Exhibit 13.1

Hughes Supply, Inc.
Consolidated Statements of Income
(in thousands, except per share data)

                                                  Fiscal Years Ended
                                        ----------------------------------------
                                        January 30,   January 31,   January 26,
                                           1998          1997          1996
--------------------------------------------------------------------------------
Net Sales ...........................   $1,878,739    $1,567,571    $1,285,328
Cost of Sales .......................    1,466,764     1,235,099     1,018,804
                                        ----------------------------------------
Gross Profit ........................      411,975       332,472       266,524
                                        ----------------------------------------

Operating Expenses:
  Selling, general and administrative      308,872       253,756       211,805
  Depreciation and amortization .....       18,432        15,349        11,707
  Provision for doubtful accounts ...        1,001           850         2,073
                                        ----------------------------------------
    Total operating expenses ........      328,305       269,955       225,585
                                        ----------------------------------------
Operating Income ....................       83,670        62,517        40,939
                                        ----------------------------------------

Non-Operating Income and (Expenses):
  Interest and other income .........        5,791         6,207         5,092
  Interest expense ..................      (18,544)      (14,232)       (9,917)
                                        ----------------------------------------
                                           (12,753)       (8,025)       (4,825)
Income Before Income Taxes ..........       70,917        54,492        36,114
Income Taxes ........................       26,093        19,178        11,661
                                        ----------------------------------------
Net Income ..........................   $   44,824    $   35,314    $   24,453
                                        ========================================

Earnings Per Share:
  Basic .............................   $     2.34    $     2.14    $     1.80
                                        ========================================

  Diluted ...........................   $     2.30    $     2.09    $     1.77
                                        ========================================

Average Shares Outstanding:
  Basic .............................       19,194        16,537        13,575
                                        ========================================

  Diluted ...........................       19,518        16,872        13,804
                                        ========================================


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

                                                                              13


<PAGE>


Hughes Supply, Inc.
Consolidated Balance Sheets
(dollars in thousands, except per share data)

<TABLE>
<CAPTION>
                                                                        January 30,   January 31,
                                                                           1998          1997
-------------------------------------------------------------------------------------------------
<S>                                                                     <C>          <C>
Assets
Current Assets:
  Cash and cash equivalents .........................................   $   7,661    $   6,329
  Accounts receivable, less allowance for losses of $3,136 and $3,809     282,880      201,480
  Inventories .......................................................     346,312      258,111
  Deferred income taxes .............................................       9,708       12,761
  Other current assets ..............................................      17,600       12,412
                                                                        ----------------------
    Total current assets ............................................     664,161      491,093

Property and Equipment, Net .........................................     105,421       76,044
Excess of Cost over Net Assets Acquired .............................     153,052       89,755
Deferred Income Taxes ...............................................       3,438        2,204
Other Assets ........................................................      15,957        8,143
                                                                        ----------------------
                                                                        $ 942,029    $ 667,239
                                                                        ======================

Liabilities and Shareholders' Equity
Current Liabilities:
  Current portion of long-term debt .................................   $     603    $   3,108
  Accounts payable ..................................................     150,042      113,503
  Accrued compensation and benefits .................................      20,602       16,847
  Other current liabilities .........................................      18,571       15,126
                                                                        ----------------------
    Total current liabilities .......................................     189,818      148,584

Long-Term Debt ......................................................     335,207      222,451
Other Noncurrent Liabilities ........................................       2,662        2,199
                                                                        ----------------------
    Total liabilities ...............................................     527,687      373,234
                                                                        ----------------------

Commitments and Contingencies (Note 7)

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; 22,500,135 and 18,685,699 shares issued .............      22,500       18,686
  Capital in excess of par value ....................................     203,006      111,146
  Retained earnings .................................................     190,078      164,173
  Unearned compensation related to outstanding restricted stock .....      (1,242)        --
                                                                        ----------------------
    Total shareholders' equity ......................................     414,342      294,005
                                                                        ----------------------
                                                                        $ 942,029    $ 667,239
                                                                        ======================
</TABLE>


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

14

<PAGE>


Hughes Supply, Inc.
Consolidated Statements of Shareholders' Equity
(dollars in thousands, except per share data)

<TABLE>
<CAPTION>
                                                     Common Stock            Capital in                          Treasury Stock
                                              -------------------------      Excess of      Retained        ------------------------
                                                 Shares         Amount       Par Value      Earnings         Shares        Amount
------------------------------------------------------------------------------------------------------------------------------------
<S>                                           <C>           <C>            <C>            <C>                <C>        <C>         
Balance, January 27, 1995, as
  previously reported ....................     8,280,957    $     8,281    $    36,952    $   105,144        108,988    $    (1,688)
  Adjustment for three-for-two
    stock split ..........................     4,140,201          4,140         (4,147)          --           54,494           --
  Adjustment for pooling of interests ....     1,408,530          1,409          1,984          9,943           --             --
                                              --------------------------------------------------------------------------------------
Balance, January 27, 1995 as restated ....    13,829,688         13,830         34,789        115,087        163,482         (1,688)

  Net Income .............................          --             --             --           24,453           --             --
  Cash dividends--
    $.20 per share .......................          --             --             --           (1,971)          --             --
    Pooled companies .....................          --             --             --           (3,641)          --             --
  Stock dividend by pooled company .......        43,065             43            246           (289)          --             --
  Shares issued under
    stock option plans ...................         9,985             10            267           (154)      (130,476)         1,347
  Purchase and retirement
    of common shares .....................       (29,463)           (29)          (137)          (354)          --             --
  Other acquisitions .....................       253,470            253          2,628           --          (33,006)           341
                                              --------------------------------------------------------------------------------------
Balance, January 26, 1996 ................    14,106,745         14,107         37,793        133,131           --             --

  Net Income .............................          --             --             --           35,314           --             --
  Cash dividends--
    $.25 per share .......................          --             --             --           (3,712)          --             --
    Pooled companies .....................          --             --             --           (4,899)          --             --
  Shares issued under stock option
    and bonus plans ......................        99,471             99            954           --             --             --
  Issuance of shares in public offering ..     2,230,483          2,231         45,962           --             --             --
  Purchase and retirement of
    common shares ........................       (21,948)           (22)          (202)          (329)          --             --
  Other acquisitions .....................     2,270,948          2,271         26,639          4,668           --             --
                                              --------------------------------------------------------------------------------------
Balance, January 31, 1997 ................    18,685,699         18,686        111,146        164,173           --             --

  Net Income .............................          --             --             --           44,824           --             --
  Cash dividends--
    $.31 per share .......................          --             --             --           (5,966)          --             --
    Pooled companies .....................          --             --             --           (2,178)          --             --
  Shares issued under stock option
    and bonus plans ......................       125,576            125          1,472           --             --             --
  Purchase and retirement
    of common shares .....................       (19,476)           (19)          (234)          (325)          --             --
  Issuance of restricted stock ...........        50,000             50          1,250           --             --             --
  Capitalization of undistributed earnings
    of Subchapter S corporation ..........          --             --           12,999        (12,999)          --             --
  Other acquisitions .....................     3,658,336          3,658         76,373          2,549           --             --
                                              --------------------------------------------------------------------------------------
Balance, January 30, 1998 ................    22,500,135    $    22,500    $   203,006    $   190,078           --      $      --
                                              ======================================================================================
</TABLE>


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

                                                                              15
<PAGE>


Hughes Supply, Inc.
Consolidated Statements of Cash Flows
(in thousands)

<TABLE>
<CAPTION>
                                                                       Fiscal Years Ended
                                                            -----------------------------------------
                                                            January 30,    January 31,    January 26,
                                                               1998           1997           1996
-----------------------------------------------------------------------------------------------------
<S>                                                         <C>            <C>            <C>
Increase (Decrease) in Cash and Cash Equivalents:
  Cash flows from operating activities:
    Cash received from customers ........................   $ 1,852,201    $ 1,556,090    $ 1,272,511
    Cash paid to suppliers and employees ................    (1,821,592)    (1,518,453)    (1,232,689)
    Interest received ...................................         4,007          3,905          3,685
    Interest paid .......................................       (17,462)       (13,601)        (9,570)
    Income taxes paid ...................................       (22,993)       (22,676)       (15,729)
                                                            -----------------------------------------
      Net cash provided by (used in) operating activities        (5,839)         5,265         18,208
                                                            -----------------------------------------

  Cash flows from investing activities:
    Capital expenditures ................................       (27,733)       (16,793)       (13,690)
    Proceeds from sale of property and equipment ........         1,184          1,838          1,292
    Business acquisitions, net of cash ..................       (46,067)      (100,078)       (10,009)
                                                            -----------------------------------------
      Net cash used in investing activities .............       (72,616)      (115,033)       (22,407)
                                                            -----------------------------------------

  Cash flows from financing activities:
    Net borrowings (payments) under short-term
      debt arrangements .................................        35,060         (5,407)        15,418
    Principal payments on:
      Long-term notes ...................................       (27,481)       (19,985)        (6,038)
      Capital lease obligations .........................        (1,022)          (777)          (844)
    Proceeds from issuance of long-term debt ............        80,000         98,000           --
    Net proceeds from sale of common stock ..............          --           48,193           --
    Proceeds from stock options exercised ...............         1,305          1,053          1,470
    Purchase of common shares ...........................          (578)          (553)          (520)
    Dividends paid ......................................        (7,497)        (8,071)        (5,417)

                                                            -----------------------------------------
      Net cash provided by financing activities .........        79,787        112,453          4,069
                                                            -----------------------------------------

Net Increase (Decrease) in Cash and Cash Equivalents ....         1,332          2,685           (130)
Cash and Cash Equivalents, beginning of year ............         6,329          3,644          3,774
                                                            -----------------------------------------
Cash and Cash Equivalents, end of year ..................   $     7,661    $     6,329    $     3,644
                                                            =========================================
</TABLE>


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

16
<PAGE>


Hughes Supply, Inc.
Notes to Consolidated Financial Statements
(dollars in thousands, except per share data)


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

Industry

Hughes Supply, Inc. and its subsidiaries (the "Company") are engaged in the
wholesale distribution of a broad range of materials, equipment and supplies
primarily to the construction and industrial markets. Major product lines
distributed by the Company include electrical; plumbing; water and sewer; air
conditioning and heating; industrial pipe, plate, valves and fittings; building
materials; electric utilities; water systems; and pool equipment and supplies.
The Company's principal customers are electrical, plumbing and mechanical
contractors, electric utility companies, municipal and industrial accounts.
Industrial accounts include companies in the petrochemical, food and beverage,
pulp and paper, pharmaceutical and marine industries.

Principles of Consolidation

The consolidated financial statements include the Company and its wholly-owned
subsidiaries. All significant intercompany transactions and accounts have been
eliminated. Prior period financial statements have been restated to include the
accounts of a company acquired and accounted for as a pooling of interests.
Results of operations of companies acquired and accounted for as purchases and
immaterial poolings are included from their respective dates of acquisition.

Fiscal Year

The Company's fiscal year ends on the last Friday in January. Fiscal 1998, 1997
and 1996 contained 52 weeks, 53 weeks and 52 weeks, respectively.

Cash Equivalents

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

Inventories

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

Property and Equipment

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

Buildings and improvements ...............................           5-40 years
Transportation equipment .................................            2-7 years
Furniture, fixtures and equipment ........................           2-12 years
Property under capital leases ............................          20-40 years

Maintenance and repairs are charged to expense as incurred and major renewals
and betterments are capitalized. Gains or losses are credited or charged to
earnings upon disposition.

Excess of Cost over Net Assets Acquired

The excess of cost over the fair value of net assets of purchased companies
(goodwill) is being amortized by the straight-line method over 15 to 40 years.
At January 30, 1998 and January 31, 1997, goodwill was $153,052 and $89,755,
respectively, net of accumulated amortization of $11,040 and $6,029,
respectively.

Other Assets

The Company capitalizes certain internal software development costs which are
amortized by the straight-line method over the estimated useful lives of the
software, not to exceed five years. At January 30, 1998 and January 31, 1997,
unamortized software development costs were $8,357 and $1,500, respectively, net
of accumulated amortization of $394 and $78, respectively. Amortization of
capitalized internal software development costs was $316 and $78 in fiscal 1998
and 1997, respectively. In fiscal 1996, internal software development costs were
not material.

Impairment of Long-Lived Assets

In the event that facts and circumstances indicate that the carrying value of a
long-lived asset, including associated intangibles, may be impaired, an
evaluation of recoverability is performed by comparing the estimated future
undiscounted cash flows associated with the asset to the asset's carrying amount
to determine if a write-down to market value or discounted cash flow is
required. Statement of Financial Accounting Standards No. 121, Accounting for
the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of
("SFAS 121"), was issued in March 1995 and was implemented by the Company in
fiscal 1997. However, as the Company's previous accounting policy was consistent
with the provisions of SFAS 121, there was no impact as a result of adopting the
new standard.

Revenue Recognition

The Company recognizes revenue from product sales when goods are received by
customers.

Income Taxes

Income taxes are provided for the tax effects of transactions reported in the
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 

                                                                              17
<PAGE>


Hughes Supply, Inc.
Notes to Consolidated Financial Statements (continued)
(dollars in thousands, except per share data)

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.

Stock-Based Compensation

The Company accounts for compensation cost related to employee stock options and
other forms of employee stock-based compensation plans in accordance with the
requirements of Accounting Principles Board Opinion No. 25, Accounting for Stock
Issued to Employees ("APB 25"). APB 25 requires compensation cost for
stock-based compensation plans to be recognized based on the difference, if any,
between the fair market value of the stock on the date of grant and the option
exercise price. In October 1995, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 123, Accounting for Stock-Based
Compensation ("SFAS 123"). SFAS 123 established a fair value-based method of
accounting for compensation cost related to stock options and other forms of
stock-based compensation plans. SFAS 123 allows an entity to continue to measure
compensation cost using the principles of APB 25 if certain pro forma
disclosures are made. SFAS 123 was effective for fiscal years beginning after
December 15, 1995. The Company adopted the provisions for the pro forma
disclosure requirements of SFAS 123 in fiscal 1997.

Earnings Per Common Share

In February 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 128, Earnings per Share ("SFAS 128"). SFAS
128 became effective for reporting periods ending after December 15, 1997 and,
accordingly, was adopted by the Company commencing in the period ended January
30, 1998. Under the provisions of SFAS 128, primary and fully diluted earnings
per share were replaced with basic and diluted earnings per share. Basic
earnings per share is calculated by dividing net income by the weighted-average
number of shares outstanding. Diluted earnings per share is calculated by
dividing net income by the weighted-average number of shares outstanding,
adjusted for dilutive potential common shares. The weighted-average number of
shares used in calculating basic earnings per share were 19,194,000, 16,537,000
and 13,575,000 for fiscal 1998, 1997 and 1996, respectively. In calculating
diluted earnings per share, these amounts were adjusted to include 324,000,
335,000 and 229,000 of dilutive potential common shares for fiscal 1998, 1997
and 1996, respectively. The Company's dilutive potential common shares consist
of stock options and restricted stock. Earnings per share data for prior periods
was restated to give effect to the Company's adoption of SFAS 128 and the stock
split described in Note 8.

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. The fair value of long-term debt, excluding capital lease
obligations, approximated $338,259 at January 30, 1998 and the related carrying
value was $334,568.

Deferred Employee Benefits

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

Estimates

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


Note 2--Business Combinations

On January 30, 1998, the Company exchanged 1,408,530 shares of the Company's
common stock for all of the common stock of Chad Supply, Inc. ("Chad"). Chad is
a wholesale distributor of repair and maintenance products to the multi-housing
industry with 18 outlets in nine states. Chad was a Subchapter S corporation for
federal income tax purposes and accordingly, did not pay U.S. federal income
taxes. Chad will be included in the Company's U.S. federal income tax return
effective January 30, 1998.

The above transaction has been accounted for as a pooling of interests and,
accordingly, the consolidated financial statements for the periods presented
have been restated to include the accounts of Chad. Chad's fiscal year end has
been changed to the last Friday in January to conform to the Company's fiscal
year end.


18
<PAGE>


Net sales and net income of the separate companies for the periods preceding the
Chad merger were as follows:

<TABLE>
<CAPTION>
                                                                             Unaudited
                                                                             Pro Forma
                                                      Net           Net         Net
                                                     Sales        Income      Income
-------------------------------------------------------------------------------------- 
<S>                                               <C>          <C>          <C>       
Nine months ended October 31, 1997 (unaudited):
    Hughes, as
      previously
      reported ................................   $1,369,125   $   33,198   $   33,198
    Chad ......................................       49,124        2,715        1,643
                                                  ------------------------------------
    Combined ..................................   $1,418,249   $   35,913   $   34,841
                                                  ====================================

Fiscal year ended January 31, 1997:
    Hughes, as
      previously
      reported ................................   $1,516,088   $   32,528   $   31,747
    Chad ......................................       51,483        2,786        1,711
                                                  ------------------------------------
    Combined ..................................   $1,567,571   $   35,314   $   33,458
                                                  ====================================

Fiscal year ended January 26, 1996:
    Hughes, as
      previously
      reported ................................   $1,242,446   $   23,206   $   20,749
    Chad ......................................       42,882        1,247          741
                                                  ------------------------------------
    Combined ..................................   $1,285,328   $   24,453   $   21,490
                                                  ====================================
</TABLE>


Unaudited pro forma net income reflects adjustments to net income to record an
estimated provision for income taxes for each period presented assuming Chad was
a tax paying entity. Additionally, in fiscal 1997, the Company merged with
certain other Subchapter S corporations, including Electric Laboratories and
Sales Corporation and ELASCO Agency Sales, Inc. (collectively, "ELASCO") and
Metals, Incorporated and Stainless Tubular Products, Inc. (the "Metals Group").
As Subchapter S corporations, ELASCO and the Metals Group did not pay U.S.
federal income taxes in periods prior to the mergers. ELASCO and the Metals
Group were included in the Company's U.S. federal income tax return effective
with their mergers with the Company on April 26, 1996 and January 24, 1997,
respectively. For purposes of calculating unaudited pro forma net income, ELASCO
and the Metals Group were also assumed to be tax paying entities.

On January 8, 1998, the Company acquired all of the common stock of Mountain
Country Supply ("Mountain Country"). Mountain Country is a wholesale distributor
of plumbing supplies; water and sewer equipment and supplies; and air
conditioning and heating equipment and supplies with 10 locations in Arizona. On
January 13, 1998, the Company acquired all of the common stock of International
Supply Company, Inc. and all of its affiliated operations ("International").
International is a wholesale distributor of water and sewer equipment and
supplies, plumbing supplies and industrial pipe, valves and fittings with 38
locations in Texas. The aggregate consideration paid for the Mountain Country
and International acquisitions was $96,000, consisting of cash in the amount of
$36,870 and the issuance of 2,111,789 shares of common stock. These transactions
were accounted for as purchases and the results of operations of Mountain
Country and International from their respective dates of acquisition are
included in the consolidated financial statements. The excess of cost over net
assets acquired for Mountain Country and International is being amortized over
40 years by the straight-line method.

On May 13, 1996, the Company acquired substantially all of the assets,
properties and business of PVF Holdings, Inc. and its subsidiaries ("PVF"), a
wholesale distributor of stainless steel pipe, valves and fittings with 16
locations nationwide. The aggregate consideration paid was $108,984, consisting
of cash in the amount of $82,069, the issuance of 1,106,468 shares of common
stock and the assumption of $6,436 of bank debt. The transaction was accounted
for as a purchase and the results of operations of PVF from the date of
acquisition are included in the consolidated financial statements. The excess of
cost over net assets acquired is being amortized over 40 years by the
straight-line method.

The following table reflects the unaudited pro forma combined results of
operations, assuming the Mountain Country, International and PVF acquisitions
had occurred at the beginning of each year presented:

                                                       Fiscal Years Ended
                                             -----------------------------------
                                                   1998                  1997
--------------------------------------------------------------------------------
Net sales ..........................         $   2,113,520         $   1,840,580
Net income .........................                50,467                43,060
Earnings per share:
  Basic ............................                  2.38                  2.27
  Diluted ..........................                  2.35                  2.23

The past and future financial performance of PVF will be directly influenced by
the cost of stainless steel and nickel alloy which as a commodity item can and
does fluctuate. As a result of these commodity price fluctuations and the fact
that significant price fluctuations could continue to create cyclicality in
PVF's future operating performance, management believes that the pro forma
information is not necessarily indicative of future performance.

During fiscal 1998, 1997 and 1996, the Company acquired several other wholesale
distributors of materials to the construction and industrial markets that were
accounted for as purchases or immaterial poolings. These acquisitions,
individually or in the aggregate, did 


                                                                              19
<PAGE>


Hughes Supply, Inc.
Notes to Consolidated Financial Statements (continued)
(dollars in thousands, except per share data)

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.


Note 3--Property and Equipment


Property and equipment consist of the following:

                                                        1998              1997
--------------------------------------------------------------------------------
Land .........................................       $  19,367        $  16,224
Buildings and improvements ...................          83,256           59,532
Transportation equipment .....................          28,484           25,023
Furniture, fixtures and equipment ............          42,941           34,589
Assets under capital leases ..................           9,407            9,696
                                                     --------------------------
                                                       183,455          145,064
Less accumulated depreciation
  and amortization ...........................         (78,034)         (69,020)
                                                     --------------------------
                                                     $ 105,421        $  76,044
                                                     ==========================


Note 4--Long-Term Debt

Long-term debt consists of the following:

                                                         1998            1997
--------------------------------------------------------------------------------
7.96% Senior notes, due 2011 ...................      $  98,000       $  98,000
7.14% Senior notes, due 2012 ...................         40,000            --
7.19% Senior notes, due 2012 ...................         40,000            --
Unsecured revolving bank notes under
  $180,000 credit agreement, payable
  August 17, 2000, fluctuating interest
  (5.9% to 6.1% at January 30, 1998) ...........        105,900          80,000
Short-term instruments classified as
  long-term debt ...............................         50,000          40,921
Other notes payable ............................            668           4,374
Capital lease obligations ......................          1,242           2,264
                                                      --------------------------
                                                        335,810         225,559
Less current portion ...........................           (603)         (3,108)
                                                      --------------------------
                                                      $ 335,207       $ 222,451
                                                      ==========================


On May 29, 1996, the Company issued $98,000 of senior notes in a private
placement in connection with the acquisition of PVF. The notes mature in 2011,
bear interest at 7.96% and will be payable in 20 equal semi-annual payments
beginning in 2001. Proceeds received by the Company in the private placement of
the senior notes were used to partially fund the PVF acquisition and to reduce
indebtedness outstanding under the Company's revolving credit facility and line
of credit agreement (the "credit agreement").

On August 28, 1997, the Company issued $80,000 of senior notes due 2012 in a
private placement. The notes, of which $40,000 bear interest at 7.14% and
$40,000 bear interest at 7.19%, will be payable in 21 and 13 equal semi-annual
payments beginning in 2002 and 2006, respectively. Proceeds received by the
Company from the sale of the notes were used to reduce indebtedness outstanding
under the Company's credit agreement.

On August 27, 1997, in connection with the issuance of the $80,000 of senior
notes, the Company entered into an interest rate swap agreement (the "swap
agreement"). The swap agreement effectively converts the Company's $40,000 of
7.19% senior notes due 2012 from fixed-rate debt to floating-rate debt based on
six-month London Interbank Offered Rates (LIBOR) less a predetermined spread of
 .05% (5.86% as of January 30, 1998). The differential is accrued as interest
rates change and is recorded as an adjustment to interest expense. As a result
of the swap agreement, interest expense decreased by $219 in fiscal 1998. The
swap agreement matures in 2012, however, the counterparty has the option to
terminate the agreement at any time from May 30, 2000 through November 30, 2011.
The estimated fair value of the swap agreement, based on a valuation from an
investment bank, approximated $1,091 at January 30, 1998.

On August 18, 1997, the Company's credit agreement with a group of banks was
amended. The credit agreement, as amended, now permits the Company to borrow up
to $180,000 (subject to borrowing limitations under the credit agreement)
--$130,000 of which is long-term debt due August 17, 2000, and $50,000 of which
is a line of credit convertible to a term note due two years from conversion
date. The $50,000 line of credit backs commercial paper. Under the credit
agreement, interest is payable at market rates plus applicable margins.
Commitment fees of .225% and .125% are paid on the unused portions of the
revolving and line of credit facilities, respectively.

Loan covenants require the Company to maintain consolidated working capital of
not less than $75,000 and a maximum ratio of funded debt to total capital, as
defined, of .60 to 1.0. 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 $38,970 is
available at January 30, 1998 for payment of dividends.

The Company has a commercial paper program backed by its revolving credit
facility. The weighted average interest rate on outstanding commercial paper
borrowings of $50,000 and $36,521 as of January 30, 1998 and January 31, 1997
was 6.1% and 5.5%, respectively. In addition, the Company had short-term bank
borrowings of $4,400 at a weighted average interest rate of 6.0% as of January
31, 1997.

The Company's credit agreement enables the Company to refinance short-term
borrowings on a long-term basis


20
<PAGE>



to the extent that the credit facility is unused. Accordingly, $50,000 and
$40,921 of short-term borrowings at January 30, 1998 and January 31, 1997,
respectively, have been classified as long-term debt.

Maturities of long-term debt, excluding capital lease obligations, for each of
the five years subsequent to January 30, 1998 and in the aggregate are as
follows:

Fiscal Years Ending
--------------------------------------------------------------------------------
1999 ..............................................................     $    160
2000 ..............................................................          427
2001 ..............................................................      155,900
2002 ..............................................................        9,334
2003 ..............................................................       13,143
Later years .......................................................      155,604
                                                                        --------
                                                                        $334,568
                                                                        ========


Note 5--Income Taxes

The components of deferred tax assets and liabilities at January 30, 1998 and
January 31, 1997 are as follows:

                                                           1998            1997
--------------------------------------------------------------------------------
Deferred tax assets:
  Allowance for doubtful accounts ..............         $ 1,286         $ 1,513
  Inventories ..................................           1,445           3,461
  Property and equipment .......................           3,184           1,241
  Accrued vacation .............................           2,252           1,588
  Deferred compensation ........................           1,092             832
  Other accrued liabilities ....................           3,596           5,253
  Other ........................................           1,129           1,083
                                                         -----------------------
    Total deferred tax assets ..................          13,984          14,971
                                                         -----------------------

Deferred tax liabilities:
  Intangible assets ............................             838               6
                                                         -----------------------
Net deferred tax assets ........................         $13,146         $14,965
                                                         =======================


No valuation allowance has been provided for these deferred tax assets at
January 30, 1998 and January 31, 1997 as full realization of these assets is
expected.

The consolidated provision for income taxes consists of the following:

                                                  Fiscal Years Ended
                                       -----------------------------------------
                                          1998            1997            1996
--------------------------------------------------------------------------------
Currently payable:
  Federal ......................       $ 21,058        $ 18,399        $ 11,676
  State ........................          3,216           2,807           1,796
                                       -----------------------------------------
                                         24,274          21,206          13,472
                                       -----------------------------------------

Deferred:
  Federal ......................          1,500          (1,739)         (1,555)
  State ........................            319            (289)           (256)
                                       -----------------------------------------
                                          1,819          (2,028)         (1,811)
                                       -----------------------------------------
                                       $ 26,093        $ 19,178        $ 11,661
                                       =========================================


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
                                   --------------------------------------------------------
                                         1998                 1997               1996
 
                                    Amount      %        Amount     %       Amount      %
---------------------------------------------------------------------------------------------
<S>                                <C>         <C>     <C>         <C>     <C>         <C>   
Tax computed at
  statutory Federal rate ....      $ 24,821    35.0    $ 19,072    35.0    $ 12,640    35.0  
Effect of:                       
  State income tax, net          
    of Federal income            
    tax benefit .............         2,298     3.2       1,637     3.0         991     2.7
  Subchapter S                   
    corporation                  
    earnings ................        (1,298)   (1.8)     (1,714)   (3.1)     (2,603)   (7.2)
  Nondeductible                  
    purchase                     
    adjustments .............           288      .4         123      .2          43      .1
  Nondeductible                  
    expenses ................           886     1.3         637     1.2         396     1.1
  Other, net ................          (902)   (1.3)       (577)   (1.1)        194      .6
                                   --------------------------------------------------------
                                 
Income tax expense ..........      $ 26,093    36.8    $ 19,178    35.2    $ 11,661    32.3
                                   ========================================================
</TABLE>

Prior to their merger with the Company, ELASCO, the Metals Group and Chad were
Subchapter S corporations and were not subject to corporate income tax.


Note 6--Employee Benefit Plans

Profit Sharing and Employee Stock Ownership Plans

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. Under the plan, employee contributions of not less than
2% to not more than 3% of each eligible employee's compensation are matched
(in cash or stock) 50% by the Company. Additional annual contributions may be
made at the discretion of the Board of Directors.

The Company has an employee stock ownership plan (ESOP) covering substantially
all employees of the Company who meet minimum age and length of service
requirements. The plan is designed to enable eligible employees to acquire a
proprietary interest in the Company. Company contributions (whether in cash or
stock) are determined annually by the Board of Directors in an amount not to
exceed the maximum allowable as an income tax deduction. At January 30, 1998 and
January 31, 1997, the plan owned approximately 259,000 and 258,000 shares,
respectively, of the Company's common stock, all of which were allocated to
participants.


                                                                              21
<PAGE>


Hughes Supply, Inc.
Notes to Consolidated Financial Statements (continued)
(dollars in thousands, except per share data)

Amounts charged to expense for these and other similar plans during fiscal 1998,
1997 and 1996 were $1,581, $2,088 and $2,322, respectively.

Bonus Plans

The Company has bonus plans, based on profitability formulas, which provide
incentive compensation for key employees. Amounts charged to expense for bonuses
to executive officers were $1,539, $1,544 and $1,354 for fiscal 1998, 1997 and
1996, respectively.

Stock Plans

The Company's stock plans provide for the granting of stock options, restricted
stock awards and stock appreciation rights ("SARs"). The stock option plans
authorize the granting of both incentive and non-incentive stock options for an
aggregate of 2,452,500 shares of common stock to key employees and, with respect
to 202,500 of these shares, to directors. Under the plans, options are granted
at prices not less than the market value on the date of grant, and the maximum
term of an option may not exceed ten years. Prices for incentive stock options
granted to employees who own 10% or more of the Company's stock are at least
110% of market value at date of grant. Options may be granted from time to time
to December 2006, or May 2003 with regard to directors. An option becomes
exercisable at such times and in such installments as set by the Board of
Directors.

Under one of its stock plans, the Company can grant up to 375,000 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 1998, the Company granted certain employees 50,000 shares of
restricted stock with a market value of $1,300 at the date of grant. The market
value of the restricted stock was recorded as unearned compensation, a component
of shareholders' equity, and is being charged to expense over the shorter of the
10-year vesting period, or the period of time from the date of grant through the
date when the employee will reach age 65. In fiscal 1998, this expense amounted
to $58.

The employee plans permit the granting of SARs to holders of options. Such
rights permit the optionee to surrender an exercisable option, in whole or in
part, on any date that the fair market value of the Company's common stock
exceeds the option price for the stock and receive payment in common stock or,
if the Board of Directors approves, in cash or any combination of cash and
common stock. Such payment would be equal to the excess of the fair market value
of the shares under the surrendered option over the option price for such
shares. The change in value of SARs would be reflected in income based upon the
market value of the stock. No SARs have been granted or issued through January
30, 1998.

A summary of option transactions during each of the three fiscal years in the
period ended January 30, 1998 is shown below:

                                                  Number of     Weighted-Average
                                                    Shares        Option Price
--------------------------------------------------------------------------------
Under option, January 27, 1995                                  
  (509,015 shares exercisable) ................    705,516          $ 9.89
    Granted ...................................     22,500           12.83
    Exercised .................................   (140,311)           8.94
    Cancelled .................................     (2,791)           7.36
                                                   -------       
                                                                
Under option, January 26, 1996                                  
  (494,912 shares exercisable) ................    584,914           10.24
    Granted ...................................    172,500           19.58
    Exercised .................................    (85,100)           9.05
    Cancelled .................................     (6,000)          13.50
                                                   -------       
                                                                
Under option, January 31, 1997                                  
  (492,312 shares exercisable) ................    666,314           12.78
    Granted ...................................    271,991           33.23
    Exercised .................................   (112,908)          11.53
    Cancelled .................................     (6,000)          13.50
                                                   -------       
                                                                
Under option, January 30, 1998                                  
  (455,897 shares exercisable) ................    819,397           19.74
                                                   =======       
                                                                
                                                             
There were 1,208,788 shares available for the granting of options at January 30,
1998.

The following table summarizes the stock options outstanding at January 30,
1998:

                             Number         Weighted-Average
   Range of              Outstanding at         Remaining       Weighted-Average
Exercise Prices          Jan. 30, 1998       Contractual Life    Exercise Price
--------------------------------------------------------------------------------
$ 8.00 - $11.75              260,594              3 Years            $ 8.68
 12.08 -  16.92              126,000              7 Years             13.96
 18.67 -  25.67              183,303              8 Years             20.03
 33.00 -  34.00              249,500             10 Years             33.99
                                                                 

The Company has adopted the disclosure-only provisions of SFAS 123. Accordingly,
no compensation expense has been recognized for its stock option plans. If the
fair value estimates had been used to record compensation expense, pro forma net
income would have been $44,394, $35,007, and $24,368 in fiscal 1998, 1997 and
1996, respectively, with an immaterial effect on earnings per share. The fair
value of each option is estimated on the date of grant using the Black-Scholes
option-pricing model with the following weighted-average assumptions: dividend
yields of 1.3% for fiscal 1998, 1997 and 1996; expected volatility of 32% for
fiscal 1998 and 33% for fiscal 1997 and 1996;


22
<PAGE>



risk-free interest rates of 5.72%, 6.47%, and 6.44% for fiscal 1998, 1997 and
1996, respectively; and expected lives of 8 years for fiscal 1998, 1997 and
1996. The weighted-average fair value of options granted during the year was
$13.92, $8.76 and $5.70 for fiscal 1998, 1997 and 1996, respectively. The pro
forma calculations only include the effects of fiscal 1998, 1997 and 1996
grants. As such, the impact is not necessarily indicative of the effects on
reported net income in future years.

Supplemental Executive Retirement Plan

The Company has entered into agreements with certain key executive officers
providing for supplemental payments, generally for periods up to 15 years, upon
retirement, disability or death. The obligations are not funded apart from the
Company's general assets. Amounts charged to expense under the agreements were
$445, $421 and $238 in fiscal 1998, 1997 and 1996, respectively.


Note 7--Commitments and Contingencies

Lease Commitments

The Company leases certain facilities under agreements which are classified as
capital leases. The building leases are with a corporation which is owned by two
directors and one executive officer of Hughes Supply, Inc. These leases
generally provide that all expenses related to the properties are to be paid by
the lessee. The leases also generally provide for rental increases at specified
intervals. The leases all expire within ten years; however, it is expected that
they will be renewed. Rents under these agreements amounted to $1,044, $1,092
and $1,149 for fiscal 1998, 1997 and 1996, respectively. Assets under capital
leases are included in the consolidated balance sheets as follows:

                                                         1998             1997
--------------------------------------------------------------------------------
Property (land and buildings) ................         $ 9,407          $ 9,407
Equipment ....................................            --                289
                                                       -------------------------
                                                         9,407            9,696
Accumulated amortization .....................          (8,866)          (8,492)
                                                       -------------------------

                                                       $   541          $ 1,204
                                                       =========================


In addition, rents under operating leases paid to the related corporation were
$96, $220 and $358 in fiscal 1998, 1997 and 1996, respectively.

Future minimum payments, by year and in the aggregate, under the aforementioned
leases and other noncancelable operating leases with initial or remaining terms
in excess of one year as of January 30, 1998, are as follows:


                                                         Capital       Operating
Fiscal Years Ending                                       Leases         Leases
--------------------------------------------------------------------------------
1999 ............................................        $   565         $20,404
2000 ............................................            377          17,203
2001 ............................................            331          14,539
2002 ............................................            148          10,968
2003 ............................................             74           6,448
Later years .....................................             37          10,499
                                                         -----------------------
Total minimum lease payments ....................          1,532         $80,061
                                                                         =======
Less amount representing interest ...............           (290)
                                                         -------
Present value of net minimum
  lease payments ................................          1,242
Less current portion ............................           (443)
                                                           -----
                                                          $  799
                                                          ======


Lease-related expenses are as follows:

                                                      Fiscal Years Ended
                                             -----------------------------------
                                               1998          1997          1996
--------------------------------------------------------------------------------
Capital lease amortization ...........       $   518       $   552       $   584
Capital lease
  interest expense ...................           199           290           364
Operating lease rentals
  (excluding month-to-
  month rents) .......................        22,229        16,471        13,183

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 or financial
position.


Note 8--Capital Stock

Common Stock

In May 1996, the Company sold 2,230,483 shares of its common stock in a public
offering which generated net proceeds of $48,193. Proceeds received by the
Company from the sale of the common stock were used to partially fund the PVF
acquisition and to reduce indebtedness outstanding under the Company's credit
agreement.

On May 20, 1997, the Company's Board of Directors declared a three-for-two stock
split to shareholders of record as of July 10, 1997. The date of issuance for
the additional shares was July 17, 1997. Accordingly, all share and per share
data have been restated for periods prior to the stock split.

On May 20, 1997, the shareholders approved an amendment to the Restated Articles
of Incorporation of the Company increasing the number of authorized shares of
common stock from 20,000,000 to 100,000,000 shares.


                                                                              23
<PAGE>


Hughes Supply, Inc.
Notes to Consolidated Financial Statements (continued)
(dollars in thousands, except per share data)

Preferred Stock

The Company's Board of Directors established Series A Junior Participating
Preferred Stock (Series A Stock) consisting of 300,000 shares. Each share of
Series A Stock will be entitled to one vote 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 $1.25 per share or
100 times the aggregate per share amount of the dividend declared on common
stock. In the event of liquidation, shares of Series A Stock will be entitled to
the greater of $100 per share plus any accrued and unpaid dividend or 100 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 a unit consisting of one one-hundredth of a share of Series A
Stock at a purchase price of $65 per unit. The rights generally become
exercisable if a person or group acquires 20% or more of the Company's common
stock or commences a tender offer that could result in such person or group
owning 30% 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. The rights may be redeemed by the Company at $.01 per right at any time
prior to ten days after 20% or more of the Company's stock is acquired by a
person or group. The rights expire on June 2, 1998 unless terminated earlier in
accordance with the rights plan.


Note 9--Concentration of Credit Risk

The Company sells its products in the major areas of construction and industrial
markets in certain states primarily in the southeast, southwest and midwest
United States. Approximately 90% of the Company's sales are credit sales which
are made primarily to customers whose ability to pay is dependent upon the
construction industry economics prevailing in these areas; however,
concentration of credit risk with respect to trade accounts receivable is
limited due to the large number of customers comprising the Company's customer
base and no one customer comprises more than 1% of annual 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, and such losses have been within
management's expectations.


Note 10--Supplemental Cash Flows Information

The following is a reconciliation of net income to net cash provided by (used
in) operating activities:

                                                      Fiscal Years Ended
                                             -----------------------------------
                                                1998         1997         1996
--------------------------------------------------------------------------------
Net income ..............................    $ 44,824     $ 35,314     $ 24,453
Adjustments to reconcile net income
  to net cash provided by (used in)
  operating activities:
  Depreciation ..........................      12,534        9,953        9,777
  Amortization ..........................       5,898        5,396        1,930
  Provision for doubtful accounts .......       1,001          850        2,073
  Other, net ............................        (626)        (708)        (474)
  Changes in assets and liabilities,
    net of effects of business
    acquisitions:
    (Increase) decrease in--
      Accounts receivable ...............     (27,638)     (13,075)     (13,750)
      Inventories .......................     (37,825)     (24,270)      (9,847)
      Other current assets ..............      (3,900)       5,129       (3,628)
      Other assets ......................      (8,848)         (77)        (807)
    Increase (decrease) in--
      Accounts payable and
        accrued expenses ................       4,151      (10,801)      11,977
      Accrued interest and
        income taxes ....................       1,757         (879)      (1,878)
      Other noncurrent liabilities ......         408          421          225
    (Increase) decrease in deferred
      income taxes ......................       2,425       (1,988)      (1,843)
                                             -----------------------------------
Net cash provided by (used in)
  operating activities ..................    $ (5,839)    $  5,265     $ 18,208
                                             ===================================


Noncash Investing and Financing Activities

The net assets acquired and consideration for acquisitions accounted for as
purchases are summarized below:

                                                   Fiscal Years Ended
                                      -----------------------------------------
                                          1998            1997            1996
--------------------------------------------------------------------------------
Fair value of:
  Assets acquired ..............      $ 170,126       $ 161,198       $  22,600
  Liabilities assumed ..........        (45,054)        (32,958)         (9,369)
                                      -----------------------------------------
Purchase price .................      $ 125,072       $ 128,240       $  13,231
                                      =========================================


Consideration in fiscal 1998, 1997 and 1996 included 2,850,526, 1,420,154 and
286,476 shares of common stock, with fair values of $78,768, $28,162 and $3,222,
respectively.




<PAGE>



Note 11--Quarterly Results of Operations (Unaudited)

<TABLE>
<CAPTION>
                                                                                                   Quarter
                                                               ---------------------------------------------------------------------
                                                                         First            Second            Third            Fourth
------------------------------------------------------------------------------------------------------------------------------------
<S>                                                            <C>                <C>                <C>                <C>         
Fiscal 1998
Net sales ..............................................       $    434,526       $    478,160       $    505,563       $    460,490
Gross profit ...........................................       $     93,894       $    105,086       $    111,152       $    101,843
Net income .............................................       $      8,663       $     13,563       $     13,687       $      8,911
Earnings per share:
  Basic ................................................       $        .47       $        .73       $        .71       $        .44
  Diluted ..............................................       $        .46       $        .71       $        .69       $        .43
Average shares outstanding (in thousands):
  Basic ................................................             18,365             18,687             19,381             20,329
  Diluted ..............................................             18,662             19,062             19,710             20,687
Market price per share:
  High .................................................       $      24.00       $      26.83       $      35.69       $      36.13
  Low ..................................................       $      20.33       $      22.00       $      25.56       $      31.38
Dividends per share ....................................       $       .073       $       .075       $       .080       $       .080
------------------------------------------------------------------------------------------------------------------------------------
Fiscal 1997
Net sales ..............................................       $    361,049       $    409,773       $    419,687       $    377,062
Gross profit ...........................................       $     72,705       $     86,895       $     89,664       $     83,208
Net income .............................................       $      5,604       $     11,171       $     10,817       $      7,722
Earnings per share:
  Basic ................................................       $        .41       $        .67       $        .61       $        .42
  Diluted ..............................................       $        .40       $        .66       $        .60       $        .42
Average shares outstanding (in thousands):
  Basic ................................................             13,812             16,618             17,616             18,191
  Diluted ..............................................             14,085             16,962             17,961             18,555
Market price per share:
  High .................................................       $      23.00       $      27.33       $      27.25       $      29.75
  Low ..................................................       $      17.75       $      21.08       $      21.42       $      21.33
Dividends per share ....................................       $       .060       $       .060       $       .067       $       .067
====================================================================================================================================
</TABLE>


Estimates

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

The Company historically performs a detailed analysis of its accounts receivable
in the fourth quarter for purposes of determining and recording the write-off of
doubtful accounts. In fiscal 1998 and 1997, the Company's collection experience
was better than anticipated, resulting in credits of $(104) and $(1,941) in the
provision for doubtful accounts for the fourth quarter of the respective years.


                                                                              25
<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 30, 1998 and January 31, 1997, and
the results of their operations and their cash flows for the years ended January
30, 1998, January 31, 1997 and January 26, 1996, in conformity with generally
accepted accounting principles. 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 generally accepted auditing
standards 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 the opinion expressed above.


/s/ Price Waterhouse LLP

Orlando, Florida
March 27, 1998



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 financial statements amounts that are based on estimates and
judgements which it believes are reasonable under the circumstances.

The responsibility of the Company's independent accountants is to express an
opinion on the fairness of the 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.



26
<PAGE>



Hughes Supply, Inc.
Management's Discussion and Analysis of Financial Condition and 
Results of Operations

As described in Note 2 of the Notes to Consolidated Financial Statements, in
fiscal 1998 the Company entered into a business combination with Chad which was
accounted for as a pooling of interests. Accordingly, all financial data in
Management's Discussion and Analysis of Financial Condition and Results of
Operations is reported as though the companies have always been one entity.

As described in Note 8 of the Notes to Consolidated Financial Statements, on May
20, 1997 the Company's Board of Directors declared a three-for-two stock split
to shareholders of record as of July 10, 1997. Accordingly, all share and per
share data have been restated for periods prior to the stock split.

Certain statements set forth in Management's Discussion and Analysis of
Financial Condition and Results of Operations 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," and similar
expressions are intended to identify forward-looking statements. Although the
Company believes that the expectations reflected in such forward-looking
statements are reasonable, it can give no assurance that such expectations will
prove to be correct. The Company's actual results may differ significantly from
the results discussed in such forward-looking statements. When appropriate,
certain factors that could cause results to differ materially from those
projected in the forward-looking statements are enumerated. This Management's
Discussion and Analysis of Financial Condition and Results of Operations should
be read in conjunction with the Company's consolidated financial statements and
the notes thereto.


Results of Operations

Net Sales

In fiscal 1998, the Company generated net sales of $1.88 billion, a 20% increase
over fiscal 1997 net sales of $1.57 billion. Fiscal 1997 net sales of $1.57
billion increased 22% over fiscal 1996 net sales of $1.29 billion. On a basis
comparable to the prior year, the Company experienced same-store sales increases
of 6% and 8% for fiscal 1998 and 1997, respectively. The remaining increase in
net sales is attributable to newly-opened and acquired wholesale outlets.

The same-store sales increase of 6% for fiscal 1998 was below the high
single-digit increases the Company has achieved in recent years. This was
primarily due to the adverse impact that mild and wet weather had on air
conditioning and pool product sales, partially offset by double-digit same-store
sales increases in two of the Company's newest product groups, water and sewer
and industrial pipe, plate, valves and fittings.

Management expects market activity to continue at current levels. These
favorable conditions coupled with the Company's acquisition program should
result in continued sales growth.

Gross Margin

Gross margins have been improving steadily over the past three years. Gross
margins were 21.9%, 21.2% and 20.7% for fiscal 1998, 1997 and 1996,
respectively. The improvement has resulted from several factors, including
expansion of product offerings to lines with better margins, efficiencies
created with central distribution centers, increased volume and concentration of
supply sources as part of the Company's preferred vendor program.

Operating Expenses

Operating expenses in fiscal 1998 were $328 million (or 17.5% of net sales), a
22% increase over fiscal 1997 operating expenses of $270 million (or 17.2% of
net sales). Newly-opened wholesale outlets and recent acquisitions accounted for
approximately 19 percentage points of the 22% increase. The remainder of the
increase is primarily due to higher personnel expenses, including health care
costs, and higher transportation costs associated with the same-store sales
growth. The increase in operating expenses as a percentage of sales from 17.2%
in fiscal 1997 to 17.5% in fiscal 1998 is primarily the result of unrealized
synergies associated with acquisitions completed in the fourth quarter of fiscal
1998.

Similarly, approximately 80% of the $44 million increase in fiscal 1997 compared
to fiscal 1996, which had operating expenses of $226 million (or 17.6% of net
sales), is attributed to newly-opened wholesale outlets and acquisitions. The
remainder of the increase is primarily due to personnel and transportation costs
associated with same-store sales growth.

Non-Operating Income and Expenses

Interest and other income was $5.8 million in fiscal 1998 compared to $6.2
million in fiscal 1997 and $5.1 million in fiscal 1996. This decrease of $.4
million in fiscal 1998 is primarily due to non-recurring gains recognized on the
sale of property and equipment in fiscal 1997. The increase of $1.1 million from
fiscal 1996 to fiscal 1997 is primarily the result of improved collection of
service charge income on delinquent accounts receivable.


                                                                              27
<PAGE>



Hughes Supply, Inc.
Management's Discussion and Analysis of Financial Condition and 
Results of Operations (continued)

Interest expense for fiscal 1998, 1997 and 1996 was $18.5 million, $14.2 million
and $9.9 million, respectively. The $4.3 million increase in fiscal 1998 is
primarily the result of higher borrowing levels, partially offset by lower
interest rates, as expansion through business acquisitions has been partially
funded by debt financing. Higher borrowing levels were primarily responsible for
the $4.3 million increase in interest expense from fiscal 1996 to 1997. Interest
rates were relatively stable in fiscal 1997.

Income Taxes

The effective tax rates for fiscal 1998, 1997 and 1996 were 36.8%, 35.2% and
32.3%, respectively. Prior to the mergers with ELASCO on April 26, 1996, with
the Metals Group on January 24, 1997 and with Chad on January 30, 1998, all of
these entities were Subchapter S corporations and, therefore, not subject to
corporate income tax. Each entity's Subchapter S corporation status terminated
upon the merger with the Company. As a result, the Company's effective tax rate
is higher for fiscal 1998 and 1997 than for fiscal 1996. The Company's effective
tax rate for fiscal 1998, 1997 and 1996 would have been approximately 40%
assuming ELASCO, the Metals Group and Chad were tax paying entities.

Net Income

Net income in fiscal 1998 increased 27% to $44.8 million from $35.3 million in
fiscal 1997. Diluted earnings per share increased 10% to $2.30 in fiscal 1998
compared to $2.09 in fiscal 1997 on 16% more average shares outstanding. These
results followed fiscal 1997 increases of 44% and 18% in net income and diluted
earnings per share, respectively. Net income and diluted earnings per share in
fiscal 1996 were $24.5 million and $1.77, respectively.

These improved results reflect operating leverage that has been achieved through
the Company's acquisition program and the resulting purchasing and
administrative synergies, as well as through internal growth. Operating margins
(operating income as a percentage of net sales) have steadily improved to 4.5%
in fiscal 1998, compared to 4.0% and 3.2% in fiscal 1997 and 1996, respectively.


Liquidity and Capital Resources

Working capital in fiscal 1998 amounted to $474 million compared to $343 million
and $227 million in fiscal 1997 and 1996, respectively. The working capital
ratio was 3.5 to 1, 3.3 to 1 and 2.6 to 1 for fiscal 1998, 1997 and 1996,
respectively. During expansionary periods when sales volumes are increasing, the
Company is required to carry higher levels of inventories and receivables to
support the growth. The Company strives to maintain inventories at levels that
support current sales activity but that are not at excessive levels. The Company
believes this is accomplished through increased use of central distribution
facilities and by investing in resources to improve the efficiency and service
capability of its facilities.

Net cash used in operations was $5.8 million in fiscal 1998 compared to net cash
provided by operations of $5.3 million in fiscal 1997 and $18.2 million in
fiscal 1996. These changes are primarily due to increases in accounts receivable
and inventories resulting from the Company's growth.

The Company's expenditures for property and equipment were $27.7 million in
fiscal 1998, including approximately $11 million for upgrades and enhancements
to its information system and approximately $7 million for new warehouse
facilities to support its internal growth. Capital expenditures for property and
equipment, not including amounts for business acquisitions, are expected to be
approximately $24 million in fiscal 1999.

Principal reductions on long-term debt were $27.5 million for fiscal 1998
compared to $20.0 million and $6.0 million for fiscal 1997 and 1996,
respectively. These amounts are attributed primarily to the repayment of debt
assumed as a result of certain business acquisitions. Dividend payments of $7.5
million, $8.1 million and $5.4 million during fiscal 1998, 1997 and 1996
included cash dividends of pooled companies totaling $2.2 million, $4.9 million
and $3.6 million, respectively.

As discussed in Note 4 of the Notes to Consolidated Financial Statements, in
August 1997 the Company issued $80 million of senior notes in a private
placement. The proceeds of this offering were used to reduce indebtedness
outstanding under the Company's credit agreement.

In August 1997, the Company amended its credit agreement with a group of banks.
The credit agreement now permits the Company to borrow up to $180 million ($150
million previously). Management believes that the Company has sufficient
borrowing capacity, with approximately $30 million available under its existing
credit facilities (subject to borrowing limitations under long-term debt
covenants) as of January 30, 1998, to fund ongoing operating requirements and
anticipated capital expenditures. Future growth and business acquisition
opportunities will continue to be financed on a project-by-project basis through
additional borrowing or, as circumstances allow, through the issuance of common
stock.


Business Acquisitions

In addition to the business combination with Chad accounted for as a pooling of
interests, during fiscal 1998 the Company acquired several wholesale
distributors for approximately $142 million ($46 million in cash and 


28
<PAGE>


$96 million in stock). In fiscal 1997, consideration paid by the Company for
acquisitions (excluding poolings of interests) was approximately $144 million
($100 million in cash and $44 million in stock). Outlays for acquisitions of
wholesale distributors in fiscal 1996 (excluding poolings of interests) totaled
$13 million ($10 million in cash and $3 million in stock). These acquisitions
were accounted for as either purchases or immaterial poolings and the results of
operations of these businesses from their respective dates of acquisition are
included in the Company's consolidated financial statements. These acquisitions,
along with Chad, were primarily responsible for the Company's increase in the
number of its facilities to 384 branches in 27 states as of the end of fiscal
1998, compared to 272 branches in 25 states as of the end of fiscal 1997.


Inflation and Changing Prices

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 impacted by price fluctuations in the cost of
stainless steel and nickel alloy. These commodity price fluctuations have
historically created cyclicality in the financial performance of the Company's
industrial pipe, plate, valves and fittings product group, and could continue to
do so in the future.

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. Management believes, however, that inflation (which
has been moderate over the past few years) and changing prices have not
significantly affected the Company's operating results or markets in the three
most recent fiscal years.


Recent Accounting Pronouncements

In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 130, Reporting Comprehensive Income ("SFAS
130"). SFAS 130 established standards for reporting and display of comprehensive
income and its components in the financial statements. SFAS 130 is effective for
fiscal years beginning after December 15, 1997. The adoption of this standard is
not expected to have a material impact on the Company's financial reporting.

In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 131, Disclosures about Segments of an
Enterprise and Related Information ("SFAS 131"). SFAS 131 established standards
for the way that public business enterprises report information about operating
segments in annual financial statements and requires that those enterprises
report selected information about operating segments in interim financial
reports issued to shareholders. It also established standards for related
disclosures about products and services, geographic areas and major customers.
SFAS 131 is effective for financial statements for periods beginning after
December 15, 1997; however, it is not required to be applied for interim
reporting in the initial year of application. The Company is currently
evaluating the impact of this statement on the disclosures included in its
annual and interim period financial statements.


Year 2000 Issue

Many existing computer programs use only two digits to identify a year in the
date field. As the century date change occurs, these programs may recognize the
year 2000 as 1900, or not at all. If not corrected, many computer systems and
applications could fail or create erroneous results by or at the year 2000 (the
"Year 2000 Issue").

The Company has completed certain modifications to its central operating and
accounting systems. Utilizing internal resources, initial testing of these
modifications to ensure year 2000 compliance was completed, and final testing is
scheduled for completion in fiscal 1999. Based on the results of its initial
testing, with respect to these two systems, the Company does not anticipate that
the Year 2000 Issue will materially impact operations or operating results.

An assessment of the Company's other remote systems, which have resulted from
the Company's acquisition program, was completed in fiscal 1998. Several of
these systems are not year 2000 compliant. The majority of the non-compliant
systems, however, are expected to convert to the Company's central operating and
accounting systems in fiscal 1999 as part of the Company's normal integration
activities. The remaining non-compliant systems will be brought into compliance
using vendor-supplied software. Management believes that the incremental costs
associated with achieving year 2000 compliance for its remote systems will not
be material to the Company's operating results.

While the Company believes its planning efforts are adequate to address the Year
2000 Issue, there can be no guarantee that the systems of other unrelated
entities on which its systems and operations rely will be corrected on a timely
basis and will not have a material effect on the Company. The Company is in the
preliminary stages of assessing the impact on its operations should these other
entities fail to properly remediate their computer systems.


                                                                              29
<PAGE>


Hughes Supply, Inc.
Selected Financial Data
(in thousands, except per share data and ratios)

<TABLE>
<CAPTION>
                                                                                      Fiscal Years Ended(1)(2)
------------------------------------------------------------------------------------------------------------------------------------
                                                                      1998              1997             1996              1995
------------------------------------------------------------------------------------------------------------------------------------
<S>                                                                <C>               <C>               <C>               <C>       
Statements of Income Data:
Net sales ..................................................       $1,878,739        $1,567,571        $1,285,328        $1,027,919
Cost of sales ..............................................       $1,466,764        $1,235,099        $1,018,804        $  818,611
Gross margin ...............................................             21.9%             21.2%             20.7%             20.4%
------------------------------------------------------------------------------------------------------------------------------------
Selling, general and administrative expenses ...............       $  308,872        $  253,756        $  211,805        $  167,404
  As a percentage of net sales .............................             16.4%             16.2%             16.5%             16.3%
Depreciation and amortization ..............................       $   18,432        $   15,349        $   11,707        $   10,003
Provision for doubtful accounts ............................       $    1,001        $      850        $    2,073        $    1,435
Operating income ...........................................       $   83,670        $   62,517        $   40,939        $   30,466
Operating margin ...........................................              4.5%              4.0%              3.2%              3.0%
------------------------------------------------------------------------------------------------------------------------------------
Interest and other income ..................................       $    5,791        $    6,207        $    5,092        $    3,202
Interest expense ...........................................       $   18,544        $   14,232        $    9,917        $    6,564
------------------------------------------------------------------------------------------------------------------------------------
Income (loss) before income taxes ..........................       $   70,917        $   54,492        $   36,114        $   27,104
  As a percentage of net sales .............................              3.8%              3.5%              2.8%              2.6%
Income taxes (benefits) ....................................       $   26,093        $   19,178        $   11,661        $    7,979
Net income .................................................       $   44,824        $   35,314        $   24,453        $   19,125
  As a percentage of net sales .............................              2.4%              2.3%              1.9%              1.9%
------------------------------------------------------------------------------------------------------------------------------------
Earnings per share:
  Basic ....................................................       $     2.34        $     2.14        $     1.80        $     1.51
  Diluted ..................................................       $     2.30        $     2.09        $     1.77        $     1.47
------------------------------------------------------------------------------------------------------------------------------------
Average shares outstanding:
  Basic ....................................................           19,194            16,537            13,575            12,661
  Diluted ..................................................           19,518            16,872            13,804            13,149

Balance Sheet Data:
Working capital ............................................       $  474,343        $  342,509        $  226,701        $  205,401
Total assets ...............................................       $  942,029        $  667,239        $  457,953        $  406,516
Long-term debt, less current portion .......................       $  335,207        $  222,451        $  131,864        $  121,915
Shareholders' equity .......................................       $  414,342        $  294,005        $  185,031        $  162,018
------------------------------------------------------------------------------------------------------------------------------------
Current ratio ..............................................         3.5 to 1          3.3 to 1          2.6 to 1          2.7 to 1
Ratio of long-term debt to
  total capital employed ...................................         .45 to 1          .43 to 1          .42 to 1          .43 to 1
Leverage (total assets/shareholders' equity) ...............             2.27              2.27              2.48              2.51

Other Data:
Cash dividends per share ...................................       $      .31        $      .25        $      .20        $      .15
Shareholders' equity per share .............................       $    18.42        $    15.73        $    13.12        $    11.86
Return on assets(3) ........................................              6.7%              7.7%              6.0%              5.9%
Return on equity(3) ........................................             15.2%             19.1%             15.1%             16.6%
Capital expenditures(4) ....................................       $   27,733        $   16,793        $   13,690        $   14,570
------------------------------------------------------------------------------------------------------------------------------------
</TABLE>

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

(2)  All data adjusted for poolings of interests and three-for-two stock splits
     declared in fiscal 1998 and 1989.

(3)  Ratios based on balance sheet at beginning of year.

(4)  Excludes capital leases.


30
<PAGE>
 

<TABLE>
<CAPTION>
                                                 Fiscal Years Ended(1)(2)
-----------------------------------------------------------------------------------------------------------------------
    1994              1993              1992               1991              1990              1989              1988
-----------------------------------------------------------------------------------------------------------------------
<S>                <C>               <C>                <C>               <C>               <C>               <C>      
$  851,691         $ 695,733         $ 666,094          $ 735,505         $ 688,289         $ 638,139         $ 540,173
$  681,100         $ 560,185         $ 537,717          $ 593,970         $ 549,791         $ 506,114         $ 428,467
      20.0%             19.5%             19.3%              19.2%             20.1%             20.7%             20.7%
-----------------------------------------------------------------------------------------------------------------------
$  141,125         $ 115,575         $ 112,871          $ 115,141         $ 105,362         $  95,382         $  80,808
      16.6%             16.6%             16.9%              15.7%             15.3%             14.9%             15.0%
$    8,572         $   7,324         $   7,945          $   9,901         $   9,712         $   9,258         $   7,159
$    2,229         $   1,942         $   2,882          $   3,026         $   2,796         $   1,542         $   1,842
$   18,665         $  10,707         $   4,679          $  13,467         $  20,628         $  25,843         $  21,897
       2.2%              1.5%               .7%               1.8%              3.0%              4.0%              4.1%
-----------------------------------------------------------------------------------------------------------------------
$    3,679         $   4,072         $   2,703          $   4,730         $   3,348         $   4,116         $   2,977
$    6,284         $   5,877         $   7,481          $   9,680         $   8,701         $   7,511         $   4,829
-----------------------------------------------------------------------------------------------------------------------
$   16,060         $   8,902         $     (99)         $   8,517         $  15,275         $  22,448         $  20,045
       1.9%              1.3%               .0%               1.2%              2.2%              3.5%              3.7%
$    4,710         $   1,734         $  (1,359)         $   2,058         $   4,914         $   7,592         $   7,897
$   11,350         $   7,168         $   1,260          $   6,459         $  10,361         $  14,856         $  12,148
       1.3%              1.0%               .2%               0.9%              1.5%              2.3%              2.2%
-----------------------------------------------------------------------------------------------------------------------

$     1.03         $     .65         $     .11          $     .57         $     .87         $    1.23         $     .99
$      .96         $     .65         $     .11          $     .57         $     .83         $    1.15         $     .94
-----------------------------------------------------------------------------------------------------------------------


    11,057            11,056            11,056             11,324            11,952            12,077            12,238
    12,832            11,074            11,056             11,324            13,640            13,760            13,928


$  167,215         $ 144,759         $ 131,960          $ 141,029         $ 138,304         $ 128,043         $ 111,138
$  322,547         $ 287,837         $ 270,526          $ 268,803         $ 281,084         $ 259,233         $ 230,535
$  118,224         $ 101,028         $  87,922          $  98,054         $  93,002         $  84,989         $  66,324
$  115,194         $ 105,087         $  98,545          $ 101,213         $ 106,528         $ 102,511         $  95,265
-----------------------------------------------------------------------------------------------------------------------
  2.9 to 1          2.8 to 1          2.6 to 1           3.1 to 1          2.7 to 1          2.9 to 1          2.7 to 1

  .51 to 1          .49 to 1          .47 to 1           .49 to 1          .47 to 1          .45 to 1          .41 to 1
      2.80              2.74              2.75               2.66              2.64              2.53              2.42


$      .11         $     .08         $     .16          $     .24         $     .23         $     .21         $     .18
$     9.97         $    9.22         $    8.65          $    8.88         $    8.79         $    8.28         $    7.67
       3.9%              2.6%               .5%               2.3%              4.0%              6.4%              6.6%
      10.8%              7.3%              1.2%               6.1%             10.1%             15.6%             13.9%
$    9,808         $  10,186         $   6,035          $   8,812         $  11,828         $  10,235         $  15,991
-----------------------------------------------------------------------------------------------------------------------
</TABLE>


                                                                              31

<PAGE>


Corporate and Shareholder Information


Directors

David H. Hughes
Chairman of the Board

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

Robert N. Blackford
Attorney, Maguire, Voorhis &
Wells, P.A.

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

John B. Ellis
Former Senior Vice President-
Finance and Treasurer,
Genuine Parts Company

A. Stewart Hall, Jr.

Clifford M. Hames
Former Vice Chairman of the Board, 
SunTrust Bank, N.A.

Vincent S. Hughes

Herman B. McManaway
Former Vice President, Ruddick 
Corporation and President, Ruddick 
Investment Co.

Donald C. Martin
Former President, Electrical Distributors, Inc.



Executive Officers
and Management

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

A. Stewart Hall, Jr.
President and Chief Operating Officer

Robert N. Blackford
Assistant Secretary

Benjamin P. Butterfield
Secretary and General Counsel

Jacquel K. Clark
Assistant Secretary and Assistant 
Treasurer

Jasper L. Holland, Jr.
Regional Vice President

Clyde E. Hughes
Regional Vice President

Russell V. Hughes
Vice President

Vincent S. Hughes
Vice President

James C. Plyler, Jr.
Regional Vice President

Kenneth H. Stephens
Regional Vice President

Sidney J. Strickland, Jr.
Vice President, Administration

Gradie E. Winstead, Jr.
Regional Vice President

J. Stephen Zepf
Treasurer and Chief Financial Officer



Transfer Agent and 
Registrar

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


Annual Meeting

Wednesday, May 20, 1998, 
at 10:00 AM 
Hughes Supply, Inc.
Suite 200
20 North Orange Avenue
Orlando, Florida 32801


Independent Accountants

Price Waterhouse LLP
Orlando, Florida


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 February 20, 1998 was 1,179. A COPY OF THE HUGHES SUPPLY, INC.
ANNUAL REPORT ON FORM 10-K AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION
WILL BE MADE AVAILABLE WITHOUT CHARGE, UPON WRITTEN REQUEST. REQUESTS SHOULD BE
DIRECTED TO:

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

32

<PAGE>