131.3 million. This increase was partially offset by the impact of the additional week in the first quarter of fiscal year 2003, which

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ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

added $2.9 million to net sales in the prior year. Organic sales decreased $7.3 million or 2.0% due primarily to the loss of a large electric utility customer during the second quarter of fiscal year 2004.

Operating income:  As a percentage of net sales, operating income decreased to 3.3% in fiscal year 2005 from 3.8% in fiscal year 2004. The 50 basis point decrease in fiscal year 2005 was due primarily to a higher level of direct shipments, the impact of a bad debt recovery totaling approximately $0.9 million in the second quarter of fiscal year 2004 and an increase in expenses in the current fiscal year associated with efforts to put an infrastructure in place necessary to support additional business from alliance customers the total of which was partially offset by the operating leverage obtained from the higher net sales in fiscal year 2005.

Operating income as a percentage of net sales decreased to 3.8% in fiscal year 2004 from 4.1% in fiscal year 2003. The 30 basis points decrease was primarily due to lower gross margins due to competitive pressures. Increased selling, general and administrative expenses were partially offset by lower provisions for doubtful accounts due to the recovery of a significant customer account during fiscal year 2004. Additionally, fiscal year 2003’s performance was favorably impacted by the leverage gained from the additional week in its first quarter.

MRO

Net Sales:  Net sales in fiscal year 2005 totaled $442.5 million, an increase of $283.8 million or 178.8% compared to fiscal year 2004’s net sales of $158.7 million. This increase was primarily the result of the acquisition of Century, which was completed in December 2003. Organic sales increased $3.7 million or 0.8% compared to fiscal year 2004. Despite improved penetration in certain markets and the implementation of various sales initiatives, sales growth during fiscal year 2005 was impacted by the integration activities associated with the Century acquisition, including the sales force rationalization, the consolidation of facilities in overlapping markets and system conversions throughout many of the branches. Organic sales were also impacted by historically high apartment vacancy rates, including those in key markets such as Atlanta, Houston, Indianapolis and Dallas.

Net sales for fiscal year 2004 totaled $158.7 million, an increase of $39.8 million or 33.5% compared to fiscal year 2003’s net sales of $118.9 million. This increase was partially due to the acquisition of Century, which resulted in additional net sales of $29.2 million in fiscal year 2004. Organic sales increased $33.9 million or 8.3% from the prior year. Despite historically high vacancy rates, net sales increased due to our continued focus on securing national accounts to increase market share and our construction services initiative. Under the national accounts initiative, the MRO segment targets large property management companies to become their preferred supplier. The construction services initiative is geared toward renovation and refurbishment of older apartment complexes. These increases were partially offset by the impact of the additional week in the first quarter of fiscal year 2003, which added $1.9 million to net sales in fiscal year 2003.

Operating income:  As a percentage of net sales, operating income increased to 7.3% in fiscal year 2005 from 5.9% in fiscal year 2004. The 140 basis point increase in fiscal year 2005 occurred despite integration costs and lower sales growth and was primarily attributable to the inclusion of Century, which generates higher returns on net sales than our MRO business prior to the acquisition.

Operating income as a percentage of net sales decreased to 5.9% in fiscal year 2004 from 7.4% in fiscal year 2003. The decrease of 150 basis points in fiscal year 2004 was primarily driven by lower gross margins due to changes in sales mix and higher selling, general and administrative expenses partially attributable to start-up costs associated with newly-opened branches. Additionally, fiscal year 2003’s performance was favorably impacted by the leverage gained from the additional week in its first quarter.

Electrical

Net Sales:  Net sales and organic sales in fiscal year 2005 totaled $425.3 million, an increase of $62.5 million or 17.2% compared to fiscal year 2004’s net sales of $362.8 million. Sales growth during fiscal year 2005 occurred across all geographic areas due to increased commercial, residential and municipal construction projects, primarily in Florida, and higher prices for steel and copper products.

Net sales in fiscal year 2004 totaled $362.8 million, a decrease of $12.7 million or 3.4% compared to fiscal year 2003’s net sales of $375.5 million. This decrease resulted, in part, from the additional week in the first quarter of fiscal year 2003, which added $7.5 million to net sales in fiscal year 2003. Organic sales decreased $5.2 million or 1.4% primarily due to weakness in the commercial construction and industrial markets, particularly in office buildings and hotel construction during the first half of fiscal year 2004. The economic downturn in these markets experienced over the period from 2001 to 2003 placed significant pressure on the electrical distribution industry; however during the fourth quarter of fiscal year 2004, sales and bid activity improved as commercial construction activity increased.

29.

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Operating income:  As a percentage of net sales, operating income decreased to 2.1% in fiscal year 2005 from 2.3% in fiscal year 2004. The 20 basis point decrease in fiscal year 2005 was primarily attributable to costs associated with the closure of the Electrical Distribution Center in September 2004 and increased price competition in several of our primary markets partially offset by leverage obtained from the increase in net sales.

Operating income as a percentage of net sales remained relatively flat at 2.3% and 2.2% in fiscal year 2004 and fiscal year 2003, respectively. Reduced selling, general and administrative expenses were proportionate with lower sales volumes resulting from competitive pressures and weak commercial and industrial markets. Gross margins benefited from improved vendor rebates, which resulted from our continued focus on vendor consolidation efforts and improved programs with suppliers.

Industrial PVF

Net Sales:  Net sales and organic sales in fiscal year 2005 totaled $362.7 million, an increase of $79.5 million or 28.1% compared to fiscal year 2004’s net sales of $283.2 million. The increase in net sales during fiscal year 2005 compared to the prior year was primarily attributable to higher nickel, steel and metal alloy prices. The remainder of the increase was the result of higher demand generated from an improvement in the industrial market, particularly in fabrication; the addition of several new customers; and market share gains attributable to our highly specialized product inventory and well-timed inventory purchases. The improvement in the industrial market was the result of increased business from petrochemical, power, oil, and food and beverage companies as the economy improved in addition to the impact of the weak dollar and product scarcity overseas, which have benefited fabricators in the U.S.

Net sales in fiscal year 2004 totaled $283.2 million, a decrease of $30.7 million or 9.8% compared to fiscal year 2003’s net sales of $313.9 million. Contributing to the decrease was $5.8 million of net sales related to the additional week in the first quarter of fiscal year 2003. Organic sales decreased $24.9 million or 8.1% primarily due to the sharp decline in power and petrochemical industry capital spending and new plant construction.

Operating income:  As a percentage of net sales, operating income increased to 14.4% in fiscal year 2005 from 8.1% in fiscal year 2004. The 630 basis point increase in fiscal year 2005 was primarily the result of leverage gained from an increase in gross margin attributable to higher selling prices related to nickel, steel and metal alloy products and increased volumes due to the improved demand in addition to well-timed inventory purchases and good expense management.

Operating income as a percentage of net sales decreased to 8.1% in fiscal 2004 from 10.1% in fiscal year 2003. The decrease was primarily due to substantially lower sales volumes and gross margins in fiscal year 2004 due to the sharp decline in power and petrochemical industry capital spending and new plant construction.

Building Materials

Net Sales:  Net sales and organic sales in fiscal year 2005 totaled $254.0 million, an increase of $72.6 million or 40.0% compared to fiscal year 2004’s net sales of $181.4 million. Double-digit growth in sales was experienced across all regions due to increased commercial construction activity, particularly in Florida (due to hurricane rebuilding efforts) and Georgia, and higher steel and lumber prices.

Net sales in fiscal year 2004 totaled $181.4 million, an increase of $13.6 million or 8.1% compared to fiscal year 2003’s net sales of $167.8 million. Organic sales increased $16.7 million or 10.1%. These increases were primarily attributable to the strong increase in the number and size of construction projects in Florida and higher non-building starts. These increases were offset partially by the additional week in the first quarter of fiscal year 2003, which added $3.1 million to fiscal year 2003’s net sales.

Operating income:  As a percentage of net sales, operating income increased to 8.5% in fiscal year 2005 from 4.2% in fiscal year 2004. The 430 basis point increase in fiscal year 2005 was primarily the result of leverage from the higher net sales and increases in gross margin attributable to higher steel and lumber prices combined with increased volumes due to the improved demand.

Operating income as a percentage of net sales increased to 4.2% in fiscal year 2004 from 2.1% in fiscal year 2003. The increase was primarily due to strong sales growth in addition to improved expense management.

Other

Net Sales:  Net sales and organic sales in fiscal year 2005 totaled $186.2 million, an increase of $47.2 million or 34.0% compared to fiscal year 2004’s net sales of $139.0 million, with both product lines comprising the Other category experiencing strong sales growth. The Fire Protection product line had sales growth of $40.5 million or 39.0% primarily as a result of higher steel prices and increased commercial building activities. The Mechanical product line had sales growth of $6.7 million or 18.7% due primarily to higher steel prices, the addition of several large commercial projects and increased business with a large customer during fiscal year 2005.

30.

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Net sales in fiscal year 2004 totaled $139.0 million, an increase of $1.2 million or 0.9% compared to fiscal year 2003’s net sales of $137.8 million. Organic sales increased $3.8 million or 2.8%. The Fire Protection product line posted strong sales growth as a result of expansion into new markets and increases in subdivision and waterline projects. These increases were partially offset by the additional week of sales in the first quarter of fiscal year 2003, which added $2.6 million to net sales in fiscal year 2003.

Operating income:  As a percentage of net sales, operating income increased to 7.3% in fiscal year 2005 from 4.7% in fiscal year 2004. The 260 basis point increase in fiscal year 2005 was primarily the result of leverage from strong sales and increases in gross margin attributable to higher steel prices combined with increased volumes due to the improved demand.

Operating income as a percentage of net sales increased to 4.7% in fiscal year 2004 from 3.2% in fiscal year 2003. Significant increases in sales volumes, particularly strong sales growth in the Fire Protection product line, resulted in the 150 basis point improvement in fiscal year 2004. These increases were partially offset by decreases in gross margins on stock shipments associated with competitive pressures.

LIQUIDITY, CAPITAL RESOURCES, AND FINANCIAL CONDITION

The following sets forth certain measures of our liquidity:

($ in millions)
Fiscal Years Ended	2005			2004
Net cash provided by operating activities	$	145.2		$	145.9
Net cash used in investing activities		(191.0	)		(291.5	)
Net cash provided by financing activities		250.7			152.2
	January 31			January 30
	2005			2004
Working capital	$	915.3		$	603.6
Current ratio		2.4 to 1			2.4 to 1
Debt-to-capital		30.3%			29.0%

Working Capital

Compared to January 30, 2004, working capital as of January 31, 2005 increased $311.7 million or 51.6%. The increase in working capital was primarily attributable to higher levels of cash and cash equivalents relating to our debt and equity offerings in October 2004, which collectively generated net proceeds of $410.5 million, and proceeds from our sale-leaseback transactions consummated during fiscal year 2005; higher accounts receivable driven by the double-digit organic sales growth and the acquisitions of Standard, Todd Pipe and SWP/WSE; and increased vendor rebate receivables due to our vendor and purchasing consolidation efforts and increased purchasing activity. These working capital increases were partially offset by lower levels of owned inventories (inventories less accounts payable) resulting from improved inventory and payables management and increased accrued compensation and benefits primarily attributable to increased headcount and increased bonuses and commissions associated with the net sales and earnings growth. We continue to focus on asset management initiatives that will improve our working capital efficiency.

Operating Activities

During fiscal years 2005 and 2004, cash flows provided by operating activities totaled $145.2 million and $145.9 million, respectively. Cash flows provided by operating activities remained relatively stable due in large part to the higher earnings experienced in fiscal year 2005, improved inventory and payables management, increases in accruals for variable compensation and the timing of payroll accruals being offset by higher accounts receivable driven by the double-digit organic sales growth and increased vendor rebate receivables due to our vendor and purchasing consolidation efforts and increased purchasing activity. The $166.9 million, $195.6 million and $132.0 million increases in inventories, accounts payable and accounts receivable during fiscal year 2005, respectively, include $61.9 million, $56.4 million and $84.6 million related to the acquisitions of Standard, Todd Pipe, and SWP/WSE, respectively, which are classified as investing activities for cash flow reporting purposes. Going forward, we expect operating cash flows to be strong as we continue to improve our working capital efficiency, allowing us to generate cash from operations.

Investing Activities

Our expenditures for property and equipment totaled $27.2 million and $15.9 million during fiscal years 2005 and 2004, respectively. Of these expenditures, $18.4 million and $9.4 million, respectively, related to IT outlays. Fiscal year 2006 capital expenditures are expected to be in the range of approximately $30 million to $35 million.

Proceeds from the sale of property and equipment totaled $78.2 million and $4.0 million during fiscal years 2005 and 2004, respectively. The increase in fiscal year 2005 was due primarily to cash proceeds of $32.7 million from the first quarter sale-leaseback of a portfolio of 18 properties and $37.5 million from the fourth quarter sale-leaseback of a portfolio of 48 properties. A loss of approximately $1.3 million and $0.9 million resulting from the first quarter and fourth quarter sales, respectively, was recognized during the respective quarters of fiscal year 2005 for the properties sold at a price less than their net book value. A gain of approximately $9.1 million and $14.8 million resulting from the first and fourth

31.

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

quarter sales, respectively, was deferred and will be amortized over the minimum term of the leases for properties sold at a price greater than their net book value. We do not have an option to purchase the leased properties at the end of the minimum lease terms and have not issued any residual guarantees of the value of the leased properties. The resulting leases have qualified for operating lease treatment.

Cash payments for business acquisitions totaled $230.6 million and $279.6 million during fiscal years 2005 and 2004, respectively. On November 1, 2004, we completed the acquisition of SWP/WSE from a common private ownership group. The purchase price consisted of $123.1 million of net cash paid for SWP/WSE’s net assets along with the assumption of accounts payable, accrued and other liabilities, which collectively totaled $31.7 million, subject to finalization of working capital adjustments in accordance with the purchase agreement. On May 28, 2004, we acquired Todd Pipe, one of the largest independent wholesale plumbing suppliers in Southern California and Las Vegas, Nevada. The purchase price consisted of $85.3 million of net cash paid for Todd Pipe’s net assets along with the assumption of accounts payable, accrued and other liabilities, which collectively totaled $43.8 million. Approximately $81.8 million of the total purchase price has been paid through January 31, 2005. On May 3, 2004, we acquired Standard, a distributor of waterworks, electrical and plumbing products primarily serving residential and infrastructure water and sewer contractors and customers in Las Vegas, Nevada. The purchase price consisted of $25.7 million of net cash paid for Standard’s net assets along with the assumption of accounts payable, accrued and other liabilities, which collectively totaled $11.7 million. On December 19, 2003, we acquired Century, a leading supplier of MRO products serving the multi-family apartment market throughout the United States. The purchase price consisted of $260.0 million of net cash paid for Century’s net assets along with the assumption of $31.5 million of accounts payable and accrued liabilities, and $101.5 million of debt. Effective August 4, 2003, we acquired substantially all of the net assets of Marden Susco, a southern California supplier of underground piping products for use in municipal water, sewer and storm drain systems. We paid $19.6 million for the net assets of Marden Susco, including the assumption of $13.7 million of accounts payable and accrued liabilities and $6.7 million of debt.

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. Any increase in the cash surrender value of our COLI policies will help offset the additional net periodic benefit costs associated with our SERP, as amended in the first quarter of fiscal year 2005.

Financing Activities

During fiscal years 2005 and 2004, net cash provided by financing activities totaled $250.7 million and $152.2 million, respectively. The $98.5 million increase in financing cash flows during fiscal year 2005 was primarily due to $410.5 million of net proceeds generated by our debt and equity offerings on October 12, 2004, much of which was used to fund the acquisition of SWP/WSE and to repay amounts outstanding under our $500.0 million revolving credit agreement. The funds necessary to finance the acquisitions of Standard and Todd Pipe were borrowed under our revolving credit agreement.

On October 12, 2004, we issued $300.0 million in original principal amount of 5.50% 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 discount of $1.6 million. Total net proceeds from the sale of the notes were $295.7 million, including the $1.6 million discount and approximately $2.7 million of debt issuance costs, with $203.5 million of the proceeds used for the repayment of amounts outstanding under our $500.0 million revolving credit agreement and the remainder to be used for the acquisition of businesses, payment of scheduled principal amortization and interest on our senior notes due 2005 through 2013, capital expenditures, working capital needs, and other general corporate purposes. Interest on the notes is payable on April 15 and October 15 of each year, beginning on April 15, 2005.

The notes are unconditionally guaranteed, on a joint and several senior unsecured basis, by substantially all of our subsidiaries. The notes contain certain covenants on our ability to incur secured debt and our ability to enter into certain sale and leaseback transactions. We may redeem all or part of the notes at any time at a “make-whole” redemption price, together with accrued and unpaid interest on such notes to the redemption date, subject to certain conditions. Additionally, we have agreed to file an exchange offer registration statement with the SEC within 210 days after the issuance of the notes to allow the notes to be exchanged for a new issue of substantially identical notes registered under the Securities Act. If we fail to satisfy this obligation within the specified time periods, we will be required to pay a special interest premium to the holders of the notes.

In conjunction with the issuance of the notes, we entered into a 10-year treasury rate lock contract (“treasury lock”) on

32.

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

September 27, 2004, at the then current market rate of 4.019% to hedge the risk that the Treasury rate (benchmark interest rate) component of the fixed coupon payments relating to a $278.0 million notional principal amount of a then-forecasted issuance of $300.0 million of notes may be adversely affected by interest rate fluctuations. The treasury lock was designated as a cash flow hedge of the fluctuations in the Treasury rate component of the then forecasted fixed coupon payments due to changes in the benchmark interest rate, with the changes in the value of the treasury lock expected to completely offset the changes in the value of the Treasury rate component of the fixed coupon payments. The treasury lock was settled on October 5, 2004, the date the $300.0 million of notes were priced, with the gain received upon settlement of $3.4 million being recognized in other comprehensive income, a component of shareholders’ equity, subject to $1.4 million of tax.

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 have been 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). The interest rate swap contracts have qualified for the shortcut method of accounting prescribed by SFAS 133, Accounting for Derivative Instruments and Hedging Activities, as amended. As a result, changes in the fair value of the derivatives will completely offset the changes in the fair value of the underlying hedged items.

On October 12, 2004, we also completed the sale of 4.0 million shares of common stock at a price of $30 per share in a public offering that generated net proceeds of $114.8 million, net of $4.8 million of underwriting discounts and commissions and $0.4 million of other expenses associated with the offering. The offering was made to strengthen our capital structure to help ensure that we maintain an investor grade rating.

On June 14, 2004, we replaced our existing $290.0 million revolving credit agreement, which was scheduled to mature on March 26, 2007, with a new $500.0 million revolving credit agreement (the “revolving credit agreement”), subject to borrowing limitations, which matures on June 14, 2009. The revolving credit agreement is unsecured and contains financial and other covenants, including limitations on dividends and treasury stock purchases and maintenance of certain financial ratios. The revolving credit agreement can be expanded, in certain circumstances, by up to $150.0 million. Net payments (borrowings) made under our revolving credit agreement totaled $100.1 million and ($27.7) million during fiscal years 2005 and 2004, respectively. Other debt payments, including scheduled payments on our senior and other notes, totaled $46.0 million and $422.3 million during fiscal years 2005 and 2004, respectively.

Dividend payments totaled $15.3 million and $9.4 million during fiscal years 2005 and 2004, respectively. The higher dividend payments in fiscal year 2005 were primarily attributable to an increase in our common stock outstanding due to the sales of 13.8 million and 4.0 million shares in public offerings during the fourth quarter of fiscal year 2004 and the third quarter of fiscal year 2005, respectively, in addition to a 30% higher dividend rate per share during fiscal year 2005. On January 28, 2005, our Board of Directors declared a quarterly dividend of $0.065 per share that was paid on February 21, 2005 to shareholders of record at the close of business on February 7, 2005. Dividends declared but not paid totaled $4.3 million and $3.1 million at January 31, 2005 and January 30, 2004, respectively.

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. Shares repurchased totaled $6.0 million during fiscal year 2004. There were no shares repurchased during fiscal year 2005.

As of January 31, 2005, we had $213.2 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, and future acquisitions of businesses. 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.

33.

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

These 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 strategic growth and business opportunities.

As of January 31, 2005, we were in compliance with all financial and non-financial covenants under our revolving credit agreement and notes.

Off-balance Sheet Arrangements

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. The following table shows our approximate commitments related to those operating leases that contain residual value guarantees as of January 31, 2005:

($ in millions)	Total Amounts Committed		Fiscal Year 2006		Fiscal Years 2007- 2008		Fiscal Years 2009- 2010		Thereafter
Residual guarantees under operating leases	$	2.8	$	1.4	$	1.4	$	–	$	–

On December 30, 2004, we completed a sale-leaseback transaction for a portfolio of forty-eight properties for $37.5 million. Pursuant to the terms of the agreement, we will lease back the properties under operating leases with lease terms ranging from three to fifteen years. A loss of approximately $0.9 million resulting from the sale was recognized during the fourth quarter of fiscal year 2005 for the branches that were sold at a price less than their net book value. A gain of approximately $14.8 million resulting from the sale was deferred and will be amortized over the minimum term of the leases for branches that were sold at a price greater than their net book value. We do not have an option to purchase the leased facilities at the end of the minimum lease terms and have not issued any residual guarantees of the value of the leased facilities. The leases are accounted for as operating leases with future minimum annual lease payments totaling $3.1 million during fiscal year 2006, $3.2 million per year during fiscal years 2007 and 2008, $3.1 million during fiscal years 2009 and 2010 and $17.3 million thereafter.

On April 30, 2004, we completed a sale-leaseback transaction for a portfolio of properties associated with 18 different branches. The properties were sold at a price of $32.7 million and leased back pursuant to 15-year minimum term operating leases. A loss of approximately $1.3 million resulting from the sale was recognized during the first quarter of fiscal year 2005 for the branches that were sold at a price less than their net book value. A gain of approximately $9.1 million resulting from the sale was deferred and will be amortized over the minimum term of the leases for branches that were sold at a price greater than their net book value. We do not have an option to purchase the leased facilities at the end of the minimum lease terms and have not issued any residual guarantees of the value of the leased facilities. The leases are accounted for as operating leases with future minimum annual lease payments totaling $2.6 million per year during fiscal years 2006 through 2008, $2.7 million during fiscal year 2009 and fiscal year 2010 and $26.1 million thereafter.

On March 16, 2004, we entered into a sale-leaseback transaction in which we sold our corporate headquarters building in Orlando, Florida to a subsidiary of Wachovia Development Corporation (“WDC”) for $23.0 million and leased the property back for a period of 20 years. The proceeds from the sale approximated the net book value of the property sold and were paid by WDC to SunTrust Bank (“SunTrust”) for application against amounts outstanding under a separate real estate term credit agreement (the “credit agreement”) we had previously executed on June 5, 2002 with SunTrust. The lease expires on March 16, 2024, with five 5-year extensions exercisable at our option upon 12 months notice. We do not have an option to purchase the leased facility at the end of the minimum lease term and have not issued any residual value guarantee of the value of the leased facility. The lease is accounted for as an operating lease with future minimum annual lease payments totaling $1.4 million per year during fiscal years 2006 through 2010 and $24.2 million thereafter.

We entered into an agreement to lease our newly constructed multi-branch complex in Miami, Florida from Atlantic Financial Group, Ltd (“AFG”) beginning in September 2003. On January 30, 2004, a subsidiary of SunTrust Bank agreed to purchase the property from AFG and to lease the property to us under a new 20-year term lease expiring in 2024, with 5-year extensions exercisable at our option upon 12 months notice. The minimum lease payments under the lease total approximately $22.7 million. We do not have an option to purchase the leased facility at the end of the minimum lease term and have not issued any residual value guarantee of the value of the leased facility. The lease has been accounted for as an operating lease.

34.

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Contractual Obligations

The following table summarizes our approximate payments due under specified contractual obligations as of January 31, 2005:

Payments due by period ($ in millions)
	Total		Fiscal Year 2006		Fiscal Years 2007-2008		Fiscal Years 2009-2010		Thereafter
Total debt (1)	$	547.3	$	45.2	$	96.8	$	48.3	$	357.0
Estimated interest payments (2)		223.1		33.8		56.3		44.4		88.6
Non-cancelable operating leases (3)		300.8		61.2		92.7		46.4		100.5
Total contractual cash obligations	$	1,071.2	$	140.2	$	245.8	$	139.1	$	546.1

⁽¹⁾    Refer to Note 7 for information regarding total debt. We expect to settle such debt with cash flows from operations, short-term borrowings, or the issuance of other long-term debt. The amounts included in the table above exclude the discount on debt issuance of $1.6 million.

⁽²⁾    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 January 31, 2005 was fixed-rate debt. We calculated the estimated interest payments for our fixed rate debt based upon the applicable rates and payment dates.

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 have been 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). An estimate of the interest payments/(receipts) associated with the interest rate swaps over the term of the underlying notes has been included in the amounts presented.

We typically expect to settle our interest payments with cash flows from operations and short-term borrowings.

⁽³⁾    Operating leases are primarily entered into for various branch and warehouse building locations in addition to vehicle and equipment leases. The amounts included in the table above relate to the base rent payments for each of these respective leases.

RECENT ACCOUNTING PRONOUNCEMENTS

In January 2003, the Financial Accounting Standards Board (FASB) issued Financial Accounting Standards Board Interpretation (“FIN”) 46, Consolidation of Variable Interest Entities. FIN 46 was revised in December 2003 when the FASB issued Interpretation No. 46 (revised December 2003) (FIN 46R). FIN 46R is an interpretation of Accounting Research Bulletin No. 51, Consolidated Financial Statements, that replaces FIN 46 and was issued to clarify some of the provisions of the interpretation and to exempt certain entities from its requirements. In effect, the interpretation requires certain variable interest entities to be consolidated by the primary beneficiary of the entity if the equity investors in the entity do not have the characteristics of a controlling financial interest or do not have sufficient equity at risk for the entity to finance its activities without additional subordinated financial support from other parties. The new consolidation requirements related to variable interest entities and were required to be adopted for interim periods ending after March 15, 2004. We are not the primary beneficiary of any variable interest entities as of January 31, 2005.

In November 2004, the FASB issued Statement of Financial Accounting Standard (SFAS) 151, Inventory Costs – an amendment of ARB No. 43, Chapter 4. This statement amends the guidance contained in Accounting Research Bulletin (ARB) No. 43, Chapter 4, Inventory Pricing, to clarify the accounting for abnormal amounts of idle facility expense, freight, handling costs and wasted material (spoilage) and requires that those items be recognized as expenses regardless of whether they meet the criterion of “abnormal.” The statement also requires that allocation of fixed production overhead factors to the costs of conversion be based on the normal capacity of the production facilities. The provisions of this statement are effective for inventory costs incurred during fiscal years beginning after June 15, 2005 and are to be applied prospectively. We do not expect the adoption of SFAS 151 to have a material effect on our consolidated results of operations or financial position.

In December 2004, the FASB issued SFAS 123R, Share-Based Payment, which supersedes Accounting Principles Board (APB) Opinion No. 25, Accounting for Stock Issued to

35.

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

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. The provisions of SFAS 123R are required to be applied by public companies as of the first interim or annual reporting period that begins after June 15, 2005; early adoption is permitted. We are currently evaluating the adoption provisions of SFAS 123R. The Stock-Based Compensation section in Note 1 to the Consolidated Financial Statements of this Annual Report contains the pro forma impact on net income and earnings per share for fiscal years 2005, 2004 and 2003, if the fair value based method under SFAS 123, Accounting for Stock-Based Compensation, had been applied to all outstanding and unvested awards in each period.

CRITICAL ACCOUNTING POLICIES

The preparation of financial statements in accordance with GAAP requires management to make estimates and assumptions that affect reported amounts and related disclosures. 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 our historical experience; current economic trends in the industry; information provided by customers, vendors and other outside sources and management’s estimates, as appropriate. Management considers an accounting estimate to be critical if:

– It requires assumptions to be made that were uncertain at the time the estimate was made; and

– Changes in the estimate or different estimates that could have been selected could have a material impact on our consolidated results of operations or financial condition.

Our critical accounting policies include:

Allowance for Doubtful Accounts

We evaluate the collectibility of accounts receivable based on numerous factors, including past transaction history with customers, their credit worthiness and an assessment of our lien and bond rights. Initially, we estimate an allowance for doubtful accounts as a percentage of net sales based on historical bad debt experience and on a quarterly basis, we write-off uncollectible receivables. This estimate is periodically adjusted when we become aware of a specific customer’s inability to meet its financial obligations (e.g., bankruptcy filing) or as a result of changes in the overall aging of accounts receivable. While we have a large customer base that is geographically dispersed, a slowdown in the markets in which we operate may result in higher than expected uncollectible accounts, and therefore, the need to revise estimates for bad debts. To the extent historical credit experience is not indicative of future performance or other assumptions used by management do not prevail, the allowance for doubtful accounts could differ significantly, resulting in either higher or lower future provisions for doubtful accounts. At January 31, 2005 and January 30, 2004, the allowance for doubtful accounts totaled $10.3 million and $6.5 million, respectively.

Inventories

Inventories are carried at the lower of cost or market. The cost of substantially all of our inventories is determined by the moving average cost method. We evaluate our inventory value at the end of each quarter to ensure that it is carried at the lower of cost or market. This evaluation includes an analysis of each branch’s physical inventory results over the last two years, a review of potential dead stock based on historical product sales and forecasted sales and an overall consolidated analysis of potential excess inventory. Periodically, each branch’s perpetual inventory records are adjusted to reflect permanent declines in market value. To the extent historical physical inventory results are not indicative of future results and if future events impact, either favorably or unfavorably, the saleability of our products or our relationship with certain key vendors, our inventory reserves could differ significantly, resulting in either higher or lower future inventory provisions. At January 31, 2005 and January 30, 2004, our inventory reserves totaled $5.2 million and $4.5 million, respectively.

Consideration Received from Vendors

At the beginning of each calendar year, we enter into agreements with many of our vendors providing for inventory purchase rebates (“vendor rebates”) upon achievement of specified volume purchasing levels. We accrue the receipt of vendor rebates as part of our cost of sales for products sold based on progress towards earning the vendor rebates, taking into consideration cumulative purchases of inventory to date and projected purchases through the end of the year. An estimate of unearned vendor rebates is included in the carrying value of inventory at each period end for vendor rebates to be received on products not yet sold. While we believe we will continue to receive consideration from vendors in fiscal year 2006 and thereafter, there can be no assurance that vendors will continue to provide comparable amounts of vendor rebates in the future. At January 31, 2005 and January 30, 2004,

36.

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

we have recognized receivables of $54.4 million and $35.1 million, respectively, for vendor rebates due to us.

Impairment of Long-Lived Assets

Long-lived assets, including property and equipment, are reviewed for possible impairment whenever events or circumstances indicate that the carrying amount of an asset may not be recoverable. To analyze recoverability, we project undiscounted future cash flows over the remaining life of the asset. If these projected cash flows are less than the carrying amount, an impairment loss is recognized based on the fair value of the asset less any costs of disposition. Our judgment regarding the existence of impairment indicators are based on market and operational performance. Future events could cause us to conclude that impairment indicators exist and that assets are impaired. Evaluating the impairment also requires us to estimate future operating results and cash flows that require judgment by management. If different estimates were used, the amount and timing of asset impairments could be affected.

Goodwill and Other Intangible Assets

Goodwill represents the excess of the purchase price paid over the fair value of the net assets acquired in connection with business acquisitions. SFAS 142, Goodwill and Other Intangible Assets, requires entities to periodically assess the carrying value of goodwill by reviewing the fair value of the net assets underlying all acquisition-related goodwill and unamortized intangible assets on a reporting unit basis. The approach to the valuation of goodwill and unamortized intangible assets in a purchase transaction and recoverability thereof as outlined in SFAS 142 requires the use of valuation techniques utilizing estimates and assumptions about projected future operating results and other variables, including the selection of the appropriate discount rate to be used in the fair value calculation. If the carrying amount of an operating segment that contains goodwill or unamortized intangible assets exceeds fair value, a possible impairment would be indicated. We also use judgment in assessing whether we need to test goodwill and unamortized intangible assets more frequently for impairment than annually given factors such as unexpected adverse economic conditions, competition, product changes and other external events. We may be subject to earnings volatility if goodwill or intangible asset impairment occurs at a future date; however, we have noted no such factors at this time that would indicate such an impairment exists.

Self-Insurance

We are self-insured for certain losses relating to workers’ compensation, automobile, general and product liability claims. We also maintain stop loss coverage to limit the exposure arising from such claims. Self-insurance losses for claims filed and claims incurred but not reported are accrued based upon our estimates of the aggregate liability for uninsured claims using loss development factors and actuarial assumptions followed in the insurance industry and our historical loss development experience. To the extent the projected future development of the losses resulting from workers’ compensation, automobile, general and product liability claims incurred as of January 31, 2005 differs from the actual development of such losses in future periods, our insurance reserves could differ significantly, resulting in either higher or lower future insurance expense. At January 31, 2005 and January 30, 2004, self-insurance reserves, excluding amounts due from third party administrators, totaled $11.2 million and $8.3 million, respectively.

Management believes the assumptions and other considerations used to estimate amounts reflected in our consolidated financial statements are appropriate. However, if actual experience differs from the assumptions and other considerations used in estimating amounts reflected in our consolidated financial statements, the resulting changes could have a material adverse effect on our consolidated results of operations, and in certain situations, could have a material adverse effect on our financial condition. See Note 1 to the financial statements for further information on key accounting policies that impact us.

ITEM 7A. 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 in relation to our outstanding debt.

COMMODITY RATE RISK

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

As discussed above, our results of operations were favorably impacted by our ability to pass increases in the prices of certain commodity-based products to our customers. Such commodity price fluctuations have from time to time produced volatility in our financial performance and could continue to do so in the future.

37.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

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 January 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 have been 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). The interest rate swap contracts have qualified for the shortcut method of accounting prescribed by SFAS 133, Accounting for Derivative Instruments and Hedging Activities, as amended. As a result, changes in the fair value of the derivatives will completely offset the changes in the fair value of the underlying hedged items.

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. We are currently evaluating alternatives in order to achieve our targeted ratio, including the use of additional interest rate swaps. Based upon our current capital structure, a hypothetical 10% increase or decrease in interest rates from their January 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%.

38.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

INDEX TO FINANCIAL STATEMENTS

	PAGE(S)
Consolidated Statements of Income for Fiscal Years Ended January 31, 2005, January 30, 2004 and January 31, 2003	40
Consolidated Balance Sheets as of January 31, 2005 and January 30, 2004	41
Consolidated Statements of Shareholders’ Equity for Fiscal Years Ended January 31, 2005, January 30, 2004 and January 31, 2003	42
Consolidated Statements of Cash Flows for Fiscal Years Ended January 31, 2005, January 30, 2004 and January 31, 2003	43
Notes to Consolidated Financial Statements	44-67
Report of Independent Registered Certified Public Accounting Firm	68-69
Report of Management on Responsibility for Financial Information and Internal Control over Financial Reporting	70
Financial Statement Schedule	76

39.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

CONSOLIDATED STATEMENTS OF INCOME - in millions, except per share data

	January 31			January 30			January 31
Fiscal Years Ended	2005			2004			2003
Net Sales	$	4,422.6		$	3,253.4		$	3,066.3
Cost of Sales		3,383.3			2,519.7			2,356.6
Gross Margin		1,039.3			733.7			709.7
Operating Expenses:
Selling, general and administrative		791.3			589.8			568.0
Depreciation and amortization		27.1			21.2			20.5
Total operating expenses		818.4			611.0			588.5
Operating Income		220.9			122.7			121.2
Non-Operating (Expense) Income:
Interest expense		(30.6	)		(34.6	)		(30.3	)
Interest and other income		8.0			6.4			7.3
		(22.6	)		(28.2	)		(23.0	)
Income Before Income Taxes		198.3			94.5			98.2
Income Taxes		74.6			36.8			40.1
Net Income	$	123.7		$	57.7		$	58.1
Earnings Per Share:
Basic	$	2.01		$	1.26		$	1.25
Diluted	$	1.95		$	1.23		$	1.23
Weighted-average Shares Outstanding:
Basic		61.4			45.9			46.4
Diluted		63.4			47.0			47.3
Dividends Declared Per Share	$	0.260		$	0.200		$	0.178

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

40.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

CONSOLIDATED BALANCE SHEETS - in millions, except share and per share data

	January 31			January 30
	2005			2004
Assets
Current Assets:
Cash and cash equivalents	$	213.2		$	8.3
Accounts receivable, less allowance for doubtful accounts of $10.3 and $6.5		625.3			493.3
Inventories		633.9			467.0
Deferred income taxes		25.1			19.4
Other current assets		89.0			53.0
Total current assets		1,586.5			1,041.0
Property and equipment, net		92.8			161.8
Goodwill		718.6			609.8
Other assets		132.4			68.7
Total assets	$	2,530.3		$	1,881.3
Liabilities and Shareholders’ Equity
Current Liabilities:
Current portion of long-term debt	$	45.2		$	44.6
Accounts payable		503.9			308.3
Accrued compensation and benefits		58.7			39.3
Other current liabilities		63.4			45.2
Total current liabilities		671.2			437.4
Long-term debt		500.5			368.7
Deferred income taxes		72.3			55.4
Other noncurrent liabilities		32.4			7.8
Total liabilities		1,276.4			869.3
Shareholders’ Equity:
Preferred stock, no par value; 10,000,000 shares authorized; none issued; preferences, limitations and relative rights to be established by the Board of Directors		–			–
Common stock, par value $1 per share; 100,000,000 shares authorized; 66,214,127 and 61,591,154 shares issued		66.2			61.6
Capital in excess of par value		629.4			502.5
Retained earnings		573.3			465.1
Treasury stock, zero and 433,904 shares, at cost		–			(5.5	)
Accumulated other comprehensive income, net of tax		2.0			–
Unearned compensation related to outstanding restricted stock		(17.0	)		(11.7	)
Total shareholders’ equity		1,253.9			1,012.0
Total liabilities and shareholders’ equity	$	2,530.3		$	1,881.3

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

41.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY - in millions, except share and per share data

	Common Stock					Capital in Excess of Par Value			Retained Earnings			Treasury Stock					Accumulated Other Comprehensive Income		Unearned Compensation			Total
	Shares		Dollars									Shares		Dollars
Balance at January 25, 2002	47,549,200		$	47.6		$	193.8		$	367.7		(48,502	)	$	(0.5	)	$	–	$	(14.1	)	$	594.5
Net income	–			–			–			58.1		–			–			–		–			58.1
Cash dividends – $0.178 per share	–			–			–			(8.5	)	–			–			–		–			(8.5	)
Purchase of treasury stock	–			–			–			–		(514,000	)		(7.1	)		–		–			(7.1	)
Shares issued under stock option plans and related tax benefits	433,672			0.4			5.5			(0.1	)	31,102			0.3			–		–			6.1
Purchase and retirement of common shares	(51,568	)		–			(0.5	)		(0.6	)	–			–			–		–			(1.1	)
Issuance of restricted stock, net of cancellations	(59,776	)		(0.1	)		(0.4	)		0.1		40,000			0.5			–		(0.1	)		–
Amortization of restricted stock	–			–			–			–		–			–			–		2.8			2.8
Balance at January 31, 2003	47,871,528		$	47.9		$	198.4		$	416.7		(491,400	)	$	(6.8	)	$	–	$	(11.4	)	$	644.8
Net income	–			–			–			57.7		–			–			–		–			57.7
Cash dividends – $0.200 per share	–			–			–			(10.1	)	–			–			–		–			(10.1	)
Purchase of treasury stock	–			–			–			–		(517,200	)		(6.0	)		–		–			(6.0	)
Shares issued under stock option plans and related tax benefits	–			–			1.2			(0.4	)	398,696			5.1			–		–			5.9
Issuance of common stock, net	13,800,000			13.8			303.7			–		–			–			–		–			317.5
Purchase and retirement of common shares	(20,598	)		–			(0.1	)		(0.3	)	–			–			–		–			(0.4	)
Issuance of restricted stock, net of cancellations	(59,776	)		(0.1	)		(0.7	)		1.5		176,000			2.2			–		(3.3	)		(0.4	)
Amortization of restricted stock	–			–			–			–		–			–			–		3.0			3.0
Balance at January 30, 2004	61,591,154		$	61.6		$	502.5		$	465.1		(433,904	)	$	(5.5	)	$	–	$	(11.7	)	$	1,012.0
Comprehensive income:
Net income	–			–			–			123.7		–			–			–		–			123.7
Other comprehensive income:
Change in fair value of derivatives,     net of tax of $1.4 million	–			–			–			–		–			–			2.0		–			2.0
Total comprehensive income																							125.7
Cash dividends – $0.260 per share	–			–			–			(16.6	)	–			–			–		–			(16.6	)
Shares issued under stock option plans and related tax benefits	367,579			0.4			8.1			–		359,904			4.6			–		–			13.1
Issuance of common stock, net	4,000,000			4.0			110.8			–		–			–			–		–			114.8
Purchase and retirement of common shares	(3,356	)		–			–			(0.1	)	–			–			–		–			(0.1	)
Issuance of restricted stock, net of cancellations	258,750			0.2			8.0			1.2		74,000			0.9			–		(10.0	)		0.3
Amortization of restricted stock	–			–			–			–		–			–			–		4.7			4.7
Balance at January 31, 2005	66,214,127		$	66.2		$	629.4		$	573.3		–		$	–		$	2.0	$	(17.0	)	$	1,253.9

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

42.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

CONSOLIDATED STATEMENTS OF CASH FLOWS - in millions

	January 31			January 30			January 31
Fiscal Years Ended	2005			2004			2003
Cash Flows from Operating Activities:
Net income	$	123.7		$	57.7		$	58.1
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		27.1			21.2			20.5
Provision for doubtful accounts		10.1			4.6			9.1
Restricted stock expense		5.0			2.7			2.8
Income tax benefit of stock options exercised		3.5			1.2			1.4
Deferred income taxes		3.7			10.7			14.9
Other		(0.2	)		2.9			(1.2	)
Changes in assets and liabilities, net of businesses acquired:
Accounts receivable		(57.6	)		(24.3	)		(24.3	)
Inventories		(105.0	)		16.8			(11.6	)
Other current assets		(29.4	)		(0.8	)		10.6
Other assets		1.3			(3.6	)		(0.4	)
Accounts payable		149.2			63.3			25.2
Accrued compensation and benefits		15.6			(8.5	)		9.0
Other current liabilities		(6.1	)		0.9			(2.3	)
Other noncurrent liabilities		4.3			1.1			0.6
Net cash provided by operating activities		145.2			145.9			112.4
Cash Flows from Investing Activities:
Capital expenditures		(27.2	)		(15.9	)		(15.3	)
Proceeds from sale of property and equipment		78.2			4.0			4.5
Business acquisitions, net of cash		(230.6	)		(279.6	)		(33.4	)
Proceeds from sale of investment in affiliated entity		–			–			2.0
Net investment in corporate owned life insurance		(11.4	)		–			–
Net cash used in investing activities		(191.0	)		(291.5	)		(42.2	)
Cash Flows from Financing Activities:
Net (payments) borrowings under short-term debt arrangements		(100.1	)		27.7			19.6
Proceeds from issuance of long-term debt, net		295.7			–			–
Proceeds from issuance of interim senior term loan, net		–			250.0			–
Principal payments on other debt and debt of acquired entities		(46.0	)		(422.3	)		(73.0	)
Proceeds from issuance of common stock, net		114.8			317.5			–
Change in book overdrafts		(10.0	)		(4.6	)		(10.3	)
Purchase of treasury shares		–			(6.0	)		(7.1	)
Dividends paid		(15.3	)		(9.4	)		(8.1	)
Other		11.6			(0.7	)		3.6
Net cash provided by (used in) financing activities		250.7			152.2			(75.3	)
Net Increase (Decrease) in Cash and Cash Equivalents		204.9			6.6			(5.1	)
Cash and Cash Equivalents, Beginning of Year		8.3			1.7			6.8
Cash and Cash Equivalents, End of Year	$	213.2		$	8.3		$	1.7

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

43.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

NOTE 1 – DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

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 and two Canadian provinces. 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.

We manage our business on a product line basis and report the results of our operations in seven operating segments and an Other category. During the fourth quarter of fiscal year 2005, we revised our segment reporting to include the Building Materials product line as its own operating segment due to the growth and allocation of management resources to this product line. All prior period segment results have been reclassified to reflect this change. The seven operating segments are Water & Sewer; Plumbing/Heating 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.

PRINCIPLES OF CONSOLIDATION

Our consolidated financial statements include our accounts and the accounts of our wholly owned subsidiaries. Significant intercompany balances and transactions have been eliminated. Results of operations of companies acquired are included from their respective dates of acquisition. Investments in 50% or less owned affiliates over which we have the ability to exercise significant influence are accounted for using the equity method. During fiscal years 2005, 2004 and 2003, we did not have any “less than 20% owned” investments in affiliates accounted for under the equity method.

Fiscal Year

Beginning with fiscal year 2005 and thereafter, our fiscal year is a 52-week period ending on January 31. Previously, our fiscal year was a 52- or 53-week period ending on the last Friday in January. The change in our fiscal year ending date was made to simplify reporting and to allow for better comparability between reporting periods. Fiscal year 2005 and fiscal year 2004 each contained 52 weeks while fiscal year 2003 contained 53 weeks.

Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America (GAAP) requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. Actual results could differ from those estimates and the differences could be material.

Cash And Cash Equivalents

We consider all highly liquid investments with maturities of three months or less when purchased to be cash equivalents.

Allowance For Doubtful Accounts

We evaluate the collectibility of accounts receivable based on numerous factors, including past transaction history with customers, their credit worthiness, and an assessment of our lien and bond rights. Initially, we estimate an allowance for doubtful accounts as a percentage of net sales based on historical bad debt experience and on a quarterly basis, we write off uncollectible receivables. This estimate is periodically adjusted when we become aware of a specific customer’s inability to meet its financial obligations (e.g., bankruptcy filing) or as a result of changes in the overall aging of accounts receivable. At January 31, 2005 and January 30, 2004, the allowance for doubtful accounts totaled $10.3 million and $6.5 million, respectively.

Inventories

Inventories are carried at the lower of cost or market. The cost of substantially all inventories is determined by the moving average cost method. We evaluate our inventory value at the end of each quarter to ensure that it is carried at the lower of cost or market. This evaluation includes an analysis of each branch’s physical inventory results over the last two years, a review of potential dead stock based on historical product sales and forecasted sales and an overall consolidated analysis of potential excess inventory. Periodically, each branch’s perpetual inventory records are adjusted to reflect permanent declines in market value. At January 31, 2005 and January 30, 2004, our inventory reserves totaled $5.2 million and $4.5 million, respectively.

Consideration Received From Vendors

At the beginning of each calendar year, we enter into agreements with many of our vendors providing for inventory purchase rebates (“vendor rebates”) upon achievement of specified volume purchasing levels. We accrue the receipt of vendor rebates as part of our cost of sales for products sold based on progress towards earning the vendor rebates, taking into consideration cumulative purchases of inventory to date and projected purchases through the end of the year. An estimate of unearned vendor rebates is included in the carrying value of inventory at each period end for vendor rebates received on products not yet sold. At January 31, 2005 and January 30, 2004, we have recognized receivables of $54.4

44.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

million and $35.1 million, respectively, for vendor rebates due to us. These receivables are included in other current assets in our consolidated balance sheets.

Property and Equipment

Property and equipment are recorded at cost and depreciated using the straight-line method based on the following estimated useful lives of the assets:

Buildings and improvements	5–40 years
Transportation equipment	2–20 years
Furniture, fixtures and equipment	1–12 years

Maintenance and repair costs are charged to expense as incurred. Renewals and improvements that extend the useful lives of assets are capitalized. Gains or losses are recognized upon disposition. Interest costs related to assets under construction are capitalized during the construction period and totaled zero, $0.6 million and $0.4 million in fiscal years 2005, 2004 and 2003, respectively. Depreciation of property and equipment totaled $17.0 million, $16.6 million and $16.1 million in fiscal years 2005, 2004 and 2003, respectively.

Goodwill

Goodwill represents the excess of the purchase price over the fair value of net assets acquired. We evaluate, at least annually, the realizability of the carrying value of goodwill by comparing the carrying value to its estimated fair value. We perform our annual goodwill impairment test during the first quarter of each year unless there is an indicator which would require a test during the year. As goodwill is evaluated for impairment, the outstanding balance is not subject to amortization. At January 31, 2005 and January 30, 2004, goodwill totaled $718.6 million and $609.8 million, respectively.

Other Assets

We capitalize certain software development costs, which are being amortized on a straight-line basis over the estimated useful lives of the software, ranging from 2 to 7 years. At January 31, 2005 and January 30, 2004, capitalized software development costs totaled $18.1 million and $10.6 million, respectively, net of accumulated amortization of $18.9 million and $14.9 million, respectively. Amortization of capitalized software development costs totaled $4.0 million, $3.2 million and $3.9 million in fiscal years 2005, 2004 and 2003, respectively.

45.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

Intangible assets determined to have definite lives are recorded at their respective fair values in accordance with Statement of Financial Accounting Standards (“SFAS”) 141, Business Combinations, and are amortized using the straight-line method over their estimated useful lives in accordance with SFAS 142, Goodwill and Other Intangible Assets. We test intangible assets determined to have indefinite useful lives for impairment annually or whenever events or circumstances indicate that an asset might be impaired. Such conditions may include an economic downturn in a geographic market or a change in the assessment of future operations. Additional disclosure related to acquired other intangible assets as of January 31, 2005 and January 30, 2004 are as follows:

	January 31							January 30
Fiscal Years Ended ($ in millions)	2005							2004
	Gross Carrying Value		Accumulated Amortization			Net		Gross Carrying Value		Accumulated Amortization			Net
Amortized intangible assets
Acquired customer contracts	$	56.8	$	(4.7	)	$	52.1	$	37.1	$	(1.4	)	$	35.7
Corporate customer relationships		15.2		(0.8	)		14.4		–		–			–
Non-compete/employment agreements		8.3		(2.0	)		6.3		3.1		(0.3	)		2.8
Shareholder relationships		4.2		(0.3	)		3.9		–		–			–
Total		84.5		(7.8	)		76.7		40.2		(1.7	)		38.5
Unamortized intangible assets
Private label tradenames		5.9		–			5.9		5.9		–			5.9
Total	$	90.4	$	(7.8	)	$	82.6	$	46.1	$	(1.7	)	$	44.4

The weighted-average amortization period is approximately 13 years for acquired customer contracts, 10 years for corporate customer relationships, 3 years for non-compete/employment agreements and 10 years for shareholder relationships. The weighted-average period for amortized intangible assets on a combined basis is 11 years.

The aggregate amortization expense on our intangible assets for fiscal years 2005, 2004 and 2003 was $6.1 million, $1.4 million and $0.4 million, respectively. Total estimated average annual amortization expense expected for the next five fiscal years, based on current levels of intangible assets, is approximately $7.4 million.

Impairment of Long-Lived Assets Other than Goodwill

Long-lived assets, including property and equipment, are reviewed for possible impairment whenever events or circumstances indicate that the carrying amount of an asset may not be recoverable. To analyze recoverability, we project undiscounted future cash flows over the remaining life of the asset. If these projected cash flows are less than the carrying amount, an impairment loss is recognized to the extent the fair value of the asset less any costs of disposition is less than the carrying amount of the asset. Our judgments regarding the existence of impairment indicators are based on market and operational performance. Evaluating potential impairment also requires us to estimate future operating results and cash flows.

Self-Insurance

We are self-insured for certain losses relating to workers’ compensation, automobile, general and product liability claims. We also maintain stop loss coverage to limit the exposure arising from such claims. Self-insurance losses for claims filed and claims incurred but not reported are accrued based upon our estimates of the aggregate liability for uninsured claims using loss development factors and actuarial assumptions followed in the insurance industry and our historical loss development experience. At January 31, 2005 and January 30, 2004, self-insurance reserves, excluding amounts due from third party administrators, totaled $11.2 million and $8.3 million, respectively.

Fair Value of Financial Instruments

The carrying values of cash and cash equivalents, accounts receivable, accounts payable, accrued compensation and benefits, and other current liabilities approximate their fair values because of the short-term nature of these instruments. The fair value of our debt is estimated based on quoted market prices for the same or similar issues or on current rates offered to us for debt of the same remaining maturities. The fair value of debt was computed by discounting the remaining cash flows by a rate equal to the estimated constant Treasury rate for the remaining life of the debt instrument plus an applicable credit spread over the remaining average life of the issue. The fair values of debt, including fixed and variable rate instruments, approximated $570.9 million and $456.4

46.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

million and the related carrying values were $545.7 million and $413.3 million at January 31, 2005 and January 30, 2004, respectively.

Revenue Recognition

We ship products to customers predominantly by our internal fleet and to a lesser extent by third party carriers. We recognize revenues from product sales when title to the products is passed to the customer, which occurs at the point of destination for products shipped by our internal fleet and at the point of shipping for products shipped by third party carriers. Revenues related to services are recognized in the period the services are performed and totaled $3.7 million, $2.6 million and $2.4 million in fiscal years 2005, 2004 and 2003, respectively.

Concentration of Credit Risk

The majority of our sales are credit sales which are made primarily to customers whose ability to pay is dependent, in part, upon the economic strength of the construction industry in the areas where they operate. Concentration of credit risk with respect to trade accounts receivable is limited by the large number of customers comprising our customer base. We perform ongoing credit evaluations of our customers and in certain situations obtain collateral sufficient to protect our credit position.

Advertising

Advertising costs are charged to expense as incurred and totaled $7.4 million, $6.8 million and $5.1 million in fiscal years 2005, 2004 and 2003, respectively.

Shipping and Handling Fees and Costs

We include shipping and handling fees billed to customers in net sales. Shipping and handling costs associated with inbound freight are capitalized to inventories and relieved through cost of sales as inventories are sold. Shipping and handling costs associated with outbound freight are included in selling, general and administrative expenses and totaled $32.5 million, $25.3 million and $24.1 million in fiscal years 2005, 2004 and 2003, respectively.

Income Taxes

Income taxes are recorded for the tax effects of transactions reported in the consolidated financial statements and consist of taxes currently due plus deferred taxes resulting from temporary differences. Such temporary differences result from differences in the carrying value of assets and liabilities for tax and financial reporting purposes. The deferred tax assets and liabilities represent the future tax consequences of those differences, which will either be taxable or deductible when the assets and liabilities are recovered or settled. Deferred taxes are also recognized for operating losses that are available to offset future taxable income. An assessment is made as to whether or not a valuation allowance is required to offset deferred tax assets.

Stock-Based Compensation

We measure compensation expense for employee and director stock options as the aggregate difference between the market and exercise prices of the options on the date that both the number of shares the grantee is entitled to receive and the purchase price are known. Compensation expense associated with restricted stock grants is equal to the market value of the shares on the date of grant and is recorded pro rata over the required holding period. For purposes of pro forma disclosures under SFAS 123, Accounting for Stock-Based Compensation, as amended by SFAS 148, Accounting for Stock-Based Compensation – Transition and Disclosure, the estimated fair value of the stock options is amortized to compensation expense over the options’ vesting period.

47.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

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)
Fiscal Years Ended	2005			2004			2003
Net income as reported:	$	123.7		$	57.7		$	58.1
Add: Stock-based compensation expense included in reported net income,       net of related tax effects		3.0			1.7			1.6
Deduct: Total stock-based compensation expense determined under the             fair value based method for all awards, net of related tax effects		(5.3	)		(5.3	)		(3.6	)
Pro forma net income	$	121.4		$	54.1		$	56.1
Earnings per share:
Basic – as reported	$	2.01		$	1.26		$	1.25
Basic – pro forma	$	1.98		$	1.18		$	1.21
Diluted – as reported	$	1.95		$	1.23		$	1.23
Diluted – pro forma	$	1.91		$	1.15		$	1.19

Comprehensive Income

Comprehensive income includes net income and other comprehensive income items that are excluded from net income under GAAP. Accumulated other comprehensive income, net of tax, totaled $2.0 million as of January 31, 2005 and consisted exclusively of the net unrealized gain associated with the settlement of our treasury lock on October 5, 2005 (See Note 8). The gross proceeds from the settlement of our treasury lock totaled $3.4 million. There was no accumulated other comprehensive income as of January 30, 2004.

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 impact on previously reported consolidated results of operations.

Stock Split

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 shares and per share amounts set forth in this report have been adjusted for the two-for-one stock split.

Recent Accounting Pronouncements

In January 2003, the Financial Accounting Standards Board (FASB) issued Financial Accounting Standards Board Interpretation (“FIN”) 46, Consolidation of Variable Interest Entities. FIN 46 was revised in December 2003 when the FASB issued Interpretation No. 46 (revised December 2003) (FIN 46R). FIN 46R is an interpretation of Accounting Research Bulletin No. 51, Consolidated Financial Statements, which replaces FIN 46 and was issued to clarify some of the provisions of the interpretation and to exempt certain entities from its requirements. In effect, the interpretation requires certain variable interest entities to be consolidated by the primary beneficiary of the entity if the equity investors in the entity do not have the characteristics of a controlling financial interest or do not have sufficient equity at risk for the entity to finance its activities without additional subordinated financial support from other parties. The new consolidation requirements related to variable interest entities and were required to be adopted for interim periods ending after March 15, 2004. We are not the primary beneficiary of any variable interest entities as of January 31, 2005.

In November 2004, the FASB issued SFAS 151, Inventory Costs – an amendment of ARB No. 43, Chapter 4. This statement amends the guidance in Accounting Research Bulletin (ARB) No. 43, Chapter 4, Inventory Pricing, to clarify the accounting for abnormal amounts of idle facility expense, freight, handling costs and wasted material (spoilage) and requires that those items be recognized as expenses regardless of whether they meet the criterion of “abnormal.” The statement also requires that allocation of fixed production overhead factors to the costs of conversion be based on the normal capacity of the production facilities. The provisions of this statement are effective for inventory costs incurred during fiscal years beginning after June 15, 2005 and are to be applied prospectively. We do not expect the adoption of SFAS 151

48.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

to have a material effect on our results of operations or financial position.

In December 2004, the FASB issued SFAS 123R, Share-Based Payment, 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. The provisions of SFAS 123R are required to be applied by public companies as of the first interim or annual reporting period that begins after June 15, 2005; early adoption is permitted. We are currently evaluating the adoption provisions of SFAS 123R. The Stock-Based Compensation section in Note 1 to the Consolidated Financial Statements of this Annual Report contains the pro forma impact on net income and earnings per share for fiscal years 2005, 2004 and 2003, if the fair value based method under SFAS 123, Accounting for Stock-Based Compensation, had been applied to all outstanding and unvested awards in each period.

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 seven operating segments are Water & Sewer; Plumbing/HVAC; Utilities; MRO; Electrical; Industrial PVF; and Building Materials. We include our Fire Protection and Mechanical product lines in the Other category. This reporting structure is the basis management uses for making operating decisions and assessing performance and is on a basis consistent with how business activities are reported internally to management and the Board of Directors.

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

The following is a description of our operating segments:

Water & Sewer

The Water & Sewer segment provides a complete line of water, sewer and storm-drain products to serve the needs of both contractors and municipalities in all aspects of the water and wastewater industries. Our waterline products transmit potable and non-potable water from the source to treatment plants, storage towers and pumping stations and ultimately to homes and businesses. Also included in this product category is our concrete business, which complements our Water & Sewer business by manufacturing prefabricated concrete vaults used for sewer and storm drain applications.

Plumbing/HVAC

The Plumbing/HVAC segment includes both our plumbing and HVAC products. Our plumbing products are sold primarily to contractors and homebuilders for bathroom and kitchen installation. Our HVAC business distributes air conditioning and heating equipment to contractors for the installation and repair of central air conditioners, furnaces and refrigeration systems.

Utilities

The Utilities segment distributes products that electric utilities need to bring power from the generating plants through the transmission and distribution lines directly to the meters. In addition, the Utilities segment offers supply chain management services, including warehouse integration and outsourcing, meter testing and repair and product assembly. These products and services allow us to provide the electric utility companies with the products they need in order to keep their systems operational.

MRO

The MRO segment serves the multi-family housing market through customers such as apartment property management companies. The products in the MRO segment include the items needed to maintain an apartment unit or complex in good working condition, such as plumbing and electrical supplies, appliances and parts, hardware, door and window parts, HVAC equipment and parts, and janitorial supplies.

Electrical

The Electrical segment serves the commercial, residential and industrial markets with customers including electrical contractors, industrial companies, original equipment manufacturers (“OEMs”) and commercial businesses. The products and services in our Electrical product line include wire management products, electrical distribution equipment, wire and cable, automation equipment, tools and fasteners, lamps, light fixtures, motor controls, energy products, wiring devices, data/communications products and storeroom/job trailer management.

49.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

Industrial PVF

The Industrial PVF segment distributes specialty stainless and high nickel alloy industrial PVF products for industrial, mechanical and specialty uses. The segment primarily serves industrial customers such as power, petrochemical, food and beverage, pulp and paper, mining, marine and pharmaceutical customers, industrial and mechanical contractors, fabricators, wholesale distributors, exporters and OEMs.

Building Materials

The Building Materials segment distributes products including rebar fabrication, lumber, wire mesh, concrete and masonry supplies and accessories, bridge rail, overhang brackets, tilt-up bracing rental and lifting/bracing inserts, bearing pads, sealants, waterproofing and fireproofing materials, commercial washroom specialties, and tools and accessories primarily to the commercial, industrial and public infrastructure markets, with customers such as general contractors and subcontractors.

Other

The “Other” category includes our Fire Protection and Mechanical product lines.

The Fire Protection branches and fabrication facilities are located strategically within our large network of Water & Sewer branches, giving our customers, contractors and builders in the commercial, residential and industrial markets, access to the materials for both aboveground and underground applications. Products and services provided include sprinkler heads and devices, steel pipe and fittings, backflow prevention devices, valves, hydrants, air compressors and fabrication.

The Mechanical business offers a complete inventory of valves, actuators and accessories in addition to a variety of consulting services and serves the commercial and industrial markets, with customers including fabricators, OEM’s, industrial subcontractors, mechanical contractors, exporters, purchasing agents, maintenance departments, engineering departments and planners.

50.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

The following table presents net sales and other financial information by segment for fiscal years 2005, 2004 and 2003:

($ in millions)	Water & Sewer		Plumbing/ HVAC		Utilities			MRO		Electrical		Industrial PVF			Building Materials		Other		Corporate			Total
Net sales
2005	$	1,200.0	$	1,051.8	$	500.1		$	442.5	$	425.3	$	362.7		$	254.0	$	186.2	$	–		$	4,422.6
2004		922.4		842.1		363.8			158.7		362.8		283.2			181.4		139.0		–			3,253.4
2003		877.2		826.9		248.3			118.9		375.5		313.9			167.8		137.8		–			3,066.3
Depreciation and amortization
2005	$	3.6	$	4.8	$	2.2		$	4.4	$	0.7	$	0.7		$	0.8	$	0.5	$	9.4		$	27.1
2004		3.2		3.3		1.5			1.0		1.0		0.7			1.3		0.6		8.6			21.2
2003		3.1		3.7		0.9			0.4		1.3		0.8			1.5		0.9		7.9			20.5
Provision for doubtful accounts
2005	$	2.8	$	3.2	$	0.1		$	1.3	$	1.1	$	0.3		$	0.6	$	0.7	$	–		$	10.1
2004		1.8		0.8		(0.9	)		0.4		0.8		0.6			0.4		0.7		–			4.6
2003		3.6		2.5		–			0.1		1.3		0.4			0.3		0.9		–			9.1
Operating income
2005	$	53.0	$	22.8	$	16.6		$	32.4	$	8.8	$	52.3		$	21.5	$	13.5	$	–		$	220.9
2004		44.8		9.4		13.7			9.4		8.2		23.0			7.6		6.6		–			122.7
2003		40.4		14.0		10.2			8.8		8.1		31.7			3.6		4.4		–			121.2
Interest expense
2005	$	–	$	–	$	–		$	–	$	–	$	–		$	0.1	$	–	$	30.5		$	30.6
2004		–		–		–			–		–		–			0.1		–		34.5			34.6
2003		–		–		–			–		–		–			0.1		–		30.2			30.3
Interest and other income (expense)
2005	$	2.5	$	2.4	$	–		$	0.2	$	0.6	$	–		$	0.5	$	0.3	$	1.5		$	8.0
2004		2.7		2.2		–			0.2		0.6		(0.1	)		0.5		0.2		0.1			6.4
2003		2.8		2.0		0.1			0.3		0.8		(0.1	)		1.4		–		–			7.3
Income (Loss) before income taxes
2005	$	55.5	$	25.2	$	16.6		$	32.6	$	9.4	$	52.3		$	21.9	$	13.8	$	(29.0	)	$	198.3
2004		47.5		11.6		13.7			9.6		8.8		22.9			8.0		6.8		(34.4	)		94.5
2003		43.2		16.0		10.3			9.1		8.9		31.6			4.9		4.4		(30.2	)		98.2
Capital expenditures
2005	$	1.4	$	1.1	$	0.2		$	1.0	$	0.1	$	0.4		$	0.4	$	0.3	$	22.3		$	27.2
2004		2.5		1.2		0.1			1.8		0.1		0.3			0.2		0.1		9.6			15.9
2003		2.3		0.8		0.3			0.1		0.1		0.5			0.5		0.2		10.5			15.3

The following table presents the net sales of our two product lines comprising the Other category for fiscal years 2005, 2004 and 2003:

Net Sales ($ in millions)
Fiscal Years Ended	2005		2004		2003
Fire Protection	$	144.1	$	103.6	$	102.0
Mechanical		42.1		35.4		35.8
Other net sales	$	186.2	$	139.0	$	137.8

51.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

The following table includes our investment in assets (accounts receivable less allowance for doubtful accounts, inventories and goodwill) and accounts payable for each segment at January 31, 2005 and January 30, 2004:

As of January 31, 2005
($ in millions)	Accounts Receivable		Inventories		Goodwill		Segment Assets		Accounts Payable
Water & Sewer	$	193.8	$	137.4	$	112.2	$	443.4	$	137.4
Plumbing/HVAC		140.9		156.9		87.1		384.9		126.4
Utilities		62.0		84.8		123.4		270.2		53.9
MRO		50.8		49.0		273.0		372.8		40.8
Electrical		64.3		28.3		9.0		101.6		43.0
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		18.4		30.4		80.7		15.6
Corporate		–		–		–		–		20.7
	$	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
As of January 30, 2004
($ in millions)	Accounts Receivable		Inventories		Goodwill		Segment Assets		Accounts Payable
Water & Sewer	$	161.4	$	92.8	$	104.7	$	358.9	$	78.8
Plumbing/HVAC		106.8		114.4		50.1		271.3		79.1
Utilities		30.9		46.8		59.3		137.0		22.2
MRO		48.7		52.6		272.8		374.1		16.4
Electrical		51.6		28.4		9.0		89.0		28.1
Industrial PVF		40.5		103.3		56.4		200.2		27.8
Building Materials		26.1		16.6		27.1		69.8		7.6
Other		27.3		12.1		30.4		69.8		11.2
Corporate		–		–		–		–		37.1
	$	493.3	$	467.0	$	609.8		1,570.1	$	308.3
Cash and cash equivalents								8.3
Deferred income taxes								19.4
Other current assets								53.0
Property and equipment, net								161.8
Other assets								68.7
Total Assets							$	1,881.3

52.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

NOTE 3 – BUSINESS COMBINATIONS AND DIVESTITURES

Business Combinations

On November 1, 2004, we completed the acquisition of Southwest Power, Inc. and Western States Electric, Inc. and their subsidiary entities (collectively referred to as “SWP/WSE”) from a common private ownership group. SWP/WSE is a large privately-owned distributor of electrical transmission and distribution (T&D) supplies and equipment in the United States, and is one of the largest T&D distributors focused exclusively on the western and southwestern United States and, recently, western Canada. The acquisition of SWP/WSE enables us to become a leader nationally in the electrical utility T&D supplies and equipment distribution market and is aligned with our growth strategy of investing in businesses that expand our national footprint and reduce business cyclicality.

The purchase price consisted of $123.1 million of net cash paid for SWP/WSE’s net assets along with the assumption of accounts payable, accrued and other liabilities, which collectively totaled $31.7 million, subject to finalization of working capital adjustments in accordance with the purchase agreement. The results of SWP/WSE’s operations have been included in our consolidated statements of income since November 1, 2004. The total cost of the acquisition was allocated to the assets acquired and liabilities assumed based on their respective preliminary fair values in accordance with SFAS 141. Goodwill, all of which is deductible for tax purposes, and other intangible assets recorded in connection with the transaction totaled $64.1 million and $27.3 million, respectively. The goodwill and intangible assets were assigned entirely to our Utilities segment. The intangible assets are subject to amortization and consist primarily of corporate customer relationships, employment agreements and non-compete agreements that are amortized on a straight-line basis over a weighted-average useful life of 12.6 years. The purchase price allocation for this acquisition has not been finalized because the post closing settlement has not been completed and our initial determination of fair value assigned to intangible assets other than goodwill is ongoing. The purchase price allocation is therefore subject to change based upon continuing review. Pro forma results of operations reflecting this acquisition have not been presented because the results of operations of SWP/WSE are not material to our consolidated results of operations.

On May 28, 2004, we acquired Todd Pipe & Supply (“Todd Pipe”), one of the largest independent wholesale plumbing suppliers in Southern California and Las Vegas, Nevada. The acquisition of Todd Pipe allows us to expand our geographic footprint into high-growth markets and to invest in businesses with returns historically higher than the returns generated by our own plumbing business.

The purchase price consisted of $85.3 million of net cash paid for Todd Pipe’s net assets along with the assumption of accounts payable, accrued and other liabilities, which collectively totaled $43.8 million. Approximately $81.8 million of the total purchase price has been paid through January 31, 2005. The results of Todd Pipe’s operations have been included in our consolidated statements of income since May 28, 2004. The total cost of the acquisition was allocated to the assets acquired and liabilities assumed based on their respective preliminary fair values in accordance with SFAS 141. Goodwill, none of which is deductible for tax purposes, and other intangible assets recorded in connection with the transaction totaled $37.0 million and $11.3 million, respectively. The goodwill and intangible assets were assigned entirely to our Plumbing/ HVAC segment. The intangible assets are subject to amortization and consist primarily of corporate customer relationships, employment agreements and non-compete agreements that are amortized on a straight-line basis over a weighted-average useful life of 9.1 years. Pro forma results of operations reflecting this acquisition have not been presented because the results of operations of Todd Pipe are not material to our consolidated results of operations.

On May 3, 2004, we acquired Standard Wholesale Supply Company (“Standard”), a distributor of waterworks, electrical and plumbing products primarily serving residential and infrastructure water and sewer contractors and customers in Las Vegas, Nevada. The acquisition of Standard allows us to accelerate our expansion into the high-growth market of Las Vegas, Nevada, and also allows us to invest in a business that is well aligned with our culture of providing the highest level of service possible to the customer, along with quality products.

The purchase price consisted of $25.7 million of net cash paid for Standard’s net assets along with the assumption of accounts payable, accrued and other liabilities, which collectively totaled $11.7 million. The results of Standard’s operations have been included in our consolidated statements of income since May 3, 2004. The total cost of the acquisition was allocated to the assets acquired and liabilities assumed based on their respective preliminary fair values in accordance with SFAS 141. Goodwill and other intangible assets recorded in connection with the transaction totaled $7.5 million and $5.7 million, respectively, with approximately $4.1 million of the recorded goodwill deductible for tax purposes. The goodwill and intangible assets were assigned entirely to our Water & Sewer segment. The intangible assets are subject to amortization and consist primarily of shareholder relationships, corporate customer relationships, non-compete agreements, and consulting and employment agreements that are amortized on a straight-line basis over a weighted-average useful life of 10 years. Pro

53.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

forma results of operations reflecting this acquisition have not been presented because the results of operations of Standard are not material to our consolidated results of operations.

On December 19, 2003, we acquired Century Maintenance Supply, Inc. (“Century”), a leading supplier of MRO products serving the multi-family apartment market throughout the United States. The acquisition has enabled us to become a leader in the apartment MRO market and has facilitated entry into adjacent customer markets.

The purchase price consisted of $260.0 million of net cash paid for Century’s net assets along with the assumption of $31.5 million of accounts payable and accrued liabilities and $101.5 million of debt. The results of Century’s operations have been included in our consolidated statements of income since December 19, 2003. The total cost of the acquisition was allocated to the assets acquired and liabilities assumed based on their respective fair values in accordance with SFAS 141. Goodwill, of which approximately $7.1 million is deductible for tax purposes, and other intangible assets recorded in connection with the transaction totaled $271.3 million and $36.4 million, respectively. The goodwill and intangible assets were assigned entirely to our MRO segment. The intangible assets are subject to amortization and consist primarily of customer lists, private label trade names and employment agreements that are amortized on a straight-line basis over a weighted-average useful life of 11.5 years. Unaudited pro-forma operating results of operations, assuming the acquisition of Century had been completed as of the beginning of fiscal year 2003, are as follows:

(in millions, except per share data)

Fiscal Years Ended	2004		2003
Net sales	$	3,534.4	$	3,357.0
Operating income		153.2		148.3
Net income		67.2		66.0
Earnings per share:
Basic	$	1.46	$	1.42
Diluted	$	1.43	$	1.40

These pro forma results have been prepared for comparative purposes only and do not purport to be indicative of what would have occurred had the acquisition been made at the beginning of the period presented or the results which may occur in the future.

On August 4, 2003, we acquired substantially all of the net assets of Marden Susco, LLC (“Marden Susco”), a southern California supplier of underground piping products for use in municipal water, sewer and storm drain systems. As a result of the acquisition, we have expanded the geographical presence of our Water & Sewer business into the state of California.

The purchase price consisted of $19.6 million cash paid for Marden Susco’s net assets along with the assumption of $13.7 million of accounts payable and accrued liabilities and $6.7 million of debt. The results of Marden Susco’s operations have been included in our consolidated statements of income since August 4, 2003. The total cost of the acquisition was allocated to the assets acquired and liabilities assumed based on their respective fair values in accordance with SFAS 141. Goodwill, all of which is deductible for income tax purposes, and other intangible assets recorded in connection with the transaction totaled $18.1 million and $1.0 million, respectively. The goodwill and intangible assets were assigned entirely to our Water & Sewer segment. The intangible assets are subject to amortization and consist primarily of employment agreements, revenue backlog and customer lists that are amortized on a straight-line basis over a weighted-average useful life of 4.8 years. Pro forma results of operations reflecting this acquisition have not been presented because the results of operations of Marden Susco are not material to our consolidated results of operations.

On August 9, 2002, we acquired 100% of the capital stock of Utiliserve Holdings, Inc. and its subsidiaries (“Utiliserve”), a wholesale distributor of electrical transmission and distribution products and services to the United States’ electric utility industry. As a result of the acquisition, we became a leading provider of electrical transmission and distribution products and services in the United States. We also expanded our development of customer contracts as a result of Utiliserve’s value-added services, including vendor-managed inventory, collaborative emergency response and job-site delivery. Through its supply chain management solutions, Utiliserve is able to assume full responsibility for its customers’ warehouse, workflow and inventory management needs.

The purchase price consisted of $33.4 million of net cash paid for Utiliserve’s net equity along with the assumption of $54.5 million and $33.2 million of debt and other liabilities, respectively. The results of Utiliserve’s operations have been included in our consolidated statements of income since August 9, 2002. The total cost of the acquisition was allocated to the assets acquired and liabilities assumed based on their respective fair values in accordance with SFAS 141. Goodwill, of which approximately $25.7 million is deductible for income tax purposes, and other intangible assets recorded in connection with the transaction totaled $56.3 million and $8.6 million, respectively. The goodwill was assigned entirely to our Utilities segment. The intangible assets are subject to

54.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

amortization and consist mainly of customer contracts that are being amortized on a straight-line basis over a weighted-average useful life of 14.6 years.

The assets acquired and liabilities assumed for acquisitions are summarized below:

($ in millions)

Fiscal Years Ended	2005			2004			2003
Accounts receivable	$	84.6		$	50.4		$	19.9
Inventories		61.9			45.3			30.5
Property and equipment		6.9			3.1			2.4
Goodwill		108.6			289.2			56.3
Intangible assets		44.3			37.4			8.6
Other assets		11.5			7.4			3.4
Assets acquired		317.8			432.8			121.1
Accounts payable and accrued liabilities		(60.3	)		(36.0	)		(26.8	)
Other liabilities		(26.7	)		(9.1	)		(6.4	)
Long-term debt		(0.2	)		(108.1	)		(54.5	)
Liabilities assumed		(87.2	)		(153.2	)		(87.7	)
Cash purchase price, net of cash acquired	$	230.6		$	279.6		$	33.4

Divestitures

During the third quarter of fiscal year 2005, we sold a business within the MRO segment for $2.6 million, which resulted in a gain of approximately $0.1 million. This business was sold because it was not a core operation within the MRO segment.

On December 30, 2002, we sold our remaining 49.0% equity investment in Anasteel Supply Company, LLC for $2.3 million. We received cash proceeds of $2.0 million with the remaining $0.3 million of consideration in the form of a note receivable due July 31, 2005. The note receivable bears interest at a fixed rate of 7.0%.

NOTE 4 – GOODWILL

Effective January 26, 2002, we adopted both SFAS 141 and SFAS 142. SFAS 141 requires all business combinations initiated after June 30, 2001 to be accounted for using the purchase method of accounting. SFAS 141 also specifies the criteria, which must be met in order for certain acquired intangible assets to be recorded separately from goodwill. Under SFAS 142, goodwill is no longer amortized, but rather tested for impairment annually or more frequently if events or changes in circumstances indicate that the asset might be impaired.

Our seven operating segments and the two product lines comprising the Other category are also the reporting units defined in SFAS 142. The reporting units’ goodwill was tested for impairment during the first quarter of fiscal year 2005 based upon the expected present value of future cash flows approach. As a result of this valuation process, as well as the application of the remaining provisions of SFAS 142, we concluded that there was no impairment of goodwill related to any of our reporting units.

55.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

A summary of the changes in the carrying amount of goodwill by reportable segment for the periods ended January 31, 2004 and January 31, 2005 is as follows:

($ in millions)
	Water & Sewer		Plumbing/ HVAC		Utilities		MRO		Electrical		Industrial PVF		Building Materials		Other		Total
Balance at January 31, 2003	$	86.6	$	50.1	$	58.8	$	1.7	$	9.0	$	56.4	$	27.1	$	30.4	$	320.1
Goodwill acquired		18.1		–		–		271.1		–		–		–		–		289.2
Finalization of purchase accounting		–		–		0.5		–		–		–		–		–		0.5
Balance at January 30, 2004		104.7		50.1		59.3		272.8		9.0		56.4		27.1		30.4		609.8
Goodwill acquired		7.5		37.0		64.1		–		–		–		–		–		108.6
Finalization of purchase accounting		–		–		–		0.2		–		–		–		–		0.2
Balance at January 31, 2005	$	112.2	$	87.1	$	123.4	$	273.0	$	9.0	$	56.4	$	27.1	$	30.4	$	718.6

NOTE 5 – PROPERTY AND EQUIPMENT

Property and equipment at January 31, 2005 and January 30, 2004 consisted of the following:

($ in millions)
	January 31			January 30
Fiscal Year Ended	2005			2004
Land	$	17.2		$	37.2
Buildings and improvements		64.1			138.3
Transportation equipment		19.3			21.1
Furniture, fixtures and equipment		87.4			86.6
Construction in progress		3.9			1.3
		191.9			284.5
Less accumulated depreciation		(99.1	)		(122.7	)
Property and equipment, net	$	92.8		$	161.8

We completed three sale-leaseback transactions during fiscal year 2005. Refer to Note 13 for a description of these transactions.

NOTE 6 – BRANCH CLOSURE AND CONSOLIDATION ACTIVITIES

In the normal course of business, we continually evaluate the operations and performance of our individual branches and identify branches for closure or consolidation. During fiscal year 2005, we recorded provisions of approximately $1.3 million and $0.9 million within the selling, general and administrative expense caption in our consolidated statements of income related to the closure of seven branches in the MRO segment resulting from the integration of the Century acquisition and the closure of our Electrical distribution center in Orlando, respectively. The $1.6 million of lease expense associated with branch closures during fiscal year 2005 is net of the reversal of accruals primarily related to previous branch closures, mainly as a result of favorable settlements of lease obligations for less than originally anticipated.

During fiscal year 2004, we closed seven underperforming Plumbing/HVAC branches and our Texas distribution center. Approximately $2.2 million of selling, general and administrative expenses were recorded in connection with these closings. In addition to our branch closure activities, we relocated our corporate offices during the third quarter of fiscal year 2004. As a result of this decision, we recorded approximately $2.0 million of selling, general and administrative expenses during fiscal year 2004 to establish an accrued liability for the fair value of the remaining lease payments due under the previous locations’ leases, net of estimated sublease income. The accrual has been substantially paid.

During fiscal year 2003, we announced the closure of seven branches along with one of our Plumbing/HVAC distribution centers in Georgia. Additionally, we reversed accruals totaling $0.5 million during fiscal year 2003 related to previous branch closures, mainly as a result of favorable settlements of lease obligations for less than originally anticipated.

The following is a summary of the expenses associated with our closure activities:

($ in millions)
Fiscal Years Ended	2005		2004		2003
Cost of sales	$	–	$	–	$	0.4
Lease expense	$	1.6	$	4.0	$	–
Severance expense		0.1		–		0.1
Other		–		0.4		(0.3	)
Selling, general and administrative expenses	$	1.7	$	4.4	$	(0.2	)

The cost of sales amounts represented inventory write-downs of products that were no longer saleable following the closure of the branches. We have accrued the estimated lease obligations from the closure dates through the end of the contractual lease terms, net of any estimated sublease income. Severance expense included charges associated with payments owed to employees who were involuntarily terminated

56.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

in connection with our branch closures. Other costs accrued for branches identified for closure were based on amounts due under agreements and/or based on estimates to terminate such agreements as well as certain executory expenses.

The liability balance, included in other current liabilities, related to our closure activities as of January 31, 2005 and January 30, 2004 was as follows:

($ in millions)
Fiscal Years Ended	2005			2004
Beginning balance	$	4.1		$	1.2
Provision		1.7			4.4
Cash expenditures:
Lease		(2.9	)		(1.4	)
Other		–			(0.1	)
Ending balance	$	2.9		$	4.1

NOTE 7 – TOTAL DEBT

Total debt at January 31, 2005 and January 30, 2004 consisted of the following:

($ in millions)
	January 31			January 30
	2005			2004
8.27% senior notes, due 2005	$	5.6		$	11.2
8.42% senior notes, due 2007		61.8			82.4
7.96% senior notes, due 2011		60.7			70.0
7.14% senior notes, due 2012		28.6			32.4
7.19% senior notes, due 2012		40.0			40.0
6.74% senior notes, due 2013		40.5			45.2
5.50% senior notes, due 2014		300.0			–
Fair value hedge carrying value adjustment		1.4			–
Unsecured bank notes under $500.0 revolving credit agreement, payable June 14, 2009		–			100.0
Other notes payable with varying interest rates of 2.1% to 7.6% at January 31, 2005 with due dates from 2005 to 2010		8.7			32.1
Total debt		547.3			413.3
Less discount on debt issuance		(1.6	)		–
Total debt less discount		545.7			413.3
Less current portion		(45.2	)		(44.6	)
Total long-term debt	$	500.5		$	368.7

Senior Notes Issuance

On October 12, 2004, we issued $300.0 million in original principal amount of 5.50% 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 $1.6 million discount. Total net proceeds from the sale of the notes were $295.7 million, including the $1.6 million discount and approximately $2.7 million of debt issuance costs, with $203.5 million of the proceeds used for the repayment of amounts outstanding under our $500.0 million revolving credit agreement and the remainder to be used for the acquisition of businesses, payment of scheduled principal amortization and interest on our senior notes due 2005 through 2013, capital expenditures, working capital needs, and other general corporate purposes. The discount and debt issuance costs are being amortized to interest expense over the ten-year term of the notes under the straight-line method, which was deemed to be materially consistent with the effective interest method. Interest on the notes is payable on April 15 and October 15 of each year, beginning on April 15, 2005. During fiscal year 2005, we recognized approximately $5.0 million of interest expense associated with the notes. See Note 8 for details on the interest rate swaps that were entered into in conjunction with the issuance of the senior notes and the corresponding fair value hedge carrying value adjustment.

The notes are unconditionally guaranteed, on a joint and several senior unsecured basis, by substantially all of our subsidiaries. The notes contain certain covenants on our ability to incur secured debt and our ability to enter into certain sale and leaseback transactions. We may redeem all or part of the notes at any time at a “make-whole” redemption price, together with accrued and unpaid interest on such notes to the redemption date, subject to certain conditions. Additionally, we have agreed to file an exchange offer registration statement with the SEC within 210 days after the issuance of the notes to allow the notes to be exchanged for a new issue of substantially identical notes registered under the Securities Act. If we fail to satisfy this obligation within the specified time periods, we will be required to pay a special interest premium to the holders of the notes. The new issue of substantially identical notes is expected to be 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 expected to be 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 anticipated note issuance are

57.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

expected to be 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).

Unsecured Bank Notes and Line of Credit Agreements

On June 14, 2004, we replaced our existing $290.0 million revolving credit agreement, which was scheduled to mature on March 26, 2007, with a new $500.0 million revolving credit agreement (the “new credit agreement”), subject to borrowing limitations, which matures on June 14, 2009. As a result of this transaction, we recognized a pretax charge of $0.8 million in the second quarter of fiscal year 2005 classified as interest expense for the write-off of unamortized loan origination costs relating to our previous credit agreement. The new credit agreement is unsecured and contains financial and other covenants, including limitations on dividends and treasury stock purchases and maintenance of certain financial ratios. The new credit agreement also includes an accordion feature that allows it to be expanded, in certain circumstances, by up to $150 million. Interest on amounts outstanding under the new credit agreement is payable at market rates plus applicable margins. Commitment fees of approximately 0.18% are currently paid on the new credit agreement.

Our $290.0 million revolving credit agreement was entered into on May 22, 2003 and amended our $252.5 million revolving credit agreement, maturing on March 26, 2007, that was entered into on March 26, 2003. The March 26, 2003 revolving credit agreement replaced our $275.0 million revolving credit agreement, which was scheduled to mature on January 25, 2004. Interest under these revolving cedit agreements was payable at market rates plus applicable margins and commitment fees ranging from 0.15% to 0.30% per annum.

We have a commercial paper program backed by our new credit agreement. There were no commercial paper borrowings outstanding at January 31, 2005 or January 30, 2004.

Other Notes Payable

On June 5, 2002, we executed a real estate term credit agreement (the “credit agreement”) with SunTrust Bank (“SunTrust”). Under the terms of the credit agreement, SunTrust agreed to fund up to a maximum of $25.0 million for the acquisition and development of our new corporate headquarters building in Orlando, Florida. The credit agreement bore interest based on LIBOR plus applicable credit spreads and matured July 31, 2005. As of January 30, 2004, we incurred $24.4 million of borrowings under the credit agreement that were recorded in long-term debt.

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 lease expires on March 16, 2024, with five 5-year extensions exercisable at our option upon 12 months notice. We do not have an option to purchase the leased facility at the end of the minimum lease term and have not issued any residual value guarantee of the value of the leased facility. The lease is accounted for as an operating lease. The proceeds from the sale approximated the net book value of the property sold and were paid by WDC to SunTrust for application against amounts outstanding under a separate real estate term credit agreement (the “credit agreement”) we had previously executed on June 5, 2002 with SunTrust. We repaid the remaining amounts outstanding under the credit agreement with SunTrust in the first quarter of fiscal year 2005. The total amount of debt extinguished in fiscal year 2005 under the credit agreement with SunTrust totaled approximately $24.4 million. See Note 13 for further details regarding our lease with WDC.

Other

Our debt agreements contain covenants that require that we, among other things, maintain certain financial ratios and minimum net worth levels. The covenants also restrict our activities regarding investments, liens, borrowing and leasing, and payment of dividends other than stock. Under the dividend covenant, approximately $141.5 million was available at January 31, 2005 for payment of dividends. At January 31, 2005, we were in compliance with all financial and other covenants.

In order to initially fund the acquisition of Century, we borrowed $250.0 million at 3.39% under an interim senior unsecured term loan agreement (the “term loan”). On January 28, 2004, we completed the sale of 13.8 million shares of common stock in a public offering that generated net proceeds of $317.5 million. The proceeds we received were primarily used to fund the acquisition of Century. At January 31, 2005 and January 30, 2004, there were no outstanding borrowings under the term loan agreement.

58.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

Maturities of total debt, including the fair value hedge carrying value adjustment, for each of the five years subsequent to January 31, 2005 and for the period thereafter are as follows:

Fiscal Years Ending	($ in millions)
2006	$	45.2
2007		45.7
2008		51.1
2009		24.1
2010		24.2
Thereafter		357.0
Total	$	547.3

NOTE 8 – DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES

On September 27, 2004, we entered into a 10-year treasury rate lock contract (“treasury lock”) with a financial institution at the then current market rate of 4.019% to hedge the risk that the Treasury rate (benchmark interest rate) component of the fixed coupon payments relating to a $278.0 million notional principal amount of a then-forecasted issuance of $300.0 million of notes (see Note 7) may be adversely affected by interest rate fluctuations. The treasury lock was designated as a cash flow hedge of the fluctuations in the Treasury rate component of the then forecasted fixed coupon payments due to changes in the benchmark interest rate, with the changes in the value of the treasury lock expected to completely offset the changes in the value of the Treasury rate component of the fixed coupon payments. The treasury lock was settled on October 5, 2004, the date the $300.0 million of notes were priced, with the entire gain received upon settlement of $3.4 million being recognized in other comprehensive income, a component of shareholders’ equity, subject to $1.4 million of tax. The gain on the treasury lock is being amortized into earnings as an adjustment to interest expense over the same period in which the related interest costs on the new debt issuance are being recognized in earnings. Approximately $0.3 million of the gain will be recognized in earnings as an adjustment to interest expense during the next twelve months.

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 have been 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). The interest rate swap contracts have qualified for the shortcut method of accounting prescribed by SFAS 133, Accounting for Derivative Instruments and Hedging Activities, as amended. As a result, changes in the fair value of the derivatives will completely offset the changes in the fair value of the underlying hedged items. At January 31, 2005, the change in the fair value of the derivative instruments and the underlying long-term debt was approximately $1.4 million, with the change in the fair value of the derivative instrument included within other assets in our consolidated balance sheets. We entered into the interest rate swap contracts to help manage the ratio of our fixed to floating rate debt in accordance with our formally documented interest rate risk management policy.

NOTE 9 – INCOME TAXES

The consolidated provision for income taxes consists of the following:

($ in millions)
Fiscal Years Ended	2005		2004		2003
Currently payable:
Federal	$	64.0	$	26.5	$	23.3
State		6.9		2.7		2.1
		70.9		29.2		25.4
Deferred:
Federal		2.5		6.9		13.2
State		1.2		0.7		1.5
		3.7		7.6		14.7
Income taxes	$	74.6	$	36.8	$	40.1

The following is a reconciliation of tax computed at the statutory federal rate to the income tax expense in the consolidated statements of income:

($ in millions)
Fiscal Years Ended	2005					2004				2003
	Amount			%		Amount		%		Amount		%
Tax computed at statutory federal rate	$	69.4		35.0	%	$	33.1	35.0	%	$	34.4	35.0	%
Effect of:
State and local income tax, net of federal income tax benefit		5.3		2.7	%		2.2	2.3	%		2.3	2.4	%
Nondeductible expenses		1.4		0.7	%		0.9	1.0	%		1.3	1.3	%
Other, net		(1.5	)	(0.8	)%		0.6	0.6	%		2.1	2.2	%
Income taxes	$	74.6		37.6	%	$	36.8	38.9	%	$	40.1	40.9	%

59.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

The components of deferred tax assets and liabilities at January 31, 2005 and January 30, 2004 are as follows:

($ in millions)
Fiscal Years Ended	2005			2004
Deferred tax assets:
Inventories	$	10.9		$	7.4
Other accrued liabilities		9.3			7.2
Deferred compensation		6.6			5.3
Property and equipment		6.0			–
Allowance for doubtful accounts		4.8			3.1
State net operating losses		1.3			2.5
Accrued vacation		–			0.3
Gross deferred tax assets		38.9			25.8
Valuation allowance		(0.3	)		(0.6	)
Total deferred tax assets		38.6			25.2
Deferred tax liabilities:
Goodwill and intangible assets		44.4			33.2
Deferred revenue		23.1			11.6
Prepaid expenses and other current assets		14.4			11.3
Capitalized software development costs		3.1			2.9
Property and equipment		–			1.4
Other		0.8			0.8
Total deferred tax liabilities		85.8			61.2
Net deferred tax liabilities	$	(47.2	)	$	(36.0	)

At January 31, 2005, we had state net operating loss carryforwards of $1.3 million, which expire between 2012 and 2025. A valuation allowance has been provided on certain of the state net operating losses at January 31, 2005 as full realization of these assets is not considered more likely than not.

NOTE 10 – EMPLOYEE BENEFIT PLANS

Profit Sharing Plan

We have a 401(k) profit sharing plan, which provides benefits for substantially all of our employees who meet minimum age and length of service requirements. The maximum percentage of each eligible employee’s contribution to be matched by the Company is 6%. Additional annual contributions may be made at the discretion of the Board of Directors. Amounts charged to expense for this plan totaled $5.8 million, $4.6 million and $4.9 million in fiscal years 2005, 2004 and 2003, respectively.

Bonus Plans

We have bonus plans, based on growth, profitability formulas, return on assets, and performance against operating and strategic goals and objectives, which provide incentive compensation for key officers and employees. Amounts charged to expense for bonuses to executive officers totaled $7.7 million, $3.4 million and $2.8 million in fiscal years 2005, 2004 and 2003, respectively.

Deferred Executive Compensation Plan

A non-qualified executive deferred compensation plan established on March 1, 2002 allows eligible employees to defer up to 90.0% of their cash compensation through the plan. We do not match employees’ contributions under the current plan.

Supplemental Executive Retirement Plan

We have a defined benefit retirement plan (“SERP”), which provides supplemental benefits for certain key executive officers, generally for periods up to 15 years, upon retirement, disability, or death. At January 31, 2005 and January 30, 2004, the liability under the plan, as determined in accordance with SFAS 87, Employers’ Accounting for Pensions, was $7.9 million and $5.7 million, respectively. The liability in each year is recorded in other noncurrent liabilities. Amounts charged to expense under the plan totaled $2.6 million, $0.7 million and $0.6 million in fiscal years 2005, 2004 and 2003, respectively. Although the obligations are not funded separately by our general assets, on June 30, 2004, we made an $11.4 million investment in our corporate owned life insurance policies (“COLI”) to partially fund enhancements made in the first quarter of fiscal year 2005 to our SERP. The increase in the cash surrender value associated with our COLI policies during fiscal year 2005 totaled $1.3 million.

NOTE 11 – CAPITAL STOCK

On October 12, 2004, we completed the sale of 4.0 million shares of common stock at a price of $30 per share in a public offering that generated net proceeds of $114.8 million, net of $4.8 million of underwriting discounts and commissions and $0.4 million of other expenses associated with the offering. The offering was made to strengthen our capital structure to help ensure that we maintain an investor grade rating.

On January 28, 2004, we completed the sale of 13.8 million shares of common stock in a public offering that generated net proceeds of $317.5 million. The proceeds were primarily used to fund the acquisition of Century and to repay indebtedness under our revolving credit agreement.

60.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

Treasury Stock

On March 15, 1999, our Board of Directors authorized the repurchase of 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 3.7 million shares at an average price of $11.45 per share. We purchased 517,200 and 514,000 shares at an average price of $11.70 and $13.89 during fiscal years 2004 and 2003, respectively. We did not repurchase any shares during fiscal year 2005.

Preferred Stock

Our Board of Directors established Series A Junior Participating Preferred Stock (“Series A Stock”) consisting of 75,000 shares. Each share of Series A Stock will be entitled to 2,000 votes on all matters submitted to a vote of shareholders. Series A Stock is not redeemable or convertible into any other security. Each share of Series A Stock shall have a minimum cumulative preferential quarterly dividend rate equal to the greater of $1.00 per share or 2,000 times the aggregate per share amount of the dividend declared on common stock in the related quarter. In the event of liquidation, shares of Series A Stock will be entitled to the greater of $1,000 per share plus any accrued and unpaid dividends or 2,000 times the payment to be made per share of common stock. No shares of Series A Stock are presently outstanding, and no shares are expected to be issued except in connection with the shareholder rights plan referred to below.

We have a shareholder rights plan. Under the plan, we distributed to shareholders a dividend of one-half of a right per share of our common stock. When exercisable, each one-half of a right will permit the holder to purchase one two-thousandth of a share (a “unit”) of Series A Stock at a purchase price of $100 per unit from the Company. The rights generally become exercisable if a person or group acquires 15% or more of our common stock or commences a tender offer that could result in such person or group owning 15% or more of our common stock. If certain subsequent events occur after the rights first become exercisable, the rights may become exercisable for the purchase of shares of our common stock, or of an acquiring company, having a value equal to two times the exercise price of the right. In general, the rights may be redeemed by the Company at $0.01 per right at any time prior to the latter of (a) ten days after 20% or more of our stock is acquired by a person or group and (b) the first date of a public announcement that a person or group has acquired 15% or more of our stock. The rights expire on June 2, 2008 unless terminated earlier in accordance with the shareholder rights plan.

NOTE 12 – EARNINGS PER SHARE

Basic earnings per share are 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 includes 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)
Fiscal Years Ended	2005	2004	2003
Basic weighted-average number of shares	61.4	45.9	46.4
Incremental shares resulting from:
Stock options	0.9	0.4	0.3
Restricted stock	1.1	0.7	0.6
Diluted weighted-average number of shares	63.4	47.0	47.3

Excluded from the above computations of diluted weighted-average shares outstanding were unvested shares of restricted common stock of 5,000 shares and 20,000 shares at average prices of $33.04 and $15.68 per share for fiscal years 2005 and 2003, respectively, because their effect would have been anti-dilutive. No unvested shares of restricted common stock were considered to have an anti-dilutive effect for fiscal year 2004. Options to purchase 367,640 shares and 1,642,040 shares of common stock at average exercise prices of $18.75 and $16.96 per share for fiscal years 2004 and 2003, respectively, were excluded from the above computations of diluted weighted-average number of shares because their effect would have been anti-dilutive. No options were considered to have an anti-dilutive effect for fiscal year 2005.

NOTE 13 – COMMITMENTS AND CONTINGENCIES

Lease Commitments

On December 30, 2004, we completed a sale-leaseback transaction for a portfolio of forty-eight properties for $37.5 million in cash. Pursuant to the terms of the agreement, we will lease back the properties under operating leases with lease terms ranging from three to fifteen years. A loss of approximately $0.9 million resulting from the sale was recognized during the fourth quarter of fiscal year 2005 for the branches that were sold at a price less than their net book value. A gain of approximately $14.8 million resulting from the sale was deferred and will be amortized over the minimum term of the leases for branches that were sold at a price greater than their net book value. We do not have an option to purchase the leased facilities at the end of the minimum lease terms and have not issued any residual guarantees of the value of the leased facilities. The leases are accounted for as operating

61.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

leases with future minimum annual lease payments totaling $3.1 million during fiscal year 2006, $3.2 million per year during fiscal years 2007 and 2008, $3.1 million during fiscal years 2009 and 2010 and $17.3 million thereafter.

On April 30, 2004, we completed a sale-leaseback transaction for a portfolio of properties associated with 18 different branches. The properties were sold at a price of $32.7 million and leased back pursuant to 15-year minimum term operating leases. A loss of approximately $1.3 million resulting from the sale was recognized during the first quarter of fiscal year 2005 for the branches that were sold at a price less than their net book value. A gain of approximately $9.1 million resulting from the sale was deferred and will be amortized over the minimum term of the leases for branches that were sold at a price greater than their net book value. We do not have an option to purchase the leased facilities at the end of the minimum lease terms and have not issued any residual guarantees of the value of the leased facilities. The leases are accounted for as operating leases with future minimum annual lease payments totaling $2.6 million per year during fiscal years 2006 through 2008, $2.7 million during fiscal year 2009 and fiscal year 2010 and $26.1 million thereafter.

As discussed in Note 7, on March 16, 2004, we entered into a sale-leaseback transaction in which we sold our corporate headquarters building in Orlando, Florida to a subsidiary of WDC for $23.0 million and leased the property back for a period of 20 years. The lease expires on March 16, 2024, with five 5-year extensions exercisable at fair market value and at our option upon 12 months notice. We do not have an option to purchase the leased facility at the end of the minimum lease term and have not issued any residual value guarantee on the value of the leased facility. The lease is accounted for as an operating lease with future minimum annual lease payments totaling $1.4 million per year during fiscal years 2006 through 2010 and $24.2 million thereafter.

We entered into an agreement to lease our newly constructed multi-branch complex in Miami, Florida from Atlantic Financial Group, Ltd (“AFG”) beginning in September 2003. On January 30, 2004, a subsidiary of SunTrust Bank agreed to purchase the property from AFG and to lease the property to us under a new 20-year term lease expiring in 2024, with 5-year extensions exercisable at our option upon 12 months notice. The minimum lease payments under the lease total approximately $22.7 million. We do not have an option to purchase the leased facility at the end of the minimum lease term and have not issued any residual value guarantee of the value of the leased facility. The lease has been accounted for as an operating lease.

We occupy certain facilities and operate certain equipment and vehicles under leases that expire at various dates through the year 2024. In addition to minimum rentals, there are certain executory costs such as real estate taxes, insurance, and common area maintenance on most of our facility leases. Expense under these leases totaled $71.7 million, $57.3 million and $51.5 million in fiscal years 2005, 2004 and 2003, respectively. Future minimum annual rental payments under non-cancelable operating leases as of January 31, 2005 are as follows:

Fiscal Years Ending	($ in millions)
2006	$	61.2
2007		50.9
2008		41.8
2009		27.5
2010		18.9
Thereafter		100.5
Total	$	300.8

Certain operating leases for vehicles and equipment expiring in fiscal year 2009 contain residual value guarantee provisions and other guarantees which would become due in the event of a default under the operating lease agreement, or at the expiration of the operating lease agreement if the fair value of the leased properties is less than the guaranteed residual value. The maximum amount of our guarantee obligation at January 31, 2005 is approximately $2.8 million.

Legal Matters

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

NOTE 14—STOCK OPTION PLANS

Stock Plans

The 1997 Executive Stock Plan (the “1997 Stock Plan”) is our only currently active stock plan at January 31, 2005. The Directors’ Stock Option Plan established for non-employee Board of Directors members became inactive in May 2003. The 1997 Stock Plan authorizes the granting of both incentive and non-incentive stock options for an aggregate of 6,500,000 shares of common stock, to key employees. Options are granted at prices not less than the market value on the date of grant, and the maximum term of an option may not exceed ten years. Prices for incentive stock options granted to employees who own 10% or more of our stock are at least 110% of market value at date of grant. Options may be

62.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

granted from time to time until December 31, 2006 with respect to the 1997 Stock Plan. An option becomes exercisable at such times and in such installments as set forth by the Compensation Committee of the Board of Directors (the “compensation committee”). Under the 1997 Stock Plan, we can grant up to 3,250,000 shares of the authorized options as restricted stock to certain key employees. 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:  In May 2002, the shareholders approved an amendment to the 1997 Stock Plan allowing our Compensation Committee to make grants of performance-based restricted shares to senior executives. 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.

On February 5, 2004, a target award of 18,000 performance-based restricted shares was made to our Chief Financial Officer under the 1997 Stock Plan. These shares are to be issued in three separate tranches if the price of our common shares achieves certain levels as determined by the Compensation Committee. During fiscal year 2005, two of the three stock price achievement levels had been met and 12,000 shares were issued with a market value at the date of grant of approximately $0.4 million. The shares vest five years from the award date and are subject to certain other vesting and forfeiture provisions contained in the 1997 Stock Plan. The market value of the restricted shares at the date of grant was recorded as unearned compensation, a component of shareholders’ equity and is being charged to expense over the five year vesting period, with less than $0.1 million recognized in fiscal year 2005.

On August 21, 2002, March 18, 2003, and September 15, 2003, target awards of 250,000 shares, 70,000 shares, and 30,000 shares, respectively, were made to senior executives. These shares are to be issued in five separate tranches if the price of our common shares achieves certain price levels. During fiscal years 2005 and 2004, 108,000 shares and 176,000 shares were issued with a market value at the date of grant of $3.2 million and $3.8 million, respectively. The market value of the restricted stock at the date of grant was recorded as unearned compensation, a component of shareholders’ equity, and is being charged to expense over the respective vesting periods. In fiscal year 2005 and fiscal year 2004, this expense totaled $1.2 million and $0.2 million, respectively. In fiscal year 2003, none of the stock price achievement levels had been attained and accordingly, no restricted shares were issued to participants.

During fiscal year 2002, we granted certain senior executives 820,000 restricted shares in accordance with a stock performance award under the 1997 Stock Plan. The shares were awarded in five separate tranches as the price of our common shares achieved certain levels as determined by the Compensation Committee. At January 25, 2002, all such stock price achievement levels had been met. The shares vest five years from the award date, and are subject to certain other vesting and forfeiture provisions contained in the 1997 Stock Plan. The market value of the restricted shares was $10.7 million at the date of the grant and was recorded as unearned compensation, a component of shareholders’ equity. This amount is being charged to expense over the respective vesting period and totaled approximately $2.2 million in each of fiscal years 2005, 2004 and 2003, respectively.

Non-performance based shares:  During fiscal year 2005 and fiscal year 2003, we granted certain employees 223,400 and 40,000 shares of restricted stock with market values at the date of grant totaling $6.8 million and $0.6 million, respectively. The market value of the restricted stock at the date of grant was recorded as unearned compensation, a component of shareholders’ equity, and is being charged to expense over the respective vesting periods. There were no non-performance shares granted to employees during fiscal year 2004. In fiscal years 2005, 2004 and 2003, the expense associated with non-performance based shares totaled $1.3 million, $0.7 million and $0.7 million, respectively.

During fiscal year 2005, we also awarded 12,000 restricted shares to non-employee directors that immediately vested. The market value of these shares totaled $0.3 million and was recognized in our consolidated results of operation during fiscal year 2005.

In fiscal years 2005, 2004 and 2003, we cancelled 22,650 shares, 59,776 shares and 59,776 shares, respectively, of restricted shares previously granted, with market values at the date of grant of $0.4 million, $0.5 million and $0.5 million, respectively, according to the provisions of the grant.

Stock Appreciation Rights

The 1997 Stock Plan also permits the granting of stock appreciation rights (“SARs”) to holders of options. Such rights permit the option holder to surrender an exercisable option, in whole or in part, on any date that the fair market value of our common stock exceeds the option price for the stock and re - -

63.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

ceive payment in common stock or, if the Board of Directors approves, in cash or any combination of cash and common stock. Such payment would be equal to the excess of the fair market value of the shares under the surrendered option over the option price for such shares. The change in value of SARs would be reflected in income based upon the market value of the stock. No SARs have been granted or issued through January 31, 2005.

Stock Options

Stock options and restricted stock activity and information about the 1997 Stock Plan and the Directors’ Stock Plan are follows:

Stock Options	Shares Subject To Option		Weighted- Average Option Price
Balance at January 25, 2002 (1,391,328 shares exercisable)	1,910,728		$	11.20
Granted	1,344,400			16.96
Exercised	(464,774	)		10.49
Cancelled	(60,800	)		15.70
Balance at January 31, 2003 (1,088,454 shares exercisable)	2,729,554			14.06
Granted	1,322,300			17.34
Exercised	(398,696	)		11.72
Cancelled	(80,800	)		16.03
Balance at January 30, 2004 (1,409,458 shares exercisable)	3,572,358			15.43
Granted	51,000			25.21
Exercised	(727,483	)		13.44
Cancelled	(259,090	)		17.52
Balance at January 31, 2005 (1,264,685 shares exercisable)	2,636,785		$	15.95
Restricted stock	Shares Outstanding		Shares Available for Issuance
Balance at January 25, 2002	1,285,624			365,376
Additional authorized	–			500,000
Shares transferred to stock option pool	–			(577,800	)
Shares assigned but not issued	–			(250,000	)
Granted	40,000			(40,000	)
Cancelled	(59,776	)		59,776
Vested	–			–
Balance at January 31, 2003	1,265,848			57,352
Additional authorized	–			1,000,000
Shares transferred to stock option pool	–			(237,500	)
Issuance of assigned shares	–			76,000
Granted	176,000			(176,000	)
Cancelled	(59,776	)		59,776
Vested	(30,000	)		–
Balance at January 30, 2004	1,352,072			779,628
Additional authorized	–			–
Shares transferred from stock option pool	–			198,550
Issuance of assigned shares	–			110,000
Granted	355,400			(355,400	)
Cancelled	(22,650	)		22,650
Vested	(32,000	)		–
Balance at January 31, 2005	1,652,822			755,428

64.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

Outstanding options at January 31, 2005 have expiration dates ranging from May 23, 2005 to March 8, 2014.

The following table summarizes information about stock options outstanding at January 31, 2005:

		Options Outstanding			Options Exercisable
Range of Exercise Prices	Number Outstanding	Weighted- Average Remaining Contractual Life (Years)	Weighted- Average Exercise Price		Number Exercisable	Weighted- Average Exercise Price
$6.42-$9.38	326,862	4.7	$	8.51	326,862	$	8.51
$10.50-$15.45	184,034	5.5		12.77	174,034		12.84
$16.25-$19.10	2,080,889	7.8		17.23	752,789		17.09
$20.00-$25.21	45,000	9.7		24.03	11,000		20.47
$6.42-$25.21	2,636,785	7.3	$	15.95	1,264,685	$	14.31

In March 2005, the Compensation Committee of the Board of Directors authorized the grant of approximately 0.4 million stock options at fair market value at the date of grant and approximately 0.2 million performance-based restricted stock grants, both with a three-year vesting period.

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 SFAS 123, as amended by SFAS 148, the estimated fair value of the stock options is amortized to compensation expense over the options’ vesting period. Pro forma information relating to the fair value of stock-based compensation is presented in Note 1 under Stock-Based Compensation.

The estimated fair values of stock options granted during fiscal years 2005, 2004 and 2003 were derived using the Black-Scholes option-pricing model. The following table includes the assumptions used in estimating fair values and the resulting weighted-average fair value of the stock options granted in the periods presented:

Assumptions
Fiscal Years Ended	2005		2004		2003
Risk-free interest rates		3.0%		3.1%		4.6%
Average expected life of stock option (in years)		5		5		8
Expected volatility of common stock		43.2%		45.1%		40.3%
Expected annual dividend yield on common stock		1.0%		1.1%		1.1%
Weighted-average fair value of stock options granted	$	9.65	$	6.81	$	7.97

The Black-Scholes option-pricing model was developed for use in estimating the fair value of traded options that have no vesting restrictions and are fully transferable. Option-pricing models require the input of highly subjective assumptions including the expected stock price volatility. Because our stock options have characteristics significantly different from those of traded options, and because changes in the subjective input assumptions could materially affect the fair value estimate, in our opinion, the existing models do not necessarily provide a reliable single measure of the fair value of our employee stock options. The pro forma calculations above do not include the effects of options granted prior to fiscal year 1996.

65.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

NOTE 15 – SUPPLEMENTAL CASH FLOWS

Additional supplemental information related to the consolidated statements of cash flows is as follows:

($ in millions)
Fiscal Years Ended	2005		2004		2003
Income taxes paid, net	$	86.7	$	13.1	$	10.3
Interest paid		25.2		31.3		29.9
Debt paid with sale-leaseback proceeds (non-cash activity) (Notes 7 and 13)		23.0		13.8		–
Change in market value of interest rate swaps (non-cash activity) (Note 8)		1.4		–		–
Assets acquired with debt (non-cash activity)		1.3		21.7		17.9
Note receivable from sale of investment in an affiliated entity		–		–		0.3

On January 28, 2005, our Board of Directors declared a quarterly dividend of $0.065 per share that was paid on February 21, 2005 to shareholders of record at the close of business on February 7, 2005. Dividends declared but not paid totaled $4.3 million and $3.1 million at January 31, 2005 and January 30, 2004, respectively.

See Note 3 for the net assets acquired and liabilities assumed for acquisitions recorded using the purchase method of accounting.

NOTE 16 – RELATED PARTY TRANSACTIONS

We lease several buildings and properties from certain related parties, including our Chairman of the Board, two other members of the Board of Directors, and an executive officer. The leases generally provide that all expenses related to the properties are to be paid by us. Rents paid under these leases totaled $2.6 million, $2.5 million and $2.1 million in fiscal years 2005, 2004 and 2003, respectively.

On October 12, 2004, we agreed to and executed an agreement to purchase a storage facility and associated property for $1.7 million from a company owned by a member of our Board of Directors and the Chairman of the Board. We had previously occupied this property under a long-term lease.

In conjunction with our equity offering in October 2004 (see Note 11), our Chairman of the Board offered 0.3 million shares as a selling shareholder; we did not receive any proceeds from his sale. We incurred approximately $21,000 of costs associated with the equity offering on his behalf for which we were reimbursed in the third quarter of fiscal year 2005.

During fiscal years 2005, 2004, and 2003, we approved donations totaling $1.1 million, $0.3 million and $0.9 million, respectively, to the Hughes Supply Foundation, Inc. (“HSF”), a not-for-profit charitable organization designed to help provide financial assistance for families and communities in need in areas where we operate. The Board of Directors of HSF is comprised of certain of our executives, including the Chairman of the Board, the President and Chief Executive Officer, and the Executive Vice President and Chief Financial Officer.

66.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA — in millions, except per share data

NOTE 17 – QUARTERLY FINANCIAL INFORMATION (Unaudited)

The following is a summary of the unaudited results of operations for each quarter in fiscal years 2005 and 2004:

	Q1			Q2			Q3		Q4		Year
Fiscal Year 2005
Net sales	$	992.8		$	1,143.1		$	1,167.5	$	1,119.2	$	4,422.6
Gross margin		241.6	(1)		270.6	(1)		273.9		253.2		1,039.3
Net income		29.8			39.4			33.8		20.7		123.7
Earnings per share:
Basic	$	0.49		$	0.65		$	0.55	$	0.32	$	2.01
Diluted		0.47			0.63			0.54		0.31		1.95
Average shares outstanding:
Basic		59.9			60.0			61.1		64.5		61.4
Diluted		61.7			62.0			63.0		66.5		63.4
Dividends per share	$	0.065		$	0.065		$	0.065	$	0.065	$	0.260
Fiscal Year 2004
Net sales	$	782.8		$	815.1		$	859.5	$	796.0	$	3,253.4
Gross margin		175.4			184.5			193.5		180.3		733.7
Net income		11.8			18.7			17.8		9.4		57.7
Earnings per share:
Basic	$	0.26		$	0.41		$	0.39	$	0.20	$	1.26
Diluted		0.25			0.40			0.38		0.20		1.23
Average shares outstanding:
Basic		45.7			45.7			45.8		46.3		45.9
Diluted		46.2			46.7			46.9		48.0		47.0
Dividends per share	$	0.050		$	0.050		$	0.050	$	0.050	$	0.200

⁽¹⁾ During the third quarter of fiscal year 2005, we determined that certain out-bound freight costs in our MRO segment were included in cost of sales instead of selling, general and administrative expenses. Accordingly, our gross margin during the first and second quarter of fiscal year 2005 has been adjusted in the table above to reflect this reclassification. The net increase to gross margin was $0.5 million in both the first and second quarters of fiscal year 2005, respectively. This reclassification had no impact on reported net income.

67.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

REPORT OF INDEPENDENT REGISTERED CERTIFIED PUBLIC ACCOUNTING FIRM

To the Shareholders and Board of Directors of Hughes Supply, Inc.:

We have completed an integrated audit of Hughes Supply, Inc.’s 2005 consolidated financial statements and of its internal control over financial reporting as of January 31, 2005 and audits of its 2004 and 2003 consolidated financial statements in accordance with the standards of the Public Company Accounting Oversight Board (United States). Our opinions, based on our audits, are presented below.

Consolidated financial statements & financial statement schedule

In our opinion, the consolidated financial statements listed in the accompanying index present fairly, in all material respects, the financial position of Hughes Supply, Inc. and its subsidiaries at January 31, 2005 and January 30, 2004, and the results of their operations and their cash flows for each of the three years in the period ended January 31, 2005 in conformity with accounting principles generally accepted in the United States of America. In addition, in our opinion, the financial statement schedule listed in the accompanying index presents fairly, in all material respects, the information set forth therein when read in conjunction with the related consolidated financial statements. These financial statements and financial statement schedule are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements and financial statement schedule based on our audits. We conducted our audits of these statements in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit of financial statements includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

Internal control over financial reporting

Also, in our opinion, management’s assessment, included in Management’s Report on Internal Control over Financial Reporting appearing under Item 8, that the Company maintained effective internal control over financial reporting as of January 31, 2005 based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO), is fairly stated, in all material respects, based on those criteria. Furthermore, in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of January 31, 2005, based on the criteria established in Internal Control—Integrated Framework issued by the COSO. The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting. Our responsibility is to express opinions on management’s assessment and on the effectiveness of the Company’s internal control over financial reporting based on our audit. We conducted our audit of internal control over financial reporting in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. An audit of internal control over financial reporting includes obtaining an understanding of internal control over financial reporting, evaluating management’s assessment, testing and evaluating the design and operating effectiveness of internal control, and performing such other procedures as we consider necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinions.

A company’s internal control over financial reporting is a process designed 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. A company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

68.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

As described in Management’s Report on Internal Control over Financial Reporting, management has excluded Southwest Power, Inc. and Western States Electric, Inc. from its assessment of internal control over financial reporting as of January 31, 2005 because they were acquired by the Company in a purchase business combination during fiscal 2005. We have also excluded Southwest Power, Inc. and

/s/  PricewaterhouseCoopers LLP

Orlando, Florida

April 12, 2005

Western States Electric, Inc. from our audit of internal control over financial reporting. Southwest Power, Inc. and Western States Electric, Inc. are wholly-owned subsidiaries whose combined total assets, net sales and net income represent 2% of each of the related consolidated financial statement amounts as of and for the year ended January 31, 2005.

69.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

MANAGEMENT’S REPORTS TO HUGHES SUPPLY, INC. SHAREHOLDERS

Management’s Responsibility for Financial Information

We are responsible for the preparation and fair presentation of the consolidated financial statements and related financial information included in this Annual Report on Form 10-K. The consolidated financial statements and related financial information were prepared in conformity with accounting principles generally accepted in the United States of America (“GAAP”) and reflect management’s estimates and judgments, which it believes are reasonable under the circumstances. The responsibility of our independent accountants is to express an opinion that the consolidated financial statements present fairly in all material respects the financial position and the results of operations and cash flows in conformity with GAAP. Their opinion is based on an audit conducted in accordance with the standards of the Public Company Accounting Oversight Board (U.S.) as further described in their report.

The Board of Directors, acting through its Audit Committee, is responsible for the oversight of the Company’s accounting policies, financial reporting and internal control. The Audit Committee of the Board of Directors is comprised entirely of outside directors who are independent of management. The Audit Committee is responsible for the appointment and compensation of the independent auditor and meets periodically with management, the independent auditors and the internal auditors to ensure that they are carrying out their responsibilities. The Audit Committee is also responsible for performing an oversight role by reviewing and monitoring the financial, accounting and auditing procedures of the Company in addition to reviewing the Company’s financial reports. The independent auditors and the internal auditors have full and unlimited access to the Audit Committee, with or without management, to discuss the adequacy of internal control over financial reporting, and any other matters which they believe should be brought to the attention of the Audit Committee.

Management’s Report on Internal Control Over

Financial Reporting

We are responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Exchange Act Rules 13a-15(f) and 15d-15(f).

Internal control over financial reporting cannot provide absolute assurance of achieving financial reporting objectives because of its inherent limitations. Internal control over financial reporting is a process that involves human diligence and compliance and is subject to lapses in judgment and breakdowns resulting from human failures. Internal control over financial reporting also can be circumvented by collusion or improper management override. Because of such limitations, there is a risk that material misstatements may not be prevented or detected on a timely basis by internal control over financial reporting. However, these inherent limitations are known features of the financial reporting process. Therefore, it is possible to design into the process safeguards to reduce, though not eliminate, this risk.

Under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, we conducted an evaluation of the effectiveness of our internal control over financial reporting based on the framework in Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on our evaluation under the framework in Internal Control – Integrated Framework, our management concluded that our internal control over financial reporting was effective as of January 31, 2005.

We have excluded Southwest Power, Inc. and Western States Electric, Inc. (collectively referred to as “SWP/WSE”) from our assessment of internal control over financial reporting as of January 31, 2005 because it was acquired by us in a purchase business combination during the fourth quarter of fiscal year 2005. SWP/WSE is a wholly-owned subsidiary whose total assets, net sales and net income each represent approximately 2% of the related consolidated financial statement amounts as of and for the year ended January 31, 2005.

Our management’s assessment of the effectiveness of our internal control over financial reporting as of January 31, 2005 has been audited by PricewaterhouseCoopers LLP, an independent registered certified public accounting firm, as stated in their report which is included herein.

70.

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

We have not had any change in, or disagreement with, our accountants or a reportable event which is required to be reported in response to this item.

ITEM 9A. CONTROLS AND PROCEDURES

As required by Rule 13a-14 of the Exchange Act, Exhibits 31 and 32 of this Annual Report are certifications of the Chief Executive Officer (CEO and Principal Executive Officer) and the Chief Financial Officer (CFO, Principal Financial Officer, and Principal Accounting Officer), which should be read in conjunction with this section for a more complete understanding of the topics presented.

In addition, on June 18, 2004, our Chief Executive Officer certified to the New York Stock Exchange that he was not aware of any violation by the Company of the NYSE corporate governance listing standards in effect on June 18, 2004. The certification was unqualified.

Evaluation of Disclosure Controls and Procedures

The Company maintains disclosure controls and procedures (“disclosure controls”) that are designed to ensure that information required to be disclosed in the Company’s 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 the Company’s management, including the CEO and the CFO, as appropriate to allow timely decisions regarding required disclosure. In designing and evaluating the disclosure controls, 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. Accordingly, management was re- quired to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures implemented.

As of the end of the period covered by this report, management, under the supervision of the Company’s CEO and CFO, evaluated the effectiveness of the design and operation of the Company’s disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended. We evaluated the effectiveness of our disclosure controls through documentation of the controls’ objectives, design, application, and effect on the information generated for use in this Annual Report. In the course of the controls evaluation, we sought to identify data errors, control problems or acts of fraud and confirm that appropriate corrective action was being undertaken and process improvements were being implemented. Based upon that evaluation, the CEO and CFO concluded that, as of the end of the period covered by this Annual Report, the disclosure controls and procedures were effective to provide reasonable assurance that information required to be disclosed in our periodic reports under the Exchange Act is recorded, processed, summarized and reported as and when required.

Management’s Reports to Hughes Supply, Inc. Shareholders

See Item 8 for Reports of Management on Responsibility for Financial Information and on Internal Control over Financial Reporting, including management’s evaluation of the effectiveness of internal control over financial reporting, as defined in Exchange Act Rules 13a-15(f).

Changes in Internal Control Over Financial Reporting

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

ITEM 9B. OTHER  INFORMATION

None

71.

PART III

The information required by Items 10, 11, 12, 13 and 14 of Part III is incorporated by reference to the Company’s Definitive Proxy Statement for the 2005 Annual Meeting of Shareholders.

PART IV

ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

a) The following documents are filed as part of this report:

(1) Financial Statements

The consolidated financial statements of the Company and its subsidiaries are included in Item 8 on pages 39 – 67.

(2) Financial Statement Schedules

The financial statement schedule is included on page 76. All other schedules have been omitted as they are either not applicable, not required or the information is given in the financial statements or related notes thereto.

(3) Exhibits Filed

A substantial number of the exhibits listed below in the index to the exhibits on pages 73 - 75 are indicated as having been previously filed as exhibits to other reports under the Securities Exchange Act of 1934, as amended, or as exhibits to registration statements under the Securities Act of 1933, as amended. Such previously filed exhibits are incorporated by reference in this Form 10-K. Exhibits not incorporated by reference herein are filed with this report.

72.

INDEX TO EXHIBITS (Item 14(a)3 – Exhibits Required by Item 601 of Regulation S-K and Additional Exhibits)

(3) Articles of incorporation and by-laws.

3.1 Restated Articles of Incorporation of Hughes Supply, Inc., incorporated by reference to Exhibit 3.1 to Form 8-K filed on August 30, 2004 (Commission File No. 001-08772).

3.2 Amended and Restated By-Laws of Hughes Supply, Inc., incorporated by reference to Exhibit 3.2 to Form 8-K filed on August 30, 2004 (Commission File No. 001-08772).

(4) Instruments defining the rights of security holders, including indentures.

4.1 Form of Common Stock Certificate representing shares of the Registrant’s common stock, $1.00 par value, incorporated by reference to Exhibit 4.1 to Form 10-Q for the quarter ended July 31, 1997 (Commission File No. 001-08772).

4.2 Rights Agreement dated as of May 20, 1998 between Hughes Supply, Inc. and American Stock Transfer & Trust Company, incorporated by reference to Exhibit 99.2 to Form 8-A dated May 22, 1998 (Commission File No. 001-08772).

4.3 Indenture, dated as of October 12, 2004, by and among Hughes Supply, Inc., substantially all of its subsidiaries, and U.S. Bank National Association, incorporated by reference to Exhibit 4.1 to Form 8-K filed on October 12, 2004 (Commission File No. 001-08772).

(10) Material contracts.

10.1 Hughes Supply, Inc. 1997 Executive Stock Plan, Amended and Restated Plan (as amended on April 9, 2003), incorporated by reference to Exhibit 10.7 to Form 10-Q for the quarter ended May 2, 2003 (Commission File No. 001-08772).

10.2 Hughes Supply, Inc. 1988 Stock Option Plan as amended March 12, 1996, incorporated by reference to Exhibit to Form 10-K for the fiscal year ended January 26, 1996 (Commission File No. 001-08772).

10.3 Hughes Supply, Inc. Amended and Restated Directors’ Stock Option Plan with amendments approved through May 21, 2002, incorporated by reference to Exhibit 10.4 to form 10-K for the fiscal year ended January 31, 2003 (Commission File No. 001-08772).

10.4 Hughes Supply, Inc. Amended Senior Executives’ Long-Term Incentive Bonus Plan, adopted January 25, 1996, incorporated by reference to Exhibit 10.9 to Form 10-K for the fiscal year ended January 26, 1996 (Commission File No. 001-08772).

10.5 Hughes Supply, Inc. amended and restated Supplemental Executive Retirement Plan, effective as of February 5, 2004, incorporated by reference to Exhibit 10.1 to Form 10-Q for the quarter ended April 30, 2004 (Commission File No. 001-08772).

10.6 Form of Incentive Stock Option Award under the 1997 Executive Stock Plan, incorporated by reference to Exhibit 10.2 to Form 10-Q for the quarter ended July 30, 2004 (Commission File No. 001-08772).

10.7 Form of Non-Qualified Stock Option Award under the 1997 Executive Stock Plan, incorporated by reference to Exhibit 10.3 to Form 10-Q for the quarter ended July 30, 2004 (Commission File No. 001-08772).

10.8 Form of Restricted Stock Award under the 1997 Executive Stock Plan, incorporated by reference to Exhibit 10.4 to Form 10-Q for the quarter ended July 30, 2004 (Commission File No. 001-08772).

10.9 Form of Performance-Based Restricted Stock Award under the 1997 Executive Stock Plan, incorporated by reference to Exhibit 10.5 to Form 10-Q for the quarter ended July 30, 2004 (Commission File No. 001-08772).

10.10 Note Purchase Agreement, dated as of May 29, 1996, by and among the Company and certain purchasers identified in Schedule A of the Note Purchase Agreement, incorporated by reference to Exhibit 10.13 to Form 10-K for the fiscal year ended January 30, 1998 (Commission File No. 001-08772).

10.11 Note Purchase Agreement, dated as of August 28, 1997, by and among the Company and certain purchasers identified in Schedule A of the Note Purchase Agreement, incorporated by reference to Exhibit 10.15 to Form 10-Q for the quarter ended July 31, 1997 (Commission File No. 001-08772).

73.

10.12 Note Purchase Agreement, dated as of May 5, 1998, by and among the Company and certain purchasers identified in Schedule A of the Note Purchase Agreement, incorporated by reference to Exhibit 10.11 to Form 10-Q for the quarter ended April 30, 1998 (Commission File No. 001-08772).

10.13 Note Purchase Agreement, dated as of December 21, 2000 and amended January 19, 2001, by and among the Company and certain purchasers identified in Schedule A of the Note Purchase Agreement incorporated by reference to Exhibit 10.12 to Form 10-K for the fiscal year ended January 26, 2001 (Commission File No. 001-08772).

10.14 Purchase Agreement, dated as of October 5, 2004, among the Company, substantially all of its subsidiaries, and the initial purchasers named therein, relating to $300.0 million in original principal amount of 5.50% Senior Notes due 2014, incorporated herein by reference to Exhibit 99.3 to the Company’s Current Report on Form 8-K filed with the SEC on October 12, 2004 (Commission File No. 001-08772).

10.15 Registration Rights Agreement, dated as of October 12, 2004, among Hughes Supply, Inc., substantially all of its subsidiaries, and the initial purchasers named therein, relating to $300.0 million in original principal amount of 5.50% Senior Notes due 2014, incorporated herein by reference to Exhibit 99.2 to the Company’s Current Report on Form 8-K filed with the SEC on October 12, 2004 (Commission File No. 001-08772).

10.16 Revolving Credit Agreement dated as of June 14, 2004 among Hughes Supply, Inc. as borrower, the several banks and other financial institutions and SunTrust Bank as administrative agent, incorporated by reference to Exhibit 10.1 to Form 10-Q for the quarter ended July 30, 2004 (Commission File No. 001-08772).

10.17 Amendment to Uncommitted Guidance and Swing Line Demand Promissory Note dated July 26, 2002 by the Company and SunTrust Bank, Inc. incorporated by reference to Exhibit 10.16 (a) to Form 10-Q for the quarter ended August 2, 2002 (Commission File No. 001-08772).

10.18 Amended and restated lease agreements with Hughes, Inc. dated April 1, 2003, incorporated by reference to Exhibit 10.1 to Form 10-Q for the quarter ended May 2, 2003 (Commission File No. 001-08772).

Sub-Item	Property
(a)	521 West Central Blvd, Orlando, FL
(b)	1010 Grand Avenue, Orlando, FL
(c)	2018 Lucerne Terrace, Orlando, FL
(d)	335 N. Ingraham Avenue, Lakeland, FL
(e)	576 NE 23rd Street, Gainesville, FL
(f)	2525 12th Street, Sarasota, FL
(g)	341 South Seaboard Avenue, Venice, FL
(h)	2439 7th Street SW, Winter Haven, FL

10.19 Lease agreements with SJ Limited Partnership, incorporated by reference to Exhibit 10.19 to Form 10-K for the fiscal year ended January 30, 2004 (Commission File No. 001-08772).

Sub-Item	Property
(a)	7311 Galveston Road, #800, Houston, TX
(b)	7311 Galveston Road, #510, Houston, TX

10.20 Lease agreement with SJ Partnership for 7311 Galveston Road, #710, Houston, TX, incorporated by reference to Exhibit 10.20 to Form 10-K for the fiscal year ended January 30, 2004 (Commission File No. 001-08772).

10.21 Lease agreement with Stanwood Limited Partnership for 2751 Miller Road, Decatur, GA, incorporated by reference to Exhibit 10.21 to Form 10-K for the fiscal year ended January 30, 2004 (Commission File No. 001-08772).

10.22 Lease agreements with SWS-TX Realty, Inc., incorporated by reference to Exhibit 10.23 to Form 10-K for the fiscal year ended January 30, 2004 (Commission File No. 001-08772).

Sub-Item	Property
(a)	8511 Monroe Boulevard, Houston, TX
(b)	8505 Monroe Boulevard, Houston, TX

74.

10.23 Lease agreements with JEM-Realty, Inc. and Stanwood Interests Limited Partnership, incorporated by reference to Exhibit 10.24 to Form 10-K for the fiscal year ended January 30, 2004 (Commission File No. 001-08772).

Sub-Item	Property
(a)	629 Pressley Road, Charlotte, NC
(b)	11835 West Fairmont Parkway, LaPorte, TX
(c)	Tract 26 South Houston Gardens, No. 6, Harris County, TX

10.24 Purchase and Sale Agreement between Hughes Supply, Inc. and several of its subsidiaries and Spirit Finance Acquisitions, LLC and Spirit Master Holdings SPE, LLC, dated December 30, 2004, incorporated by reference to Exhibit 10.1 to Form 8-K filed on January 6, 2005 (Commission File No. 001-08772).

10.25 Hughes Supply, Inc. 2005 Non-qualified Deferred Compensation Plan effective as of March 1, 2005.

10.26 Hughes Supply, Inc. 2002 Non-qualified Deferred Compensation Plan effective as of March 1, 2002.

10.27 Purchase and Sale Agreement between Hughes Supply, Inc. and Hughes, Inc., dated October 13, 2004.

10.28 Form of Severance Agreement.

(21) Subsidiaries of the Registrant.

(23) Consent of PricewaterhouseCoopers LLP.

(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.

75.

FINANCIAL STATEMENT SCHEDULE

SCHEDULE II – VALUATION AND QUALIFYING ACCOUNTS

For the Years Ended January 31, 2005, January 30, 2004 and January 31, 2003 – $ in millions

Description	Balance at Beginning of Period		Additions Charged to Income			Deductions			Balance at End of Period
2005
Allowance for doubtful accounts	$	6.5	$	12.1	(a)	$	(8.3	)(b)	$	10.3
Inventory reserves		4.5		12.5	(c)		(11.8	)(d)		5.2
Deferred income taxes		0.6		–			(0.3	)		0.3
2004
Allowance for doubtful accounts	$	8.5	$	8.1	(a)	$	(10.1	)(b)	$	6.5
Inventory reserves		6.0		7.8	(c)		(9.3	)(d)		4.5
Deferred income taxes		0.2		0.4			–			0.6
2003
Allowance for doubtful accounts	$	8.4	$	10.8	(a)	$	(10.7	)(b)	$	8.5
Inventory reserves		9.8		0.9	(c)		(4.7	)(d)		6.0
Deferred income taxes		0.1		0.1			–			0.2

^(a) Represents gross bad debt expense, excluding recoveries of bad debts, which totaled $2.0 million, $3.5 million and $1.7 million in fiscal years 2005, 2004, and 2003, respectively.

^(b) Represents write-offs of uncollectible receivable amounts.

^(c) Represents amounts charged for provision for inventory loss, including book to physical inventory adjustments and estimated dead stock write-offs.

^(d) Deductions represent the net difference between the original inventory provisions recorded and actual book to physical adjustments, dead stock write-offs, and reductions in calculated reserve requirements related primarily to inventory shrinkage. A provision for inventory shrink is estimated based on historical trends and the related reserves are adjusted to actual at the time of each branch’s physical inventory.

76.

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) 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.
By:	/s/  Thomas I. Morgan
	Thomas I. Morgan
	President and Chief Executive Officer

/s/  David Bearman

David Bearman

Executive Vice President and Chief Financial Officer (Principal Financial Officer and Principal Accounting Officer)

Date: April 12, 2005

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.

/S/    DAVID H. HUGHES	/S/    VINCENT S. HUGHES
David H. Hughes	Vincent S. Hughes
April 12, 2005	April 12, 2005
(Director)	(Director)
/S/    THOMAS I. MORGAN	/S/    DALE E. JONES
Thomas I. Morgan	Dale Jones
April 12, 2005	April 12, 2005
(Director)	(Director)
/S/    JOHN D. BAKER II	/S/    WILLIAM P. KENNEDY
John D. Baker II	William P. Kennedy
April 12, 2005	April 12, 2005
(Director)	(Director)
/S/    ROBERT N. BLACKFORD	/S/    PATRICK J. KNIPE
Robert N. Blackford	Patrick J. Knipe
April 12, 2005	April 12, 2005
(Director)	(Director)
/S/    H. CORBIN DAY	/S/    AMOS R. MCMULLIAN
H. Corbin Day	Amos R. McMullian
April 12, 2005	April 12, 2005
(Director)	(Director)

77.

INDEX OF EXHIBITS FILED WITH THIS REPORT

(10.25)	Hughes Supply, Inc. 2005 Non-qualified Deferred Compensation Plan effective as of March 1, 2005.
(10.26)	Hughes Supply, Inc. 2002 Non-qualified Deferred Compensation Plan effective as of March 1, 2002.
(10.27)	Purchase and Sale Agreement between Hughes Supply, Inc. and Hughes, Inc., dated October 13, 2004.
(10.28)	Form of Severance Agreement.
(21)	Subsidiaries of the Registrant.
(23)	Consent of PricewaterhouseCoopers LLP.
(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.

78.

EX-10.25

Exhibit 10.25

HUGHES SUPPLY, INC.

2005 NONQUALIFIED DEFERRED

COMPENSATION PLAN

THIS HUGHES SUPPLY, INC. 2005 NONQUALIFIED DEFERRED COMPENSATION PLAN (the “Plan”) is effective as of March 1, 2005 (the “Effective Date”), by HUGHES SUPPLY, INC., a corporation duly organized and existing under the laws of the State of Florida (the “Company”). As of the Effective Date, the Hughes Supply, Inc. Nonqualified Deferred Compensation Plan and the Hughes Supply, Inc. Directors’ Deferred Compensation Plan shall each be frozen and no further contributions shall be made thereunder.

RECITALS:

WHEREAS, the Company desires to permit officers, directors and other key executives of the Company and its Affiliates to defer a portion of their compensation from the Company and its Affiliates, subject to certain conditions and pursuant to the terms and provisions specified in this Plan;

NOW, THEREFORE, in consideration of the premises and mutual covenants set forth herein, the Company hereby adopts this Plan pursuant to the following terms and provisions.

ARTICLE 1

DEFINITIONS

1.1 “Account” means, collectively, the Retirement Account and In-Service Accounts (if any) maintained under this Plan in accordance with the provisions of this Plan for each Participant.

1.2 “Accounting Date” means the last day of each calendar month, and such other date or dates as the Administrative Committee may designate from time to time as an Accounting Date.

1.3 “Administrative Committee” means the administrative committee appointed by the Compensation Committee, or its delegate(s), pursuant to Section 7.1 to perform the administrative duties specified in Article 7 hereof.

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

1.5 “Base Salary” means the base rate of cash compensation paid by the Company to or for the benefit of a Participant for services rendered or labor performed while a Participant in this Plan, including base pay a Participant could have received in cash in lieu of (a) deferrals pursuant to Section 3.1(a) hereof, and (b) contributions made on his behalf to any qualified plan maintained by the Company or to any cafeteria plan under Section 125 of the Code maintained by the Company.

1.6 “Beneficiary” means the person or persons designated by a Participant, upon such forms as shall be provided by the Administrative Committee, to receive payments of the Participant’s Account hereunder, if any, in the event of the Participant’s death. If the Participant shall fail to designate a Beneficiary, or if for any reason such designation shall be ineffective, or if such Beneficiary shall predecease the Participant or die simultaneously with him, then the Participant’s Beneficiary shall be the Participant’s spouse, so long as such spouse shall live, and thereafter to such person or persons including such spouse’s estate as may be appointed under such spouse’s last will and testament making specific reference to this Plan. If the Participant is not survived by a spouse, or if the Participant’s spouse shall fail to so appoint, then said payments shall be made to the then living children of the Participant, if any, in equal shares, and if none, to the Participant’s estate.

1.7 “Board” means the Board of Directors of the Company.

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

1.9 “Change in Control” means any of the following:

(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 50% of the total Fair Market Value or total voting power of the Common 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 50% of the total Fair Market Value or total voting power of the Common Stock of the Company, the acquisition of additional stock by the same person or persons will not be considered a Change in Control under this Plan. 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 clause (a);

(b) during any period of 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,

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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 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 Section 1.9(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 Section 1.9(c):

(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, 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, 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 50% of the total value or voting power of which is owned, directly or indirectly, by a person described in (iii) above.

1.10 “Claimant” means the claimant referred to in Section 7.5 hereof.

1.11 “Code” means the Internal Revenue Code of 1986, as amended, and successor tax laws.

1.12 “Common Stock” means the Company’s common stock.

1.13 “Company” means, as stated in the initial paragraph above, Hughes Supply, Inc., a corporation duly organized and existing under the laws of the State of Florida, and its successors or assigns.

1.14 “Compensation” means (a) with respect to a Participant who is not a Director, the total of all amounts paid to a Participant by the Company or its Affiliates as Base Salary and Bonuses for services during the Plan Year; and (b) with respect to a Participant who is a Director, the total of all Director’s Fees paid to the Participant by the Company during the Plan Year.

1.15 “Compensation Committee” means the Compensation Committee of the Board.

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1.16 “Director” means a non-employee member of the Board.

1.17 “Director’s Fees” means the fees that a Director receives from the Company for serving as a Director including regular meeting fees, retainer fees, special meeting fees and committee meeting fees.

1.18 “Disabled” or “Disability” means any injury, illness or condition that constitutes a disability within the meaning of Section 409A(a)(2)(C) of the Code and the regulations thereunder. Notwithstanding the foregoing, a Disability shall not be deemed to have been incurred for purposes of this Plan, however, if it is the result of a willful and intentionally self-inflicted injury or was incurred in connection with the willful and intentional commission of a felony. All determinations relating to whether a Participant has suffered a Disability shall be made by the Administrative Committee.

1.19 “Deferral Agreement” means an agreement, in the form or forms prescribed by the Administrative Committee, which may be electronic, entered into by the Participant in accordance with Section 3 hereof pursuant to which the Participant may elect, without limitation, (a) the amount of his Deferred Compensation Contributions for the Plan Year, (b) the amount of his Restricted Stock Contributions for the Plan Year, (c) the establishment of one or more In-Service Accounts, (d) the allocation of his contributions among his Retirement Account and any In-Service Accounts, (e) the manner in which the Participant’s Account shall be deemed to be invested, and (f) the manner in which distribution of his Account is to be paid in accordance with Article 6 hereof.

1.20 “Deferred Compensation Contributions” means the Compensation reduction contributions credited to a Participant’s Account under Section 3.1 of this Plan.

1.21 “Deferred Compensation Sub-Account” means the sub-account maintained under a Participant’s Retirement Account by the Company for the Participant, that is credited with the portion of the Participant’s Deferred Compensation Contributions that the Participant does not elect to have contributed to an In-Service Account.

1.22 “Effective Date” means, as stated in the initial paragraph above, March 1, 2005.

1.23 “Eligible Person” means (a) the Chief Executive Officer, the Chairman of the Board, the Chief Financial Officer of the Company and any other key individuals of the Company or any Affiliate designated by the Compensation Committee as being eligible to participate in this Plan, and (b) a Director who is designated by the Compensation Committee from time to time as being eligible to participate in this Plan. An key individual referred to in subsection (a) of this Section 1.23 shall not be eligible to be a Participant unless he is deemed to be among a select group of management or highly compensated Employees of the Company or its Affiliates within the meaning of Section 201(2) of ERISA.

1.24 “Employee” means any common law employee of the Company or any of its Affiliates.

1.25 “Entry Date” means the first day of each calendar month.

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1.26 “ERISA” means the Employee Retirement Income Security Act of 1974, as amended, and any successor laws.

1.27 “Expenses” means the expenses referred to in Section 7.6 hereof.

1.28 “Fair Market Value” of a Share on any date of reference means the “Closing Price” (as defined below) of the Common Stock on the business day immediately preceding the date of reference, unless the Administrative Committee in its sole discretion shall determine otherwise in a fair and uniform manner. For the purpose of determining Fair Market Value, the “Closing Price” of the Common Stock on any business day shall be the last reported sale price of Common Stock on the New York Stock Exchange, as reported in any newspaper of general circulation.

1.29 “In-Service Account” means an account which may be established by a Participant pursuant to one or more Deferral Agreements, which shall have a distribution date selected by the Participant in accordance with Section 6.1(a) hereof, and to which a Participant may allocate all or a portion of his current Deferred Compensation Contributions and/or Restricted Stock Contributions. The Administrative Committee may, in its sole discretion, through resolution, limit the number of In-Service Accounts that may be established on each Participant’s behalf under this Plan.

1.30 “In-Service Distribution Date” means the date on which the distribution of the amounts held in a Participant’s In-Service Account commence in accordance with Section 6.1(a) hereof.

1.31 “Investment Funds” means those investment funds that shall be selected by the Administrative Committee, from time to time, to be made available as investment options under this Plan.

1.32 “Key Employee” means “key employee” as defined in Section 416(i) of the Code, and generally means, with respect to a Plan Year, an Employee who, at any time during the Plan Year, is either (a) an officer of the Company or an Affiliate whose annual compensation is greater than $130,000 (as adjusted for inflation); (b) a 5% owner; or (c) a 1% owner whose annual compensation is greater than $150,000.

1.33 “Matching Contributions” means the matching contributions credited to the Participant’s Account, if any, in accordance with Section 3.2 of this Plan.

1.34 “Participant” means an Eligible Person who becomes a Participant in this Plan pursuant to Section 2.1 hereof.

1.35 “Plan” means, as stated in the initial paragraph above, the Hughes Supply, Inc. 2005 Nonqualified Deferred Compensation Plan, as may be amended from time to time.

1.36 “Plan Year” means, with respect to the first Plan Year, the period from the Effective Date through January 31, 2006. With respect to each Plan Year thereafter, each 12 month period that begins February 1 and ends January 31.

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1.37 “Restricted Stock” means unvested shares of Common Stock.

1.38 “Restricted Stock Award” means the formal grant to a Participant by the Board or the Compensation Committee of the right to receive a grant of Restricted Stock, which may be based upon the satisfaction of certain performance criteria set forth by the Board or the Compensation Committee in their sole discretion.

1.39 “Restricted Stock Gain” means, with respect to each vesting date, the aggregate Fair Market Value of the shares of Restricted Stock that become vested on that date.

1.40 “Restricted Stock Contributions” means the portion of the Participant’s Restricted Stock Gain that the Participant elects to have credited to his Account under Section 3.4 of this Plan.

1.41 “Restricted Stock Sub-Account” means the sub-account maintained under a Participant’s Retirement Account by the Company for the Participant, that is credited with the portion of the Participant’s Restricted Stock Contributions that the Participant does not elect to have contributed to an In-Service Account.

1.42 “Retirement Account” means the account maintained under this Plan in accordance with the provisions of this Plan for each Participant, consisting of the Participant’s Deferred Compensation Sub-Account and the Participant’s Restricted Stock Sub-Account.

1.43 “Retirement Account Distribution Date” means the date on which the distribution of the amounts held in a Participant’s Retirement Account commence in accordance with Section 6.1(b) hereof.

1.44 “Separation from Service” means the earliest date on which a Participant has incurred a separation from service, within the meaning of Section 409A(a)(2) of the Code, with the Company or its Affiliates.

1.45 “Social Security Contributions” means the contributions referred to in Section 3.1(a)(2) hereof.

1.46 “Trust” means the Hughes Supply, Inc. Grantor Trust Agreement (as Amended and Restated), dated May 25, 2004, between the Company and Wachovia Bank, N.A., as the trustee, as amended from time to time.

1.47 “Trustee” means the person or entity that shall from time to time be serving as the trustee of the Trust.

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ARTICLE 2

PARTICIPATION

2.1 Commencement of Participation. An Eligible Person shall become a Participant in this Plan (a) on the Effective Date of this Plan, in the case of individuals who are Eligible Persons on the Effective Date, and (b) in the case of any other Eligible Person, on the Entry Date coincident with or immediately following the date on which he is designated by the Compensation Committee as being eligible to participate in this Plan, or such later Entry Date as the Administrative Committee may determine.

ARTICLE 3

CONTRIBUTIONS

3.1 Deferred Compensation Contributions.

(a) Deferred Compensation Contribution Elections. (1) Each Participant, so long as he remains a Participant, may elect, pursuant to a Deferral Agreement and in accordance with Administrative Committee rules, to defer receipt of a portion of his Compensation pursuant to this Plan, consisting of the following:

(i) with respect to a Participant who is not a Director, (i) a minimum of 1% and a maximum of 90% (in whole percentages) of his Base Salary earned during the Plan Year, and (ii) a minimum of 1% and a maximum of 90% (in whole percentages) of any Bonuses earned and paid during the Plan Year; and

(ii) with respect to a Participant who is a Director, a minimum of 1% and a maximum of 100% (in whole percentages) of his Directors’ Fees paid during the Plan Year.

(2) In addition to the elections set forth in Section 3.1(a)(1) hereof, each Participant who is not a Director, so long as he remains a Participant, may elect, pursuant to a Deferral Agreement and in accordance with Administrative Committee rules, to defer that portion of each payroll amount of his Compensation that had been used to pay social security taxes during the Plan Year if and to the extent that the Participant’s Compensation for that Plan Year exceeds the social security taxable wage base then in effect (the “Social Security Contributions”).

To the extent that the Company is required to withhold any taxes or other amounts from the Deferred Compensation Contributions pursuant to any state, Federal or local law, such amounts shall be taken out of other compensation eligible to be paid to the Participant that is not deferred under this Plan.

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(b) Timing of Deferred Compensation Contribution Elections. Participant Deferral Agreements are effective on a Plan Year basis with respect to Deferred Compensation Contributions, must be filed before the December 31 immediately preceding the beginning of the Plan Year to which they relate, and may not be amended or revoked after that December 31 with respect to that Plan Year. A Participant may change his election with respect to a subsequent Plan Year by submitting a new Deferral Agreement prior to the beginning of that subsequent Plan Year.

(c) Special Rule for First Year of Participation. An Eligible Person who becomes a Participant during a Plan Year may file a Participant Deferral Agreement within 30 days after becoming a Participant. The Participant election form shall apply to the portion of the Plan Year beginning with the first administratively practicable payroll period after it is filed and may not be amended or revoked during the Plan Year for which it is made.

(d) Allocation to Retirement or In-Service Accounts. Each Participant, so long as he remains a Participant, may elect on his Deferral Agreement to allocate his Deferred Compensation Contributions for the Plan Year among his Retirement Account and one or more In-Service Accounts. The Employer shall withhold, by payroll deduction, the amounts deferred pursuant to this Section 3.1 from the current Compensation of a Participant and credit such withheld amount to the Participant’s Retirement Account or to an In-Service Account, as elected by the Participant.

(e) Contribution of Deferred Compensation Contributions to Trust. Deferred Compensation Contributions credited to a Participant’s Account shall be contributed by the Company or Affiliate to the Trust as soon as practicable after they are so credited.

3.2 Matching Contributions.

(a) Discretionary Matching Contributions. For each Plan Year, the Administrative Committee may credit to the Retirement Account or In-Service Accounts, whichever applicable, of each Participant an amount equal to such percentage, if any, of the Participant’s Deferred Compensation Contributions made for that Plan Year as the Compensation Committee or the Board, in its sole and absolute discretion, shall from time to time determine.

(b) Contribution of Matching Contributions to Trust. Matching Contributions credited to a Participant’s Account, if any, shall be contributed by the Company or Affiliate to the Trust as soon as practicable after they are so credited.

3.3 Restricted Stock Contributions.

(a) Restricted Stock Gain Deferral Elections. Each Participant, so long as he remains a Participant, may elect, pursuant to a Deferral Agreement furnished by the Administrative Committee and in accordance with Administrative Committee rules, to defer receipt of gain with respect to the vesting of shares of Restricted Stock. A Participant shall elect to defer a minimum of 0% and a maximum of 100% (in whole percentages) of the shares of Restricted Stock that otherwise would vest on each vesting date. To the extent that the Company is required to withhold any taxes or other amounts from the Restricted Stock Contributions pursuant to any state, Federal or local law, such amounts shall be taken out of other compensation eligible to be paid to the Participant that is not deferred under this Plan.

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(b) Timing of Restricted Stock Gain Deferral Elections. A Participant Deferral Agreement with respect to Restricted Stock must be entered into before the December 31 immediately preceding the beginning of the Plan Year in which the grant of the Restricted Stock Award is to be made to the Participant. A Deferral Agreement with respect to Restricted Stock Gain shall be deemed entered into by the Participant as of the date on which the Deferral Agreement is received by the Administrative Committee.

(c) Maintenance of Restricted Stock Sub-Accounts. A Restricted Stock Sub-Account shall be established for each Participant, as directed by the Administrative Committee. The amount of Restricted Stock Gain deferred with respect to a Participant’s Restricted Stock Sub-Account shall be credited to his Restricted Stock Sub-Account as of the date on which the Restricted Stock would have vested in the Participant but for the Participant’s election hereunder. Amounts credited to a Restricted Stock Sub-Account shall be deemed invested 100% in Common Stock, and the Restricted Stock Sub-Account accordingly shall fluctuate in value in accordance with the Fair Market Value of the Common Stock.

(d) Allocation to In-Service Accounts. Each Participant, so long as he remains a Participant, may elect to allocate all or a portion of his Restricted Stock Gain Contributions to an In-Service Account.

(e) Dividends. In the event that any dividends are declared with respect to the shares of Common Stock attributable to the Restricted Stock Contributions made to this Plan on behalf of a Participant, then such dividends shall be contributed to this Plan and allocated to the Participant’s Account as follows, unless otherwise determined by the Administrative Committee: (1) to the extent the dividend is a cash dividend, then the cash contribution shall be invested and held in the same form and manner as the Participant’s Deferred Compensation Contributions, and (2) to the extent the dividend is a stock dividend, then the contribution to be made on behalf of the Participant shall be made in the same form and shall be held in the same manner and to the same extent as the Restricted Stock Contributions to which the stock dividend relates.

ARTICLE 4

VESTING

4.1 Retirement Account. A Participant’s interest in his Retirement Account shall be fully vested and non-forfeitable at all times.

4.2 In-Service Accounts. A Participant’s interest in his In-Service Accounts shall be fully vested and non-forfeitable at all times.

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ARTICLE 5

VALUATION OF PARTICIPANT’S ACCOUNTS

5.1 Account Value. The Participant’s Account shall be treated as if it were actually invested in the Investment Funds selected by the Participant in such manner and at such times as shall be determined by the Administrative Committee and in accordance with this Plan, and shall be credited with gains and losses allocable thereto at such times and in such manner as shall be determined by the Administrative Committee. Participants may change their Investment Fund selections at the times and in the manner specified by the Administrative Committee. Notwithstanding the foregoing, all Restricted Stock Contributions shall at all times be deemed to be invested 100% in shares of Common Stock.

ARTICLE 6

DISTRIBUTIONS

6.1 Timing of Distributions.

(a) Timing of In-Service Account Distributions.

(1) A Participant shall specify, in the manner prescribed by the Administrative Committee, an In-Service Distribution Date, which date must be at least 2 years from the end of a Plan Year in which contributions are made to the In-Service Account.

(2) A Participant may change the In-Service Distribution Date with respect to an In-Service Account up to 3 times per In-Service Account; provided, however, that (i) each change must extend the In-Service Distribution Date by at least 5 years and no change may accelerate an In-Service Distribution Date, and (ii) each change must be made at least 12 months prior to the In-Service Distribution Date being changed.

(3) Unless and to the extent otherwise elected by the Participant on his applicable Deferral Agreement(s), distributions shall commence from an In-Service Account, less applicable withholding tax, as soon as administratively practicable following the earlier of (i) the In-Service Distribution Date for that In-Service Account, or (ii) the 1st day of the month immediately following the date of the Participant’s Separation from Service or by reason of the Participant’s death or Disability.

(b) Timing of Retirement Account Distributions. A Participant’s Retirement Account, less applicable withholding tax, shall be distributed commencing on or as soon as administratively practicable after the 1st day of the month immediately following the date of the Participant’s Separation from Service with the Company and its Affiliates for any reason.

(c) Distributions to Key Employees. Notwithstanding the foregoing, in no event shall any distributions be made under this Plan on account of the Separation from Service (other than on account of the Participant’s death or Disability) of any Participant that is a Key Employee, before the date that is 6 months after the date of the Participant’s Separation from Service or, if earlier, the date of the Participant’s death or Disability, or as otherwise permitted without violating the requirements of 409(A)(a)(2) of the Code.

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6.2 Form of Distributions.

(a) Form of In-Service Account Distributions. Distribution of each of a Participant’s In-Service Accounts, less applicable withholding tax, shall be made in one of the following forms specified by the Participant in the manner prescribed by the Administrative Committee: (1) a lump sum distribution, or (2) in at least 2 but not more than 10 annual installments. Each installment shall be equal to the value of the In-Service Account multiplied by a fraction, the numerator of which is 1 and the denominator of which is the number of installments remaining to be paid.

(b) Form of Retirement Account Distributions. Distribution of a Participant’s Retirement Account, less applicable withholding tax, shall be made in one of the following forms specified by the Participant in the manner prescribed by the Administrative Committee: (1) a lump sum distribution, or (2) in at least 2 but not more than 10 annual installments. Each installment shall be equal to the value of the In-Service Account multiplied by a fraction, the numerator of which is 1 and the denominator of which is the number of installments remaining to be paid.

(c) Changes to Forms of Distributions; Failure to Elect Form. A Participant may elect on a form provided by the Administrative Committee to change the form in which his In-Service or Retirement Account is to be distributed under Sections 6.2(a) or (b) and the most recent election made by the Participant with respect to each such Account shall apply with respect to each such Account. In no event, however, shall (1) any change in the Participant’s election take effect until at least 12 months after the date on which the election is made, and (2) any election related to an In-Service Account be made less than 12 months prior to the date of the first scheduled payment with respect to that In-Service Account. If a Participant fails to elect a form of distribution, then distribution shall be made in the form of a lump sum.

(d) Small Account Balances. Notwithstanding anything to the contrary contained in this Section 6.2, in the event that the value of a Participant’s Retirement Account as of the Retirement Account Distribution Date is less than the Minimum Distribution Amount, or the value of an In-Service Account as of the In-Service Distribution Date applicable to that In-Service Account is less than the Minimum Distribution Amount, distribution shall be made in the form of a lump sum payment. For purposes of this provision, the Minimum Distribution Amount shall be $10,000, or such lesser amount as shall not violate the requirements of Section 409A of the Code.

6.3 Payments to Beneficiaries. If a Participant should die before distribution of the entire balance of the Participant’s Account has been made to him, any remaining amounts (including any remaining installments that otherwise would have been payable to the Participant under Section 6.2(b), and the value of any unpaid In-Service Accounts), less applicable withholding taxes, shall be distributed to the Participant’s Beneficiary in a lump sum payment as soon as practicable after the Participant’s death.

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6.4 Change in Control. Unless and to the extent otherwise elected by the Participant on his applicable Deferral Agreement(s), if and to the extent that it would not violate the requirements of Section 409A of the Code, in the event of a Change in Control, the full value of the Participant’s Account (including any remaining installments that otherwise would have been payable to the Participant under Sections 6.2(a) and (b), and the value of any unpaid In-Service Accounts), shall be distributed as a lump sum to the Participant or to the Beneficiary or Beneficiaries of a deceased Participant, as soon as practicable following the Change in Control but no later than 30 days after the date of such Change in Control.

6.5 Method of Distribution. Distribution of the Participant’s Account shall be made in cash, based upon the valuation of such Account on the Accounting Date coincident with or immediately preceding the date of the distribution. Notwithstanding the foregoing, distribution of a Participant’s Restricted Stock Sub-Account or an In-Service Account the value of which is attributable to Restricted Stock Contributions may be made in cash and shares of Common Stock, provided that at least 50% shall be made in shares of Common Stock; Participant shall notify the Administrative Committee as to the allocation of cash and shares of Common Stock, in such form and at such times as the Administrative Committee determines in accordance with applicable law including, without limitation, Section 409A of the Code.

6.6 Hardship Distributions. Upon the written request of a Participant and in the event the Administrative Committee determines that an “unforeseeable emergency” has occurred with respect to a Participant, the Participant may withdraw, in each case, the lesser of (a) the amount necessary to meet the emergency, or (b) the value of the Participant’s Account, reduced by applicable withholding taxes. For this purpose, an “unforeseeable emergency” shall mean an unanticipated emergency, such as a sudden and unexpected illness or accident of the Participant or a dependent of the Participant or loss of the Participant’s property due to casualty, that is caused by an event beyond the control of the Participant and that would result in a severe financial hardship if the withdrawal were not permitted. The need to pay a Participant’s child’s tuition to college and the desire to purchase a home shall not be considered unforeseeable emergencies. Hardship distributions shall first be made from the Participant’s Retirement Account, until depleted, and then from the Participant’s In-Service Accounts, if any, beginning with the In-Service Account with the most distant distribution date. To the extent that a distribution is made to a Participant pursuant to this Section 6.6, no further Deferred Compensation Contributions or Restricted Stock Contributions shall be made under this Plan on behalf of the Participant until the first day of the Plan Year following the Plan Year in which the hardship distribution was made to the Participant.

6.7 No Acceleration of Benefits. In no event shall the acceleration of the time or schedule of any payment under this Plan be permitted, except to the extent permitted under Section 409A of the Code and the Treasury Regulations thereunder.

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ARTICLE 7

ADMINISTRATION

7.1 Administrative Committee. The Compensation Committee shall appoint an Administrative Committee consisting of at least three persons to administer this Plan, provided that the Compensation Committee may delegate this authority with respect to the Administrative Committee to the Chief Executive Officer and the Chief Financial Officer of the Company, who shall be required to act jointly. Any Administrative Committee member may, but need not, be an officer or employee of the Company or any Affiliate and each shall serve until his successor shall be appointed or until his earlier resignation or removal. Any member of the Administrative Committee may resign by delivering his written resignation to the Compensation Committee or its delegate(s). The Compensation Committee, or its delegate(s), may remove any member of the Administrative Committee at any time for any reason.

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

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

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

(c) Construe and interpret all terms, provisions, conditions and limitations of this Plan and the Trust;

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

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

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

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

The Company shall furnish the Administrative Committee with all data and information available which the Administrative Committee may reasonably require in order to perform its functions hereunder. The Administrative Committee may rely without question upon any such data or information furnished by the Company. Any interpretation or other decision made by the Administrative Committee (including without limitation any final determination made by the

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Administrative Committee pursuant to Section 7.5 hereof) shall be final, binding and conclusive upon all persons in the absence of clear and convincing evidence that the Administrative Committee acted arbitrarily and capriciously.

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

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

7.5 Claims Procedure. In the event that any Participant or Beneficiary claims to be entitled to benefits under this Plan or believes his benefits are incorrect, that Participant or Beneficiary (hereafter, a “Claimant”) may file a claim for benefits by submitting a written statement describing the basis of the claim for benefits under this Plan. The Administrative Committee will review the claim and respond within a reasonable period of time (generally 90 days). However, if special circumstances require an extension of time to consider the claim, the Administrative Committee may extend the 90-day period up to a total of 180 days. If the Administrative Committee extends the 90-day period, the Claimant will be notified in writing as to the length of the extension and the special circumstances which necessitate the extension, including the date on which the Administrative Committee expects to render the determination. If the Administrative Committee makes an adverse determination as to the Claimant’s claim, the Administrative Committee shall, within the time period described above, notify the Claimant in a written instrument setting forth, in a manner calculated to be understood by the Claimant:

(1) the specific reasons for the adverse determination,

(2) the provisions of this Plan on which the determination is based,

(3) a description of additional information or material necessary for the Claimant to perfect the claim and an explanation of why such additional information or material is necessary, and

(4) a description of this Plan’s review procedures and the time limits applicable to such procedures, including a statement of the Claimant’s right to bring suit under Section 502(a) of ERISA following an adverse benefit determination on review.

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Within 60 days of receipt by a Claimant of a notice denying a claim, the Claimant, or his duly authorized representative, may request in writing a full and fair review of the claim by filing an appeal with the Administrative Committee. In connection with such appeal, the Claimant or his duly authorized representative may review pertinent documents and may submit issues and comments in writing. The Administrative Committee will consider the Claimant’s written presentation, as well as any evidence, facts or circumstances the Administrative Committee deems relevant. The Administrative Committee shall make a decision not later than 60 days after this Plan’s receipt of a request for appeal, unless special circumstances (such as the need to hold a hearing, as determined by the Administrative Committee in its sole discretion) require an extension of time for processing, in which case a decision will be rendered as soon as possible but not later than 120 days after receipt of a request for appeal. The Administrative Committee shall notify the Claimant prior to the expiration of the initial 60-day period if an extension is required. The notification shall indicate the special circumstances requiring the extension, and the date on which the Administrative Committee expects to render the determination on review. If the initial 60-day period is extended due to a Claimant’s failure to submit information necessary to make the benefit determination on review, the period shall be tolled from the date on which the notification of the extension is sent to the Claimant until the date on which the Claimant responds to the request for additional information.

Notification of the Administrative Committee’s decision on appeal will be provided to the Claimant in writing, and will be binding and conclusive on all parties. If an adverse determination is made, the notification shall set forth, in a manner calculated to be understood by the Claimant:

(1) the specific reasons for the adverse determination,

(2) reference to the specific Plan provisions on which the adverse determination is based,

(3) a statement that the Claimant is entitled to receive, upon request and free of charge, reasonable access to, and copies of, all documents, records, and other information relevant to the Claimant’s claim for benefits, and

(4) a statement that the Claimant may bring an action under Section 502(a) of ERISA.

In making determinations in accordance with this Section 7.5, the Administrative Committee may rely upon recommendations from the Compensation Committee or its delegate(s).

7.6 Indemnification; Advancement of Expenses. The Company shall indemnify each Administrative Committee member against any liability or loss sustained by reason of any act or failure to act made in good faith, including, but not limited to, those in reliance on certificates, reports, tables, opinions or other communications from any company or agents chosen by the Administrative Committee in good faith. Such indemnification shall include attorneys’ fees and other costs and expenses (collectively, the “Expenses”) reasonably incurred in defense of any action brought by reason of any such act or failure to act. In the event that there is a dispute with

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respect to benefits and/or rights under this Plan, the Company shall advance all reasonable Expenses incurred by or on behalf of the Administrative Committee and/or its member(s) in connection with its or their defense of that dispute within 20 days after the receipt by the Company of a statement or statements from the Administrative Committee and/or its member(s) requesting such advances from time to time, whether prior to or after the final disposition of the dispute. The statement or statements shall reasonably evidence the Expenses incurred or to be incurred and the justification therefor.

7.7 Participants Bound. Any action with respect to this Plan taken by the Administrative Committee or the Company or any Affiliate or the Trustee or any action authorized by or taken at the direction of the Administrative Committee, the Company, an Affiliate or the Trustees shall be final, binding and conclusive upon all Participants and beneficiaries entitled to benefits under this Plan in the absence of clear and convincing evidence that the Administrative Committee, Company, Affiliate, or Trustee acted arbitrarily and capriciously.

7.8 Receipts and Release. Any payment to any Participant or beneficiary in accordance with the provisions of this Plan shall, to the extent thereof, be in full satisfaction of all claims against the Company, its Affiliates, the Administrative Committee and the Trustee under this Plan, and the Administrative Committee may require such Participant or beneficiary, as a condition precedent to such payment, to execute a receipt and release to such effect. If any Participant or beneficiary is determined by the Administrative Committee to be incompetent by reason of physical or mental disability (including minority) to give a valid receipt and release, the Administrative Committee may cause the payment or payments becoming due to such person to be made to another person for his benefit without responsibility on the part of the Administrative Committee, the Company, an Affiliate, or the Trustee to follow the application of such funds.

7.9 Withholding or Deduction for Taxes. Anything in this Plan to the contrary notwithstanding, all payments or contributions required to be made, and all benefits required to be provided, shall be subject to the withholding of such amounts relating to taxes as the Company may reasonably determine should be withheld pursuant to any applicable law or regulation. In lieu of withholding such amounts, in whole or in part, the Company may, in its sole discretion, accept other provisions for payment of taxes and withholding as required by law, provided it is satisfied that all requirements of law affecting its responsibilities to withhold have been satisfied.

ARTICLE 8

MISCELLANEOUS

8.1 Unfunded Plan. The obligations of the Company and its Affiliates under this Plan shall be paid from the general assets of the Company and its Affiliates and not from any particular fund. Participants shall have the status of general unsecured creditors of the Company

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and its Affiliates and this Plan constitutes a mere promise by the Company and its Affiliates to make benefit payments in the future. It is intended that this Plan shall constitute an “unfunded” plan for tax purposes and an “unfunded plan for a select group of management or highly compensated employees” under ERISA. If the Company or an Affiliate purchases any life insurance policies, or makes any other investments, such policies (and any amounts invested by the Company or an Affiliate therein) and any other investments of the Company or an Affiliate shall be subject to the claims of their creditors. The assets of the Trust also shall be subject to the creditors of the Company and its Affiliates in the event of their Insolvency, as defined in the Trust Agreement establishing the Trust. Nothing contained in this Plan shall be interpreted to grant to any Participant or Beneficiary, any right, title or interest in any property of the Company or the Trust.

8.2 Impact on Other Executive Benefits. This Plan shall not be construed to impact or cause the denial of any benefits to which any Participant may be entitled under any other welfare or benefit plan of the Company or an Affiliate.

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

8.4 No Assignment. The right to receive payment of any benefits under this Plan shall not be transferred, assigned or pledged, except by beneficiary designation, by will, under the laws of decent and distribution, or as may be otherwise required by law.

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

8.6 Headings and Subheadings. Headings and subheadings in this Plan are inserted for convenience only and are not to be considered in the construction of the provisions hereof.

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

8.8 Amendment and Termination. This Plan may be amended or terminated in any respect at any time by the Compensation Committee; provided, however, that no amendment or termination of this Plan shall be effective to reduce any benefits that accrue before the adoption of such amendment or termination. If and to the extent permitted without violating the requirements of Section 409A of the Code, the Board may require that the Accounts of all Participants and Beneficiaries (including, without limitation, any remaining benefits payable to Participants or Beneficiaries receiving distributions in installments at the time of the termination) be distributed as soon as practicable after such termination, notwithstanding any elections by Participants or Beneficiaries with regard to the timing or form in which their benefits are to be paid. If and to the extent that the Compensation Committee does not accelerate the timing of distributions on account of the termination of this Plan pursuant to the preceding sentence, payment of any remaining benefits under this Plan shall be made at the same times and in the same manner as such distributions would have been made based upon the most recent elections made by Participants and Beneficiaries, and the terms of this Plan, as in effect at the time this Plan is terminated.

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

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EX-10.26

Exhibit 10.26

ARTICLE I

PURPOSE AND EFFECTIVE DATE

The purpose of the Hughes Supply, Inc. Nonqualified Deferred Compensation Plan (“Plan”) is to aid Hughes Supply, Inc. and its subsidiaries in retaining and attracting executive employees by providing them with tax deferred savings opportunities. The Plan provides a select group of management and highly compensated employees within the meaning of Sections 201(2), 301(a)(3) and 401(a)(1) of the Employee Retirement Income Security Act of 1974, as amended (ERISA), of Hughes Supply, Inc. with the opportunity to elect to defer receipt of specified portions of compensation, and to have these deferred amounts treated as if invested in specified hypothetical investment benchmarks. The Plan shall be effective as of March 1, 2002.

ARTICLE II

DEFINITIONS

For the purposes of this Plan, the following words and phrases shall have the meanings indicated, unless the context clearly indicates otherwise:

Section 2.01 Administrative Committee. “Administrative Committee” means the committee appointed by the Compensation Committee of the Board.

Section 2.02 Base Salary. “Base Salary” means the base rate of cash compensation paid by the Company to or for the benefit of a Participant for services rendered or labor performed while a Participant, including base pay a Participant could have received in cash in lieu of (A) deferrals pursuant to Section 4.02 and (B) contributions made on his behalf to any qualified plan maintained by the Company or to any cafeteria plan under Section 125 of the Internal Revenue Code maintained by the Company.

Section 2.03 Base Salary Deferral. “Base Salary Deferral” means the amount of a Participant’s Base Salary which the Participant elects to have withheld on a pre-tax basis from his Base Salary and credited to his Deferral Account pursuant to Section 4.02.

Section 2.04 Beneficiary. “Beneficiary” means the person, persons or entity designated by the Participant to receive any benefits payable under the Plan pursuant to Article X.

Section 2.05 Board. “Board” means the Board of Directors of Hughes Supply, Inc.

Section 2.06 Bonus. “Bonus” means any cash bonus paid by the Company.

Section 2.07 Change in Control. For purposes of this Plan, a “Change in Control” shall be deemed to have occurred as of the first day any one or more of the following conditions shall have been satisfied:

(A) any person or group (within the meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) acquires beneficial ownership (within the meaning of Rule 13d-3 under the Exchange Act) of 25% or more of either (i) the then outstanding shares of common stock of Hughes Supply, Inc. or (ii) the combined voting power of the then outstanding voting securities of Hughes Supply, Inc. entitled to vote generally in the election of directors, provided that the following acquisitions shall not constitute a Change in Control: (i) any acquisition directly from Hughes Supply, Inc. (excluding any acquisition by virtue of the exercise of a conversion privilege), (ii) any acquisition by Hughes Supply, Inc.; (iii) any acquisition by any employee benefit plan (or related trust) sponsored or maintained by Hughes

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Supply, Inc., or any corporation controlled by Hughes Supply, Inc., or (iv) any acquisition by any corporation pursuant to a reorganization, merger or consolidation, if following such reorganization, merger or consolidation the conditions described in clause (iii) of paragraph (c) below are met;

(B) individuals who, as of March 1, 2002, constitute the Board (the “Incumbent Board”) cease for any reason to constitute at least a majority of the Board; provided, however, that any individual becoming a director subsequent to March 1, 2002, whose election, or nomination for election by Hughes Supply, Inc.’s shareholders, was approved by a vote of at least a majority of the directors then comprising the Incumbent Board shall be considered as though such individual were a member of the Incumbent Board, but excluding, for this purpose, any such individual whose initial assumption of office occurs as a result of an actual or threatened election contest with respect to the election or removal of directors or other actual or threatened solicitation of proxies or consents by or on behalf of a person other than the Board; or

(C) the stockholders of Hughes Supply, Inc. approve: (i) a plan of complete liquidation of Hughes Supply, Inc.; or (ii) an agreement for the sale or disposition of all or substantially all of Hughes Supply, Inc.’s assets; or (iii) a merger, consolidation, or reorganization of Hughes Supply, Inc. with or involving any other corporation, limited liability entity or similar person, other than a merger, consolidation, or reorganization that would result in the voting securities of Hughes Supply, Inc. outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity) at least seventy-five percent (75%) of the combined voting power of the voting securities of Hughes Supply, Inc. (or such surviving entity) outstanding immediately after such merger, consolidation, or reorganization.

Section 2.08 Code. “Code” means the Internal Revenue Code of 1986, as amended. References to any provision of the Code or regulation (including a proposed regulation) thereunder shall include any successor provisions or regulations.

Section 2.09 Common Stock. “Common Stock” means the common stock of Hughes Supply, Inc.

Section 2.10 Company. “Company” means Hughes Supply, Inc., its successors or affiliated organizations authorized by the Board or the Compensation Committee to participate in the Plan and any organization into which or with which Hughes Supply, Inc. may merge or consolidate or to which all or substantially all of its assets may be transferred.

Section 2.11 Compensation Committee. “Compensation Committee” means the Compensation Committee of the Board.

Section 2.12 Consideration Shares. “Consideration Shares” means shares of Common Stock owned by a Participant for six months or longer.

Section 2.13 Deferral Account. “Deferral Account” means the account maintained on the books of the Administrative Committee for each Participant pursuant to Article VII.

Section 2.14 Deferral Period. “Deferral Period” is defined in Section 4.02.

Section 2.15 Deferred Amount. “Deferred Amount” is defined in Section 4.02.

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Section 2.16 Reserved for future use.

Section 2.17 Disability. “Disability” means eligibility for disability benefits under the terms of the Company’s Long-Term Disability Plan.

Section 2.18 Eligible Compensation. “Eligible Compensation” means any Base Salary, Incentive Compensation or Bonuses otherwise payable, or Restricted Stock Grants and/or Gain Shares recognizable as taxable income with respect to a Plan Year that the Administrative Committee deems eligible for deferral under the Plan.

Section 2.19 ERISA. “ERISA” means the Employee Retirement Income Security Act of 1974, as amended.

Section 2.20 Excess 401(k) Contribution. “Excess 401(k) Contribution” means a deferral into the Plan by a Participant of Savings Plan Compensation that such Participant would have been able to defer into The Hughes Supply Inc. Cash or Deferred Profit Sharing Plan and Trust but for limitations imposed by the Code.

Section 2.21 Form of Payment. “Form of Payment” means payment in one lump sum or in substantially equal annual installments of up to 15 years.

Section 2.22 Gain Share Account. “Gain Share Account” means the account maintained on the books by the Administrative Committee for the Participant of the number of Phantom Share Units related to Gain Shares, adjusted for hypothetical gains, earnings, dividends, stock splits, losses, distributions, withdrawals and other similar activities.

Section 2.23 Gain Shares. “Gain Shares” means the shares of Common Stock so determined under Section 5.05 as resulting from the exercise of any Option pursuant to Article V.

Section 2.24 Hardship Withdrawal. “Hardship Withdrawal” means the early payment of all or part of the balance in a Deferral Account(s), Gain Share Account(s), and Restricted Stock Account(s) in the event of an Unforeseeable Emergency.

Section 2.25 Hypothetical Investment Benchmark. “Hypothetical Investment Benchmark” shall mean the phantom investment benchmarks that are used to measure the return credited to a Participant’s Deferral Account.

Section 2.26 Incentive Compensation. “Incentive Compensation” means the amount awarded to a Participant for a Plan Year under any incentive plan maintained by the Company, determined to be eligible for deferral by the Administrative Committee.

Section 2.27 Incentive Deferral. “Incentive Deferral” means the amount of a Participant’s Incentive Compensation or Bonus which the Participant elects to have withheld on a pre-tax basis from his Incentive Compensation or Bonus and credited to his Deferral Account pursuant to Section 4.02.

Section 2.28 Matching Contribution. “Matching Contribution” means the amount of annual matching contribution that the Company may make to the Plan pursuant to Section 9.02.

Section 2.29 Option. “Option” means a nonqualified stock option to purchase shares of Common Stock under the Hughes Supply, Inc. 1997 Executive Stock Option Plan.

Section 2.30 Participant. “Participant” means any individual who is eligible or makes an election to participate in this Plan and who elects to participate by filing a Participation Agreement as provided in Article IV, a Stock Option Gain Deferral Agreement as provided in Article V, or a Restricted Stock Deferral Agreement as provided in Article VI.

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Section 2.31 Participation Agreement. “Participation Agreement” means an agreement filed by a Participant in accordance with Article IV.

Section 2.32 Phantom Share Units. “Phantom Share Units” means units of deemed investment in shares of Hughes Supply, Inc. Common Stock so determined under Sections 5.06 & 6.04.

Section 2.33 Plan Year. “Plan Year” means a twelve-month period beginning February 1 and ending the following January 31.

Section 2.34 Restricted Stock. “Restricted Stock” means the shares of Common Stock so determined under Article VI.

Section 2.35 Restricted Stock Account. “Restricted Stock Account” means the account maintained on the books by the Administrative Committee for the Participant of the number of Phantom Share Units related to Restricted Stock Shares, adjusted for hypothetical gains, earnings, dividends, stock splits, losses, distributions, withdrawals and other similar activities.

Section 2.36 Restricted Stock Deferral Agreement. “Restricted Stock Deferral Agreement” means an agreement filed by a Participant in accordance with Article VI to defer receipt of Restricted Stock upon vesting under the Hughes Supply, Inc. 1997 Executive Stock Option Plan.

Section 2.37 Retirement. “Retirement” means retirement of a Participant from the Company after attaining age 55.

Section 2.38 Savings Plan Compensation. “Savings Plan Compensation” has the same meaning as the term “Compensation” in The Hughes Supply, Inc. Cash or Deferred Profit Sharing Plan and Trust, disregarding limitations imposed by Section 401(a)(17) of the Code.

Section 2.39 Stock Option Gain Deferral Agreement. “Stock Option Gain Deferral Agreement” means an agreement filed by a Participant in accordance with Article V to defer receipt of Gain Shares from the exercise of an Option.

Section 2.40 Reserved for Future Use.

Section 2.41 Reserved for Future Use.

Section 2.42 Reserved for Future Use.

Section 2.43 Reserved for Future Use.

Section 2.44 Termination of Employment. “Termination of Employment” means the cessation of a Participant’s services as a full-time employee of the Company for any reason other than Retirement.

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Section 2.45 Unforeseeable Emergency. “Unforeseeable Emergency” means severe financial hardship to the Participant resulting from a sudden and unexpected illness or accident of the Participant or a dependent of the Participant, loss of the Participant’s property due to casualty, or other similar extraordinary and unforeseeable circumstances arising as a result of events beyond the control of the Participant.

Section 2.46 Valuation Date. “Valuation Date” means the last day of each calendar month or such other date as the Administrative Committee in its sole discretion may determine.

ARTICLE III

ADMINISTRATION

Section 3.01 Compensation Committee and Administrative Committee Duties. This Plan shall be administered by the Compensation Committee. A majority of the members of the Compensation Committee shall constitute a quorum for the transaction of business. All resolutions or other action taken by the Compensation Committee shall be by a vote of a majority of its members present at any meeting or, without a meeting, by an instrument in writing signed by all its members. Members of the Compensation Committee may participate in a meeting of such committee by means of a conference telephone or similar communications equipment that enables all persons participating in the meeting to hear each other, and such participation in a meeting shall constitute presence in person at the meeting and waiver of notice of such meeting. The Compensation Committee shall be responsible for the administration of this Plan and shall have all powers necessary to administer this Plan, including discretionary authority to determine eligibility for benefits and to decide claims under the terms of this Plan, except to the extent that any such powers are vested in any other person administering this Plan by the Compensation Committee. The Compensation Committee may from time to time establish rules for the administration of this Plan, and it shall have the exclusive right to interpret this Plan and to decide any matters arising in connection with the administration and operation of this Plan. All rules, interpretations and decisions of the Compensation Committee shall be conclusive and binding on the Company, Participants and Beneficiaries.

The Compensation Committee has delegated to the Administrative Committee responsibility for performing certain administrative and ministerial functions under this Plan. The Administrative Committee shall be responsible for determining in the Hypothetical Investment Benchmarks, distribution of Deferred Amounts, distribution of Gain Share Accounts, distribution of Restricted Stock Accounts, determination of account balances, crediting of hypothetical earnings and debiting of hypothetical losses and of distributions, in-service withdrawals, deferral elections and any other duties concerning the day-to-day operation of this Plan, other than the amount of the Matching Contribution as set forth in Section 9.02. The Compensation Committee shall have discretion to delegate to the Administrative Committee such additional duties as it may determine. The Administrative Committee may designate one of its members as a chairperson and may retain and supervise outside providers, third party administrators, record keepers and professionals (including in-house professionals) to perform any or all of the duties delegated to it hereunder.

Neither the Compensation Committee nor a member of the Board nor any member of the Administrative Committee shall be liable for any act or action hereunder, whether of omission or commission, by any other member or employee or by any agent to whom duties in connection with the administration of this Plan have been delegated or for anything done or omitted to be done in connection with this Plan. The Compensation Committee and the Administrative Committee shall keep records of all of their respective proceedings and the Administrative Committee shall keep records of all payments made to Participants or Beneficiaries and payments made for expenses or otherwise.

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The Company shall, to the fullest extent permitted by law, indemnify each director, officer or employee of the Company (including the heirs, executors, administrators and other personal representatives of such person), each member of the Compensation Committee and Administrative Committee against expenses (including reasonable attorneys’ fees), judgments, fines, amounts paid in settlement, actually and reasonably incurred by such person in connection with any threatened, pending or actual suit, action or proceeding (whether civil, criminal, administrative or investigative in nature or otherwise) in which such person may be involved by reason of the fact that he or she is or was serving this Plan in any capacity at the request of the Company, the Compensation Committee or Administrative Committee.

Any expense incurred by the Company, the Compensation Committee or the Administrative Committee relative to the administration of this Plan shall be paid by the Company and/or, prior to a Change in Control, may be deducted from the Deferral Accounts of the Participants as determined by the Compensation Committee.

Section 3.02 Claim Procedure. If a Participant or Beneficiary makes a written request alleging a right to receive payments under this Plan or alleging a right to receive an adjustment in benefits being paid under this Plan, such actions shall be treated as a claim for benefits. All claims for benefits under this Plan shall be sent to the Administrative Committee. If the Administrative Committee determines that any individual who has claimed a right to receive benefits, or different benefits, under this Plan is not entitled to receive all or any part of the benefits claimed, the Administrative Committee shall inform the claimant in writing of such determination and the reasons therefore in terms calculated to be understood by the claimant. The notice shall be sent within 90 days of the claim unless the Administrative Committee determines that additional time, not exceeding 90 days, is needed and so notifies the Participant. The notice shall make specific reference to the pertinent Plan provisions on which the denial is based, and shall describe any additional material or information that is necessary. Such notice shall, in addition, inform the claimant of the procedure that the claimant should follow to take advantage of the review procedures set forth below in the event the claimant desires to contest the denial of the claim. The claimant may within 90 days thereafter submit in writing to the Administrative Committee a notice that the claimant contests the denial of his or her claim and desires a further review by the Compensation Committee. The Compensation Committee shall within 60 days thereafter review the claim and authorize the claimant to review pertinent documents and submit issues and comments relating to the claim to the Compensation Committee. The Compensation Committee will render a final decision on behalf of the Company with specific reasons therefor in writing and will transmit it to the claimant within 60 days of the written request for review, unless the Chairperson of the Compensation Committee determines that additional time, not exceeding 60 days, is needed, and so notifies the Participant. If the Administrative Committee fails to respond to a claim filed in accordance with the foregoing within 60 days or any such extended period, the Company shall be deemed to have denied the claim.

ARTICLE IV

PARTICIPATION

Section 4.01 Participation. Participation in the Plan shall be limited to executives who (i) are members of a select group of management and highly compensated employees within the meaning of ERISA sections 201(2), 301(a)(3) and 401(a)(1); (ii) meet such eligibility criteria as the Compensation Committee shall establish from time to time, and (iii) elect to participate in this Plan by filing a Participation Agreement, a Stock Option Gain Deferral Agreement, and/or a Restricted Stock Deferral Agreement with the Administrative Committee. Except as provided in Section 4.03, a Participation Agreement must be filed prior to the December 31st immediately preceding the Plan Year for which it is effective; provided, however that in the first year in which an individual first becomes eligible to participate in the Plan, the newly eligible Participant may make an election to defer Base Salary for services to be performed subsequent to the election

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and for Incentive Compensation or Bonuses not yet determined and payable within 30 days after the date the individual becomes eligible to participate. The Administrative Committee shall have the discretion to establish special deadlines regarding the filing of Participation Agreements.

Section 4.02 Contents of Participation Agreement. Subject to Article IX, each Participation Agreement shall set forth: (i) the amount of Base Salary, Bonuses, Incentive Compensation and Excess 401(k) Contributions for the Plan Year or performance period to which the Participation Agreement relates that is to be deferred under the Plan (the “Deferred Amount”), expressed as either a dollar amount or a percentage of the Base Salary, Bonus, and/or Incentive Compensation for such Plan Year or performance period and/or any Excess 401(k) Contributions that the Participant wishes to make; (ii) the period after which payment of the Deferred Amount is to be made or begin to be made (the “Deferral Period”), which shall be the earlier of (A) a number of full years, not less than three, (B) the period ending upon the Retirement or prior Termination of Employment of the Participant, and (iii) the Form of Payment.

Section 4.03 Modification or Revocation of Election by Participant. A Participant may not change the amount of his Base Salary Deferrals during a Plan Year. However, a Participant may discontinue a Base Salary Deferral election at any time by filing, on such forms and subject to such limitations and restrictions as the Administrative Committee may prescribe in its discretion, a revised Participation Agreement with the Administrative Committee. If approved by the Administrative Committee, revocation shall take effect as soon as possible following its filing. If a Participant discontinues a Base Salary Deferral election during a Plan Year, he will not be permitted to elect to make Base Salary Deferrals again until the later of the first day of the next Plan Year or six months from the date of discontinuance. In addition, the Deferral Period may be extended if an amended Participation Agreement is filed with the Administrative Committee at least one full calendar year before the Deferral Period (as in effect before such amendment) ends. Under no circumstances may a Participant’s Participation Agreement be made, modified or revoked retroactively, nor may a deferral period be shortened or reduced.

ARTICLE V

STOCK OPTION GAIN DEFERRALS

Section 5.01 In General. Subject to provisions of this Article V, Participants may elect to defer receipt and distribution of the gain related to the exercise of Options and resulting Gain Shares until the end of an elected Deferral Period by filing a Stock Option Gain Deferral Agreement with the Administrative Committee. The stock option gain deferral features of the Plan are effective for deferral elections made on or after March 1, 2002.

Section 5.02 Timing of Filing Stock Option Gain Deferral Agreement. A Stock Option Gain Deferral Agreement must be filed at least six months prior to the Date of Exercise, prior to the calendar year in which occurs the Date of Exercise, and no later than the day before the first day of the six month period ending on the Option Expiration Date. An Option with respect to which a Stock Option Gain Deferral Agreement has been filed may not be exercised prior to the dates specified in the preceding sentence. The Administrative Committee shall have the discretion to establish special deadlines regarding the filing of Stock Option Gain Deferral Agreements.

Section 5.03 Contents of Stock Option Gain Deferral Agreement. Each Stock Option Gain Deferral Agreement shall set forth: (i) the number of Options to be exercised in connection with the deferrals hereunder; (ii) the date of grant of the Options; (iii) the Deferral Period ; (iv) any other item determined to be appropriate by the Administrative Committee. A Participant may elect to defer gain in increments of 25%, 50%, 75% or 100% of the number of Gain Shares resulting from Options exercised on any one date of exercise.

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Section 5.04 Manner of Exercising Option Shares. A Participant who desires to exercise an Option and to defer current receipt and distribution of the related Gain Shares must follow the procedures and requirements that are applicable to the Option under the Hughes Supply, Inc. 1997 Executive Stock Option Plan, including the procedures and requirements relating to the exercise of an Option; provided, however, that in the case of a deferral of Gain Shares under this Plan, the Participant shall only be permitted to tender Consideration Shares to pay the entire exercise price for any such Option exercised. Notwithstanding the foregoing, the Administrative Committee may in its discretion accept the Participant’s attestation that he or she owns the number of Consideration Shares necessary to effectuate the stock swap contemplated hereunder.

Section 5.05 Determination of Gain Shares. Upon exercise of an Option, the Gain Shares from which the Participant has elected to defer hereunder shall be determined as follows: (i) the aggregate exercise price for all exercised Option shares shall be determined; (ii) the number of Consideration Shares needed to pay the exercise price for such Option shares shall be determined; (iii) the difference between the number of exercised Option shares and the number of Consideration Shares shall be the number of Gain Shares resulting from such exercise. Any fractional Gain Share that results from the computations hereunder shall be rounded up to the nearest whole number.

Section 5.06 Conversion of Gain Shares to Phantom Share Units. As of the Date of Exercise, Gain Shares shall be converted to Phantom Share Units by dividing the amount of the aggregate fair market value of the Gain Shares as of the date of exercise by the fair market value of one share of Common Stock as of the date of exercise. The resulting number of Phantom Share Units shall be credited to the Participant’s Gain Share Account. Any fractional Phantom Share Unit that results from the computations hereunder shall be rounded up to the nearest whole number.

Section 5.07 Changes to the Stock Option Gain Deferral Agreement. A Stock Option Gain Deferral Agreement may not be amended or revoked after the day on which it is filed with the Administrative Committee, except that the Deferral Period may be extended if an amended Stock Option Gain Deferral Agreement is filed with the Administrative Committee at least one full calendar year before the Deferral Period (as in effect before such amendment) ends.

Section 5.08 Failure to Properly Exercise. If a Participant makes a valid election under this Article V to defer Gain Shares and if the Option expires without a proper exercise of the Option by the Participant or if the Participant fails to properly tender or attest to the Consideration Shares by the last day of the Option term, the Participant shall forfeit any opportunity to exercise the Option and the Option shall be canceled as of the end of the last business day of the Option term, according to the terms of the Hughes Supply, Inc. 1997 Executive Stock Option Plan.

Section 5.09 Delivery of Gain and Restricted Stock Shares. The gain and restricted stock shares may be physically delivered to a rabbi trustee or delivered to such other entity as may be designated by the Administrative Committee for safe keeping.

ARTICLE VI

RESTRICTED STOCK DEFERRALS

Section 6.01 In General. Subject to provisions of this Article VI, Participants may elect to defer receipt of Restricted Stock shares until the end of an elected Deferral Period by filing a Restricted Stock Deferral Agreement with the Administrative Committee. The restricted stock deferral features of the Plan are effective for deferral elections made on or after March 1, 2002.

Section 6.02 Timing of Filing Restricted Stock Deferral Agreement. A Restricted Stock Deferral Agreement must be filed at least six months prior to the vesting of such Restricted Stock. The Administrative Committee shall have the discretion to establish special deadlines regarding the filing of Restricted Stock Deferral Agreements.

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Section 6.03 Contents of Restricted Stock Deferral Agreement. Each Restricted Stock Deferral Agreement shall set forth: (i) the number of shares to be deferred hereunder; (ii) the Deferral Period ; (iii) any other item determined to be appropriate by the Administrative Committee.

Section 6.04 Conversion of Restricted Stock to Phantom Share Units. As of the date of vesting Restricted Stock shall be converted to Phantom Share Units by dividing the amount of the aggregate fair market value of the Restricted Stock as of the date of vesting by the Fair Market Value of one share of Common Stock as of the date of exercise. The resulting number of Phantom Share Units shall be credited to the Participant’s Restricted Stock Account. Any fractional Phantom Share Unit that results from the computations hereunder shall be rounded up to the nearest whole number.

Section 6.05 Changes to the Restricted Stock Deferral Agreement. A Restricted Stock Deferral Agreement may not be amended or revoked after the day on which it is filed with the Administrative Committee, except that the Deferral Period may be extended if an amended Restricted Stock Deferral Agreement is filed with the Administrative Committee at least one full calendar year before the Deferral Period (as in effect before such amendment) ends.

Section 6.06 Delivery of Restricted Stock Shares. The restricted stock shares may be physically delivered to a rabbi trustee or delivered to such other entity as may be designated by the Administrative Committee for safe keeping.

ARTICLE VII

DEFERRED COMPENSATION

Section 7.01 Elective Deferred Compensation. The Deferred Amount of a Participant with respect to each Plan Year of participation in the Plan shall be credited by the Administrative Committee to the Participant’s Deferral Account as and when such Deferred Amount would otherwise have been paid to the Participant. To the extent that the Company is required to withhold any taxes or other amounts from the Deferred Amount pursuant to any state, Federal or local law, such amounts shall be taken out of other compensation eligible to be paid to the Participant that is not deferred under this Plan.

Section 7.02 Vesting of Deferral Account. A Participant shall be 100% vested in his/her Deferral Account at all times.

Section 7.03 Reserved for Future Use.

Section 7.04 Reserved for Future Use.

Section 7.05 Reserved for Future Use.

Section 7.06 Reserved for Future Use.

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ARTICLE VIII

MAINTENANCE AND INVESTMENT OF ACCOUNTS

Section 8.01 Maintenance of Accounts. Separate Deferral Accounts, Restricted Stock Accounts and Gain Share Accounts shall be maintained for each Participant. More than one Deferral Account, Restricted Stock Account and Gain Share Account may be maintained for a Participant as necessary to reflect (a) various Hypothetical Investment Benchmarks and/or (b) separate Participation Agreements or other election forms specifying different Deferral Periods and/or forms of payment. A Participant’s Deferral Account(s), Restricted Stock Account(s) and Gain Share Account(s) shall be utilized solely as a device for the measurement and determination of the amounts to be paid to the Participant pursuant to this Plan, and shall not constitute or be treated as a trust fund of any kind. The Administrative Committee shall determine the balance of each Deferral Account, Restricted Stock Account and Gain Share Account, as of each Valuation Date, by adjusting the balance of such Deferral Account, Restricted Stock Account and Gain Share Account as of the immediately preceding Valuation Date to reflect changes in the value of the deemed investments thereof, credits and debits pursuant to Section 8.03 distributions pursuant to Article IX with respect to such Deferral Account, Restricted Stock Account and Gain Share Account since the preceding Valuation Date.

Section 8.02 Reserved for Future Use.

Section 8.03 Hypothetical Investment Benchmarks. (A) Each Participant shall be entitled to direct the manner in which his/her Deferral Accounts will be deemed to be invested, selecting among the Hypothetical Investment Benchmarks specified in Appendix A hereto, as amended by the Administrative Committee from time to time, and in accordance with such rules, regulations and procedures as the Administrative Committee may establish from time to time.

(B) (i) The Hypothetical Investment Benchmarks available for Deferral Accounts from time to time may include a “Hughes Supply, Inc. Share Fund.” The Hughes Supply, Inc. Share Fund shall consist of deemed investments in shares of Hughes Supply, Inc. Common Stock. Amounts that are deemed to be invested in the Hughes Supply, Inc. Share Fund shall be converted into Phantom Share Units based upon the fair market value of the Common Stock as of the date(s) the amounts are to be credited to a Deferral Account, Restricted Stock Account, or Gain Share Account. To the extent that a participant elects to defer receipt of restricted stock pursuant to the terms of the Plan, such deferred stock will be deemed invested in the Hughes Supply, Inc. Share Fund, and may not be deemed invested in other Hypothetical Investment Benchmarks until such time as the Administrative Committee deems a Participant may allocate amounts credited to the Hughes Supply, Inc. Share Fund to one or more of the other Hypothetical Investment Benchmarks under the Plan. The portion of any Deferral Account that is invested in the Hughes Supply, Inc. Share Fund shall be credited, as of each Valuation Date, with additional Phantom Share Units of Common Stock with respect to dividends paid on the Common Stock with record dates during the period beginning on the day after the most recent preceding Valuation Date and ending on such Valuation Date.

(ii) When a reallocation or a distribution of all or a portion of a Deferral Account that is invested in the Hughes Supply, Inc. Share Fund is to be made, the balance in such a Deferral Account shall be determined by multiplying the fair market value of one share of Common Stock on the most recent Valuation Date preceding the date of such reallocation or distribution by the number of Phantom Share Units to be reallocated or distributed. Upon a lump sum distribution, the amounts in the Hughes Supply, Inc. Share Fund shall be distributed in the form of cash having a value equal to the fair market value of a comparable number of actual shares of Common Stock, or a combination thereof, as determined by the Administrative Committee.

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(iii) In the event of a stock dividend, split-up or combination of the Common Stock, merger, consolidation, reorganization, recapitalization, or other change in the corporate structure or capitalization affecting the Common Stock, such that an adjustment is determined by the Administrative Committee to be appropriate in order to prevent dilution or enlargement of the benefits or potential benefits intended to be made available under this Plan, then the Administrative Committee may make appropriate adjustments to the number of deemed shares credited to any Deferral Account. The determination of the Administrative Committee as to such adjustments, if any, to be made shall be conclusive.

(iv) Notwithstanding any other provision of this Plan, the Administrative Committee shall adopt such procedures as it may determine are necessary to ensure that with respect to any Participant who is actually or potentially subject to Section 16(b) of the Securities Exchange Act of 1934, as amended, the crediting of deemed shares to his or her Deferral Account is not deemed to be a non-exempt purchase for purposes of such Section 16(b), including without limitation requiring that no shares of Common Stock or cash relating to such deemed shares may be distributed for six months after being credited to such Deferral Account.

Section 8.04 Statement of Accounts. The Administrative Committee shall submit to each Participant quarterly statements of his/her Deferral Account(s), Restricted Stock Accounts and/or Gain Share Accounts(s) in such form as the Administrative Committee deems desirable, setting forth the balance to the credit of such Participant in his/her Deferral Account(s) and/or Gain Share Account(s) and/or Restricted Stock Account(s) as of the end of the most recently completed quarter.

ARTICLE IX

BENEFITS

Section 9.01 Time and Form of Payment. The Company shall pay (in the form and method described in this Article 9) to the Participant the balance of the Participant’s Deferral Account, Restricted Stock Account and Gain Share Account in the Form of Payment elected by the Participant in the applicable Participation Agreement, Restricted Stock Deferral Agreement, or Stock Option Gain Deferral Agreement. The Participant’s Deferral Account and Restricted Stock Account (determined as of the most recent Valuation Date preceding the end of the Deferral Period) shall be paid in cash, regardless of the Form of Payment selected by the Participant. If the Participant’s Form of Payment from his Deferral Account or Restricted Stock Account is in installments, the Company shall make annual cash payments from such Deferral Account and/or Restricted Stock Account in an amount equal to (i) the balance of such Deferral Account and/or Restricted Stock Account (determined as of the most recent Valuation Date preceding the installment payment date), multiplied by (ii) a fraction, the numerator of which is one and the denominator of which is the number of remaining installments (including the installment being paid). The first such installment shall be paid as soon as practicable after the end of the Deferral Period and each subsequent installment shall be paid on or about the anniversary of such first payment. Each such installment shall be deemed made on a pro rata basis from each of the different deemed investments of the Deferral Account and Restricted Stock Account (if there are in fact more than one such deemed investment). The Participant’s Gain Share Account shall be paid only in the form of actual shares of Common Stock. If the Form of Payment from the Gain Share Account is installments, each such installment shall be substantially equal during the term of the installment period.

Section 9.02 Matching Contribution. Unless determined otherwise by the Compensation Committee, each Participant may receive a Matching Contribution to be determined by the Compensation Committee . Matching Contributions will be credited to the Participant’s Deferral Account as of the date Company matching contributions would be contributed to the Hughes Supply, Inc. Cash or Deferred Profit Sharing Plan and Trust. Notwithstanding the foregoing, prior to a Change in Control, if the Compensation Committee so determines, the amount of the

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Matching Contribution may vary from payroll period to payroll period throughout the Plan Year, may be based on a formula which takes into account compensation other than that which is set forth above, and otherwise may be subject to maximum or minimum limitations different than those set forth above. The Matching Contribution shall be invested among the same Hypothetical Investment Benchmarks as defined in 8.03 in the same proportion as the elections made by the participant governing the deferrals of the participant to which the Matching Contribution relates. Subject to Sections 9.01, 9.07. 9.08 and 9.09, the Matching Contribution shall be distributed to the participant according to the Form of Payment election made by the participant governing his/her deferrals and will vest according to the provisions governing matching contributions in the Hughes Supply, Inc. Cash or Deferred Profit Sharing Plan and Trust.

Section 9.03 Retirement. Subject to Sections 9.01, 9.07, 9.08 and 9.09 hereof, if a Participant has elected to have the balance of his/her Deferral Account, Restricted Stock Account or Gain Share Account distributed upon Retirement, the account balance of the Participant (determined as of the most recent Valuation Date preceding such Retirement) shall be distributed upon Retirement in the Form of Payment as elected in the Participant Agreement, Restricted Stock Deferral Agreement or Stock Option Gain Deferral Agreement, and in the form of cash or actual shares of Common Stock as provided in Section 9.01 above. In the event a Participant has elected an installment Form of Payment upon Retirement and dies prior to the receipt of all such installments, the Beneficiary shall have the right to request a lump sum distribution of the remaining installments, but such right shall be subject to the approval and consent of the Administrative Committee, in its discretion.

Section 9.04 In-Service Distributions. Subject to Sections 9.01, 9.07, 9.08 and 9.09 hereof, if a Participant has elected to defer Eligible Compensation under the Plan for a stated number of years, the account balance of the Participant (determined as of the most recent Valuation Date preceding such Deferral Period) shall be distributed in the Form of Payment as elected in the Participant Agreement, Restricted Stock Deferral Agreement or Stock Option Gain Deferral Agreement, and in the form of cash or actual shares of Common Stock as provided in Section 9.01 above. In the event a Participant has elected an installment Form of Payment for his/her in-service distribution and dies prior to the receipt of all such installments, the Beneficiary shall have the right to request a lump sum distribution of the remaining installments, but such right shall be subject to the approval and consent of the Administrative Committee, in its discretion.

Section 9.05 Reserved for Future Use.

Section 9.06 Reserved for Future Use.

Section 9.07 Other Than Retirement. Notwithstanding the provisions of Sections 9.03 and 9.04 hereof and any Participation Agreement, Restricted Stock Deferral Agreement, Stock Option Gain Deferral Agreement and/or other election form executed by the Participant, if prior to Retirement or commencement of an in-service distribution the Participant (i) dies, (ii) has a Termination of Employment, or (iii) suffers a Disability, the Company shall pay the remaining account balance (determined as of the most recent Valuation Date preceding such event) to the Participant or his/her Beneficiary or Beneficiaries (as the case may be) in a lump sum in cash only with respect to his/her Deferral Account and Restricted Stock Account and with respect to the Participant’s Gain Share Account, in the form of actual shares of Common Stock only.

Section 9.08 Hardship Withdrawals. Notwithstanding the provisions of Section 9.01 and any Participation Agreement, Restricted Stock Deferral Agreement, Stock Option Gain Deferral Agreement and/or other election form executed by the Participant, a Participant shall be entitled to an early, lump sum payment in cash (with respect to his/her Deferral Account and Restricted Stock Account) or in the form of actual shares of Common Stock only (with respect to the Participant’s Gain Share Account) of all or part of the balance in his/her Deferral Account, or Restricted Stock Account or Gain Share Account in the event of an Unforeseeable Emergency, in

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accordance with this Section 9.08. A distribution pursuant to this Section 9.08 may be made only to the extent reasonably needed to satisfy the Unforeseeable Emergency need, and may not be made if such need is or may be relieved (i) through reimbursement or compensation by insurance or otherwise, (ii) by liquidation of the Participant’s assets to the extent such liquidation would not itself cause severe financial hardship, or (iii) by cessation of participation in the Plan. An application for an early payment under this Section 9.08 shall be made to the Administrative Committee in accordance with such procedures as the Administrative Committee shall determine from time to time. The determination of whether, and in what amount, a distribution will be permitted pursuant to this Section 9.08 shall be made by the Administrative Committee, in its discretion.

Section 9.09 Early Withdrawal. Notwithstanding the provisions of Section 9.01 and any Participation Agreement, Restricted Stock Deferral Agreement, Stock Option Gain Deferral Agreement and/or other election form executed by the Participant, a Participant shall be entitled to elect to withdraw all or any part of the vested balance in the Participant’s Deferral Account, Restricted Stock Account and/or Gain Share Account in accordance with this Section 9.09 by filing with the Administrative Committee such forms, and in accordance with such procedures, as the Administrative Committee shall determine from time to time. As soon as practicable after receipt of such form by the Administrative Committee, the Company shall pay an amount equal to ninety percent of the balance in such Participant’s Deferral Account, Restricted Stock Account and/or Gain Share Account (determined as of the most recent Valuation Date preceding the date such election is filed) to the electing Participant in a lump sum in cash (with respect to his/her Deferral Account and Restricted Stock Account) or in the form of actual shares of Common Stock only (with respect to the Participant’s Gain Share Account), and the Participant shall forfeit the remainder of such Deferral Account, Restricted Stock Account and/or Gain Share Account. All Participation Agreements Restricted Stock Deferral Agreements, Stock Option Gain Deferral Agreements and/or other election forms previously filed by a Participant who elects to make a withdrawal under this Section 9.09 shall be null and void after such early withdrawal election is filed (including without limitation Participation Agreements with respect to Plan Years or performance periods that have not yet been completed), and such a Participant shall not thereafter be entitled to file any Participation Agreements under the Plan with respect to the first Plan Year that begins after such early withdrawal election is made.

Section 9.10 Change in Control. In the event of a Change in Control that is recommended for approval to the shareholders by the Board, no immediate special payment shall be made to any Participant and the terms and conditions of the Plan shall remain in full force and effect. Notwithstanding anything contained in this Plan to the contrary, upon a hostile Change in Control, the Company shall immediately pay to each Participant in a lump sum in cash or in Common Stock, with respect to payment of Restricted Stock Accounts and/or Gain Share Accounts and amounts invested in the Company Stock Fund, the balance in his/her Gain Share Accounts and Deferral Account(s) (determined as of the most recent Valuation Date preceding the Change in Control). Hostile Change in Control is defined as a Change in Control of the Company which is not recommended for approval to the shareholders by the Board or a change in control that results in a material reduction in a Participant’s compensation and/or duties.

Section 9.11 Payout Upon Taxable Event. In the event any Participant or his or her Beneficiary is determined to be subject to federal income tax on any amount to the credit of his or her account under the Plan prior to the time of payment under the Plan, a portion of such taxable amount equal to the federal, state and local taxes (excluding any interest or penalties) owed on such taxable amount, shall be distributed to the Participant or his or her Beneficiary, as the case may be, as soon thereafter as practicable. Any such distribution, whether directly from the Company or from a trust, shall reduce the Company’s liability to such Participant or Beneficiary under the Plan with such reductions to be made on a pro rata basis over the term of benefit payments under the Plan. In addition, Participants or Beneficiaries, as the case may be, shall be reimbursed for any interest or penalties in respect of such taxes upon receipt of documentation of same.

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Section 9.12 Withholding of Taxes. Notwithstanding any other provision of this Plan, the Company shall withhold from payments made hereunder any amounts required to be so withheld by any applicable law or regulation.

ARTICLE X

BENEFICIARY DESIGNATION

Section 10.01 Beneficiary Designation. Each Participant shall have the right, at any time, to designate any person, persons or entity as his Beneficiary or Beneficiaries. A Beneficiary designation shall be made, and may be amended, by the Participant by filing a written designation with the Administrative Committee, on such form and in accordance with such procedures as the Administrative Committee shall establish from time to time.

Section 10.02 No Beneficiary Designation. If a Participant fails to designate a Beneficiary as provided above, or if all designated Beneficiaries predecease the Participant, then the Participant’s Beneficiary shall be deemed to be the Participant’s estate.

ARTICLE XI

AMENDMENT AND TERMINATION OF PLAN

Section 11.01 Amendment. The Board or the Compensation Committee may at any time amend this Plan in whole or in part, provided, however, that no amendment shall be effective to decrease the balance in any Deferral Account, Gain Share Account, or Restricted Stock Account as accrued at the time of such amendment, nor shall any amendment otherwise have a retroactive effect.

Section 11.02 Company’s Right to Terminate. The Board or the Compensation Committee may at any time terminate the Plan with respect to future Participation Agreements. The Board or the Compensation Committee may also terminate the Plan in its entirety at any time for any reason, including without limitation if, in its judgment, the continuance of the Plan, the tax, accounting, or other effects thereof, or potential payments thereunder would not be in the best interests of the Company, and upon any such termination, the Company shall immediately pay to each Participant in a lump sum the accrued balance in his Deferral Account, Restricted Stock Account, and/or Gain Share Account (determined as of the most recent Valuation Date preceding the termination date).

ARTICLE XII

MISCELLANEOUS

Section 12.01 Unfunded Plan. This Plan is intended to be an unfunded plan maintained primarily for the purpose of providing deferred compensation for a select group of management or highly compensated employees, within the meaning of Sections 201, 301 and 401 of ERISA. All payments pursuant to the Plan shall be made from the general funds of the Company and no special or separate fund shall be established or other segregation of assets made to assure payment. No Participant or other person shall have under any circumstances any interest in any particular property or assets of the Company as a result of participating in the Plan. Notwithstanding the foregoing, the Company may (but shall not be obligated to) create one or more grantor trusts, the assets of which are subject to the claims of the Company’s creditors, to assist it in accumulating funds to pay its obligations under the Plan.

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Section 12.02 Nonassignability. Except as specifically set forth in the Plan with respect to the designation of Beneficiaries, neither a Participant nor any other person shall have any right to commute, sell, assign, transfer, pledge, anticipate, mortgage or otherwise encumber, transfer, hypothecate or convey in advance of actual receipt the amounts, if any, payable hereunder, or any part thereof, which are, and all rights to which are, expressly declared to be unassignable and non-transferable. No part of the amounts payable shall, prior to actual payment, be subject to seizure or sequestration for the payment of any debts, judgments, alimony or separate maintenance owed by a Participant or any other person, nor be transferable by operation of law in the event of a Participant’s or any other person’s bankruptcy or insolvency.

Section 12.03 Validity and Severability. The invalidity or unenforceability of any provision of this Plan shall not affect the validity or enforceability of any other provision of this Plan, which shall remain in full force and effect, and any prohibition or unenforceability in any jurisdiction shall not invalidate or render unenforceable such provision in any other jurisdiction.

Section 12.04 Governing Law. The validity, interpretation, construction and performance of this Plan shall in all respects be governed by the laws of the State of Florida, without reference to principles of conflict of law, except to the extent preempted by federal law.

Section 12.05 Employment Status. This Plan does not constitute a contract of employment or impose on the Participant or the Company any obligation for the Participant to remain an employee of the Company or change the status of the Participant’s employment or the policies of the Company and its affiliates regarding termination of employment. Section 12.06 Underlying Incentive Plans and Programs. Nothing in this Plan shall prevent the Company from modifying, amending or terminating its compensation or incentive plans and programs.

Section 12.07 Successors. Hughes Supply, Inc. shall require any successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of its business or assets to expressly assume and agree to perform under this Plan in the same manner and to the same extent that it would be required to perform if no such succession had taken place. As used in this Plan, the term “Hughes Supply, Inc.” shall mean any successor that expressly assumes and agrees to perform this Plan or which otherwise becomes bound by all the terms and provisions of this Plan by operation of law; provided, however, that nothing contained in this Section 12.07 shall be interpreted to negate the occurrence of a Change in Control.

Effective as of March 1, 2002 Hughes Supply, Inc.

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APPENDIX A

MONY Money Market

PIMCO Total Return Instl

PIMCO Real Return Bond A

MFS Total Return A

Dreyfus Appreciation

Dreyfus S&P 500 Index

T. Rowe Price Equity-Inc

Enterprise Growth A

Fidelity Growth Company

Enterprise High-Yield Bond A

Lord Abbett Mid-Cap Value A

Alger MidCap Growth A

Janus Aspen Intl Growth Instl

Enterprise Small Co Value A

Dreyfus Small Cap Stock Index

MFS New Discovery A

16

EX-10.27

Exhibit 10.27

1. PURCHASE AND SALE: Hughes Supply, Inc. (“Buyer”) agrees to buy and Hughes, Inc. (“Seller”) agrees to sell the property described as: Street Address: 951 Pierce Street, Clearwater, Florida

Legal Description: See Exhibit “A”

and the following Personal Property: None

(all collectively referred to as the “Property”) on the terms and conditions set forth below. The “Effective Date” of this Contract is the date on which the last of the Parties signs the latest offer. Time is of the essence in this Contract. Time periods of 5 days or less will be computed without including Saturday, Sunday, or national legal holidays and any time period ending on a Saturday, Sunday or national legal holiday will be extended until 5:00 p.m. of the next business day.

2. PURCHASE PRICE:	$	1,650,000.00
(a) Deposit held in escrow by Thomas Recicar Attorney	$	50,000.00
(b) Additional deposit to be made within NA days from Effective Date	$
(c) Total mortgages (as referenced in Paragraph 3)	$
(d) Other: NA	$
(e) Balance to close, subject to adjustments and prorations, to be made with cash, locally drawn certified or cashier’s check or wire transfer.	$	1,600,000.00

3. THIRD PARTY FINANCING: Within NA days from Effective Date (“Application Period”), Buyer will, at Buyer’s expense, apply for third party financing in the amount of $                      or NA % of the purchase price to be amortized over a period of          years and due in no less than          years and with a fixed interest rate not to exceed ¨         % per year or variable interest rate not to exceed ¨        % at origination with a lifetime cap not to exceed         % from initial rate, with additional terms as follows:

Buyer will pay for the mortgagee title insurance policy and for all loan expenses. Buyer will timely provide any and all credit, employment, financial and other information reasonably required by any lender Buyer will notify Seller immediately upon obtaining financing or being rejected by a lender. If Buyer, after diligent effort, fails to obtain a written commitment within      days from Effective Date (“Financing Period”), Buyer may cancel the Contract by giving prompt notice to Seller and Buyer’s deposit(s) will be returned to Buyer in accordance with Paragraph 9.

Buyer (        ) (        ) and Seller (        ) (        ) acknowledge receipt of a copy of this page, which is page 1 of 5 Pages,

CC-2         ^©1997 Florida Association of REALTORS^®         All Rights Reserved

4. TITLE: Seller has the legal capacity to and will convey marketable title to the Property by ¨ statutory warranty deed x other Special Warranty Deed, free of liens, easements and encumbrances of record or known to Seller, but subject to property taxes for the year of closing; covenants, restrictions and public utility easements of record; and (list any other matters to which title will be subject) See Addendum

provided there exists at closing no violation of the foregoing and none of them prevents Buyer’s intended use of the Property as presently being used by the Buyer

(a) Evidence of Title: Seller will, at (check one) x Seller’s ¨ Buyer’s expense and within 45 days x from Effective Date

¨ prior to Closing Date ¨ from date Buyer meets or waives financing contingency in Paragraph 3, deliver to Buyer (check one)

x a title insurance commitment by a Florida licensed title insurer and, upon Buyer recording the deed, an owner’s policy in the amount of the purchase price for fee simple title subject only to exceptions stated above.

¨ an abstract of title, prepared or brought current by an existing abstract firm or certified as correct by an existing firm. However, if such an abstract is not available to Seller, then a prior owner’s title policy acceptable to the proposed insurer as a base for reissuance of coverage. The prior policy will include copies of all policy exceptions and an update in a format acceptable to Buyer from the policy effective date and certified to Buyer or Buyer’s closing agent together with copies of all documents recited in the prior policy and in the update

(b) Title Examination: Buyer will, within 15 days from receipt of the evidence of title deliver written notice to Seller of title defects. Title will be deemed acceptable to Buyer if (1) Buyer fails to deliver proper notice of defects or (2) Buyer delivers proper written notice and Seller cures the defects within 10 days from receipt of the notice (“Curative Period”). If the defects are cured within the Curative Period, closing will occur within 10 days from receipt by Buyer of notice of such curing. Seller may elect not to cure defects if Seller reasonably believes any defect cannot be cured within the Curative Period. If the defects are not cured within the Curative Period, Buyer will have 10 days from receipt of notice of Seller’s inability to cure the defects to elect whether to terminate this Contract or accept title subject to existing defects and close the transaction without reduction in purchase price. The party who pays for the evidence of title will also pay related title service fees including title and abstract charges and title examination.

(c) Survey: (check applicable provisions below)

x Seller will, within 10 days from Effective Date, deliver to Buyer copies of prior surveys, plans, specifications, and engineering documents, if any, and the following documents relevant to this transaction:

                                                             , prepared for Seller or in Seller’s possession, which show all currently existing structures.

x Buyer will, at ¨ Seller’s ¨ Buyer’s expense and within the time period allowed to deliver and examine title evidence, obtain a current certified survey of the Property from a registered surveyor. If the survey reveals encroachments on the Property or that the improvements encroach on the lands of another, ¨ Buyer will accept the Property with existing encroachments x such encroachments will constitute a title defect to be cured within the Curative Period.

(d) Ingress and Egress: Seller warrants that the Property presently has ingress and egress.

(e) Possession: Seller will deliver possession and keys for all locks and alarms to Buyer at closing.

5. CLOSING DATE AND PROCEDURE: This transaction will be closed in Orange County, Florida on or before the                     ,      or within 75 days from Effective Date (“Closing Date”), unless otherwise extended herein. x Seller ¨ Buyer will designate the closing agent. Buyer and Seller will, within 45 days from Effective Date, deliver to Escrow Agent signed instructions which provide for closing procedure. If an institutional lender is providing purchase funds, lender requirements as to place, time of day, and closing procedures will control over any contrary provisions in this Contract.

(a) Costs: Buyer will pay taxes and recording fees on notes, mortgages and financing statements and recording fees for the deed. Seller will pay taxes on the deed and recording fees for documents needed to cure title defects. If Seller is obligated to discharge any encumbrance at or prior to closing and fails to do so, Buyer may use purchase proceeds to satisfy the encumbrances.

(b) Documents: Seller will provide the deed, bill of sale, mechanic’s lien affidavit, assignments of leases, updated rent roll, tenant and lender estoppel letters, assignments of permits and licenses, corrective instruments and letters notifying tenants of the change in ownership/rental agent. If any tenant refuses to execute an estoppel letter, Seller will certify that information regarding the tenant’s lease is correct. If Seller is a corporation, Seller will deliver a resolution of its Board of Directors authorizing the sale and delivery of the deed and certification by the corporate Secretary certifying the resolution and setting forth facts showing the conveyance conforms with the requirements of local law. Seller will transfer security deposits to Buyer. Buyer will provide the closing statement, mortgages and notes, security agreements and financing statements.

This software is licensed to [Quentin Caruso - Realty Capital Advisors. Inc.] www.instanetforms.com.

Buyer (        ) (        ) and Seller (        ) (        ) acknowledge receipt of a copy of this page, which is page 2 of 5 Pages.

(c) Taxes, Assessments, and Prorations: The following items will be made current and prorated x as of Closing Date ¨ as of __________________________: real estate taxes, bond and assessment payments assumed by Buyer, interest, rents, association dues, insurance premiums acceptable to Buyer, operational expenses and _________________________. If the amount of taxes and assessments for the current year cannot be ascertained, rates for the previous year will be used with due allowance being made for improvements and exemptions. Seller is aware of the following assessments affecting or potentially affecting the Property: ___________________________________________________________________________. Buyer will be responsible for all assessments of any kind which become due and owing on or after Effective Date, unless the improvement is substantially completed as of Closing Date, in which case Seller will be obligated to pay the entire assessment.

(d) FIRPTA Tax Withholding: The Foreign Investment in Real Property Act (“FIRPTA”) requires Buyer to withhold at closing a portion of the purchase proceeds for remission to the Internal Revenue Service (“I.R.S.”) if Seller is a “foreign person” as defined by the Internal Revenue Code. The parties agree to comply with the provisions of FIRPTA and to provide, at or prior to closing, appropriate documentation to establish any applicable exemption from the withholding requirement. If withholding is required and Buyer does not have cash sufficient at dosing to meet the withholding requirement, Seller will provide the necessary funds and Buyer will provide proof to Seller that such funds were properly remitted to the I.R.S

6. ESCROW: Buyer and Seller authorize Thomas Recicar Attorney Telephone: 407-788-0250 Facsimile: 407-788-7244 Address: 986 Douglas Avenue, Altamonte Springs, Florida, 32714 to act as “Escrow Agent” to receive funds and other items and, subject to clearance, disburse them in accordance with the terms of this Contract. Escrow Agent will deposit all funds received in x a non-interest bearing escrow account ¨ an interest bearing escrow account with interest accruing to ______________________________ with interest disbursed (check one) ¨ at closing ¨ at ________________________ intervals. If Escrow Agent receives conflicting demands or has a good faith doubt as to Escrow Agent’s duties or liabilities under this Contract, he/she may (a) hold the subject matter of the escrow until the parties mutually agree to its disbursement or until issuance of a court order or decision of arbitrator determining the parties’ rights regarding the escrow or (b) deposit the subject matter of the escrow with the clerk of the circuit court having jurisdiction over the dispute. Upon notifying the parties of such action, Escrow Agent will be released from all liability except for the duty to account for items previously delivered out of escrow. If a licensed real estate broker, Escrow Agent will comply with applicable provisions of Chapter 475, Florida Statutes. In any suit or arbitration in which Escrow Agent is made a party because of acting as agent hereunder or interpleads the subject matter of the escrow, Escrow Agent will recover reasonable attorneys’ fees and costs at all levels, with such fees and costs to be paid from the escrowed funds or equivalent and charged and awarded as court or other costs in favor of the prevailing party. The parties agree that Escrow Agent will not be liable to any person for misdelivery to Buyer or Seller of escrowed items, unless the misdelivery is due to Escrow Agent’s willful breach of this Contract or gross negligence.

7. PROPERTY CONDITION: Seller will deliver the Property to Buyer at the time agreed in its present “as is” condition, ordinary wear and tear excepted, and will maintain the landscaping and grounds in a comparable condition. Seller makes no warranties other than marketability of title. By accepting the Property “as is,” Buyer waives all claims against Seller for any defects in the property. (Check (a) or (b))

¨ (a) As Is: Buyer has inspected the Property or waives any right to inspect and accepts the Property in its “as is” condition.

x (b) Due Diligence Period: Buyer will, at Buyer’s expense and within 45 days from Effective Date (“Due Diligence Period”), determine whether the Property is suitable, in Buyer’s sole and absolute discretion, for Buyer’s intended use and development of the Property as specified in Paragraph 4. During the Due Diligence Period, Buyer may conduct any tests, analyses, surveys and investigations (“Inspections”) which Buyer deems necessary to determine to Buyer’s satisfaction the Property’s engineering, architectural, environmental properties; zoning and zoning restrictions; flood zone designation and restrictions; subdivision regulations; soil and grade; availability of access to public roads, water, and other utilities; consistency with local, state and regional growth management and comprehensive land use plans; availability of permits, government approvals and licenses; compliance with American with Disabilities Act; absence of asbestos, soil and ground water contamination; and other inspections that Buyer deems appropriate to determine the suitability of the Property for Buyer’s intended use and development. Buyer shall deliver written notice to Seller prior to the expiration of the Due Diligence Period of Buyer’s determination of whether or not the Property is acceptable. Buyer’s failure to comply with this notice requirement shall constitute acceptance of the Property in its present “as is” condition. Seller grants to Buyer, its agents, contractors and assigns, the right to enter the Property at any time during the Due Diligence Period for the purpose of conducting inspections; provided, however, that Buyer, its agents, contractors and assigns enter the Property and conduct Inspections at their own risk. Buyer shall indemnify and hold Seller harmless from losses, damages, costs, claims and expenses of any nature, including attorneys’ fees at all levels, and from liability to any person, arising from the conduct of any and all inspections or any work authorized by Buyer. Buyer will not engage in any activity that could result in a mechanic’s lien being filed against the Property without Seller’s prior written consent. In the event this transaction does not close, (1) Buyer shall repair all damages to the Property resulting from the Inspections and return the Property to the condition it was in prior to conduct of the Inspections, and (2) Buyer shall, at Buyer’s expense, release to Seller all reports and other work generated as a result of the Inspections. Should Buyer deliver timely notice that the Property is not acceptable, Seller agrees that Buyer’s deposit shall be immediately returned to Buyer and the Contract terminated.

Buyer (        ) (        ) and Seller (        ) (        ) acknowledge receipt of a copy of this page, which is page 3 of 5 Pages.

(c) Walk-through Inspection: Buyer may, on the day prior to closing or any other time mutually agreeable to the parties, conduct a final “walk-through” inspection of the Property to determine compliance with this paragraph and to ensure that all Property is on the premises

(d) Disclosures:

1. Radon Gas: Radon is a naturally occurring radioactive gas that, when it has accumulated in a building in sufficient quantities, may present health risks to persons who are exposed to it over time. Levels of radon that exceed federal and state guidelines have been found in buildings in Florida. Additional information regarding radon and radon testing may be obtained from your county public health unit.

2. Energy Efficiency: Buyer may have determined the energy efficiency rating of the building, if any is located on the Real Property.

8. OPERATION OF PROPERTY DURING CONTRACT PERIOD: Seller will continue to operate the Property and any business conducted on the Property in the manner operated prior to Contract and will take no action that would adversely impact the Property, tenants, lenders or business, if any. Any changes, such as renting vacant space, that materially affect the Property or Buyer’s intended use of the Property will be permitted x only with Buyer’s consent ¨ without Buyer’s consent.

9. RETURN OF DEPOSIT: Unless otherwise specified in the Contract, in the event any condition of this Contract is not met and Buyer has timely given any required notice regarding the condition having not been met, Buyer’s deposit will be returned in accordance with applicable Florida laws and regulations

10. DEFAULT:

(a) In the event the sale is not closed due to any default or failure on the part of Seller other than failure to make the title marketable after diligent effort, Buyer may either (1) receive a refund of Buyer’s deposit(s) or (2) seek specific performance. If Buyer elects a deposit refund, Seller will be liable to Broker for the full amount of the brokerage fee.

(b) In the event the sale is not closed due to any default or failure on the part of Buyer, Seller may either (1) retain all deposit(s) paid or agreed to be paid by Buyer as agreed upon liquidated damages, consideration for the execution of this Contract, and in full settlement of any claims, upon which this Contract will terminate or (2) seek specific performance, If Seller retains the deposit, Seller will pay the Listing and Cooperating Brokers named in Paragraph 12 fifty percent of all forfeited deposits retained by Seller (to be split equally among the Brokers) up to the full amount of the brokerage fee.

11. ATTORNEY’S FEES AND COSTS: In any claim or controversy arising out of or relating to this Contract, the prevailing party, which for purposes of this provision will include Buyer, Seller and Broker, will be awarded reasonable attorneys’ fees, costs and expenses.

12. BROKERS: Neither Buyer nor Seller has utilized the services of, or for any other reason owes compensation to, a licensed real estate Broker other than:

(a) Listing Broker: Realty Capital Advisors, Inc., Austin Caruso, Jr. & Ouentin Caruso, who is x an agent of Hughes, Inc. ¨ a transaction broker ¨ a nonrepresentative and who will be compensated by x Seller ¨ Buyer ¨ both parties pursuant to ¨ a listing agreement ¨ other (specify)

(b) Cooperating Broker: NA, who is ¨ an agent of ______________________________ ¨ a transaction broker ¨ a nonrepresentative and who will be compensated by ¨ Buyer ¨ Seller ¨ both parties pursuant to ¨ an MLS or other offer of compensation to a cooperating broker ¨ other (specify)

(collectively referred to as “Broker”) in connection with any act relating to the Property, including but not limited to inquiries, introductions, consultations and negotiations resulting in this transaction. Seller and Buyer agree to Indemnify and hold Broker harmless from and against losses, damages, costs and expenses of any kind, including reasonable attorneys’ fees at all levels, and from liability to any person, arising from (1) compensation claimed which is inconsistent with the representation in this Paragraph, (2) enforcement action to collect a brokerage fee pursuant to Paragraph 10, (3) any duty accepted by Broker at the request of Buyer or Seller, which duty is beyond the scope of services regulated by Chapter 475, F.S., as amended, or (4) recommendations of or services provided and expenses incurred by any third party whom Broker refers, recommends or retains for or on behalf of Buyer or Seller.

13. ASSIGNABILITY; PERSONS BOUND: This Contract may be assigned to a related entity, and otherwise x is not assignable ¨ is assignable. The terms “Buyer,” “Seller” and “Broker” may be singular or plural. This Contract is binding upon Buyer, Seller and their heirs, personal representatives, successors and assigns (if assignment is permitted).

Buyer (        ) (        ) and Seller (        ) (        ) acknowledge receipt of a copy of this page, which is page 4 of 5 Pages.

14. OPTIONAL CLAUSES: (Check if any of the following clauses are applicable and are attached as an addendum to this Contract):

¨	Arbitration	¨	Seller Warranty	¨	Existing Mortgage
x	Section 1031 Exchange	¨	Coastal Construction Control Line	x	Other	Addendum to Contract
¨	Property Inspection and Repair	¨	Flood Area Hazard Zone	x	Other	Exhibits A, B & C
¨	Seller Representations	¨	Seller Financing	¨	Other

15. MISCELLANEOUS: The terms of this Contract constitute the entire agreement between Buyer and Seller. Modifications of this Contract will not be binding unless in writing, signed and delivered by the party to be bound Signatures, initials, documents referenced in this Contract, counterparts and written modifications communicated electronically or on paper will be acceptable for all purposes, including delivery, and will be binding. Handwritten or typewritten terms inserted in or attached to this Contract prevail over preprinted terms. If any provision of this Contract is or becomes invalid or unenforceable, all remaining provisions will continue to be fully effective. This Contract will be construed under Florida law and will not be recorded in any public records. Delivery of any written notice to any party’s agent will be deemed delivery to that party.

THIS IS INTENDED TO BE A LEGALLY BINDING CONTRACT. IF NOT FULLY UNDERSTOOD, SEEK THE ADVICE OF AN ATTORNEY PRIOR TO SIGNING. BROKER ADVISES BUYER AND SELLER TO VERIFY ALL FACTS AND REPRESENTATIONS THAT ARE IMPORTANT TO THEM AND TO CONSULT AN APPROPRIATE PROFESSIONAL FOR LEGAL ADVICE (FOR EXAMPLE, INTERPRETING CONTRACTS, DETERMINING THE EFFECT OF LAWS ON THE PROPERTY AND TRANSACTION, STATUS OF TITLE, FOREIGN INVESTOR REPORTING REQUIREMENTS, ETC.) AND FOR TAX, PROPERTY CONDITION, ENVIRONMENTAL AND OTHER SPECIALIZED ADVICE. BUYER ACKNOWLEDGES THAT BROKER DOES NOT OCCUPY THE PROPERTY AND THAT ALL REPRESENTATIONS (ORAL, WRITTEN OR OTHERWISE) BY BROKER ARE BASED ON SELLER REPRESENTATIONS OR PUBLIC RECORDS UNLESS BROKER INDICATES PERSONAL VERIFICATION OF THE REPRESENTATION. BUYER AGREES TO RELY SOLELY ON SELLER, PROFESSIONAL INSPECTORS AND GOVERNMENTAL AGENCIES FOR VERIFICATION OF THE PROPERTY CONDITION, SQUARE FOOTAGE AND FACTS THAT MATERIALLY AFFECT PROPERTY VALUE.

DEPOSIT RECEIPT: Deposit of $50,000.00 by ¨                          check ¨ other                                                   received on                                  ,                          by                                                                                                                                            

Signature of Escrow Agent

OFFER: Buyer offers to purchase the Property on the above terms and conditions. Unless acceptance is signed by Seller and a signed copy delivered to Buyer or Buyer’s agent no later than 5:00 ¨ a.m. x p.m. on October 15th, 2004, Buyer may revoke this offer and receive a refund of all deposits.

Date:	10-7-04	BUYER:	/s/ John Z. Paré	Tax ID No:	59-0559446
			Hughes Supply, Inc.

     Title: Sr. Vice President Telephone:     407-841-4755 Facsimile: 407-872-6941

        Address: One Hughes Way, Orlando, Florida, 32805

Date: BUYER: Tax ID No:

         Title: Telephone: Facsimile:

            Address:

ACCEPTANCE: Seller accepts Buyer’s offer and agrees to sell the Property on the above terms and conditions (¨ subject to the attached counter offer).

Date:	10-12-04	SELLER:	/s/ Vincent S. Hughes	Tax ID No:	59-6062958
			Vincent S. Hughes - Hughes, Inc.

   Title: Telephone: 407-648-8587 Facsimile: 407-648-0170

    Address: P. O. Box 568065, Orlando, Florida 32856-8065

Date: SELLER: Tax ID No:

   Title: Telephone: Facsimile:

    Address:

Buyer (         ) (        ) and Seller (         ) (         ) acknowledge receipt of a copy of this page, which is page 5 of 5 Pages.

The Florida Association of REALTORS makes no representation as to the legal validity or adequacy of any provision of this form in any specific transaction. This standardized form should not be used In complex transactions or with extensive riders or additions. This form is available for use by the entire real estate Industry and is not intended to identify the user as a REALTOR. REALTOR is a registered collective membership mark which may be used only by real estate licensees who are members of the NATIONAL ASSOCIATION OF REALTORS and who subscribe to its Code of Ethics.

The copyright laws of the United States (17 U.S.Code) forbid the unauthorized reproduction of this form by any means including facsimile or computerized forms.

CC-2 ^©1997 Florida Association of REALTORS^®             All Rights Reserved

ADDENDUM TO CONTRACT FOR SALE AND PURCHASE

THIS ADDENDUM TO CONTRACT FOR SALE AND PURCHASE is made by and between HUGHES, INC., a Florida corporation (“Seller”) and HUGHES SUPPLY, INC. a Florida corporation (“Buyer”), and forms a part of that certain “Commercial Contract” of even date herewith between Seller and Buyer as if originally incorporated therein.

1. That attached hereto and made a part hereof is a copy of the Survey prepared by Thompson and Associates Land Surveyors under Job No. 003-314 dated December 2, 2003, hereinafter referred to (“Survey”). Attached also is a list of exceptions to title attached as Exhibit “B”, together with copies of those exceptions attached as composite Exhibit “C” and made a part hereof hereinafter referred to as (“Permitted Exceptions”). Seller has disclosed to the Buyer that the South half of Lot 25 of the Property described in Exhibit “A” attached was acquired by Seller from the spouse and children of Amos Honor Miller who died on December 3,1981, Sellers also have paid all Real Estate Taxes on said parcel since 1981.

Seller shall cause the Title Commitment to be issued within the forty-five (45) day period as provided in paragraph 4a of the Contract. In the event that any additional matters appear other than the Permitted Exceptions then the same shall be treated as title defects and cleared by the Seller if created by them subsequent to the date hereof, or if not cured by the Seller within ten (10) days of notification of such title defects Buyer shall have the alternative of either terminating the Contract and receiving a return of all deposits paid hereunder, or waiving said title defects and proceeding to Closing with those additional exceptions.

2. Buyer is purchasing this property in “as is” condition and acknowledges and agrees that the Buyer has been the Tenant for many years and the Lease currently in effect between the Seller and the Buyer as Landlord and Tenant respectively shall terminate as of the day of Closing if in fact this Commercial Contract closes. In the event for any reason this Commercial Contract does not close the Lease shall remain in full force and effect.

3. All other terms of the Commercial Contract to which this Addendum is attached shall remain in full force and effect and in the event of a conflict between the terms of the Commercial Contract and this Addendum, the Addendum shall control.

IN WITNESS “WHEREOF, the parties hereto have executed this Addendum to Contract for Sale and Purchase as of the day and year indicated next to their signature.

Signed, sealed and delivered in the presence of:

		“SELLER”
		HUGHES, INC., a Florida corporation
Dated:	10/12/04	By:	/s/ Vincent S. Hughes
		Title:	President

	“BUYER”
	HUGHES SUPPLY, INC., a Florida corporation
Dated:	By:	/s/ John Z. Paré
	Title:	Sr. Vice President

EX-10.28

Exhibit 10.28

SEVERANCE AGREEMENT

THIS SEVERANCE AGREEMENT (as hereinafter defined, this “Agreement”) is made and entered into as of the      day of             , 20    , by and between                      (as hereinafter defined, the “Executive”) and HUGHES SUPPLY, INC., a Florida corporation (as hereinafter defined, the “Company”).

W I T N E S S E T H:

WHEREAS, the Company considers it essential to the best interests of its stockholders, employees, and creditors to foster the continued employment of key management personnel;

WHEREAS, the Executive is currently in the position of                                  of the Company, and performs for the Company such duties as customarily are assigned to key executives; and

WHEREAS, the Board has determined that appropriate steps should be taken to encourage the retention of key members of the Company’s management, including the Executive.

NOW, THEREFORE, in consideration of the promises and obligations of the Company and the Executive under this Agreement, and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Company and the Executive hereby agree as follows:

1. Definitions. In addition to the terms defined elsewhere in this Agreement, for purposes of this Agreement the following capitalized terms shall have the respective meanings as follows:

“Agreement” shall mean this Severance Agreement, together with all written amendments hereto that hereafter may be executed and delivered by the parties.

“Base Amount” shall mean the Executive’s annualized includible compensation for income tax purposes for the Base Period, all determined pursuant to the rules prescribed in Section 280G of the Code.

“Base Period” shall mean the period consisting of the most recent five (5) taxable years ending before the date on which the Change of Control actually occurs (or such portion of such five-year period during which the Executive shall have been employed by the Company), all determined pursuant to the rules prescribed in Section 280G of the Code.

“Board” shall mean the Board of Directors of the Company.

“Cause” for termination by the Company of the Executive’s employment shall mean:

(a) the death or the Disability of the Executive;

(b) that the Executive has engaged in acts or omissions with respect to the Company that constitute intentional misconduct or a knowing violation of law that materially and adversely affects the Company or the business of the Company;

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

(d) that the Executive has either intentionally or through gross negligence breached his covenants to the Company relating to Confidential and Proprietary Information as set forth in Section 4 of this Agreement;

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

(f) that the Executive has been grossly negligent in the performance of his duties to the Company;

provided, however, that “Cause” shall not exist unless and until (1) the Company provides the Executive with at least ten (10) days prior written notice of its intention to terminate his employment for Cause, and a written statement describing the nature of the Cause, including the clause or clauses of this definition that the Company deems applicable, and (2) if the item constituting the Company’s “Cause” for termination of the Executive is clause (f) above, thirty (30) days to cure any acts or omissions on which the finding of Cause is based. If the Executive cures, in accordance with the terms of the written notice, the acts or omissions on which the finding of Cause is based, the Company shall not have Cause to terminate the Executive’s employment hereunder.

“Change of Control” shall mean an event or series of events by which:

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

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

(c) during any period of twenty-four (24) consecutive months, individuals who at the beginning of such period constituted the Board of Directors (together with any new or replacement directors whose election by the Board of Directors, or whose nomination for election by the Company’s shareholders, was approved by a vote of at least a majority of the directors then still in office who were either directors at the beginning of such period or whose election or nomination for election was previously so approved) cease for any reason to constitute a majority of the directors then in office;

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

(e) the consolidation or merger of the Company with any other entity (other than a wholly-owned subsidiary of the Company) shall occur, unless after such transaction (1) the Company’s books, records, and accounting records are maintained as if the Company had remained a separate entity, and (2) there is no commingling of any other entity’s assets or employees with those of the Company.

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“Change of Control Date” shall mean the earlier of (a) the date when a Change of Control occurs, and (b) the date when the possibility of a particular Change of Control is announced to the public if such Change of Control in fact occurs within one hundred eighty (180) days thereafter.

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

“Company” shall mean Hughes Supply, Inc., a Florida corporation, together with any person succeeding to the Company or the assets of the Company, whether by virtue of a Change of Control or otherwise.

“Compensation” shall mean all wages, salary, commissions and bonuses paid to the Executive by the Company including (a) all bonuses (including all accrued but unpaid bonuses), (b) all taxable fringe benefits, taxable reimbursements and taxable expense allowances, including automobile allowances, (c) compensation deferred by the Employee into the Company’s tax qualified retirement plan (i.e., 401(k) plan) and/or cafeteria plan, and (d) compensation deferred by the Employee out of his regular salary or bonus to a non-qualified plan of deferred compensation.

“Confidential or Proprietary Information” shall have the meaning set forth in Section 4 of this Agreement.

“Date of Termination” shall mean, with respect to any purported termination of the Executive’s employment during the Term:

(a) If the Executive’s employment is terminated for Disability, thirty (30) days after Notice of Termination is given (provided that the Executive shall not have returned to the full-time performance of the Executive’s duties during such thirty (30) day period);

(b) If the Executive’s employment is terminated by the Company for any other reason, the date specified in the Notice of Termination which shall not be less than thirty (30) days, except in the case of a termination for Cause which may be immediate; and

(c) If the Executive’s employment is terminated by the Executive, not less than thirty (30) days nor more than sixty (60) days, respectively, from the date such Notice of Termination is given.

“Disability” shall be deemed the reason for the termination by the Company of the Executive’s employment, if, as a result of the Executive’s incapacity due to physical or mental illness, the Executive shall have been absent from the full-time performance of the Executive’s duties with the Company for a period of four (4) consecutive months, the Company shall have given the Executive a Notice of Termination for Disability, and, within thirty (30) days after such Notice of Termination is given, the Executive shall not have returned to the full-time performance of the Executive’s duties.

“Good Reason” for termination by the Executive of the Executive’s employment shall mean the occurrence of one or more of the following events subsequent to the occurrence of a Change of Control:

(a) any reduction by the Company of the Executive’s Compensation;

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

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

(d) any requirement that the Executive relocate (other than on a sporadic or intermittent basis) to adequately perform his duties and responsibilities for the Company to a location other than the geographic location where the Executive has historically performed such duties and responsibilities, or any requirement that the Executive perform more of his duties (other than on a sporadic or intermittent basis) from a geographic location that is different from the location where he performed most of his duties prior to the Change of Control (whether caused by a change in the Company’s principal place of business or otherwise).

“Notice of Termination” shall mean a notice that shall indicate the specific termination provision in this Agreement relied upon and shall set forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of the Executive’s employment under the provision so indicated.

“Severance Payment” shall have the meaning set forth in Section 5 of this Agreement.

“Term” shall have the meaning set forth in Section 2 hereof.

“Without Cause” shall mean a termination by the Company of the Executive’s employment for no reason or for any reason other than for Cause.

2. Term of Agreement. The term of this Agreement (“Term”) shall commence on the date and year first written above and shall continue in effect for two years; provided, however, that if any Change of Control Date shall occur during such two-year period, then the Term shall be deemed extended until the later of (a) sixty (60) days following the date that is twenty-four (24) months after the Change of Control Date, or (b) the date when all sums, if any, payable by the Company under this Agreement shall have been paid.

3. Company’s Covenants. In order to induce the Executive to remain in the employ of the Company and in consideration of the Executive’s covenants set forth in Section 4 hereof, the Company agrees to pay the Executive, but only under the conditions described herein, the Severance Payment and/or any other payments required of the Company hereunder. This Agreement shall not be construed as creating an express or implied contract of employment, and except as expressly set forth in some other written agreement between the Executive and the Company, the Executive shall not have any right to be retained in the employ of the Company. Nothing herein shall be deemed to require the Severance Payment of the Company if the Company terminates the Executive, either with Cause or Without Cause, at any time prior to the Change of Control Date.

4. Executive’s Covenants.

(a) Subject to the terms and conditions of this Agreement, the Executive shall remain in the employ of the Company until the earliest of (1) the date of termination by the Executive of the Executive’s employment for Good Reason or by reason of death, Disability or retirement, or (2) the termination by the Company of the Executive’s employment for any reason.

(b) The Executive hereby covenants and agrees that he will not, either during the Term or at any time thereafter, disclose to any person not employed by the Company any Confidential or Proprietary Information of the Company. As used herein, “Confidential or Proprietary Information” shall include all information of any nature and in any form which is owned by the Company and which is not publicly available or generally known to persons engaged in businesses similar to those of the Company. Confidential or

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Proprietary Information shall include, without limitation, the Company’s development projects; computer software and related documentation and materials; designs, practices, processes, methods, know-how and other facts relating to the Company’s business or to the Company’s sales, advertising, promotions, financial matters, customers, customer lists or customers’ purchases of goods or services from the Company; and all other secrets and other information of a confidential or proprietary nature.

5. Severance Payment.

(a) If at any time that is both (x) during the Term of this Agreement, and (y) within twenty-four (24) months following any Change of Control Date, the Executive’s employment is terminated by the Company Without Cause or by the Executive for Good Reason, then the Company shall pay the Executive a lump sum severance payment (the “Severance Payment”), in cash, equal to the lesser of:

(1) the product of three (3) times the average annual Compensation paid to the Executive during the three (3) year period prior to the Date of Termination or, if higher, in effect immediately prior to the first occurrence of an event or circumstance constituting Good Reason; or

(2) an amount equal to one dollar ($1.00) less than the product of three (3) times the Base Amount.

It is the intention of the foregoing provision and the express agreement of the parties that in every case the amount of the Severance Payment actually payable to the Executive shall be at least one dollar ($1.00) less than the amount that would result in either (A) the Company’s not receiving a deduction for a portion of the Severance Payment pursuant to Section 280G of the Code, or (B) the Executive’s being required to pay an excise tax on a portion of the Severance Payment pursuant to Section 4999 of the Code.

(b) The Severance Payment shall be made to the Executive within fifteen (15) days of the Date of Termination.

(c) The rights provided for in this Agreement are in addition to and not in lieu of any other rights that the Executive may have under any other contract or under the Company’s standard employment policies.

6. Notice of Termination. Any purported termination of the Executive’s employment (other than by reason of death) shall be communicated by written Notice of Termination from one party hereto to the other party hereto in accordance with Section 7 hereof. The Executive may terminate the Executive’s employment for Good Reason by giving at least thirty (30) days written Notice of Termination to the Board of his intention to terminate his employment for Good Reason, which termination shall be effective if the Company has not cured the Executive’s Good Reason by the end of such thirty (30) days.

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7. Notices. For purposes of this Agreement, all notices and communications provided for in this Agreement shall be in writing and shall be deemed to have been duly given when delivered or mailed by United States registered mail, return receipt requested, postage prepaid, addressed as forth below, or such other address as either party may have furnished to the other in writing in accordance herewith, except that notice of change of address shall be effective only upon actual receipt:

To the Company:	Hughes Supply, Inc.
	One Hughes Way
	Orlando, Florida 32805
	Attention: General Counsel
To the Executive:

8. No Mitigation. The Company agrees that the Executive is not required to seek other employment or to attempt in any way to mitigate his damages and thereby reduce the Severance Payment. The Severance Payment shall not be reduced by any compensation earned by the Executive as the result of employment by another employer or by retirement benefits.

9. Successors; Binding Agreement.

(a) In addition to any obligations imposed by law upon any successor to the Company, the Company will require any successor to all or substantially all of the business and/or assets of the Company (whether direct or indirect, by purchase, merger, consolidation, or otherwise) to expressly assume and agree to perform this Agreement in the same manner and to the same extent that the Company would be required to perform if no such succession had taken place. Failure of the Company to obtain such assumption and agreement prior to the effectiveness of any such succession shall be a breach of this Agreement and shall entitle the Executive to compensation from the Company in the same amount and on the same terms as the Executive would be entitled to hereunder if the Executive were to terminate the Executive’s employment for Good Reason, except that, for purposes of implementing the foregoing, the date on which any such succession becomes effective shall be deemed the Date of Termination.

(b) This Agreement shall inure to the benefit of and be enforceable by the Executive’s personal or legal representatives, executors, administrators, successors, heirs, distributees, devisees, and legatees.

10. Settlement of Disputes; Arbitration.

(a) All claims by the Executive for benefits under this Agreement shall be directed to and determined by the Board and shall be in writing. Any denial by the Board of a claim for benefits under this Agreement shall be delivered to the Executive in writing and shall set forth the specific reasons for the denial and the specific provisions of this Agreement relied upon.

(b) Any further dispute or controversy arising under or in connection with this Agreement shall be settled exclusively by arbitration in Orlando, Florida, in accordance with the rules of American Arbitration Association then in effect; provided, however, that each of the parties shall have discovery rights in accordance with the Federal Rules of Civil Procedure. Judgment may be entered on the arbitrator’s award in any court having jurisdiction.

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11. Legal Fees and Expenses. If there should be any action to construe or enforce this Agreement, the prevailing party shall be entitled to recover from the non-prevailing party the costs, expenses and reasonable attorneys’ and paralegals’ fees and expenses incurred in connection with such proceeding.

12. Governing Law. The validity, interpretation, construction, and performance of this Agreement shall be governed by the local laws of the State of Florida, and venue for any legal proceeding or action at law arising out of or construing this Agreement shall lie in the state courts of Orange County, Florida, or the United States District Court for the Middle District of Florida, Orlando Division.

13. Waiver, Modification, or Discharge. No provision of this Agreement may be modified, waived, or discharged unless such waiver, modification, or discharge is agreed to in writing and signed by the Executive and such officer as may be specifically designated by the Board. No waiver by either party hereto at any time of any breach by the other party hereto of, or of any lack of compliance with, any condition or provision of this Agreement to be performed by such other party shall be deemed a waiver of similar or dissimilar provisions or conditions at the same or at any prior or subsequent time.

14. Withholding Tax. Any payments provided for hereunder shall be paid net of any applicable withholding tax required under federal, state, or local law and any additional withholding tax to which the Executive has agreed.

15. Survival of Obligations. The obligations of the Company and the Executive under this Agreement which by their nature may require either partial or total performance after the expiration of the Term shall survive such expiration.

16. Validity. The invalidity or unenforceability of any provision of this Agreement shall not affect the validity or enforceability of any other provision of this Agreement, which shall remain in full force and effect.

17. Counterparts. This Agreement may be executed in several counterparts, each of which shall be deemed to be an original but all of which together will constitute one and the same instrument.

18. Effective Date. This Agreement shall be effective as of the date and year first written above and provided the Executive has delivered to the Company the Noncompetition Agreement of even date herewith.

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IN WITNESS WHEREOF, the parties have executed this Agreement as of the date and year first above written.

“EXECUTIVE”
(Name)
(Title)
“COMPANY”
HUGHES SUPPLY, INC.
By:
	Thomas I. Morgan, CEO and President

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EX-21

EXHIBIT 21

Subsidiaries of the Registrant

Set forth below is a listing, by name and jurisdiction of incorporation, of each corporation that is, as of the date of this report, a subsidiary of the Registrant. Unless otherwise indicated, each such corporation is a 100% owned subsidiary of the Registrant.

1) Compass Utility Supply, Inc., an Oregon corporation.

2) HHH, LLC, a Delaware limited liability company.

3) HSI Funding, LLC, a Delaware limited liability company.

4) HSI Holdings, Inc., a Delaware corporation.

5) HSI IP, Inc., a Delaware corporation.

6) Hughes Canada, Inc., a Delaware corporation.

7) Hughes Insurance Company, Ltd., a Bermuda company limited by shares.

8) Hughes Insurance Holdings, Inc., a Delaware corporation.

9) Hughes Supply IP, Inc., a Delaware corporation.

10) Hughes Supply Management Services, Inc., a Delaware corporation.

11) Hughes Supply Shared Services, Inc., a Delaware corporation.

12) Hughes Holdings, LLC, a Florida limited liability company.

13) Hughes Building Materials Holdings, LLC, a Florida limited liability company.

14) Hughes Electric Holdings, LLC, a Florida limited liability company.

15) Hughes MRO Holdings, LLC, a Florida limited liability company.

16) Hughes Plumbing Holdings, LLC, a Florida limited liability company.

17) Hughes Utilities Holdings, LLC, a Florida limited liability company.

18) Hughes Water & Sewer Holdings, LLC, a Florida limited liability company.

19) Hughes Building Materials, Ltd., a Florida limited partnership.

20) Hughes Electric, Ltd., a Florida limited partnership.

21) Hughes MRO, Ltd., a Florida limited partnership.

22) Hughes Plumbing, Ltd., a Florida limited partnership.

23) Hughes Utilities, Ltd., a Florida limited partnership.

24) Hughes Water & Sewer, Ltd., a Florida limited partnership.

25) Hughes Building Materials Group, Inc. (fka WCC Merger Corporation), a Georgia corporation.

26) Hughes MRO Group, Inc. (fka Century Maintenance Supply, Inc.), a Delaware corporation.

27) Hughes Plumbing Group, Inc. (fka Todd Pipe & Supply – Hawthorne, Inc.), a California corporation.

28) Hughes Utilities Group, Inc. (fka Utiliserve Holdings, Inc.), a Delaware corporation.

29) Hughes GP & Management, Inc. (fka Z&L Acquisition Corporation), a Delaware corporation.

30) Intra-Power, LLC, a California limited liability company, 49% owned.

31) Merex Corporation, a Texas corporation.

32) Merex De Mexico, Sociedad Anonima De Capital Variable, a Mexico corporation.

33) Merex Diesel Power, Sociedad Anonima De Capital Variable, a Mexico corporation.

34) Montana Electric Supply, Inc., a Montana corporation.

35) Montana Electric Supply, Inc., a Wyoming corporation.

36) Provalue, LLC, a Delaware limited liability company.

37) Southwest Power, Inc., a California corporation.

38) Southwest Stainless, L.P., a Delaware limited partnership.

39) SWS Acquisition LLC, a Delaware limited liability company.

40) SWS Funding LLC, a Delaware limited liability company.

41) Utility Products Supply Company, LLC, a Colorado limited liability company.

42) WES Acquisition Corporation, Inc., a Wyoming corporation.

43) Western States Electric, Inc., a Oregon corporation.

44) World-Wide Travel Network, Inc., a Florida corporation.

EX-23

Exhibit 23

CONSENT OF INDEPENDENT REGISTERED CERTIFIED PUBLIC ACCOUNTING FIRM

We hereby consent to the incorporation by reference in the Registration Statements on Form S-8 (Nos. 333-35059, 333-57977, 333-57979, 333-40666, 333-40664, 333-40658, 333-100055, 333-109257, 333-19007, 333-27935 and 333-118558) and S-3 (No. 333-116464), of Hughes Supply, Inc. of our report dated April 12, 2005 relating to the financial statements, financial statement schedule, management’s assessment of the effectiveness of internal control over financial reporting and the effectiveness of internal control over financial reporting, which appears in this Form 10-K.

/s/  PricewaterhouseCoopers LLP

Orlando, Florida

April 12, 2005

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 Annual Report on Form 10-K 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 (the registrant’s fourth fiscal quarter in the case of an annual report) 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: April 12, 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 Annual Report on Form 10-K 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: April 12, 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, the President and Chief Executive Officer of Hughes Supply, Inc., certify that, to the best of my knowledge, (i) the Annual Report of Hughes Supply, Inc. on Form 10-K for the year ended January 31, 2005 fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 and (ii) the information contained in such Form 10-K fairly presents, in all material respects, the financial condition and results of operations of Hughes Supply, Inc.

Date: April 12, 2005

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

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

EX-32.2

Exhibit 32.2

FORM OF CERTIFICATION PURSUANT TO SECTION 1350 OF CHAPTER 63

OF TITLE 18 OF THE UNITED STATES CODE

I, David Bearman, the Executive Vice President and Chief Financial Officer of Hughes Supply, Inc., certify that, to the best of my knowledge, (i) the Annual Report of Hughes Supply, Inc. on Form 10-K for the year ended January 31, 2005 fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 and (ii) the information contained in such Form 10-K fairly presents, in all material respects, the financial condition and results of operations of Hughes Supply, Inc.

Date: April 12, 2005

By:	/s/    David Bearman
	David Bearman Executive Vice President and Chief Financial Officer (Principal Financial Officer and Principal Accounting Officer)

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