Consolidated Statements of Income
(in thousands, except per share data)


<TABLE>
<CAPTION>
                                                     Fiscal Years Ended
                                          -----------------------------------------
                                          January 25,    January 26,    January 28,
                                             2002           2001           2000
-----------------------------------------------------------------------------------
<S>                                       <C>            <C>            <C>
Net Sales                                 $ 3,037,708    $ 3,310,163    $ 2,994,877
Cost of Sales                               2,343,788      2,566,706      2,320,604
-----------------------------------------------------------------------------------
Gross Profit                                  693,920        743,457        674,273
-----------------------------------------------------------------------------------
Operating Expenses:
  Selling, general and administrative         550,943        579,234        508,009
  Depreciation and amortization                31,093         32,551         29,808
  Provision for doubtful accounts              11,065         10,626          4,064
  Impairment of long-lived assets                 734         15,557             --
-----------------------------------------------------------------------------------
    Total operating expenses                  593,835        637,968        541,881
-----------------------------------------------------------------------------------
Operating Income                              100,085        105,489        132,392
-----------------------------------------------------------------------------------
Non-Operating Income (Expenses):
  Interest and other income                    10,546          7,476          9,015
  Interest expense                            (35,945)       (43,288)       (31,805)
  Gain on sale of pool and spa business            --         11,000             --
-----------------------------------------------------------------------------------
                                              (25,399)       (24,812)       (22,790)
-----------------------------------------------------------------------------------
Income Before Income Taxes                     74,686         80,677        109,602
Income Taxes                                   30,621         34,162         43,731
-----------------------------------------------------------------------------------
Net Income                                $    44,065    $    46,515    $    65,871
===================================================================================
Earnings Per Share:
  Basic                                   $      1.90    $      2.00    $      2.82
===================================================================================
  Diluted                                 $      1.88    $      1.97    $      2.80
===================================================================================
Average Shares Outstanding:
  Basic                                        23,175         23,238         23,398
===================================================================================
  Diluted                                      23,424         23,584         23,547
===================================================================================
</TABLE>

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


                                       10
<PAGE>


Consolidated Balance Sheets
(in thousands, except share and per share data)


<TABLE>
<CAPTION>
                                                                                               January 25,    January 26,
                                                                                                  2002           2001
-------------------------------------------------------------------------------------------------------------------------
<S>                                                                                            <C>            <C>
Assets
Current Assets:
  Cash and cash equivalents                                                                    $     6,817    $    22,449
  Accounts receivable, less allowance for doubtful accounts of $8,388 and $6,106                   387,953        435,607
  Inventories                                                                                      396,441        441,789
  Deferred income taxes                                                                             15,420         18,524
  Other current assets                                                                              56,809         68,940
-------------------------------------------------------------------------------------------------------------------------
    Total current assets                                                                           863,440        987,309

Property and Equipment                                                                             145,702        152,079
Goodwill                                                                                           263,808        249,826
Other Assets                                                                                        20,312         17,481
-------------------------------------------------------------------------------------------------------------------------
                                                                                               $ 1,293,262    $ 1,406,695
=========================================================================================================================
Liabilities and Shareholders' Equity
Current Liabilities:
  Current portion of long-term debt                                                            $    19,175    $    15,274
  Accounts payable                                                                                 188,447        221,771
  Accrued compensation and benefits                                                                 32,790         32,762
  Other current liabilities                                                                         34,753         38,372
-------------------------------------------------------------------------------------------------------------------------
    Total current liabilities                                                                      275,165        308,179

Long-Term Debt                                                                                     403,671        516,168
Deferred Income Taxes                                                                               13,872          6,704
Other Noncurrent Liabilities                                                                         6,081          5,609
-------------------------------------------------------------------------------------------------------------------------
    Total liabilities                                                                              698,789        836,660
-------------------------------------------------------------------------------------------------------------------------
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;
    23,774,600 and 24,211,485 shares issued                                                         23,775         24,211
  Capital in excess of par value                                                                   217,609        228,103
  Retained earnings                                                                                367,726        337,149
  Treasury stock, 24,251 and 576,783 shares, at cost                                                  (531)       (13,307)
  Unearned compensation related to outstanding restricted stock                                    (14,106)        (6,121)
-------------------------------------------------------------------------------------------------------------------------
    Total shareholders' equity                                                                     594,473        570,035
-------------------------------------------------------------------------------------------------------------------------
                                                                                               $ 1,293,262    $ 1,406,695
=========================================================================================================================
</TABLE>

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


                                       11
<PAGE>


Consolidated Statements of Shareholders' Equity
(in thousands, except per share data)


<TABLE>
<CAPTION>
                                      Common Stock        Treasury Stock     Capital in
                                   ------------------   ------------------    Excess of     Retained    Unearned
                                   Shares     Dollars   Shares     Dollars    Par Value     Earnings  Compensation    Total
-----------------------------------------------------------------------------------------------------------------------------
<S>                                 <C>       <C>         <C>     <C>         <C>          <C>          <C>         <C>
Balance at January 29, 1999         24,184    $ 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)    (21,229)          --           --          --      (21,229)
  Shares issued under stock
    option and bonus plans              29          29      36         811          472         (378)         --          934
  Purchase and retirement
    of common shares                    (7)         (7)     --          --          (57)         (89)         --         (153)
  Issuance of restricted stock,
    net of cancellations                43          43     216       4,984        1,311           --      (6,338)          --
  Amortization of unearned
    restricted stock                    --          --      --          --           --           --       1,055        1,055
-----------------------------------------------------------------------------------------------------------------------------
Balance at January 28, 2000         24,249    $ 24,249    (669)   $(15,434)   $ 221,284    $ 300,144    $ (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       2,127           --         (425)         --        1,702
  Purchase and retirement of
    common shares                      (32)        (32)     --          --         (319)      (1,002)         --       (1,353)
  Issuance of restricted stock,
    net of cancellations                (6)         (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         24,211    $ 24,211    (577)   $(13,307)   $ 228,103    $ 337,149    $ (6,121)   $ 570,035

  Net income                            --          --      --          --           --       44,065          --       44,065
  Cash dividends--$.34 per share        --          --      --          --           --       (7,964)         --       (7,964)
  Purchase of treasury stock            --          --    (395)     (7,537)          --           --          --       (7,537)
  Shares issued under stock
    option and bonus plans              --          --     266       5,634          300       (1,726)         --        4,208
  Purchase and retirement of
    common shares                      (90)        (90)     --          --         (854)      (1,111)         --       (2,055)
  Retirement of treasury stock        (343)       (343)    343       7,488       (3,160)      (3,985)         --           --
  Issuance of restricted stock,
    net of cancellations                (3)         (3)    339       7,191          493        1,298      (9,498)        (519)
  Amortization of unearned
    restricted stock                    --          --      --          --           --           --       1,513        1,513
  Cancellation of stock rights
    issued to bestroute.com             --          --      --          --       (7,273)          --          --       (7,273)
-----------------------------------------------------------------------------------------------------------------------------
Balance at January 25, 2002         23,775    $ 23,775     (24)   $   (531)   $ 217,609    $ 367,726    $(14,106)   $ 594,473
=============================================================================================================================
</TABLE>

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


                                       12
<PAGE>


Consolidated Statements of Cash Flows
(in thousands)


<TABLE>
<CAPTION>
                                                                                               Fiscal Years Ended
                                                                                      -------------------------------------
                                                                                      January 25,  January 26,  January 28,
                                                                                         2002         2001         2000
---------------------------------------------------------------------------------------------------------------------------
<S>                                                                                   <C>          <C>          <C>
Cash Flows from Operating Activities:
  Net income                                                                          $  44,065    $  46,515    $  65,871
  Adjustments to reconcile net income to net cash provided by operating activities:
    Depreciation and amortization                                                        31,093       32,551       29,808
    Provision for doubtful accounts                                                      11,065       10,626        4,064
    Impairment of long-lived assets                                                         734       15,557           --
    Gain on sale of pool and spa business                                                    --      (11,000)          --
    Deferred income taxes                                                                10,442       (7,766)         564
    Other                                                                                   372        3,968         (441)
  Changes in assets and liabilities, net of businesses acquired or sold:
    Accounts receivable                                                                  50,087      (43,224)     (35,768)
    Inventories                                                                          55,019       34,567      (67,594)
    Other current assets                                                                (11,953)       1,795      (11,588)
    Other assets                                                                         (1,831)      (7,776)      (4,006)
    Accounts payable                                                                    (39,555)     (23,926)      48,375
    Accrued compensation and benefits                                                      (921)       4,433        4,046
    Other current liabilities                                                            (4,326)       9,484          (50)
    Other noncurrent liabilities                                                            472          344          168
-------------------------------------------------------------------------------------------------------------------------
      Net cash provided by operating activities                                         144,763       66,148       33,449
-------------------------------------------------------------------------------------------------------------------------
Cash Flows from Investing Activities:
  Capital expenditures                                                                  (16,850)     (23,871)     (30,740)
  Proceeds from sale of property and equipment                                            8,673        1,772        4,892
  Business acquisitions, net of cash                                                    (32,007)     (34,086)     (88,905)
  Purchase of bestroute.com stock rights                                                 (7,273)          --           --
  Proceeds from sale of pool and spa business                                            25,000       22,972           --
  Investments in affiliated entities                                                         --       (5,757)      (3,750)
-------------------------------------------------------------------------------------------------------------------------
      Net cash used in investing activities                                             (22,457)     (38,970)    (118,503)
-------------------------------------------------------------------------------------------------------------------------
Cash Flows from Financing Activities:
  Net (payments) borrowings under short-term debt arrangements                         (100,328)    (153,900)     132,797
  Proceeds from issuance of long-term debt                                                   --      150,000           --
  Principal payments on other debt                                                      (23,809)      (2,476)     (14,724)
  Purchase of treasury shares                                                            (7,537)          --      (21,229)
  Dividends paid                                                                         (7,946)      (8,083)      (8,042)
  Other                                                                                   1,682         (270)         242
-------------------------------------------------------------------------------------------------------------------------
      Net cash (used in) provided by financing activities                              (137,938)     (14,729)      89,044
-------------------------------------------------------------------------------------------------------------------------
Net (Decrease) Increase in Cash and Cash Equivalents                                    (15,632)      12,449        3,990
Cash and Cash Equivalents, Beginning of Year                                             22,449       10,000        6,010
-------------------------------------------------------------------------------------------------------------------------
Cash and Cash Equivalents, End of Year                                                $   6,817    $  22,449    $  10,000
=========================================================================================================================
Supplemental Disclosure of Cash Flows Information:
  Income taxes paid                                                                   $  36,642    $  36,601    $  49,079
  Interest paid                                                                          35,814       44,429       29,636
  Property and equipment acquired with debt                                               6,946           --           --
=========================================================================================================================
</TABLE>

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


                                       13
<PAGE>


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  439
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 businesses in the petrochemical,  food
and beverage, pulp and paper, 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 years 2002,
2001 and 2000 each consisted of 52 weeks.

Estimates

The preparation of financial  statements in conformity  with generally  accepted
accounting principles 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.

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.

Allowance for Doubtful Accounts

The  Company  evaluates  the  collectibility  of  accounts  receivable  based on
numerous  factors,  including past transaction  history with customers and their
credit  worthiness.  Initially,  the Company estimates an allowance for doubtful
accounts as a percentage of net sales based on historical  bad debt  experience.
This  estimate is  periodically  adjusted  when the Company  becomes  aware of a
specific   customer's   inability  to  meet  its  financial   obligations  (e.g.
bankruptcy,  etc.),  or as a result of changes in the overall  aging of accounts
receivable.  While the Company has a large customer base that is  geographically
dispersed, a slowdown in the markets in which the Company operates may result in
higher than expected uncollectible  accounts, and therefore,  the need to revise
estimates  for bad debts.  Provision  for  doubtful  accounts  totaled  $11,065,
$10,626 and $4,064 in fiscal 2002,  2001 and 2000,  respectively.  To the extent
historical  credit  experience is not indicative of future  performance or other
assumptions  used by  management  do not  prevail,  the  allowance  for doubtful
accounts could differ significantly,  resulting in either higher or lower future
provisions for doubtful accounts.

Inventories

Inventories  are  carried  at  the  lower  of  cost  or  market.   The  cost  of
substantially  all  inventories  is determined  by the average cost method.  The
Company  evaluates its inventory value at the end of each quarter to ensure that
it is  carried  at the lower of cost or  market.  This  evaluation  includes  an
analysis of a branch's  physical  inventory  results over the last two years,  a
review of potential dead stock and an overall consolidated analysis of potential
excess  inventory  items. An inventory  provision is recorded monthly to provide
for any potential  write-downs of the Company's inventory to market value or for
projected historical shortages.  Periodically,  the branch's perpetual inventory
records are adjusted to reflect  permanent  declines in market value. At January
25, 2002 and January 26, 2001,  inventory  reserves  totaled $9,849 and $10,379,
respectively.  To the  extent  historical  physical  inventory  results  are not
indicative of future  results and if unexpected  future  events  impact,  either
favorably  or  unfavorably,  the  saleability  of the  Company's  products,  the
Company's  inventory  reserves could differ  significantly,  resulting in either
higher or lower future inventory provisions.

Property and Equipment

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

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


                                       14
<PAGE>


assets  are   capitalized.   Gains  or  losses  are  reflected  in  income  upon
disposition. Interest costs related to assets under construction are capitalized
during the construction  period.  Depreciation of property and equipment totaled
$18,073, $19,565 and $18,486 in fiscal 2002, 2001 and 2000, respectively.

Goodwill

Goodwill represents the excess of the purchase price paid over the fair value of
the net assets  acquired in connection with business  acquisitions  and is being
amortized on a straight-line  basis over periods ranging from 15 to 40 years. At
January 25, 2002 and January 26, 2001,  goodwill  totaled $263,808 and $249,826,
respectively,   net  of  accumulated   amortization   of  $40,296  and  $31,821,
respectively.  Amortization  of goodwill  totaled  $9,229,  $9,295 and $7,797 in
fiscal 2002, 2001 and 2000, respectively.

Other Assets

The Company  capitalizes  certain software  development  costs,  which are being
amortized  on a  straight-line  basis  over the  estimated  useful  lives of the
software,  ranging from 3 to 7 years.  At January 25, 2002 and January 26, 2001,
capitalized software development costs totaled $9,775 and $8,680,  respectively,
net  of   accumulated   amortization   of  $10,404  and  $7,709,   respectively.
Amortization of capitalized  software  development costs totaled $3,595,  $3,550
and $3,385 in fiscal 2002, 2001 and 2000, 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.  Impairment is assessed
by evaluating the estimated  undiscounted  cash flows over the asset's remaining
life. If estimated cash flows are  insufficient  to recover the  investment,  an
impairment loss is recognized.

Self-Insurance

The  Company  is   self-insured   for  certain   losses   relating  to  workers'
compensation, automobile, general and product liability claims. The Company also
maintains  stop loss  coverages to limit the exposure  arising from such claims.
Self-insurance  losses for claims filed and claims incurred but not reported are
accrued  based upon the  Company's  estimates  of the  aggregate  liability  for
uninsured  claims  using loss  development  factors  and  actuarial  assumptions
followed in the insurance industry and the Company's historical loss development
experience.  To the  extent  the  projected  future  development  of the  losses
resulting from workers' compensation,  automobile, general and product liability
claims  incurred as of January 25, 2002 differs from the actual  development  of
such losses in future  periods,  the Company's  insurance  reserves could differ
significantly, resulting in either higher or lower future insurance expense.

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.

Effective  in  February  2001,  the  Company  adopted   Statement  of  Financial
Accounting  Standards  ("FAS") 133,  Accounting for Derivative  Instruments  and
Hedging  Activities.  FAS 133 was  amended by FAS 138,  Accounting  for  Certain
Derivative Instruments and Certain Hedging Activities.  Both FAS 133 and FAS 138
require that an entity record all derivatives as either assets or liabilities in
the consolidated  balance sheets at fair value and measure those  instruments at
fair value and to reflect  changes in fair value of those  instruments as either
components of  comprehensive  income or in net income  depending on the types of
instruments.  The  adoption  of these  standards  did not have an  impact on the
Company's consolidated financial statements.

Revenue Recognition

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

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 by 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 $5,333, $6,482 and $6,471 in fiscal 2002, 2001 and 2000, respectively.


                                       15
<PAGE>


Notes to Consolidated Financial Statements (continued)
(in thousands, except share and per share data)

Shipping and Handling Fees and Costs

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
$19,690, $24,445 and $18,857 in fiscal 2002, 2001 and 2000, respectively.

Income Taxes

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

Stock-Based Compensation

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 9 to the consolidated financial statements.

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 net impact on previously reported results of operations.

Recent Accounting Pronouncements

FAS 141,  Business  Combinations,  and FAS 142,  Goodwill  and Other  Intangible
Assets,  were issued in July 2001.  FAS 141 requires  all business  combinations
initiated  after June 30, 2001 to be accounted for using the purchase  method of
accounting.  FAS 141 also  specifies the criteria which must be met in order for
certain acquired intangible assets to be recorded separately from goodwill.  FAS
142 is effective for the Company  beginning with the Company's  first quarter of
fiscal 2003.  Under FAS 142,  all of the  Company's  goodwill  will no longer be
amortized but rather will be tested for impairment  annually or more  frequently
if events or changes in circumstances indicate that the asset might be impaired.
In fiscal  2002,  amortization  of goodwill  totaled  $9,229.  This new approach
requires  the  use  of  valuation  techniques  and  methodologies  significantly
different than the present  undiscounted  cash flow policy being followed by the
Company.  In connection with the adoption of FAS 142, the Company's  conclusions
about the valuation and  recoverability of goodwill may change. The new approach
may result in  impairment  charges  and  reductions  in the  carrying  amount of
goodwill on the  consolidated  balance sheets upon  adoption.  Subsequent to the
initial  adoption of FAS 142, the Company may be subject to earnings  volatility
if additional goodwill impairment occurs at a future date. The Company is in the
process of performing the goodwill evaluation required under FAS 142 and has not
yet determined the impact that will result from adoption.

FAS 143, Accounting for Asset Retirement  Obligations,  was issued in June 2001.
FAS 143, which is effective for the Company beginning in fiscal 2004,  addresses
financial   accounting  and  reporting  for  obligations   associated  with  the
retirement of tangible  long-lived  assets and the associated  asset  retirement
costs.  The Company  does not expect the  adoption of FAS 143 to have a material
impact on its consolidated financial statements.

FAS 144,  Accounting  for the Impairment or Disposal of Long-Lived  Assets,  was
issued in August 2001. FAS 144, which is effective  beginning with the Company's
first  quarter  of  fiscal  2003,  establishes  a single  accounting  model  for
long-lived  assets to be disposed of by sale and  broadens the  presentation  of
discontinued operations to include more disposal transactions.  The Company does
not expect the adoption of FAS 144 to have a material impact on its consolidated
financial statements.

Note 2--Business Combinations and Divestiture

In fiscal 2000, the Company invested $1,750 in bestroute.com  ("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  51.0% 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


                                       16
<PAGE>


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 into an agreement to cancel  347,541 of the
stock rights and redeem the remaining rights for $7,273 in cash.

During fiscal 2002, 2001 and 2000, the Company  acquired several other wholesale
distributors of materials to the construction  and industrial  markets that were
accounted  for  as  purchases.  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
                                -----------------------------
                                2002       2001        2000
-------------------------------------------------------------
Fair value of:
  Assets acquired             $ 47,976   $ 58,182    $125,536
  Liabilities assumed          (16,635)   (12,466)    (37,510)
-------------------------------------------------------------
Purchase price                $ 31,341   $ 45,716    $ 88,026
=============================================================

Consideration in fiscal 2001 for bestroute  included 723,183 stock rights with a
fair value of $7,273. There was no stock consideration issued during fiscal 2002
and 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
bore interest at a fixed rate of 7.0% and was fully collected in fiscal 2002. In
fiscal 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 the fourth quarter of fiscal 2002, the Company recorded an impairment loss of
$734 related to goodwill on one entity in its Plumbing/HVAC operations.

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:

                                           2002        2001
-------------------------------------------------------------
Land                                    $  34,735   $  34,784
Buildings and improvements                116,595     115,568
Transportation equipment                   20,611      31,446
Furniture, fixtures and equipment          71,743      69,991
Construction in progress                   10,306       3,476
-------------------------------------------------------------
                                          253,990     255,265
Less accumulated depreciation            (108,288)   (103,186)
-------------------------------------------------------------
                                        $ 145,702   $ 152,079
=============================================================


                                       17
<PAGE>


Notes to Consolidated Financial Statements (continued)
(in thousands, except share and per share data)

Note 5--Long-Term Debt
Long-term debt consists of the following:

                                                    2002         2001
-----------------------------------------------------------------------
8.27% senior notes, due 2003                     $  19,000    $  19,000
8.27% senior notes, due 2005                        22,400       28,000
8.42% senior notes, due 2007                       103,000      103,000
7.96% senior notes, due 2011                        88,666       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, (interest rate of 2.3%
  at January 25, 2002)                              16,142       79,000
Commercial paper                                    36,409       74,101
Other notes payable (varying interest rates of
  2.8% to 9.8% at January 25, 2002 with
  due dates from 2002 to 2016)                       7,229          341
-----------------------------------------------------------------------
                                                   422,846      531,442
Less current portion                               (19,175)     (15,274)
-----------------------------------------------------------------------
                                                 $ 403,671    $ 516,168
=======================================================================

On January 15,  2002,  the  Company's  line of credit  agreement  was amended to
decrease  borrowing  capacity  from $75,000 to $36,250.  The  Company's  current
borrowing  capacity under its revolving  credit agreement and its line of credit
agreement  (the  "credit  agreement")  totaled  $311,250  (subject to  borrowing
limitations  under the credit  agreement)--$275,000  under its revolving  credit
agreement as long-term  debt due January 25, 2004 and $36,250  under its line of
credit agreement,  as amended,  which matures on July 31, 2002. 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.

The  Company has two  short-term  lines of credit  with an  aggregate  borrowing
capacity of $25,000.  On June 30,  2001,  these lines of credit were  amended to
extend the maturity  dates to June 30, 2002. At January 25, 2002,  approximately
$222  was  outstanding  under  these  lines of  credit.  There  were no  amounts
outstanding at January 26, 2001.

On June 22,  2001,  the  Company  entered  into an  agreement  ("lease  facility
agreement")  with Atlantic  Financial Group,  Ltd.  ("AFG"),  certain  financial
parties as lenders  and  SunTrust  Bank as agent  ("SunTrust")  in which AFG and
SunTrust  agreed to fund up to $40,000 for the  acquisition  and  development of
real property  projects  chosen by the Company,  including up to $25,000 for the
Company's  new corporate  headquarters  building in Orlando,  Florida  ("Orlando
property")  which is expected to cost  approximately  $23,000.  Also on June 22,
2001, the Company entered into an agreement with AFG, certain  financial parties
as lenders and  SunTrust as agent for the  construction  of a new  warehouse  in
Miami, Florida ("Miami property").  Pursuant to this agreement, AFG and SunTrust
agreed to fund up to $15,000 for the  construction  of this  facility,  which is
expected to cost approximately $13,000.

Orlando Property

Under the terms of the loan agreement ("Orlando loan agreement") between AFG and
SunTrust for the Orlando  property,  AFG was required to fund the lease facility
through  a  nominal  equity  investment,   with  the  remainder  funded  through
non-recourse  borrowings  from  SunTrust.  Concurrent  with the execution of the
Orlando loan agreement,  the Company executed a master lease agreement ("Orlando
lease  agreement")  with AFG under  which the  Company  will  lease the  Orlando
property for a five-year  term,  including the  construction  period and a lease
period.  The Orlando lease agreement  requires interest only payments that begin
at the earlier of the completion of construction, which is expected in September
2003, or eighteen  months  following the  acquisition  of the Orlando  property,
which is expected to occur in April 2002.  Payments are  interest  only at LIBOR
rates  plus  applicable  credit  spreads  (currently  estimated  to be 150 basis
points).  Although AFG has partially  funded the lease  facility  through equity
contributions,   AFG  does  not  have   sufficient   residual  equity  at  risk.
Accordingly,  the Company has  included  the assets and  liabilities  related to
AFG's Orlando loan  agreement in the  consolidated  balance sheet at January 25,
2002. The outstanding  borrowings and related assets of approximately $1,130 are
reflected  in long-term  debt and  construction  in progress.  At the end of the
lease  term,  the  Company  has the  option  to renew  the  lease  for up to two
additional  five-year periods, or to purchase the building for a price including
the outstanding  lease balance.  If the Company elects not to renew the lease or
purchase  the  building,  the  Company may elect to remarket  the  property  and
arrange the sale of the building to a third party. Under the remarketing option,
the Company has guaranteed  approximately  85% of the total original cost as the
residual fair value of the building.

Miami Property

Under the terms of the loan agreement  ("Miami loan agreement")  between AFG and
SunTrust for the Miami  property,  AFG was  required to fund the Miami  property
through an equity  investment of  approximately  20% with the  remainder  funded
through non-recourse borrowings from SunTrust. Concurrent with the


                                       18
<PAGE>


execution  of the Miami loan  agreement,  the  Company  executed a master  lease
agreement (the "Miami lease  agreement")  with AFG. Under the terms of the Miami
lease  agreement,  the Company will lease the Miami  property with rent payments
scheduled to begin in January  2003.  Rent payments for the first four years are
interest only at a rate based on LIBOR plus applicable credit spreads (currently
estimated  to be 150  basis  points).  Beginning  in the fifth  year,  rents are
re-amortized  and rates for the  remainder  of the term  increase  to 12.5% plus
applicable consumer price index adjustments.  During the first four years of the
Miami lease  agreement,  the Company may elect to purchase  the property for the
existing lease balance or convert it into the Company's lease facility agreement
referenced above. Although AFG has sufficient equity at risk with respect to the
Miami property, the assets and liabilities related to AFG's Miami loan agreement
have been included in the  consolidated  balance sheet at January 25, 2002 based
on the required  consolidation  of the assets and  liabilities  related to AFG's
lease facility  referenced above. The outstanding  borrowings and related assets
of  approximately  $5,459 are reflected in long-term  debt and  construction  in
progress.

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.  During
fiscal 2002,  the Company paid $5,600 on these senior  notes.  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 $36,409  and  $74,101 as of January 25, 2002 and January 26, 2001
was 2.9% and 6.7%,  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 25, 2002 and January 26, 2001 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 $160,547 was available at January 25, 2002
for payment of dividends.

Maturities  of long-term  debt for each of the five years  subsequent to January
25, 2002 and in the aggregate are as follows:

Fiscal Years Ending
--------------------------------------------------------------
2003                                                  $ 19,175
2004                                                   115,777
2005                                                    44,191
2006                                                    44,105
2007                                                    38,505
Thereafter                                             161,093
--------------------------------------------------------------
                                                      $422,846
==============================================================

The fair values of  long-term  debt  approximated  $431,870 and $539,287 and the
related  carrying  values  were  $422,846  and  $531,442 at January 25, 2002 and
January 26, 2001, respectively.

Note 6--Income Taxes

The consolidated provision for income taxes consists of the following:

                                       Fiscal Years Ended
--------------------------------------------------------------
                                    2002      2001       2000
--------------------------------------------------------------
Currently payable:
  Federal                         $17,811   $37,515    $36,763
  State                             2,321     4,315      5,553
--------------------------------------------------------------
                                   20,132    41,830     42,316
Deferred:
  Federal                          10,998    (7,007)     1,241
  State                              (509)     (661)       174
--------------------------------------------------------------
                                   10,489    (7,668)     1,415
--------------------------------------------------------------
                                  $30,621   $34,162    $43,731
==============================================================


                                       19
<PAGE>


Notes to Consolidated Financial Statements (continued)
(in thousands, except share and per share data)

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

<TABLE>
<CAPTION>
                                                                                    Fiscal Years Ended
                                                                  -------------------------------------------------------
                                                                         2002               2001               2000
                                                                  -------------------------------------------------------
                                                                   Amount      %      Amount      %      Amount        %
-------------------------------------------------------------------------------------------------------------------------
<S>                                                               <C>        <C>     <C>        <C>     <C>          <C>
Tax computed at statutory federal rate                            $26,140    35.0%   $28,237    35.0%   $ 38,361     35.0%
Effect of:
  State and local income tax, net of federal income tax benefit     1,509     2.0      2,377     2.9       3,722      3.4
  Nondeductible expenses                                            2,336     3.1      3,548     4.4       2,740      2.5
  Other, net                                                          636     0.9         --      --      (1,092)    (1.0)
-------------------------------------------------------------------------------------------------------------------------
                                                                  $30,621    41.0%   $34,162    42.3%   $ 43,731     39.9%
=========================================================================================================================
</TABLE>

The  components of deferred tax assets and  liabilities  at January 25, 2002 and
January 26, 2001 are as follows:

                                              2002      2001
-------------------------------------------------------------
Deferred tax assets:
  Allowance for doubtful accounts           $ 2,016   $ 2,339
  Inventories                                 5,621     5,144
  Property and equipment                        700        --
  Accrued vacation                            2,481     2,230
  Other accrued liabilities                   2,843     7,549
  State net operating losses                  2,086     1,166
  Deferred compensation                       3,498     4,011
  Other                                          --     3,692
-------------------------------------------------------------
Gross deferred tax assets                    19,245    26,131
  Valuation allowance                           (72)     (698)
-------------------------------------------------------------
    Total deferred tax assets                19,173    25,433
-------------------------------------------------------------
Deferred tax liabilities:
  Capitalized software development costs      2,793     3,717
  Goodwill and intangible assets              7,165     5,559
  Deferred gain and prepaid expenses          7,554     3,466
  Property and equipment                         --       871
  Other                                         113        --
-------------------------------------------------------------
    Total deferred tax liabilities           17,625    13,613
-------------------------------------------------------------
Net deferred tax assets                     $ 1,548   $11,820
=============================================================

At January 25, 2002, the Company had state net operating loss  carryforwards  of
$2,086,  which  expire  between 2006 and 2022.  A valuation  allowance  has been
provided  on certain of the state net  operating  losses at January  25, 2002 as
full realization of these assets is not considered more likely than not.

Note 7--Employee Benefit Plans

Profit Sharing Plan

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.  Prior to August 1, 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, from 4% to 5% on February 1, 2000, and from 5% to 6%
on  February  1,  2001.  Additional  annual  contributions  may be  made  at the
discretion of the Board of Directors.  Amounts  charged to expense for this plan
totaled $5,004, $4,294 and $2,883 in fiscal 2002, 2001 and 2000, 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 $1,285,  $1,410 and $1,914 in
fiscal 2002, 2001 and 2000, respectively.

Supplemental Executive Retirement Plan

The Company has a defined benefit  retirement plan, which provides  supplemental
benefits  for certain key  executive  officers,  generally  for periods up to 15
years,  upon  retirement,  disability or death.  The  obligations are not funded
separately from the Company's general assets. At January 25, 2002, the liability
under the plan, as determined in accordance with FAS 87,  Employers'  Accounting
for Pensions,  was $4,649.  At January 26, 2001,  the liability was $4,110.  The
liability  in each year is recorded  in other  noncurrent  liabilities.  Amounts
charged to expense  under the plan totaled  $539,  $663 and $543 in fiscal 2002,
2001 and 2000, 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 totaled


                                       20
<PAGE>


$51,649, $51,073 and $42,792 in fiscal 2002, 2001 and 2000, respectively.

The Company  leases  several  buildings  and  properties  from  certain  related
parties,  including  the Company's  chairman and chief  executive  officer,  two
members  of the  Board  of  Directors,  and an  executive  officer.  The  leases
generally  provide that all expenses related to the properties are to be paid by
the Company.  Rents paid under these leases totaled $2,063, $1,945 and $1,841 in
fiscal 2002, 2001 and 2000, respectively.

Aggregate minimum annual rental payments, under non-cancelable operating leases,
including those discussed above, as of January 25, 2002 are as follows:

Fiscal Years Ending
--------------------------------------------------------------
2003                                                  $ 42,632
2004                                                    32,467
2005                                                    25,554
2006                                                    17,322
2007                                                     9,239
Thereafter                                              12,710
--------------------------------------------------------------
                                                      $139,924
==============================================================

Guarantee of Affiliate

The Company has provided a financial  guarantee  totaling  $1,470 at January 25,
2002 related to a construction loan for its equity investment.

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.

Note 9--Stock Option Plans

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 until December 31, 2006 with respect to the 1997 Stock Plan or May 24, 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 of the Board of Directors  (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.

During  fiscal  2002,  the  Company  granted  certain  key  executives   410,000
restricted  shares in accordance with a stock  performance  award under the 1997
Stock Plan.  The shares were awarded in five separate  tranches as the Company's
stock price achieved certain levels as determined by the compensation committee.
At January 25, 2002, all such stock price  achievement  levels had been met. The
shares  vest five years from the award date,  and are  subject to certain  other
vesting and forfeiture  provisions  contained in the 1997 Stock Plan. The market
value of the  restricted  shares  was  $10,735  at the date of the grant and was
recorded as unearned  compensation,  a component of shareholders'  equity.  This
amount is being  charged  to  expense  over the  respective  vesting  period and
totaled $749 in fiscal 2002.

During fiscal 2002 and 2000, the Company  granted certain  employees  11,000 and
261,921 shares of restricted  stock,  with market values at the date of grant of
$319 and $6,415,  respectively.  There were no  restricted  stock grants made to
employees  during fiscal 2001. In fiscal 2002,  2001 and 2000,  the Company also
cancelled  84,709,  6,000 and  2,400,  respectively,  of the  restricted  shares
granted,  with  market  values  at the date of grant  of  $1,545,  $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 2002, 2001 and 2000, this expense totaled
$764, $1,542 and $1,055, respectively.

The 1997 Stock Plan also  permits  the  granting  of stock  appreciation  rights
("SARs")  to holders  of  options.  Such  rights  permit  the  option  holder to
surrender an exercisable  option, in whole or in part, on any date that the fair
market  value of 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


                                       21
<PAGE>


Notes to Consolidated Financial Statements (continued)
(in thousands, except share and per share data)

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 25, 2002.

Stock Options

Stock option activity and information  about the Company's stock options for the
1997 Stock Plan and the Directors' Stock Plan are as follows:

                                                     Weighted-
                                         Shares       Average
                                         Subject      Option
                                        To Option      Price
--------------------------------------------------------------
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
    Granted                              167,500       20.71
    Exercised                           (255,425)      14.63
    Cancelled                            (80,600)      26.91
--------------------------------------------------------------
Under option, January 25, 2002
  (695,664 shares exercisable)           955,364      $22.40
==============================================================

There were  319,398  shares  available  for the  granting  of stock  options and
restricted shares at January 25, 2002.  Outstanding  options at January 25, 2002
have expiration dates ranging from August 17, 2004 to November 15, 2011.

The following table summarizes  information  about stock options  outstanding at
January 25, 2002:

                                                     Weighted-
                                     Weighted-        Average
                                      Average        Remaining
  Range of            Options        Exercise       Contractual
Exercise Prices     Outstanding        Price       Life (Years)
---------------------------------------------------------------
$12.83-$15.35          84,500         $13.99             5
 16.00- 18.75         466,250          17.41             8
 21.00- 25.67         152,639          22.81             9
 26.30- 35.63         251,975          33.28             6
---------------------------------------------------------------
$12.83-$35.63         955,364         $22.16             7
===============================================================

Stock-Based Compensation

The Company  accounts for its stock option plans using the intrinsic value based
method of accounting,  under which no  compensation  expense has been recognized
for stock option awards granted at fair market value. Had  compensation  expense
for the Company's  stock-based  compensation  plans been determined based on the
fair value at the grant dates for awards under those plans,  the  Company's  net
income and earnings  per share would have been reduced to the pro forma  amounts
indicated below:

                                      Fiscal Years Ended
                                -------------------------------
                                  2002       2001       2000
---------------------------------------------------------------
Net income:
  As reported                    $44,065     $46,515    $65,871
  Pro forma                       43,485      43,163     64,770
---------------------------------------------------------------
Earnings per share:
  As reported--basic             $  1.90     $  2.00    $  2.82
  Pro forma--basic                  1.88        1.86       2.77

  As reported--diluted           $  1.88     $  1.97    $  2.80
  Pro forma--diluted                1.86        1.83       2.75
===============================================================

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 1.5%,  1.3% and 1.3% for fiscal 2002, 2001 and
2000,  respectively;  expected  volatility of 38.3%,  36.0% and 35.0% for fiscal
2002, 2001 and 2000,  respectively;  risk-free  interest rates of 4.7%, 6.7% and
6.7% for fiscal 2002, 2001 and 2000, respectively; and expected lives of 8 years
for  fiscal  2002,  2001 and 2000.  The  weighted-average  fair value of options
granted  during the year was $9.16,  $8.77 and $11.48 in fiscal  2002,  2001 and
2000,  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.

Note 10--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.  Since March 15, 1999, the Company has repurchased
1,315,800  shares at an  average  price of $21.86 per  share,  of which  394,700
shares at an average price of $19.10 per share were  repurchased in fiscal 2002,
and 921,100  shares at an average price of $23.05 per share were  repurchased in
fiscal 2000. No shares were repurchased in fiscal 2001.


                                       22
<PAGE>


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 (a) ten days after 20% or more of the Company's stock is acquired by a person
or group and (b) the first date of a public  announcement that a person or group
has acquired 15% or more of the  Company's  stock.  The rights expire on June 2,
2008 unless terminated earlier in accordance with the shareholder rights plan.

Note 11--Earnings Per Share

Basic   earnings  per  share  is  calculated  by  dividing  net  income  by  the
weighted-average  number  of  shares  outstanding.  Diluted  earnings  per share
includes  the  additional  dilutive  effect of the  Company's  potential  common
shares,  which includes  certain  employee and director stock options,  unvested
shares of  restricted  stock  and stock  rights  issued in  connection  with the
bestroute acquisition in fiscal 2001.

The following  summarizes the incremental shares from these potentially dilutive
common  shares,  calculated  using  the  treasury  method,  as  included  in the
calculation of diluted weighted-average shares:

                                        `    Fiscal Years Ended
-------------------------------------------------------------------------
                                        2002         2001         2000
-------------------------------------------------------------------------
Basic weighted-average
  number of shares                   23,175,025   23,238,025   23,398,204
Incremental shares resulting from:
    Stock options                        96,062       56,244      108,142
    Restricted stock                     84,986       47,363       40,272
    Stock rights issued in
     connection with the
     bestroute acquisition               67,550      242,386           --
=========================================================================
Diluted weighted-average
  number of shares                   23,423,623   23,584,018   23,546,618
=========================================================================

Options to purchase  362,114,  1,166,490  and 544,802  shares of common stock at
average  exercise  prices of  approximately  $32.10,  $23.77 and $29.83 were not
included in the computation of diluted  earnings per share for fiscal 2002, 2001
and 2000, respectively, because their effect would have been anti-dilutive.

Note 12--Segment Information

The Company's  operations are organized on a product basis into five stand-alone
Groups: Electrical;  Plumbing/HVAC;  Industrial; Building Materials; and Water &
Sewer.  The  Electrical  Group  includes the Company's  electrical  and electric
utility products;  the Plumbing/HVAC Group includes the Company's plumbing/ HVAC
products and its  international  business;  the  Industrial  Group  includes the
Company's industrial pipe, valves and fittings products;  the Building Materials
Group  includes  the  Company's  building  materials  products  and  maintenance
supplies;  and the Water & Sewer Group  includes the Company's  water and sewer,
fire protection and concrete products. The "Corporate & Other" category includes
corporate level expenses not allocated to the Company's  operating  Groups along
with revenues and expenses for bestroute.  This is the basis management uses for
making  operating  decisions  and  assessing  performance  and  is  on  a  basis
consistent with how business activities are reported internally to management.

Intersegment sales are excluded from net sales presented for each Group.  Income
before income taxes includes certain corporate expense  allocations for employee
benefits,  interest expense,  corporate capital charges,  and  property/casualty
insurance.  These  allocations  are based on  consumption  or at a standard rate
determined by management.


                                       23
<PAGE>


Notes to Consolidated Financial Statements (continued)
(in thousands, except share and per share data)

In connection with the Company's reorganization at the beginning of fiscal 2001,
certain  administrative  groups  and assets  were  realigned  on a Group  basis.
Additionally,  in 2001,  the Company  changed its method of  allocating  certain
costs (e.g.,  interest expense,  rent expense,  corporate  capital charges,  and
depreciation and amortization,  etc.) to the Groups, which has also impacted the
comparability  of prior year  information.  Accordingly,  comparative  financial
information  for  fiscal  2000 has only been  presented  for net sales and gross
profit,  which were not impacted by the  allocation  method  changes.  In fiscal
2002, various functions previously performed on a decentralized basis, including
accounting and credit,  are now performed at the Corporate level. As a result of
this  change,  in fiscal 2001,  operating  expenses  totaling  $17,180 have been
reclassified from the operating Groups to Corporate.

The following table presents net sales and other financial  information by Group
for fiscal 2002 and 2001. When comparable,  information for fiscal 2000 has also
been presented.

<TABLE>
<CAPTION>
                                                    Plumbing/                Building     Water &    Corporate
                                       Electrical    HVAC(1)   Industrial  Materials(1)    Sewer      & Other      Total
---------------------------------------------------------------------------------------------------------------------------
<S>                                     <C>        <C>          <C>          <C>          <C>        <C>         <C>
Net sales
2002                                    $575,460   $  900,996   $330,375     $293,348     $937,446   $     83    $3,037,708
2001                                     606,268    1,045,997    315,315      409,684      932,870         29     3,310,163
2000                                     576,739      992,522    299,590      388,169      737,857         --     2,994,877
===========================================================================================================================
Gross profit
2002                                    $111,222   $  213,003   $ 82,823     $ 89,663     $197,700   $   (491)   $  693,920
2001                                     117,263      236,229     82,463      118,045      190,384       (927)      743,457
2000                                     105,492      242,055     69,668      102,938      154,120         --       674,273
===========================================================================================================================
Depreciation and amortization
2002                                    $  2,510   $    6,940   $  2,752     $  3,320     $  8,492   $  7,079    $   31,093
2001                                       2,416        7,592      2,876        4,033        7,650      7,984        32,551
===========================================================================================================================
Provision for doubtful accounts
2002                                    $    659   $    6,281   $    255     $     87     $  3,384   $    399    $   11,065
2001                                       1,185        5,145        356          733        2,839        368        10,626
===========================================================================================================================
Impairment of long-lived assets
2002                                    $     --   $      734   $     --     $     --     $     --   $     --    $      734
2001                                          --        2,217         --           --          416     12,924        15,557
===========================================================================================================================
Interest and other income
2002                                    $  1,154   $    3,095   $    142     $  1,127     $  3,647   $  1,381    $   10,546
2001                                       1,357        3,596        355        1,982        3,727     (3,541)        7,476
===========================================================================================================================
Interest expense
2002                                    $    872   $    6,941   $  9,181     $  3,194     $ 15,757   $     --    $   35,945
2001                                       2,926        9,891     10,170        5,678       14,623         --        43,288
===========================================================================================================================
Gain on sale of pool and spa business
2001                                    $     --   $       --   $     --     $ 11,000     $     --   $     --    $   11,000
===========================================================================================================================
Income (loss) before income taxes
2002                                    $ 27,523   $   11,210   $ 20,023     $ 15,397     $ 41,662   $(41,129)   $   74,686
2001                                      28,940        8,240     20,393       27,084       44,294    (48,274)       80,677
===========================================================================================================================
</TABLE>

(1)  Results  of  operations  for the pool and spa  business,  which was sold in
     January 2001,  were included in the  Plumbing/HVAC  and Building  Materials
     Groups in fiscal 2001 and 2000.  In addition,  prior year amounts have been
     restated to reflect the transfer of branches between the  Plumbing/HVAC and
     Building Materials Groups, which resulted from the sale of the pool and spa
     business.


                                       24
<PAGE>


The following  table includes the Company's  investment in accounts  receivable,
less allowance for doubtful accounts, and inventories, for each Group at January
25, 2002 and January 26, 2001:

<TABLE>
<CAPTION>
                                           2002                                  2001
                            -------------------------------------------------------------------------
                             Accounts                    Group     Accounts                   Group
                            Receivable  Inventories      Assets   Receivable  Inventories     Assets
-----------------------------------------------------------------------------------------------------
<S>                         <C>          <C>            <C>        <C>          <C>        <C>
Electrical                  $   71,436   $   48,527   $  119,963   $ 82,883     $ 59,170   $  142,053
Plumbing/HVAC                   98,178      129,163      227,341    127,265      149,170      276,435
Industrial                      42,971      103,663      146,634     42,734      111,355      154,089
Building Materials              31,556       27,881       59,437     35,253       36,144       71,397
Water & Sewer                  143,812       87,207      231,019    147,465       82,729      230,194
Corporate & Other                   --           --           --          7        3,221        3,228
-----------------------------------------------------------------------------------------------------
                            $  387,953   $  396,441      784,394   $435,607     $441,789      877,396
===================================================                =====================

Cash and cash equivalents                                  6,817                               22,449
Deferred income taxes                                     15,420                               18,524
Other current assets                                      56,809                               68,940
Property and equipment                                   145,702                              152,079
Goodwill                                                 263,808                              249,826
Other assets                                              20,312                               17,481
-----------------------------------------------------------------------------------------------------
Total assets                                          $1,293,262                           $1,406,695
=====================================================================================================
</TABLE>


                                       25
<PAGE>


Notes to Consolidated Financial Statements (continued)
(in thousands, except share and per share data)

Note 13--Quarterly Financial Information (Unaudited)

The  following  is a summary of the  unaudited  results of  operations  for each
quarter in fiscal 2002 and 2001:

<TABLE>
<CAPTION>
                                               First      Second       Third       Fourth      Full Year
---------------------------------------------------------------------------------------------------------
<S>                                          <C>         <C>         <C>         <C>          <C>
Fiscal 2002
Net sales                                    $ 775,149   $ 806,317   $ 790,042   $ 666,200    $ 3,037,708
Gross profit                                   174,882     179,803     181,788     157,447        693,920
Net income                                       6,417      14,667      17,742       5,239         44,065
---------------------------------------------------------------------------------------------------------
Earnings per share:
  Basic                                      $     .28   $     .63   $     .77   $     .23    $      1.90
  Diluted                                          .27         .63         .76         .22           1.88
---------------------------------------------------------------------------------------------------------
Average shares outstanding (in thousands):
  Basic                                         23,297      23,170      23,145      23,089         23,175
  Diluted                                       23,603      23,270      23,356      23,395         23,424
---------------------------------------------------------------------------------------------------------
Market price per share:
  High                                       $   18.78   $   26.30   $   27.35   $   31.62    $     31.62
  Low                                            13.44       15.12       19.55       23.24          13.44
---------------------------------------------------------------------------------------------------------
Dividends per share                          $    .085   $    .085   $    .085   $    .085    $       .34
=========================================================================================================
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
=========================================================================================================
</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.


                                       26
<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 25, 2002 and January 26, 2001, and
the results of their operations and their cash flows for each of the three years
in the period ended January 25, 2002 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 14, 2002

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 judgments,  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.


                                       27
<PAGE>


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  25,  2002,  and the  results  of
operations  for  fiscal  2002  and  2001.  This  information  should  be read in
conjunction with the Company's  consolidated  financial  information provided on
pages 10 to 26 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.  Actual  results or events may differ  significantly  from
those  indicated  in such  forward-looking  statements  as a result  of  various
important  factors.  These factors  include,  but are not limited to, changes in
general  economic  conditions,  the growth rate of the market for the  Company's
products and services, the ability to maintain favorable vendor arrangements and
relationships,  competitive  product  and  pricing  pressures,  commodity  price
fluctuations as well as other risks and  uncertainties  that may be described in
the  Company's  Annual  Report  on Form  10-K  and/or  other  filings  with  the
Securities  and  Exchange  Commission.  The  Company  assumes no  obligation  to
publicly update or revise its forward-looking statements.

Organization

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 439 wholesale branches.

The  Company's   operations  are  managed  in  five  strategic   business  units
("Groups"),  which are built around five broad product categories.  These Groups
represent the Company's reportable segments and are: Electrical;  Plumbing/HVAC;
Industrial;  Building  Materials;  and  Water &  Sewer.  The  Corporate  & Other
category  includes  corporate  level  expenses not  allocated  to the  Company's
operating  Groups along with revenues and expenses for the Company's  e-commerce
venture.

Results of Operations

Net Sales

Comparable Branch Sales Methodology

In the fourth  quarter of fiscal  2002,  the  Company  adopted a new  comparable
branch  sales   methodology,   which   differs  from  its  previous   same-store
methodology.  Historically,  the Company  calculated  and  disclosed  same-store
sales,  which  included (a) branches  open for all fiscal years  presented,  (b)
branches  newly-opened and operating in an existing market of the Company in the
current or prior fiscal years and (c) branches  closed where other branches were
going to maintain the existing market.  Same-store sales also included  activity
associated  with  splitting a branch  between two Groups and from  combining two
branches in the same market place. Under the new methodology,  comparable branch
sales will exclude sales related to (a) acquired and newly-opened branches until
operating results are included in the consolidated  financial statements for all
periods in the current  and prior  fiscal  years,  (b) branch  combinations  and
splits  unless  within the same Group and  physical  location and (c) closed and
divested  branches  until  operating  results have been  excluded for all fiscal
years presented. All prior year amounts have been restated to reflect the change
in methodology.

Consolidated Net Sales and
Comparable Branch Sales Discussion

In fiscal 2002, net sales for the Company were $3.0 billion, an 8% decrease from
fiscal  2001 net sales of $3.3  billion.  Approximately  $156.3  million  of the
decrease was  attributable  to a 5% comparable  branch sales decline from fiscal
2001.  The comparable  branch sales  decrease was primarily  driven by a general
slowdown in the  economy in fiscal  2002,  combined  with  deflationary  pricing
pressure in stainless steel, nickel alloy, PVC and certain other commodity-based
products. An additional $144.0 million of the overall net sales decrease was due
to the  divestiture  of the Company's  pool and spa business in January 2001. Of
the total $144.0  million net sales  decrease,  approximately  $27.9 million and
$116.1  million  related to the  Plumbing/HVAC  and Building  Materials  Groups,
respectively.  The remaining net sales decrease of  approximately  $55.5 million
resulted  from  combining  and closing of certain  non-performing  branches  and
elimination or consolidation of customers and services.  During fiscal 2002, the
Company closed or decided to close 43 under-performing  branches.  The above net
sales  decreases were partially  offset by acquired and  newly-opened  branches,
which had net sales of $83.3 million in fiscal 2002.


                                       28
<PAGE>


In fiscal 2001,  consolidated net sales were $3.3 billion,  an 11% increase over
fiscal  2000 net sales of $3.0  billion.  Approximately  $309.5  million  of the
increase was  attributable  to a 12%  comparable  branch sales increase with the
remainder of the increase  attributable to acquired and  newly-opened  branches.
The  2001  comparable  branch  sales  increase  was  primarily  attributable  to
increased  infrastructure spending by municipalities in the Water & Sewer Group,
favorable  commodity  pricing in stainless steel and nickel alloy products,  and
increased market penetration in the Building Materials Group.

Consolidated  and  comparable  branch  net sales by Group  were as  follows  (in
thousands):

<TABLE>
<CAPTION>
                               Consolidated Net Sales                  Comparable Branch Sales(1)
                        ------------------------------------------------------------------------------
                           2002         2001         2000            2002         2001         2000
------------------------------------------------------------------------------------------------------
<S>                     <C>          <C>          <C>             <C>          <C>          <C>
Electrical              $  575,460   $  606,268   $  576,739      $  557,898   $  595,924   $  564,932
Plumbing/HVAC(2)           900,996    1,045,997      992,522         809,863      876,766      816,634
Industrial                 330,375      315,315      299,590         327,092      306,517      288,860
Building Materials(2)      293,348      409,684      388,169         265,591      272,861      257,195
Water & Sewer              937,446      932,870      737,857         848,296      912,949      727,848
Corporate & Other               83           29           --              --           --           --
------------------------------------------------------------------------------------------------------
                        $3,037,708   $3,310,163   $2,994,877      $2,808,740   $2,965,017   $2,655,469
======================================================================================================
</TABLE>

(1)  Prior year  amounts have been  restated to conform with the new  comparable
     branch sales methodology as discussed above.

(2)  Results  of  operations  for the pool and spa  business,  which was sold in
     January 2001,  were included in the  Plumbing/HVAC  and Building  Materials
     Groups in fiscal 2001 and 2000.  In addition,  prior year amounts have been
     restated to reflect the transfer of branches between the  Plumbing/HVAC and
     Building Materials Groups, which resulted from the sale of the pool and spa
     business.

The  following  sets forth  factors  impacting  comparable  branch sales for the
Company's operating Groups:

Electrical

In fiscal 2002, comparable branch sales for the Electrical Group decreased $38.0
million or 6%. The decrease  was  primarily  due to softening  prices of certain
commodity  driven  items  coupled  with an overall  weakness  in the  electrical
construction market as a result of a general slowdown in the U.S. economy.  This
Group  supplied  materials for several large  infrastructure  projects in fiscal
2001  with no  corresponding  activity  in fiscal  2002.  These  decreases  were
partially offset by strong  commercial  activity in the Southwestern U.S. market
and increased sales of utility products in the Midwestern U.S. market.

In fiscal 2001, comparable branch sales were $595.9 million,
a $31.0 million or 5% increase from fiscal 2000.  The increase was primarily due
to commercial  construction  activity  related to several  large  infrastructure
projects.

Plumbing/HVAC

In fiscal 2002,  comparable  branch sales for the  Plumbing/HVAC  Group declined
$66.9 million or 8%. The overall  comparable  branch sales decline was primarily
due to a slowdown in the  commercial  construction  markets in the Western  U.S.
Sales  performance was further impacted by a slowdown in international  business
resulting from the completion of a large oil and gas pipeline  project in fiscal
2001 with no corresponding  activity in fiscal 2002. Net sales for the Company's
international business decreased $20.0 million compared to fiscal 2001.

In fiscal 2001,  comparable branch sales were $876.8 million, a $60.1 million or
7% increase  from fiscal 2000.  The growth in comparable  branch sales  resulted
from improved strength of the construction market.

Industrial

In fiscal 2002, comparable branch sales for the Industrial Group increased $20.6
million  or 7% as a  result  of  strong  sales  to  customers  in the  chemical,
petrochemical,  power generation and gas utility  industries.  Comparable branch
sales  were  also  favorably  impacted  by  several  large  petrochemical  plant
rehabilitation  and energy and power plant installation  projects.  The increase
was partially offset by declining prices for certain  commodity-based  products,
including  stainless  steel and nickel alloy  products.  In recent  months,  the
Company has been informed of several large power generation  projects which have
been postponed.  These  postponements are expected to reduce sales levels in the
near term.

In fiscal 2001,  comparable branch sales were $306.5 million, a $17.7 million or
6% increase  from fiscal 2000.  The  increase was the result of commodity  price
increases in stainless steel and


                                       29
<PAGE>


Management's Discussion and Analysis
of Financial Condition and Results of Operations (continued)

nickel alloy products.  Fiscal 2000 was negatively  impacted by declines in such
commodity-based products.

Building Materials

In fiscal  2002,  comparable  branch  sales  for the  Building  Materials  Group
decreased $7.3 million or 3%. This decrease was primarily  attributable to sales
of complementary  building  materials products that were lost as a result of the
divestiture of the pool and spa business.

In fiscal 2001, comparable branch sales were $272.9 million,
a $15.7 million or 6% increase from fiscal 2000.  The increase 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.

Water & Sewer

Overall sales for the Water & Sewer Group were flat in fiscal 2002 when compared
to fiscal 2001, while comparable  branch sales declined $64.7 million or 7%. The
comparable  branch  sales  decrease  was  primarily   attributable  to  (a)  the
completion of several large infrastructure projects for municipalities in fiscal
2001 which did not recur in fiscal 2002 and (b) declining  commodity  prices for
certain PVC and domestic steel products. The comparable branch sales decline was
offset by sales from an acquisition completed in the spring of fiscal 2002.

In fiscal 2001,  comparable branch sales for the Water & Sewer Group were $912.9
million,  a $185.1  million or 25% increase from fiscal 2000.  This increase was
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.

Gross Profit and Gross Margin

Gross margins were 22.8% in fiscal 2002 and 22.5% in both
fiscal 2001 and 2000. The 30 basis point improvement in gross margin was largely
due to a shift in sales mix, with a higher  proportion of out-of-stock  sales in
fiscal 2002 as compared to direct  shipments,  which  typically  generate  lower
margins.  Gross margins were also favorably  impacted by company-wide  inventory
improvement  initiatives  implemented in fiscal 2002, which resulted in enhanced
purchasing  power.  In fiscal 2001, the favorable  impact of stainless steel and
nickel  alloy  commodity  price  increases  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 Group were as follows (in thousands):

                               Gross Profit                    Gross Margin
                     ----------------------------------------------------------
                       2002        2001        2000        2002    2001    2000
-------------------------------------------------------------------------------
Electrical           $111,222    $117,263    $105,492      19.3%   19.3%   18.3%
Plumbing/HVAC         213,003     236,229     242,055      23.6    22.6    24.4
Industrial             82,823      82,463      69,668      25.1    26.2    23.3
Building Materials     89,663     118,045     102,938      30.6    28.8    26.5
Water & Sewer         197,700     190,384     154,120      21.1    20.4    20.9
Corporate & Other        (491)       (927)         --        --      --      --
-------------------------------------------------------------------------------
                     $693,920    $743,457    $674,273      22.8%   22.5%   22.5%
===============================================================================

Electrical

Overall,  gross  margin  remained  flat in fiscal 2002 as declines in  commodity
prices offset margin improvements achieved through enhanced purchasing power. In
fiscal 2001, gross margin increased  approximately 100 basis points primarily as
a result of 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 increased  approximately  100 basis points in fiscal 2002 primarily
due to the  Company's  efforts to improve  margin on certain  products  and to a
decline in lower-margin  international  business.  In fiscal 2001,  gross margin
decreased  approximately  180 basis  points  as a result of the  impact of lower
commodity  prices on plumbing  products and increased sales in its  lower-margin
international  branches.  There was also an erosion  of  margins as the  Company
sought to protect market share in certain geographic areas from aggressive price
competition.


                                       30
<PAGE>


Industrial

In fiscal  2002,  gross  margin  decreased  approximately  110 basis points as a
result of  declining  prices for  certain  commodity-based  products,  including
stainless  steel and nickel  alloy  products.  The  Company  anticipates  prices
related to  commodity-based  products to increase  only modestly in fiscal 2003,
which  could yield  slightly  higher  margins as  inventories  purchased  during
declining price environments are depleted.

In fiscal 2001, gross margin increased  approximately 290 basis points. As noted
above,  gross profit and gross margin  within this Group are closely tied to the
pricing of  certain  commodity-based  products,  primarily  stainless  steel and
nickel  alloy  products.  The  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.

Building Materials

Gross margin increased approximately 180 and 230 basis points in fiscal 2002 and
2001, respectively.  The increase in fiscal 2002 was driven primarily by a sales
mix that included more high-margin fabricated products and to the divestiture of
the pool and spa business, which generated lower gross margins compared to gross
margins  as a whole  for the  Building  Materials  Group.  The 230  basis  point
increase in fiscal 2001 was 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  increased  approximately  70 basis  points in fiscal  2002.  This
increase was  primarily  due to a change in sales mix that  resulted  from fewer
large direct shipment orders,  which typically generate lower gross margins.  In
fiscal 2001, gross margin decreased approximately 50 basis points. This decrease
was  principally  attributable  to a general  increase in large direct  shipment
orders.

Operating Expenses
Operating expenses were as follows (in thousands):

<TABLE>
<CAPTION>
                                                           Fiscal Years Ended                    % of Net Sales
                                                     ------------------------------------------------------------------
                                                       2002       2001       2000          2002        2001        2000
-----------------------------------------------------------------------------------------------------------------------
<S>                                                  <C>        <C>        <C>             <C>         <C>         <C>
Personnel expenses                                   $373,857   $382,050   $340,377        12.3%       11.5%       11.4%
Other selling, general and administrative expenses    177,086    197,184    167,632         5.8         6.0         5.6
Depreciation and amortization                          31,093     32,551     29,808         1.0         1.0         1.0
Provision for doubtful accounts                        11,065     10,626      4,064         0.4         0.3         0.1
Impairment of long-lived assets                           734     15,557         --          --         0.5          --
-----------------------------------------------------------------------------------------------------------------------
                                                     $593,835   $637,968   $541,881        19.5%       19.3%       18.1%
=======================================================================================================================
</TABLE>

Operating expenses decreased $44.1 million or 7% in fiscal 2002. As a percentage
of net sales,  operating  expenses  increased  approximately  20 basis points in
fiscal 2002,  which was directly due to lower sales volumes  experienced  by the
Company.  Approximately $25.5 million of the overall expense decrease was due to
the divestiture of the Company's pool and spa business. Impairment of long-lived
assets  decreased  $14.8 million in fiscal 2002 when compared to fiscal 2001. In
fiscal  2001,  the  Company  recorded  a $15.6  million  charge,  including  the
write-off of goodwill and other assets  totaling  $12.9  million  related to the
Company's  e-commerce  initiatives,  and a charge  totaling  approximately  $2.7
million  primarily  related  to the  write-off  of  goodwill  in  the  Company's
international  operations.  In fiscal 2002, a goodwill write-off of $0.7 million
for the Company's  Plumbing/HVAC  operations was recorded in the fourth quarter.
The  remaining  operating  expense  decrease was primarily  attributable  to the
overall net sales decrease and the Company's cost containment initiatives, which
were  implemented in fiscal 2002.  These  initiatives  included  hiring freezes,
salary  rate  limits on merit and  promotional  increases,  the  elimination  of
certain  management and staff positions and reductions in both capital  spending
and discretionary  spending items,  including overtime,  contract labor, travel,
entertainment and other variable  expenses.  The Company will continue to review
its operations and identify areas where additional efficiencies may be obtained.

In fiscal 2002, the cost saving initiatives noted above were partially offset by
costs  associated with the closing of 43  under-performing  branches,  severance
costs  associated  with  layoffs and an increase in the  provision  for doubtful
accounts. These branch closures


                                       31
<PAGE>


Management's Discussion and Analysis
of Financial Condition and Results of Operations (continued)

resulted in  approximately  $6.5 million of charges related to severance,  lease
and other  contractual  obligations,  and  additional  provisions  for  doubtful
accounts. Excluding severance costs associated with branch closures, the Company
recorded $2.7 million of severance  expense in fiscal 2002.  Approximately  $1.5
million of this amount was related to the Company's  separation  agreement  with
its former  president,  with the remainder  attributable  to the  elimination of
various other management and staff positions.

In fiscal 2001,  operating  expenses were $638.0  million,  an 18% increase from
fiscal  2000.  Included in fiscal  2001  operating  expenses is a $15.6  million
charge for the impairment of long-lived assets.  Provision for doubtful accounts
increased  from $4.1 million in fiscal 2000 to $10.6 million in fiscal 2001. The
increase  was related to an  economic  slowdown  which  affected  the  Company's
primary markets,  particularly its  international  business,  during late fiscal
2001. The remaining  increase in operating  expenses was primarily due to higher
personnel  costs  associated  with  comparable  branch sales  growth,  increased
transportation costs brought about by comparable branch sales growth,  increased
fuel costs, and increased information  technology ("IT") spending as the Company
initiated its program of upgrading IT systems.

Non-Operating Income (Expenses)

Interest and other income totaled $10.5  million,  $7.5 million and $9.0 million
in fiscal 2002, 2001 and 2000, respectively. The increase in fiscal 2002 was due
to the  elimination  of $3.2  million of prior  year net  losses  related to the
Company's  equity  investments  combined  with  interest  income of $0.9 million
related to a $25.0  million  short-term  note  receivable  which was received in
connection with the sale of the Company's pool and spa business. These increases
were  partially  offset by $0.7  million  of  non-operating  expenses  primarily
related to asset  write-downs and other expenses from branch closures.  The $1.5
million  decrease in fiscal 2001 was primarily  due to net losses  totaling $3.7
million from the Company's  equity  investments,  partially  offset by increased
income from the collection of service charges on delinquent  accounts receivable
and other interest income.

Interest  expense  totaled  $35.9  million,  $43.3  million and $31.8 million in
fiscal 2002, 2001 and 2000, respectively. The decrease in fiscal 2002 was due to
lower borrowing levels coupled with reduced interest rates.  Borrowing levels in
fiscal 2002 were reduced as the Company  utilized  proceeds from the sale of its
pool and spa business and working  capital  improvements  program to reduce debt
balances.  In fiscal 2001,  interest expense increased $11.5 million or 36% from
fiscal 2000 primarily as a result of higher borrowing levels and interest rates.
The higher  borrowing  levels were  primarily  due to the  Company's  (a) higher
working  capital  investments  resulting  from  accelerated  sales  growth,  (b)
expansion through business acquisitions, which has been partially funded by debt
financing and (c) share repurchases.

Non-operating income (expenses) in fiscal 2001 included an $11.0 million pre-tax
($6.7 million after-tax) gain relating to the sale of the Company's pool and spa
business, which was sold for $48.0 million in January 2001. The Company received
cash proceeds of $23.0 million with the remaining $25.0 million of consideration
being  received in the form of a  short-term  note  receivable,  which was fully
collected in fiscal 2002.

Income Taxes

The Company's effective tax rate was 41.0%, 42.3% and 39.9% in fiscal 2002, 2001
and 2000,  respectively.  The increase in the fiscal 2001 effective tax rate was
due to the  elimination  of  nondeductible  goodwill  related  to the  Company's
international operations and the sale of its pool and spa business.

Net Income

Net income  totaled  $44.1  million,  $46.5  million and $65.9 million in fiscal
2002,  2001 and 2000,  respectively.  Diluted  earnings per share totaled $1.88,
$1.97  and $2.80 in  fiscal  2002,  2001 and  2000,  respectively.  The  factors
impacting net income and diluted earnings per share have been enumerated above.

Financial Condition

Liquidity and Capital Resources

The  following  sets forth  certain  measures  of the  Company's  liquidity  (in
thousands):

                                    Fiscal Years Ended
--------------------------------------------------------------
                               2002        2001         2000
--------------------------------------------------------------
Cash provided by
  operating activities      $ 144,763   $  66,148    $  33,449
Working capital             $ 588,275   $ 679,130    $ 657,500
Current ratio                3.1 to 1    3.3 to 1     3.2 to 1
Long-term debt-to-capital          40%         48%          51%
==============================================================

In fiscal 2002,  net cash provided by operations of $144.8 million was primarily
the  result  of  reductions  in  inventory  as part of the  Company's  inventory
management program and lower accounts  receivable levels caused by the year over
year  sales  decline  in fiscal  2002.  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.  The
increase  in  accrued  liabilities  was  related  to the  timing of  income  tax
payments.


                                       32
<PAGE>


In fiscal 2002, the $90.9 million  decrease in working  capital was  principally
driven by lower  receivable  and  inventory  balances  and a  decrease  in other
current assets.  These changes were partially offset by lower accounts  payable,
which  correspond  with the  reduction  in  inventory  levels.  The  decrease in
inventories reflects  company-wide  initiatives to reduce inventory levels to be
more in line with current  market  demand.  The decrease in other current assets
was due to the collection of $25.0 million on the note receivable related to the
sale of the  Company's  pool and spa  business,  which was  partially  offset by
higher income tax  receivables in fiscal 2002. The fiscal 2001 increase of $21.6
million in working capital was primarily  attributable to 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 $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 in connection with its cash management programs.

Investing Activities

Capital expenditures  totaled $16.9 million,  $23.9 million and $30.7 million in
fiscal 2002, 2001 and 2000, respectively.  Of these expenditures,  approximately
$3.9  million,  $8.3  million  and  $14.0  million,  respectively,  were for new
warehouse  facilities  and  approximately  $7.6  million,  $3.2 million and $5.0
million,  respectively,  related to IT outlays. The Company continues to closely
monitor and control  capital  expenditures,  and instituted a freeze on most new
building  projects  during  fiscal 2002.  Fiscal 2003 capital  expenditures  are
expected to be  approximately  $15  million.  This  excludes  approximately  $18
million related to the Company's new corporate headquarters facility in Orlando,
Florida and a new warehouse in Miami, Florida, as discussed further below.

Proceeds  from the sale of property and  equipment  totaled $8.7  million,  $1.8
million and $4.9 million in fiscal 2002, 2001 and 2000,  respectively.  The $6.9
million  increase in proceeds  during  fiscal 2002 was primarily due to the sale
and subsequent  lease-back of substantially all of the Company's  forklift fleet
and certain trailers,  which generated  proceeds of $5.7 million in August 2001.
The remaining increase was due to sales of certain land and building assets as a
result of closed  branches.  In fiscal 2000,  the Company  received  proceeds of
approximately  $2.5 million from the sale and  subsequent  lease-back of certain
computer hardware.

Cash payments for business acquisitions totaled $32.0 million, $34.1 million and
$88.9 million in fiscal years 2002, 2001 and 2000,  respectively.  These outlays
represent one, three and seven wholesale distributors acquired and accounted for
using  the  purchase  method  of  accounting  in  fiscal  2002,  2001 and  2000,
respectively.

On  March 2,  2001,  in  connection  with the  closure  of one of the  Company's
e-commerce  ventures,  the Company entered into an agreement with the holders of
723,183 of the Company's stock rights originally issued as consideration for the
acquisition.  This agreement  cancelled  347,541 of the stock rights and enabled
the remaining stock rights to be redeemed for $7.3 million in cash.

Financing Activities

Net payments on the Company's  revolving credit agreement totaled $100.3 million
and  $153.9  million  in fiscal  2002 and 2001,  respectively,  compared  to net
borrowings of $132.8 million in fiscal 2000.  Principal  reductions on long-term
debt were $23.8 million, $2.5 million and $14.7 million in fiscal 2002, 2001 and
2000, respectively.  In fiscal 2002, these amounts were attributable to payments
of $15.0 million on the Company's senior notes,  $8.6 million on debt assumed as
a result of  certain  business  acquisitions  and $0.2  million  on other  notes
payable.  Dividend payments totaled $8.0 million,  $8.1 million and $8.0 million
during fiscal 2002, 2001 and 2000, respectively.

On January 15,  2002,  the  Company's  line of credit  agreement  was amended to
decrease borrowing  capacity from $75.0 million to $36.3 million.  The Company's
current borrowing  capacity under its revolving credit agreement and its line of
credit  agreement (the "credit  agreement")  totaled $311.3 million  (subject to
borrowing  limitations  under the credit  agreement)--$275.0  million  under its
revolving  credit  agreement  as  long-term  debt due January 25, 2004 and $36.3
million under its line of credit  agreement,  as amended,  which matures on July
31, 2002.

On October 31, 2001, the Company  entered into an equipment lease agreement (the
"lease  agreement") with a financial  institution.  Under the terms of the lease
agreement, the Company leases certain equipment,  including vehicles,  forklifts
and  trailers  from  various  companies  with  fundings  provided  by the  lease
agreement.  The maximum  capacity is $15.0 million and the monthly  payments are
made to the bank in accordance with the terms of each specific  equipment lease.
Availability at January 25, 2002 under the lease agreement totaled approximately
$14.4 million.


                                       33
<PAGE>


Management's Discussion and Analysis
of Financial Condition and Results of Operations (continued)

The  Company has two  short-term  lines of credit  with an  aggregate  borrowing
capacity of $25.0 million.  On June 30, 2001, these lines of credit were amended
to extend the maturity dates to June 30, 2002.

On June 22,  2001,  the  Company  entered  into an  agreement  ("lease  facility
agreement")  with Atlantic  Financial Group,  Ltd.  ("AFG"),  certain  financial
parties as lenders  and  SunTrust  Bank as agent  ("SunTrust")  in which AFG and
SunTrust  agreed to fund up to $40.0 million for the acquisition and development
of real property  projects chosen by the Company,  including up to $25.0 million
for the  Company's  new  corporate  headquarters  building in  Orlando,  Florida
("Orlando property") which is expected to cost approximately $23.0 million. Also
on June 22,  2001,  the Company  entered  into an  agreement  with AFG,  certain
financial parties as lenders and SunTrust as agent for the construction of a new
warehouse in Miami, Florida ("Miami property").  Pursuant to this agreement, AFG
and SunTrust  agreed to fund up to $15.0  million for the  construction  of this
facility, which is expected to cost approximately $13.0 million.

Orlando Property

Under the terms of the loan agreement ("Orlando loan agreement") between AFG and
SunTrust for the Orlando  property,  AFG was required to fund the lease facility
through  a  nominal  equity  investment,   with  the  remainder  funded  through
non-recourse  borrowings  from  SunTrust.  Concurrent  with the execution of the
Orlando loan agreement,  the Company executed a master lease agreement ("Orlando
lease  agreement")  with AFG under  which the  Company  will  lease the  Orlando
property for a five-year  term,  including the  construction  period and a lease
period.  The Orlando lease agreement  requires interest only payments that begin
at the earlier of the completion of construction, which is expected in September
2003, or eighteen  months  following the  acquisition  of the Orlando  property,
which is expected to occur in April 2002.  Payments are  interest  only at LIBOR
rates  plus  applicable  credit  spreads  (currently  estimated  to be 150 basis
points).  Although AFG has partially  funded the lease  facility  through equity
contributions,   AFG  does  not  have   sufficient   residual  equity  at  risk.
Accordingly,  the Company has  included  the assets and  liabilities  related to
AFG's Orlando loan  agreement in the  consolidated  balance sheet at January 25,
2002.  The  outstanding  borrowings  and related  assets of  approximately  $1.1
million are reflected in long-term debt and construction in progress. At the end
of the lease  term,  the Company has the option to renew the lease for up to two
additional  five-year periods, or to purchase the building for a price including
the outstanding  lease balance.  If the Company elects not to renew the lease or
purchase  the  building,  the  Company may elect to remarket  the  property  and
arrange the sale of the building to a third party. Under the remarketing option,
the Company has guaranteed  approximately  85% of the total original cost as the
residual fair value of the building.

Miami Property

Under the terms of the loan agreement  ("Miami loan agreement")  between AFG and
SunTrust for the Miami  property,  AFG was  required to fund the Miami  property
through  an  equity   investment  of  20%  with  the  remainder  funded  through
non-recourse  borrowings  from  SunTrust.  Concurrent  with the execution of the
Miami loan agreement,  the Company executed a master lease agreement (the "Miami
lease  agreement") with AFG. Under the terms of the Miami lease  agreement,  the
Company will lease the Miami  property with rent payments  scheduled to begin in
January 2003. Rent payments for the first four years are interest only at a rate
based on LIBOR plus  applicable  credit spreads  (currently  estimated to be 150
basis points). Beginning in the fifth year, rents are re-amortized and rates for
the remainder of the term increase to 12.5% plus applicable consumer price index
adjustments.  During  the first  four years of the Miami  lease  agreement,  the
Company may elect to purchase the property  for the  existing  lease  balance or
convert  it into  the  Company's  lease  facility  agreement  referenced  above.
Although AFG has sufficient  equity at risk with respect to the Miami  property,
the  assets and  liabilities  related to AFG's  Miami loan  agreement  have been
included  in the  consolidated  balance  sheet at January  25, 2002 based on the
required  consolidation  of the assets and  liabilities  related to AFG's  lease
facility  referenced  above.  The  outstanding  borrowings and related assets of
approximately  $5.5 million are reflected in long-term debt and  construction in
progress.

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
bears  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 credit agreement.

As of January 25, 2002, the Company had  approximately  $6.8 million of cash and
$283.5 million of unused borrowing  capacity (subject to borrowing  limitations,
under  long-term  debt  covenants) to fund ongoing  operating  requirements  and
anticipated capital


                                       34
<PAGE>


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 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.  Since March 15, 1999, the Company has repurchased
1,315,800  shares at an  average  price of $21.86 per  share,  of which  394,700
shares at an average price of $19.10 per share were  repurchased in fiscal 2002,
and 921,100  shares at an average price of $23.05 per share were  repurchased in
fiscal 2000. No shares were repurchased in fiscal 2001.

Critical Accounting Policies

The Company's  significant  accounting  policies are more fully described in the
notes  to the  consolidated  financial  statements.  Certain  of  the  Company's
accounting   policies  require  the  application  of  significant   judgment  by
management in selecting the appropriate  assumptions  for calculating  financial
estimates.  As with all  judgments,  they are subject to an  inherent  degree of
uncertainty.  These  judgments are based on our historical  experience,  current
economic trends in the industry,  information provided by customers and vendors,
information available from other outside sources and management's  estimates, as
appropriate. The Company's significant accounting policies include:

Allowance for Doubtful Accounts

The  Company  evaluates  the  collectibility  of  accounts  receivable  based on
numerous  factors,  including past transaction  history with customers and their
credit  worthiness.  Initially,  the Company estimates an allowance for doubtful
accounts as a percentage of net sales based on historical  bad debt  experience.
This  estimate is  periodically  adjusted  when the Company  becomes  aware of a
specific   customer's   inability  to  meet  its  financial   obligations  (e.g.
bankruptcy,  etc.),  or as a result of changes in the overall  aging of accounts
receivable.  While the Company has a large customer base that is  geographically
dispersed, a slowdown in the markets in which the Company operates may result in
higher than expected uncollectible  accounts, and therefore,  the need to revise
estimates for bad debts.  Provision for doubtful accounts totaled $11.1 million,
$10.6 million and $4.1 million in fiscal 2002, 2001 and 2000,  respectively.  To
the extent historical credit experience is not indicative of future  performance
or other  assumptions  used by  management  do not prevail,  the  allowance  for
doubtful  accounts  could differ  significantly,  resulting in either  higher or
lower future provisions for doubtful accounts.

Inventories

The Company  evaluates its inventory  value at the end of each quarter to ensure
that it is carried at the lower of cost or market.  This evaluation  includes an
analysis of a branch's  physical  inventory  results over the last two years,  a
review  of  potential  dead  stock,  and an  overall  consolidated  analysis  of
potential excess inventory items. An inventory  provision is recorded monthly to
provide for any potential write-downs of the Company's inventory to market value
or for projected  historical  shortages.  Periodically,  the branch's  perpetual
inventory records are adjusted to reflect permanent declines in market value. To
the extent  historical  physical  inventory results are not indicative of future
results and if unexpected future events impact, either favorably or unfavorably,
the saleability of the Company's  products,  the inventory reserves could differ
significantly,  resulting in either higher or lower future inventory provisions.
At January 25,  2002 and  January 26,  2001,  inventory  reserves  totaled  $9.9
million and $10.4 million, 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.  Impairment is assessed
by evaluating the estimated  undiscounted  cash flows over the asset's remaining
life. If estimated cash flows are  insufficient  to recover the  investment,  an
impairment loss is recognized. In the fourth quarter of fiscal 2002, the Company
recorded  an  impairment  loss  of  $0.7  million  related  to  goodwill  on its
Plumbing/HVAC  operations.  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  $15.6  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,
and a charge  totaling  approximately  $2.7  million  primarily  related  to the
write-off of goodwill in the Company's international operations.


                                       35
<PAGE>


Management's Discussion and Analysis
of Financial Condition and Results of Operations (continued)

Self-Insurance

The  Company  is   self-insured   for  certain   losses   relating  to  workers'
compensation, automobile, general and product liability claims. The Company also
maintains  stop loss  coverages to limit the exposure  arising from such claims.
Self-insurance  losses for claims filed and claims incurred but not reported are
accrued  based upon the  Company's  estimates  of the  aggregate  liability  for
uninsured  claims  using loss  development  factors  and  actuarial  assumptions
followed in the insurance industry and the Company's historical loss development
experience.  To the extent future projected  development of the losses resulting
from workers'  compensation,  automobile,  general and product  liability claims
incurred as of January  25, 2002  differs  from the actual  development  of such
losses  in  future  periods,  the  Company's  insurance  reserves  could  differ
significantly resulting in either higher or lower future insurance expense.

Recent Accounting Pronouncements

Effective  February 2001, the Company adopted Statement of Financial  Accounting
Standards  ("FAS")  133,  Accounting  for  Derivative  Instruments  and  Hedging
Activities.  FAS 133 was amended by FAS 138,  Accounting for Certain  Derivative
Instruments  and Certain  Hedging  Activities.  Both FAS 133 and FAS 138 require
that an entity record all  derivatives  as either assets or  liabilities  in the
consolidated  balance sheets at fair value and measure those instruments at fair
value  and to  reflect  changes  in fair  value of those  instruments  as either
components of  comprehensive  income or in net income  depending on the types of
instruments.  The  adoption  of these  standards  did not have an  impact on the
Company's consolidated financial statements.

FAS 141,  Business  Combinations,  and FAS 142,  Goodwill  and Other  Intangible
Assets,  were issued in July 2001.  FAS 141 requires  all business  combinations
initiated  after June 30, 2001 to be accounted for using the purchase  method of
accounting.  FAS 141 also  specifies the criteria which must be met in order for
certain acquired intangible assets to be recorded separately from goodwill.  FAS
142 is effective for the Company  beginning with the Company's  first quarter of
fiscal  2003.  Under  FAS 142,  all the  Company's  goodwill  will no  longer be
amortized but rather will be tested for impairment  annually or more  frequently
if events or changes in circumstances indicate that the asset might be impaired.
In fiscal  2002,  amortization  of goodwill  totaled  $9,229.  This new approach
requires  the  use  of  valuation  techniques  and  methodologies  significantly
different than the present  undiscounted  cash flow policy being followed by the
Company.  In connection with the adoption of FAS 142, the Company's  conclusions
about the valuation and  recoverability of goodwill may change. The new approach
may result in  impairment  charges  and  reductions  in the  carrying  amount of
goodwill on the  consolidated  balance sheets upon  adoption.  Subsequent to the
initial  adoption of FAS 142, the Company may be subject to earnings  volatility
if additional goodwill impairment occurs at a future date. The Company is in the
process of performing the goodwill evaluation required under FAS 142 and has not
yet determined the impact that will result from adoption.

FAS 143, Accounting for Asset Retirement  Obligations,  was issued in June 2001.
FAS 143, which is effective for the Company beginning in fiscal 2004,  addresses
financial   accounting  and  reporting  for  obligations   associated  with  the
retirement of tangible  long-lived  assets and the associated  asset  retirement
costs.  The Company  does not expect the  adoption of FAS 143 to have a material
impact on its consolidated financial statements.

FAS 144,  Accounting  for the Impairment or Disposal of Long-Lived  Assets,  was
issued in August 2001. FAS 144, which is effective  beginning with the Company's
first  quarter  of  fiscal  2003,  establishes  a single  accounting  model  for
long-lived  assets to be disposed of by sale and  broadens the  presentation  of
discontinued operations to include more disposal transactions.  The Company does
not expect the adoption of FAS 144 to have a material impact on its consolidated
financial statements.


                                       36
<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 25, 2002, the Company had approximately  $59.4 million of outstanding
variable-rate  debt.  Based upon an assumed 10% increase or decrease in interest
rates from their  January 25, 2002  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 2002, 2001 or 2000. As discussed above, however, the Company's results
of  operations  in  fiscal  2002 and 2001 were both  favorably  and  unfavorably
impacted by increases  and  decreases in the pricing of certain  commodity-based
products.  Fiscal  2000 was  unfavorably  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.


                                       37
<PAGE>


Selected Financial Data
(in thousands, except per share data)


<TABLE>
<CAPTION>
                                                             Fiscal Years Ended(1)(2)
                                               ----------------------------------------------------
                                                  2002          2001          2000          1999
---------------------------------------------------------------------------------------------------
<S>                                            <C>           <C>           <C>           <C>
STATEMENTS OF INCOME:
Net sales                                      $3,037,708    $3,310,163    $2,994,877    $2,536,265
Cost of sales                                   2,343,788     2,566,706     2,320,604     1,977,266
Gross margin                                         22.8%         22.5%         22.5%         22.0%
---------------------------------------------------------------------------------------------------
Selling, general and administrative expenses   $  550,943    $  579,234    $  508,009    $  416,642
  Percentage of net sales                            18.1%         17.5%         17.0%         16.4%
Depreciation and amortization                      31,093        32,551        29,808        23,269
Provision for doubtful accounts                    11,065        10,626         4,064         1,882
Operating income                                  100,085       105,489       132,392       117,206
Operating margin                                      3.3%          3.2%          4.4%          4.6%
---------------------------------------------------------------------------------------------------
Interest and other income                      $   10,546    $   18,476    $    9,015    $    6,886
Interest expense                                   35,945        43,288        31,805        25,415
---------------------------------------------------------------------------------------------------
Income before income taxes                     $   74,686    $   80,677    $  109,602    $   98,677
  Percentage of net sales                             2.5%          2.4%          3.7%          3.9%
Income taxes (benefits)                            30,621        34,162        43,731        37,234
Net income                                         44,065        46,515        65,871        61,443
  Percentage of net sales                             1.5%          1.4%          2.2%          2.4%
---------------------------------------------------------------------------------------------------
Earnings per share:
  Basic                                        $     1.90    $     2.00    $     2.82    $     2.57
  Diluted                                            1.88          1.97          2.80          2.55
---------------------------------------------------------------------------------------------------
Average shares outstanding:
  Basic                                            23,175        23,238        23,398        23,889
  Diluted                                          23,424        23,584        23,547        24,138
---------------------------------------------------------------------------------------------------
BALANCE SHEETS:
Working capital                                $  588,275    $  679,130    $  657,500    $  567,435
Total assets                                    1,293,262     1,406,695     1,377,036     1,128,973
Long-term debt                                    403,671       516,168       535,000       402,203
Shareholders' equity                              594,473       570,035       522,444       483,956
---------------------------------------------------------------------------------------------------
Current ratio                                    3.1 to 1      3.3 to 1      3.2 to 1      3.5 to 1
Long-term debt-to-capital                              40%           48%           51%           45%
Leverage (total assets/shareholders' equity)         2.18          2.47          2.64          2.33
---------------------------------------------------------------------------------------------------
OTHER:
Cash dividends per share                       $      .34    $      .34    $      .34    $      .33
Shareholders' equity per share                      25.03         24.12         22.16         20.01
Return on average assets                              3.3%          3.3%          5.3%          5.9%
Return on average shareholders' equity                7.6%          8.5%         13.1%         13.6%
Capital expenditures                               16,850        23,871        30,740        26,921
---------------------------------------------------------------------------------------------------
</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.


                                       38
<PAGE>


<TABLE>
<CAPTION>
                                   Fiscal Years Ended(1)(2)
----------------------------------------------------------------------------------------------
   1998          1997          1996          1995          1994          1993          1992
----------------------------------------------------------------------------------------------
<C>           <C>           <C>           <C>           <C>           <C>           <C>

$1,945,446    $1,619,362    $1,326,978    $1,065,549    $  880,977    $  724,466    $  690,311
 1,519,323     1,276,481     1,052,120       848,698       704,907       583,513       557,380
      21.9%         21.2%         20.7%         20.4%         20.0%         19.5%         19.3%
----------------------------------------------------------------------------------------------
$  318,923    $  261,355    $  218,093    $  172,828    $  145,913    $  119,732    $  116,317
      16.4%         16.1%         16.4%         16.2%         16.6%         16.5%         16.8%
    18,727        15,566        11,859        10,131         8,657         7,382         7,987
     1,229         1,023         2,203         1,501         2,448         2,028         3,247
    87,244        64,937        42,703        32,391        19,052        11,811         5,380
       4.5%          4.0%          3.2%          3.0%          2.2%          1.6%           .8%
----------------------------------------------------------------------------------------------
$    5,837    $    6,241    $    5,111    $    3,206    $    3,677    $    4,072    $    2,696
    19,257        14,842        10,440         6,813         6,456         6,087         7,702
----------------------------------------------------------------------------------------------
$   73,824    $   56,336    $   37,374    $   28,784    $   16,273    $    9,796    $      374
       3.8%          3.5%          2.8%          2.7%          1.8%          1.4%           .1%
    26,254        19,282        11,728         7,984         4,710         1,734        (1,359)
    47,570        37,054        25,646        20,800        11,563         8,062         1,733
       2.4%          2.3%          1.9%          2.0%          1.3%          1.1%           .3%
----------------------------------------------------------------------------------------------
$     2.37    $     2.13    $     1.78    $     1.54    $      .97    $      .68    $      .15
      2.33          2.09          1.75          1.50           .92           .68           .15
----------------------------------------------------------------------------------------------
    20,108        17,384        14,418        13,504        11,900        11,899        11,899
    20,432        17,719        14,647        13,992        13,675        11,917        11,899
----------------------------------------------------------------------------------------------
$  486,106    $  350,975    $  235,113    $  212,573    $  171,702    $  148,919    $  134,961
   965,742       684,056       474,574       418,717       330,526       294,510       276,439
   343,197       228,351       139,165       127,166       121,292       103,870        89,921
   421,769       299,233       188,926       165,427       116,918       106,597        99,649
----------------------------------------------------------------------------------------------
  3.5 to 1      3.3 to 1      2.6 to 1      2.7 to 1      2.9 to 1      2.8 to 1      2.6 to 1
        45%           43%           42%           43%           51%           49%           47%
      2.29          2.29          2.51          2.53          2.83          2.76          2.77
----------------------------------------------------------------------------------------------
$      .31    $      .25    $      .20    $      .15    $      .11    $      .08    $      .16
     18.00         15.29         12.64         11.40          9.43          8.71          8.14
       5.8%          6.4%          5.7%          5.6%          3.7%          2.8%           .6%
      13.2%         15.2%         14.5%         14.7%         10.3%          7.8%          1.7%
    28,185        16,898        14,713        15,824         9,997        10,335         6,073
----------------------------------------------------------------------------------------------
</TABLE>


                                       39
<PAGE>


                      Corporate and Shareholder Information


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

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

Robert N. Blackford
Retired Attorney, Holland & Knight LLP

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

Vincent S. Hughes
Former Vice President
Hughes Supply, Inc.

Toni Jennings
President
Jack Jennings and Sons, Inc.

William P. Kennedy
Chief Executive Officer
Nephron Pharmaceuticals Corporation

Amos R. McMullian
Chairman and Chief Executive Officer
Flowers Foods, Inc.

Thomas I. Morgan
President and Chief Operating Officer

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

Thomas I. Morgan
President and Chief Operating Officer

Benjamin P. Butterfield
Secretary and General Counsel

Jasper L. Holland, Jr.
Senior Vice President of Customer Development

Clyde E. Hughes III
Group President

Robert A. Machaby
Senior Vice President of Vendor Development

Michael L. Stanwood
Group President

Thomas J. Starnes
Senior Vice President of Sales and Marketing

John A. Steele
Senior Vice President of Operations

Thomas M. Ward II
Senior Vice President--Chief Information Officer

Gradie E. Winstead, Jr.
Group President

Laura L. Wright
Vice President of Human Resources

J. Stephen Zepf
Chief Financial Officer

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

Annual Meeting
Tuesday, May 21, 2002
at 10:00 a.m., local time
Hughes Supply, Inc.
20 North Orange Avenue
Suite 200
Orlando, Florida 32801

Independent Accountants
PricewaterhouseCoopers LLP
390 North Orange Avenue
Suite 2400
Orlando, Florida 32801

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

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 27, 2002 was 915. 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
Chief Financial Officer
Hughes Supply, Inc.
Post Office Box 2273
Orlando, Florida 32802


                                       40