<PAGE>

Financial Review


Selected Financial Data ...................................................   18

Management's Discussion and Analysis of
Financial Condition and Results of Operations .............................   20

Consolidated Statements of Income .........................................   26

Consolidated Balance Sheets ...............................................   27

Consolidated Statements of Shareholders' Equity ...........................   28

Consolidated Statements of Cash Flows .....................................   29

Notes to Consolidated Financial Statements ................................   30

Report of Independent
Certified Public Accountants ..............................................   40

Management's Responsibility for
Financial Statements ......................................................   40



                                                                              17

<PAGE>


Hughes Supply, Inc.
SELECTED FINANCIAL DATA
(in thousands, except per share data and ratios)


<TABLE>
<CAPTION>
                                                             Fiscal Years Ended(1)(2)
                                            -------------------------------------------------------------
                                                2001           2000              1999             1998
---------------------------------------------------------------------------------------------------------
<S>                                         <C>              <C>              <C>              <C>
STATEMENTS OF INCOME:
Net sales ............................      $3,310,163       $2,994,877       $2,536,265       $1,945,446
Cost of sales ........................      $2,566,706       $2,320,604       $1,977,266       $1,519,323
Gross margin .........................            22.5%            22.5%            22.0%            21.9%
---------------------------------------------------------------------------------------------------------
Selling, general and administrative
   expenses ..........................      $  579,826       $  508,644       $  416,642       $  318,923
  Percentage of net sales ............            17.5%            17.0%            16.4%            16.4%
Depreciation and amortization ........      $   32,312       $   29,629       $   23,269       $   18,727
Provision for doubtful accounts ......      $   10,273       $    3,608       $    1,882       $    1,229
Operating income(3) ..................      $  105,489       $  132,392       $  117,206       $   87,244
Operating margin .....................             3.2%             4.4%             4.6%             4.5%
---------------------------------------------------------------------------------------------------------
Interest and other income(4) .........      $   18,476       $    9,015       $    6,886       $    5,837
Interest expense .....................      $   43,288       $   31,805       $   25,415       $   19,257
---------------------------------------------------------------------------------------------------------
Income before income taxes ...........      $   80,677       $  109,602       $   98,677       $   73,824
  Percentage of net sales ............             2.4%             3.7%             3.9%             3.8%
Income taxes (benefits) ..............      $   34,162       $   43,731       $   37,234       $   26,254
Net income ...........................      $   46,515       $   65,871       $   61,443       $   47,570
  Percentage of net sales ............             1.4%             2.2%             2.4%             2.4%
---------------------------------------------------------------------------------------------------------
Earnings per share:
  Basic ..............................      $     2.00       $     2.82       $     2.57       $     2.37
  Diluted ............................      $     1.97       $     2.80       $     2.55       $     2.33
---------------------------------------------------------------------------------------------------------
Average shares outstanding:
  Basic ..............................          23,238           23,398           23,889           20,108
  Diluted ............................          23,584           23,547           24,138           20,432
---------------------------------------------------------------------------------------------------------
BALANCE SHEETS:
Working capital ......................      $  679,130       $  657,500       $  567,435       $  486,106
Total assets .........................      $1,400,277       $1,369,014       $1,123,513       $  965,742
Long-term debt .......................      $  516,168       $  535,000       $  402,203       $  343,197
Shareholders' equity .................      $  570,035       $  522,444       $  483,956       $  421,769
---------------------------------------------------------------------------------------------------------
Current ratio ........................        3.3 to 1         3.2 to 1         3.5 to 1         3.5 to 1
Long-term debt-to-capital ............        .48 to 1         .51 to 1         .45 to 1         .45 to 1
Leverage (total assets/shareholders'
  equity) ............................            2.46             2.62             2.32             2.29
---------------------------------------------------------------------------------------------------------
OTHER:
Cash dividends per share .............      $      .34       $      .34       $      .33       $      .31
Shareholders' equity per share .......      $    24.12       $    22.16       $    20.01       $    18.00
Return on average assets .............             3.4%             5.3%             5.9%             5.8%
Return on average shareholders' equity             8.5%            13.1%            13.6%            13.2%
Capital expenditures .................      $   23,871       $   30,740       $   26,921       $   28,185
=========================================================================================================
</TABLE>

(1)  The Company's fiscal year ends on the last Friday in January.

(2)  All data  adjusted for poolings of interests  and the  three-for-two  stock
     split declared in fiscal 1998.

(3)  Fiscal 2001 includes the charge of $15,557 for the impairment of long-lived
     assets.

(4)  Fiscal 2001 includes the gain of $11,000 for the sale of the Company's pool
     and spa business.


18
<PAGE>


<TABLE>
<CAPTION>
                                                                           Fiscal Years Ended(1)(2)
                                           ----------------------------------------------------------------------------------------
                                              1997          1996          1995         1994        1993         1992         1991
-----------------------------------------------------------------------------------------------------------------------------------
<S>                                        <C>           <C>           <C>           <C>         <C>         <C>           <C>
STATEMENTS OF INCOME:
Net sales ..............................   $1,619,362    $1,326,978    $1,065,549    $880,977    $724,466    $ 690,311     $752,951
Cost of sales ..........................   $1,276,481    $1,052,120    $  848,698    $704,907    $583,513    $ 557,380     $608,322
Gross margin ...........................         21.2%         20.7%         20.4%       20.0%       19.5%        19.3%        19.2%
-----------------------------------------------------------------------------------------------------------------------------------
Selling, general and administrative
     expenses ..........................   $  261,355    $  218,093    $  172,828    $145,913    $119,732    $ 116,317     $117,649
  Percentage of net sales ..............         16.1%         16.4%         16.2%       16.6%       16.5%        16.8%        15.6%
Depreciation and amortization ..........   $   15,566    $   11,859    $   10,131    $  8,657    $  7,382    $   7,987     $  9,929
Provision for doubtful accounts ........   $    1,023    $    2,203    $    1,501    $  2,448    $  2,028    $   3,247     $  3,119
Operating income(3) ....................   $   64,937    $   42,703    $   32,391    $ 19,052    $ 11,811    $   5,380     $ 13,932
Operating margin .......................          4.0%          3.2%          3.0%        2.2%        1.6%          .8%         1.9%
-----------------------------------------------------------------------------------------------------------------------------------
Interest and other income(4) ...........   $    6,241    $    5,111    $    3,206    $  3,677    $  4,072    $   2,696     $  4,732
Interest expense .......................   $   14,842    $   10,440    $    6,813    $  6,456    $  6,087    $   7,702     $  9,850
-----------------------------------------------------------------------------------------------------------------------------------
Income before income taxes .............   $   56,336    $   37,374    $   28,784    $ 16,273    $  9,796    $     374     $  8,814
  Percentage of net sales ..............          3.5%          2.8%          2.7%        1.8%        1.4%          .1%         1.2%
Income taxes (benefits) ................   $   19,282    $   11,728    $    7,984    $  4,710    $  1,734    $  (1,359)    $  2,058
Net income .............................   $   37,054    $   25,646    $   20,800    $ 11,563    $  8,062    $   1,733     $  6,756
  Percentage of net sales ..............          2.3%          1.9%          2.0%        1.3%        1.1%          .3%          .9%
-----------------------------------------------------------------------------------------------------------------------------------
Earnings per share:
  Basic ................................   $     2.13    $     1.78    $     1.54    $    .97    $    .68    $     .15     $    .58
  Diluted ..............................   $     2.09    $     1.75    $     1.50    $    .92    $    .68    $     .15     $    .58
-----------------------------------------------------------------------------------------------------------------------------------
Average shares outstanding:
  Basic ................................       17,384        14,418        13,504      11,900      11,899       11,899       11,746
  Diluted ..............................       17,719        14,647        13,992      13,675      11,917       11,899       11,746
-----------------------------------------------------------------------------------------------------------------------------------
BALANCE SHEETS:
Working capital ........................   $  350,975    $  235,113    $  212,573    $171,702    $148,919    $ 134,961     $143,011
Total assets ...........................   $  684,056    $  474,574    $  418,717    $330,526    $294,510    $ 276,439     $273,216
Long-term debt .........................   $  228,351    $  139,165    $  127,166    $121,292    $103,870    $  89,921     $ 99,261
Shareholders' equity ...................   $  299,233    $  188,926    $  165,427    $116,918    $106,597    $  99,649     $102,094
-----------------------------------------------------------------------------------------------------------------------------------
Current ratio ..........................     3.3 to 1      2.6 to 1      2.7 to 1    2.9 to 1    2.8 to 1     2.6 to 1     3.0 to 1
Long-term debt-to-capital ..............     .43 to 1      .42 to 1      .43 to 1    .51 to 1    .49 to 1     .47 to 1     .49 to 1
Leverage (total assets/shareholders'
  equity) ..............................         2.29          2.51          2.53        2.83        2.76         2.77         2.68
-----------------------------------------------------------------------------------------------------------------------------------
OTHER:
Cash dividends per share ...............   $      .25    $      .20    $      .15    $    .11    $    .08    $     .16     $    .24
Shareholders' equity per share .........   $    15.29    $    12.64    $    11.40    $   9.43    $   8.71    $    8.14     $   8.64
Return on average assets ...............          6.4%          5.7%          5.6%        3.7%        2.8%          .6%         2.4%
Return on average shareholders'
  equity ...............................         15.2%         14.5%         14.7%       10.3%        7.8%         1.7%         6.5%
Capital expenditures ...................   $   16,898    $   14,713    $   15,824    $  9,997    $ 10,335    $   6,073     $  8,877
===================================================================================================================================
</TABLE>


                                                                              19
<PAGE>


Hughes Supply, Inc.
MANAGEMENT'S  DISCUSSION  AND  ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS


The following is a discussion and analysis of certain  significant factors which
have  affected  the  financial   condition  of  Hughes  Supply,   Inc.  and  its
subsidiaries  (the  "Company")  as of  January  26,  2001,  and the  results  of
operations  for fiscal  2001  compared  with  fiscal  2000,  and of fiscal  2000
compared with fiscal 1999. This  information  should be read in conjunction with
the Company's  consolidated  financial information provided on pages 26 to 39 of
this Annual Report.

Forward-Looking Statements

Certain  statements  set  forth  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  created by such  sections.  When used in this
report, the words "believe," "anticipate,"  "estimate," "expect," "may," "will,"
"should,"  "plan,"  "intend,"  "potential,"  "predict,"  "forecast"  and similar
expressions are intended to identify  forward-looking  statements.  Although the
Company  believes  that  the  expectations  reflected  in  such  forward-looking
statements are reasonable,  it can give no assurance that such expectations will
prove to be correct.  The Company's actual results may differ significantly from
the results  discussed in such  forward-looking  statements.  When  appropriate,
certain  factors  that  could  cause  results  to differ  materially  from those
projected in the forward-looking statements are enumerated.

Overview

The  Company  is  a  diversified   wholesale  distributor  of  construction  and
industrial  materials,  equipment,  and  supplies  to  commercial  construction,
residential construction, industrial, and public infrastructure markets in North
America. Operating in 34 states and Mexico, the Company distributes over 240,000
products through its 442 wholesale branches.

Effective  February 1, 2000,  the Company's  operations  were  reorganized  into
strategic  business  units  ("SBUs"),  which are built around five broad product
categories.  These SBUs represent the Company's  reportable segments and include
Electrical  & Electric  Utility;  Plumbing  & HVAC;  Industrial  Pipe,  Valves &
Fittings ("Industrial PVF"); Building Materials/Pool & Spa/Maintenance Supplies;
and  Water & Sewer.  This is the  basis  management  uses for  making  operating
decisions and assessing performance.

In fiscal  2001,  the  Company  experienced  continued  operating  losses in its
e-commerce  ventures and international  operations.  As a result of these losses
and based on an analysis of future profitability and anticipated customer demand
for these  operations,  the Company recorded an impairment charge totaling $15.6
million  relating to the write-down of long-lived  assets.  This charge included
the write-off of goodwill and other assets totaling $12.9 million related to the
Company's  e-commerce  investments,  including  bestroute.com  ("bestroute") and
supplyFORCE.com,  and a charge  totaling $2.7 million  primarily  related to the
write-off of goodwill in the Company's international operations.

In January  2001,  the Company  completed the sale of the assets of its pool and
spa business for $48.0  million.  The Company  received  cash  proceeds of $23.0
million with the remaining $25.0 million of the  consideration  in the form of a
short-term note receivable. The Company recorded a pre-tax gain of $11.0 million
and an after-tax gain of $6.7 million or $.28 per share on a diluted basis.

Material Changes in Results of Operations

Net Sales

In fiscal 2001, the Company generated consolidated net sales of $3.3 billion, an
11% increase  over fiscal 2000 net sales of $3.0 billion.  Approximately  $156.6
million of the increase was  attributable  to  same-store  sales growth with the
remainder of the increase  attributable to acquired and  newly-opened  wholesale
branches.  Same-store  sales  increased 5% in fiscal 2001 and 7% in fiscal 2000.
The 5%  same-store  sales  increase  was  primarily  attributable  to  increased
infrastructure  spending by municipalities  in the Water & Sewer SBU;  favorable
commodity  pricing in stainless steel and nickel alloy  products;  and increased
market  penetration in the Building  Materials/ Pool & Spa/Maintenance  Supplies
SBU. The drop in same-store  sales growth from 7% in fiscal 2000 to 5% in fiscal
2001 was  primarily  due to the  impact of lower  commodity  prices on  plumbing
products,  aggressive  price  competition in some of the Company's major markets
and inclement weather, particularly in the fourth quarter of fiscal 2001.

Fiscal 2000 net sales increased $458.6 million or 18% over fiscal 1999 net sales
of $2.5 billion.  Approximately  $162.8 million of the increase was attributable
to same-store  sales growth with the remainder of the increase  attributable  to
acquired and newly-opened wholesale branches. On a basis comparable to the prior
year, same-store sales increased 6% in fiscal 1999 and 7% in fiscal 2000. The 7%
same-store sales increase in fiscal 2000 was  attributable to continued  overall
strength of the construction market, increases in pool and spa product sales due
to increased  market  penetration,  and growth in electric utility product sales
due to the anticipated deregulation within their industry.



20
<PAGE>


Net sales by SBU for fiscal 2001,  2000 and 1999 are presented below (dollars in
thousands):

<TABLE>
<CAPTION>
                                                                              Building
                                                                             Materials/
                            Electrical &                                     Pool & Spa/                  Corporate/
                             Electric         Plumbing        Industrial     Maintenance       Water &   Eliminations
                             Utility           & HVAC            PVF          Supplies          Sewer       & Other          Total
------------------------------------------------------------------------------------------------------------------------------------
<S>                          <C>             <C>               <C>             <C>             <C>             <C>        <C>
2001 ................        $606,268        $1,007,318        $315,315        $448,363        $932,870        $29        $3,310,163
2000 ................         576,739           956,553         299,590         424,138         737,857         --         2,994,877
1999 ................         519,408           857,385         291,870         325,136         542,466         --         2,536,265
====================================================================================================================================
</TABLE>


Electrical & Electric Utility

In fiscal 2001,  net sales were $606.3  million,  a $29.6 million or 5% increase
from fiscal 2000 net sales of $576.7  million.  Fiscal 2000 net sales  increased
$57.3  million or 11% over fiscal 1999 net sales.  The net sales  increases  for
both years were primarily  attributable to newly acquired or opened branches and
a  same-store  sales  increase  of $22.1  million or 4% in fiscal 2001 and $35.5
million or 8% in fiscal 2000.  The 4% same-store  sales  increase in fiscal 2001
was  primarily due to an increase in commercial  construction  activity.  The 8%
same-store  sales increase in fiscal 2000 was due to growth in electric  utility
product sales resulting from increased  spending by utility companies due to the
anticipated deregulation within their industry.

Plumbing & HVAC

In fiscal 2001, net sales were $1.0 billion, a $50.8 million or 5% increase from
fiscal 2000 net sales of $956.6  million.  Fiscal 2000 net sales increased $99.2
million or 12% over  fiscal  1999 net sales.  The net sales  increases  for both
years were primarily  attributable  to newly  acquired or opened  branches and a
same-store  sales  increase  of $36.7  million  or 4% in  fiscal  2001 and $19.2
million or 2% in fiscal 2000.  The growth in same-store  sales in both years was
below Company  averages as a result of aggressive  price  competition in certain
geographic areas as well as lower commodity prices on certain products.

Industrial PVF

In fiscal 2001,  net sales were $315.3  million,  a $15.7 million or 5% increase
from fiscal 2000 net sales of $299.6  million.  Fiscal 2000 net sales  increased
$7.7 million or 3% over fiscal 1999 net sales.  The same-store sales increase of
5% in fiscal 2001 was the result of commodity price increases in stainless steel
and nickel alloy products.

Building Materials/Pool & Spa/Maintenance Supplies

In fiscal 2001,  net sales were $448.4  million,  a $24.3 million or 6% increase
from fiscal 2000 net sales of $424.1  million.  Fiscal 2000 net sales  increased
$99.0 million or 30% over fiscal 1999 net sales. The net sales increase for both
years was  primarily  attributable  to newly  acquired or opened  branches and a
same-store  sales  increase  of $12.7  million  or 3% in  fiscal  2001 and $47.2
million or 15% in fiscal 2000.  The 3% same-store  sales increase in fiscal 2001
was  primarily  due to improved  market  penetration  in pool and spa  products,
demand for construction  rental  materials,  and expansion of appliance  product
lines in the maintenance  supply branches.  The 15% same-store sales increase in
fiscal  2000 was due to growth in pool and spa  product  sales due to  increased
market penetration.

Water & Sewer

In fiscal 2001, net sales were $932.9 million,  a $195.0 million or 26% increase
from fiscal 2000 net sales of $737.9  million.  Fiscal 2000 net sales  increased
$195.4  million or 36% over fiscal 1999 net sales.  The net sales  increases for
both years were primarily  attributable to newly acquired or opened branches and
a  same-store  sales  increase of $69.5  million or 10% in fiscal 2001 and $54.6
million or 10% in fiscal 2000.  These  same-store sales increases were primarily
due  to  improved  market  penetration,  increased  spending  on  infrastructure
projects by  municipalities,  and a general increase in overall activity through
all water and sewer markets.


                                                                              21
<PAGE>

Hughes Supply, Inc.
MANAGEMENT'S  DISCUSSION  AND  ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(continued)

Gross Profit and Gross Margin

Gross  margins  were 22.5% in both  fiscal  2001 and 2000  compared  to 22.0% in
fiscal 1999.  The  improvement  in gross margin from fiscal 1999  resulted  from
several  factors,  including the Company's  overall  expansion of  higher-margin
products due primarily to its  acquisition  program,  efficiencies  created with
central distribution centers, and enhanced purchasing power. Enhanced purchasing
power was attributable to increased  volume and  concentration of supply sources
as part of the  Company's  preferred  vendor  program.The  favorable  impact  of
stainless  steel and nickel alloy  commodity price increases in fiscal 2001 were
offset by competitive  market  pressures in certain other product  groups.  This
resulted in fiscal 2001 gross margin being at the same level as fiscal 2000.

Gross  profit  and gross  margin by SBU in  fiscal  2001,  2000 and 1999 were as
follows (dollars in thousands):

<TABLE>
<CAPTION>
                                                                               Gross Profit                    Gross Margin
                                                                 -------------------------------------------------------------------
                                                                      2001         2000        1999      2001       2000       1999
-----------------------------------------------------------------------------------------------------------------------------------
<S>                                                              <C>           <C>         <C>           <C>        <C>        <C>
Electrical & Electric Utility ...............................    $ 117,263     $105,492    $ 93,658      19.3%      18.3%      18.0%
Plumbing & HVAC .............................................      226,736      233,449     204,056      22.5%      24.4%      23.8%
Industrial PVF ..............................................       82,463       69,668      68,258      26.2%      23.3%      23.4%
Building Materials/Pool & Spa/Maintenance Supplies ..........      127,538      111,544      83,316      28.4%      26.3%      25.6%
Water & Sewer ...............................................      190,384      154,120     109,711      20.4%      20.9%      20.2%
Corporate/Eliminations & Other ..............................         (927)          --          --        --         --         --
-----------------------------------------------------------------------------------------------------------------------------------

Total .......................................................    $ 743,457     $674,273    $558,999      22.5%      22.5%      22.0%
===================================================================================================================================
</TABLE>

Electrical & Electric Utility

Gross margin increased  approximately 100 and 30 basis points in fiscal 2001 and
2000,  respectively.  The primary cause of the increased  margins was a shift in
sales mix to higher margin  products,  with the remainder being  attributable to
enhanced  purchasing power. This enhanced  purchasing power was due to increased
volume and  concentration  of supply sources as part of the Company's  preferred
vendor program.

Plumbing & HVAC

Gross margin decreased approximately 190 basis points in fiscal 2001 as a result
of the impact of lower commodity prices on plumbing products.  There was also an
erosion of  margins as the  Company  sought to protect  market  share in certain
geographic  areas  from  aggressive  price  competition.   Fiscal  2000  margins
increased from 23.8% to 24.4% or approximately 60 basis points as a result of an
overall  expansion of higher gross margin  products,  efficiencies  created with
central distribution centers and enhanced purchasing power.

Industrial PVF

In fiscal 2001,  gross profit increased $12.8 million and gross margin increased
approximately  290 basis  points.  Gross profit and gross margin within this SBU
are closely tied to the pricing of certain  commodity based products,  primarily
stainless steel and nickel alloys. The continued increases in the price of these
commodity  items  improved the Company's  gross margin for these products in the
first half of fiscal 2001.  Prices for these products  started to decline in the
second half of the year,  thereby  causing a reduction  in gross  margins in the
third and fourth  quarter of fiscal  2001.  The  Company  anticipates  commodity
prices, and therefore gross margins within this segment,  to continue decreasing
during fiscal year 2002.

Building  Materials/Pool  &  Spa/Maintenance  Supplies

Gross margin increased  approximately 210 and 70 basis points in fiscal 2001 and
2000,  respectively.  The increases  were  primarily due to a shift in sales mix
resulting  from  equipment  rentals and  increased  emphasis on the  replacement
market which tends to yield higher gross margins.  The remainder of the increase
was largely due to improved purchasing power.

Water & Sewer

Gross  margin  decreased  approximately  50 basis  points in fiscal  2001.  This
decrease  was  principally  attributable  to a general  increase in large direct
shipment  orders which generate  lower gross  margins.  The increase of 70 basis
points in fiscal 2000 was primarily due to the Company's acquisition program and
enhanced purchasing power.

Operating Expenses

Operating expenses in fiscal 2001 were $638.0 million (19% of net sales), an 18%
increase  over fiscal 2000  operating  expenses  of $541.9  million  (18% of net
sales).  Included in  operating  expenses  in fiscal  2001 is the $15.6  million
charge  related to the impairment of certain



22
<PAGE>

long-lived assets as set forth in the overview. Additionally, operating expenses
were impacted by a higher than anticipated provision for doubtful accounts which
traditionally  increases during economic  slowdowns.  The remaining increase was
primarily due to higher personnel costs associated with same-store sales growth,
increased  transportation  costs  brought  about  by  same-store  sales  growth,
increased fuel costs, and increased  information  technology  ("IT") spending as
the Company continues its program of upgrading IT systems.  The Company believes
its  investment in these  initiatives  will provide a platform for future growth
and  enable it to realize  more  administrative  synergies  from past and future
acquisitions.

Similarly,  the $100.1 million  increase in fiscal 2000 compared to fiscal 1999,
which had operating expenses of $441.8 million (17% of net sales), was primarily
attributable to newly opened or acquired branches. The remainder of the increase
was primarily due to higher personnel and  transportation  costs associated with
same-store sales growth, and expenses related to the Company's IT initiatives.

Non-Operating Income (Expenses)

Interest and other income was $7.5 million,  $9.0  million,  and $6.9 million in
fiscal 2001, 2000 and 1999,  respectively.  The $1.5 million  decrease in fiscal
2001 was primarily due to losses totaling $4.4 million from the Company's equity
investment in bestroute, partially offset by increased income from the Company's
other  equity  investments  and the  collection  of  service  charge  income  on
delinquent  accounts  receivable.  The $2.1 million  increase in fiscal 2000 was
primarily attributable to increased service charge income.

Interest expense in fiscal 2001, 2000 and 1999 was $43.3 million,  $31.8 million
and $25.4  million,  respectively.  The increases  were  primarily the result of
higher  borrowing  levels,  coupled with increased  interest  rates.  The higher
borrowing  levels were primarily due to the Company's (i) higher working capital
investments  resulting from  accelerated  sales growth,  (ii) expansion  through
business  acquisitions,  which has been partially funded by debt financing,  and
(iii) share repurchases.

Non-operating income (expenses) in fiscal 2001 includes an $11.0 million pre-tax
gain relating to the sale of the Company's pool and spa business as set forth in
the overview.

Income Taxes

The  effective  tax rates in fiscal  2001,  2000 and 1999 were 42.3%,  39.9% and
37.7%,  respectively.  The  increases  in the  effective  tax rates  were due to
increases in non-deductible  goodwill and other  non-deductible  costs. Prior to
the merger with Winn-Lange Electric,  Inc. ("Winn-Lange") on June 30, 1998, this
entity was a Subchapter S corporation and,  therefore,  not subject to corporate
income tax.  Winn-Lange's  Subchapter S corporation  status  terminated upon the
merger with the Company.  The Company's effective tax rate for fiscal 1999 would
have been approximately 38.3%, assuming Winn-Lange was a tax paying entity.

Net Income

Net income in fiscal  2001  decreased  to $46.5  million  from $65.9  million in
fiscal  2000.  Diluted  earnings  per share  decreased  to $1.97 in fiscal  2001
compared to $2.80 in fiscal 2000.  Net income and diluted  earnings per share in
fiscal 1999 were $61.4 million and $2.55,  respectively.  The factors  impacting
net income and diluted earnings per share have been enumerated above.

Financial Condition

Liquidity and Capital Resources

Working  capital  increased to $679.1  million as of January 26, 2001,  compared
with $657.5  million as of January 28, 2000 and $567.4 million as of January 29,
1999.  The  current  ratio was 3.3 to 1 as of January 26,  2001,  3.2 to 1 as of
January 28, 2000 and 3.5 to 1 as of January 29, 1999.  The fiscal 2001  increase
in working  capital  was  principally  driven by higher  cash  levels and higher
accounts  and  other  receivables,   which  were  partially  offset  by  reduced
inventories.  Cash on hand  increased  primarily  as a result of the sale of the
Company's pool and spa business in January 2001,  which  generated cash proceeds
of approximately $23.0 million.  Additionally, in connection with this sale, the
Company received a short-term note receivable totaling $25.0 million. The higher
level of accounts  receivable  reflects sales  increases over prior year end and
slower collection activity resulting from the economic slowdown which started in
the  second  half of fiscal  2001.  During  fiscal  2001,  the  Company  reduced
inventory levels to be more in line with current market demand.


                                                                              23
<PAGE>


Hughes Supply, Inc.
MANAGEMENT'S  DISCUSSION  AND  ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(continued)


The fiscal 2000 increase in working  capital was also  attributable to increased
accounts  receivable as a result of increased sales volume and higher  inventory
levels,   partially   offset  by  increases  in  accounts  payable  and  accrued
liabilities.

Net cash  provided by  operations  was $66.1  million,  $33.4  million and $31.6
million in fiscal 2001,  2000 and 1999,  respectively.  In fiscal 2001, net cash
provided  by  operations  of $66.1  million  was  primarily  the  result  of the
Company's  reduced  inventory  levels  and  increases  in  accrued  liabilities,
partially  offset by increases  in accounts  receivable,  resulting  from higher
sales  volumes.  Net cash provided by operations of $33.4 million in fiscal 2000
was  primarily  the  result of an  increase  in  accounts  payable  and  accrued
liabilities resulting from the Company's working capital management efforts.

Investing Activities

Capital  expenditures  were $23.9  million,  $30.7  million and $26.9 million in
fiscal 2001, 2000 and 1999, respectively.  Of these expenditures,  approximately
$8.3  million,  $14.0  million  and $10.0  million,  respectively,  were for new
warehouse  facilities to support the  Company's  growth and  approximately  $3.2
million,  $5.0  million  and $7.0  million,  respectively,  were  related  to IT
outlays. Capital expenditures,  excluding amounts for business acquisitions, are
expected to be approximately $20.0 million in fiscal 2002.

Proceeds from the sale of property and equipment were $1.8 million, $4.9 million
and $6.6 million in fiscal 2001, 2000 and 1999,  respectively.  The decreases in
both years were  attributable  to the sale and subsequent  lease-back of certain
computer  hardware,  which generated  proceeds of approximately  $2.5 million in
fiscal 2000 and $5.4 million in fiscal 1999.

Cash payments for business acquisitions totaled $34.1 million, $88.9 million and
$40.4 million in fiscal years 2001, 2000 and 1999,  respectively.  These outlays
represent three, seven and eight wholesale  distributors  acquired and accounted
for using the  purchase  method of  accounting  in fiscal  2001,  2000 and 1999,
respectively.  The  increase  in cash paid for  acquisitions  in fiscal  2000 as
compared  to fiscal  1999 was the  result of all of the  Company's  fiscal  2000
acquisitions being financed completely with cash consideration.  In fiscal 1999,
the Company used $18.0 million of its common stock as  additional  consideration
for acquisitions.

In fiscal 2001 and 2000,  the Company  invested  $6.3 million and $3.8  million,
respectively, into two e-commerce ventures, including bestroute.

Financing Activities

Principal  reductions  on long-term  debt were $2.5  million,  $14.7 million and
$24.1 million in fiscal 2001,  2000 and 1999,  respectively.  These amounts were
primarily  attributable  to the repayment of debt assumed as a result of certain
business acquisitions.  Dividend payments totaled $8.1 million, $8.0 million and
$8.8 million during fiscal 2001,  2000 and 1999,  respectively.  In fiscal 1999,
these  payments  included  cash  dividends  of pooled  companies  totaling  $1.2
million.

On December 13,  2000,  the Company  executed an amendment to its $75.0  million
line of credit agreement, which extended the maturity date from January 19, 2001
to July 17,  2001.There  were no amounts  outstanding  under this  agreement  at
January 26, 2001 and January 28, 2000.

On December 21, 2000,  the Company  issued  $150.0  million of senior notes in a
private placement.  Of the total $150.0 million of senior notes,  $103.0 million
bear  interest  at 8.42%  and are  payable  in five  annual  principal  payments
beginning  November 30, 2003.  The remaining  $19.0 million and $28.0 million of
senior  notes bear  interest  at 8.27% and are  payable in one annual  principal
payment on  November  30,  2003 and five  annual  principal  payments  beginning
November 30, 2001, respectively. Proceeds from the sale of the senior notes were
used to  reduce  indebtedness  under  the  Company's  revolving  line of  credit
agreement.

As of January 26, 2001, the Company had approximately  $22.4 million of cash and
$221.9 million of unused borrowing  capacity (subject to borrowing  limitations,
under  long-term  debt  covenants) to fund ongoing  operating  requirements  and
anticipated  capital  expenditures.  The  Company  believes  it  has  sufficient
borrowing  capacity  and cash on hand to take  advantage  of growth and business
acquisition  opportunities  and to fund share  repurchases in the near term. The
Company expects to continue to finance future expansion on a  project-by-project
basis through additional borrowing or the issuance of common stock.

On March 15, 1999,  the Board of Directors  authorized the Company to repurchase
up to 2.5  million of its  outstanding  shares.  During  fiscal 2000 the Company
repurchased  921,100  shares  for a total  cost of $21.2  million  at an average
purchase price of $23.05. No shares were repurchased in fiscal 2001.


24
<PAGE>


Quantitative and Qualitative Disclosure About Market Risk

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

At January 26, 2001, the Company had approximately $153.1 million of outstanding
variable-rate  debt.  Based upon an assumed 10% increase or decrease in interest
rates from their  January 26, 2001  levels,  the market risk with respect to the
Company's  variable-rate  debt would not be  material.  The Company  manages its
interest rate risk by maintaining a combination of fixed-rate and  variable-rate
debt.

Management  believes that  inflation  (which has been moderate over the past few
years) did not significantly  affect the Company's  operating results or markets
in fiscal 2001, 2000 or 1999. As discussed above, however, the Company's results
of operations  in fiscal 2001 were both  favorably  and  negatively  impacted by
increases  and  decreases  in the pricing of certain  commodity-based  products.
Fiscal  2000 and 1999 were  negatively  impacted  by  declines in prices of such
commodity-based  products.  Such commodity price  fluctuations have from time to
time created  cyclicality in the financial  performance of the Company and could
continue to do so in the future.

Recent Accounting Pronouncements

Statement of Financial  Accounting  Standards No. 133, Accounting for Derivative
Instruments and Hedging  Activities  ("FAS 133"), was issued in June 1998 and is
effective  for the Company  beginning  January 27, 2001.  FAS 133 was amended in
June 2000 by Statement of Financial Accounting Standards No. 138, Accounting for
Certain Derivative  Instruments and Hedging Activities ("FAS 138"). Both FAS 133
and FAS 138 require that an entity  measure all  derivatives as either assets or
liabilities  in the balance sheet and measure those  instruments  at fair value.
The adoption of these  standards did not have a material impact on the Company's
consolidated financial statements.

In December  1999, the  Securities  and Exchange  Commission  (the "SEC") issued
Staff Accounting Bulletin No. 101, Revenue  Recognition in Financial  Statements
("SAB 101"),  which provided  guidance related to revenue  recognition  based on
interpretations and practices followed by the SEC. SAB 101 was effective for the
Company  beginning  in the fourth  quarter  of fiscal  2001.  The  Company is in
compliance  with the  provisions of SAB 101, and adoption of its  provisions did
not have an impact on the consolidated financial statements.

In September 2000, the Emerging Issues Task Force issued EITF 00-10,  Accounting
for Shipping and Handling  Fees and Costs ("EITF  00-10").  EITF 00-10  requires
shipping and handling  fees billed to customers to be  classified as revenue and
shipping  and  handling  costs  to be  either  classified  as cost of  sales  or
disclosed in the notes to the  consolidated  financial  statements.  The Company
includes  shipping  and  handling  fees billed to  customers  in net sales.  The
Company adopted EITF 00-10 in the fourth quarter of fiscal 2001 and has properly
disclosed in the notes to the consolidated financial statements the shipping and
handling  costs  which are  included  in  selling,  general  and  administrative
expenses.


                                                                              25


<PAGE>


Hughes Supply, Inc.
CONSOLIDATED STATEMENTS OF INCOME
(in thousands, except per share data)


<TABLE>
<CAPTION>
                                                           Fiscal Years Ended
                                             -----------------------------------------------
                                               January 26,      January 28,      January 29,
                                                 2001              2000             1999
--------------------------------------------------------------------------------------------
<S>                                          <C>               <C>               <C>
Net Sales .............................      $ 3,310,163       $ 2,994,877       $ 2,536,265
Cost of Sales .........................        2,566,706         2,320,604         1,977,266
--------------------------------------------------------------------------------------------
Gross Profit ..........................          743,457           674,273           558,999
Operating Expenses:
  Selling, general and administrative .          579,826           508,644           416,642
  Depreciation and amortization .......           32,312            29,629            23,269
  Provision for doubtful accounts .....           10,273             3,608             1,882
  Impairment of long-lived assets .....           15,557                --                --
--------------------------------------------------------------------------------------------
    Total operating expenses ..........          637,968           541,881           441,793
Operating Income ......................          105,489           132,392           117,206
Non-Operating Income (Expenses):
  Gain on sale of pool and spa business           11,000                --                --
  Interest and other income ...........            7,476             9,015             6,886
  Interest expense ....................          (43,288)          (31,805)          (25,415)
--------------------------------------------------------------------------------------------
                                                 (24,812)          (22,790)          (18,529)
--------------------------------------------------------------------------------------------
Income Before Income Taxes ............           80,677           109,602            98,677
Income Taxes ..........................           34,162            43,731            37,234
--------------------------------------------------------------------------------------------
Net Income ............................      $    46,515       $    65,871       $    61,443
============================================================================================
Earnings Per Share:
  Basic ...............................      $      2.00       $      2.82       $      2.57
============================================================================================
  Diluted .............................      $      1.97       $      2.80       $      2.55
============================================================================================
Average Shares Outstanding:
  Basic ...............................           23,238            23,398            23,889
============================================================================================
  Diluted .............................           23,584            23,547            24,138
============================================================================================
</TABLE>


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


26
<PAGE>


Hughes Supply, Inc.
CONSOLIDATED BALANCE SHEETS
(in thousands, except share and per share data)


<TABLE>
<CAPTION>
                                                                          January 26,       January 28,
                                                                             2001              2000
------------------------------------------------------------------------------------------------------
<S>                                                                      <C>               <C>
Assets
Current Assets:
  Cash and cash equivalents .......................................      $    22,449       $    10,000
  Accounts receivable, less allowance for doubtful accounts
    of $6,106 and $2,777 ..........................................          431,998           398,244
  Inventories .....................................................          441,789           495,491
  Deferred income taxes ...........................................           18,524            10,081
  Other current assets ............................................           66,131            43,962
------------------------------------------------------------------------------------------------------
    Total current assets ..........................................          980,891           957,778
Property and Equipment, Net .......................................          152,079           144,945
Excess of Cost Over Net Assets Acquired ...........................          249,826           243,367
Other Assets ......................................................           17,481            22,924
------------------------------------------------------------------------------------------------------
                                                                         $ 1,400,277       $ 1,369,014
======================================================================================================
Liabilities and Shareholders' Equity
Current Liabilities:
  Current portion of long-term debt ...............................      $    15,274       $       803
  Accounts payable ................................................          215,353           239,810
  Accrued compensation and benefits ...............................           32,762            29,590
  Other current liabilities .......................................           38,372            30,075
------------------------------------------------------------------------------------------------------
    Total current liabilities .....................................          301,761           300,278

Long-Term Debt ....................................................          516,168           535,000
Deferred Income Taxes .............................................            6,704             6,027
Other Noncurrent Liabilities ......................................            5,609             5,265
------------------------------------------------------------------------------------------------------
    Total liabilities .............................................          830,242           846,570
------------------------------------------------------------------------------------------------------
Commitments and Contingencies (Note 8)

Shareholders' Equity:
  Preferred stock, no par value; 10,000,000  shares  authorized;
    none issued; preferences, limitations and relative rights to be
    established by the Board of Directors .........................               --                --
  Common stock, par value $1 per share; 100,000,000 shares
    authorized; 24,211,485 and 24,249,281 shares issued ...........           24,211            24,249
  Capital in excess of par value ..................................          228,103           221,284
  Retained earnings ...............................................          337,149           300,144
  Treasury stock, 576,783 and 668,950 shares, at cost .............          (13,307)          (15,434)
  Unearned compensation related to outstanding restricted stock ...           (6,121)           (7,799)
------------------------------------------------------------------------------------------------------
    Total shareholders' equity ....................................          570,035           522,444
                                                                         $ 1,400,277       $ 1,369,014
======================================================================================================
</TABLE>


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


                                                                              27
<PAGE>



Hughes   Supply,   Inc.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(in thousands, except share and per share data)


<TABLE>
<CAPTION>
                                                  Common                 Capital in                            Unearned
                                                  Shares       Common     Excess of    Retained     Treasury    Compen-
                                               Outstanding     Stock      Par Value    Earnings      Stock      sation       Total
------------------------------------------------------------------------------------------------------------------------------------
<S>                                            <C>           <C>         <C>          <C>          <C>         <C>        <C>
Balance at January 30, 1998 ...............    23,437,039    $ 23,437    $ 202,210    $ 197,364    $     --    $(1,242)   $ 421,769
  Net income ..............................            --          --           --       61,443          --         --       61,443
  Cash dividends--$.33 per share ..........            --          --           --       (7,866)         --         --       (7,866)
    Pooled companies ......................            --          --           --       (1,222)         --         --       (1,222)
  Shares issued under stock option
    and bonus plans .......................       107,980         108        1,282           --          --         --        1,390
  Purchase and retirement of
    common shares .........................       (19,439)        (19)        (193)        (389)         --         --         (601)
  Issuance of restricted stock ............        52,500          52        1,615           --          --     (1,667)          --
  Amortization of unearned
    restricted stock ......................            --          --           --           --          --        393          393
  Capitalization of undistributed earnings
    of Subchapter S corporation ...........            --          --        7,697       (7,697)         --         --           --
  Other acquisitions ......................       605,754         606        6,947        1,097          --         --        8,650
-----------------------------------------------------------------------------------------------------------------------------------
Balance at January 29, 1999 ...............    24,183,834    $ 24,184    $ 219,558    $ 242,730    $     --    $(2,516)   $ 483,956
  Net income ..............................            --          --           --       65,871          --         --       65,871
  Cash dividends--$.34 per share ..........            --          --           --       (7,990)         --         --       (7,990)
  Purchase of treasury stock ..............      (921,100)         --           --           --     (21,229)        --      (21,229)
  Shares issued under stock option
    and bonus plans .......................        64,700          29          472         (378)        811         --          934
  Purchase and retirement
    of common shares ......................        (6,624)         (7)         (57)         (89)         --         --         (153)
  Issuance of restricted stock,
    net of cancellations ..................       259,521          43        1,311           --       4,984     (6,338)          --
  Amortization of unearned
    restricted stock ......................            --          --           --           --          --      1,055        1,055
-----------------------------------------------------------------------------------------------------------------------------------
Balance at January 28, 2000 ...............    23,580,331    $ 24,249    $ 221,284    $ 300,144    $(15,434)   $(7,799)   $ 522,444
  Net income ..............................            --          --           --       46,515          --         --       46,515
  Cash dividends--$.34 per share ..........            --          --           --       (8,088)         --         --       (8,088)
  Shares issued under stock option
    and bonus plans .......................        92,167          --           --         (425)      2,127         --        1,702
  Purchase and retirement of
    common shares .........................       (31,796)        (32)        (319)      (1,002)         --         --       (1,353)
  Issuance of restricted stock, net
     of cancellations .....................        (6,000)         (6)        (135)           5          --        136           --
  Amortization of unearned
    restricted stock ......................            --          --           --           --          --      1,542        1,542
  Consideration for
    bestroute.com acquisition .............            --          --        7,273           --          --         --        7,273
-----------------------------------------------------------------------------------------------------------------------------------
Balance at January 26, 2001 ...............    23,634,702    $ 24,211    $ 228,103    $ 337,149    $(13,307)   $(6,121)   $ 570,035
===================================================================================================================================
</TABLE>


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


28


<PAGE>
Hughes Supply,  Inc.
CONSOLIDATED  STATEMENTS OF CASH FLOWS
(in thousands)


<TABLE>
<CAPTION>
                                                                                                      Fiscal Years Ended
                                                                                           -----------------------------------------
                                                                                           January 26,    January 28,    January 29,
                                                                                             2001             2000           1999
------------------------------------------------------------------------------------------------------------------------------------
<S>                                                                                        <C>             <C>             <C>
Cash Flows from Operating Activities:
  Net income ........................................................................      $  46,515       $  65,871       $ 61,443
  Adjustments to reconcile net income to net cash provided
    by operating activities:
      Depreciation and amortization .................................................         32,312          29,629         23,269
      Provision for doubtful accounts ...............................................         10,273           3,608          1,882
      Impairment of long-lived assets ...............................................         15,557              --             --
      Gain on sale of pool and spa business .........................................        (11,000)             --             --
      Deferred income taxes .........................................................         (7,766)            564          7,763
      Other .........................................................................          4,207            (262)          (671)
  Changes in assets and liabilities, net of businesses acquired or sold:
      Accounts receivable ...........................................................        (44,672)        (33,961)       (25,497)
      Inventories ...................................................................         34,567         (67,594)       (29,493)
      Other current assets ..........................................................          1,992         (10,376)        (7,718)
      Other assets ..................................................................         (7,776)         (4,006)        (5,692)
      Accounts payable ..............................................................        (22,322)         45,812         11,472
      Accrued compensation and benefits .............................................          4,433           4,046          2,278
      Other current liabilities .....................................................          9,484             (50)        (8,166)
      Other noncurrent liabilities ..................................................            344             168            697
-----------------------------------------------------------------------------------------------------------------------------------
        Net cash provided by operating activities ...................................         66,148          33,449         31,567
Cash Flows from Investing Activities:
  Capital expenditures ..............................................................        (23,871)        (30,740)       (26,921)
  Business acquisitions, net of cash ................................................        (34,086)        (88,905)       (40,378)
  Investments in affiliated entities ................................................         (5,757)         (3,750)            --
  Proceeds from sale of property and equipment ......................................          1,772           4,892          6,630
  Proceeds from sale of pool and spa business .......................................         22,972              --             --
-----------------------------------------------------------------------------------------------------------------------------------
        Net cash used in investing activities .......................................        (38,970)       (118,503)       (60,669)
-----------------------------------------------------------------------------------------------------------------------------------
Cash Flows from Financing Activities:
  Proceeds from issuance of long-term debt ..........................................        150,000              --         50,000
  Net (payments) borrowings under short-term debt arrangements ......................       (153,900)        132,797         10,232
  Principal payments on debt of acquired entities ...................................         (2,476)        (14,724)       (24,084)
  Purchase of treasury shares .......................................................             --         (21,229)            --
  Dividends paid ....................................................................         (8,083)         (8,042)        (8,832)
  Other .............................................................................           (270)            242           (408)
-----------------------------------------------------------------------------------------------------------------------------------
        Net cash (used in) provided by financing activities .........................        (14,729)         89,044         26,908
-----------------------------------------------------------------------------------------------------------------------------------
Net Increase (Decrease) in Cash and Cash Equivalents ................................         12,449           3,990         (2,194)
Cash and Cash Equivalents, Beginning of Year ........................................         10,000           6,010          8,204
-----------------------------------------------------------------------------------------------------------------------------------
Cash and Cash Equivalents, End of Year ..............................................      $  22,449       $  10,000       $  6,010
===================================================================================================================================
</TABLE>


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


                                                                              29
<PAGE>

Hughes  Supply,  Inc.
NOTES TO  CONSOLIDATED  FINANCIAL STATEMENTS
(in thousands, except share and per share data)


Note 1--Description of Business and Summary of Significant  Accounting Policies

Organization

Hughes  Supply,  Inc. and its  subsidiaries  (the  "Company")  is a  diversified
wholesale distributor of construction and industrial materials,  equipment,  and
supplies to commercial construction,  residential construction,  industrial, and
public  infrastructure  markets in North America.  The Company  distributes over
240,000  products,  representing  five major  product  categories,  through  442
wholesale  branches  located in 34 states and Mexico.  The  Company's  principal
customers are electrical, plumbing and mechanical contractors,  electric utility
customers,   property  management   companies,   municipalities  and  industrial
companies. Industrial companies include companies in the petrochemical, food and
beverage, pulp and mining, pharmaceutical and marine industries.

Principles of Consolidation

The consolidated  financial  statements  include the accounts of the Company and
its wholly-owned subsidiaries.  Investments in 50% or less owned affiliates over
which  the  Company  has the  ability  to  exercise  significant  influence  are
accounted for using the equity method. All significant intercompany balances and
transactions have been eliminated.  Results of operations of companies  acquired
and  accounted  for using the purchase  method of  accounting  are included from
their respective dates of acquisition.

Fiscal Year

The Company's fiscal year ends on the last Friday in January.  Fiscal 2001, 2000
and 1999 each consisted of 52 weeks.

Cash and Cash Equivalents

The Company  considers  all highly liquid  investments  with a maturity of three
months or less when purchased to be cash equivalents.

Inventories

Inventories  are  carried  at  the  lower  of  cost  or  market.   The  cost  of
substantially all inventories is determined by the average cost method.

Property and Equipment

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

--------------------------------------------------------------------------------
Buildings and improvements .......................................    5-40 years
Transportation equipment .........................................    2- 7 years
Furniture, fixtures and equipment ................................    2-12 years

Maintenance and repair costs are charged to expense as incurred and renewals and
improvements  that extend the useful lives of assets are  capitalized.  Gains or
losses are reflected in income upon  disposition.  Depreciation  of property and
equipment  totaled  $19,326,  $18,309 and $15,750 in fiscal 2001, 2000 and 1999,
respectively.

Excess of Cost Over Net Assets Acquired

The excess of cost over the fair value of net assets  acquired  ("goodwill")  is
amortized on a straight-line  basis over 15 to 40 years. At January 26, 2001 and
January 28, 2000, goodwill totaled $249,826 and $243,367,  respectively,  net of
accumulated amortization of $31,821 and $24,477,  respectively.  Amortization of
goodwill  totaled  $9,295,  $7,797  and  $5,614 in fiscal  2001,  2000 and 1999,
respectively.

Other Assets

The Company capitalizes  certain internal software  development costs, which are
being amortized on a straight-line  basis over the estimated useful lives of the
software,  not to exceed five years.  At January 26, 2001 and January 28,  2000,
capitalized  internal  software  development  costs totaled  $8,680 and $11,465,
respectively,   net  of   accumulated   amortization   of  $7,709  and   $5,186,
respectively.  Amortization  totaled  $3,550,  $3,385 and $1,680 in fiscal 2001,
2000 and 1999, respectively.

Impairment of Long-Lived Assets

The  Company  periodically  evaluates  the net  realizable  value of  long-lived
assets,  including goodwill, other intangible assets and property and equipment,
relying on a number of factors,  including  operating  results,  business plans,
economic  projections  and  anticipated  future cash flows. An impairment in the
carrying value of an asset is recorded when the  undiscounted,  expected  future
operating cash flows derived from the asset are less than its carrying value.

Deferred Employee Benefits

The present value of amounts estimated to be payable under unfunded supplemental
retirement  agreements with certain officers is being accrued over the remaining
years of active  employment of the officers and is included in other  noncurrent
liabilities.

Fair Value of Financial Instruments

The carrying values of cash and cash equivalents,  accounts receivable, accounts
payable and accrued  liabilities  approximate  their fair values  because of the
short maturity of these instruments.  The fair value of the Company's  long-term
debt is estimated  based on quoted market prices for the same or similar  issues
or on  current  rates  offered  to the  Company  for debt of the same  remaining
maturities.

Revenue Recognition

The Company  recognizes  revenues  from product sales when title to the goods is
passed to the customer.


30
<PAGE>

Concentration of Credit Risk

The majority of the Company's sales are credit sales which are made primarily to
customers  whose ability to pay is dependent  upon the economic  strength of the
construction  industry in the areas where they operate.  Concentration of credit
risk with respect to trade accounts receivable is limited,  however,  due to the
large number of customers  comprising  the Company's  customer base and the fact
that no one  customer  comprises  more than 1% of annual net sales.  The Company
performs ongoing credit  evaluations of its customers and in certain  situations
obtains  collateral  sufficient  to protect  its credit  position.  The  Company
maintains reserves for potential credit losses.

Advertising

Advertising  costs are  charged  to expense as  incurred.  Advertising  expenses
totaled $6,482, $6,471 and $5,533 in fiscal 2001, 2000 and 1999, respectively.

Shipping and Handling Fees and Costs

In September 2000, the Emerging Issues Task Force issued EITF 00-10,  Accounting
for Shipping and Handling  Fees and Costs ("EITF  00-10").  EITF 00-10  requires
shipping and handling  fees billed to customers to be  classified as revenue and
shipping  and  handling  costs  to be  either  classified  as cost of  sales  or
disclosed in the notes to the  consolidated  financial  statements.  The Company
includes  shipping and handling fees billed to customers in net sales.  Shipping
and  handling  costs  associated  with  inbound  freight are included in cost of
sales. Shipping and handling costs associated with outbound freight are included
in selling, general and administrative expenses and totaled $24,445, $18,857 and
$15,359 in fiscal 2001, 2000 and 1999, respectively.

Income Taxes

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

Stock-Based Compensation

The Company  measures  compensation  expense for  employee  and  director  stock
options as the aggregate  difference  between the market and exercise  prices of
the  options on the date that both the number of shares the  grantee is entitled
to receive and the purchase  price are known.  Compensation  expense  associated
with  restricted  stock grants is equal to the market value of the shares on the
date of grant and is recorded pro rata over the  required  holding  period.  Pro
forma  information  relating to the fair value of  stock-based  compensation  is
presented in Note 7 to the consolidated financial statements.

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 is
calculated  by  dividing  net  income by the  weighted-average  number of shares
outstanding, adjusted for dilutive potential common shares. The weighted-average
number of shares used in calculating  basic earnings per share were  23,238,000,
23,398,000  and  23,889,000  in fiscal  2001,  2000 and 1999,  respectively.  In
calculating  diluted earnings per share,  these amounts were adjusted to include
346,000, 149,000 and 249,000 of dilutive potential common shares in fiscal 2001,
2000 and 1999,  respectively.  The Company's  dilutive  potential  common shares
consist of employee  and  director  stock  options,  restricted  stock and stock
rights issued in connection with the bestroute.com  ("bestroute") acquisition in
fiscal 2001.  Options to purchase 1,166,490 shares of common stock at an average
exercise price of  approximately  $23.77 were not included in the computation of
diluted  earnings  per share for  fiscal  2001  because  their  effect  would be
anti-dilutive.

Comprehensive Income

The Company does not have any significant components of comprehensive income.

Reclassifications

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

Estimates

The preparation of financial  statements in conformity  with generally  accepted
accounting  principles  necessarily  requires  management to make  estimates and
assumptions  that  affect the  reported  amounts of assets and  liabilities  and
disclosure of contingent  assets and liabilities at the date of the consolidated
financial  statements and the reported  amounts of revenues and expenses  during
the reporting period. Actual results could differ from those estimates.


                                                                              31
<PAGE>

Hughes  Supply,  Inc.
NOTES TO  CONSOLIDATED  FINANCIAL STATEMENTS (continued)
(in thousands, except share and per share data)


Note 2--Business Combinations and Divestiture

In fiscal 2000, the Company invested $1,750 in bestroute,  an e-commerce company
founded  in  1999  to  provide  hard  to  find  inventory   items  to  wholesale
distributors and end users via the internet. During fiscal 2001, the Company was
required  to fund  an  additional  $6,250  to  bestroute  as  certain  operating
thresholds were met. In September  2000, the Company  acquired the remaining 51%
interest of  bestroute  in a  transaction  where the other  members of bestroute
received 723,183 stock rights of the Company.  Under the terms of the agreement,
the stock rights were  exercisable  by the holders on or after  February 1, 2001
and granted the holders the right to convert their  bestroute  holdings into the
Company's common stock. The agreement also provided a call provision under which
the Company had the ability to call the stock  rights in exchange  for shares of
the Company's common stock. The exercise of a portion of the stock rights issued
was  contingent  upon  bestroute  meeting its operating  plan and  demonstrating
continued  viability  as a  business.  In the  fourth  quarter  of fiscal  2001,
bestroute was not able to meet its operating plan and incurred  operating losses
of $2,136. These losses were attributed to bestroute's  inability to gain market
acceptance and generate  revenues  sufficient to cover its operating costs. As a
result  of  these  continued   losses  and  viability   concerns,   the  Company
discontinued  bestroute's  operations  and on March 2, 2001, the Company and the
holders of the stock rights  entered an agreement to cancel 347,541 of the stock
rights and redeem the remaining rights for $7,273 in cash.

During fiscal 2001, 2000 and 1999, the Company  acquired several other wholesale
distributors of materials to the construction  and industrial  markets that were
accounted  for  as  purchases  or  immaterial   poolings.   These  acquisitions,
individually  and in the  aggregate,  did  not  have a  material  effect  on the
consolidated financial statements. Results of operations of these companies from
their  respective  dates of acquisition  have been included in the  consolidated
financial statements.

The assets acquired and liabilities assumed for acquisitions  recorded using the
purchase method of accounting are summarized below:

                                                   Fiscal Years Ended
                                        ----------------------------------------
                                           2001           2000           1999
--------------------------------------------------------------------------------
Fair value of:
  Assets acquired ................      $ 58,182       $ 125,536       $ 77,707
  Liabilities assumed ............       (12,466)        (37,510)       (32,048)
-------------------------------------------------------------------------------

Purchase price ...................      $ 45,716       $  88,026       $ 45,659
===============================================================================

Consideration  in fiscal 2001 and 1999 included 723,183 stock rights and 207,829
shares of common  stock,  with fair values of $7,273 and  $5,438,  respectively.
There was no stock consideration issued during fiscal 2000.

In January  2001,  the Company  completed the sale of the assets of its pool and
spa business for $47,972  subject to working  capital  adjustments.  The Company
received  cash   proceeds  of  $22,972  with  the   remaining   $25,000  of  the
consideration in the form of a short-term note  receivable.  The note receivable
bears  interest at a fixed rate of 7.0% and  matures on  November  1, 2001.  The
Company recorded a pre-tax gain of $11,000 in connection with the sale. The pool
and spa business was engaged in the wholesale  distribution of swimming pool and
spa  equipment  and  supplies.  Net sales and income before income taxes for the
pool and spa business were approximately $144,000 and $8,800,  respectively,  in
fiscal 2001.

Note 3--Impairment of Long-Lived Assets

In fiscal  2001,  the  Company  experienced  continued  operating  losses in its
e-commerce  ventures and international  operations.  As a result of these losses
and based on an analysis of future profitability and anticipated customer demand
for these businesses, the Company recorded an impairment charge totaling $15,557
relating to the  write-down  of  long-lived  assets.  This charge  included  the
write-off of goodwill and other assets totaling $12,924 related to the Company's
e-commerce  investments,  and a charge totaling $2,633 primarily  related to the
write-off of goodwill in the Company's international operations.

Note 4--Property and Equipment

Property and equipment consist of the following:

                                                        2001             2000
--------------------------------------------------------------------------------
Land .........................................       $  34,784        $  28,771
Buildings and improvements ...................         119,044          110,308
Transportation equipment .....................          31,446           33,205
Furniture, fixtures and equipment ............          69,991           64,613
-------------------------------------------------------------------------------
                                                       255,265          236,897
Less accumulated depreciation ................        (103,186)         (91,952)
-------------------------------------------------------------------------------
                                                     $ 152,079        $ 144,945
===============================================================================



32
<PAGE>

Note 5--Long-Term Debt

Long-term debt consists of the following:

                                                          2001           2000
--------------------------------------------------------------------------------
8.27% senior notes, due 2003 .....................     $  19,000      $      --
8.27% senior notes, due 2005 .....................        28,000             --
8.42% senior notes, due 2007 .....................       103,000             --
7.96% senior notes, due 2011 .....................        98,000         98,000
7.14% senior notes, due 2012 .....................        40,000         40,000
7.19% senior notes, due 2012 .....................        40,000         40,000
6.74% senior notes, due 2013 .....................        50,000         50,000
Unsecured bank notes under $275,000
  revolving credit agreement, payable
  January 25, 2004, fluctuating interest
  (6.4% to 7.2% at January 26, 2001) .............        79,000        232,959
Short-term instruments
  classified as long-term debt ...................        74,101         74,041
Other notes payable ..............................           341            803
-------------------------------------------------------------------------------
                                                         531,442        535,803
 Less current portion ............................       (15,274)          (803)
-------------------------------------------------------------------------------
                                                       $ 516,168      $ 535,000
===============================================================================


On March 1, 1999, the Company  entered into two short-term  lines of credit with
an aggregate  borrowing capacity of $25,000.  These lines of credit were amended
during fiscal 2001 to extend the maturity dates to June 30, 2001.  There were no
amounts  outstanding under these lines of credit at January 26, 2001 and January
28, 2000.

On September 29, 1999,  the  Company's  revolving  credit  agreement and line of
credit  agreement (the "credit  agreement")  were amended to increase  borrowing
capacity  to  $350,000  (subject  to  borrowing  limitations  under  the  credit
agreement)--$275,000  under its revolving credit agreement as long-term debt due
January  25, 2004 and $75,000  under its line of credit  agreement,  as amended,
which matures on July 17, 2001. Under the credit agreement,  interest is payable
at market rates plus  applicable  margins.  Facility  fees of .25% and .225% are
paid  on the  total  of the  revolving  credit  agreement  and  line  of  credit
agreement, respectively.

On December 21, 2000, the Company  issued  $150,000 of senior notes in a private
placement.  Of the total  $150,000 of senior notes,  $103,000  bears interest at
8.42% and are payable in five annual principal  payments  beginning November 30,
2003.  The remaining  $19,000 and $28,000 of senior notes bear interest at 8.27%
and are payable in one annual  principal  payment on November  30, 2003 and five
annual principal payments beginning  November 30, 2001,  respectively.  Proceeds
from the sale of the  senior  notes were used to reduce  indebtedness  under the
Company's credit agreement.

The  Company  has a  commercial  paper  program  backed  by its  line of  credit
agreement.  The weighted-average  interest rate on outstanding  commercial paper
borrowings  of $74,101  and  $74,041 as of January 26, 2001 and January 28, 2000
was 6.7% and 6.6%,  respectively.  The  Company  has the  ability  and intent to
refinance short-term  borrowings on a long-term basis.  Accordingly,  all of the
commercial  paper  borrowings at January 26, 2001 and January 28, 2000 have been
classified as long-term debt.

The Company's debt agreements contain covenants that require the Company,  among
other things, to maintain certain financial ratios and minimum net worth levels.
The  covenants  also restrict the Company's  activities  regarding  investments,
liens,  borrowing and leasing,  and payment of dividends other than stock. Under
the dividend covenant,  approximately $138,515 was available at January 26, 2001
for payment of dividends.

Cash paid for interest  during fiscal 2001,  2000 and 1999 was $44,429,  $29,636
and $23,972, respectively.

Maturities  of long-term  debt for each of the five years  subsequent to January
26, 2001 and in the aggregate are as follows:

Fiscal Years Ending
--------------------------------------------------------------------------------
2002 ..................................................                 $ 15,274
2003 ..................................................                   37,743
2004 ..................................................                  197,205
2005 ..................................................                   44,105
2006 ..................................................                   44,105
Thereafter ............................................                  193,010
--------------------------------------------------------------------------------
                                                                        $531,442
================================================================================


The fair values of  long-term  debt  approximated  $539,287 and $524,002 and the
related  carrying  values  were  $531,442  and  $535,803 at January 26, 2001 and
January 28, 2000, respectively.


                                                                              33
<PAGE>

Hughes  Supply,  Inc.
NOTES TO  CONSOLIDATED  FINANCIAL STATEMENTS (continued)
(in thousands, except share and per share data)

Note 6--Income Taxes

The consolidated provision for income taxes consists of the following:

                                                     Fiscal Years Ended
--------------------------------------------------------------------------------
                                            2001            2000           1999
--------------------------------------------------------------------------------
Currently payable:
  Federal .......................        $ 37,515         $36,763        $25,119
  State .........................           4,315           5,553          2,778
--------------------------------------------------------------------------------
                                           41,830          42,316         27,897
Deferred:
  Federal .......................          (7,007)          1,241          7,864
  State .........................            (661)            174          1,473
--------------------------------------------------------------------------------
                                           (7,668)          1,415          9,337
--------------------------------------------------------------------------------
                                         $ 34,162         $43,731        $37,234
================================================================================

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

                                         Fiscal Years Ended
                     -----------------------------------------------------------
                           2001                 2000                 1999
--------------------------------------------------------------------------------
                     Amount       %      Amount        %       Amount       %
--------------------------------------------------------------------------------
Tax computed
  at statutory
  federal rate ...   $28,237    35.0%   $ 38,361     35.0%    $ 34,537     35.0%
Effect of:
  State and local
    income tax,
    net of federal
    income tax
    benefit ......     2,377     2.9       3,722      3.4        2,763      2.8
  Nondeductible
    expenses .....     3,548     4.4       2,740      2.5        1,085      1.1
  Other, net .....        --      --      (1,092)    (1.0)      (1,151)    (1.2)
-------------------------------------------------------------------------------
                     $34,162    42.3%   $ 43,731     39.9%    $ 37,234     37.7%
===============================================================================

The Company merged with Winn-Lange  Electric,  Inc.  ("Winn-Lange")  on June 30,
1998.  Prior to its merger  with the  Company,  Winn-Lange  was a  Subchapter  S
corporation and, therefore, not subject to corporate income taxes.

The  components of deferred tax assets and  liabilities  at January 26, 2001 and
January 28, 2000 are as follows:

                                                          2001            2000
--------------------------------------------------------------------------------
Deferred tax assets:
  Allowance for doubtful accounts ..............        $  2,339         $ 1,064
  Inventories ..................................           5,144           2,537
  Accrued vacation .............................           2,230           2,646
  State net operating losses ...................           1,166              --
  Deferred compensation ........................           2,939           2,054
  Other accrued liabilities ....................           7,549           3,325
  Other ........................................           4,764             662
--------------------------------------------------------------------------------
Gross deferred tax assets ......................          26,131          12,288
  Valuation allowance ..........................            (698)             --
--------------------------------------------------------------------------------
    Total deferred tax assets ..................          25,433          12,288
Deferred tax liabilities:
  Capitalized internal software
    development costs ..........................           3,717           3,401
  Installment sale .............................           3,466              --
  Goodwill and intangible assets ...............           5,559           3,590
  Property and equipment .......................             871           1,243
--------------------------------------------------------------------------------
    Total deferred tax liabilities .............          13,613           8,234
Net deferred tax assets ........................        $ 11,820         $ 4,054
================================================================================

At January 26, 2001, the Company had state net operating loss  carryforwards  of
$1,166. Of the total net operating loss carryforwards, $698 expire in 2016, with
the  remainder  expiring  between 2006 and 2021. A valuation  allowance has been
provided  on certain of the state net  operating  losses at January  26, 2001 as
full realization of these assets is not considered more likely than not.

Cash paid for  income  taxes  during  fiscal  2001,  2000 and 1999 was  $36,601,
$49,079 and $33,862, respectively.

Note 7--Employee Benefit Plans

Profit Sharing and Employee Stock Ownership Plans


34

<PAGE>

The  Company  has a 401(k)  profit  sharing  plan which  provides  benefits  for
substantially  all  employees  of the Company who meet minimum age and length of
service requirements. In fiscal 1999, employee contributions of not less than 2%
to not more than 3% of each eligible  employee's  compensation  were matched (in
cash or stock) 50% by the  Company.  The  maximum  percentage  of each  eligible
employee's contribution to be matched by the Company was increased from 3% to 4%
on August 1, 1999 and from 4% to 5% on February 1, 2000. The plan also calls for
an  additional  increase in the  maximum  matching  percentage  from 5% to 6% on
February 1,2001.  Additional annual  contributions may be made at the discretion
of the Board of Directors.

The Company had an employee stock  ownership plan,  which covered  substantially
all  employees  of the  Company  who met  minimum  age  and  length  of  service
requirements.  The plan was  terminated  by the Company  effective  December 31,
1998. At January 28, 2000,  the plan owned  approximately  236,000 shares of the
Company's  common  stock,  all of which were  allocated to  participants.  As of
January 26, 2001, the Company had distributed each  participant's  final account
balance in cash or stock.

Amounts  charged to expense for these and other similar  plans  totaled  $4,294,
$2,883 and $1,946 in fiscal 2001, 2000 and 1999, respectively.

Bonus Plans

The Company has bonus plans,  based on  profitability  formulas,  which  provide
incentive  compensation  for key  officers  and  employees.  Amounts  charged to
expense for bonuses to executive  officers totaled $1,410,  $1,914 and $1,576 in
fiscal 2001, 2000 and 1999, respectively.

Stock Plans

The Company's two active stock plans include the 1997 Executive  Stock Plan (the
"1997 Stock  Plan") and the  Directors'  Stock  Option  Plan.  These stock plans
authorize the granting of both incentive and non-incentive  stock options for an
aggregate of 2,052,500 shares of common stock, including 1,750,000 shares to key
employees  and  302,500  shares to  directors.  Under these  plans,  options are
granted at prices not less than the market  value on the date of grant,  and the
maximum term of an option may not exceed ten years.  Prices for incentive  stock
options  granted to employees who own 10% or more of the Company's  stock are at
least 110% of market value at date of grant. Options may be granted from time to
time to  December  2006 with  respect  to the 1997  Stock  Plan or May 2003 with
respect to the Directors'  Stock Option Plan. An option  becomes  exercisable at
such times and in such  installments as set forth by the Compensation  Committee
or by the Directors' Stock Option Plan.

Under the 1997 Stock Plan,  the  Company  can grant up to 875,000  shares of the
authorized  options as restricted  stock to certain key employees.  These shares
are subject to certain transfer restrictions,  and vesting may be dependent upon
continued employment, the satisfaction of performance objectives, or both. There
were no restricted  stock grants made to employees  during  fiscal 2001.  During
fiscal 2000 and 1999, the Company granted certain  employees  261,921 and 52,500
shares of  restricted  stock,  with market values at the date of grant of $6,415
and $1,667,  respectively.  In fiscal 2001 and 2000,  the Company also cancelled
6,000 and 2,400,  respectively,  of the restricted  shares granted,  with market
values  at the date of grant of $141  and $77,  respectively,  according  to the
provisions of the grant. The market value of the restricted stock at the date of
grant was  recorded  as unearned  compensation,  a  component  of  shareholders'
equity, and is being charged to expense over the respective vesting periods.  In
fiscal 2001,  2000 and 1999, this expense  amounted to $1,542,  $1,055 and $393,
respectively.

The 1997 Stock Plan also  permits  the  granting  of stock  appreciation  rights
("SARs") to holders of options.  Such rights permit the optionee to surrender an
exercisable  option, in whole or in part, on any date that the fair market value
of the Company's common stock exceeds the option price for the stock and receive
payment in common stock or, if the Board of Directors  approves,  in cash or any
combination of cash and common stock.  Such payment would be equal to the excess
of the fair market  value of the shares  under the  surrendered  option over the
option price for such shares.  The change in value of SARs would be reflected in
income  based upon the market  value of the stock.  No SARs have been granted or
issued through January 26, 2001.

A summary of activity under the Company's  stock options plans since January 30,
1998 is as follows:

                                                          Shares     Weighted-
                                                          Subject     Average
                                                        To Option  Option Price
--------------------------------------------------------------------------------
Under option, January 30, 1998
  (455,897 shares exercisable) ................           819,397      $19.74
    Granted ...................................            48,000       34.19
    Exercised .................................           (98,587)      10.99
    Cancelled .................................           (12,800)      34.06
--------------------------------------------------------------------------------
Under option, January 29, 1999
  (435,810 shares exercisable) ................           756,010       21.55
    Granted ...................................            40,500       24.93
    Exercised .................................           (51,900)      11.89
    Cancelled .................................           (11,463)      28.24
--------------------------------------------------------------------------------
Under option, January 28, 2000
  (426,947 shares exercisable) ................           733,147       22.32
    Granted ...................................           502,000       18.75
    Exercised .................................           (83,420)       8.62
    Cancelled .................................           (27,838)      24.72
--------------------------------------------------------------------------------
Under option, January 26, 2001
  (1,098,789 shares exercisable) ..............         1,123,889      $21.21
================================================================================


                                                                              35
<PAGE>


Hughes  Supply,  Inc.
NOTES TO  CONSOLIDATED  FINANCIAL STATEMENTS (continued)
(in thousands, except share and per share data)


There were 742,589  shares  available for the granting of options at January 26,
2001.

The following table summarizes  information  about stock options  outstanding at
January 26, 2001:

                                             Weighted-
                                              Average
                           Options           Remaining       Weighted-
  Range of              Outstanding at       Contractual      Average
Exercise Prices        January 26, 2001         Life       Exercise Price
--------------------------------------------------------------------------------
$8.42............           74,399           < 1 Year          $ 8.42
 12.83-18.75.....          719,776            8 Years           18.12
 21.63-28.75.....           66,639            8 Years           25.60
 33.00-35.63.....          263,075            7 Years           34.19

If the fair  value of  options  granted  had been  used to  record  compensation
expense,  pro forma net income would have been  $43,163,  $64,770 and $60,307 in
fiscal 2001, 2000 and 1999, respectively.  Diluted earnings per share would have
been $1.83,  $2.75 and $2.50 in fiscal 2001,  2000 and 1999,  respectively.  The
fair  value  of each  option  is  estimated  on the  date  of  grant  using  the
Black-Scholes   option-pricing   model  with  the   following   weighted-average
assumptions:  dividend yields of 1.3% for fiscal 2001,  2000 and 1999;  expected
volatility  of 36%,  35% and 33% for fiscal 2001,  2000 and 1999,  respectively;
risk-free  interest  rates of 6.69%,  6.65% and 4.77% for fiscal 2001,  2000 and
1999,  respectively;  and expected  lives of 8 years for fiscal  2001,  2000 and
1999.  The  weighted-average  fair value of options  granted during the year was
$8.77,  $11.48 and $13.81 in fiscal 2001, 2000 and 1999,  respectively.  The pro
forma calculations do not include the effects of options granted prior to fiscal
1996.  Accordingly,  the impact is not necessarily  indicative of the effects on
reported net income in future years.

Supplemental Executive Retirement Plan

The Company has entered  into  agreements  with certain key  executive  officers
providing for supplemental payments,  generally for periods up to 15 years, upon
retirement,  disability or death. The obligations are not funded separately from
the Company's  general  assets.  Amounts charged to expense under the agreements
totaled $663, $543 and $537 in fiscal 2001, 2000 and 1999, respectively.

At January 26, 2001 and January 28, 2000, the liability under the plan, which is
reflected  in  other   noncurrent   liabilities   totaled   $4,110  and  $3,478,
respectively.


Note 8--Commitments and Contingencies

Lease Commitments

The Company  occupies  certain  properties  and operates  certain  equipment and
vehicles  under leases that expire at various dates through the year 2011.  Rent
expense  under these leases  amounted to $51,073,  $42,792 and $33,062 in fiscal
2001, 2000 and 1999, respectively.

Aggregate minimum annual rental payments, under non-cancelable operating leases,
as of January 26, 2001 are as follows:

Fiscal Years Ending
--------------------------------------------------------------------------------
2002 ..................................................                 $ 39,607
2003 ..................................................                   32,785
2004 ..................................................                   22,864
2005 ..................................................                   18,320
2006 ..................................................                   10,535
Thereafter ............................................                   11,489
--------------------------------------------------------------------------------
                                                                        $135,600
================================================================================

Legal Matters

The  Company is  involved  in various  legal  proceedings  arising in the normal
course of its business.  In the opinion of management,  none of the  proceedings
are material in relation to the Company's consolidated operations, cash flows or
financial position.



36
<PAGE>

Note 9--Capital Stock

Treasury Stock

On March 15, 1999,  the Company's  Board of Directors  authorized the Company to
repurchase up to 2,500,000 shares of its outstanding common stock to be used for
general  corporate  purposes.  In fiscal 2000, the Company  repurchased  921,100
shares for a total cost of $21,229 at an average  price of $23.05 per share.  No
shares were repurchased in fiscal 2001. During fiscal 2001 and 2000, the Company
issued 92,167 and 36,150 shares, respectively, of treasury stock for bonus plans
and stock options  exercised.  In fiscal 2000, the Company issued 216,000 shares
of treasury stock for restricted stock grants.

Preferred Stock

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

The  Company  has a  shareholder  rights  plan.  Under  the  plan,  the  Company
distributed  to  shareholders a dividend of one right per share of the Company's
common stock.  When  exercisable,  each right will permit the holder to purchase
from the Company one one-thousandth of a share (a "unit") of Series A Stock at a
purchase price of $200 per unit. The rights  generally  become  exercisable if a
person or group acquires 15% or more of the Company's  common stock or commences
a tender  offer that could  result in such person or group owning 15% or more of
the Company's common stock. If certain  subsequent events occur after the rights
first become exercisable,  the rights may become exercisable for the purchase of
shares of common stock of the  Company,  or of an  acquiring  company,  having a
value equal to two times the exercise price of the right. In general, the rights
may be  redeemed by the Company at $.01 per right at any time prior to the later
of (i) ten days after 20% or more of the Company's stock is acquired by a person
or group and (ii) the first date of a public announcement that a person or group
has acquired 15% or more of the  Company's  stock.  The rights expire on June 2,
2008 unless terminated earlier in accordance with the rights plan.

Note 10--Segment Information

Effective  February 1, 2000,  the Company's  operations  were  reorganized  on a
product group basis into five  stand-alone  strategic  business units  ("SBUs"):
Electrical  & Electric  Utility;  Plumbing  & HVAC;  Industrial  Pipe,  Valves &
Fittings ("Industrial PVF"); Building Materials/Pool & Spa/Maintenance Supplies;
and  Water & Sewer.  This is the  basis  management  uses for  making  operating
decisions and assessing performance.

Segment  information has been presented on a basis  consistent with how business
activities are reported internally to management. The accounting policies of the
segments  are the same as those  described in Note 1. Income  before  income tax
amounts include certain  corporate  expense  allocations for employee  benefits,
interest  expense,   corporate  capital  charges,   and  property  and  casualty
insurance.  These  allocations  are based on  consumption  or at a standard rate
determined by management.

In connection with the Company's reorganization at the beginning of fiscal 2001,
certain  administrative groups and assets were realigned on a SBU basis. Various
functions  previously  performed on a centralized basis are now performed at the
SBU level.  Additionally,  the Company changed its method of allocating  certain
costs  (interest  expense,   rent  expense,   corporate  capital  charges,   and
depreciation  and  amortization)  to the  SBUs,  which  has  also  impacted  the
comparability  of prior year  information.  Accordingly,  comparative  financial
information  has only been presented for net sales and gross profit,  which were
not impacted by the allocation method changes.

The  Corporate/Eliminations  & Other category includes corporate level operating
expenses  not  allocated  to  the  Company's   operating   segments  along  with
intercompany eliminations and revenues and expenses for bestroute.


                                                                              37
<PAGE>


Hughes  Supply,  Inc.
NOTES TO  CONSOLIDATED  FINANCIAL STATEMENTS (continued)
(in thousands, except share and per share data)


The following  table presents net sales and other  financial  information by SBU
for fiscal 2001. When comparable,  information for fiscal 2000 and 1999 has also
been presented.

<TABLE>
<CAPTION>
                                                                                         Building
                                                                                        Materials/
                                                    Electrical &                        Pool & Spa/            Corporate/
                                                     Electric     Plumbing  Industrial  Maintenance  Water &  Eliminations
                                                      Utility      & HVAC       PVF      Supplies     Sewer     & Other     Total
------------------------------------------------------------------------------------------------------------------------------------
<S>                                                  <C>        <C>          <C>        <C>        <C>        <C>         <C>
Net sales
  2001 ...........................................   $606,268   $1,007,318   $315,315   $448,363   $932,870   $     29    $3,310,163
  2000 ...........................................    576,739      956,553    299,590    424,138    737,857         --     2,994,877
  1999 ...........................................    519,408      857,385    291,870    325,136    542,466         --     2,536,265
====================================================================================================================================
Gross profit
  2001 ...........................................    117,263      226,736     82,463    127,538    190,384       (927)      743,457
  2000 ...........................................    105,492      233,449     69,668    111,544    154,120         --       674,273
  1999 ...........................................     93,658      204,056     68,258     83,316    109,711         --       558,999
====================================================================================================================================
Depreciation and amortization
  2001 ...........................................      2,445        7,556      2,906      3,914      7,691      7,800        32,312
====================================================================================================================================
Impairment of long-lived assets
  2001 ...........................................         --        2,217         --         --        416     12,924        15,557
====================================================================================================================================
Gain on sale of pool and spa business
  2001 ...........................................         --           --         --     11,000         --         --        11,000
====================================================================================================================================
Interest and other income
  2001 ...........................................      1,357        3,489        355      2,093      3,727     (3,545)        7,476
====================================================================================================================================
Interest expense
  2001 ...........................................      2,926        9,891     10,170      5,678     14,623         --        43,288
====================================================================================================================================
Income (loss) before income taxes
  2001 ...........................................   $ 26,268   $      189   $ 19,139   $ 26,442   $ 39,731   $(31,092)   $   80,677
====================================================================================================================================
</TABLE>

The following  table includes the Company's  investment in accounts  receivable,
less allowance for doubtful accounts,  and inventories,  for each SBU at January
26, 2001 and January 28, 2000:

<TABLE>
<CAPTION>
                                                                2001                                      2000
-------------------------------------------------------------------------------------------------------------------------------
                                                 Accounts                    Segment          Accounts                 Segment
                                                Receivable   Inventories     Assets          Receivable Inventories    Assets
-------------------------------------------------------------------------------------------------------------------------------
<S>                                              <C>          <C>          <C>               <C>        <C>         <C>
Electrical & Electric Utility................    $ 83,163     $ 59,170     $  142,333        $ 67,544   $ 53,617    $  121,161
Plumbing & HVAC..............................     125,359      146,007        271,366         115,357    171,448       286,805
Industrial PVF...............................      42,734      111,355        154,089          42,303    118,455       160,758
Building Materials/Pool & Spa
   /Maintenance Supplies(1) .................      37,159       39,307         76,466          43,506     62,245       105,751
Water & Sewer................................     147,465       82,729        230,194         132,282     89,726       222,008
Corporate/Eliminations & Other...............      (3,882)       3,221           (661)         (2,748)        --        (2,748)
-------------------------------------------------------------------------------------------------------------------------------
Total                                            $431,998     $441,789        873,787        $398,244   $495,491       893,735
======================================================================                       ===================
Cash and Cash Equivalents....................                                  22,449                                   10,000
Deferred Income Taxes........................                                  18,524                                   10,081
Other Current Assets.........................                                  66,131                                   43,962
Property and Equipment, Net..................                                 152,079                                  144,945
Excess of Cost Over Net Assets Acquired......                                 249,826                                  243,367
Other Assets.................................                                  17,481                                   22,924
-------------------------------------------------------------------------------------------------------------------------------
Total Assets.................................                              $1,400,277                               $1,369,014
===============================================================================================================================
</TABLE>

(1)  Assets of the pool and spa business,  which was sold in January 2001,  were
     principally  included  in the  Building  Materials/Pool  &  Spa/Maintenance
     Supplies SBU at January 28, 2000.



38
<PAGE>

Note 11--Quarterly Financial Information (Unaudited)

The  following  is a summary of the  unaudited  results of  operations  for each
quarter in the years ended January 26, 2001 and January 28, 2000:

<TABLE>
<CAPTION>
                                                             First          Second          Third           Fourth        Full Year
------------------------------------------------------------------------------------------------------------------------------------
<S>                                                        <C>             <C>             <C>             <C>            <C>
Fiscal 2001
Net sales ........................................         $831,171        $874,056        $863,283        $741,653       $3,310,163
Gross profit .....................................         $184,885        $198,232        $196,290        $164,050       $  743,457
Net income (loss) ................................         $ 14,428        $ 22,347        $ 18,842        $ (9,102)      $   46,515
Earnings (loss) per share:
  Basic ..........................................         $    .62        $    .96        $    .80        $   (.39)      $     2.00
  Diluted ........................................         $    .62        $    .96        $    .80        $   (.39)      $     1.97
Average shares outstanding (in thousands):
  Basic ..........................................           23,223          23,236          23,511          23,258           23,238
  Diluted ........................................           23,229          23,333          23,617          23,258           23,584
Market price per share:
  High ...........................................         $  18.75        $  20.56        $  21.30        $  18.75       $    21.30
  Low ............................................         $  15.13        $  15.00        $  16.18        $  14.41       $    14.41
Dividends per share ..............................         $   .085        $   .085        $   .085        $   .085       $      .34
====================================================================================================================================
Fiscal 2000
Net sales ........................................         $711,296        $774,888        $786,379        $722,314       $2,994,877
Gross profit .....................................         $156,358        $176,173        $178,648        $163,094       $  674,273
Net income .......................................         $ 13,355        $ 20,905        $ 20,243        $ 11,368       $   65,871
Earnings per share:
  Basic ..........................................         $    .56        $    .90        $    .87        $    .49       $     2.82
  Diluted ........................................         $    .55        $    .88        $    .87        $    .49       $     2.80
Average shares outstanding (in thousands):
  Basic ..........................................           23,863          23,300          23,214          23,215           23,398
  Diluted ........................................           24,240          23,686          23,349          23,338           23,547
Market price per share:
  High ...........................................         $  26.25        $  29.94        $  28.50        $  24.13       $    29.94
  Low ............................................         $  17.94        $  22.94        $  20.75        $  18.06       $    17.94
Dividends per share ..............................         $   .085        $   .085        $   .085        $   .085       $      .34
====================================================================================================================================
</TABLE>


During the fourth quarter of fiscal 2001, the Company recorded a charge totaling
$15,557 for the  impairment of  long-lived  assets,  principally  related to the
discontinued  operations  of bestroute  and another  e-commerce  venture and the
write-off  of  goodwill  for its  international  operations.  Due to an economic
slowdown which affected the Company's  primary  markets during late fiscal 2001,
the Company  determined that an increase in the provision for doubtful  accounts
was necessary.  During the fourth quarter of fiscal 2001, the Company recorded a
charge of $5,116 to  reflect  the  estimated  bad  debts at  January  26,  2001.
Partially  offsetting these charges is a gain of $11,000 recorded on the sale of
the Company's pool and spa business in January 2001.

                                                                              39
<PAGE>




REPORT OF INDEPENDENT
CERTIFIED PUBLIC ACCOUNTANTS

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

In our opinion,  the  accompanying  consolidated  balance sheets and the related
consolidated  statements  of  income,  shareholders'  equity  and of cash  flows
present  fairly,  in all material  respects,  the  financial  position of Hughes
Supply,  Inc. and its subsidiaries at January 26, 2001 and January 28, 2000, and
the results of their operations and their cash flows for each of the three years
in the period ended January 26, 2001 in conformity  with  accounting  principles
generally accepted in the United States of America.  These financial  statements
are the  responsibility of the Company's  management;  our  responsibility is to
express  an  opinion  on these  financial  statements  based on our  audits.  We
conducted our audits of these  statements in accordance with auditing  standards
generally  accepted in the United States of America,  which require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement.  An audit includes examining, on a
test basis,  evidence  supporting  the amounts and  disclosures in the financial
statements,  assessing the accounting  principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.



                                                  /s/ PricewaterhouseCoopers LLP
                                                  PricewaterhouseCoopers LLP
                                                  Orlando, Florida
                                                  March 23, 2001



MANAGEMENT'S RESPONSIBILITY FOR FINANCIAL STATEMENTS

The consolidated  financial  statements and related information included in this
Annual Report were prepared in conformity  with  generally  accepted  accounting
principles.  Management  is  responsible  for  the  integrity  of the  financial
statements  and for the  related  information.  Management  has  included in the
Company's  consolidated financial statements amounts that are based on estimates
and judgements  which it believes are reasonable  under the  circumstances.  The
responsibility of the Company's independent accountants is to express an opinion
on the fairness of the consolidated financial statements. Their opinion is based
on an audit conducted in accordance with generally  accepted auditing  standards
as further described in their report.

The  Audit   Committee   of  the  Board  of   Directors  is  composed  of  three
non-management  directors.  The  Committee  meets  periodically  with  financial
management, internal auditors and the independent accountants to review internal
accounting control, auditing and financial reporting matters.



40
<PAGE>

                     CORPORATE AND SHAREHOLDER INFORMATION


DIRECTORS
David H. Hughes
Chairman of the Board

John D. Baker II
President and Chief Executive Officer,
Florida Rock Industries, Inc.

Robert N. Blackford
Attorney, Holland & Knight LLP

H. Corbin Day
Chairman,
Jemison Investment Co., Inc.

Vincent S. Hughes

William P. Kennedy
Chief Executive Officer,
Nephron Pharmaceuticals Corporation

<PAGE>


EXECUTIVE OFFICERS
AND MANAGEMENT

David H. Hughes
Chairman of the Board and
Chief Executive Officer

Thomas Morgan
President and Chief Operating Officer

Benjamin P. Butterfield
Secretary and General Counsel

John R. Clark
Vice President of Credit

Jacquel K. Clark
Assistant Secretary and
Assistant Treasurer

Jasper L. Holland, Jr.
Group President

Clyde E. Hughes III
Group President

Vincent S. Hughes
Vice President

Robert A. Machaby
Group President

James C. Plyler, Jr.
Regional Manager

Michael L. Stanwood
Group President

Kenneth H. Stephens
Regional Manager

Sidney J. Strickland, Jr.
Vice President of Administration

Thomas M. Ward II
Vice President of Information Technology

Gradie E. Winstead, Jr.
Group President

J. Stephen Zepf
Treasurer and Chief Financial Officer


<PAGE>


TRANSFER AGENT
AND REGISTRAR

American Stock Transfer
& Trust Company
40 Wall Street
New York, New York 10005

ANNUAL MEETING

Tuesday, May 15, 2001,
at 10:00 a.m., local time
Hughes Supply, Inc.
20 North Orange Avenue
Suite 200
Orlando, Florida 32801

INDEPENDENT
ACCOUNTANTS

PricewaterhouseCoopers LLP
Orlando, Florida

CORPORATE
HEADQUARTERS

Hughes Supply, Inc.
20 North Orange Avenue
Orlando, Florida 32801
Telephone: 407-841-4755


<PAGE>

The shares of Hughes Supply,  Inc. common stock are traded on the New York Stock
Exchange  under the symbol  "HUG." The  approximate  number of  shareholders  of
record as of March 23, 2001 was 1,084. A COPY OF THE HUGHES SUPPLY,  INC. ANNUAL
REPORT ON FORM 10-K AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION WILL BE
MADE AVAILABLE WITHOUT CHARGE, UPON WRITTEN REQUEST. REQUESTS SHOULD BE DIRECTED
TO:

J. Stephen Zepf
Treasurer and Chief Financial Officer
Hughes Supply, Inc.
Post Office Box 2273
Orlando, Florida 32802