UNITED STATES SECURITIES AND EXCHANGE COMMISSION

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

~~FORM~~ Form 10-Q

(Mark One)


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

		For the quarterly period ended April 30, 2005

OR

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

		For the transition period from to

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

For the quarterly period ended October 29, 2004

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

For the transition period from to

Commission File Number 001-08772

HUGHES SUPPLY, INC.

(Exact name of registrant as specified in its charter)


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

Corporate Office

One Hughes Way

Orlando, Florida 32805

(Address of principal executive offices)

(407) 841-4755

(Registrant’s telephone number, including area code)

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

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

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act).

Yes x No ¨

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

Common Stock		Outstanding as of ~~December~~June 3, ~~2004~~2005
$1 Par Value		66,~~114~~431,~~816~~667

HUGHES SUPPLY, INC.

FORM 10-Q

INDEX

		Page(s)
PART I. FINANCIAL INFORMATION
Item 1.	Financial Statements
	Consolidated Statements of Income (unaudited) for the Three and Nine Months EndedOctober 29, 2004 and October 31, 2003	3
	Consolidated Statements of Income (unaudited) for the Three Months Ended April 30, 2005 and April 30, 2004		3
	Consolidated Balance Sheets (unaudited) as of October 29, 2004 and January 30, 2004	4
	Consolidated Balance Sheets as of April 30, 2005 (unaudited) and January 31, 2005		4
	Consolidated Statements of Cash Flows (unaudited) for the Nine Months Ended October 29, 2004 and October 31, 2003	5
	Consolidated Statements of Cash Flows (unaudited) for the Three Months Ended April 30, 2005 and April 30, 2004		5
	Notes to Consolidated Financial Statements (unaudited)	~~6–18~~	6-14
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	~~19–34~~	15-25
Item 3.	Quantitative and Qualitative Disclosures about Market Risk	~~34–35~~	26
Item 4.	Controls and Procedures	35	27
PART II. OTHER INFORMATION
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	36	28
Item 6.	Exhibits	37	28
SIGNATURES		38	29

PART I. FINANCIAL INFORMATION


Item 1.	Financial Statements

HUGHES SUPPLY, INC.

Consolidated Statements of Income (unaudited)

(in millions, except per share data)

		~~Three Months Ended~~		Three Months Ended						~~Nine Months Ended~~
		October 29,2004				October 31,2003				October 29,2004			October 31,2003
				April 30,				April 30,
Net Sales		$	1,167.5			$	859.5			$	3,303.4		$	2,457.4
				2005				2004
Cost of Sales			893.6				666.0				2,517.3			1,904.0
Net Sales				$	1,239.7			$	992.8
Gross Margin			273.9				193.5				786.1			553.4
Cost of Sales					963.4				751.2
Operating Expenses:
Gross Margin					276.3				241.6
Selling, general and administrative			206.0				154.0				584.4			441.3
Operating Expenses:
Depreciation and amortization			6.6				5.5				19.3			15.6
	Selling, general and administrative				206.0				185.0
Total operating expenses			212.6				159.5				603.7			456.9
	Depreciation and amortization				7.8				6.0
Operating Income			61.3				34.0				182.4			96.5
		Total operating expenses			213.8				191.0
Non-Operating (Expense) Income:
Operating Income					62.5				50.6
Interest expense			(7.8	)			(7.3	)			(21.6	)		(22.4	)
Non-Operating(Expense)Income:
Interest and other income			1.9				1.4				5.2			4.8
	Interest expense				(9.0	)			(6.3	)
			(5.9	)			(5.9	)			(16.4	)		(17.6	)
	Interest and other income				2.2				1.7
Income Before Income Taxes			55.4				28.1				166.0			78.9
					(6.8	)			(4.6	)
Income Taxes			21.6				10.3				63.0			30.6
Income Before Income Taxes					55.7				46.0
Net Income		$	33.8			$	17.8			$	103.0		$	48.3
Income Taxes					21.7				16.2
Earnings Per Share:
Net Income				$	34.0			$	29.8
Basic		$	0.55			$	0.39			$	1.71		$	1.06
Earnings Per Share:
Diluted		$	0.54			$	0.38			$	1.65		$	1.04
	Basic			$	0.53			$	0.50
Weighted-Average Shares Outstanding:
	Diluted			$	0.51			$	0.48
Basic			61.1				45.8				60.3			45.7
Weighted-Average Shares Outstanding:
Diluted			63.0				46.9				62.2			46.6
	Basic				64.6				59.9
Dividends Declared Per Share		$	0.065			$	0.050			$	0.195		$	0.150
	Diluted				66.5				61.7
Dividends Declared Per Share				$	0.090			$	0.065

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

HUGHES SUPPLY, INC.

Consolidated Balance Sheets ~~(unaudited)~~

(in millions, except share and per share data)

		October 29,2004				January 30,2004
				April 30,
Assets
				2005				January 31,
Current Assets:
				(unaudited)				2005
Cash and cash equivalents		$	269.6			$	8.3
Assets
Accounts receivable, less allowance for doubtful accounts of $10.8 and $6.5			670.2				493.3
Current Assets:
Inventories			575.2				467.0
	Cash and cash equivalents			$	231.9			$	213.2
Deferred income taxes			29.0				19.4
	Accounts receivable, less allowance for doubtful accounts of $10.3				688.2				625.3
Other current assets			73.9				53.0
	Inventories				664.3				633.9
Total current assets			1,617.9				1,041.0
	Deferred income taxes				25.1				25.1
Property and equipment, net			112.3				161.8
	Other current assets				64.2				89.0
Goodwill			652.8				609.8
		Total current assets			1,673.7				1,586.5
Other assets			104.2				68.7
Property and equipment, net					96.1				92.8
Total assets		$	2,487.2			$	1,881.3
Goodwill					718.6				718.6
Liabilities and Shareholders’ Equity
Other assets					135.9				132.4
Current Liabilities:
		Total assets		$	2,624.3			$	2,530.3
Current portion of long-term debt		$	45.1			$	44.6
Liabilities and Shareholders’ Equity
Accounts payable			443.1				308.3
Current Liabilities:
Accrued compensation and benefits			44.4				39.3
	Current portion of long-term debt			$	45.2			$	45.2
Other current liabilities			104.2				45.2
	Accounts payable				579.1				503.9
Total current liabilities			636.8				437.4
	Accrued compensation and benefits				27.7				58.7
Long-term debt			534.3				368.7
	Other current liabilities				62.9				63.4
Deferred income taxes			64.6				55.4
		Total current liabilities			714.9				671.2
Other noncurrent liabilities			18.5				7.8
Long-term debt					500.2				500.5
Total liabilities			1,254.2				869.3
Deferred income taxes					89.0				72.3
Shareholders’ Equity:
Other noncurrent liabilities					35.7				32.4
Preferred stock, no par value; 10,000,000 shares authorized; none issued			–				–
		Total liabilities			1,339.8				1,276.4
Common stock, par value $1 per share; 100,000,000 shares authorized; 66,049,414 and 61,591,154 shares issued			66.0				61.6
Shareholders’ Equity:
Capital in excess of par value			626.3				502.5
	Preferred stock, no par value; 10,000,000 shares authorized; none issued				—				—
Retained earnings			557.0				465.1
	Common stock, par value $1 per share; 200,000,000 shares authorized; 66,430,667 and 66,214,127 shares issued				66.4				66.2
Treasury stock, zero and 433,904 shares, at cost			–				(5.5	)
	Capital in excess of par value				634.4				629.4
Accumulated other comprehensive income, net of tax			2.0				–
	Retained earnings				601.3				573.3
Unearned compensation related to outstanding restricted stock			(18.3	)			(11.7	)
	Accumulated other comprehensive income, net of tax				1.9				2.0
Total shareholders’ equity			1,233.0				1,012.0
	Unearned compensation related to outstanding restricted stock				(19.5	)			(17.0	)
Total liabilities and shareholders’ equity		$	2,487.2			$	1,881.3
		Total shareholders’ equity			1,284.5				1,253.9
		Total liabilities and shareholders’ equity		$	2,624.3			$	2,530.3

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

HUGHES SUPPLY, INC.

Consolidated Statements of Cash Flows (unaudited)

(in millions)

		Nine Months Ended
					Three Months Ended
		October 29,2004				October 31,2003
					April 30,				April 30,
Cash Flows from Operating Activities:
					2005				2004
Net income		$	103.0			$	48.3
Cash Flows from Operating Activities:
Adjustments to reconcile net income to net cash provided by operating activities:
	Net income				$	34.0			$	29.8
Depreciation and amortization			19.3				15.6
	Adjustments to reconcile net income to net cash provided by operating activities:
Provision for doubtful accounts			8.1				5.6
		Depreciation and amortization				7.8				6.0
Amortization of restricted stock			3.6				2.1
		Provision for doubtful accounts				1.4				2.8
Deferred income taxes, net			0.8				5.0
		Restricted stock expense				1.6				0.9
Other			1.5				0.1
		Deferred income taxes				16.7				(2.0	)
Changes in assets and liabilities:
		Other				(1.4	)			(0.1	)
Accounts receivable			(135.2	)			(65.7	)
	Changes in assets and liabilities:
Inventories			(74.9	)			14.7
		Accounts receivable				(64.3	)			(82.0	)
Other current assets			(15.7	)			(3.7	)
		Inventories				(30.3	)			(57.0	)
Other assets			(3.1	)			(1.9	)
		Other current assets				26.2				11.9
Accounts payable			120.8				81.9
		Other assets				(2.9	)			(0.8	)
Accrued compensation and benefits			(0.3	)			(9.9	)
		Accounts payable				54.1				106.9
Other current liabilities			48.1				14.7
		Accrued compensation and benefits				(31.1	)			(19.0	)
Other noncurrent liabilities			(2.1	)			0.8
		Other current liabilities				(2.2	)			24.9
Net cash provided by operating activities			73.9				107.6
		Other noncurrent liabilities				3.8				1.2
Cash Flows from Investing Activities:
			Net cash provided by operating activities			13.4				23.5
Capital expenditures			(17.5	)			(12.4	)
Cash Flows from Investing Activities:
Proceeds from sale of property and equipment			38.8				1.5
	Capital expenditures					(12.3	)			(4.2	)
Business acquisitions, net of cash acquired			(101.4	)			(17.8	)
	Proceeds from sale of property and equipment					0.3				37.0
Net investment in corporate owned life insurance			(11.4	)			–
			Net cash (used in) provided by investing activities			(12.0	)			32.8
Net cash used in investing activities			(91.5	)			(28.7	)
Cash Flows from Financing Activities:
Cash Flows from Financing Activities:
	Net payments under short-term debt arrangements					—				(43.7	)
Net payments under short-term debt arrangements			(100.0	)			(34.3	)
	Principal payments on other debt					(0.2	)			(1.5	)
Principal payments on other debt			(10.7	)			(16.2	)
	Change in book overdrafts					21.1				(8.6	)
Proceeds from issuance of long-term debt, net			295.7				–
	Dividends paid					(4.3	)			(3.1	)
Proceeds from issuance of common stock, net			114.8				–
	Other					0.7				1.7
Change in book overdrafts			(19.3	)			(15.5	)
			Net cash provided by (used in) financing activities			17.3				(55.2	)
Dividends paid			(11.1	)			(7.1	)
Net Increase in Cash and Cash Equivalents						18.7				1.1
Purchase of treasury shares			–				(6.0	)
Cash and Cash Equivalents, Beginning of Period						213.2				8.3
Proceeds from cash flow hedge—treasury lock			3.4				–
Cash and Cash Equivalents, End of Period					$	231.9			$	9.4
Other			6.1				0.5
Net cash provided by (used in) financing activities			278.9				(78.6	)
Net Increase in Cash and Cash Equivalents			261.3				0.3
Cash and Cash Equivalents, Beginning of Period			8.3				1.7
Cash and Cash Equivalents, End of Period		$	269.6			$	2.0

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

HUGHES SUPPLY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)


Note 1.	Basis of Presentation

In our opinion, the accompanying unaudited consolidated financial statements contain all adjustments (consisting only of normal recurring adjustments) necessary to present fairly our results of operations for the three ~~and nine~~ months ended ~~October 29~~April 30, ~~2004~~2005 and ~~October 31~~April 30, ~~2003~~2004, our financial position as of ~~October 29~~ April 30, ~~2004~~2005, and cash flows for the ~~nine~~three months ended ~~October 29~~ April 30, ~~2004~~2005 and ~~October 31~~April 30, ~~2003~~2004. The results of operations for the three ~~and nine~~ months ended ~~October 29~~April 30, ~~2004~~2005 are ~~not~~ not necessarily indicative of the trends or results that may be expected for the full year. Certain information and disclosures normally included in the notes to the annual consolidated financial statements have been omitted from these interim consolidated financial statements. Accordingly, these interim consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in our Annual Report on Form 10-K (the “Annual Report”) for the fiscal year ended January 30 31, ~~2004~~2005, as filed with the Securities and Exchange Commission (“SEC”).

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


	Business

Founded in 1928, we are one of the nation’s largest diversified wholesale distributors of construction, repair and maintenance-related products ~~in the~~with ~~United States. We distribute~~ over ~~350,000~~500 ~~products~~branches tolocated ~~more~~in 40 states ~~than~~and ~~100,000~~two ~~customers through over 500~~ branches ~~located~~ in ~~40 states~~Canada. Our ~~principal~~ customers include water and sewer, plumbing, electrical, and mechanical contractors; ~~property management~~public ~~companies~~utilities; municipalities; ~~public~~property management ~~utilities~~companies; and industrial companies. Although we have a national presence, we operate principally in the southeastern and southwestern United States. Our fiscal year is a 52-week period ending on January 31.

Fiscal Year

Our fiscal year was previously a 52 or 53-week period ending on the last Friday in January. Beginning in fiscal year 2005 and thereafter, our fiscal year will be a 52-week period ending on January 31. The change in our fiscal year ending date was made to simplify reporting and to allow for better comparability between reporting periods. Fiscal year 2004 was a 52-week period. The three and nine months ended October 29, 2004 and October 31, 2003 each contained 13 and 39 weeks, respectively.


	Reclassifications

Certain prior year amounts in the consolidated financial statements and the notes thereto have been reclassified to conform to ~~the~~ current year presentation. These reclassifications had no net income 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.

Note 2. Stock-Based Compensation

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

~~vesting~~Stock-Based periods with the impact of forfeitures recognized as they occur. 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): Compensation

	Three Months Ended						Nine Months Ended
	October 29,2004			October 31,2003			October 29,2004			October 31,2003
Net income as reported	$	33.8		$	17.8		$	103.0		$	48.3
Add: Stock-based compensation expense included in reported net income, net of related tax effects		1.4			0.8			3.6			2.1
Deduct: Total stock-based compensation expense determined under the fair value based method for all awards, net of related tax effects		(1.9	)		(1.7	)		(6.0	)		(4.6	)
Pro forma net income	$	33.3		$	16.9		$	100.6		$	45.8
Earnings per share:
Basic—as reported	$	0.55		$	0.39		$	1.71		$	1.06
Basic—pro forma	$	0.54		$	0.37		$	1.67		$	1.00
Diluted—as reported	$	0.54		$	0.38		$	1.65		$	1.04
Diluted—pro forma	$	0.53		$	0.36		$	1.62		$	0.98

We account for our stock option plans using the intrinsic value based method of accounting, under which no compensation expense has been recognized for stock option awards granted at fair market value. For purposes of pro forma disclosures under Statement of Financial Accounting Standards (“SFAS”) 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 periods with the impact of forfeitures recognized as they occur.

The ~~estimated~~following ~~fair values~~table ofillustrates ~~stock options granted during~~ the ~~three~~effect ~~and~~on ~~nine~~net ~~months~~income ~~ended October 29, 2004~~ and earnings ~~October~~per ~~31,~~share ~~2003,~~if ~~respectively were derived using~~ the ~~Black-Scholes~~fair ~~option-pricing~~value ~~model.~~based ~~The~~method ~~following~~had ~~table~~been applied ~~includes~~to ~~the~~all ~~assumptions~~outstanding ~~used in estimating fair values~~ and ~~the~~unvested ~~resulting~~awards ~~weighted-average~~in ~~fair~~each ~~value~~period (in ofmillions, ~~the~~except ~~stock~~per ~~options~~share ~~granted in the periods presented~~data):

		Stock Options Granted During the
			Three Months Ended
		Three Months Ended							Nine Months Ended
			April 30,				April 30,
Assumption		October 29,2004 (1)			October 31,2003				October 29,2004			October 31,2003
			2005				2004
Risk-free interest rate			–			3.8	%			3.0	%		3.8	%
Net income as reported			$	34.0			$	29.8
Average expected life of stock options (in years)			–			8				5			8
Add: Stock-based compensation expense included in reported net income, net of related tax effects				1.0				0.5
Expected volatility of common stock			–			40.9	%			43.2	%		40.9	%
Deduct: Total stock-based compensation expense determined under the fair value based method for all awards, net of related tax effects				(1.8	)			(1.6	)
Expected annual dividend yield on common stock			–			1.3	%			1.0	%		1.3	%
Pro forma net income			$	33.2			$	28.7
Weighted-average fair value of stock options granted		$	–		$	7.82			$	9.65		$	7.74
Earnings per share:
	Basic — as reported		$	0.53			$	0.50
	Basic — pro forma		$	0.51			$	0.48
	Diluted — as reported		$	0.51			$	0.48
	Diluted — pro forma		$	0.50			$	0.47

~~(1)~~ The ~~There~~fair ~~were~~value noof each stock ~~options~~option ~~granted~~is ~~during~~estimated on the ~~three~~date ~~months~~of grant ~~ended~~using ~~October~~the ~~29,~~Black-Scholes ~~2004.~~option-pricing model with the following weighted-average assumptions for grants issued in the periods presented:

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


	Three Months Ended

	April 30,			April 30,
Assumptions	2005			2004

Risk-free interest rates		4.0	%		3.0	%
Average expected life of stock options (in years)		4.8			5.0
Expected volatility of common stock		34.0	%		43.2	%
Expected annual dividend yield on common stock		1.2	%		1.0	%
Weighted-average fair value of stock options granted	$	9.81		$	9.65

On March 31, 2004, the Financial Accounting Standards Board (“FASB”) issued an exposure draft, Share-Based Payment, an Amendment of FASB Statements No. 123 and 95. The proposed change in accounting would replace existing requirements under FAS 123 and Accounting Principles Board (“APB”) Opinion 25, Accounting for Stock Issued to Employees. The exposure draft covers a wide range of equity-based compensation arrangements. Under the FASB’s proposal, all forms of share-based payments to employees, including employee stock options, would be treated the same as other forms of compensation by recognizing the related costs in the income statement. The expense of the award would generally be measured at fair value at the grant date. The

~~comment~~Recent ~~period~~Accounting for the exposure draft ended on June 30, 2004, and final rules are expected to be issued in the fourth quarter of calendar year 2004. The standard, if issued in its current form, would be applicable for interim or annual periods beginning after June 15, 2005. We are currently evaluating the impact of the proposed change in accounting but will not know the ultimate impact until the final rules are issued. Pronouncements

~~Note~~ In 3November 2004, the Financial Accounting Standards Board (“FASB”) issued SFAS 151, Inventory Costs — an amendment of ARB No. ~~Segment~~ 43, Chapter 4. ~~Information~~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 to have a material effect on our results of operations or financial position.

We In ~~manage~~December ~~our~~2004, ~~business~~the onFASB aissued ~~product~~SFAS 123R, ~~line~~Share-Based Payment, ~~basis~~which supersedes Accounting Principles Board (APB) Opinion No. 25, Accounting for Stock Issued to Employees, and ~~report~~its related implementation guidance. This statement requires that the ~~results~~compensation ofcost ~~our~~related ~~operations~~to share-based payment transactions be recognized in ~~six~~the ~~operating~~financial statements ~~segments~~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 ~~Other~~employee ~~category~~is required to provide services in exchange for the award. The ~~six~~statement ~~operating~~requires ~~segments~~the ~~are~~use ~~Water~~of assumptions &and ~~Sewer;~~judgments ~~Plumbing/Heating,~~about ~~Ventilating~~future events and ~~Air~~some ~~Conditioning~~of ~~(“HVAC”);~~the inputs ~~Maintenance~~to the valuation models will require considerable judgment by management. The provisions of SFAS 123R, ~~Repair~~as currently ~~and~~stated, ~~Operations~~require adoption by public companies as of the ~~(“MRO”);~~first ~~Utilities;~~interim ~~Electrical~~or annual reporting period that begins after June 15, 2005; ~~and~~early ~~Industrial~~adoption ~~Pipe~~is permitted. The SEC has subsequently issued a rule that allows publicly traded companies to adopt SFAS 123R for the first annual reporting period beginning after June 15, ~~Valves~~2005. We plan to adopt the provisions of SFAS 123R on February 1, ~~and~~2006 ~~Fittings~~in accordance ~~(“PVF”)~~with the SEC’s new rule. We ~~include~~are currently evaluating the impact that the ultimate adoption of SFAS 123R will have on our ~~Building~~financial ~~Materials,~~position ~~Fire~~and ~~Protection~~results of operations. The Stock-Based Compensation section provided above contains the pro forma impact on net income and ~~Mechanical~~earnings per ~~product~~share ~~lines~~if the fair value based method under SFAS 123 had been applied to all outstanding and unvested awards in the ~~Other~~first quarter ~~category.~~of fiscal years 2006 and 2005.

~~The~~Note ~~Corporate category includes corporate level expenses not allocated to our operating segments or the Other category~~2. ~~Inter-segment~~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. Information

~~The~~ We ~~following~~manage ~~tables~~our ~~present~~business ~~net~~on ~~sales,~~a ~~operating~~product ~~income,~~line basis and ~~depreciation~~report ~~and~~the results ~~amortization~~of byour operations in seven operating ~~segment~~segments and ~~for the~~an Other ~~and~~category. ~~Corporate~~The ~~categories~~seven ~~for~~operating ~~the~~segments ~~three~~are Water & ~~and~~Sewer; ~~nine~~Plumbing/ ~~months~~Heating, ~~ended~~Ventilating ~~October~~and ~~29,~~Air Conditioning ~~2004~~(“HVAC”); Utilities; Maintenance, Repair and ~~October~~Operations ~~31,~~(“MRO”); ~~2003~~Electrical; Industrial Pipe, Valves ~~respectively~~and Fittings (“PVF”); and Building Materials. We include our Fire Protection and Mechanical product lines in the ~~millions):~~Other category.

	Net Sales				Operating Income				Depreciation andAmortization
	Three Months Ended				Three Months Ended				Three Months Ended
	October 29,2004		October 31,2003		October 29,2004		October 31,2003		October 29,2004		October 31,2003
Water & Sewer	$	327.8	$	254.6	$	16.6	$	13.8	$	1.0	$	1.0
Plumbing/HVAC		284.5		218.5		4.9		3.9		1.3		0.8
MRO		116.3		34.5		9.0		2.3		1.1		0.1
Utilities		118.0		99.1		6.0		3.3		0.3		0.3
Electrical		111.1		94.0		2.0		1.4		0.1		0.2
Industrial PVF		96.7		73.2		15.1		5.3		0.1		0.1
Other		113.1		85.6		7.7		4.0		0.4		0.7
Corporate		–		–		–		–		2.3		2.3
Total	$	1,167.5	$	859.5	$	61.3	$	34.0	$	6.6	$	5.5

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

	Net Sales				Operating Income				Depreciation andAmortization
	Nine Months Ended				Nine Months Ended				Nine Months Ended
	October 29,2004		October 31,2003		October 29,2004		October 31,2003		October 29,2004		October 31,2003
Water & Sewer	$	922.7	$	706.1	$	45.9	$	36.1	$	2.7	$	2.4
Plumbing/HVAC		785.5		643.2		18.5		11.1		3.4		2.4
MRO		349.5		101.3		28.6		6.5		3.4		0.3
Utilities		326.8		279.5		13.5		10.8		0.9		1.1
Electrical		321.4		274.4		8.3		4.9		0.5		0.7
Industrial PVF		265.0		213.7		39.0		17.2		0.5		0.5
Other		332.5		239.2		28.6		9.9		1.0		1.7
Corporate		–		–		–		–		6.9		6.5
Total	$	3,303.4	$	2,457.4	$	182.4	$	96.5	$	19.3	$	15.6

The following ~~tables~~table ~~include~~presents ~~our~~net ~~investment~~sales inand ~~assets~~other ~~(accounts receivable less allowance for doubtful~~financial ~~accounts,~~information ~~inventories~~by ~~and goodwill) and accounts payable for each operating~~ segment ~~and~~ for the ~~Other~~first ~~and~~quarter ~~Corporate categories as~~ of ~~October~~fiscal ~~29,~~years 2006 ~~2004~~ and ~~January~~2005 ~~30, 2004~~ (in millions):

	As of October 29, 2004
													Depreciation and
	AccountsReceivable		Inventories			Goodwill			SegmentAssets		AccountsPayable
	Net Sales							Operating Income					Amortization
Water & Sewer	$	232.3	$	123.1		$	112.5		$	467.9	$	124.8
	April 30,			April 30,				April 30,			April 30,		April 30,		April 30,
Plumbing/HVAC		149.9		146.4			85.7			382.0		120.0
Three Months Ended	2005			2004				2005			2004		2005		2004
MRO		56.4		47.8			272.4			376.6		22.8
Water & Sewer	$	320.3		$	271.6			$	14.0		$	10.5	$	0.9	$	0.7
Utilities		43.1		57.3			59.3			159.7		51.3
Plumbing/ HVAC		283.8			220.9				5.9			4.9		1.3		0.7
Electrical		70.1		30.5			9.0			109.6		41.5
Utilities		194.3			100.1				6.8			2.8		1.3		0.3
Industrial PVF		47.4		127.4			56.4			231.2		37.6
MRO		100.4			106.9				7.5			7.7		1.0		1.2
Other		71.0		42.7			57.5			171.2		33.0
Electrical		106.0			102.3				3.0			3.5		0.1		0.2
Corporate		–		–			–			–		12.1
Industrial PVF		117.7			82.7				17.9			11.4		0.1		0.2
Total	$	670.2	$	575.2		$	652.8			1,898.2	$	443.1
Building Materials		68.6			59.1				5.0			5.0		0.2		0.2
Cash and cash equivalents										269.6
Other		48.6			49.2				1.4			4.8		0.1		0.2
Deferred income taxes										29.0
Corporate(1)		—			—				1.0			—		2.8		2.3
Other current assets										73.9
Total	$	1,239.7		$	992.8			$	62.5		$	50.6	$	7.8	$	6.0
Property and equipment, net										112.3
Other assets										104.2
Total Assets									$	2,487.2
	As of January 30, 2004
	AccountsReceivable		Inventories			Goodwill			SegmentAssets		AccountsPayable
Water & Sewer	$	161.4	$	92.8		$	104.7		$	358.9	$	78.8
Plumbing/HVAC		106.8		114.4			50.1			271.3		79.1
MRO		48.7		52.6			272.8			374.1		16.4
Utilities		30.9		46.8			59.3			137.0		22.2
Electrical		51.6		28.4			9.0			89.0		28.1
Industrial PVF		40.5		103.3			56.4			200.2		27.8
Other		53.4		28.7			57.5			139.6		18.8
Corporate		–		–			–			–		37.1
Total	$	493.3	$	467.0		$	609.8			1,570.1	$	308.3
Cash and cash equivalents										8.3
Deferred income taxes										19.4
Other current assets										53.0
Property and equipment, net										161.8
Other assets										68.7
Total Assets									$	1,881.3

~~Note 4~~(1) The $1. ~~Business~~0 ~~Combinations~~million of operating income in the Corporate category related to the net gain associated with the sale of surplus properties during the first quarter of fiscal year 2006, including a $0.9 million gain associated with the sale of surplus property in Miami, Florida as further discussed in Note 9.

~~On May~~ ~~28,~~The ~~2004,~~following wetables ~~acquired~~include ~~Todd~~our ~~Pipe~~investment &in ~~Supply~~assets (~~“Todd~~accounts receivable ~~Pipe”),~~less ~~one~~allowance offor ~~the~~doubtful ~~largest~~accounts, ~~independent~~inventories ~~wholesale~~and goodwill) ~~plumbing suppliers in Southern California~~ and ~~Las~~accounts ~~Vegas,~~payable ~~Nevada.~~for ~~The~~each ~~purchase~~segment ~~price~~as ~~consisted~~ of ~~$77.7 million of cash paid for Todd~~ ~~Pipe’s net assets~~April 30, ~~including~~2005 ~~the assumption of accounts payable, accrued~~ and ~~other liabilities~~January 31, ~~which~~2005 ~~collectively totaled $39.7 million, subject to finalization of working capital adjustments~~ (in ~~accordance with the purchase agreement. The~~millions): ~~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~~


	As of April 30, 2005

	Accounts						Segment		Accounts
	Receivable		Inventories		Goodwill		Assets		Payable

Water & Sewer	$	217.5	$	144.4	$	112.2	$	474.1	$	153.5
Plumbing/ HVAC		152.8		153.0		87.1		392.9		147.7
Utilities		79.1		94.1		123.4		296.6		77.2
MRO		51.0		53.7		273.0		377.7		42.3
Electrical		63.7		33.5		9.0		106.2		48.2
Industrial PVF		60.6		147.3		56.4		264.3		45.7
Building Materials		30.5		19.8		27.1		77.4		17.1
Other		33.0		18.5		30.4		81.9		18.4
Corporate		—		—		—		—		29.0

Total	$	688.2	$	664.3	$	718.6		2,071.1	$	579.1

Cash and cash equivalents								231.9
Deferred income taxes								25.1
Other current assets								64.2
Property and equipment, net								96.1
Other assets								135.9

Total Assets							$	2,624.3

assets acquired and liabilities assumed based on their respective preliminary fair values in accordance with FAS 141, Business Combinations (“FAS 141”). Goodwill, none of which is deductible for tax purposes, and other intangible assets recorded in connection with the transaction totaled $35.6 million and $11.3 million, respectively. Included within the goodwill balance as of October 29, 2004 were approximately $0.5 million of working capital adjustments recorded during the third quarter of fiscal year 2005. 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 for this acquisition have not been presented because the results of operations of Todd Pipe are not material to our consolidated results of operations.


	As of January 31, 2005

	Accounts						Segment		Accounts
	Receivable		Inventories		Goodwill		Assets		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

Total	$	625.3	$	633.9	$	718.6		1,977.8	$	503.9

Cash and cash equivalents								213.2
Deferred income taxes								25.1
Other current assets								89.0
Property and equipment, net								92.8
Other assets								132.4

Total Assets							$	2,530.3

OnNote ~~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 purchase price consisted of $25.4 million of cash for Standard’s net assets, net of $2.3 million of cash acquired and including the assumption of accounts payable, accrued and other liabilities, which collectively totaled $12.6 million, subject to finalization of working capital adjustments in accordance with the purchase agreement. Approximately $23.7 million of the total purchase price has been paid through October 29, 2004. 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 FAS 141. Goodwill and ~~other~~Intangible intangible assets recorded in connection with the transaction totaled $7.8 million and $5.7 million, respectively, with approximately $4.1 million of the recorded goodwill deductible for tax purposes. Included within the goodwill balance as of October 29, 2004 were approximately $2.0 million of working capital adjustments recorded during the third quarter of fiscal year 2005, which resulted in a $1.7 million increase in the purchase price disclosed in the second quarter of fiscal year 2005. 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 forma results of operations for this acquisition have not been presented because the results of operations of Standard are not material to our consolidated results of operations. Assets

As During ~~more fully disclosed in Note 2 to~~ the ~~consolidated~~first ~~financial~~quarter ~~statements~~of ~~in our~~ fiscal year ~~2004 Annual Report~~2006, ~~on December 19, 2003,~~ we ~~acquired~~did ~~Century~~not ~~Maintenance~~record any ~~Supply,~~changes ~~Inc.~~to ~~(“Century”), a leading supplier of maintenance, repair and operations products serving~~ the ~~multi-family~~goodwill ~~apartment~~balances ~~market~~reported ~~throughout~~as ~~the United States. The results~~ of ~~Century’s operations have been included in our consolidated statements of income since December 19~~ January 31, ~~2003~~2005. ~~Unaudited~~See ~~operating~~Note 2 ~~results of operations~~ for the ~~three~~carrying ~~and nine months ended October 29, 2004 compared to~~amount ~~the pro forma operating results~~ of ~~operations~~goodwill ~~for~~by ~~the~~reportable ~~three~~segment ~~and nine months ended October 31, 2003, assuming the acquisition of Century had been completed~~ as of ~~the beginning of fiscal year 2004~~April 30, ~~are~~2005 ~~as follows (in millions~~and January 31, ~~except per share data):~~2005.

	Three Months Ended				Nine Months Ended
	October 29, 2004		October 31, 2003		October 29, 2004		October 31, 2003
			(Pro forma)				(Pro forma)
Net sales	$	1,167.5	$	945.8	$	3,303.4	$	2,703.6
Operating income		61.3		44.0		182.4		123.5
Net income		33.8		21.5		103.0		56.9
Earnings per share:
Basic	$	0.55	$	0.47	$	1.71	$	1.25
Diluted	$	0.54	$	0.46	$	1.65	$	1.22

As of April 30, 2005 and January 31, 2005, our intangible assets were classified as follows (in millions):


			As of April 30, 2005							As of January 31, 2005

			Gross							Gross
			Carrying		Accumulated					Carrying		Accumulated
			Value		Amortization			Net		Value		Amortization			Net

Amortized intangible assets
	Acquired customer contracts		$	56.8	$	(5.7	)	$	51.1	$	56.8	$	(4.7	)	$	52.1
	Corporate customer relationships			15.2		(1.2	)		14.0		15.2		(0.8	)		14.4
	Non-compete/employment agreements			8.3		(2.7	)		5.6		8.3		(2.0	)		6.3
	Shareholder relationships			4.2		(0.5	)		3.7		4.2		(0.3	)		3.9

		Total		84.5		(10.1	)		74.4		84.5		(7.8	)		76.7
Unamortized intangible assets
	Private label tradenames			5.9		—			5.9		5.9		—			5.9

		Total	$	90.4	$	(10.1	)	$	80.3	$	90.4	$	(7.8	)	$	82.6

Amortization expense for amortized intangible assets was $2.3 million and $0.9 million for the three months ended April 30, 2005 and 2004, respectively. Estimated aggregate future amortization expense for

~~The pro forma results have been prepared for comparative purposes only and do not purport to be~~ ~~indicative of what would have occurred had the~~ acquisition-related ~~been~~intangible ~~made~~assets atfor the ~~beginning~~nine ofmonths ~~the~~ending January 31, ~~period~~2006 ~~presented~~and orfuture ~~the~~fiscal ~~results~~years ~~which~~is ~~may~~as ~~occur~~follows (in ~~the future.~~ millions):

Note 5. Goodwill and Intangible Assets


	Nine Months
	Ending		Fiscal Years Ending January 31,
	January 31,
	2006		2007		2008		2009		2010

Amortization expense	$	6.9	$	8.3	$	6.9	$	6.5	$	6.2

ANote ~~summary~~4. ofBranch ~~the~~Closures ~~changes in the carrying amount of goodwill by operating segment~~ and ~~the~~Consolidation ~~Other category for the nine months ended October 29, 2004 was as follows (in millions):~~ Activities

	Goodwill as ofJanuary 30,2004		GoodwillAcquired		Finalization ofPurchaseAccounting			Goodwill as ofOctober 29,2004
Water & Sewer	$	104.7	$	5.8	$	2.0		$	112.5
Plumbing/HVAC		50.1		35.1		0.5			85.7
MRO		272.8		–		(0.4	)		272.4
Utilities		59.3		–		–			59.3
Electrical		9.0		–		–			9.0
Industrial PVF		56.4		–		–			56.4
Other		57.5		–		–			57.5
Total	$	609.8	$	40.9	$	2.1		$	652.8

As more fully disclosed in Note 6 to the consolidated financial statements in our fiscal year 2005 Annual Report, we approved plans to close and consolidate certain branches that did not strategically fit into our core businesses and/or did not perform to our expectations. The liability balance, included in other current liabilities, related to these activities as of the three months ended April 30, 2005 and the year ended January 31, 2005 was as follows (in millions):

As of October 29, 2004 and January 30, 2004, our intangible assets were classified as follows (in millions):


		April 30,			January 31,
		2005			2005

Beginning balance		$	2.9		$	4.1
	Provision		—			1.7
	Lease payments		(0.8	)		(2.9	)

Ending balance		$	2.1		$	2.9

	October 29, 2004							January 30, 2004
	GrossCarryingValue		AccumulatedAmortization			Net		GrossCarryingValue		AccumulatedAmortization			Net
Amortized intangible assets:
Acquired customer contracts	$	37.1	$	(3.6	)	$	33.5	$	37.1	$	(1.4	)	$	35.7
Corporate customer relationships		11.1		(0.5	)		10.6		–		–			–
Non-compete/employment agreements		4.8		(1.2	)		3.6		3.1		(0.3	)		2.8
Shareholder relationships		4.2		(0.2	)		4.0		–		–			–
Total		57.2		(5.5	)		51.7		40.2		(1.7	)		38.5
Unamortized intangible assets:
Private label tradenames		5.9		–			5.9		5.9		–			5.9
Total	$	63.1	$	(5.5	)	$	57.6	$	46.1	$	(1.7	)	$	44.4


Note 5.	Long-Term Debt

~~Amortization expense~~ ~~for~~Long-term ~~the~~debt ~~amortized~~as ~~intangible~~of ~~assets for the three months ended October 29~~April 30, ~~2004~~2005 and ~~October~~ January 31, 2005 ~~2003~~consisted ~~totaled~~of ~~$1.3 million and $0.2 million, respectively. Amortization expense for amortized intangible assets for~~ the ~~nine~~following ~~months~~(in ~~ended October 29, 2004~~millions): ~~and October 31, 2003 totaled $3.8 million and $0.5 million, respectively.~~

Amortization expense for the amortized intangible assets above is expected to be approximately $5.3 million, $6.0 million, $5.2 million, $5.0 million and $4.7 million for the fiscal years ending January 31, 2005, 2006, 2007, 2008 and 2009, respectively.


	April 30,			January 31,
	2005			2005

8.27% senior notes, due 2005	$	5.6		$	5.6
8.42% senior notes, due 2007		61.8			61.8
7.96% senior notes, due 2011		60.7			60.7
7.14% senior notes, due 2012		28.6			28.6
7.19% senior notes, due 2012		40.0			40.0
6.74% senior notes, due 2013		40.5			40.5
5.50% senior notes, due 2014		300.0			300.0
Fair value hedge carrying value adjustment		0.5			1.4
Other notes payable with varying interest rates of 2.1% to 7.6% at April 30, 2005, with due dates from 2005 to 2014		9.2			8.7

Total debt		546.9			547.3
Less discount on debt issuance		(1.5	)		(1.6	)

Total debt less discount		545.4			545.7
Less current portion		(45.2	)		(45.2	)

Total long-term debt	$	500.2		$	500.5

~~Note~~ ~~6. Branch~~As ~~Closures~~of ~~and~~April 30, ~~Consolidation~~2005, ~~Activities~~we were in compliance with all financial and non-financial covenants.

As On ~~more~~October 12, ~~fully~~2004, ~~disclosed~~we inissued ~~Note~~$300.0 million 5in original toprincipal ~~the~~amount ~~consolidated~~of ~~financial~~5.5% senior ~~statements~~notes in(the “notes”) ~~our~~due ~~fiscal~~on ~~year~~October 15, ~~2004~~2014 ~~Annual~~in ~~Report,~~a weprivate placement ~~approved~~pursuant ~~plans~~ to ~~relocate~~Rule 144A ~~our~~under ~~corporate~~the ~~offices~~Securities ~~and~~Act. The tonotes ~~close~~were ~~and~~issued ~~consolidate~~at ~~certain~~99.468% ~~branches~~of ~~that did~~their ~~not~~par ~~strategically~~value ~~fit~~and ~~into~~are reflected in our ~~core~~consolidated ~~businesses~~balance ~~and/or~~sheet ~~did~~net ~~not~~of ~~perform~~a $1.5 million toand ~~our expectations~~$1.6 million ~~Additionally,~~discount ~~during~~as ~~the~~of April 30, ~~third~~2005 ~~quarter~~and ofJanuary 31, ~~fiscal~~2005, ~~year~~respectively. On May 10, 2005, we ~~recorded~~filed ~~provisions~~an ofexchange ~~approximately~~offer ~~$0.8~~registration statement ~~million~~with ~~and~~the ~~$0.4~~SEC ~~million~~on ~~within~~Form S-4 to exchange

the ~~selling,~~notes ~~general~~for ~~and~~a ~~administrative~~new ~~expense~~issue ~~caption~~of insubstantially ~~our~~identical ~~consolidated~~notes registered ~~statements~~under the Securities Act. We expect that the registration statement will be declared effective by the SEC within 90 days of ~~income~~the ~~related~~filing date. If the registration statement is not declared effective on or before the 300th day after issuance, we will be required to pay a special interest premium to the ~~closure~~holders of ~~our~~the ~~Electrical~~notes. ~~distribution~~The ~~center~~new issue of insubstantially ~~Orlando~~identical ~~and~~notes ~~the~~is ~~closure~~expected to be guaranteed by substantially all of ~~five~~our ~~branches~~subsidiaries. inSeparate financial statements of the ~~MRO~~subsidiary ~~segment~~guarantors ~~resulting~~are ~~from~~not ~~the~~provided ~~integration~~because our parent company (issuer of the ~~Century~~notes) ~~acquisition,~~has ~~respectively~~no independent assets or operations and the subsidiary guarantees are expected to be full and unconditional and joint and several. ~~The~~There ~~liability~~are ~~balance,~~no significant ~~included~~restrictions inon ~~other~~our ~~current~~parent ~~liabilities,~~company ~~related~~or subsidiaries’ ability to ~~these~~obtain ~~activities~~funds asfrom our subsidiaries by dividend or loan. Additionally, any of ~~October~~our 29subsidiaries not guaranteeing the anticipated note issuance are expected to be minor (i.e., ~~2004~~represent less than 3% of total consolidated ~~and~~assets, ~~January~~shareholders’ 30equity, ~~2004~~net ~~was~~sales, asincome ~~follows~~before income ~~(in~~taxes ~~millions):~~and cash flows from operating activities).

	October 29,2004			January 30,2004
Beginning balance	$	4.1		$	1.2
Provision		1.2			4.4
Lease payments		(2.1	)		(1.4	)
Other		(0.1	)		(0.1	)
Ending balance	$	3.1		$	4.1


Note 6.	Comprehensive Income

~~In addition to the~~ ~~above~~Total ~~activity,~~comprehensive ~~during the third quarter of fiscal year 2005~~income, wenet ~~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~~tax, ~~and the related sale~~ was ~~not reported~~ as afollows ~~discontinued operation because its operations were not significant to either the MRO segment or our consolidated results of operations.~~ (in millions):

Note 7. Long-Term Debt


		Three Months Ended

		April 30,			April 30,
		2005			2004

Net income		$	34.0		$	29.8
Other comprehensive income:
	Net change in cash flow hedge — treasury lock		(0.1	)		—

Total comprehensive income, net of tax		$	33.9		$	29.8

~~Long-term~~ Accumulated ~~debt~~other comprehensive income, net of tax, totaled $1.9 million as of ~~October~~April 30, 292005, and consisted of the net unrealized gain associated with the settlement of our ten-year treasury rate lock contract on October 5, 2004. The ~~and~~treasury ~~January~~rate 30lock contract was entered into on September 27, 2004 ~~consisted~~to hedge the risk that the Treasury rate component of the fixed coupon payments relating to a ~~following~~$278.0 million (notional principal amount of a then-forecasted $300.0 million private placement of notes may be adversely impacted by interest rate fluctuations. The gross proceeds received from the settlement of our treasury rate lock contract totaled $3.4 million and are being amortized into earnings as an adjustment to interest expense over the same period in ~~millions):~~which the related interest costs on the $300.0 million notes are 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.

	October 29,2004			January 30,2004
8.27% senior notes, due 2005	$	11.2		$	11.2
8.42% senior notes, due 2007		82.4			82.4
7.96% senior notes, due 2011		65.3			70.0
7.14% senior notes, due 2012		30.5			32.4
7.19% senior notes, due 2012		40.0			40.0
6.74% senior notes, due 2013		42.9			45.2
5.50% senior notes, due 2014		300.0			–
Unsecured bank notes under $500.0 million revolving credit agreement, payable June 14, 2009		–			100.0
Other notes payable with varying interest rates of 2.1% to 7.6% at October 29, 2004, with due dates from 2004 to 2010		8.7			32.1
Total debt		581.0			413.3
Less discount on debt issuance		(1.6	)		–
Total debt less discount		579.4			413.3
Less current portion		(45.1	)		(44.6	)
Total long-term debt	$	534.3		$	368.7


Note 7.	Earnings Per Share

~~On October 12, 2004,~~ weBasic ~~issued~~earnings ~~$300.0~~per ~~million~~share inis ~~original~~calculated ~~principal~~by ~~amount~~dividing ofnet ~~5.50%~~income ~~senior notes (~~by the ~~“notes”)~~weighted-average ~~due~~number onof ~~October~~shares ~~15,~~outstanding. ~~2014~~Diluted earnings inper ashare ~~private~~includes ~~placement pursuant to Rule 144A under~~ the ~~Securities~~additional ~~Act.~~dilutive ~~The~~effect ~~notes were issued at 99.468%~~ of ~~their par value~~ ~~and are reflected in~~ our ~~consolidated~~potential ~~balance~~common ~~sheet~~shares, ~~net~~which ofincludes ~~the~~certain ~~discount~~employee ofand director ~~$1.6~~stock ~~million.~~options ~~Total net proceeds from the sale of the notes were $295.7 million, including the $1.6 million discount~~ and ~~approximately~~unvested ~~$2.7~~shares ~~million~~ of ~~debt~~restricted ~~issuance costs,~~stock. ~~with~~The ~~$203.5~~following ~~million~~table ofsummarizes the ~~proceeds~~incremental ~~used~~shares ~~for~~from ~~the~~these potentially ~~repayment~~dilutive ofcommon ~~amounts~~shares, ~~outstanding~~calculated ~~under~~using ~~our $500.0 million revolving credit agreement and~~ the treasury ~~remainder~~method, toas beincluded ~~used~~in ~~for~~ the ~~acquisition~~calculation of ~~businesses, payment of scheduled principal amortization and~~diluted ~~interest~~weighted-average onshares ~~our~~(in millions):


		Three Months Ended

		April 30,		April 30,
		2005		2004

Basic weighted-average shares outstanding			64.6		59.9
Incremental shares resulting from:
	Stock options		0.8		0.9
	Restricted stock		1.1		0.9

Diluted weighted-average shares outstanding			66.5		61.7

~~senior~~Excluded ~~notes~~from ~~due~~the ~~2005~~above ~~through~~computations ~~2013,~~of ~~capital~~diluted ~~expenditures,~~weighted-average shares ~~working~~outstanding ~~capital~~were ~~needs~~6,000 and ~~other~~70,000 ~~general~~unvested ~~corporate~~shares ~~purposes.~~of restricted ~~The~~common ~~discount~~stock ~~and~~at ~~debt~~average ~~issuance~~prices ~~costs~~of $33.04 and ~~are~~$28.13 per ~~being~~share ~~amortized~~during tothe ~~interest~~first ~~expense~~quarter ~~over~~of ~~the~~fiscal ~~ten-year~~years 2006 ~~term~~and of2005, ~~the~~respectively, ~~notes~~because ~~under~~their ~~the~~effect ~~straight~~would have been anti-~~line~~dilutive. ~~method~~Options to purchase 388,221 shares of ~~which~~common ~~was~~stock ~~deemed~~at toan beaverage ~~materially~~exercise ~~consistent~~price ~~with~~of $30.63 during the ~~effective~~first ~~interest~~quarter ~~method.~~of ~~Interest~~fiscal onyear ~~the~~2006 ~~notes~~were isexcluded ~~payable~~from onthe above ~~April~~computations 15of ~~and~~diluted ~~October~~weighted-average 15shares ofoutstanding ~~each~~because ~~year,~~their ~~beginning~~effect onwould ~~April~~have ~~15,~~been ~~2005~~anti-dilutive. There ~~During~~were ~~the~~no ~~three~~employee ~~and~~or ~~nine~~director ~~months~~stock ~~ended~~options ~~October~~that ~~29,~~were considered ~~2004,~~to wehave ~~recognized~~an ~~approximately~~anti-dilutive ~~$0.8~~effect ~~million~~in ofthe ~~interest~~first ~~expense~~quarter of ~~associated~~fiscal ~~with~~year ~~the notes~~2005.

~~The~~Note ~~notes are unconditionally guaranteed, on a joint and several senior unsecured basis, by substantially all of our subsidiaries~~8. ~~The~~Commitments ~~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. Contingencies

OnLegal 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. As a result of this transaction, we recognized a pre-tax 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 associated with our previous credit agreement. 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 million. Interest on amounts outstanding under the revolving credit agreement is payable at market rates plus applicable margins. Commitment fees of 0.20% are currently paid on the revolving credit agreement. Matters

~~On March 16,~~ ~~2004,~~We weare ~~entered~~involved ~~into a sale-leaseback transaction~~ in ~~which~~various welegal ~~sold~~proceedings ~~our~~arising ~~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~~normal ~~Corporation~~course ~~(“WDC”) for $23.0 million and leased the property back for a period~~ of 20our ~~years~~business. ~~The~~In ~~proceeds~~our ~~from~~opinion, ~~the~~none ~~sale approximated the net book value~~ of the proceedings ~~property~~are ~~sold~~material ~~and~~in ~~were~~relation ~~paid by WDC~~ to ~~SunTrust~~our ~~Bank~~consolidated ~~(“SunTrust”) for application against amounts outstanding under a separate real estate term credit agreement (the “credit agreement”) we had previously executed on June 5~~operations, ~~2002~~cash ~~with~~flows ~~SunTrust.~~or Wefinancial ~~repaid the remaining amounts outstanding under the credit agreement with SunTrust in the first quarter of fiscal year 2005~~position. ~~The total amount of debt extinguished in the first quarter of fiscal year 2005 under the credit agreement with SunTrust totaled approximately $24.4~~ ~~million. See Note 12 for further information regarding our lease with WDC.~~

As In of1979, ~~October~~we 29acquired property located in Jacksonville, ~~2004~~Florida that has since been used to support a branch of our Electrical business. Recently, wesmall traces of hydrocarbons were discovered in ~~compliance~~limited ~~with~~soil ~~all~~samples. ~~financial~~Subsequent ~~and~~testing ~~non-financial~~of ~~covenants~~the ~~under~~soil revealed larger amounts of hydrocarbons that now require remediation, the extent of which is currently unknown. We believe that the contamination occurred prior to our ~~revolving~~acquisition ~~credit~~of ~~agreement~~the property and ~~notes~~are therefore currently evaluating all available recourse related to the remediation, including claims against third parties and against prior owners of the property. Although remediation of the property is probable, the cost of the remediation is not estimable at this time. Consequently, we have not accrued any amounts associated with this remediation. We do not expect the ultimate outcome of the remediation to be material to our consolidated results of operations, cash flows, or financial position.

Note 89. ~~Derivative~~ ~~Instrument~~Supplemental ~~and~~Cash ~~Hedging~~Flows ~~Activities~~ Information

~~On September 27, 2004, we entered into a 10-year treasury rate lock contract~~ ~~(“treasury~~Additional ~~lock”)~~supplemental ~~with~~information arelated ~~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~~accompanying ~~principal~~consolidated ~~amount~~statements of acash ~~then-forecasted~~flows ~~issuance~~is ~~of $300.0 million of notes (see Note 7) may be adversely affected by interest rate fluctuations. The treasury lock was designated~~ as afollows ~~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 couponmillions): ~~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~~


	Three Months Ended

	April 30,		April 30,
	2005		2004

Income taxes paid, net	$	2.2	$	2.2
Interest paid		8.0		0.9
Debt paid with sale-leaseback proceeds (non-cash activity)		—		23.0
Change in market value of interest rate swaps (non-cash activity)		0.9		—
Assets acquired with debt (non-cash activity)		—		1.8
Note received on the sale of property (non-cash activity)		1.4		—

We awarded an aggregate of 19,000 non-performance based restricted shares during the first quarter of fiscal year 2006 and 58,000 performance based restricted shares (net of 4,000 share cancellations) during the first quarter of fiscal year 2005 to certain key employees in accordance with our 1997 Executive Stock Plan. The market value of the non-performance-based restricted shares awarded during the first quarter of fiscal year 2006 and the performance based restricted shares awarded during the first quarter of fiscal year 2005 totaled $0.6 million and $1.8 million, respectively, at the date of the grants and were recorded as unearned compensation, a component of shareholders’ equity. These amounts are being charged ratably to expense over a vesting period of approximately five years.

On March 1, 2005, the Compensation Committee of the Board of Directors authorized the grant of 145,288 performance-based restricted stock grants under the amended 1997 Executive Stock Plan. The grants provide for graded vesting only if a comparison of our total shareholder return equals or exceeds the cumulative total shareholder return of the Standard & Poor’s 500 Composite Stock Index (the “S&P

~~recognized~~index”) inover ~~other~~a ~~comprehensive~~three-year ~~income,~~period. aThe ~~component~~market value of ~~shareholders’~~the performance-based ~~equity,~~restricted ~~subject~~shares toawarded ~~$1.4~~during ~~million~~the first quarter of ~~tax.~~fiscal ~~The~~year ~~gain~~2006 ontotaled ~~the~~$3.8 million ~~treasury~~as ~~lock~~of April 30, is2005 ~~being amortized~~and ~~into~~was ~~earnings~~recorded as anunearned ~~adjustment~~compensation. toA portion ~~interest~~of ~~expense~~the ~~over~~unearned ~~the~~compensation ~~same~~is expensed each reporting period inbased ~~which~~on the ~~related~~number ~~interest~~of ~~costs~~shares onexpected to ultimately vest in light of our performance against the ~~new~~S&P ~~debt~~index, ~~issuance~~our ~~are~~stock price ~~being~~and ~~recognized~~the investing ~~earnings~~period. ~~Approximately~~While ~~$0.3~~we ~~million~~anticipate ofmeeting these performance criteria, the ~~gain~~expense ~~will~~associated bewith ~~recognized~~these performance-based inshares ~~earnings~~could ~~as an~~be ~~adjustment~~reversed toshould ~~interest~~it ~~expense~~become unlikely ~~during~~that the ~~next~~related ~~twelve~~shares ~~months.~~will vest.

~~Note~~ 9On March 8, 2005, our Board of Directors declared a quarterly cash dividend of $0. ~~Comprehensive~~09 per ~~Income~~share that was paid on May 13, 2005 to shareholders of record on April 29, 2005. Dividends declared but not paid totaled $6.0 million and $4.0 million at April 30, 2005 and April 30, 2004, respectively.

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

	Three Months Ended				Nine Months Ended
	October 29,2004		October 31,2003		October 29,2004		October 31,2003
Net income	$	33.8	$	17.8	$	103.0	$	48.3
Other comprehensive income:
Net change in cash flow hedge—treasury lock (Note 8)		2.0		–		2.0		–
Total comprehensive income, net of tax	$	35.8	$	17.8	$	105.0	$	48.3

On November 10, 2004 and November 20, 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. The change in the fair value of the derivative instruments and the underlying long-term debt since January 31, 2005 was approximately $0.9 million, with the change in the fair value of the derivative instruments included within other assets in our consolidated balance sheets.

~~Accumulated other~~ ~~comprehensive~~During ~~income,~~the ~~net~~first ofquarter ~~tax, totaled $2.0 million as~~ of ~~October~~fiscal ~~29,~~year ~~2004~~2006, ~~consisting~~a ~~exclusively~~gain of approximately ~~the~~$0.9 million ~~net~~was ~~unrealized~~recognized ~~gain~~on ~~associated with~~ the ~~settlement~~sale of surplus ~~our~~property ~~treasury~~in ~~lock on October 5~~Miami, ~~2005~~Florida ~~(see~~for ~~Note~~which ~~8).~~we ~~The gross proceeds~~ received ~~from~~ ~~the~~approximately ~~settlement~~$0.2 million of ~~our~~cash ~~treasury~~proceeds ~~lock~~and ~~totaled~~a note receivable for $31.4 million. ~~There~~The ~~was~~sale noclosed ~~accumulated~~on April 30, ~~other~~2005, ~~comprehensive~~and ~~income~~the asnote ofreceivable ~~January~~was ~~30,~~satisfied ~~2004.~~in May 2005.

Note 10. ~~Capital~~ ~~Stock~~Subsequent Events

On ~~October 12~~May 2, ~~2004~~2005, we completed the ~~sale~~acquisition of ~~4.0~~National Construction ~~million~~Products, ~~shares~~Inc. of(“National”), ~~common stock at~~ a distributor ~~price~~ of ~~$30~~construction ~~per~~materials ~~share~~serving inthe aAtlanta, Georgia ~~public~~area. ~~offering~~National ~~that~~ generated ~~net proceeds~~sales of approximately $~~114.~~8 million, ~~net~~in ofits ~~$4.8~~latest ~~million~~fiscal ofyear ~~underwriting~~ended December 31, ~~discounts~~2004, ~~and commissions and $0.4 million of other expenses associated~~ with ~~the~~product ~~offering.~~offerings ~~The~~including ~~net~~tilt-up bracing ~~proceeds~~rental ~~from~~and ~~the~~lifting/bracing ~~common~~inserts, ~~stock offering were primarily used to fund the acquisition of Southwest Power~~lumber, ~~Inc.~~wire ~~and Western States Electric~~mesh, curing ~~Inc.~~compounds and ~~their~~form ~~subsidiary entities (collectively referred to as “SWP/WSE”) from a common private ownership group~~liners. The acquisition ~~was~~of ~~completed~~National will onassist ~~November~~us 1,in ~~2004~~expanding ~~for~~our amarket ~~cash~~share ~~purchase price~~for ofour ~~$110.7~~Building Materials ~~million,~~segment ~~net~~in ofthe ~~approximately~~metro-Atlanta ~~$12.8~~area ~~million~~and inalso ~~anticipated~~allows ~~tax~~us to ~~benefits~~invest ~~associated~~in ~~with~~ a ~~tax~~business ~~election~~that ~~under~~is ~~section~~well-aligned ~~338(h)(10)~~with ofour ~~the~~focus ~~Internal~~on providing ~~Revenue~~quality ~~Code.~~service ~~The purchase price is subject~~ to ~~the~~our ~~finalization~~customers, ofalong ~~working capital adjustments in accordance~~ with ~~the purchase agreement~~quality products.

~~Treasury~~ On ~~Stock~~May 19, 2005, our shareholders approved the amendment and restatement of our Articles of Incorporation to increase the number of authorized common shares from 100,000,000 to 200,000,000 shares. The increase in the number of authorized shares of common stock enables us to have additional common shares available for issuance in connection with future public or private financings involving the sale of common shares or securities convertible into common shares, acquisitions, employee benefit plans and other corporate purposes. We have no current plans, agreements or arrangements for the issuance of additional common shares other than upon the exercise of outstanding stock options and awards under our equity compensation plans.

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 during the first nine months of fiscal year 2004 totaled $6.0 million. There were no shares repurchased during the first nine months of fiscal year 2005.

Treasury stock of 0.4 million and 0.2 million shares were issued under stock plans during the first nine months of fiscal years 2005 and 2004, respectively.

Note 11. Earnings Per Share

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

	Three Months Ended		Nine Months Ended
	October 29,2004	October 31,2003	October 29,2004	October 31,2003
Basic weighted-average shares outstanding	61.1	45.8	60.3	45.7
Incremental shares resulting from:
Stock options	0.9	0.4	0.9	0.2
Restricted stock	1.0	0.7	1.0	0.7
Diluted weighted-average shares outstanding	63.0	46.9	62.2	46.6

Excluded from the above computations of diluted weighted-average shares outstanding for the three and nine months ended October 29, 2004 were 52,000 unvested shares of restricted stock at an average grant price of $30.88 per share because their effect would have been anti-dilutive. All stock options outstanding as of October 29, 2004 were dilutive and, therefore, included in the computation of diluted weighted-average shares outstanding for the three and nine months ended October 29, 2004. Excluded from the above computations of diluted weighted-average shares outstanding for the three and nine months ended October 31, 2003 were 0.3 million and 1.6 million outstanding stock options at an average price of $18.86 and $16.97 per share, respectively, because their effect would have been anti-dilutive. There were no unvested shares of restricted stock that were considered to have an anti-dilutive effect during the three and nine months ended October 31, 2003.

Note 12. Commitments and Contingencies

Lease Commitments

On April 30, 2004, we completed a sale-leaseback transaction for a portfolio of properties associated with 18 different branches. The properties were sold at a price of $32.7 million and leased back pursuant to 15-year minimum term operating leases. A loss of approximately $1.3 million resulting from the sale was recognized during the first quarter of fiscal year 2005 for the branches that were sold at a price less than their net book value. A gain of approximately $9.1 million resulting from the sale was deferred and will be amortized over the minimum term of the leases for branches that were sold at a price greater than their net book value. We do not have an option to purchase the leased facilities at the end of the minimum lease terms and have not issued any residual guarantees of the value of the leased facilities. The leases are accounted for as operating leases with future minimum annual lease payments totaling $1.9 million during fiscal year 2005, $2.6 million per year during fiscal years 2006 through 2008, $2.7 million during fiscal year 2009 and $28.8 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 $1.2 million during fiscal year 2005, $1.4 million per year during fiscal years 2006 through 2009 and $25.6 million thereafter.

Legal Matters

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

Note 13. Supplemental Cash Flows Information

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

	Nine Months Ended
	October 29,2004		October 31,2003
Income taxes paid, net	$	33.5	$	12.7
Income tax benefit of stock options exercised		2.5		0.3
Interest paid		14.3		15.7
Assets acquired with debt		1.5		18.9
Debt relieved with sale-leaseback proceeds (Note 12)		23.0		–

During the first nine months of fiscal years 2005 and 2004, we awarded an aggregate of 338,400 and 42,000 restricted shares, respectively, of our common stock to certain key employees in accordance with our 1997 Executive Stock Plan. The market value of the restricted shares awarded during the first nine months of fiscal year 2005 totaled $10.3 million at the date of the grant and was recorded as unearned compensation, a component of shareholders’ equity. This amount is being charged ratably to expense over the vesting period, which generally approximates five years.

On October 25, 2004, our Board of Directors declared a quarterly cash dividend of $0.065 per share that was payable on November 15, 2004 to shareholders of record at the close of business on November 1, 2004. Dividends declared but not paid totaled $4.3 million and $2.4 million at October 29, 2004 and October 31, 2003, respectively.

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

As discussed in Note 4, we acquired the net assets of Todd Pipe and Standard on May 28, 2004 and May 3, 2004, respectively. Additionally, on August 4, 2003, we acquired substantially all of the net assets of Marden Susco, LLC. There was no stock consideration issued in connection with these acquisitions. The net assets acquired and liabilities assumed for these acquisitions recorded using the purchase method of accounting during the first nine months of fiscal years 2005 and 2004 are summarized below (in millions).

	Nine Months Ended
	October 29,2004			October 31,2003
Accounts receivable	$	49.8		$	13.9
Inventories		33.3			6.5
Property and equipment		5.1			0.4
Goodwill		43.4			16.4
Intangible assets		17.0			1.0
Deferred income taxes		1.2			–
Other assets		3.9			0.3
Assets acquired		153.7			38.5
Accounts payable and accrued liabilities		(38.7	)		(11.5	)
Other liabilities		(13.6	)		(2.5	)
Long-term debt		–			(6.7	)
Liabilities assumed		(52.3	)		(20.7	)
Cash purchase price	$	101.4		$	17.8

Note 14. Related Party Transactions

During the first nine months of fiscal years 2005 and 2004, we approved donations totaling $0.6 million and $0.2 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.

In conjunction with our equity offering in October 2004 (see Note 10), 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.

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. The closing date is expected to occur on or before January 27, 2005.

Note 15. Subsequent Events

As discussed in Note 10, on November 1, 2004, we completed the acquisition of 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. SWP/WSE generated sales of approximately $244 million in its latest fiscal year ended December 31, 2003, with a complete T&D product offering and innovative supply chain management services. 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.

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 FAS 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 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.

PART I. FINANCIAL INFORMATION — Continued

HUGHES SUPPLY, INC.


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

Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) is intended to provide information to assist the reader in better understanding and evaluating our business and results of operations. This information is a discussion and analysis of certain significant factors that have affected our results of operations for the three ~~and nine~~ months ended ~~October 29~~April 30, ~~2004~~2005 and ~~October 31~~April 30, ~~2003~~2004, and our financial condition as of ~~October 29~~April 30, ~~2004~~2005. MD&A should be read in conjunction with our consolidated financial statements and the notes thereto contained herein and in our Annual Report on ~~Form~~ Form 10-K (the “Annual Report”) for the fiscal year ended January 30 31, ~~2004~~2005.

Forward-Looking Statements

Certain statements made by us or incorporated by reference in this report constitute “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, and are subject to the safe harbor provisions created by such sections. When used in this report, the words “believe,” “anticipate,” “estimate,” “expect,” “may,” “will,” “should,” “plan,” “intend,” “project,” and similar expressions are intended to identify forward-looking statements. Although we believe that the expectations reflected in such forward-looking statements are reasonable, weour ~~can give no assurance that such~~ expectations ~~will~~may not prove to be correct. Actual results or events may differ significantly from those indicated in ~~such~~our forward-looking statements as a result of various important factors. These factors are discussed under the caption “Item 1. Business — Risk Factors” in our ~~prospectus~~Annual ~~supplement~~Report ~~dated~~for ~~October 5, 2004 filed with~~ the ~~Securities~~year ~~and~~ended January 31, ~~Exchange Commission (“SEC”) pursuant to Rule 424(b)(5)~~2005. All forward-looking statements are qualified by and should be read in conjunction with those risk factors. Except as may be required by applicable law, we undertake ~~assume~~ no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events, or otherwise.

Business

Founded in 1928, we are one of the ~~nation’s~~ 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 branches in Canada. Our principal customers include water and sewer, plumbing, electrical, and mechanical contractors; ~~property~~public ~~management companies~~utilities; municipalities; ~~public~~property ~~utilities~~management companies; and industrial companies. Although we have a national presence, we operate principally in the southeastern and southwestern United States. Our fiscal year is a 52-week period ending on January 31.

Fiscal Year

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.

Segment Information

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

Inter-segment sales are excluded from ~~the~~ 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, employee benefits, data processing expenses, and insurance. These allocations are based on consumption or at a standard rate determined by management.

~~Same-Store Sales Methodology~~ 15

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

Results of Operations


	*Overview*

Our results of operations for the ~~third~~first quarter of fiscal year 2006 ~~2005~~ reflected higher net sales, ~~net income~~ and ~~diluted~~ earnings ~~per share~~compared ~~growth~~to ~~driven~~strong results ~~by strength~~ in ~~commercial and residential construction demand, higher commodity prices across all of our segments, and~~ the ~~impact~~prior ofyear’s ~~recent~~first ~~acquisitions, including Century Maintenance Supply, Inc~~quarter. ~~(“Century”), Standard Wholesale Supply Company (“Standard”) and Todd Pipe & Supply (“Todd Pipe”).~~ Net sales increased 3524.89% to $1,~~167~~239.5 7 million in the ~~third~~first quarter of fiscal year ~~2005~~2006, compared to ~~the~~ $~~859~~992.5 8 million reported in the ~~prior year’s~~same ~~third~~period ~~quarter.~~last ~~Same-store~~year, ~~sales~~with ~~increased 14~~$169.6%0 million ~~with~~of ~~double-digit~~the increase ~~growth~~relating ~~reported~~to inthe ~~seven~~impact of our ~~nine~~recent ~~businesses.~~acquisitions ~~Net~~of Standard ~~income~~Wholesale inSupply ~~the~~Company ~~third~~(“Standard”), ~~quarter~~Todd Pipe & ofSupply ~~fiscal~~(“Todd ~~year~~Pipe”), ~~2005~~and ~~totaled $33.8 million~~Southwest Power, ~~a $16~~Inc.0/ ~~million~~Western ~~increase~~States ~~compared~~Electric, toInc. ~~the prior~~(“SWP/ ~~year’s~~WSE”). ~~third~~Organic ~~quarter~~sales ~~net~~increased ~~income of $17~~8.8% ~~million.~~with ~~The~~positive ~~increase~~growth reported in ~~net~~Water & ~~income~~Sewer, ~~was~~Utilities, ~~primarily~~Electrical, Industrial ~~attributable~~PVF toand ~~the~~Building 14Materials.6% ~~increase~~However, ina ~~same-store~~higher ~~sales;~~average cost ~~the impact~~ of ~~our~~inventory ~~recent~~sold ~~acquisitions;~~and a ~~100~~change in business mix contributed to a 200 basis point ~~increase~~decrease in ~~our~~ gross margin ~~ratio~~ to ~~net~~ ~~sales, from~~ 22.53%, compared ~~during~~to the ~~third~~same ~~quarter~~period ofin ~~2004~~the toprior 23year.5% ~~for~~The decrease in the ~~third~~gross ~~quarter~~margin ofpercentage ~~fiscal~~was ~~year~~offset ~~2005;~~by ~~and~~ a 40 200 basis point reduction ~~improvement~~ in ~~our~~operating ~~ratio~~expenses ofas ~~operating~~a ~~expenses~~percentage toof net sales, ~~despite~~due primarily ~~higher~~to ~~expenses~~leverage ~~for~~obtained ~~variable~~from ~~compensation~~the ~~and benefits,~~higher ~~professional~~net ~~services~~sales, productivity ~~fuel~~improvements, ~~building~~moderation ~~rents,~~in ~~insurance,~~investment spending, and business mix. Net income in the ~~integration~~first quarter of ~~our~~2006 totaled ~~acquisitions~~$34.0 million, a $4.2 million or 14.1% increase compared to the prior year’s first quarter net income of $29.8 million. Diluted earnings per share in the first ~~third~~ quarter of fiscal year ~~2005~~2006 ~~was~~totaled $0.5451 on 63 66.0 5 million weighted-average shares outstanding, compared to to $0.38 48 per diluted share reported in the prior year on 46 61.9 7 million weighted-average shares outstanding. The 16 4.1 8 million increase in weighted-average shares outstanding was primarily the result of our equity ~~offerings~~offering in ~~January and~~ October of 2004, at which time an additional ~~13.8 million and~~ 4.0 million shares were issued~~, respectively~~.

Our results of operations for the first nine months of fiscal year 2005 also reflected higher net sales, net income and diluted earnings per share, driven primarily by the factors identified above in addition to the impact of the acquisition of Marden Susco, LLC (“Marden Susco”) in August 2003. Net sales increased 34.4% to $3,303.4 million during the first nine months of fiscal year 2005, compared to the $2,457.4 million reported in the prior year. Same-store sales increased 15.4% with growth reported in all of our segments and the three product lines comprising the Other category. Net income during the first nine months of fiscal year 2005 totaled $103.0 million, a $54.7 million increase compared to the prior year net income of $48.3 million. The increase in net income was primarily attributable to the 15.4% increase in same-store sales; the impact of our recent

acquisitions; a 130 basis point increase in our gross margin ratio to net sales, from 22.5% during the first nine months of fiscal year 2004 to 23.8% during the first nine months of fiscal year 2005; and a 30 basis point improvement in our ratio of operating expenses to net sales, despite higher expenses for variable compensation and benefits, fuel, insurance, professional services, building rents, and the integration of our acquisitions. Diluted earnings per share during the first nine months of fiscal year 2005 was $1.65 on 62.2 million weighted-average shares outstanding, compared to $1.04 per diluted share reported in the prior year on 46.6 million weighted-average shares outstanding. The 15.6 million increase in weighted-average shares outstanding was primarily the result of our equity offerings in January and October of 2004.


	*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 induring the ~~third~~first quarter ~~and first nine months~~ of fiscal years ~~2005~~2006 and ~~2004~~2005 (~~dollars~~ in millions):

	Three Months Ended									~~Nine Months Ended~~
	October 29,2004		October 31,2003				PercentageVariance			October 29,2004			October 31,2003			PercentageVariance
	April 30,			April 30,				Percentage
Existing sales base	$	984.5	$	840.9			17.1	%		$	2,791.4		$	2,369.8		17.8	%
	2005			2004				Variance
Branch openings/closures		4.0		16.9							32.8			65.6
Existing sales base	$	1,065.3		$	972.8				9.5	%
Acquisitions		179.0		161.0							578.0			512.4
Branch openings		5.4			—
Same-store sales (1)		1,167.5		1,018.8			14.6	%			3,402.2			2,947.8		15.4	%
Branch closures		—			18.6
Excluded (divested) branches (2)		–		1.7							2.9			5.1
Acquisitions		169.0			148.5
Less: Pre-acquisition pro forma sales		–		(161.0	)						(101.7	)		(495.5	)
Organic sales(1)		1,239.7			1,139.9				8.8	%
Total reported net sales	$	1,167.5	$	859.5			35.8	%		$	3,303.4		$	2,457.4		34.4	%
Excluded (divested) branches(2)		—			1.4
Less: Pre-acquisition pro forma sales		—			(148.5	)
Reported net sales	$	1,239.7		$	992.8				24.9	%

(1) Our same-store sales calculation includes all branches, including those that are newly opened, closed and 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.


⁽¹⁾	Organic sales is a measure used by management to assess the sales performance associated with branches we have had during each of the last two years (i.e., existing sales base), branches we have opened or closed within the last two years, and branches we have acquired during the last two years. Branches of any divested business are excluded from our calculation. For comparative purposes, prior period sales are reported on a pro forma basis to include pre-acquisition sales activity. We believe the methodology reflects the current sales performance of all of our branches, including those newly-acquired.

⁽²⁾	During the 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. As a result, the related prior year’s sales of $1.4 million have been excluded from organic sales.

(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, and the related sale was not reported as a discontinued operation because its operations were not significant to either the MRO segment or our consolidated results of operations.16

Net sales in the third quarter of fiscal year 2005 totaled $1,167.5 million, an increase of $308.0 million or 35.8%, compared to the prior year’s third quarter net sales of $859.5 million. Net sales in the first nine months of fiscal year 2005 totaled $3,303.4 million, an increase of $846.0 million or 34.4% compared to the prior year’s first nine months net sales of $2,457.4 million. These increases included approximately $179 million and $458 million of net sales during the third quarter and first nine months of fiscal year 2005, respectively, from the acquisitions of Century completed in December 2003 and of Standard and Todd Pipe completed in May 2004. Additionally, net sales associated with Marden Susco, acquired in August 2003, totaled $58.8 million and $16.8 million during the first nine months of fiscal years 2005 and 2004, respectively. The remaining increases were primarily the result of continued strength in both commercial and residential construction and higher commodity prices, which stabilized during the third quarter of fiscal year 2005 compared to the impact on our first two quarters of fiscal year 2005.

Same-store sales increased $148.7 million or 14.6% and $454.4 million or 15.4% during the third quarter and first nine months of fiscal year 2005, respectively, as compared to the prior year. All of our segments reported positive same-store sales growth during the first nine months of fiscal year 2005 and all but our MRO

~~segment~~Net ~~reported~~sales ~~positive~~in ~~same-store~~the ~~sales~~first ~~growth~~quarter ~~during~~of fiscal year 2006 totaled $1,239.7 million, an increase of $246.9 million or 24.9%, compared to the ~~third~~prior year’s first quarter net sales of $992.8 million. ~~Additionally~~Organic sales increased by $99.8 million or 8.8%, ~~four~~with ofpositive ~~the~~growth ~~six~~reported by our Water & Sewer, Utilities, Electrical, Industrial PVF and Building Materials segments. Our Plumbing/ HVAC, MRO, and collectively ~~all~~the ~~three~~two product lines comprising ~~the~~ our Other category reported ~~double-digit~~flat ~~same-store~~or slightly decreased sales. ~~growth~~The ~~during~~increase ~~both~~in ~~the~~net sales ~~third~~included approximately $169.0 million from our recent acquisitions, including Standard and Todd Pipe (completed in the second quarter of fiscal year 2005) and ~~first~~SWP/ ~~nine~~WSE ~~months~~(completed in the fourth quarter of fiscal year 2005). The ~~growth~~remaining increase in ~~same-store~~net sales was primarily ~~the~~due ~~result~~to of continued strength in ~~both~~ commercial and residential construction, and ~~higher~~increased industrial ~~commodity~~activity. ~~prices,~~Price ~~which~~changes ~~stabilized~~for ~~during~~commodity-based ~~the~~products were ~~third~~mixed, ~~quarter~~resulting ofin ~~fiscal~~a ~~year~~modest ~~2005~~price ~~compared~~impact to ~~the~~our ~~impact~~total reported onnet ~~our~~sales ~~first~~in ~~two~~the ~~quarters~~first quarter of fiscal year ~~2005~~2006.


	*Gross Margin*

Gross margin is affected by numerous factors, including, but not limited to, business and product mix changes, ~~commodity~~demand, commodity pricing, competition, purchasing rebates and direct shipments compared to stock sales. Gross margin and gross margin ratio to net sales induring the ~~third~~first quarter ~~and first nine months~~ of fiscal years ~~2005~~2006 and ~~2004~~ 2005 were as follows (~~dollars~~ in millions):

	October 29,2004			October 31,2003			Percentage andBasis Point Variance
	Three Months Ended
Three Months Ended
	April 30,			April 30,			Percentage and
Gross margin	$	273.9		$	193.5		41.6	%
	2005			2004			Basis Point Variance
Gross margin ratio to net sales		23.5	%		22.5	%	100
Gross margin	$	276.3		$	241.6			14.4	%
Nine Months Ended
Gross margin ratio to net sales		22.3	%		24.3	%		(200	)
Gross margin	$	786.1		$	553.4		42.0	%
Gross margin ratio to net sales		23.8	%		22.5	%	130

Gross margin ratio to net sales ~~was~~totaled 2322.53% and 2224.53% in the first ~~third~~ quarter of fiscal years ~~2005~~2006 and ~~2004~~2005, respectively,. ~~and~~The 200 basis ~~23.8%~~point ~~and~~decrease ~~22.5%~~was inmainly ~~the~~attributable ~~first~~to ~~nine~~the favorable ~~months~~impact ofin ~~fiscal~~the ~~years~~prior ~~2005~~year ~~and~~quarter ~~2004,~~of ~~respectively.~~higher ~~The~~selling prices ~~100~~resulting ~~and~~from ~~130~~a ~~basis~~steep ~~point~~increase ~~improvements~~in ~~during~~commodity ~~the~~prices ~~third~~while ~~quarter~~the ~~and~~commensurate ~~first~~increase ~~nine~~in ~~months~~product ofcosts ~~fiscal~~was ~~year~~not ~~2005,~~incurred until ~~respectively,~~the ~~were~~inventory ~~mainly~~was ~~attributable~~replaced ~~to a change~~ in ~~our~~subsequent ~~net~~months. ~~sales~~Also contributing ~~mix~~to ~~resulting from~~ the ~~acquisition~~decline ~~of Century~~ in ~~December~~gross ~~2003,~~margin ~~which~~was is a ~~higher~~change ~~margin~~ in business, ~~and~~mix ~~the~~as ~~improved~~compared ~~performance~~to ~~of Industrial~~the ~~PVF~~prior ~~and~~year ~~Building~~comparable ~~Materials~~quarter, with ~~traditionally~~increased ~~higher~~sales from our lower-margin ~~businesses,~~Utilities ~~resulting~~business comprising ~~from~~15.7% ~~improved~~of ~~market~~our ~~conditions~~net ~~and~~sales ~~our~~in ~~ability~~the tofirst ~~pass~~quarter onof ~~higher~~fiscal year ~~commodity~~2006 ~~prices.~~compared ~~Net~~to ~~sales~~10.1% in ~~our~~the ~~MRO~~prior ~~segment~~year’s first quarter as a ~~percentage~~result of ~~total~~the ~~consolidated~~SWP/ ~~net~~WSE ~~sales~~acquisition. Partially ~~increased~~offsetting bythe ~~600~~business ~~basis~~mix ~~points~~impact ~~and~~was ~~650~~the ~~basis~~increased ~~points~~sales ~~during~~from our ~~the~~Industrial ~~third~~PVF ~~quarter~~business, ~~and~~which ~~first~~has ~~nine~~historically ~~months~~generated higher ofmargins ~~fiscal~~than ~~year~~our ~~2005~~other businesses, ~~respectively~~and improved purchasing leverage, resulting in higher vendor rebate income compared to the ~~respective~~first ~~prior~~quarter of fiscal year ~~periods~~2005.

The value of our inventories and related cost of sales are determined by the moving average cost method. As a result, changes in cost of sales generally occur later than price changes reflected in our net sales figures over a given period of time. Prices for most commodities, while still well above the prior year levels, stabilized during the third quarter of fiscal year 2005, which allowed our inventory costs to catch up with the market price of the commodities and allowed us to maintain relatively stable margins from the prior quarter.


	*Operating Expenses*

Operating expenses and ~~the related~~ percentage of net sales for the ~~third~~ first quarter ~~and first nine months~~ of fiscal years ~~2005~~2006 and ~~2004~~2005 were as follows ~~(dollars~~ (in millions):

	Operating Expenses								~~Percentage of Net Sales~~		Percentage of Net Sales
	Three Months Ended								~~Three Months Ended~~		Three Months Ended
	October 29,2004		October 31,2003			PercentageVariance			October 29,2004		October 31,2003			Basis PointVariance
	April 30,			April 30,				Percentage			April 30,				April 30,			Basis Point
Personnel expenses	$	137.6	$	100.3		37.2	%		11.8	%	11.7	%		10
	2005			2004				Variance			2005				2004			Variance
Other selling, general and administrative expenses		68.4		53.7		27.4	%		5.8	%	6.3	%		(50	)
Personnel expenses	$	140.2		$	120.5				16.3	%		11.3	%			12.1	%		(80	)
Depreciation and amortization		6.6		5.5		20.0	%		0.6	%	0.6	%		–
Other selling, general and administrative expenses		65.8			64.5				2.0	%		5.3	%			6.5	%		(120	)
Total	$	212.6	$	159.5		33.3	%		18.2	%	18.6	%		(40	)
Depreciation and amortization		7.8			6.0				30.0	%		0.6	%			0.6	%		—
Total	$	213.8		$	191.0				11.9	%		17.2	%			19.2	%		(200	)

22 Personnel expenses during the first quarter of fiscal year 2006 increased by $19.7 million or 16.3% as compared to the first quarter of fiscal year 2005. Over one-half of the $19.7 million increase was the result of the Standard, Todd Pipe, and SWP/ WSE acquisitions. Our workforce increased approximately 13%, from approximately 8,300 employees at April 30, 2004 to approximately 9,400 at April 30, 2005 primarily

	Operating Expenses						Percentage of Net Sales
	Nine Months Ended						Nine Months Ended
	October 29,2004		October 31,2003		PercentageVariance		October 29,2004		October 31,2003		Basis PointVariance
Personnel expenses	$	388.9	$	290.1	34.1	%	11.8	%	11.8	%	–
Other selling, general and administrative expenses		195.5		151.2	29.3	%	5.9	%	6.2	%	(30	)
Depreciation and amortization		19.3		15.6	23.7	%	0.6	%	0.6	%	–
Total	$	603.7	$	456.9	32.1	%	18.3	%	18.6	%	(30	)

as a result of prior year acquisitions. Excluding the impact of these acquisitions, our workforce increased by approximately 4% compared to the prior year’s first quarter. The $8.3 million or 6.9% increase in personnel expenses during the first quarter of fiscal year 2006, excluding the impact of the acquisitions, was primarily the result of a $6.1 million or 9.0% increase in salaries and wages as a result of the increase in headcount (which included a number of key management additions), a $1.8 million increase in temporary labor and overtime primarily related to various system conversions, an $0.8 million increase in hiring expenses primarily related to the increased headcount, and a $0.7 million increase in additional restricted stock amortization associated with fiscal year 2005 and first quarter of fiscal year 2006 restricted stock grants. These increases were partially offset by a reduction in employee health insurance expenses of $2.2 million due to lower claims activity in the first quarter of fiscal year 2006 compared to the first quarter of fiscal year 2005 and due to a change in our healthcare provider effective January 1, 2005.

As Other aselling, ~~percentage~~general ofand ~~net sales,~~administrative ~~personnel~~ expenses ~~remained~~increased $1.3 million ~~relatively~~or ~~consistent at 11~~2.80% ~~and~~as ~~11.7%~~compared into the ~~third~~first quarter of fiscal ~~years~~year 2005 ~~and 2004, respectively, with the $37~~.3 ~~million~~The ~~increase~~acquisitions ~~quarter~~of ~~over~~Standard, ~~quarter~~Todd ~~primarily relating to the Century~~Pipe, ~~Standard~~ and ~~Todd~~ ~~Pipe~~SWP/ ~~acquisitions,~~WSE ~~which~~accounted ~~collectively~~for ~~contributed~~$4.8 million ~~approximately one-half~~ of the increase inwhile building ~~personnel~~rents ~~expenses~~increased ~~during~~approximately ~~the~~$1.9 million ~~third~~due ~~quarter~~in part ofto ~~fiscal~~the ~~year~~sale-leaseback ~~2005.~~transactions ~~Our~~completed ~~workforce~~in ~~increased~~April ~~24.7%~~and December ~~during the third quarter~~ of fiscal year 2005,. ~~from~~These anincreases ~~average of~~in ~~approximately~~other 7selling,~~300~~ general ~~employees~~and ~~during~~administrative ~~the~~costs ~~third~~were ~~quarter~~partly ofoffset ~~fiscal~~by ~~year~~a $2.0 million ~~2004~~decrease toin ~~approximately~~marketing ~~9,100~~expenses ~~during the current year primarily~~ as a result of expanded ~~the~~vendor ~~acquisitions.~~involvement ~~Excluding~~in ~~the impact of the acquisitions,~~ our ~~workforce~~marketing ~~increased~~promotions byand ~~approximately~~events, 4%a ~~over last year’s third quarter~~$0.9 million ~~The~~gain ~~increase~~realized inon ~~personnel expenses during~~ the ~~third~~sale ~~quarter~~ of ~~fiscal~~surplus property ~~year~~in ~~2005~~Miami, ~~excluding the impact of the acquisitions~~Florida, ~~was~~and ~~primarily~~a ~~the~~$1.9 million ~~result~~reduction ~~of an increase~~ in ~~variable compensation due to~~ the ~~net~~provision ~~sales~~for ~~and~~doubtful ~~earnings~~accounts ~~growth;~~due to an ~~increase~~improvement in ~~salaries and wages consistent with~~ the credit 4%quality ~~increase~~of ~~in headcount; an increase in vacation expense primarily resulting from~~ our ~~change~~accounts toreceivable athrough ~~policy~~enhanced credit ~~adopted~~policies ~~during~~and ~~the~~management ~~fourth~~of ~~quarter~~past ofdue ~~fiscal~~accounts ~~year~~and ~~2004~~a insignificant ~~which~~reduction ~~employees earn their vacation entitlement ratably throughout the year; an increase in the amortization~~ of ~~restricted~~over ~~stock~~60 days ~~mainly~~receivable ~~attributable~~balances compared to ~~270,400 stock grants in~~ the ~~third~~first quarter of fiscal year 2005; ~~and~~as anwell ~~increase~~as ~~in expenses~~the ~~associated~~non-recurring ~~with~~$0.8 million ~~the~~write-off ~~supplemental~~in ~~executive retirement plan due to enhancements made to~~ the ~~plan~~Industrial PVF segment in the ~~first~~prior ~~quarter of fiscal~~ year ~~2005~~.

As The aincrease ~~percentage~~in depreciation and amortization expense of $1.8 million ~~net~~during ~~sales,~~the ~~personnel~~first ~~expenses~~quarter ~~remained~~of ~~flat~~fiscal atyear ~~11.8%~~2006 compared ~~during~~to the first ~~nine~~quarter ~~months~~ of fiscal ~~years~~year 2005 ~~and~~was ~~2004.~~primarily a ~~Approximately~~result ~~one-half~~ of ~~the~~incremental ~~$98.8~~amortization ~~million~~expense ~~increase~~associated inwith ~~costs~~the intangible assets related to the ~~Century~~Standard, ~~Standard and~~ Todd Pipe ~~acquisitions~~ and ~~the~~SWP/ WSE ~~full~~acquisitions. ~~year~~Depreciation ~~impact~~expense ofwas ~~Marden~~relatively ~~Susco,~~consistent with ~~acquired~~the incomparable ~~August~~quarter ~~2003.~~in ~~Excluding~~ the ~~impact~~prior ofyear ~~the~~with ~~acquisitions,~~ the increase in ~~personnel~~depreciation ~~expenses~~from ~~during~~capital expenditures primarily offset by the ~~first~~decrease ~~nine~~in ~~months~~depreciation ofassociated ~~fiscal~~with ~~year~~the ~~2005~~sale-leaseback transactions ~~was~~that ~~primarily~~occurred ~~the~~in ~~result~~April ofand ~~the~~December ~~factors~~of ~~identified~~fiscal inyear 2005. ~~the~~As ~~analysis~~a percentage of ~~the~~net ~~third~~sales, ~~quarter’s~~depreciation ~~results~~and amortization ~~above~~expenses inremained ~~addition~~flat toat an0.6% ~~increase~~of innet ~~employee~~sales ~~healthcare~~for ~~insurance~~the first ~~expenses~~quarter ~~due~~of tofiscal ~~higher~~years ~~enrollment~~2006 and ~~increasing~~ ~~healthcare~~2005, ~~costs~~respectively.

~~As a percentage of net sales,~~ ~~other~~We ~~selling,~~are ~~general~~primarily ~~and~~a ~~administrative~~fixed ~~expenses~~cost ~~decreased~~business; ~~50 basis points to 5.8% in the third quarter of fiscal year 2005~~consequently, ~~compared~~a percentage tochange ~~6.3%~~ in ~~the~~our ~~third~~net ~~quarter~~sales ofcan ~~fiscal~~have ~~year 2004, primarily as~~ a ~~result~~greater ~~of the operating leverage obtained from~~percentage ~~the~~effect ~~increase~~on inour ~~net~~operating ~~sales.~~expense ~~The $14~~ratio.7 ~~million~~As ~~increase~~a inpercentage ~~costs was primarily related to the Century, Standard and Todd Pipe acquisitions, which contributed approximately three-fourths~~ of ~~the increase in the third quarter of fiscal year 2005.~~net ~~Excluding the acquisitions~~sales, ~~other~~total ~~selling,~~operating ~~general~~expenses ~~and~~decreased ~~administrative~~200 basis ~~expenses~~points compared ~~increased~~to in the ~~third~~prior ~~quarter of fiscal~~ year ~~2005 mainly~~ due primarily to anleverage ~~increase~~obtained from ~~in costs associated with~~ the ~~closure~~higher ofnet ansales, ~~Electrical~~productivity ~~distribution~~improvements, ~~center~~lower investment ~~in Orlando~~spending, ~~Florida~~ and ~~the~~business ~~closure~~mix, ofincluding ~~five~~an ~~branches~~ improvement in the ~~MRO~~Utilities segment ~~resulting~~that ~~from~~was ~~the~~primarily ~~integration~~related ofto the ~~Century~~SWP/ WSE acquisition;. anAs ~~increase~~a incomponent ~~vehicle expenses due primarily to our initiative to lease vehicles upon replacement~~ of ~~owned~~overall ~~vehicles;~~operating ~~an increase in~~expenses, ~~professional~~personnel ~~service~~expenses ~~expense~~decreased ~~for~~80 basis ~~fees~~points ~~relating~~ to ~~systems~~11.3% ~~development~~in the ~~and~~first ~~Sarbanes~~quarter ~~Oxley~~of ~~compliance;~~fiscal anyear ~~increase~~2006, incompared ~~fuel due~~ to ~~higher~~12.1% ~~prices; an increase~~ in ~~building rents primarily resulting from our~~ the first quarter of fiscal year 2005 ~~sale-leaseback~~. ~~transactions;~~Other ~~and~~selling, angeneral ~~increase~~and administrative inexpenses ~~insurance~~decreased ~~expenses~~120 basis ~~due~~points to a5.3% in ~~higher level of larger claims;~~ the ~~total~~first ofquarter ~~which was partially offset by costs associated with the relocation~~ of ~~our~~fiscal ~~corporate~~year ~~offices~~2006, ~~during~~compared ~~October~~to ~~2003 totaling $2~~6.~~0 million~~5% ~~to establish a liability for~~ in the ~~fair~~first ~~value~~quarter of ~~the~~fiscal ~~remaining~~year ~~lease payments due under the previous locations’ leases~~2005.

As a percentage of net sales, other selling, general and administrative expenses decreased 30 basis points to 5.9% in the first nine months of fiscal year 2005 compared to 6.2% during the first nine months of fiscal year 2004, primarily as a result of the operating leverage obtained from the increase in net sales. Approximately two-thirds

of the $44.3 million increase in costs related to the Century, Standard and Todd Pipe acquisitions and the full year impact of Marden Susco, acquired in August 2003. Excluding the acquisitions, other selling, general and administrative expenses increased during the first nine months of fiscal year 2005 primarily as a result of the factors identified in the analysis of the third quarter’s results above in addition to a higher provision for doubtful accounts and increased donations during fiscal year 2005 to the Hughes Supply Foundation, Inc., a not-for-profit charitable foundation. The higher provision for doubtful accounts was mainly the result of a bad debt recovery during the second quarter of fiscal year 2004 in the Utilities segment and a reserve in the current year relating to one specific customer in the Industrial PVF segment.

As a percentage of net sales, depreciation and amortization expenses remained flat at 0.6% in the third quarter of fiscal years 2005 and 2004 as well as for the first nine months of fiscal years 2005 and 2004, respectively. The increase of $1.1 million and $3.7 million during the third quarter and the first nine months of fiscal year 2005, respectively, compared to the prior year periods was primarily the result of the incremental amortization associated with the intangible assets related to the Century, Standard and Todd Pipe 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 from our sale leaseback transaction on April 30, 2004 for a portfolio of properties associated with 18 different branches.


	*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 the ~~third quarter and~~ first ~~nine months~~ quarter of fiscal years ~~2005~~2006 and ~~2004~~2005 was as follows (~~dollars~~ in millions):

	Operating Income								~~Percentage of Net Sales~~		Percentage of Net Sales
	October 29,2004		October 31,2003			PercentageVariance			October 29,2004		October 31,2003			Basis PointVariance
	Three Months Ended										Three Months Ended
Three Months Ended	$	61.3	$	34.0		80.3	%		5.3	%	4.0	%		130
	April 30,			April 30,				Percentage			April 30,				April 30,			Basis Point
Nine Months Ended		182.4		96.5		89.0	%		5.5	%	3.9	%		160
	2005			2004				Variance			2005				2004			Variance
Operating income	$	62.5		$	50.6				23.5	%		5.0	%			5.1	%		(10	)

~~Operating income~~18 during the third quarter of fiscal year 2005 totaled $61.3 million, increasing $27.3 million or 80.3%, compared to the prior year’s third quarter operating income of $34.0 million, due in part to the acquisitions of Century, Standard and Todd Pipe. Operating income as a percentage of net sales increased 130 basis points to 5.3% in the third quarter of fiscal year 2005 compared to 4.0% in fiscal year 2004 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.

Operating income during the first nine months of fiscal year 2005 totaled $182.4 million, increasing $85.9 million or 89.0%, compared to the prior year’s first nine months operating income total of $96.5 million, due in part to the acquisitions of Century, Standard and Todd Pipe. As a percentage of net sales, operating income increased 160 basis points during the first nine months of fiscal year 2005 to 5.5%, compared to 3.9% in the prior year, for reasons consistent with those identified in the analysis of the third quarter of fiscal year 2005 above.

Interest Expense

Interest expense totaled $7.8 million and $7.3 million in the third quarter of fiscal years 2005 and 2004, respectively. Interest expense increased $0.5 million during the third quarter of fiscal year 2005 primarily as a result of $0.8 million of incremental interest expense related to our $300.0 million in original principal amount of 5.50% notes that closed on October 12, 2004, the proceeds of which were primarily used to repay amounts outstanding under our $500.0 million revolving credit agreement.

Interest expense totaled $21.6 million and $22.4 million during the first nine months of fiscal years 2005 and 2004, respectively. Interest expense for the first nine months of fiscal year 2005 included an $0.8 million charge for the 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~~Operating ~~the~~income ~~$0.8 million charge, interest expense decreased by $1.6 million~~ during the first ~~nine~~quarter ~~months~~ of fiscal year ~~2005~~2006 totaled $62.5 million, increasing $11.9 million or 23.5%, compared to the prior year~~. The~~’s ~~decrease~~first inquarter ~~interest~~operating income ~~expense was primarily the result~~ of an$50.6 million. 80Operating ~~basis~~income ~~point~~as ~~decrease~~a inpercentage of ~~the~~net ~~weighted-average~~sales ~~interest~~decreased ~~rate~~10 basis ~~partially~~points ~~offset~~due byprimarily to a 200 basis ~~slight~~point ~~increase~~reduction in our ~~weighted-average~~gross ~~outstanding~~margin ~~debt balance, which was primarily the result of~~percentage ~~our~~resulting ~~$300.0~~from ~~million~~a ~~debt~~higher ~~issuance. The decrease in the weighted-~~average ~~interest~~cost ~~rate~~of ~~was~~inventory ~~primarily~~sold ~~attributable~~and toa change ~~an increase~~ in ~~the~~business mix ofcompared ~~lower-cost~~to ~~variable-rate borrowings under our revolving credit agreement during~~ the first ~~nine~~quarter ~~months~~ of ~~fiscal~~ fiscal year 2005, inpartly ~~addition~~offset toby a ~~lower~~200 basis ~~weighted-average~~point ~~interest~~reduction ~~rate~~in operating ~~associated~~expenses ~~with~~as ~~our~~a ~~fixed~~percentage ~~rate~~of ~~notes~~net sales, resulting from the ~~principal~~leverage ~~amortization~~obtained offrom the higher ~~cost~~net ~~notes~~sales, ~~and~~productivity improvements, ~~the~~moderation ~~impact~~in ofinvestment aspending, ~~lower~~and ~~fixed rate borrowing~~business mix.


	*Interest Expense*

Interest expense totaled $9.0 million and $6.3 million in the first quarter of fiscal years 2006 and 2005, respectively. The increase was due primarily to a $119.1 million or 28.0% increase in our weighted-average outstanding debt balances and a 66 basis point increase in our weighted-average interest rate. These increases were mainly attributable to our private placement of $300.0 million in original principal amount of 5.5% senior notes in October 2004, a portion of the proceeds from which were used to pay off amounts outstanding under our revolving credit agreement.


	*Interest and Other Income*

Interest and other income totaled $12.9 2 million and $1.4 7 million in the ~~third quarter of fiscal years 2005 and 2004, respectively, and $5.2 million and $4.8 million in the~~ first ~~nine~~quarter ~~months~~ of fiscal years ~~2005~~2006 and ~~2004~~ 2005, respectively. The increase ~~during~~in the ~~third~~first quarter of fiscal year ~~2005~~2006 was ~~primarily~~mainly ~~the~~due ~~result~~to ~~of increased service charge and interest income. The~~ additional interest income isresulting from ~~mainly~~an ~~attributable to the~~ increased ~~levels~~level of cash, ~~in the quarter~~ primarily resulting from ~~the proceeds received on October 12, 2004 from~~ our equity ~~debt~~ and ~~equity~~debt offerings~~, net~~ ~~of discounts, underwriting fees, other expenses and the repayment of $203.5 million of amounts outstanding under our $500.0 million revolving credit agreement. The increase~~ in ~~interest~~October and other income during the first nine months of fiscal year 2005 was primarily the result of interest received during the first quarter of fiscal year 2005 related to the settlement of amended prior year federal income tax filings in addition to the factors described for the quarterly fluctuation, the combination of which was partially offset by a favorable legal settlement in the prior year2004.


	*Income Taxes*

Our effective tax rate ~~was 39.0% and 36.7%~~ in the ~~third~~first quarter of fiscal years ~~2005~~ 2006 and ~~2004,~~2005 ~~respectively,~~was ~~and 38~~39.0% and 3835.82% ~~in the first nine months of fiscal years 2005 and 2004~~, respectively. The increase ~~in the effective tax rate during the third quarter of fiscal year 2005 compared to the prior year~~ was ~~primarily the result of a tax benefit of $1.0 million recognized in the prior year related to a discontinued operation in Mexico. The decrease in our effective tax rate~~ ~~during the first nine months of fiscal year 2005 was~~ primarily attributable to a $1.7 million tax benefit realized ~~recognized~~ in the first quarter of fiscal year 2005 related to federal income tax filing amendments associated with prior fiscal years ~~partially offset by the $1~~.0 ~~million tax benefit recognized in the third quarter of the prior year.~~ Our effective tax rate is expected to be 39.0% for the remainder of fiscal year ~~2005~~2006.

Segment Results

~~Consolidated~~ Net sales and ~~same-store~~organic sales by segment in the ~~third~~first quarter ~~and first nine months~~ of fiscal years ~~2005~~2006 and ~~2004~~2005 were as follows (~~dollars~~ in millions):

	Consolidated Net Sales								Same-Store Sales
	Net Sales										Organic Sales
	Three Months Ended								~~Three Months Ended~~		Three Months Ended
	October 29,2004		October 31,2003			PercentageVariance			October 29,2004		October 31,2003		PercentageVariance
	April 30,			April 30,				Percentage			April 30,			April 30,		Percentage
Water & Sewer	$	327.8	$	254.6		28.8	%		$	327.8	$	273.2	20.0	%
	2005			2004				Variance			2005			2004		Variance
Plumbing/HVAC		284.5		218.5		30.2	%			284.5		274.8	3.5	%
Water & Sewer	$	320.3		$	271.6				17.9	%	$	320.3		$	291.7		9.8	%
MRO		116.3		34.5		237.1	%			116.3		118.9	(2.2	)%
Plumbing/ HVAC		283.8			220.9				28.5	%		283.8			283.7		0.0	%
Utilities		~~118~~194.03		~~99.1~~	100.1	~~19.1~~	%		94.1	~~118.0~~%		99194.13	~~19.1~~	%	165.8		17.2	%
Electrical		111.1		94.0		18.2	%			111.1		94.0	18.2	%
MRO		100.4			106.9				(6.1)	%		100.4			105.4		(4.7)	%
Industrial PVF		96.7		73.2		32.1	%			96.7		73.2	32.1	%
Electrical		106.0			102.3				3.6	%		106.0			102.3		3.6	%
Other		113.1		85.6		32.1	%			113.1		85.6	32.1	%
Industrial PVF		117.7			82.7				42.3	%		117.7			82.7		42.3	%
Total	$	1,167.5	$	859.5		35.8	%		$	1,167.5	$	1,018.8	14.6	%
Building Materials		68.6			59.1				16.1	%		68.6			59.1		16.1	%
Other		48.6			49.2				(1.2)	%		48.6			49.2		(1.2)	%
Total	$	1,239.7		$	992.8				24.9	%	$	1,239.7		$	1,139.9		8.8	%

25 19

	Consolidated Net Sales						Same-Store Sales
	Nine Months Ended						Nine Months Ended
	October 29,2004		October 31,2003		PercentageVariance		October 29,2004		October 31,2003		PercentageVariance
Water & Sewer	$	922.7	$	706.1	30.7	%	$	942.8	$	794.3	18.7	%
Plumbing/HVAC		785.5		643.2	22.1	%		867.1		804.6	7.8	%
MRO		349.5		101.3	245.0	%		346.6		342.1	1.3	%
Utilities		326.8		279.5	16.9	%		326.8		279.5	16.9	%
Electrical		321.4		274.4	17.1	%		321.4		274.4	17.1	%
Industrial PVF		265.0		213.7	24.0	%		265.0		213.7	24.0	%
Other		332.5		239.2	39.0	%		332.5		239.2	39.0	%
Total	$	3,303.4	$	2,457.4	34.4	%	$	3,402.2	$	2,947.8	15.4	%

Operating income by segment and as a percentage of net sales for the first three months of fiscal years 2006 and 2005 was as follows (in millions):

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


	Operating Income							Percentage of Net Sales

	Three Months Ended							Three Months Ended

	April 30,		April 30,		Percentage			April 30,			April 30,			Basis
	2005		2004		Variance			2005			2004			Points

Water & Sewer	$	14.0	$	10.5		33.3	%		4.4	%		3.9	%		50
Plumbing/ HVAC		5.9		4.9		20.4	%		2.1	%		2.2	%		(10	)
Utilities		6.8		2.8		142.9	%		3.5	%		2.8	%		70
MRO		7.5		7.7		(2.6)	%		7.5	%		7.2	%		30
Electrical		3.0		3.5		(14.3)	%		2.8	%		3.4	%		(60	)
Industrial PVF		17.9		11.4		57.0	%		15.2	%		13.8	%		140
Building Materials		5.0		5.0		0.0	%		7.3	%		8.5	%		(120	)
Other		1.4		4.8		(70.8)	%		2.9	%		9.8	%		(690	)
Corporate⁽¹⁾		1.0		—		100.0	%		—			—			—

Total	$	62.5	$	50.6		23.5	%		5.0	%		5.1	%		(10	)

	Operating Income						Percentage of Net Sales
	Three Months Ended						Three Months Ended
	October 29,2004		October 31,2003		PercentageVariance		October 29,2004		October 31,2003		Basis PointVariance
Water & Sewer	$	16.6	$	13.8	20.3	%	5.1	%	5.4	%	(30	)
Plumbing/HVAC		4.9		3.9	25.6	%	1.7	%	1.8	%	(10	)
MRO		9.0		2.3	291.3	%	7.7	%	6.7	%	100
Utilities		6.0		3.3	81.8	%	5.1	%	3.3	%	180
Electrical		2.0		1.4	42.9	%	1.8	%	1.5	%	30
Industrial PVF		15.1		5.3	184.9	%	15.6	%	7.2	%	840
Other		7.7		4.0	92.5	%	6.8	%	4.7	%	210
Total	$	61.3	$	34.0	80.3	%	5.3	%	4.0	%	130


⁽¹⁾	The $1.0 million of operating income in the Corporate category related to the net gain associated with the sale of surplus properties during the first quarter of fiscal year 2006, including a $0.9 million gain associated with the sale of surplus property in Miami, Florida as further discussed in Note 9 to the consolidated financial statements.

	Operating Income						Percentage of Net Sales
	Nine Months Ended						Nine Months Ended
	October 29,2004		October 31,2003		PercentageVariance		October 29,2004		October 31,2003		Basis PointVariance
Water & Sewer	$	45.9	$	36.1	27.1	%	5.0	%	5.1	%	(10	)
Plumbing/HVAC		18.5		11.1	66.7	%	2.4	%	1.7	%	70
MRO		28.6		6.5	340.0	%	8.2	%	6.4	%	180
Utilities		13.5		10.8	25.0	%	4.1	%	3.9	%	20
Electrical		8.3		4.9	69.4	%	2.6	%	1.8	%	80
Industrial PVF		39.0		17.2	126.7	%	14.7	%	8.0	%	670
Other		28.6		9.9	188.9	%	8.6	%	4.1	%	450
Total	$	182.4	$	96.5	89.0	%	5.5	%	3.9	%	160

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


	*Water & Sewer*

Net sales: Net sales in the ~~third~~first quarter of fiscal year 2006 ~~2005~~ totaled $~~327~~320.8 3 million, an increase of $7348.2 7 million or 2817.89%, compared to the prior year’s first ~~third~~ quarter net sales of $~~254~~271.6 million. This increase included net sales of $2023.3 8 million from the Standard acquisition completed in May 2004., ~~Same~~which posted strong growth in the fast-~~store~~growing ~~sales~~Las ~~increased~~Vegas bymarket. Organic sales increased $5428.6 million or 209.08% compared to the ~~third~~first quarter of fiscal year ~~2004~~2005 due primarily to continued strong demand, particularly ~~which~~in ~~includes~~Florida, ~~pro~~Arizona, ~~forma~~Texas, ~~sales~~and ofNevada, ~~$18.6~~along ~~million~~with higher prices for ~~Standard.~~polyvinyl ~~The~~chloride ~~same-store~~(“PVC”) and ~~sales~~ductile ~~growth~~iron ~~of 20~~pipe.0% ~~during~~These ~~the~~increases ~~third~~were ~~quarter~~partially ofoffset ~~2005~~by weaker ~~was~~sales during March 2005 due to weather-related project delays in southern California and parts of the Southeast.

26 Operating income: As a percentage of net sales, operating income increased to 4.4% in the first quarter of fiscal year 2006 from 3.9% in the prior year’s first quarter. The 50 basis point increase was primarily the result of leverage from the higher net sales partially offset by decreased gross margins resulting from competitive pricing pressures in certain markets and an increase in sales mix with a higher proportion of direct shipment sales, which typically yield lower gross margins.


	*Plumbing/ HVAC*

Net sales: Net sales in the first quarter of fiscal year 2006 totaled $283.8 million, an increase of $62.9 million or 28.5%, compared to the prior year’s first quarter net sales of $220.9 million. This increase included net sales of $62.8 million from the Todd Pipe acquisition completed in May 2004. Organic sales remained flat in the first quarter of fiscal year 2006 compared to the comparable prior year quarter due in large part to wet weather conditions in southern California and parts of the Southeast.

Operating income: As a percentage of net sales, operating income decreased to 2.1% in the first quarter of fiscal year 2006 from 2.2% in the prior year’s first quarter. The 10 basis point decrease was primarily the result of competitive pricing pressures in certain markets, increased costs related to point-of-

~~continued~~sale ~~strength~~system ~~across~~conversions ~~all regions~~ in ~~residential~~various ~~construction~~Florida ~~activity~~branches, and ~~municipal~~a stabilization ~~projects,~~of ~~with~~commodity ~~all~~prices ~~regions~~compared ~~posting double-digit growth. Also contributing~~ to the ~~same-store~~first ~~sales~~quarter of ~~growth~~fiscal ~~were~~year ~~higher prices for PVC, ductile iron pipe and steel products~~2005.

Net sales in the first nine months of fiscal year 2005 totaled $922.7 million, an increase of $216.6 million or 30.7% compared to the prior year’s first nine months net sales of $706.1 million. This increase included net sales of $42.5 million from the Standard acquisition completed in May 2004 and also included net sales from Marden Susco, which was acquired in August 2003. Marden Susco had net sales of $58.8 million and $16.8 million during the first nine months of fiscal year 2005 and 2004, respectively. Same-store sales increased by $148.5 million or 18.7% compared to the first nine months of fiscal year 2004 resulting from a higher volume of private and public infrastructure projects, particularly in the mid-Atlantic, Southeast and West markets, and higher prices for PVC, ductile iron pipe and steel products.

Operating income: As a percentage of net sales, operating income totaled 5.1% and 5.0% in the third quarter and first nine months of fiscal year 2005, respectively, compared to a ratio of 5.4% and 5.1% in the comparable prior year periods, respectively. The slight decline in operating income as a percentage of net sales was primarily the result of competitive pricing pressures in certain markets and an increased level of direct shipments, the collective impact of which was partially offset by the leverage obtained from the increase in net sales.

Plumbing/HVAC

Net sales: Net sales in the third quarter of fiscal year 2005 totaled $284.5 million, an increase of $66.0 million or 30.2%, compared to the prior year’s third quarter total of $218.5 million. This increase included sales of $66.7 million from the Todd Pipe acquisition completed on May 28, 2004. Same-store sales increased $9.7 million or 3.5% compared to the third quarter of fiscal year 2004, which included pro forma sales of $56.3 million for Todd Pipe. The 3.5% growth in same-store sales was primarily the result of higher prices in steel, copper and PVC products partially offset by sales delays in the Southeast caused by the recent hurricanes; the loss of a large, low-margin customer; and the closure of seven underperforming branches in the Southwest region in the fourth quarter of last year.

Net sales in the first nine months of fiscal year 2005 totaled $785.5 million, an increase of $142.3 million or 22.1% compared to the prior year’s first nine months net sales of $643.2 million. Same-store sales increased $62.5 million or 7.8% compared to the first nine months of fiscal year 2004, which included pro forma sales of $161.4 million for Todd Pipe. The growth in same-store sales during the first nine months of fiscal year 2005 was primarily attributable to the factors identified in the analysis of the third quarter of fiscal year 2005 above.

Operating income: As a percentage of net sales, operating income decreased to 1.7% in the third quarter of fiscal year 2005 from 1.8% in the prior year’s third quarter. The 10 basis point decrease in operating income as a percentage of net sales was primarily the result of competitive pricing pressures in some regions. During the first nine months of fiscal year 2005, operating income as a percentage of net sales increased by 70 basis points to 2.4%, compared to a ratio of 1.7% during the prior year period. The 70 basis point improvement was primarily the result of the leverage obtained from the increase in same-store sales, in addition to the inclusion of Todd Pipe in the segment’s operating results beginning in May 2004, which generates a higher return on sales than does our existing Plumbing/HVAC business.

MRO

Net sales: Net sales in the third quarter of fiscal year 2005 totaled $116.3 million, an increase of $81.8 million or 237.1%, compared to the prior year’s third quarter total of $34.5 million. This increase was primarily the result of the acquisition of Century, which was completed in December 2003. Same-store sales decreased $2.6 million or 2.2% compared to the third quarter of fiscal year 2004, which included pro forma sales of $86.1 million for Century. The decrease of 2.2% in same-store sales was primarily the result of the impact of

integration activities associated with the Century acquisition, including the consolidation of five facilities in overlapping markets and system conversions at 15 branches. Same-store sales were also impacted by historically low apartment occupancy rates, including those in key markets such as Atlanta, Houston and Dallas.

Net sales in the first nine months of fiscal year 2005 totaled $349.5 million, an increase of $248.2 million or 245.0% compared to the prior year’s first nine months net sales total of $101.3 million. This increase was primarily the result of the acquisition of Century. Same-store sales increased $4.5 million or 1.3% compared to the first nine months of fiscal year 2004, which included pro forma sales of $245.8 million for Century. The slight increase in same-store sales was weaker than we expected because of the factors identified in the analysis of the third quarter of fiscal year 2005 above.

Operating income: As a percentage of net sales, operating income increased to 7.7% in the third quarter of fiscal year 2005 from 6.7% in the prior year’s third quarter. During the first nine months of fiscal year 2005, operating income as a percentage of net sales increased to 8.2%, compared to 6.4% during the prior year period. The 100 and 180 basis point improvements during the third quarter and first half of fiscal year 2005, respectively, occurred despite integration costs and lower sales growth and were primarily attributable to the inclusion of Century, which generates higher returns on net sales than our MRO business prior to acquisition.


	*Utilities*

Net sales: Net sales ~~and same-store sales~~ in the ~~third~~first quarter of fiscal year 2006 ~~2005~~ totaled $~~118~~194.0 3 million, an increase of $1894.9 2 million or 1994.1%, compared to the prior year’s first ~~third~~ quarter ~~total~~net sales of $99100.1 million. ~~During~~This ~~the~~increase included ~~first~~net ~~nine~~sales ~~months~~ of ~~fiscal~~$82.4 million ~~year~~from ~~2005~~the SWP/ WSE acquisition completed in November 2004, ~~net~~which ~~sales~~benefited ~~and~~from unseasonably ~~same-store~~good ~~sales~~weather ~~totaled~~in ~~$326.8~~the ~~million,~~Pacific anNorthwest. ~~increase~~Organic sales ofincreased $4728.35 million or 1617.92% compared to the ~~prior year. The sales~~ ~~growth~~first ~~during the third~~ quarter ~~and first nine months~~ of fiscal year 2005 ~~was~~due primarily ~~attributable~~ to higher sales resulting from new and expanded alliance contracts with large electric utility companies~~, hurricane-related activity and higher commodity prices for steel, aluminum, copper and PVC products~~.

Operating income: As a percentage of net sales, operating income increased to 53.15% in the ~~third~~first quarter of fiscal year 2006 ~~2005~~ from 32.38% in the prior year’s ~~third~~first quarter. The ~~180~~ 70 basis point increase was primarily ~~the~~due ~~result~~to ~~of operating~~ leverage ~~obtained~~ from ~~the~~ the higher net sales. ~~During~~associated with the ~~first~~SWP/ ~~nine~~WSE ~~months~~acquisition along ofwith ~~fiscal year 2005, operating income as~~ a ~~percentage~~decline ofin ~~net sales increased to 4.1% from 3.9% during~~ the ~~prior~~ratio ~~year period. The increase was the result~~ of ~~the~~ operating ~~leverage~~expenses ~~obtained~~to ~~from the~~net ~~higher~~ sales ~~partially~~as ~~offset by the impact of~~ a ~~bad~~result ~~debt recovery totaling approximately $0.9 million in the second quarter~~ of ~~fiscal~~costs ~~year~~incurred ~~2004~~last ~~and an increase in expenses in the current fiscal~~ year ~~associated with efforts~~ to ~~put~~establish ~~an infrastructure~~the ininfrastructure ~~place~~ necessary to support additional business from alliance customers.


	*MRO*

Net sales: Net sales in the first quarter of fiscal year 2006 totaled $100.4 million, a decrease of $6.5 million or 6.1%, compared to the prior year’s first quarter total of $106.9 million. Organic sales decreased $5.0 million or 4.7% compared to the first quarter of fiscal year 2005 due primarily to the impact of branch consolidations in overlapping markets resulting from the Century Maintenance Supply, Inc. (“Century”) acquisition and continued weakness in the multi-family housing market, particularly in its largest markets of Dallas, Houston, Atlanta and Indianapolis, where vacancy rates are higher than the national average.

Operating income: As a percentage of net sales, operating income increased to 7.5% in the first quarter of fiscal year 2006 from 7.2% in the prior year’s first quarter. The 30 basis point increase was primarily the result of the expense synergies obtained in integrating the Hughes and Century sales forces and facilities.


	*Electrical*

Net sales: Net sales and ~~same-store~~organic sales in the ~~third~~ first quarter of fiscal year ~~2005~~2006 totaled $~~111~~106.1 0 million, an increase of $173.1 7 million or 183.26%, compared to the prior year’s ~~third~~first quarter. ~~During~~total ~~the first nine months~~ of ~~fiscal year 2005, net sales and same-store sales totaled~~ $~~321~~102.4 3 million~~, an increase of $47~~.0 ~~million or 17.1% compared to the prior year.~~ Sales growth ~~during~~was ~~the~~driven ~~third~~by ~~quarter~~higher ~~of fiscal year 2005 occurred across all geographic areas due to increased~~ commercial construction activity and ~~higher~~continued ~~commodity~~strength ~~prices~~in ~~for steel, copper and PVC-based products. Sales growth during the first nine months of fiscal year 2005 was primarily the result of increased and larger commercial,~~ residential ~~and municipal projects~~construction, primarily in Florida and ~~Texas,~~ ~~and~~North ~~higher prices for steel, copper and PVC-based products~~Carolina.

Operating income: As a percentage of net sales, operating income ~~increased~~decreased to 12.8% in the ~~third~~first quarter of fiscal year 2006 ~~2005~~ from 13.54% in the prior year’s ~~third~~first quarter. ~~During~~The 60 basis ~~the~~point ~~first~~decrease ~~nine~~was ~~months~~primarily ofattributable ~~fiscal~~to ~~year 2005, operating~~lower ~~income~~gross asmargins aresulting ~~percentage~~from ofstabilizing ~~net~~commodity ~~sales increased 80 basis points to 2.6%,~~ prices compared to ~~1.8% during~~ the ~~prior~~first ~~year period. The basis point improvements during the third~~ quarter ~~and first nine months~~ of fiscal year 2005 ~~were primarily the result of the leverage obtained from the increase in net sales~~.


	*Industrial PVF*

Net sales: Net sales and ~~same-store~~organic sales in the ~~third~~ first quarter of fiscal year ~~2005~~2006 totaled $96117.7 million, an increase of $2335.5 0 million or 3242.13%, compared to the prior year’s ~~third~~first quarter net sales ~~and same-store sales total~~ of $7382.2 7 million. ~~Additionally, net~~ The sales ~~and~~growth ~~same-store~~was ~~sales~~primarily in the ~~first~~result ~~nine months~~ of ~~fiscal~~higher ~~year~~demand ~~2005 totaled $265.0 million, an increase of $51.3 million or~~as ~~24.0%~~fabricators ~~compared~~in to the ~~prior year’s first nine months net sales of $213~~U.~~7 million~~S. experienced ~~The~~increases ~~increase~~ in ~~net~~exports due ~~sales during both the third quarter and first nine months of fiscal year 2005 compared~~ to ~~the~~high ~~prior~~oil ~~year~~prices, ~~was~~a ~~primarily~~weak ~~attributable~~dollar ~~to higher nickel~~ and ~~steel~~product ~~prices~~scarcity overseas. 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~~nickel ~~highly specialized product inventory~~ and ~~well-timed~~metal ~~inventory~~alloy ~~purchases.~~prices ~~The~~during ~~improvement in~~ the ~~industrial~~first ~~market~~quarter ~~was the result~~ of ~~increased~~fiscal year ~~business~~2006 ~~from~~compared ~~petrochemical, power, oil, and food and beverage companies as the economy improves in addition~~ to the ~~impact~~same ofquarter ~~the weak dollar and product scarcity overseas, which have benefited fabricators~~ in the ~~U.S.~~prior year.

Operating income: As a percentage of net sales, operating income increased to 15.62% in the ~~third~~first quarter of fiscal year 2006 ~~2005~~ from 713.28% in the prior year’s ~~third~~first quarter. ~~During the first nine months of fiscal year 2005, operating income as a percentage of net sales increased 670 basis points to 14.7%, compared to 8.0% during the prior year period.~~ The ~~840 and 670~~ 140 basis point ~~increases during the third quarter and first nine months of fiscal year 2005, respectively, were primarily the result of an~~ increase ~~in gross margin attributable to higher selling prices related to nickel and steel products and increased volumes due to the~~was improved demand, with the improvement for the first nine months of fiscal year 2005 partially offset by a $0.6 million increase in the provision for doubtful accounts relating to one specific customer.

~~Other~~ 21

Net sales: Net sales and same-store sales in the third quarter of fiscal year 2005 totaled $113.1 million, an increase of $27.5 million or 32.1%, compared to the prior year’s third quarter net sales of $85.6 million, with all three product lines comprising the Other category experiencing strong sales growth. The Building Materials product line had sales growth of $17.1 million or 35.6% in the third quarter of fiscal year 2005 compared to the prior year’s third quarter as a result of higher steel and lumber prices, and increased commercial construction activity, particularly in Florida and Georgia. The Fire Protection product line had sales growth of $8.7 million or 31.6% during this period as a result of higher steel prices and increased commercial building activities. The Mechanical product line had sales growth in the third quarter of fiscal year 2005 of $1.7 million or 16.6%, compared to the prior year’s third quarter due primarily to the addition of several large commercial projects and higher steel prices.

Net sales in the first nine months of fiscal year 2005 totaled $332.5 million, an increase of $93.3 million or 39.0% compared to the prior year’s first nine months net sales of $239.2 million, with all three product lines comprising the Other category experiencing strong sales growth for reasons consistent with those relating to the net sales growth in the third quarter of fiscal year 2005 discussed above. The Building Materials, Fire Protection and Mechanical product lines had sales growth of $54.4 million or 40.0%, $34.0 million or 44.3%, and $4.9 million or 18.6% during the first nine months of fiscal year 2005, respectively, compared to the first nine months of fiscal year 2004.

Operating income: As a percentage of net sales, operating income increased to 6.8% in the third quarter of fiscal year 2005 from 4.7% in the prior year’s third quarter. During the first nine months of fiscal year 2005, operating income as a percentage of net sales increased 450 basis points to 8.6%, compared to a ratio of 4.1% during the prior year period. The 210 and 450 basis point increases for the third quarter and the first nine months of fiscal year 2005, respectively, were primarily the result of leverage from strong sales and gross margin growth in all three product lines.

primarily the result of the leverage gained from the higher net sales and an increase in gross margin attributable to strategic inventory purchases of nickel and steel products.


	*Building Materials*

Net sales: Net sales and organic sales in the first quarter of fiscal year 2006 totaled $68.6 million, an increase of $9.5 million or 16.1%, compared to the prior year’s first quarter net sales of $59.1 million. The sales growth was primarily the result of strong commercial construction activity, primarily in Florida.

Operating income: As a percentage of net sales, operating income decreased to 7.3% in the first quarter of fiscal year 2006 from 8.5% in the prior year’s first quarter. The 120 basis point decrease was primarily attributable to higher average cost inventory compared to the prior year comparable quarter resulting from a steep increase in commodity prices for steel and lumber in the first quarter of fiscal year 2005 and competitive pricing pressures in certain markets.


	*Other*

Net sales: Net sales and organic sales in the first quarter of fiscal year 2006 totaled $48.6 million, a decrease of $0.6 million or 1.2%, compared to the prior year’s first quarter net sales of $49.2 million. The Fire Protection product line had sales growth of $1.6 million or 4.3% during the first quarter of fiscal year 2006 due to the opening of a fabrication center in the fourth quarter of fiscal year 2005 that expanded business in the Carolinas, partially offset by the stabilization of steel prices compared to the first quarter of fiscal year 2005. The Mechanical product line reported a sales decrease in the first quarter of fiscal year 2006 of $2.2 million or 18.0%, as compared to the prior year’s first quarter due to a decline in large projects from several of its major customers.

Operating income: As a percentage of net sales, operating income decreased to 2.9% in the first quarter of fiscal year 2006 from 9.8% in the prior year’s first quarter. The 690 basis point decrease was primarily the result of higher average cost inventory than a year ago.

Liquidity and Capital Resources

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

	October 29, 2004			January 30, 2004
	Three Months Ended
Working capital	$	981.1		$	603.6
	April 30,			April 30,
Current ratio		2.5 to 1			2.4 to 1
	2005			2004
Debt to total capital		32.0	%		29.0	%
Net cash provided by operating activities	$	13.4		$	23.5
	Nine Months Ended
Net cash (used in) provided by investing activities		(12.0	)		32.8
	October 29, 2004			October 31, 2003
Net cash provided by (used in) financing activities		17.3			(55.2	)
Net cash provided by operating activities	$	73.9		$	107.6
Net cash used in investing activities		(91.5	)		(28.7	)
Net cash provided by (used in) financing activities		278.9			(78.6	)


	April 30,			January 31,
	2005			2005

Working capital	$	958.8		$	915.3
Current ratio		2.3 to 1			2.4 to 1
Debt to total capital		29.8	%		30.3	%


	*Working Capital*

Compared to January 30 31, ~~2004~~2005, working capital ~~increased~~ increased $~~377~~43.5 million or 624.58% during the first quarter of fiscal year 2006. 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; higher~~ accounts receivable balances driven by ~~the~~net ~~double-digit same-store~~ sales growth, and ~~the~~lower ~~acquisitions~~compensation ofand ~~Standard~~benefits accruals ~~and~~as ~~Todd~~a ~~Pipe;~~result ~~and~~of ~~increased~~bi-weekly ~~vendor~~payroll ~~rebate~~payment ~~receivables~~timing combined ~~due~~with toannual ~~our~~bonus ~~vendor~~payments, ~~and~~which ~~purchasing~~are ~~consolidation~~made ~~efforts~~during ~~and~~the ~~increased~~first ~~purchasing~~quarter ~~activity~~of every year. These ~~working~~increases ~~capital~~to ~~increases~~working capital were ~~partially~~partly offset by lower levels of owned inventories (inventories less accounts payable) resulting from improved ~~inventory and~~ payables management, and ~~increased~~reduced other current ~~liabilities~~ ~~primarily~~asset ~~attributable~~balances due to ~~the~~collections ~~timing~~ of ~~income~~vendor ~~and~~rebate ~~sales tax accrual payments, including a deferral of a $35~~receivables.0 ~~million federal tax payment related to hurricane relief originally scheduled to be paid in the third quarter of fiscal year 2005 to the fourth quarter.~~ We continue to focus ~~on asset management initiatives that will improve our working capital efficiency.~~

on our asset management initiatives in order to improve our working capital efficiency to allow us to generate additional cash from operations.


	*Operating Activities*

~~Net~~ During ~~cash~~the ~~provided~~first byquarter ~~operating~~of ~~activities~~fiscal ~~during~~years ~~the~~2006 ~~first~~and ~~nine~~2005, ~~months~~cash flows ofprovided ~~fiscal~~by ~~year~~operating ~~2005~~activities totaled $7313.94 million and $23.5 million, ~~primarily resulting from higher~~respectively. ~~earnings,~~Operating ~~improved~~cash ~~inventory~~flow ~~and~~decreased ~~payables~~in ~~management and~~ the ~~deferral~~first quarter of afiscal year ~~$35.0~~2006 ~~million~~primarily ~~federal~~as ~~tax~~a ~~payment~~result ~~related~~of toa ~~hurricane~~decrease ~~relief.~~in ~~Partially~~our ~~offsetting~~level ~~these~~of owned ~~items~~inventories ~~were~~and ~~higher~~an ~~accounts~~increase ~~receivable~~in ~~driven~~cash byoutflows ~~the~~from ~~double-digit same-store sales~~accrued ~~growth~~compensation and ~~increased~~benefits ~~vendor~~primarily ~~rebate~~related ~~receivables due~~ to ~~our~~higher ~~vendor~~annual bonus ~~and~~payments ~~purchasing~~as ~~consolidation~~compared ~~efforts~~to ~~and~~the ~~increased~~prior ~~purchasing~~fiscal ~~activity~~year. ~~Going forward, we expect~~ These operating cash ~~flows~~outflows towere bepartly ~~strong~~offset asby weimproved ~~continue~~accounts receivable tocollections ~~improve~~and ~~our~~improved ~~working~~earnings ~~capital efficiency,~~compared ~~allowing us~~ to ~~generate~~the same ~~cash~~period ~~from~~last ~~operations~~year.

Our accounts receivable balances increased $64.3 million during the first quarter of fiscal year 2006 compared to an increase of $82.0 million during the first quarter of fiscal year 2005. The resulting $17.7 million favorable variance was the result of an improvement in the credit quality of our accounts receivable through enhanced credit policies and management of past due accounts as well as a reduction of one day in the number of day’s sales outstanding.

Going forward, we expect operating cash flows to be good as we continue to improve our working capital efficiency, allowing us to generate additional cash from operations.


	*Investing Activities*

~~Our~~ During ~~expenditures~~the ~~for~~first ~~property~~quarter of fiscal years 2006 and 2005, cash ~~equipment~~flows ~~totaled~~(used in) provided by investing activities totaled ($1712.5 0) million and $32.8 million, respectively. Our capital expenditures totaled $12.43 million and $4.2 million during the first ~~nine~~quarter ~~months~~ of fiscal years ~~2005~~ 2006 and ~~2004~~2005, respectively. Of ~~the~~these ~~total~~expenditures, approximately $176.5 million ofand ~~capital expenditures, approximately~~ $122.8 5 million, respectively related to information technology outlays~~, including amounts for the Hughes Unified operating system and the new Oracle Financial system implementation~~. Capital expenditures ~~for fiscal year 2005~~ are expected to be in the range of approximately $~~20.0~~ 30 million to $~~25.0~~ 35 million during fiscal year 2006.

Proceeds from the sale of property and equipment totaled $380.8 3 million and $137.5 0 million ~~during~~in the first ~~nine~~quarter ~~months~~ of fiscal years ~~2005~~2006 and ~~2004~~2005, respectively. During the first quarter ~~nine~~of ~~months~~fiscal year 2006, a gain of ~~fiscal~~approximately $0.9 million was recognized on the sale of surplus property in Miami, Florida for which we received $0.2 million in cash proceeds and a note receivable, which was subsequently paid, for $1.4 million. During the first quarter of fiscal year 2005, proceeds from the sale of property and equipment consisted primarily of cash received from the ~~first quarter~~ sale-leaseback of a portfolio of properties ~~comprised~~associated ofwith 18 different branches. The resulting leases ~~have~~ qualified for operating lease treatment.

Cash payments for business acquisitions totaled $101.4 million and $17.8 million during the first nine months of fiscal years 2005 and 2004, respectively. On May 28, 2004, we acquired Todd Pipe, one of the largest independent wholesale plumbing suppliers in Southern California and Las Vegas, Nevada. We paid $77.7 million for the net assets of Todd Pipe, including the assumption of $39.7 million of accounts payable, accrued and other liabilities, subject to finalization of working capital adjustments in accordance with the purchase agreement. On May 3, 2004, we completed the acquisition of 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 $25.4 million of cash for Standard’s net assets, net of $2.3 million of cash acquired and including the assumption of $12.6 million of accounts payable, accrued and other liabilities, subject to finalization of working capital adjustments in accordance with the purchase agreement. Approximately $23.7 million of the total purchase price has been paid through October 29, 2004.


	*Financing Activities*

During the first ~~nine~~quarter ~~months~~ of fiscal years ~~2005~~2006 and ~~2004~~2005, ~~net~~ cash flows provided by (used in) financing activities totaled $~~278~~17.9 3 million and ($7855.62) million, respectively. The ~~$357.5 million~~ increase in financing cash ~~flows~~inflows, ~~during~~compared to the ~~first~~prior ~~nine~~year period, ~~months~~was ofdue ~~fiscal~~in ~~year~~part ~~2005~~to ~~was~~a ~~primarily~~total ~~due~~of to $~~410~~43.5 7 million of ~~net~~ ~~proceeds~~payments ~~generated~~made byon our ~~debt~~revolving ~~and~~credit ~~equity~~agreement ~~offerings~~in onthe ~~October~~first quarter ~~12,~~of ~~2004~~fiscal year 2005, awhich ~~portion~~were not required to be made in the first quarter of ~~which~~fiscal ~~was~~year ~~used~~2006 toas ~~repay~~no amounts were outstanding under our ~~$500~~revolving credit agreement. Other debt payments, including scheduled payments on our senior notes, totaled $0.2 million and $1.5 million ~~revolving~~in ~~credit~~the ~~agreement~~first quarter of fiscal years 2006 and 2005, respectively. The remaining ~~funds~~difference, ~~necessary~~compared to ~~finance~~ the ~~acquisitions~~prior year first quarter, was due to an increase in book overdrafts as a result of ~~Standard~~the timing ~~and~~of accounts payable check disbursements. As of ~~Todd~~April 30, ~~Pipe~~2005, we were ~~borrowed~~in compliance with all financial and non-financial covenants under our revolving credit agreement. and notes.

On Dividend ~~October~~payments ~~12,~~totaled ~~2004, we issued~~ $~~300~~4.03 million and $3.1 million induring ~~original~~the ~~principal~~first ~~amount~~quarter of ~~5.50%~~fiscal ~~senior~~years ~~notes~~2006 and ~~(the “notes”) due on October 15~~2005, ~~2014 in a private placement pursuant to Rule 144A under the Securities Act~~respectively. The ~~notes~~higher ~~were~~dividend ~~issued~~payments atin fiscal ~~99.468%~~year of2006 ~~their~~were ~~par~~primarily ~~value~~attributable ~~and~~to ~~are~~an ~~reflected~~increase in our common ~~consolidated~~stock ~~balance~~outstanding ~~sheet~~due ~~net~~to of the ~~discount of $1.6 million. Total net proceeds from the~~ sale of ~~the notes were $295~~4.7 0 million~~, including the $1.6 million discount and approximately $2.7 million~~ ofshares ~~debt~~in ~~issuance~~a ~~costs,~~public ~~with~~offering ~~$203.5~~during ~~million of~~ the ~~proceeds~~third ~~used~~quarter ~~for the repayment~~ of ~~amounts~~fiscal year ~~outstanding~~2005 ~~under~~in ~~our~~addition ~~$500.0 million revolving credit agreement and the remainder~~ to bea ~~used~~30% ~~for~~higher ~~the~~dividend ~~acquisition~~rate ofpaid ~~businesses, payment of scheduled~~per ~~principal~~share. ~~amortization~~On ~~and~~March 8, ~~interest on our senior notes due~~ 2005 ~~through 2013~~, ~~capital~~our ~~expenditures,~~Board ~~working~~of ~~capital~~Directors ~~needs,~~declared ~~and~~a quarterly ~~other~~dividend ~~general~~of ~~corporate purposes~~$0.09 per ~~Interest~~share onthat ~~the~~was ~~notes~~paid ~~is payable~~ on ~~April 15 and October 15 of each year, beginning on~~ ~~April 15~~May 13, ~~2005.~~

~~In conjunction with the issuance of the notes,~~23 we entered into a 10-year treasury rate lock contract (“treasury lock”) with a financial institution on 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.

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

to2005 ~~certain conditions. Additionally, we have agreed~~ to ~~file~~shareholders anof ~~exchange~~record ~~offer~~on ~~registration~~April 29, ~~statement~~2005. ~~with~~The $0.09 per ~~the~~share ~~SEC~~dividend ~~within~~is ~~210~~38% ~~days~~higher ~~after~~than the $0.065 per ~~issuance~~share ofdividend ~~the notes~~paid toin ~~allow~~ the ~~notes~~first toquarter ~~be exchanged for a new issue~~ of 2005. ~~substantially~~Dividends ~~identical~~declared ~~notes~~but ~~registered~~not ~~under~~paid ~~the~~totaled ~~Securities~~$6.0 million and ~~Act~~$4.0 million Ifat ~~we fail to satisfy this obligation within the specified time periods~~April 30, we2005 ~~will~~and ~~be required to pay a special interest~~April 30, ~~premium~~2004, ~~to the holders of the notes~~respectively.

On ~~October 12~~March 15, ~~2004~~1999, ~~we also~~our ~~completed~~Board ~~the sale~~ of ~~4.0~~Directors ~~million~~authorized ~~shares~~us ofto repurchase ~~common~~up ~~stock~~to ~~at a price of $30 per share in a public offering that generated net proceeds of $114~~5.8 0 million, ~~net~~shares of ~~$4.8~~our ~~million of underwriting discounts and commissions and $0.4 million of other~~outstanding ~~expenses associated with the offering. The net proceeds from the~~ common stock ~~offering~~to ~~were~~be ~~primarily~~ used tofor ~~fund~~general ~~the~~corporate ~~acquisition~~purposes. ~~of Southwest Power~~Since March 15, ~~Inc. and Western States Electric~~1999, ~~Inc.~~we ~~and~~have ~~their~~repurchased ~~subsidiary entities (collectively referred to as “SWP/WSE”) from~~ a ~~common~~total ~~private ownership group~~of 3.7 million ~~The~~shares ~~acquisition~~at ~~was~~an ~~completed~~average ~~on November 1, 2004 for a cash purchase~~ price of $~~110~~11.~~7 million, net of approximately $12.8 million in anticipated tax benefits associated with a tax election~~45 per ~~under section 338(h)(10) of the Internal Revenue Code~~share. ~~The~~There ~~purchase~~were ~~price~~no isshares ~~subject~~repurchased toduring the ~~finalization~~first quarter of ~~working~~fiscal ~~capital~~years ~~adjustments~~2006 inor ~~accordance with the purchase agreement~~2005.

On ~~June 14~~May 19, ~~2004~~2005, ~~we replaced~~ our ~~existing~~shareholders ~~$290.0~~approved ~~million~~the ~~revolving~~amendment and ~~credit~~restatement ~~agreement,~~of ~~which~~our ~~was~~Articles ~~scheduled~~of Incorporation to ~~mature~~increase ~~on March~~the ~~26,~~number ~~2007,~~of ~~with~~authorized acommon ~~new~~shares ~~$500.0~~from ~~million revolving credit agreement (the “revolving credit agreement”)~~100,000,000 ~~subject~~ to ~~borrowing limitations~~ 200, ~~which matures on June 14~~000, ~~2009~~000 shares. The ~~revolving~~increase ~~credit~~in ~~agreement~~the isnumber ~~unsecured and contains financial and~~of ~~other~~authorized ~~covenants,~~shares ~~including~~of ~~limitations~~common ~~on dividends and treasury~~ stock ~~purchases~~enables ~~and~~us ~~maintenance~~to ofhave ~~certain~~additional common ~~financial~~shares ~~ratios.~~available ~~The~~for ~~revolving~~issuance ~~credit agreement can be expanded,~~ in ~~certain~~connection ~~circumstances,~~with ~~by up to $150.0 million. Net payments made under~~future ~~our~~public ~~revolving~~or ~~credit~~private ~~agreement~~financings ~~totaled~~involving ~~$100.0 million and $34.3 million during~~ the ~~first~~sale ~~nine~~of ~~months~~common ofshares or ~~fiscal~~securities ~~years~~convertible ~~2005~~into ~~and~~common ~~2004~~shares, ~~respectively~~acquisitions, employee asbenefit aplans ~~result~~and ofother ~~repayment~~corporate ~~of amounts borrowed~~purposes. ~~Other~~We ~~debt~~have ~~payments~~no current plans, ~~including~~agreements ~~scheduled~~or ~~payments~~arrangements onfor ~~our senior~~the ~~and~~issuance ~~other~~of additional ~~notes,~~common ~~totaled~~shares ~~$10.7~~other ~~million~~than ~~and~~upon ~~$16.2 million during~~ the ~~first~~exercise ~~nine~~of outstanding ~~months~~stock ofoptions ~~fiscal~~and ~~years~~awards ~~2005~~under ~~and~~our ~~2004,~~equity compensation ~~respectively~~plans.

~~Dividend~~ On ~~payments~~October 12, ~~totaled~~2004, we issued $11300.1 0 million ~~and~~in original $7principal amount of 5.15% senior ~~million~~notes ~~during~~(the “notes”) due on October 15, 2014 in a private placement pursuant to Rule 144A under the ~~first~~Securities ~~nine~~Act. The ~~months~~notes were issued at 99.468% of ~~fiscal~~their ~~years~~par ~~2005~~value and ~~2004,~~are reflected ~~respectively~~in our consolidated balance sheet net of a $1.5 million ~~The~~and ~~higher~~$1.6 million ~~dividend~~discount as of ~~payments~~April 30, in2005 ~~fiscal~~and ~~year~~January 31, 2005, ~~were~~respectively. ~~primarily~~On May 10, ~~attributable~~2005, towe filed an ~~increase~~exchange inoffer ~~our~~registration statement ~~common~~with ~~stock~~the ~~outstanding~~SEC ~~due~~on Form S-4 to exchange the ~~sales~~notes for a new issue of ~~13.8~~substantially ~~million~~identical ~~and~~notes 4registered under the Securities Act.0 ~~million~~We ~~shares~~expect inthat ~~public~~the ~~offerings~~registration statement ~~during~~will be declared effective by the ~~fourth~~SEC ~~quarter~~within 90 days of ~~fiscal~~the ~~year~~filing ~~2004~~date. ~~and~~If the ~~third~~registration ~~quarter~~statement ofis ~~fiscal~~not ~~year~~declared ~~2005,~~effective ~~respectively~~on or before the 300th day after issuance, inwe ~~addition~~will be required to pay a ~~30%~~special interest ~~higher~~premium ~~dividend~~to ~~during~~ the ~~first~~holders ~~nine months~~ of ~~fiscal~~the ~~year 2005~~notes.

On As ~~March~~of 15April 30, ~~1999~~2005, ~~our~~we ~~Board~~had $231.9 million of ~~Directors~~cash and ~~authorized~~$499.6 million usof tounused ~~repurchase~~borrowing upcapacity toon ~~5.0~~our revolving ~~million~~credit ~~shares~~agreement of(subject ~~our~~to ~~outstanding~~borrowing ~~common~~limitations under ~~stock~~long-term debt covenants) to befund ~~used~~ongoing ~~for~~operating requirements, ~~general~~scheduled principal amortization and interest on ~~corporate~~our ~~purposes.~~senior ~~Since~~notes ~~March~~due 152005 through 2014, ~~1999~~anticipated capital expenditures, wefuture ~~have~~acquisitions ~~repurchased~~of abusinesses ~~total~~and ofother general 3corporate purposes.7 ~~million~~We ~~shares~~also athave an ~~average~~effective ~~price~~shelf registration ofstatement ~~$11.45~~on ~~per~~Form S-3 ~~share.~~on ~~Shares~~file ~~repurchased~~with ~~totaled~~the ~~$6.0~~SEC ~~million~~for the ~~during~~offer ~~the~~and ~~first~~sale, ~~nine~~from ~~months~~time-to-time, of ~~fiscal~~up ~~year~~to ~~2004~~an aggregate of $700.0 million ~~There~~of ~~were~~equity noand/or ~~shares repurchased~~debt ~~during~~securities, less the approximately ~~first~~$120.0 million ~~nine~~of ~~months~~gross ofproceeds ~~fiscal~~associated with ~~year~~our ~~2005.~~common stock offering on October 12, 2004.

As Our offinancing ~~October~~initiatives ~~29,~~allow ~~2004,~~us weto ~~had~~further ~~$269.6~~develop ~~million~~our capital ofstructure ~~cash~~as ~~and~~the ~~$498.7~~business ~~million~~expands, ofand ~~unused~~together ~~borrowing~~with continued ~~capacity~~strong ~~(subject~~financial toperformance, ~~borrowing~~will ~~limitations~~provide ~~under~~us ~~long-term~~with ~~debt~~the ability ~~covenants)~~ to fund ~~ongoing operating requirements, our acquisition of SWP/WSE, scheduled principal amortization~~ and ~~interest~~achieve on our ~~senior~~strategic ~~notes~~growth ~~due 2005 through 2014, anticipated capital expenditures, and future acquisitions of businesses~~goals. We believe ~~also~~we have ansufficient ~~effective~~borrowing ~~shelf~~capacity ~~registration~~and ~~statement~~cash on ~~Form S-3 on file with the SEC~~hand ~~for the offer and sale, from time-~~to~~-time,~~ oftake upadvantage ~~to an aggregate~~ of ~~$700.0~~growth ~~million of equity~~ and~~/or~~ ~~debt~~business ~~securities,~~opportunities ~~less~~while also ~~the~~pursuing ~~approximately~~investment ~~$120.0~~grade ~~million~~ratings ofby ~~gross~~the ~~proceeds~~rating ~~associated with our common stock offering on October 12, 2004~~agencies.

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 October 29, 2004, we were in compliance with all financial and non-financial covenants under our revolving credit agreement and notes.

Off-balance Sheet Arrangements

As more fully disclosed in our fiscal year ~~2004~~2005 Annual Report, we have entered into operating leases for certain facilities, vehicles and equipment. Many of our vehicle and equipment leases typically contain set residual values and residual value guarantees. We believe that the likelihood of any material amounts being funded in connection with these commitments is remote. There have been no material changes outside of the ordinary course of business in our off-balance sheet arrangements set forth in the Management’s Discussion and Analysis of Financial Condition and Results of Operations section of our fiscal year 2005 Annual Report.

~~On April 30, 2004, we completed a sale-leaseback transaction~~24 for a portfolio of properties associated with 18 different branches. The properties were sold at a price of $32.7 million and leased back pursuant to 15-year minimum term operating leases. A loss of approximately $1.3 million resulting from the sale was recognized during the first quarter of fiscal year 2005 for the branches that were sold at a price less than their net book value. A gain of approximately $9.1 million resulting from the sale was deferred and will be amortized over the minimum term of the leases for branches that were sold at a price greater than their net book value. We do not have an option to purchase the leased facilities at the end of the minimum lease terms and have not issued any residual guarantees of the value of the leased facilities. The leases are accounted for as operating leases with future minimum annual lease payments totaling $1.9 million during fiscal year 2005, $2.6 million per year during fiscal years 2006 through 2008, $2.7 million during fiscal year 2009, and $28.8 million thereafter.

OnTable March 16, 2004, we entered into a sale-leaseback transaction in which we sold our corporate headquarters building in Orlando, Florida to a subsidiary of Wachovia Development Corporation (“WDC”) for $23.0 million and leased the property back for a period of 20 years. The proceeds from the sale approximated the net book value of the property sold, and were paid by WDC to SunTrust Bank (“SunTrust”) for application against amounts outstanding under a separate real estate term credit agreement we had previously executed on June 5, 2002 with SunTrust. The lease expires on March 16, 2024, with five 5-year extensions exercisable at 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 $1.2 million during fiscal year 2005, $1.4 million per year during fiscal years 2006 through 2009, and $25.6 million thereafter. Contents

Contractual Obligations

There have been ~~several~~no material changes tooutside ~~our~~of ~~contractual~~the ~~obligations~~ordinary course ~~set~~of ~~forth~~business in ~~the MD&A section of~~ our ~~fiscal~~contractual ~~year~~obligations ~~2004~~set ~~Annual~~forth ~~Report. These~~in ~~changes~~the ~~primarily~~Management’s ~~related~~Discussion toand ~~our~~Analysis ~~two~~of ~~aforementioned~~Financial Condition ~~sale-leaseback transactions~~ and ~~our~~Results ~~issuance~~ of ~~$300.0~~Operations ~~million~~section ~~in original principal amount~~ of ~~5.50% notes on October 12, 2004. The following table summarizes~~ our ~~approximate~~fiscal ~~obligations to make~~year ~~future~~2005 ~~payments~~Annual ~~under contractual obligations as of October 29, 2004 (in millions):~~ Report.

	Payments Due by Period
	Total		Fiscal Year 2005		Fiscal Years 2006-2007		Fiscal Years 2008-2009		Thereafter
Long-term debt	$	581.0	$	35.4	$	90.9	$	75.1	$	379.6
Interest expense		286.8		9.5		74.7		65.5		137.1
Non-cancelable operating leases		251.3		15.4		96.0		52.1		87.8
Total contractual cash obligations	$	1,119.1	$	60.3	$	261.6	$	192.7	$	604.5

Recent Accounting Pronouncements

On In ~~March~~November ~~31,~~ 2004, the ~~Financial~~FASB ~~Accounting~~issued ~~Standards~~SFAS 151, Inventory ~~Board~~Costs — ~~(“FASB”)~~an ~~issued~~amendment anof ~~exposure~~ARB ~~draft~~No. 43, Chapter 4. ~~Share-Based~~This ~~Payment,~~statement anamends ~~Amendment~~the ofguidance ~~FASB~~in Accounting ~~Statements~~Research Bulletin (ARB) No. 43, Chapter 4, ~~123~~Inventory ~~and~~Pricing, ~~95.~~to ~~The~~clarify ~~proposed~~the accounting ~~change~~for inabnormal ~~accounting~~amounts ~~would~~of ~~replace~~idle ~~existing~~facility ~~requirements~~expense, freight, ~~under~~handling ~~Statement~~costs ofand ~~Financial~~wasted ~~Accounting~~material ~~Standards~~ (~~“FAS”~~spoilage) and requires ~~123,~~that ~~Accounting~~those ~~for~~items ~~Stock-Based~~be ~~Compensation,~~recognized ~~and~~as ~~Accounting~~expenses ~~Principles~~regardless of ~~Board~~whether (they meet the criterion of “~~APB~~abnormal.”) ~~Opinion~~The statement ~~25,~~also ~~Accounting~~requires ~~for~~that ~~Stock~~allocation ~~Issued~~of fixed production overhead factors to ~~Employees~~the costs of conversion be based on the normal capacity of the production facilities. The ~~exposure~~provisions ~~draft~~of this ~~covers~~statement aare ~~wide~~effective ~~range~~for ofinventory ~~equity-based~~costs ~~compensation~~incurred during ~~arrangements~~fiscal years beginning after June 15, 2005 and are to be applied prospectively. ~~Under~~We do not expect the adoption of SFAS 151 to have a material effect on our results of operations or financial position.

33 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, as currently stated, require adoption by public companies as of the first interim or annual reporting period that begins after June 15, 2005; early adoption is permitted. The SEC has subsequently issued a rule that allows publicly traded companies to adopt SFAS 123R for the first annual reporting period beginning after June 15, 2005. We plan to adopt the provisions of SFAS 123R on February 1, 2006 in accordance with the SEC’s new rule. We are currently evaluating the impact that the ultimate adoption of SFAS 123R will have on our financial position and results of operations. The Stock-Based Compensation section in Note 1 contains the pro forma impact on net income and earnings per share if the fair value based method under SFAS 123 had been applied to all outstanding and unvested awards in the first quarter of fiscal years 2006 and 2005.

FASB’s proposal, all forms of share-based payments to employees, including employee stock options, would be treated the same as other forms of compensation by recognizing the related costs in the income statement. The expense of the award would generally be measured at fair value at the grant date. The comment period for the exposure draft ended on June 30, 2004, and final rules are expected to be issued in the fourth quarter of calendar year 2004. The standard, if issued in its current form, would be applicable for interim or annual periods beginning after June 15, 2005. We are currently evaluating the impact of the proposed change in accounting but will not know the ultimate impact until the final rules are issued.

Critical Accounting Policies

Our significant accounting policies are more fully described in the notes to our consolidated financial statements included in our fiscal year ~~2004~~2005 Annual Report. Certain of our accounting policies require the application of significant judgment by management in selecting the appropriate assumptions for calculating financial estimates. As with all judgments, they are subject to an inherent degree of uncertainty. These judgments are based on historical experience, current economic trends in the industry, information provided by customers and vendors, information available from other outside sources and management’s estimates, as appropriate. Our critical accounting policies relating to the allowance for doubtful accounts, inventories, consideration received from vendors, impairment of long-lived assets, and self-insurance reserves are described in the ~~fiscal year 2004~~ Annual Report. ~~During~~As ~~the~~of ~~nine months ended October 29~~April 30, ~~2004~~2005, there have been no material changes to any of ~~our~~the critical accounting policies.


Item 3.	Quantitative and Qualitative Disclosures about Market Risk

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

Commodity Price Risk

We are aware of the potentially unfavorable effects ~~inflationary~~ 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. Such commodity price fluctuations have from time to time produced volatility in our financial performance and could continue to do so in the future.

As As discussed above, our results of operations induring the first quarter ~~nine months~~ of fiscal year 2005 were favorably impacted by our ability to pass increases in the prices of certain commodity-based products to our customers. ~~Such~~While ~~commodity~~prices ~~price~~for certain ~~fluctuations~~commodities such as nickel and PVC increased from the first quarter of fiscal year 2005, commodities such as steel and lumber have ~~from~~stabilized ~~time~~as compared to ~~time~~the ~~produced~~first ~~volatility~~quarter inof fiscal year 2005. Accordingly, our ~~financial~~sales ~~performance~~growth ~~and~~during ~~could~~the ~~continue~~first quarter of fiscal year 2006 was driven more by increased demand and to doa solesser extent by commodity prices than the comparable quarter in the ~~future.~~prior year.

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 ~~October 29~~April 30, ~~2004~~2005 was fixed-rate debt. AsOn ~~a result~~November 10, a2004 ~~hypothetical~~and ~~10%~~November 30, 2004, ~~increase~~we ~~or decrease~~entered ininto separate interest ~~rates~~rate ~~from~~swap ~~their~~contracts ~~October~~with two ~~29,~~distinct ~~2004~~financial ~~levels~~institutions ~~would~~that ~~not~~each ~~have~~effectively converted an$50.0 million ~~impact~~(i.e., onan ~~our~~aggregate ~~results~~of $100.0 million) of ~~operations~~our ~~but~~$300.0 million ~~would~~in ~~have~~original principal anamount ~~impact~~of on5.50% notes, ~~the~~due ~~fair~~October 15, ~~value~~2014, to offloating ~~our~~rate ~~outstanding~~ debt, ~~which~~based ~~had~~on anthe ~~average~~six-month ~~interest~~LIBOR rate ofplus 0.6985% ~~approximately~~and 60.579%., ~~We manage~~respectively, ~~our~~with ~~interest~~semi-annual ~~rate~~settlements through ~~risk~~October 15, by2014. ~~maintaining~~The ainterest ~~balance between fixed- and variable-~~rate ~~debt~~swap incontracts have ~~accordance~~been ~~with~~designated ~~our~~as ~~formally~~fair ~~documented~~value ~~interest~~hedges ~~rate~~of ~~risk~~the ~~management~~changes ~~policy,~~in ~~with~~fair value aof ~~targeted~~the ~~ratio~~respective $50.0 million of 605.50% notes due ~~fixed~~to ~~and~~changes ~~40%~~in ~~variable.~~the Webenchmark ~~are~~interest ~~currently~~rate ~~evaluating~~(i.e., six-month ~~alternatives~~LIBOR inrate). ~~order~~The tointerest ~~achieve~~rate ~~our~~swap contracts ~~targeted~~have ~~ratio,~~qualified ~~including~~for the ~~use~~shortcut method of ~~interest~~accounting prescribed ~~rate~~by ~~swaps.~~SFAS 133, AsAccounting ~~part~~for ofDerivative Instruments ~~this~~and ~~process,~~Hedging ~~on November 10~~Activities, ~~2004~~as ~~and~~amended. ~~November~~As ~~30,~~a ~~2004~~result, changes wein ~~entered~~the ~~into~~fair ~~separate~~value ~~interest~~of ~~rate~~the ~~swap~~derivatives ~~contracts~~will ~~with two distinct~~completely ~~financial~~offset ~~institutions~~the ~~that~~changes ~~each~~in ~~effectively~~the ~~converted~~fair ~~$50.0~~value ~~million~~of ~~(i.e.,~~the anunderlying ~~aggregate~~ hedged items.

34 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 April 30, 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%.

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 FAS 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.


Item 4.	Controls and Procedures

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

As During of the ~~end~~first quarter of ~~the~~fiscal ~~period~~year ~~covered~~2006, bythere ~~this~~were ~~report~~no changes in internal control over financial reporting that materially affected, ~~management~~or are reasonable likely to materially affect, ~~under~~our ~~the~~internal ~~supervision~~control ofover financial reporting other than the ~~Chief~~information ~~Executive~~systems ~~Officer~~changes ~~and~~currently ongoing. These ~~Chief~~information ~~Financial~~systems ~~Officer,~~changes ~~evaluated~~involve the ~~effectiveness~~design of ~~the~~our ~~design~~computer system architecture and ~~operation~~the implementation of ~~our~~the ~~disclosure~~Oracle Financial ~~controls~~System ~~and~~(“Oracle ~~procedures,~~Financials”). asWe ~~defined~~have completed inthe ~~Rules~~first ~~13a-15(e)~~phase ~~and~~of ~~15d-15(e)~~our ~~under~~Oracle Financials implementation, which includes the ~~Exchange~~general ~~Act~~ledger, ascredit management, ~~amended.~~and ~~Based~~fixed ~~upon~~assets ~~that~~modules. ~~evaluation,~~The ~~the~~second ~~Chief~~phase of our ~~Executive~~Oracle ~~Officer~~Financials ~~and~~implementation, ~~Chief~~expected ~~Financial~~to ~~Officer~~be ~~concluded~~completed ~~that,~~in early ascalendar ofyear 2006, involves the ~~end~~implementation of ~~such~~the incentive ~~period~~compensation, ~~the~~collections, ~~disclosure~~customer ~~controls~~payment processing, treasury, and ~~procedures~~accounts ~~were~~payable ~~effective~~disbursement atmodules. These achanges ~~level~~in ofour ~~reasonable~~systems ~~assurance~~and totheir ~~ensure~~design ~~that~~will ~~information~~provide ~~required~~us better tovisibility beacross ~~disclosed~~all inour ~~the~~businesses, ~~reports~~facilitating our weability ~~file~~to operate more efficiently and ~~submit~~effectively ~~under~~by streamlining ~~the~~various ~~Exchange~~financial ~~Act~~processes isand ~~recorded,~~eliminating ~~processed,~~many ~~summarized,~~of the manual and ~~reported~~redundant astasks ~~and~~previously ~~when~~performed ~~required.~~using the old systems.

In We ~~addition,~~believe ~~there~~the ~~have~~conversion ~~been~~and noimplementation ~~changes~~of inthese initiatives further strengthens our internal control over financial reporting, as ~~defined~~well inas ~~Rules~~automates ~~13a-15(f)~~a ornumber ~~15d-15(f) under the Exchange Act, during our third quarter~~ of ~~fiscal year 2005 that have materially affected, or are reasonably likely to materially affect,~~ our processes ~~internal~~and ~~control over financial reporting~~activities.

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

PART II. OTHER INFORMATION

HUGHES SUPPLY, INC.


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

~~The~~ On ~~following~~March 15, ~~table~~1999, ~~sets forth~~ our ~~repurchases~~Board of ~~equity~~Directors ~~securities~~authorized ~~registered~~us ~~under~~to repurchase ~~Section~~up 12to 5.0 million shares of ~~the~~our ~~Exchange~~outstanding common ~~Act~~stock ~~that~~to ~~have~~be ~~occurred~~used ~~during~~for ~~the~~general ~~three~~corporate purposes. Since ~~months~~March 15, ~~ended~~1999, ~~October~~we 29have 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 ~~millions)~~fiscal year 2003. We have not repurchased any shares since fiscal year 2004 under the aforementioned share repurchase plan.

Period	Total number of shares (orunits)purchased	Average price paid per share	Total number of shares (orunits)purchased aspart of publiclyannouncedplans orprograms	Maximumnumber (orapproximatedollar value) ofshares (orunits) that mayyet bepurchasedunder the plansor programs (1)
August 2004 (July 31 - August 27)	–	–	–	1.3
September 2004 (August 28 - September 24)	–	–	–	1.3
October 2004 (September 25 - October 29)	–	–	–	1.3
Total	–		–

The following table sets forth our repurchases of equity securities registered under Section 12 of the Exchange Act that have occurred during the three months ended April 30, 2005.

(1) 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.

Maximum

Total Number

Number (or

of Shares (or

Approximate

Units)

Dollar Value) of

Total

Purchased as

Shares (or Units)

Number of

Part of Publicly

That may yet be

Shares (or

Average

Announced

Purchased Under

Units)

Price Paid

Plans or

the Plans or

Period

Purchased

per Share

Programs

February 2005

(February 1 — February 26)

—

1,337,200

March 2005

(February 27 — March 26)

—

1,337,200

April 2005

(March 27 — April 30)

—

1,337,200

36 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 April 30, 2005 limit the amount of retained earnings available for the payment of dividends to $152.5 million.


Item 6.	Exhibits

3.1		Restated Articles of Incorporation of Hughes Supply, Inc., dated as of August 24, 2004, incorporated herein by reference to Exhibit 3.1 to the Company’s Current Report on Form 8-K filed with the SEC on August 30, 2004.
	10	.1	Revolving Credit Agreement amendment dated as of May 24, 2005 among Hughes Supply, Inc., the several banks and other financial institutions from time to time party thereto, and SunTrust Bank as Administrative Agent.
3.2		Amended and Restated By-Laws of Hughes Supply, Inc., dated as of August 24, 2004, incorporated herein by reference to Exhibit 3.2 to the Company’s Current Report on Form 8-K filed with the SEC on August 30, 2004.
	31	.1	Rule 13a-14(a)/15d-14(a) Certification of President and Chief Executive Officer.
10.1		Indenture, dated as of October 12, 2004, by and among Hughes Supply, Inc., substantially all of its subsidiaries, and U.S. Bank National Association, relating to $300.0 million in original principal amount of 5.50% Senior Notes due 2014, incorporated herein by reference to Exhibit 4.1 to the Company’s Current Report on Form 8-K filed with the SEC on October 12, 2004.
	31	.2	Rule 13a-14(a)/15d-14(a) Certification of Executive Vice President and Chief Financial Officer.
10.2		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.
	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.
10.3		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.
	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.
10.4		Underwriting Agreement, dated as of October 5, 2004, by and among Hughes Supply, Inc., David H. Hughes, in his individual capacity and as trustee of the David H. Hughes Trust, and Lehman Brothers Inc., Citigroup Global Markets, Inc., Goldman, Sachs & Co., and Wachovia Capital Markets, LLC, as representatives of the several underwriters, incorporated herein by reference to Exhibit 1.1 to the Company’s Current Report on Form 8-K filed with the SEC on October 12, 2004.
31.1		Rule 13a-14(a)/15d-14(a) Certification of President and Chief Executive Officer.
31.2		Rule 13a-14(a)/15d-14(a) Certification of Executive Vice President and Chief Financial Officer.
32.1		Certification Pursuant to Section 1350 of Chapter 63 of Title 18 of the United States Code by the President and Chief Executive Officer.
32.2		Certification Pursuant to Section 1350 of Chapter 63 of Title 18 of the United States Code by the Executive Vice President and Chief Financial Officer.

37 28

SIGNATURES

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

	HUGHES SUPPLY, INC.
	Hughes Supply, Inc.
Date: December 8, 2004	By:	/s/ THOMAS I. MORGAN
Date: June 9, 2005	By: /s/ THOMAS I. MORGAN
		Thomas I. Morgan
	Thomas I. Morgan President and Chief Executive Officer
		President and Chief Executive Officer
Date: June 9, 2005	By: /s/ DAVID BEARMAN
Date: December 8, 2004	By:	/s/ DAVID BEARMAN
	David Bearman Executive Vice President and Chief Financial Officer (Principal Financial Officer and Principal Accounting Officer)
		David Bearman
		Executive Vice President and Chief Financial Officer (Principal Financial Officer and Principal Accounting Officer)

38 29

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