METALS USA INC, S-1, 1997-09-12

METALS USA INC
S-1, 1997-09-12
METALS SERVICE CENTERS & OFFICES

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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON , 1997
REGISTRATION NO.
================================================================================

SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------

FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------

METALS USA, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN CHARTER)

DELAWARE 5051 76-0533626
(STATE OR OTHER (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
JURISDICTION OF CLASSIFICATION CODE NUMBER) IDENTIFICATION NUMBER)
INCORPORATION OR
ORGANIZATION)

ARTHUR L. FRENCH
CHIEF EXECUTIVE OFFICER
THREE RIVERWAY
SUITE 600
HOUSTON, TEXAS 77056
(713) 965-0990

(NAME AND ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING
AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES AND AGENT FOR SERVICE)
------------------

COPIES TO:

WILLIAM D. GUTERMUTH JOHN A. HAGEMAN
BRACEWELL & PATTERSON, L.L.P. METALS USA, INC.
SOUTH TOWER PENNZOIL PLACE THREE RIVERWAY
711 LOUISIANA STREET, SUITE 2900 SUITE 600
HOUSTON, TEXAS 77002-2781 HOUSTON, TEXAS 77056

------------------

APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon
as practicable after this Registration Statement becomes effective.
------------------

If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [X]

If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]

If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]

If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
------------------

CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>

- ------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------
PROPOSED MAXIMUM PROPOSED MAXIMUM
TITLE OF EACH CLASS OF AMOUNT TO BE OFFERING PRICE AGGREGATE OFFERING AMOUNT OF
SECURITIES TO BE REGISTERED REGISTERED PER SHARE(1) PRICE(1) REGISTRATION FEE
- ------------------------------------------------------------------------------------------------------------------------
Common Stock, $.01 par value
<S> <C> <C> <C> <C>
per share............................ 10,000,000 $ $ $42,046
- ------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>

(1) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457(c).

THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.

================================================================================
<PAGE>

******************************************************************************
* *
* INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A *
* REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED *
* WITH THE SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT *
* BE SOLD NOR MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE *
* REGISTRATION STATEMENT BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT *
* CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY NOR *
* SHALL THERE BE ANY SALE OF THESE SECURITIES IN ANY STATE IN WHICH SUCH *
* OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR TO REGISTRATION OR *
* QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE. *
* *
******************************************************************************

SUBJECT TO COMPLETION
SEPTEMBER 12, 1997
10,000,000 SHARES

[LOGO]

METALS USA

COMMON STOCK
------------------

THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.

This Prospectus covers 10,000,000 shares of common stock, $.01 par value
(the "Common Stock"), which may be offered and issued by Metals USA, Inc. (the
"Company" or "Metals") from time to time in connection with merger or
acquisition transactions entered into by the Company. The shares covered by this
registration statement may also be issued in connection with the conversion of
securities issued in connection with such transactions which by their terms are
convertible into Common Stock. It is expected that the terms of acquisitions
involving the issuance of securities covered by this Prospectus will be
determined by direct negotiations with the owners or controlling persons of the
businesses or assets to be merged with or acquired by the Company, and that the
shares of Common Stock issued will be valued at prices reasonably related to the
market prices of Common Stock either at the time the terms of a merger or
acquisition are agreed upon or at or about the time shares are delivered. No
underwriting discounts or commissions will be paid, although finder's fees may
be paid from time to time with respect to specific mergers or acquisitions. Any
person receiving any such fees may be deemed to be an underwriter within the
meaning of the Securities Act of 1933, as amended (the "Securities Act").
The Company currently has 21,667,023 shares of its Common Stock listed on
the New York Stock Exchange, of which 6,785,000 are registered and available for
unrestricted trading in the public markets unless owned by affiliates of the
Company. Application will be made to list the shares of Common Stock offered
hereby on the New York Stock Exchange. On September 10, 1997, the closing price
of the Common Stock on the New York Stock Exchange was $ per share as
published in THE WALL STREET JOURNAL on September 11, 1997. The Company is
subject to the informational requirements of the Exchange Act of 1934 and in
accordance therewith files reports and other information with the Securities and
Exchange Commission.
All expenses of this offering will be paid by the Company. The Company is a
Delaware corporation and all references herein to the Company refer to the
Company and its subsidiaries. The executive offices of the Company are located
at Three Riverway Suite 600, Houston, Texas 77056, and its telephone number is
(713) 965-0990.
SEE "RISK FACTORS" BEGINNING ON PAGE 10 FOR A DISCUSSION OF CERTAIN RISK
FACTORS THAT SHOULD BE CONSIDERED BEFORE ACQUIRING THE COMMON STOCK OFFERED
HEREBY.

INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.

THE COMPANY INTENDS TO FURNISH ITS STOCKHOLDERS WITH ANNUAL REPORTS
CONTAINING FINANCIAL STATEMENTS AUDITED BY INDEPENDENT CERTIFIED PUBLIC
ACCOUNTANTS AND WITH QUARTERLY REPORTS CONTAINING UNAUDITED SUMMARY FINANCIAL
INFORMATION FOR EACH OF THE FIRST THREE QUARTERS OF EACH FISCAL YEAR.

------------------

THE DATE OF THIS PROSPECTUS IS , 1997
<PAGE>
[This page intentionally left blank]

<PAGE>
PROSPECTUS SUMMARY

IN CONNECTION WITH ITS INITIAL PUBLIC OFFERING ON JULY 11, 1997, METALS USA
ACQUIRED, IN SEPARATE MERGER TRANSACTIONS (THE "MERGERS") IN EXCHANGE FOR CASH
AND SHARES OF ITS COMMON STOCK, EIGHT COMPANIES (EACH A "FOUNDING COMPANY"
AND, COLLECTIVELY, THE "FOUNDING COMPANIES") ENGAGED IN THE VALUE-ADDED
PROCESSING OF STEEL, ALUMINUM AND SPECIALTY METALS AS WELL AS THE MANUFACTURE OF
METAL COMPONENTS. UNLESS OTHERWISE INDICATED, ALL REFERENCES TO THE "COMPANY"
HEREIN INCLUDE THE FOUNDING COMPANIES AND OTHER ENTITIES WHOLLY-OWNED BY METALS
USA, AND REFERENCES HEREIN TO "METALS USA" MEAN METALS USA, INC. PRIOR TO THE
CONSUMMATION OF THE MERGERS.

THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY, AND SHOULD BE READ
IN CONJUNCTION WITH, THE MORE DETAILED INFORMATION AND THE PRO FORMA COMBINED
AND INDIVIDUAL HISTORICAL FINANCIAL STATEMENTS, INCLUDING THE NOTES THERETO,
APPEARING ELSEWHERE IN THIS PROSPECTUS. UNLESS OTHERWISE INDICATED, ALL
REFERENCES TO COMMON STOCK INCLUDE BOTH COMMON STOCK, $0.01 PAR VALUE, AND
RESTRICTED VOTING COMMON STOCK, $0.01 PAR VALUE (THE "RESTRICTED COMMON
STOCK"), OF THE COMPANY. NOTRE CAPITAL VENTURES II, L.L.C. ("NOTRE") HOLDS
ALL 3,122,914 SHARES OF THE COMPANY'S RESTRICTED COMMON STOCK. THE HOLDERS OF
RESTRICTED COMMON STOCK ARE ENTITLED TO ELECT ONE MEMBER OF THE COMPANY'S BOARD
OF DIRECTORS AND TO A 0.55 VOTE FOR EACH SHARE HELD ON ALL OTHER MATTERS ON
WHICH THEY ARE ENTITLED TO VOTE. HOLDERS OF RESTRICTED COMMON STOCK ARE NOT
ENTITLED TO VOTE ON THE ELECTION OF ANY OTHER DIRECTORS. EACH SHARE OF
RESTRICTED COMMON STOCK IS CONVERTIBLE INTO ONE SHARE OF COMMON STOCK UNDER
CERTAIN CIRCUMSTANCES. SEE "DESCRIPTION OF COMMON STOCK -- COMMON STOCK AND
RESTRICTED COMMON STOCK."

THE COMPANY

Metals USA was founded in 1996 to become a leading national value-added
metals processor/service center, to manufacture higher-value components from
processed metals and to pursue aggressively the consolidation of the
highly-fragmented metals processing industry. On July 11, 1997, the Company
acquired in separate concurrent transactions eight companies engaged principally
in the value-added metals processing business. These Founding Companies are
Texas Aluminum Industries, Inc. and the Cornerstone Group, headquartered in
Houston, Texas; Interstate Steel Supply Co., headquartered in Philadelphia,
Pennsylvania; Queensboro Steel Corporation, headquartered in Wilmington, North
Carolina; Affiliated Metals Company, headquartered in Granite Falls, Illinois;
Southern Alloy of America, Inc., headquartered in Salisbury, North Carolina;
Uni-Steel, Inc., headquartered in Enid, Oklahoma; Williams Steel & Supply Co.,
Inc., headquartered in Milwaukee, Wisconsin; and Steel Service Systems, Inc.,
headquartered in Horicon, Wisconsin. The Company believes that the metals
processor/service center industry in the United States is consolidating and
currently has as many as 3,500 participants collectively generating over $75
billion in annual revenues. The Company intends to play a major role in the
consolidation of this industry by combining a broad-based group of metals
processing and manufacturing companies. To be a leader in the consolidation of
the metals processing industry, the Company will be required to acquire and
deploy the capital-intensive equipment and technology necessary to meet rapidly
changing customer requirements.

The Company engages in the preproduction processing of steel, aluminum and
specialty metals and intends to capitalize on trends occurring among both
primary metals producers and end-users of processed metals. In order to remain
competitive, primary metals producers are focusing on their core competencies of
high-volume production of a limited number of standardized metal products, and
are limiting or eliminating their processing services. At the same time, most
end-user customers are increasingly outsourcing their metals processing and
inventory management requirements to reduce materials costs, decrease capital
required for raw materials inventory and processing equipment and save time,
labor and other expenses. Additionally, end-user customers are seeking to reduce
costs by limiting the number of processors/service centers with whom they do
business, often eliminating those suppliers offering limited ranges of products
and services. The Company intends to provide just-in-time inventory management
with a view to reducing its customers' overall cost of their manufactured metal
products. In addition to its metals processing capabilities, the Company
manufactures higher-value components from processed metals, such as finished
building products, and produces a number of finished components machined from
specialty metals, such as

3
<PAGE>
bushings, pump parts and hydraulic cylinders. The Company intends to continue
its focus on the metal building products industry, the single fastest growing
segment of the metals processing industry.

The eight Founding Companies sell to over 10,000 customers in industries
such as the furniture, transportation equipment, power and process equipment,
industrial/commercial construction, consumer durables and electrical equipment
industries. The Company believes that its broad customer base and wide array of
metals processing capabilities, products and services, coupled with its
geographic coverage across the United States, reduce the Company's
susceptibility to economic fluctuations affecting any one industry or
geographical area.

To date, the primary acquirors in the metals processor/service center
industry have been a few large metals service center companies that have
acquired businesses on a service center-by-service center basis. Following an
acquisition, these acquirors typically install their operating systems,
procedures and management and eliminate the acquired service center's separate
identity, thereby effectively converting the business into a branch office. The
Company believes that the sale of well-established businesses to these acquirors
is not an attractive alternative for many owners, particularly those who do not
wish to retire from the business. The Company, therefore, believes significant
acquisition opportunities exist for a well-capitalized, national value-added
metals processor/service center that employs a decentralized operating strategy
and preserves the identity of the acquired businesses. The Company believes that
this operating strategy and the highly-fragmented nature of the metals industry
should allow it to be a leader in the industry's consolidation.

Key elements of the Company's strategy to achieve its objectives are:

o EXPANDING THROUGH ACQUISITIONS. The Company believes that the metals
processor/service center industry is highly fragmented and consolidating. The
Company intends to pursue aggressively this consolidation through its
acquisition program, the key elements of which are: to enter new geographic
markets, expand within existing geographic markets, and enter complementary
processing and service markets. The Company believes there are significant
opportunities to expand through acquisition in geographic markets where the
Company does not currently have a strong presence by acquiring companies that
are leaders in their regional markets. The Company also plans to improve its
market share in existing geographic markets by pursuing "tuck-in" acquisitions
as well as acquisitions of companies that expand its range of products and
services.

o OPERATING ON A DECENTRALIZED BASIS. The Company intends to manage the
Founding Companies and subsequently acquired companies on a decentralized basis,
with local management retaining responsibility for day-to-day operations,
profitability and growth of the business and the flexibility to capitalize on
the considerable regional market knowledge, name recognition and customer
relationships.

o ACCELERATING INTERNAL SALES GROWTH. A key component of the Company's
strategy is to accelerate internal sales growth at each Founding Company and at
each subsequently acquired business. The key elements of this internal growth
strategy are: to expand products and services to existing customers and to add
new customers. The Company believes that there are significant opportunities to
accelerate internal growth by making capital investments in areas such as
inventory management, logistics systems and processing equipment, thereby
expanding the range of processes and services offered by the Company. The
Company also intends to implement a Company-wide marketing program which will
utilize professional marketing sources and to adopt "best-practices" among
Founding Companies to demonstrate to the numerous customers not currently served
by the Company that they could reduce their production costs by taking advantage
of the Company's processing, inventory management and other services.

o IMPROVING OPERATING MARGINS. The Company believes that the
combination of the Founding Companies will provide significant opportunities to
realize purchasing economies and increase the Company's profitability. The key
components of this strategy are: to increase operating efficiencies and to
centralize appropriate admininistrative functions. The Company intends to use
its increased purchasing power to gain volume discounts and to develop more
effective inventory management systems. The Company expects measureable cost
savings in such areas as vehicle leasing and maintenance, information

4
<PAGE>
systems and other purchases. The Company also believes there are significant
opportunities to improve operating margins by consolidating administrative
functions such as financing, insurance and employee benefits.

The Company's executive offices are located at Three Riverway, Suite 600,
Houston, Texas 77056, and its telephone number is (713) 965-0990.

RISK FACTORS

The Common Stock offered hereby involves a high degree of risk. See "Risk
Factors."

RECENT DEVELOPMENTS

During 1996 and 1997, members of the management team and certain
consultants were assembled by Notre to pursue the consolidation of the Founding
Companies. Notre, a consolidater of highly-fragmented industries, provided the
Company with expertise regarding the consolidation process and advanced the
Company the capital needed to pay organizational and Offering expenses.

In connection therewith, during 1996 and the first and second quarters of
1997, Metals USA sold an aggregate of 1,385,500 shares of Common Stock to
management of and consultants to the Company for $0.01 per share. As a result,
the Company has recorded non-recurring, non-cash compensation charges of $3.6
million in 1996 and $2.8 million and $4.7 million in the first and second
quarters of 1997, respectively, representing the difference between the amount
paid for the shares and the estimated fair value of the shares on the date of
sale, as if the Founding Companies were combined. In addition, the second
quarter reflects a reduction in compensation expense of $1.5 million
representing a revision of the estimated fair value of the shares sold to
management and consultants in 1996 and the first quarter of 1997.

On July 11, 1997 the Company consummated the Mergers. In connection
therewith the Company issued to the public, 5,900,000 shares of Common Stock at
a price of $10.00 per share resulting in net proceeds to the Company of $50.4
million after deducting underwriting commissions and discounts. On August 12,
1997, the Company sold 885,000 shares of Common Stock pursuant to the
over-allotment option granted to the underwriters. The Company realized net
proceeds from the sale of $8.2 million. The sale by the Company of the 6,785,000
shares of its Common Stock is hereinafter referred to as the "IPO".

The aggregate consideration paid by Metals USA in the Mergers consisted of
approximately $27.8 million in cash and 10,128,609 shares of Common Stock, plus
the assumption of $92.6 million of debt of the Founding Companies. Prior to the
Mergers, the Founding Companies that were S Corporations distributed an
aggregate of $20.4 million to their stockholders, representing substantially all
of the previously taxed undistributed earnings and tax payments on current
earnings of such Founding Companies (the "S Corporation Distributions"). In
order to fund the S Corporation Distributions, the Founding Companies borrowed
$20.4 million from existing sources which is included in the debt assumed by
Metals USA. The consideration paid by Metals USA for each Founding Company was
determined by negotiations between Metals USA and representatives of each
Founding Company and was based primarily upon the pro forma adjusted net income
of each Founding Company. For a more detailed description of these transactions,
see "Certain Transactions -- Organization of the Company."

5
<PAGE>
SUMMARY PRO FORMA COMBINED FINANCIAL DATA
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)

Metals USA acquired the Founding Companies in connection with the IPO. The
following table presents summary pro forma combined financial data for the
Company, as adjusted for (i) the effects of the Mergers, (ii) the effects of
certain pro forma adjustments to the historical financial statements described
below, and (iii) the consummation of the IPO and the application of the net
proceeds therefrom. See "Selected Financial Data," the Unaudited Pro Forma
Combined Financial Statements and the Notes thereto and the historical Financial
Statements of the Founding Companies and the Notes thereto included elsewhere in
this Prospectus.

PRO FORMA COMBINED
----------------------------------
TWELVE MONTHS SIX MONTHS
ENDED ENDED
DECEMBER 31, 1996 JUNE 30, 1997
----------------- -------------
STATEMENTS OF OPERATIONS DATA(1):
Net sales.......................... $387,038 $218,971
Cost of sales...................... 295,501 168,623
Operating and delivery(2).......... 41,157 23,947
Selling, general and administrative
expenses(2)...................... 24,042 12,199
Depreciation and amortization(3)... 5,595 2,936
Operating income................... 20,743 11,266
Interest and other expense,
net(4)........................... 3,008 2,171
Income before income taxes......... 17,735 9,095
Net income(5)...................... 9,750 5,026
Net income per share............... $ .45 $ .23
Shares used in computing pro forma
net income per share(6).......... 21,667,023 21,667,023

JUNE 30, 1997
------------------------------
PRO FORMA
COMBINED(8) AS ADJUSTED(9)
----------- --------------
BALANCE SHEET DATA:
Working capital(7)................. $ 65,936(10) $ 95,258
Total assets....................... 250,880 246,487
Long-term debt, net of current
maturities(7)..................... 92,618 62,926
Stockholders' equity(7)............ 81,138 139,704

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(1) The pro forma combined statements of operations data assume that the
Mergers and the IPO occurred on January 1, 1996 and are not necessarily
indicative of the results the Company would have obtained had these events
actually then occurred or of the Company's future results. The historical
combined net sales for the Founding Companies for the twelve months ended
December 31, 1996 and the six months ended June 30, 1997 were $375.8
million and $218.6 million, respectively.

(2) The pro forma combined statements of operations data reflect (a) in
selling, general and administrative expenses, an aggregate of approximately
$3.6 million and $3.1 million for the twelve months ended December 31, 1996
and the six months ended June 30, 1997, respectively, in pro forma
reductions in salary, bonuses and benefits to the owners of the Founding
Companies to which they have agreed prospectively (the "Compensation
Differential"), (b) in operating and delivery, a $0.5 million and $0.3
million for the twelve months ended December 31, 1996 and the six months
ended June 30, 1997, respectively, reduction in lease expense pursuant to
the renegotiation of certain leases (the "Rent Differential"), and (c)
selling, general and administrative expenses do not include the non-
recurring portion of the non-cash compensation charge ("Compensation
Charge") of $3.6 million and $6.0 million for the twelve months ended
December 31, 1996 and the six months ended June 30, 1997, respectively.

(3) Includes $2.1 million and $1.1 million for the twelve months ended December
31, 1996 and the six months ended June 30, 1997, respectively, of
amortization on the $82.8 million of goodwill to be recorded as a result of
the Mergers computed on the basis described in Notes to the Unaudited Pro
Forma Combined Financial Statements.

(4) Includes $0.6 million and $0.3 million for the twelve months ended December
31, 1996 and six months ended June 30, 1997, respectively, in reductions in
interest expense resulting from $9.2 million in outstanding indebtedness
assumed to be repaid with a portion of the IPO proceeds. Also includes $1.0
million and $0.3 million in reductions in interest expense due to assumed
refinancing of outstanding indebtedness with the Company's Credit Facility.

(5) Assumes all income is subject to a corporate tax rate of 40% and all
goodwill and the Compensation Charge are non-deductible.

(6) Includes (i) 10,128,609 shares issued to owners of the Founding Companies,
(ii) 1,385,500 shares issued to the management of and consultants to Metals
USA, (iii) 3,367,914 shares issued to Notre and, (iv) the 6,785,000 shares
sold in the IPO. Excludes options to purchase 2,171,024 shares granted upon
consummation of the IPO.

(7) Several of the Founding Companies were S Corporations. Prior to the
Mergers, these Founding Companies made S Corporation Distributions to their
stockholders totaling $20.4 million. In order to fund the S Corpporation
Distributions, the Founding Companies borrowed $20.4 million from existing
sources, of which $15.4 million was paid prior to June 30, 1997.
Additionally, prior to the Mergers, certain of the Founding Companies
distributed to their stockholders certain real estate and non-operating
assets and liabilities having a net book value of $4.1 million.
Accordingly, pro forma long-term debt has been increased by $5.0 million
and pro forma stockholders' equity has been reduced by $9.1 million at June
30, 1997.

(8) The pro forma combined balance sheet data assumes that the Mergers were
consummated on June 30, 1997.

(9) Adjusted for the sale of 6,785,000 shares of Common Stock in the IPO and
the application of the net proceeds therefrom. See "Use of Proceeds."

(10) Includes a $27.8 million payable, representing the cash portion of the
Merger consideration paid from a portion of the net proceeds of the IPO.

<PAGE>
SUMMARY INDIVIDUAL FOUNDING COMPANY HISTORICAL FINANCIAL DATA

The following table presents summary historical financial data for each of
the individual Founding Companies for each of their three most recent years and
the six months ended June 30, 1996 and 1997. Income from operations has not been
adjusted for the anticipated increase in income attributable to the Compensation
Differential or the Rent Differential or to take into account increased costs
associated with the Company's new corporate management and with being a public
company. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations -- Introduction."
<TABLE>
<CAPTION>

SIX MONTHS ENDED
FISCAL YEARS(1) JUNE 30,
------------------------------- ---------------------
1994 1995 1996 1996 1997
--------- --------- --------- ---------- ---------
(IN THOUSANDS OF DOLLARS)
TEXAS ALUMINUM/CORNERSTONE:
<S> <C> <C> <C> <C> <C>
Net sales....................... $ 26,105 $ 34,706 $ 40,651 $ 18,966 $ 23,776
Operating income................ 493 1,623 3,012 790 841
INTERSTATE:
Net sales....................... 49,299 61,375 66,806 34,110 35,774
Operating income................ 1,149 2,751 4,720 2,565 2,203
QUEENSBORO:
Net sales....................... 50,795 60,322 54,996 29,135 31,222
Operating income................ 1,366 2,096 3,454 1,689 1,390
AFFILIATED:
Net sales....................... 63,046 78,976 81,002 40,806 56,017
Operating income................ 1,474 2,319 3,476 1,862 1,401
SOUTHERN ALLOY:
Net sales....................... 9,463 12,018 10,815 5,877 5,568
Operating income................ 409 533 46 127 159
UNI-STEEL:
Net sales....................... 42,711 47,662 54,620 28,212 31,734
Operating income................ 1,334 1,694 2,361 1,351 1,468
WILLIAMS(2):
Net sales....................... 27,449 30,422 25,451 10,360 16,213
Operating income................ 694 1,518 1,425 658 769
SERVICE SYSTEMS:
Net sales....................... 28,214 31,062 35,750 19,103 18,272
Operating income................ 1,392 1,017 818 837 1,006
</TABLE>

- ------------

(1) The financial data are presented on a historical basis for the Founding
Companies' respective fiscal year ends. The fiscal periods presented are as
follows: Texas Aluminum/Cornerstone is comprised of Texas Aluminum with the
fiscal years ended June 30, 1994, 1995 and December 1996 and Cornerstone
with the nine months ended December 31, 1995 (founded in 1995), and fiscal
year ended December 31, 1996; Uni-Steel -- the fiscal years ended September
30, 1994, 1995 and 1996; Affiliated -- the fiscal years ended September 3,
1994, September 2, 1995 and August 31, 1996; Southern Alloy, Interstate,
Queensboro, and Service Systems -- years ended December 31, 1994, 1995 and
1996; and Williams -- ten months ended December 1996.

(2) Williams was purchased by its current owners effective March 1, 1996. The
June 30, 1996 financial data are for the four months ended June 30, 1996.
The financial data for the predecessor entity, prior to the acquisition by
its current owners, are presented for 1994 and 1995. For the two months
ended February 29, 1996, the predecessor entity had $5,258 and $320 of net
sales and operating income, respectively.

7
<PAGE>
THE COMPANY

TEXAS ALUMINUM INDUSTRIES, INC./THE CORNERSTONE GROUP -- Texas Aluminum
Industries, Inc. ("Texas Aluminum"), headquartered in Houston, Texas, was
founded in 1949 by Gene C. Elkins. The Cornerstone Group ("Cornerstone")
includes four entities founded in 1995, 1996 and 1997 by Michael E. Christopher
and Mark Elkins, who are the principal stockholders of Texas Aluminum (Texas
Aluminum and Cornerstone being collectively referred to herein as "Texas
Aluminum/Cornerstone"). Texas Aluminum/Cornerstone operates through five
manufacturing plants and 37 service centers and distribution facilities
primarily in the Sunbelt. Texas Aluminum/Cornerstone produces and distributes
aluminum and steel building products consisting of windows, doors, insulated
wall panels, canopies and awnings primarily for the commercial and residential
building products industries. Texas Aluminum/Cornerstone had fiscal 1996 and six
months ended 1997 net sales of $40.6 million and $23.8 million, respectively,
operating income of $3.0 million and $0.8 million, respectively, and currently
has 260 employees. Michael E. Christopher has been employed by Texas Aluminum
for ten years, has signed a five-year employment agreement with Texas
Aluminum/Cornerstone as President of Texas Aluminum/Cornerstone and is a Senior
Vice President and a director of the Company.

INTERSTATE STEEL SUPPLY CO. -- Interstate Steel Supply Co.
("Interstate"), headquartered in Philadelphia, Pennsylvania, was founded in
1949 and operates primarily in the northeast and mid-Atlantic regions of the
United States. Interstate operates service centers in Philadelphia and
Pittsburgh, Pennsylvania and Baltimore, Maryland and is a value-added metals
processor/service center providing products and services primarily to structural
steel fabricators of buildings and bridges and to the shipbuilding, railroad and
electric power generation industries. Interstate had fiscal 1996 and six months
ended 1997 net sales of $66.8 million and $35.8 million, respectively, operating
income of $4.7 million and $2.2 million, respectively, and currently has 180
employees. Arnold W. Bradburd, the Chairman of the Board and Chief Executive
Officer of Interstate, has been employed by Interstate for 23 years, has signed
a five-year employment agreement with Interstate to continue in those capacities
and is the Vice-Chairman of the Board of the Company.

QUEENSBORO STEEL CORPORATION -- Queensboro Steel Corporation
("Queensboro"), headquartered in Wilmington, North Carolina, was founded in
1952 by George and Seymour Alper and operates primarily in the southeastern
region of the United States. Queensboro operates service centers in Wilmington
and Greensboro, North Carolina and Norfolk, Virginia and is a value-added metals
processor/service center and fabricator, providing products and services
primarily to the shipbuilding, transportation, construction, pulp and paper and
chemical industries. Queensboro had fiscal 1996 and six months ended 1997 net
sales of $55.0 million and $31.2 million, respectively, operating income of $3.5
million and $1.4 million, respectively, and currently has 200 employees. Mark
Alper, the President of Queensboro has been employed by Queensboro for 26 years,
has signed a five-year employment agreement with Queensboro to continue in that
capacity and is the Vice President -- Development and a director of the Company.

AFFILIATED METALS COMPANY -- Affiliated Metals Company ("Affiliated"),
headquartered in Granite City, Illinois, was founded in 1979 and operates
primarily in the midwestern region of the United States. Affiliated operates
service centers in Granite City, Illinois and a newly constructed facility in
Butler, Indiana and is a value-added metals processor/service center providing
products and services primarily to manufacturers of consumer durables,
commercial transportation equipment, appliances and furniture. Affiliated had
fiscal 1996 and six months ended 1997 net sales of $81.0 million and $56.0
million, respectively, operating income of $3.5 million and $1.4 million,
respectively, and currently has 130 employees. Patrick A. Notestine, the
President of Affiliated, has been employed by Affiliated for nine years,

8
<PAGE>
has signed a five-year employment agreement with Affiliated to continue in that
capacity and is a director of the Company.

SOUTHERN ALLOY OF AMERICA, INC. -- Southern Alloy of America, Inc.
("Southern Alloy"), headquartered in Salisbury, North Carolina, was founded in
1977 and operates primarily in the southeastern region of the United States.
Southern Alloy operates a plant in Salisbury, North Carolina and is a specialty
metals processor, providing products and services primarily to the fluid power,
machine tools, pump and valve, power transmission and textile machinery
industries. Southern Alloy had fiscal 1996 and six months ended 1997 net sales
of $10.8 million and $5.6 million, respectively, operating income of less than
$0.1 million and $0.2 million, respectively, and currently has 30 employees.
William B. Edge, the President of Southern Alloy, has been employed by Southern
Alloy for 16 years, has signed a five-year employment agreement with Southern
Alloy to continue in that capacity and is a director of the Company.

UNI-STEEL, INC. -- Uni-Steel, Inc. ("Uni-Steel"), headquartered in Enid,
Oklahoma, was founded in 1987 as a result of the merger of two companies which
began operations in 1907 and 1924, and operates primarily in the southwestern
and midwestern regions of the United States. Uni-Steel operates service centers
in Enid, Muskogee and the Port of Muskogee, Oklahoma and is a value-added metals
processor/service center providing products and services primarily to customers
in the oil and gas, transportation, mining and manufacturing industries.
Uni-Steel had fiscal 1996 and six months ended 1997 net sales of $54.6 million
and $31.7 million, respectively, operating income of $2.4 million and $1.4
million, respectively, and currently has 130 employees. Richard A. Singer, the
Chief Executive Officer of Uni-Steel, has been employed by Uni-Steel for 32
years, has signed a five-year employment agreement with Uni-Steel to continue in
such capacities and is a Senior Vice President and a director of the Company.

WILLIAMS STEEL & SUPPLY CO., INC. -- Williams Steel & Supply Co., Inc.
("Williams"), headquartered in Milwaukee, Wisconsin, was founded in 1944 and
operates primarily in the midwest region of the United States. Williams operates
a service center in Milwaukee, Wisconsin and is a value-added metals
processor/service center, providing products and services primarily to the
construction industry, original equipiment manufacturers ("OEMs") and
fabricators. Williams had fiscal 1996 and six months ended 1997 net sales of
$25.5 million and $16.2 million, respectively, operating income of $1.4 million
and $0.8 million, respectively, and currently has 80 employees. Lester G.
Peterson, the President of Williams, has been employed by Williams for 27 years,
has signed a five-year employment agreement with Williams to continue in that
capacity and is a director of the Company.

STEEL SERVICE SYSTEMS, INC. -- Steel Service Systems, Inc. ("Service
Systems"), headquartered in Horicon, Wisconsin was founded in 1990 and operates
primarily in the midwestern region of the United States. Service Systems
operates a service center in Horicon, Wisconsin and is a value-added metals
processor/service center providing products and services primarily for
manufacturers of lawn and garden equipment, outdoor recreation vehicles and
furniture. Service Systems had fiscal 1996 and six months ended 1997 net sales
of $35.8 million and $18.3 million, respectively, operating income of $0.8
million and $1.0 million, respectively, and currently has 75 employees. Craig R.
Doveala, the President of Service Systems, has been employed by Service Systems
since its founding, has signed a five-year employment agreement with Service
Systems to continue in that capacity and is a director of the Company.

9
<PAGE>
RISK FACTORS

AN INVESTMENT IN THE SHARES OF COMMON STOCK OFFERED BY THIS PROSPECTUS
INVOLVES A HIGH DEGREE OF RISK. IN ADDITION TO THE OTHER INFORMATION IN THIS
PROSPECTUS, THE FOLLOWING RISK FACTORS SHOULD BE CONSIDERED CAREFULLY IN
EVALUATING AN INVESTMENT IN THE COMMON STOCK. THIS PROSPECTUS CONTAINS CERTAIN
FORWARD-LOOKING STATEMENTS. ACTUAL RESULTS COULD DIFFER MATERIALLY FROM THOSE
PROJECTED IN THE FORWARD-LOOKING STATEMENTS AS A RESULT OF ANY NUMBER OF
FACTORS, INCLUDING THE RISK FACTORS SET FORTH BELOW AND ELSEWHERE IN THIS
PROSPECTUS.

ABSENCE OF COMBINED OPERATING HISTORY; RISKS OF INTEGRATING FOUNDING
COMPANIES. Metals USA was founded in 1996 but conducted no operations and
generated no net sales prior to July 11, 1997. The Founding Companies were
operated as separate independent entities prior to the Mergers, and there can be
no assurance that the Company will be able to integrate the operations of these
businesses successfully or to institute the necessary systems and procedures,
including accounting and financial reporting systems, to manage the combined
enterprise on a profitable basis. The Company's management group has been
assembled only recently, and there can be no assurance that the management group
will be able to manage the combined entity effectively or to implement
successfully the Company's acquisition and internal growth operating strategies.
The pro forma combined historical financial results of the Founding Companies
cover periods when the Founding Companies and Metals USA were not under common
control or management and may not be indicative of the Company's future
financial or operating results. The inability of the Company to integrate the
Founding Companies successfully would have a material adverse effect on the
Company's business, financial condition and results of operations and would make
it unlikely that the Company's acquisition program will be successful. See
"Business -- Strategy" and "Management."

POSSIBLE IMPACT OF VARYING METAL PRICES. The principal raw materials used
by the Company are steel, aluminum and various specialty metals. The metals
industry as a whole is cyclical, and at times pricing and availability of raw
materials in the metals industry can be volatile due to numerous factors beyond
the control of the Company, including general, domestic and international
economic conditions, labor costs, production levels, competition, import duties
and tariffs and currency exchange rates. This volatility can significantly
affect the availability and cost of raw materials for the Company, and may,
therefore, adversely affect the Company's net sales, operating margin and net
income. During the last five years, carbon steel prices for the Founding
Companies have increased an average of 2.7% per year. Aluminum prices have
declined approximately 7% per year for the past two years. While the overall
trend of steel and aluminum prices has been relatively stable, prices have
fluctuated approximately 10% up or down during interim periods. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations." The Company's service centers maintain substantial inventories of
metal to accommodate the short lead times and just-in-time delivery requirements
of its customers. Accordingly, the Company purchases metal in an effort to
maintain its inventory at levels that it believes to be appropriate to satisfy
the anticipated needs of its customers based on information derived from
customers, market conditions, historic usage and industry research. The
Company's commitments for metal purchases are generally at prevailing market
prices in effect at the time the Company places its orders. The Company has no
long-term, fixed-price purchase contracts. During periods of rising raw
materials pricing, there can be no assurance the Company will be able to pass
any portion of such increases on to customers. When raw material prices decline,
customer demands for lower prices could result in lower sale prices and, as the
Company uses existing inventory, lower margins. Changing metal prices could
adversely affect the Company's operating margin and net income.

CYCLICALITY OF DEMAND. Many of the Company's products are sold to
industries that experience significant fluctuations in demand based on economic
conditions, energy prices, consumer demand and other factors beyond the control
of the Company. No assurance can be given that the Company will be able to
increase or maintain its level of sales in periods of economic stagnation or
downturn.

RISKS RELATED TO THE COMPANY'S ACQUISITION STRATEGY. The Company intends
to grow significantly through the acquisition of additional value-added metals
processors/service centers and manufacturers. The Company expects to face
competition for acquisition candidates, which may limit the number of
acquisition

10
<PAGE>
opportunities and may lead to higher acquisition prices. There can be no
assurance that the Company will be able to identify, acquire or manage
profitably additional businesses or to integrate successfully any acquired
businesses into the Company without substantial costs, delays or other
operational or financial difficulties. Further, acquisitions involve a number of
special risks, including failure of the acquired business to achieve expected
results, diversion of management's attention, failure to retain key personnel of
the acquired business and risks associated with unanticipated events or
liabilities, some or all of which could have a material adverse effect on the
Company's business, financial condition and results of operations. In addition,
there can be no assurance that the Founding Companies or other subsequently
acquired businesses will achieve anticipated net sales and earnings. See
"Business -- Strategy."

RISKS RELATED TO ACQUISITION FINANCING. The timing, size and success of
the Company's acquisition efforts and the associated capital commitments cannot
be readily predicted. The Company currently intends to finance future
acquisitions by using shares of its Common Stock for all or a substantial
portion of the consideration to be paid. If the Common Stock does not maintain a
sufficient market value, or if potential acquisition candidates are otherwise
unwilling to accept Common Stock as part of the consideration for the sale of
their businesses, the Company may be required to utilize more of its cash
resources, if available, in order to initiate and maintain its acquisition
program. The Company's $150.0 million revolving credit facility became available
upon consummation of the IPO for working capital and acquisitions. As of
September 10, 1997, borrowings under the line of credit were $62,600,000. If the
Company does not have sufficient cash resources, its growth could be limited
unless it is able to obtain additional capital through debt or equity
financings. See "Use of Proceeds" and "Management's Discussion and Analysis
of Financial Condition and Results of Operations -- Combined liquidity and
capital resources."

RISKS RELATED TO INTERNAL GROWTH AND OPERATING STRATEGIES. Key elements of
the Company's strategy are to improve the profitability of the Founding
Companies and subsequently acquired businesses and to continue to expand the net
sales of the Founding Companies and any subsequently acquired businesses.
Although the Company intends to seek to improve the profitability of the
Founding Companies and any subsequently acquired businesses by various means,
including realizing overhead and purchasing efficiencies, there can be no
assurances that the Company will be able to do so. The Company's ability to
increase the net sales of the Founding Companies and any subsequently acquired
businesses will be affected by various factors, including demand for metals,
pricing and availability of raw materials, the Company's ability to expand the
range of products and services offered by each Founding Company and any
subsequently acquired businesses and the Company's ability to successfully enter
new markets. Many of these factors are beyond the control of the Company, and
there can be no assurance that the Company's strategies will be successful or
that it will be able to generate cash flow adequate for its operations and to
support internal growth. A key component of the Company's strategy is to operate
the Founding Companies and subsequently acquired businesses on a decentralized
basis, with local management retaining responsibility for day-to-day operations,
profitability and the growth of the business. If proper overall business
controls are not implemented, this decentralized operating strategy could result
in inconsistent operating and financial practices at the Founding Companies and
subsequently acquired businesses and the Company's overall profitability could
be adversely affected. See "Business -- Strategy -- Operating on a
Decentralized Basis."

COMPETITION. The Company is engaged in a highly-fragmented and competitive
industry. The Company competes with a large number of other value-added metals
processors/service centers on a regional and local basis, some of which may have
greater financial resources than the Company and several of which are public
companies. The Company also competes to a lesser extent with primary metals
producers, who typically sell to very large customers requiring regular
shipments of large volumes of metals. The Company may also face competition for
acquisition candidates from those public companies that have acquired a number
of metals service center businesses during the past decade. Other smaller metals
processors/service centers may also seek acquisitions from time to time.
Increased competition could have a material adverse effect on the Company's net
sales and profitability. See "Business -- Competition."

11
<PAGE>
REGULATION. The Company's operations are subject to a number of federal,
state and local regulations relating to the protection of the environment and to
workplace health and safety. In particular, the Company's operations are subject
to extensive federal, state and local laws and regulations governing waste
disposal, air and water emissions, the handling of hazardous substances,
environment protection, remediation, workplace exposure and other matters.
Hazardous materials the Company uses in its operations primarily include
lubricants, cleaning solvents and hydrochloric acid used in its pickling
operations at two facilities.

Some of the properties owned or leased by the Company are located in
industrial areas close to properties with histories of heavy industrial use,
three of which are on or near sites listed on the Comprehensive Environmental
Response, Compensation and Liability Act of 1980 ("CERCLA") National Priority
List. The Company believes that as many as three of the properties leased by
Founding Companies have been contaminated by pollutants which have migrated from
neighboring facilities or have been deposited by prior occupants.

Prior to entering into the agreements relating to the Mergers, the Company
evaluated the properties owned or leased by the Founding Companies and engaged
an independent environmental consulting firm to conduct or review assessments of
environmental conditions at these properties. Although no environmental claims
have been made against the Company and it has not been named as a potentially
responsible party by the Environmental Protection Agency or any other party, it
is possible that the Company could be identified by the Environmental Protection
Agency, a state agency or one or more third parties as a potentially responsible
party under CERCLA or under analogous state laws. If so, the Company could incur
substantial litigation costs to prove it is not responsible for the
environmental damage. The Company has obtained limited indemnities from the
stockholders of the Founding Companies (ranging from approximately $50,000 to
$7.6 million per Founding Company) whose facilities are located at the
contaminated sites. The Company believes that these indemnities will be adequate
to protect it from a material adverse effect on its financial condition should
the Company be found to be responsible for a share of the clean-up costs. The
limited indemnities are subject to certain deductible amounts, however, and
there can be no assurance that the limited indemnities will fully protect the
Company. See "Business -- Governmental Regulation and Environmental Matters."

RELIANCE ON KEY PERSONNEL. Due in part to the Company's decentralized
operating strategy, the Company is highly dependent on the continuing efforts of
its executive officers and the senior management of the Founding Companies, and
the Company likely will depend on the senior management of any significant
business it acquires in the future. The business or prospects of the Company
could be affected adversely if any of these persons does not continue in his
management role until the Company is able to attract and retain qualified
replacements. See "Management."

CONTROL BY EXISTING MANAGEMENT AND STOCKHOLDERS. The Company's executive
officers and directors, former stockholders of the Founding Companies and
entities affiliated with them beneficially own approximately 68.7% of the
outstanding shares of Common Stock (not including the 10,000,000 shares being
registered), of which Notre, management of and consultants to Metals USA own
4,753,414 shares of Common Stock, representing 21.9% of all shares of Common
Stock outstanding. Of these shares of Common Stock, 3,122,914 shares are
Restricted Common Stock, which are entitled to elect one member of the Company's
Board of Directors and to 0.55 of one vote for each share held on all other
matters on which they are entitled to vote. Holders of Restricted Common Stock
are not entitled to vote on the election of any other directors. These holders
of Common Stock control in the aggregate 16.5% of the votes of all shares of
Common Stock, and, if acting in concert, will be able to exercise control over
the Company's affairs, to elect the entire Board of Directors and to control the
outcome of any matter submitted to a vote of stockholders. See "Principal
Stockholders."

SUBSTANTIAL PROCEEDS OF THE IPO WERE PAID TO AFFILIATES OF FOUNDING
COMPANIES. Of the net proceeds of the IPO, $27.8 million, or 47.4% was paid as
the cash portion of the purchase price for the Founding Companies. Some of the
recipients of these funds are directors of the Company or holders of more than
5%

12
<PAGE>
of the Common Stock. Prior to the IPO, 1,385,000 shares of Common Stock were
issued to management of and certain consultants to the Company at a price of
$0.01 per share. See "Certain Transactions."

LIMITED PRIOR PUBLIC MARKET AND DETERMINATION OF OFFERING PRICE. Prior to
the IPO, there was no public market for the Common Stock. The offering price for
the Common Stock to be issued pursuant to this Prospectus will be based upon the
Company's closing stock price at a date certain or the average closing stock
price over a period of time determined by negotiations between the Company and
the owners of the companies to be acquired. The negotiated price may bear no
relationship to the price at which the Common Stock will trade after the
respective acquisition and there can be no assurance that an active trading
market will be sustained subsequent to any future acquisition transactions. The
market price of the Common Stock may be subject to significant fluctuations in
response to numerous factors, including the timing of any acquisitions by the
Company, variations in the Company's annual or quarterly financial results or
those of its competitors, changes by financial research analysts in their
estimates of the future earnings of the Company, conditions in the economy in
general or in the Company's industry in particular, unfavorable publicity or
changes in applicable laws and regulations (or judicial or administrative
interpretations thereof) affecting the Company or the metals industry. From time
to time, the stock market experiences significant price and volume volatility,
which may affect the market price of the Common Stock for reasons unrelated to
the Company's performance.

POTENTIAL EFFECT OF SHARES ELIGIBLE FOR FUTURE SALE ON PRICE OF COMMON
STOCK. There are currently 21,667,023 shares of Common Stock issued and
outstanding. The 6,785,000 shares sold in the IPO (other than shares purchased
by affiliates of the Company) are freely tradable. The remaining outstanding
shares may be resold publicly only following their registration under the
Securities Act of 1933, as amended (the "Securities Act"), or pursuant to an
available exemption from registration (such as provided by Rule 144 following a
one year holding period for previously unregistered shares). The holders of
these remaining shares have certain demand rights to have their shares
registered in the future under the Securities Act, but may not exercise such
demand registration rights, and have agreed with the Company that they will not
sell, transfer or otherwise dispose of any of their shares, for one year
following the consummation of the IPO. The Company has granted options to
purchase up to a total of 2,171,024 shares of Common Stock. The Company has
filed a registration statement on Form S-8 for the purpose of registering all
the shares subject to these options under the Securities Act for public resale.
In addition, the 10,000,000 shares of Common Stock offered by this Prospectus
generally will be freely tradeable after their issuance by persons not
affiliated with the Company unless their resale is contractually restricted.
Sales, or the availability for sale of, substantial amounts of the Common Stock
in the public market could adversely affect prevailing market prices and the
future ability of the Company to raise equity capital and complete any
additional acquisitions for Common Stock. See "Shares Eligible for Future
Sale."

POSSIBLE ANTI-TAKEOVER EFFECT OF CERTAIN CHARTER PROVISIONS. Metals USA's
Amended and Restated Certificate of Incorporation (the "Certificate of
Incorporation") authorizes the Board of Directors to issue, without stockholder
approval, one or more series of preferred stock having such preferences, powers
and relative, participating, optional and other rights (including preferences
over the Common Stock respecting dividends and distributions and voting rights)
as the Board of Directors may determine. The issuance of this "blank-check"
preferred stock could render more difficult or discourage an attempt to obtain
control of the Company by means of a tender offer, merger, proxy contest or
otherwise. In addition, the Certificate of Incorporation provides for a
classified Board of Directors, which may also have the effect of inhibiting or
delaying a change in control of the Company. Certain provisions of the Delaware
General Corporation Law may also discourage takeover attempts that have not been
approved by the Board of Directors. See "Description of Capital Stock."

IMMEDIATE AND SUBSTANTIAL DILUTION. Purchasers of Common Stock will
experience immediate, substantial dilution in the net tangible book value of
their stock.

13
<PAGE>
PRICE RANGE OF COMMON STOCK

The Company's Common Stock has traded on the New York Stock Exchange since
July 11, 1997. On September 10, 1997, the last sale price of the Common Stock
was $14 per share, as published in THE WALL STREET JOURNAL on September 11,
1997. At September 10, 1997, there were approximately 144 stockholders of record
of the Company's Common Stock. The Common Stock has traded at prices ranging
between $10 and $14.125 during the period from July 11, 1997 to September 10,
1997.

14
<PAGE>
DIVIDEND POLICY

The Company intends to retain all of its earnings, if any, to finance the
expansion of its business and for general corporate purposes, including future
acquisitions, and does not anticipate paying any cash dividends on its Common
Stock for the foreseeable future. In addition, the Company's Credit Facility
(See Management's Discussion and Analysis of Financial Condition and Results of
Operations) includes restrictions on the ability of the Company to pay dividends
without the consent of the lender.

15
<PAGE>
CAPITALIZATION

The following table sets forth the current maturities of long-term
obligations and capitalization at June 30, 1997 (i) of Metals USA on a pro forma
combined basis to give effect to the Mergers and the S Corporation
Distributions, the distribution of certain real estate and non-operating assets
and liabilities and the refinancing of outstanding indebtedness; and (ii) of
Metals USA, pro forma combined, as adjusted to give effect to the Mergers, the S
Corporation Distributions, the IPO and the application of the net proceeds
therefrom. This table should be read in conjunction with the Unaudited Pro Forma
Combined Financial Statements of the Company and the Notes thereto included
elsewhere in this Prospectus.

JUNE 30, 1997
---------------------------
PRO FORMA
COMBINED AS ADJUSTED
--------- -----------
(IN THOUSANDS OF DOLLARS)
Current maturities of long-term debt
obligations(1)........................ $ 29,356(2) $ --
========= ===========
Long-term obligations, less current
maturities(1)......................... $ 92,618(3) $ 62,926
Stockholders' equity:
Preferred Stock: $0.01 par value,
5,000,000 shares authorized; none
issued or outstanding............ -- --
Common Stock: $0.01 par value,
53,122,914 shares authorized;
14,882,023 issued and outstanding
pro forma combined; and
21,667,023 shares issued and
outstanding, pro forma as
adjusted(4)...................... 149 217
Additional paid-in capital......... 90,613 149,111
Retained deficit(5)................ (9,624) (9,624)
--------- -----------
Total stockholders' equity.... 81,138 139,704
--------- -----------
Total capitalization....... $ 173,756 $ 202,630
========= ===========

- ------------

(1) For a description of the Company's debt, see the Notes to Unaudited Pro
Forma Combined Financial Statements and Notes to the Founding Companies'
Financial Statements.

(2) Includes $27.8 milion which represents the cash portion of the Merger
consideration paid from a portion of the net proceeds from the IPO.

(3) Several of the Founding Companies were S Corporations. Prior to the Mergers,
these Founding Companies made S Corporation Distributions to their
stockholders totaling $20.4 million, of which $15.4 million was paid prior
to June 30, 1997. Additionally, prior to the Mergers, certain of the
Founding Companies distributed to their stockholders certain real estate and
non-operating assets and liabilities having a net book value of $4.1
million. Accordingly, pro forma long-term debt has been increased by $5.0
million and pro forma stockholders' equity has been reduced by $9.1 million.

(4) Excludes 2,171,024 shares of Common Stock subject to options granted upon
consummation of the IPO with an exercise price of $10.00 per share. See
"Management -- 1997 Long-Term Incentive Plan" and " -- 1997 Non-Employee
Directors' Stock Plan."

(5) Results from the Compensation Charge associated with 1,385,500 shares issued
to management of and consultants to the Company.

16
<PAGE>
SELECTED FINANCIAL DATA
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)

The following selected financial data for Metals USA as of December 31,
1996 and for the period from inception to December 31, 1996 has been derived
from audited financial statements of Metals USA. The selected historical
financial data as of and for the six months ended June 30, 1997 has been derived
from unaudited financial statements of Metals USA, which have been prepared on
the same basis as the audited financial statements and, in the opinion of
management, reflect all adjustments consisting of normal recurring adjustments,
necessary for a fair presentation of such data. The selected unaudited pro forma
combined financial data present data for the Company, adjusted for (i) the
effects of the Mergers, (ii) the effects of certain pro forma adjustments to the
historical financial statements described below and (iii) the consummation of
the IPO and the application of the net proceeds therefrom. See the Unaudited Pro
Forma Combined Financial Statements and the Notes thereto and the historical
Financial Statements of Metals USA and certain of the Founding Companies and the
Notes thereto included elsewhere in this Prospectus.

PERIOD FROM
INCEPTION
(JULY 3, 1996) SIX MONTHS
THROUGH ENDED
DECEMBER 31, JUNE 30,
1996 1997
-------------- -------------
STATEMENTS OF OPERATIONS DATA:
METALS USA
Revenues........................... $ -- $ --
Selling, general and administrative
expenses........................... 3,636 5,988
-------------- -------------
Loss before income taxes........... (3,636) (5,988)
Income tax expense................. -- --
-------------- -------------
Net loss........................... $ (3,636) $ (5,988)
============== =============
PRO FORMA COMBINED(1):
Net sales.......................... $ 387,038 $ 218,971
Cost of sales...................... 295,501 168,623
Operating and delivery(2).......... 41,157 23,947
Selling, general and administrative
expenses(2)....................... 24,042 12,199
Depreciation and amortization(3)... 5,595 2,936
Operating income................... 20,743 11,266
Interest and other expense,
net(4)............................ 3,008 2,171
Income before tax.................. 17,735 9,095
Net income(5)...................... 9,750 5,026
Net income per share............... $ .45 $ .23
Shares used in computing pro forma
net income per share(6)........... 21,667,023 21,667,023
<TABLE>
<CAPTION>

COMBINED COMPANIES
METALS USA -----------------------------
-------------------------
JUNE 30, 1997
DECEMBER 31, JUNE 30, -----------------------------
------------ --------- PRO FORMA
1996 1997 COMBINED(8) AS ADJUSTED(9)
------------ --------- ----------- --------------
BALANCE SHEET DATA:
<S> <C> <C> <C> <C> <C>
Working capital (deficit)(7)....... $ (44) $(3,936) $ 65,936(10) $ 95,258
Total assets....................... 88 4,060 250,880 246,487
Long-term debt, net of current
maturities(7).................... -- -- 92,618 62,926
Stockholders' equity(7)............ 39 109 81,138 139,704
</TABLE>

(FOOTNOTES ON FOLLOWING PAGE)

17
<PAGE>
- ------------

(1) The pro forma combined statements of operations data assume that the
Mergers, the IPO and all acquisitions by the Founding Companies occurred on
January 1, 1996 and are not necessarily indicative of the results the
Company would have obtained had these events actually then occurred or of
the Company's future results. The historical combined net sales for the
Founding Companies for the twelve months ended December 31, 1996 and the
six months ended June 30, 1997 were $375.8 million and $218.6 million,
respectively.

(2) The pro forma combined statements of operations data reflect the
Compensation Differential of $3.6 million and $3.1 million included in
selling, general and administrative expenses, the Rent Differential of $0.5
million and $0.3 million included in operating and delivery for the twelve
months ended December 31, 1996 and for the six months ended June 30, 1997,
respectively, and selling, general and administrative expenses do not
include the nonrecurring portion of the Compensation Charge.

(3) Includes $2.1 million and $1.1 million of amortization for the twelve
months ended December 31, 1996 and for the six months ended June 30, 1997,
respectively, on the $82.8 million of goodwill recorded as a result of the
Mergers computed on the basis described in Notes to the Unaudited Pro Forma
Combined Financial Statements.

(4) Includes $0.6 million and $0.3 million for the twelve months ended December
31, 1996 and six months ended June 30, 1997, respectively, in reductions in
interest expense resulting from $9.2 million in outstanding indebtedness
assumed to be repaid with a portion of the IPO proceeds. Also incudes $1.0
million and $0.3 million in reductions in interest expense due to assumed
refinancing of outstanding indebtedness with the Company's Credit Faciity.

(5) Assumes all income is subject to a corporate tax rate of 40% and all
goodwill and the Compensation Charge are non-deductible.

(6) Includes (i) 10,128,609 shares issued to owners of the Founding Companies,
(ii) 1,385,500 shares issued to the management of and consultants to Metals
USA, (iii) 3,367,914 shares issued to Notre and, (iv) 6,785,000 shares sold
in the IPO. Excludes options to purchase 2,171,024 shares granted upon
consummation of the IPO.

(7) Several of the Founding Companies were S Corporations. Prior to the
Mergers, these Founding Companies made S Corporation Distributions to their
stockholders totaling $20.4 million. In order to fund the S Corporation
Distributions, the Founding Companies borrowed $20.4 million from existing
sources, of which $15.4 million was paid prior to June 30, 1997.
Additionally, prior to the Mergers, certain of the Founding Companies
distributed to their stockholders certain real estate and non-operating
assets and liabilities having a net book value of $4.1 million.
Accordingly, pro forma long-term debt has been increased by $5.0 million
and pro forma stockholders' equity has been reduced by $9.1 million at June
30, 1997.

(8) The pro forma combined balance sheet data assumes that the Mergers were
consummated on June 30, 1997.

(9) Adjusted for the sale of 6,785,000 shares of Common Stock in the IPO and
the application of the net proceeds therefrom.

(10) Includes a $27.8 million payable representing the cash portion of the
Merger consideration paid from a portion of the net proceeds of the IPO.

<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS

The following discussion should be read in conjunction with "Selected
Financial Data" and the Founding Companies' Financial Statements and related
Notes thereto appearing elsewhere in this Prospectus.

INTRODUCTION

The Company's net sales are derived from the processing of steel, aluminum
and other specialty metals and the use of processed metals to manufacture
high-value end-use products. The majority of the metals sold by the Company are
processed by the Company. The Company processes various metals to specified
thickness, length, width, shape and surface quality pursuant to specific
customer orders. Additionally, certain of the Founding Companies manufacture
finished building products for commercial and residential applications and
machine certain specialty metals.

The Founding Companies have operated throughout the periods presented as
privately-owned entities and their results of operations reflect varying tax
structures ("S Corporations" or "C Corporations") which have influenced the
historical level of owners' compensation. Accordingly, selling, general and
administrative expenses as a percentage of net sales may not be comparable among
the individual Founding Companies. The owners of the Founding Companies have
contractually agreed to certain reductions in both their compensation and
benefits and in certain cases lease payments for their respective facilities in
connection with the Mergers. The Compensation Differential for 1996 and for the
six months ended June 30, 1997 of $3.6 million and $3.1 million, respectively,
and the Rent Differential of $0.5 million and $0.3 million, respectively, have
been reflected as pro forma adjustments in the Unaudited Pro Forma Combined
Statement of Operations presented elsewhere in this Prospectus.

The Company anticipates that it will realize savings from: (i) greater
volume discounts from raw materials and other suppliers and (ii) consolidation
of insurance, employee benefit programs and other general and administrative
costs. It is anticipated that these savings will be offset by costs related to
the Company's new corporate management and by the costs attributable to being a
public company, at least until the Company's cost savings program can be fully
implemented. However, because these savings and costs cannot be accurately
quantified at this time, they have not been included in the pro forma financial
information included herein.

During 1996 and the first and second quarters of 1997, the Company sold an
aggregate of 1,385,500 shares of Common Stock to management of and consultants
to the Company for $0.01 per share. Accordingly, the Company has recorded a
Compensation Charge of $3.6 million in 1996, and $2.8 million and $4.7 million
in the first and second quarters of 1997, respectively, representing the
difference between the amount paid for the shares and the estimated fair value
of the shares on the date of sale, as if the Founding Companies were combined.
In addition, the second quarter reflects a reduction in compensation expense of
$1.5 million representing a revision of the estimated fair value of the shares
sold to management and consultants in 1996 and the first quarter of 1997.

In July 1996, the Securities and Exchange Commission issued Staff
Accounting Bulletin No. 97 ("SAB 97") relating to business combinations
immediately prior to an initial public offering. SAB 97 requires that these
combinations be accounted for using the purchase method of acquisition
accounting. Under SAB 97, the company receiving the largest voting position from
the shares issued in connection with the Mergers must be designated as the
accounting acquiror. Accordingly, Metals USA is the designated "accounting
acquiror." The excess of the fair value of the Merger consideration paid of
$108.9 million, exclusive of debt assumed, over the fair value of the net assets
acquired for the Founding Companies has been recorded as "goodwill." Generally
accepted accounting principles require the amortization of goodwill over its
useful life, not to exceed 40 years. The amortization of goodwill is a non-cash
charge to operating income. The pro forma impact of this amortization expense,
which is non-deductible for tax purposes, is approximately $2.1 million per
year. See "Certain Transactions -- Organization of the Company." Prior to the
issuance of SAB 97, most business combinations similar to the Mergers were

19
<PAGE>
accounted for by combining the historical financial statements of the respective
companies without the revaluation of acquired assets and liabilities and,
therefore, did not result in the creation of "goodwill."

The accounting classifications used by the Company to present the combined
results of operations for the Founding Companies generally conform to the
conventions established by the Steel Service Center Institute ("SSCI") and the
National Association of Aluminum Distributors. Depreciation and amortization
expenses are shown separately as management believes certain investors find the
information beneficial. Brief descriptions of the classifications are as
follows:

NET SALES. Net sales include sales of materials, processing and
fabrication, less sales returns, allowances and cash discounts. Net sales also
exclude any sales and use taxes collected.

COST OF SALES. Cost of sales include the cost of material and freight and
all processing services purchased from unaffiliated third parties, less any
applicable purchase discounts realized. The Company carries a substantial
quantity of raw material inventories and five of the eight Founding Companies
use the last-in first-out ("LIFO") method of accounting. The LIFO method of
accounting generally matches current costs more closely with current sales.
However, variations in inventory quantities and/or prices may have a significant
impact on cost of sales.

OPERATING AND DELIVERY EXPENSE. Operating and delivery expenses consist of
labor, utilities, rent, repairs and maintenance expenses attributable to
material processing operations, warehouse facilities and delivery operations,
including the cost of freight attributable to product shipments.

SELLING, GENERAL AND ADMINISTRATIVE EXPENSE. Selling, general and
administrative expenses include the cost of personnel conducting sales and
administrative activities (including commissions and other forms of incentive
compensation), advertising and marketing expenses, rent, utilities, repairs and
maintenance costs for non-warehouse facilities, professional fees, property
taxes and other costs not included in the preceding classifications that are
directly attributable to operations.

RESULTS OF OPERATIONS -- COMBINED

The combined results of operations of the Founding Companies for the
periods presented do not represent combined results of operations presented in
accordance with generally accepted accounting principles, but are only a
summation of the net sales, cost of sales, operating and delivery expenses.
selling, general and administrative expenses and depreciation and amortization
expenses of the individual Founding Companies on a historical basis. The
combined results of operations include the results of Williams from March 1,
1996, the effective date of acquisition of the business by its current owners,
and the results of businesses acquired by Texas Aluminum/Cornerstone in 1995 and
1996 only from their respective dates of acquisition. The combined results also
exclude the effect of pro forma adjustments and, therefore, may not be
indicative of the Company's post-combination results of operations for a number
of reasons, including the following: (i) the Founding Companies were not under
common control or management during the periods presented, (ii) the Founding
Companies used different tax structures ("S Corporations" or "C
Corporations") during the periods presented, (iii) the Company will incur
incremental costs related to its new corporate management and the costs of being
a public company, (iv) the Company used the purchase method of accounting to
record the Mergers, resulting in the recording and amortization of goodwill and
(v) the combined data do not reflect the Compensation Differential, the Rent
Differential or the potential benefits and cost savings the Company expects to
realize once Metals USA and the Founding Companies begin operating as a combined
entity.

Approximately 12.5% of the net sales of the Founding Companies are derived
from some aspect of the construction industry. The construction industry is
cyclical and is influenced by seasonal factors, as those activities are usually
lower during winter months than other periods. The Founding Companies have a
broad geographic product and customer mix, which in large measure has served to
mitigate cyclical and seasonal trends; however, there can be no assurance that
period-to-period differences will not occur in the future or that cyclical or
seasonal patterns will not emerge. Further, the results of operations for any
interim period (on a combined basis and for each of the Founding Companies) are
not necessarily indicative of the results

20
<PAGE>
for the full year. Inflation has not had any significant impact on the results
of operations for any of the Founding Companies during any of the periods
presented herein.

The following table sets forth the combined results of operations of the
Founding Companies on a historical basis. The results of operations for Metals
USA after its formation in July 1996, including compensation charges of $3.6
million and $6.0 million for the fiscal year 1996 and the six months ended June
30, 1997, respectively, are not included.
<TABLE>
<CAPTION>

FISCAL YEARS ENDED
-----------------------------------------------------------------
1994(1) % 1995(1) % 1996(2) %
------------------- ------------------- -------------------

(IN MILLIONS OF DOLLARS)
<S> <C> <C> <C> <C> <C> <C>
Net sales............................... $269.6 100.0% $326.1 100.0% $375.8 100.0%
Costs and expenses:
Cost of sales....................... 210.5 78.1 254.2 78.0 288.1 76.7
Operating and delivery expenses..... 31.0 11.5 35.3 10.8 41.2 11.0
Selling, general and administrative
expenses.......................... 18.2 6.8 21.8 6.7 25.3 6.7
Depreciation and amortization....... 2.3 .8 2.8 .8 3.0 .8
------- --------- ------- --------- ------- ---------
Operating income........................ 7.6 2.8 12.0 3.7 18.2 4.8
</TABLE>
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
----------------------------------------
1996 % 1997 %
------------------ ------------------
<S> <C> <C> <C> <C>
Net sales............................... $186.6 100.0% $218.6 100.0%
Costs and expenses:
Cost of sales....................... 141.3 75.7 168.4 77.0
Operating and delivery expenses..... 21.0 11.3 24.3 11.1
Selling, general and administrative
expenses.......................... 13.1 7.0 14.9 6.8
Depreciation and amortization....... 1.4 .7 1.8 .9
------ --------- ------ ---------
Operating income........................ 9.8 5.3 9.2 4.2
</TABLE>
- ------------

(1) The financial data are presented on a historical basis for the Founding
Companies' respective fiscal year ends. The fiscal years presented are as
follows: Texas Aluminum/Cornerstone -- June 30, 1994 and 1995;
Affiliated -- Fifty-two weeks ended September 3, 1994 and September 2, 1995;
Uni-Steel -- September 30, 1994 and 1995. All other Founding Companies'
fiscal years end December 31. Does not include results of operations of
Williams, which was acquired by its present owners in March 1996.

(2) Reflects results of operations for all of the Founding Companies (except
Williams) for the twelve months ended December 31, 1996. Results of
operations for Williams are for the ten months ended December 31, 1996.

COMBINED RESULTS FOR THE SIX MONTHS ENDED JUNE 30, 1997 COMPARED TO THE SIX
MONTHS ENDED JUNE 30, 1996

NET SALES. Combined net sales increased $32.0 million, or 17.1%, from
$186.6 million for the six months ended June 30, 1996 to $218.6 million for the
six months ended June 30, 1997. The increase in combined net sales was
principally due to increased shipments from Affiliated's new facility in Butler,
Indiana, Uni-Steel's expanded plate steel products line, and business
acquisitions by Williams and Texas Aluminum/Cornerstone. The acquisition of
Williams, which was acquired by its current owners on March 1, 1996, accounted
for $5.4 million of the increase in combined net sales and acquisitions by Texas
Aluminum/Cornerstone in August 1996 and February 1997 accounted for
approximately $2.7 million in additional combined net sales.

COST OF SALES. Combined cost of sales increased $27.1 million, or 19.2%,
from $141.3 million for the six months ended June 30, 1996 to $168.4 million for
the six months ended June 30, 1997. The increase in combined cost of sales was
principally due to the increased shipments and business acquisitions described
above. As a percentage of combined net sales, combined cost of sales increased
from 75.7% for the six months ended June 30, 1996 to 77.0% for the six months
ended June 30, 1997. This percentage increase was due to higher cost of raw
materials.

OPERATING AND DELIVERY. Combined operating and delivery expenses increased
$3.3 million, or 15.7%, from $21.0 million for the six months ended June 30,
1996 to $24.3 million for the six months ended June 30, 1997. As a percentage of
combined net sales, combined operating and delivery expenses decreased from
11.3% for the six months ended June 30, 1996 to 11.1% for the six months ended
June 30, 1997. This percentage decrease was primarily due to spreading of fixed
operating costs over a higher volume of combined net sales.

SELLING, GENERAL AND ADMINISTRATIVE. Combined selling, general and
administrative expenses increased $1.8 million, or 13.7%, from $13.1 million for
the six months ended June 30, 1996 to $14.9 million for the six months ended
June 30, 1997. This increase in combined selling, general and administrative
expenses was primarily attributable to expenses associated with increased net
sales and costs

21
<PAGE>
attributable to the Texas Aluminum/Cornerstone acquisitions. As a percentage of
combined net sales, combined selling, general and administrative expenses
decreased from 7.0% for the six months ended June 30, 1996 to 6.8% for the six
months ended June 30, 1997. This percentage decrease was primarily due to
spreading of these expenses over a higher volume of combined net sales.

OPERATING INCOME. Combined operating income decreased $0.6 million, or
6.1%, from $9.8 million for the six months ended June 30, 1996 to $9.2 million
for the six months ended June 30, 1997. The decrease in combined operating
income was primarily attributable to the factors discussed above. As a
percentage of combined net sales, combined operating income decreased from 5.3%
for the six months ended June 30, 1996 to 4.2% for the six months ended June 30,
1997.

COMBINED RESULTS FOR 1996 COMPARED TO 1995

NET SALES. Combined net sales increased approximately $49.7 million, or
15.2%, from $326.1 million in 1995 to $375.8 million in 1996. The increase in
combined net sales was principally due to the acquisition of Williams, which was
acquired by its current owners on March 1, 1996, and accounted for $25.5 million
of the increase. The balance of the increase in combined net sales was caused by
increased volumes at five of the seven Founding Companies, particularly at Texas
Aluminum/Cornerstone and Uni-Steel, partially offset by declines at two Founding
Companies.

COST OF SALES. Combined cost of sales increased approximately $33.9
million, or 13.3%, from $254.2 million in 1995 to $288.1 million in 1996. The
increase in combined cost of sales was primarily attributable to the acquisition
of Williams, which accounted for approximately $20.2 million of the increase. As
a percentage of combined net sales, combined cost of sales decreased from 78.0%
in 1995 to 76.7% in 1996 due primarily to a decline in the cost of raw
materials.

OPERATING AND DELIVERY EXPENSES. Combined operating and delivery expenses
increased approximately $5.9 million, or 16.7%, from $35.3 million in 1995 to
$41.2 million in 1996. This increase was attributable to the Williams
acquisition and increased shipments at most of the Founding Companies. As a
percentage of combined net sales, combined operating and delivery expenses
increased from 10.8% in 1995 to 11.0% in 1996.

SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Combined selling, general
and administrative expenses increased approximately $3.5 million, or 16.1%, from
$21.8 million in 1995 to $25.3 million in 1996. The increase in combined
selling, general and administrative expenses was primarily due to the Williams
acquisition and increased shipments at most of the Founding Companies. As a
percentage of combined net sales, combined selling, general and administrative
expenses were unchanged at 6.7% in 1995 and 1996.

OPERATING INCOME. Combined operating income increased approximately $6.2
million, or 51.7%, from $12.0 million in 1995 to $18.2 million in 1996. The
increase in combined operating income was attributable to the factors discussed
above. As a percentage of combined net sales, combined operating income
increased from 3.7% in 1995 to 4.8% in 1996.

COMBINED RESULTS FOR 1995 COMPARED TO 1994

NET SALES. Combined net sales increased approximately $56.5 million, or
21.0%, from $269.6 million in 1994 to $326.1 million in 1995. All of the
Founding Companies contributed to the increase in combined net sales. The most
significant increases were at Affiliated, Interstate, Queensboro and Uni-Steel
which were primarily due to increased shipments. The formation of Cornerstone by
Texas Aluminum effective March 31, 1995 accounted for $5.5 million of the
increase.

COST OF SALES. Combined cost of sales increased approximately $43.7
million, or 20.8%, from $210.5 million in 1994 to $254.2 million in 1995. The
increase in combined cost of sales was principally due to the increase in
combined net sales. As a percentage of combined net sales, combined cost of
sales decreased from 78.1% in 1994 to 78.0% in 1995.

OPERATING AND DELIVERY EXPENSES. Combined operating and delivery expenses
increased approximately $4.3 million, or 13.9%, from $31.0 million in 1994 to
$35.3 million in 1995. The increase in

22
<PAGE>
combined operating and delivery expenses was primarily due to the increase in
product shipments at Interstate, Affiliated and Queensboro. As a percentage of
combined net sales, combined operating and delivery expenses decreased from
11.5% in 1994 to 10.8% in 1995, principally due to the ability to spread fixed
operating costs over higher sales volumes.

SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Combined selling, general
and administrative expenses increased approximately $3.6 million, or 19.8%, from
$18.2 million in 1994 to $21.8 million in 1995. The increase in combined
selling, general and administrative expenses was primarily at Texas
Aluminum/Cornerstone, Interstate and Affiliated. The increase at Texas
Aluminum/Cornerstone was primarily attributable to the addition of distribution
centers. As a percentage of combined net sales, combined selling, general and
administrative expenses decreased from 6.8% in 1994 to 6.7% in 1995.

OPERATING INCOME. Combined operating income increased approximately $4.4
million, or 57.9%, from $7.6 million in 1994 to $12.0 million in 1995. The
increase in combined operating income was attributable to the factors discussed
above. As a percentage of combined net sales, combined operating income
increased from 2.8% in 1994 to 3.7% in 1995.

COMBINED LIQUIDITY AND CAPITAL RESOURCES

On a combined basis, the Founding Companies generated $7.7 million of net
cash from operating activities during fiscal 1996 and used $0.3 million in net
cash from operating activities for the six months ended June 30, 1997 primarily
for working capital requirements for accounts receivable, inventories and
accounts payable. Net cash used in investing activities was $8.0 million and
$3.6 million on a combined basis for fiscal 1996 and for the six months ended
June 30, 1997, respectively, primarily for the construction of a new facility
during 1996 by Affiliated in Butler, Indiana and for equipment purchases by the
Founding Companies. Net cash provided by financing activities was $0.1 million
for fiscal 1996 and $5.0 million for the six months ended June 30, 1997,
respectively, the most significant components of which were distributions to
stockholders of $2.6 million and $14.7 million during fiscal 1996 and for the
six months ended June 30, 1997, respectively, and $19.8 million provided by
lines of credit for working capital for the six months ended June 30, 1997. At
December 31, 1996, the combined Founding Companies had cash of $1.3 million,
working capital of $35.9 million and total debt of $66.9 million ($42.7 million
of which was classified as current). At June 30, 1997, the combined Founding
Companies had cash of $2.4 million, working capital of $54.1 million and total
debt of $88.4 million ($33.2 million of which was classified as current). On a
pro forma basis, after giving effect to the S Corporation Distributions, the
Mergers, the refinancing of the Founding Companies' existing notes payable with
funds drawn from the Company's bank credit facility (described below) and the
application of the net proceeds from this Offering, the Company and the Founding
Companies would have had, on a combined basis, a cash balance of approximately
$2.4 million, working capital of approximately $95.3 million and total debt of
approximately $62.9 million, all of which would be classified as long-term as a
result of the acquisition of the Credit Facility described below. Prior to the
Mergers, the Founding Companies collectively borrowed approximately $20.4
million to fund S Corporation Distributions.

The Company has a five-year unsecured revolving credit facility of $150.0
million (the "Credit Facility"). The Credit Facility will be used to fund
acquisitions, make capital expenditures, refinance debt of the Founding
Companies and working capital requirements. The Credit Facility will require the
Company to comply with various affirmative and negative covenants including: (i)
the maintenance of certain financial ratios, (ii) restrictions on additional
indebtedness, (iii) restrictions on liens, guarantees and dividends, (iv)
obtaining the lenders' consent with respect to certain individual acquisitions,
and (v) maintenance of a specified level of consolidated tangible net worth.

The Company intends to actively pursue acquisition opportunities. The
Company expects to fund future acquisitions through the issuance of additional
Common Stock, borrowings, including use of amounts available under its Credit
Facility, and cash flow from operations. Capital expenditures for equipment and
expansion of facilities are expected to be funded from cash flow from operations
and supplemented as necessary by borrowings from the Credit Facility or other
sources of financing. To the extent the Company

23
<PAGE>
funds a significant portion of the consideration for future acquisitions with
cash, it may have to increase the amount of the Credit Facility or obtain other
sources of financing. The Company anticipates that its cash flow from operations
will be sufficient to meet the Company's normal working capital and debt service
requirements for at least the next several years.

RESULTS OF OPERATIONS -- TEXAS ALUMINUM/CORNERSTONE

Texas Aluminum/Cornerstone produces and distributes aluminum and steel
building products, consisting of windows, doors, insulated wall panels, canopies
and awnings primarily for the commercial and residential building products
industries. Texas Aluminum/Cornerstone's products are produced in five
manufacturing plants. The products are marketed and sold to contractors,
architects and wholesale distributors through 36 sales and distribution
facilities across the United States, primarily in the Sunbelt. Texas
Aluminum/Cornerstone has a broad geographic and customer mix. Texas
Aluminum/Cornerstone generally experiences lower sales during the first calendar
quarter of each year, due largely to the general decline in construction-related
activity during the winter months.

The following table sets forth the historical results of operations for
Texas Aluminum/Cornerstone.
<TABLE>
<CAPTION>
YEAR ENDED SIX MONTHS ENDED
YEAR ENDED JUNE 30, DECEMBER 31, JUNE 30,
------------------------------------------ -------------------- --------------------
1994 % 1995 % 1996 % 1996 %
-------------------- -------------------- -------------------- --------------------

(IN MILLIONS OF DOLLARS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net sales............................... $ 26.1 100.0% $ 34.7 100.0% $ 40.6 100.0% $ 19.0 100.0%
Costs and expenses:
Cost of sales....................... 18.0 69.0 23.9 68.9 27.1 66.7 12.8 67.4
Operating and delivery.............. 5.6 21.5 5.9 17.0 6.4 15.8 3.1 16.3
Selling, general and administrative
expenses.......................... 1.7 6.5 2.8 8.1 3.5 8.6 2.0 10.5
Depreciation and amortization....... .3 1.1 .5 1.4 .6 1.5 .3 1.6
--------- --------- --------- --------- --------- --------- --------- ---------
Operating income........................ .5 1.9 1.6 4.6 3.0 7.4 .8 4.2
</TABLE>
SIX MONTHS ENDED
JUNE 30,
--------------------
1997 %
--------------------
Net sales............................... $ 23.8 100.0%
Costs and expenses:
Cost of sales....................... 15.6 65.5
Operating and delivery.............. 3.0 12.6
Selling, general and administrative
expenses.......................... 4.0 16.8
Depreciation and amortization....... .4 1.7
--------- ---------
Operating income........................ .8 3.4

The results of operations for the interim period are unaudited and are not
necessarily indicative of the results for the full year.

TEXAS ALUMINUM/CORNERSTONE RESULTS FOR THE SIX MONTHS ENDED JUNE 30, 1997
COMPARED TO THE SIX MONTHS ENDED JUNE 30, 1996

NET SALES. Net sales increased $4.8 million, or 25.3%, from $19.0 million
for the six months ended June 30, 1996 to $23.8 million for the six months ended
June 30, 1997. This increase was due to increased shipments from existing
distribution facilities as well as acquisitions in August 1996 and February
1997, which accounted for $2.7 million in additional net sales.

COST OF SALES. Cost of sales increased $2.8 million, or 21.9%, from $12.8
million for the six months ended June 30, 1996 to $15.6 million for the six
months ended June 30, 1997. As a percentage of net sales, cost of sales
decreased from 67.4% for the six months ended June 30, 1996 to 65.5% for the six
months ended June 30, 1997. The decrease in the cost of sales percentage was
principally due to increased sales of higher margin products.

OPERATING AND DELIVERY EXPENSES. Operating and delivery expenses
decreased $0.1 million, or 3.2%, from $3.1 million for the six months ended June
30, 1996 compared to $3.0 million for the six months ended June 30, 1997. As a
percentage of net sales, operating and delivery expenses decreased from 16.3%
for the six months ended June 30, 1996 to 12.6% for the six months ended June
30, 1997. This decrease was primarily due to spreading of fixed operating costs
over a higher volume of net sales.

SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses increased $2.0 million, or 100.0%, from $2.0 million for
the six months ended June 30, 1996 to $4.0 million for the six months ended June
30, 1997. This increase was primarily attributable to expenses associated with
increased owners' compensation, increased net sales and costs attributable to an
acquisition.As a percentage of net sales, selling, general and administrative
expenses increased from 10.5% for the six months ended

24
<PAGE>
June 30, 1996 to 16.8% for the six months ended June 30, 1997. This percentage
increase was primarily due to costs attributable to increased owners'
compensation.

OPERATING INCOME (LOSS). Operating income was essentially unchanged for
the six months ended June 30, 1996 compared to the six months ended June 30,
1997. As a percentage of net sales, operating income decreased from 4.2% for the
six months ended June 30, 1996 to 3.4% for the six months ended June 30, 1997.

TEXAS ALUMINUM/CORNERSTONE RESULTS FOR THE YEAR ENDED DECEMBER 31, 1996 COMPARED
TO THE FISCAL YEAR ENDED JUNE 30, 1995

NET SALES. Net sales increased $5.9 million, or 17.0%, from $34.7 million
in 1995 to $40.6 million in 1996. This increase was primarily due to the
acquisition of Cornerstone during 1995, establishing new distribution
facilities, and increased shipments to both existing and newly established
distribution facilities. The net sales increases attributable to Cornerstone and
to newly established distribution facilities were $2.7 million and $2.9 million,
respectively.

COST OF SALES. Cost of sales increased $3.2 million, or 13.4%, from $23.9
million in 1995 to $27.1 million in 1996. As a percentage of net sales, cost of
sales decreased from 68.9% in 1995 to 66.7% in 1996. The decrease was primarily
due to an increase in sales of products with a higher profit margin, partially
offset by inventory write-downs attributable to discontinued product lines.

OPERATING AND DELIVERY EXPENSES. Operating and delivery expenses increased
$0.5 million, or 8.5%, from $5.9 million in 1995 to $6.4 million in 1996. As a
percentage of net sales, operating and delivery expenses decreased from 17.0% in
1995 to 15.8% in 1996. This decrease was primarily due to spreading of fixed
operating costs over a higher volume of sales.

SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses increased $0.7 million, or 25.0%, from $2.8 million in
1995 to $3.5 million in 1996. This increase was primarily attributable to
increases in owners' compensation and sales and marketing expenses necessary to
support the increased level of sales. As a percentage of net sales, selling,
general and administrative expenses increased from 8.1% in 1995 to 8.6% in 1996.
This percentage increase was primarily attributable to increased owners'
compensation.

OPERATING INCOME. Operating income increased $1.4 million, or 87.5%, from
$1.6 million in 1995 to $3.0 million in 1996. The increase in operating income
was attributable to the factors discussed above. As a percentage of net sales,
operating income increased from 4.6% in 1995 to 7.4% in 1996.

TEXAS ALUMINUM/CORNERSTONE RESULTS FOR FISCAL YEAR ENDED JUNE 30, 1995 COMPARED
TO FISCAL YEAR ENDED JUNE 30, 1994

NET SALES. Net sales increased $8.6 million, or 33.0%, from $26.1 million
in 1994 to $34.7 million in 1995. This increase was due to the acquisition of
Cornerstone, which accounts for $5.5 million of the increase, and the
introduction of new product lines and geographical expansion through additional
distribution outlets.

COST OF SALES. Cost of sales increased $5.9 million, or 32.8%, from $18.0
million in 1994 to $23.9 million in 1995. The increase in cost of sales was a
direct result of the increase in net sales. As a percentage of net sales, cost
of sales decreased from 69.0% in 1994 to 68.9% in 1995 due to increased sales of
higher margin products.

OPERATING AND DELIVERY EXPENSES. Operating and delivery expenses increased
$0.3 million, or 5.4%, from $5.6 million in 1994 to $5.9 million in 1995 as a
result of the increase in net sales. As a percentage of net sales, operating and
delivery expenses decreased from 21.5% in 1994 to 17.0% in 1995.

SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses increased $1.1 million, or 64.7%, from $1.7 million in
1994 to $2.8 million in 1995. This increase was primarily attributable to
increases in owners' compensation and sales and marketing expenses necessary to
support the increased level of sales. As a percentage of net sales, selling,
general and administrative expenses

25
<PAGE>
increased from 6.5% in 1994 to 8.1% in 1995. This percentage increase was
primarily attributable to increased owners' compensation.

OPERATING INCOME. Operating income increased $1.1 million, or 220.0%, from
$0.5 million in 1994 to $1.6 million in 1995. The increase in operating income
was attributable to the factors discussed above. As a percentage of net sales,
operating income increased from 1.9% in 1994 to 4.6% in 1995.

TEXAS ALUMINUM/CORNERSTONE LIQUIDITY AND CAPITAL RESOURCES

At June 30, 1997, Texas Aluminum/Cornerstone's working capital was $12.1
million, compared to $8.3 million and $7.4 million, at December 31, 1996 and
June 30, 1995, respectively. Texas Aluminum/Cornerstone's principal capital
requirements are to fund its working capital and the purchase and improvement of
facilities, machinery and equipment. Historically, these requirements have been
met by income generated from operations and borrowings under bank credit
facilities.

Net cash provided by (used for) operating activities for the fiscal years
ended June 30, 1994 and 1995, the year ended December 31, 1996 and the six
months ended June 30, 1997 was $(0.2) million, $0.6 million, $1.8 million and
$(1.0) million, respectively. These changes were principally due to funding
Texas Aluminum/Cornerstone's working capital requirements for accounts and notes
receivable, inventories and accrued liabilities.

Net cash provided by (used for) investing activities for the fiscal years
ended June 30, 1994 and 1995, the year ended December 31, 1996 and the six
months ended June 30, 1997 was $(0.2) million, $(2.9) million, $0.2 million and
$(1.6) million, respectively. Investing activities included $2.5 million and
$1.3 million used for business acquisitions during 1995 and the six months ended
June 30, 1997, respectively, with the remaining amount used for capital
expenditures offset by collections on notes receivable.

Net cash provided by (used for) financing activities for the fiscal years
ended June 30, 1994 and 1995, the year ended December 31, 1996 and the six
months ended June 30, 1997 was $0.2 million, $2.4 million, $(2.2) million and
$3.9 million, respectively. Borrowings during 1995 were made to fund business
acquisitions. Credit facility repayments constituted the majority of cash used
for financing activities during 1996. Borrowings during the six months ended
June 30, 1997 were made to fund business acquisitions and working capital
requirements for accounts payable and accrued liabilities. Prior to the Merger,
Texas Aluminum/Cornerstone borrowed approximately $3.4 million to fund its
portion of the S Corporation Distributions.

RESULTS OF OPERATIONS -- INTERSTATE

Interstate is a carbon structural steel service center with operations in
Philadelphia and Pittsburgh, Pennsylvania and Baltimore, Maryland. Interstate
services customers primarily in the northeast and mid-Atlantic United States,
ranging from Virginia to Maine and west through eastern Ohio. Interstate is a
value-added metals processor/service center providing products and services
primarily to structural steel fabricators of buildings and bridges and to the
shipbuilding, railroad and electric power generation industries. Approximately
one-half of net sales includes value-added processing services such as saw
cutting, shearing, flame cutting, cambering and tee-splitting. Interstate has a
broad geographic and customer mix and has not experienced any significant
seasonal trends.

26
<PAGE>
The following table sets forth the historical results of operations for
Interstate.
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
---------------------------------------------------------------- --------------------
1994 % 1995 % 1996 % 1996 %
-------------------- -------------------- -------------------- --------------------
(IN MILLIONS OF DOLLARS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net sales............................... $ 49.3 100.0% $ 61.4 100.0% $ 66.8 100.0% $ 34.1 100.0%
Costs and expenses:
Cost of sales....................... 37.3 75.7 44.9 73.1 47.9 71.7 24.3 71.3
Operating and delivery expenses..... 6.2 12.6 7.9 12.9 8.2 12.3 4.2 12.3
Selling, general and administrative
expenses.......................... 4.2 8.5 5.2 8.5 5.4 8.1 2.8 8.2
Depreciation and amortization....... .5 1.0 .6 .9 .6 .9 .2 .6
--------- --------- --------- --------- --------- --------- --------- ---------
Operating income........................ 1.1 2.2 2.8 4.6 4.7 7.0 2.6 7.6
</TABLE>
SIX MONTHS ENDED
JUNE 30,
--------------------
1997 %
--------------------

Net sales............................... $ 35.8 100.0%
Costs and expenses:
Cost of sales....................... 26.2 73.2
Operating and delivery expenses..... 4.6 12.8
Selling, general and administrative
expenses.......................... 2.7 7.5
Depreciation and amortization....... .1 .3
--------- ---------
Operating income........................ 2.2 6.2

The results of operations for the interim period are derived from unaudited
combined financial statements and are not necessarily indicative of the results
for the full year.

INTERSTATE RESULTS FOR THE SIX MONTHS ENDED JUNE 30, 1997 COMPARED TO THE SIX
MONTHS ENDED
JUNE 30, 1996

NET SALES. Net sales increased $1.7 million, or 5.0%, from $34.1 million
for the six months ended June 30, 1996 to $35.8 million for the six months ended
June 30, 1997. This increase was due to a 6.5% increase in shipments partially
offset by a slight decline in average realized prices.

COST OF SALES. Cost of sales increased $1.9 million, or 7.8% from $24.3
million for the six months ended June 30, 1996 to $26.2 million for the six
months ended June 30, 1997. The increase in the cost of sales was principally
due to the increased quantity of raw material sold and a 1.9% increase in the
cost of purchased steel. As a percentage of net sales, cost of sales increased
from 71.3% for the six months ended June 30, 1996 to 73.2% for the six months
ended June 30, 1997. This increase was primarily due to an increase in raw
material costs.

OPERATING AND DELIVERY EXPENSES. Operating and delivery expenses increased
$0.4 million, or 9.5%, from $4.2 million for the six months ended June 30, 1996
compared to $4.6 million for the six months ended June 30, 1997. As a percentage
of net sales, operating and delivery expenses increased from 12.3% for the six
months ended June 30, 1996 to 12.8% for the six months ended June 30, 1997. This
percentage increase was primarily due to a temporary reduction in workers
compensation expense in 1996.

SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses decreased $0.1 million, or 3.6%, from $2.8 million for
the six months ended June 30, 1996 compared to $2.7 million for the six months
ended June 30, 1997. As a percentage of net sales, selling, general and
administrative expenses decreased from 8.2% for the six months ended June 30,
1996 to 7.5% for the six months ended June 30, 1997. This decrease was primarily
due to spreading of these expenses over a higher volume of net sales.

OPERATING INCOME. Operating income decreased $0.4 million, or 15.4%, from
$2.6 million for the six months ended June 30, 1996 to $2.2 million for the six
months ended June 30, 1997. The decrease in operating income was attributable to
the factors discussed above. As a percentage of net sales, operating income
decreased from 7.6% for the six months ended June 30, 1996 to 6.2% for the six
months ended June 30, 1997.

INTERSTATE RESULTS FOR YEAR ENDED DECEMBER 31, 1996 COMPARED TO YEAR ENDED
DECEMBER 31, 1995

NET SALES. Net sales increased $5.4 million, or 8.8%, from $61.4 million
in 1995 to $66.8 million in 1996. The increase in net sales was primarily due to
a $6.0 million contract for value-added steel products associated with the
construction of a shopping mall.

COST OF SALES. Cost of sales increased $3.0 million, or 6.7%, from $44.9
million in 1995 to $47.9 million in 1996. The increase in cost of goods sold was
primarily due to a 5.6% increase in quantity of raw

27
<PAGE>
material sold, partially offset by a 2.8% decline in the average cost of
purchased steel. As a percentage of net sales, cost of sales decreased from
73.1% in 1995 to 71.7% in 1996.

OPERATING AND DELIVERY EXPENSES. Operating and delivery expenses increased
$0.3 million, or 3.8%, from $7.9 million in 1995 to $8.2 million in 1996. As a
percentage of net sales, operating and delivery expenses decreased from 12.9% in
1995 to 12.3% in 1996, primarily due to a reduction in workers compensation
expense in the amount of $0.2 million in 1996.

SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses increased $0.2 million, or 3.8%, from $5.2 million in
1995 to $5.4 million in 1996. As a percentage of net sales, selling, general and
administrative expenses decreased from 8.5% in 1995 to 8.1% in 1996. This
percentage decrease was primarily due to the increase in net sales without a
commensurate increase in overhead.

OPERATING INCOME. Operating income increased $1.9 million, or 67.9%, from
$2.8 million in 1995 to $4.7 million in 1996. The increase in operating income
was attributable to the factors discussed above. As a percentage of net sales,
operating income increased from 4.6% in 1995 to 7.0% in 1996.

INTERSTATE RESULTS FOR YEAR ENDED DECEMBER 31, 1995 COMPARED TO YEAR ENDED
DECEMBER 31, 1994

NET SALES. Net sales increased $12.1 million, or 24.5%, from $49.3 million
in 1994 to $61.4 million in 1995. Shipments increased by approximately 15.5%
from 1994 to 1995, primarily due to a $6.0 million increase in sales of
value-added products to the construction industry, principally from its recently
opened Pittsburgh facility, and an increase in sales of approximately $3.4
million of value-added products to various governmental agencies.

COST OF SALES. Cost of sales increased $7.6 million, or 20.4%, from $37.3
million in 1994 to $44.9 million in 1995, primarily as a result of the 15.5%
increase in shipments. Average purchase prices for steel were essentially
unchanged from 1994 levels. As a percentage of net sales, cost of sales
decreased from 75.7% in 1994 to 73.1% in 1995, primarily due to increased
shipments of value-added products.

OPERATING AND DELIVERY EXPENSES. Operating and delivery expenses increased
$1.7 million, or 27.4%, from $6.2 million in 1994 to $7.9 million in 1995. The
increase in operating and delivery expenses was primarily due to increased
activity at the Pittsburgh facility where freight and delivery costs are
generally greater than Interstate's other facilities which serve smaller
geographic areas. As a percentage of net sales, operating and delivery expenses
increased from 12.6% in 1994 to 12.9% in 1995.

SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses increased $1.0 million, or 23.8%, from $4.2 million in
1994 to $5.2 million in 1995. This increase was primarily attributable to
increases in sales and marketing expenses necessary to support the increased
level of sales. As a percentage of net sales, selling, general and
administrative expenses remained constant at 8.5% for both periods.

OPERATING INCOME. Operating income increased $1.7 million, or 154.5%, from
$1.1 million in 1994 to $2.8 million in 1995. The increase in operating income
was attributable to the factors discussed above. As a percentage of net sales,
operating income increased from 2.2% in 1994 to 4.6% in 1995.

INTERSTATE LIQUIDITY AND CAPITAL RESOURCES

At June 30, 1997, Interstate's working capital was $5.5 million, compared
to $5.5 million and $3.2 million, at December 31, 1996 and 1995, respectively.
Prior to the Mergers, Interstate's principal capital requirements were to fund
its working capital and the purchase and improvement of facilities, machinery
and equipment. Historically, these requirements have been met by income
generated from operations and borrowings under bank credit facilities.

Net cash provided by (used for) operating activities for 1994, 1995, 1996
and the six months ended June 30, 1997 was $(1.1) million, $0.3 million, $3.0
million and $0.5 million, respectively. These changes were principally due to
increased earnings, partially offset by funding Interstate's working capital
requirements for accounts receivable, inventories and accounts payable.

28
<PAGE>
Net cash used for investing activities was primarily attributable to
capital expenditures and for 1994, 1995, 1996 and the six months ended June 30,
1997 was $0.6 million, $0.5 million, $0.4 million and $0.2 million,
respectively. The individual components of these capital expenditures were not
significant.

Net cash provided by (used for) financing activities for 1994, 1995, 1996
and the six months ended June 30, 1997 was $1.6 million, $0.2 million, $(2.5)
million and $(0.1) million, respectively. Interstate paid dividends (including
distributions to partners) in 1994, 1995, 1996 and the six months ended June 30,
1997 of $0.3 million, $0.6 million, $1.4 million and $1.5 million, respectively.
Borrowings in 1994 were primarily made to fund working capital requirements for
accounts receivable, inventories and accounts payable. Interstate received a
capital contribution from its stockholders in 1995 of $0.3 million. During 1996,
Interstate repaid a portion of the borrowings outstanding under its revolving
bank credit facility. Borrowings during the six months ended June 30, 1997 were
made to fund working capital requirements for inventories, accounts payable and
accrued liabilities. Prior to the Merger, Interstate borrowed $6.4 million to
fund its portion of the S Corporation Distributions.

RESULTS OF OPERATIONS -- QUEENSBORO

Queensboro is a carbon steel service center and structural fabricator, with
operations in Wilmington and Greensboro, North Carolina and Norfolk, Virginia,
and markets its products primarily in the southeast region of the United States.
Queensboro is a value-added metals processor/service center, providing products
and services primarily to the shipbuilding, transportation, construction, pulp
and paper and chemical industries. Queensboro has a broad geographic and
customer mix, and has not experienced any significant seasonal trends.

The following table sets forth the historical results of operations for
Queensboro.
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
---------------------------------------------------------------- --------------------
1994 % 1995 % 1996 % 1996 %
-------------------- -------------------- -------------------- --------------------

(IN MILLIONS OF DOLLARS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net sales............................... $ 50.8 100.0% $ 60.3 100.0% $ 55.0 100.0% $ 29.1 100.0%
Costs and expenses:
Cost of sales....................... 38.0 74.8 45.9 76.1 38.9 70.7 21.2 72.9
Operating and delivery expenses..... 7.4 14.6 8.1 13.4 8.3 15.1 4.1 14.1
Selling, general and administrative
expenses.......................... 3.6 7.1 3.8 6.3 3.9 7.1 2.0 6.9
Depreciation and amortization....... .4 .7 .4 .7 .4 .7 .1 .3
--------- --------- --------- --------- --------- --------- --------- ---------
Operating income........................ 1.4 2.8 2.1 3.5 3.5 6.4 1.7 5.8
</TABLE>
SIX MONTHS ENDED
JUNE 30,
--------------------
1997 %
--------------------

Net sales............................... $ 31.2 100.0%
Costs and expenses:
Cost of sales....................... 22.8 73.1
Operating and delivery expenses..... 4.6 14.7
Selling, general and administrative
expenses.......................... 2.2 7.1
Depreciation and amortization....... .2 .6
--------- ---------
Operating income........................ 1.4 4.5

The results of operations for the interim period are unaudited and are not
necessarily indicative of the results for the full year.

QUEENSBORO RESULTS FOR THE SIX MONTHS ENDED JUNE 30, 1997 COMPARED TO THE SIX
MONTHS ENDED
JUNE 30, 1996

NET SALES. Net sales increased $2.1 million, or 7.2%, from $29.1 million
for the six months ended June 30, 1996 to $31.2 million for the six months ended
June 30, 1997. This increase was due to an 18.6% increase in shipments,
partially offset by a decline in average realized prices of 9.4%.

COST OF SALES. Cost of sales increased $1.6 million, or 7.5%, from $21.2
million for the six months ended June 30, 1996 to $22.8 million for the six
months ended June 30, 1997. The increase in cost of sales was principally due to
the increased quantity of raw material purchased. As a percentage of net sales,
cost of sales increased from 72.9% for the six months ended June 30, 1996 to
73.1% for the six months ended June 30, 1997. This percentage increase is
principally due to changes in the product mix.

OPERATING AND DELIVERY EXPENSES. Operating and delivery expenses increased
$0.5 million, or 12.2%, from $4.1 million for the six months ended June 30, 1996
to $4.6 million for the six months ended June 30, 1997. This increase was
attributable to sales expansion into new territories. As a percentage of net
sales,

29
<PAGE>
operating and delivery expenses increased from 14.1% for the six months ended
June 30, 1996 to 14.7% for the six months ended June 30, 1997.

SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses increased $0.2 million, or 10.0%, from $2.0 million for
the six months ended June 30, 1996 to $2.2 million for the six months ended June
30, 1997. As a percentage of net sales, selling, general and administrative
expenses increased from 6.9% for the six months ended June 30, 1996 to 7.1% for
the six months ended June 30, 1997. This percentage increase was primarily due
to sales and marketing costs associated with the expansion into new territories.

OPERATING INCOME. Operating income decreased $0.3 million, or 17.6%, from
$1.7 million for the six months ended June 30, 1996 to $1.4 million for the six
months ended June 30, 1997. The decrease in operating income was attributable to
the factors discussed above. As a percentage of net sales, operating income
decreased from 5.8% for the six months ended June 30, 1996 to 4.5% for the six
months ended June 30, 1997.

QUEENSBORO RESULTS FOR YEAR ENDED DECEMBER 31, 1996 COMPARED TO YEAR ENDED
DECEMBER 31, 1995

NET SALES. Net sales declined $5.3 million, or 8.8%, from $60.3 million in
1995 to $55.0 million in 1996 primarily due to a 7% decrease in tons shipped and
lower average realized prices. Decreased shipments to one of Queensboro's larger
manufacturing customers accounted for approximately $1.5 million of the decline
in net sales.

COST OF SALES. Cost of sales decreased $7.0 million, or 15.3%, from $45.9
million in 1995 to $38.9 million in 1996. This decrease was primarily due to the
decrease in net sales. As a percentage of net sales, cost of sales decreased
from 76.1% in 1995 to 70.7% in 1996, primarily due to lower raw material costs.

OPERATING AND DELIVERY EXPENSES. Operating and delivery expenses increased
$0.2 million, or 2.5%, from $8.1 million in 1995 to $8.3 million in 1996. As a
percentage of net sales, operating and delivery expenses increased from 13.4% in
1995 to 15.1% in 1996, primarily due to the decline in net sales.

SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses increased $0.1 million, or 2.6%, from $3.8 million in
1995 to $3.9 million in 1996. As a percentage of net sales, selling, general and
administrative expenses increased from 6.3% in 1995 to 7.1% in 1996. This
percentage increase was the result of lower net sales in 1996.

OPERATING INCOME. Operating income increased $1.4 million, or 66.7%, from
$2.1 million in 1995 to $3.5 million in 1996. The increase in operating income
was attributable to the factors discussed above. As a percentage of net sales,
operating income increased from 3.5% in 1995 to 6.4% in 1996.

QUEENSBORO RESULTS FOR YEAR ENDED DECEMBER 31, 1995 COMPARED TO YEAR ENDED
DECEMBER 31, 1994

NET SALES. Net sales increased $9.5 million, or 18.7%, from $50.8 million
in 1994 to $60.3 million in 1995. This increase was primarily due to a 7%
increase in tonnage shipped and higher average realized prices.

COST OF SALES. Cost of sales increased $7.9 million, or 20.8%, from $38.0
million in 1994 to $45.9 million in 1995. The increase in cost of sales was a
result of the increase in net sales. As a percentage of net sales, cost of sales
increased from 74.8% in 1994 to 76.1% in 1995, primarily due to higher raw
material costs.

OPERATING AND DELIVERY EXPENSES. Operating and delivery expenses increased
$0.7 million, or 9.5%, from $7.4 million in 1994 to $8.1 million in 1995. The
increase in operating and delivery expenses was a result of the increase in
shipments. As a percentage of net sales, operating and delivery expenses
decreased from 14.6% in 1994 to 13.4% in 1995, principally due to the ability to
spread fixed operating costs over higher sales volumes.

SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses increased $0.2 million, or 5.6%, from $3.6 million in
1994 to $3.8 million in 1995. As a percentage of net sales,

30
<PAGE>
selling, general and administrative expenses decreased from 7.1% in 1994 to 6.3%
in 1995. This percentage decrease was a result of the increase in net sales
without a commensurate increase in administrative costs.

OPERATING INCOME. Operating income increased $0.7 million, or 50.0%, from
$1.4 million in 1994 to $2.1 million in 1995. The increase in operating income
was attributable to the factors discussed above. As a percentage of net sales,
operating income increased from 2.8% in 1994 to 3.5% in 1995.

QUEENSBORO LIQUIDITY AND CAPITAL RESOURCES

At June 30, 1997, Queensboro's working capital was $15.1 million, compared
to $13.8 million and $13.6 million, at December 31, 1996 and 1995, respectively.
Prior to the Mergers, Queensboro's principal capital requirements were to fund
its working capital and the purchase and improvement of facilities, machinery
and equipment. Historically, these requirements have been met by income
generated from operations and borrowings under bank credit facilities.

Net cash provided by (used for) operating activities in 1994, 1995, 1996
was $(0.5) million, $0.6 million, $3.2 million, respectively. These changes were
principally due to increased earnings, partially offset by Queensboro's
increased working capital requirements for accounts receivable, inventories and
accounts payable. Net cash provided by operating activities for the six months
ended June 30, 1997 was insignificant.

Net cash used for investing activities was primarily attributable to
capital expenditures and for 1994, 1995, 1996 and the six months ended June 30,
1997 was $0.9 million, $1.5 million, $2.0 million and $0.3 million,
respectively. The individual components of these capital expenditures were not
significant.

Net cash provided by (used for) financing activities for 1994, 1995, 1996
and the six months ended June 30, 1997 was $1.4 million, $1.0 million, $(1.2)
million and $0.3 million, respectively. Queensboro paid dividends in 1994, 1995,
1996 and the six months ended June 30, 1997 of $0.1 million, $0.9 million, $0.8
million and $6.3 million, respectively. Borrowings in 1994, 1995 and the six
months ended June 30, 1997 were primarily made to fund capital expenditures and
working capital requirements for accounts receivable, inventories and accounts
payable. During 1996, Queensboro repaid a portion of the borrowings outstanding
under its revolving bank credit facility. Prior to the Merger, Queensboro
borrowed approximately $6.1 million to fund its portion of the S Corporation
Distributions.

RESULTS OF OPERATIONS -- AFFILIATED

Affiliated is a high-volume flat rolled steel processor, with operations in
Granite City, Illinois and a newly-constructed facility in Butler, Indiana.
These facilities are strategically located near primary steel producers.
Affiliated purchases wide, coiled hot rolled, cold rolled and galvanized flat
rolled steel from primary producers and pickles (hot rolled) and slits coils to
narrower widths. Principal customers include manufacturers of consumer durables,
commercial transportation equipment, appliances and furniture. Service areas
include Missouri, Kansas, Texas, Oklahoma, Tennessee, Kentucky, Indiana,
Mississippi, Alabama, Georgia, Iowa, Illinois and Nebraska. Affiliated has a
broad geographic and customer mix, and has not experienced any significant
seasonal trends.

31
<PAGE>
The following table sets forth the historical results of operations for
Affiliated.
<TABLE>
<CAPTION>

FIFTY-TWO WEEKS ENDED
--------------------------------------------------------------------------
SEPTEMBER 3, SEPTEMBER 2, AUGUST 31,
1994 % 1995 % 1996 %

------------------------ ------------------------ ----------------------
(IN MILLIONS OF DOLLARS)
<S> <C> <C> <C> <C> <C> <C>
Net sales............................ $ 63.0 100.0% $ 79.0 100.0% $ 81.0 100.0%
Costs and expenses:
Cost of sales.................... 54.6 86.7 68.5 86.7 67.9 83.8
Operating and delivery
expenses....................... 4.3 6.8 5.1 6.5 5.9 7.3
Selling, general and
administrative expenses........ 2.3 3.7 2.8 3.5 3.4 4.2
Depreciation and amortization.... .3 .4 .3 .4 .3 .4
------------ --------- ------------ --------- ---------- ---------
Operating income..................... 1.5 2.4 2.3 2.9 3.5 4.3
</TABLE>

THIRTY-NINE
WEEKS ENDED
---------------------------------------
JUNE 1, MAY 31,
1996 % 1997 %
----------------- -------------------
Net sales............................ $60.8 100.0% $75.4 100.0%
Costs and expenses:
Cost of sales.................... 49.9 82.1 64.4 85.4
Operating and delivery
expenses....................... 5.2 8.6 7.0 9.3
Selling, general and
administrative expenses........ 2.2 3.6 2.2 2.9
Depreciation and amortization.... .3 .4 .5 .7
------- -------- ------- ---------
Operating income..................... 3.2 5.3 1.3 1.7

The results of operations for the interim periods are unaudited and are not
necessarily indicative of the results for the full year.

AFFILIATED RESULTS FOR THE THIRTY-NINE WEEKS ENDED MAY 31, 1997 COMPARED TO THE
THIRTY-NINE WEEKS ENDED JUNE 1, 1996

NET SALES. Net sales increased $14.6 million, or 24.0%, from $60.8 million
for the thirty-nine weeks ended June 1, 1996 to $75.4 million for the
thirty-nine weeks ended May 31, 1997. This increase was primarily attributable
to increased shipments from the new Butler facility, partially offset by a 0.3%
decrease in average realized prices.

COST OF SALES. Cost of sales increased $14.5 million, or 29.1%, from $49.9
million for the thirty-nine weeks ended June 1, 1996 to $64.4 million for the
thirty-nine weeks ended May 31, 1997. As a percentage of net sales, cost of
sales increased from 82.1% for the thirty-nine weeks ended June 1, 1996 to 85.4%
for the thirty-nine weeks ended May 31, 1997. Cost of sales increased primarily
because of the increased shipments as described above and to a lesser extent
because of a 2.5% increase in average purchase prices of raw materials.

OPERATING AND DELIVERY EXPENSES. Operating and delivery expenses increased
$1.8 million, or 34.6%, from $5.2 million for the thirty-nine weeks ended June
1, 1996 to $7.0 million for the thirty-nine weeks ended May 31, 1997. As a
percentage of net sales, operating and delivery expenses increased from 8.6% for
the thirty-nine weeks ended June 1, 1996 to 9.3% for the thirty-nine weeks ended
May 31, 1997. These increases on a dollar and percentage basis were principally
due to the start-up and additional costs attributable to the new Butler
facility.

SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses were essentially unchanged from the thirty-nine weeks
ended June 1, 1996 to the thirty-nine weeks ended May 31, 1997. As a percentage
of net sales, selling, general and administrative expenses decreased from 3.6%
for the thirty-nine weeks ended June 1, 1996 to 2.9% for the thirty-nine weeks
ended May 31, 1997. This percentage decrease was primarily attributable to the
ability to generate additional net sales by the Butler facility without a
commensurate increase in administrative costs.

OPERATING INCOME. Operating income decreased $1.9 million, or 59.4%, from
$3.2 million for the thirty-nine weeks ended June 1, 1996 to $1.3 million for
the thirty-nine weeks ended May 31, 1997. As a percentage of net sales,
operating income decreased from 5.3% for the thirty-nine weeks ended June 1,
1996 to 1.7% for the thirty-nine weeks ended May 31, 1997. The decrease in
operating income was attributable to the decline in average realized prices and
increased cost of raw materials and, to a lesser extent, the start-up expenses
associated with the Butler facility. During the thirty-nine weeks ended June 1,
1996, Affiliated enjoyed a period of higher operating income than any prior
thirty-nine week period in its history. The

32
<PAGE>
increased operating income, both in amount and as a percentage of sales, was due
to the combination of a favorable short-term raw material purchasing environment
coupled with stable sales prices.

AFFILIATED RESULTS FOR THE FIFTY-TWO WEEKS ENDED AUGUST 31, 1996 COMPARED TO THE
FIFTY-TWO WEEKS
ENDED SEPTEMBER 2, 1995

NET SALES. Net sales increased $2.0 million, or 2.5%, from $79.0 million
in 1995 to $81.0 million in 1996. Shipments increased 11% from 1995 to 1996,
primarily due to the addition of a significant new customer in 1996.

COST OF SALES. Cost of sales decreased $0.6 million, or 0.9%, from $68.5
million in 1995 to $67.9 million in 1996. Cost of sales decreased primarily due
to an 11% decrease in average cost of raw materials, partially offset by the
increased shipments. As a percentage of net sales, cost of sales decreased from
86.7% in 1995 to 83.8% in 1996.

OPERATING AND DELIVERY EXPENSES. Operating and delivery expenses increased
$0.8 million, or 15.7%, from $5.1 million in 1995 to $5.9 million in 1996. As a
percentage of net sales, operating and delivery expenses increased from 6.5% in
1995 to 7.3% in 1996.

SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses increased $0.6 million, or 21.4%, from $2.8 million in
1995 to $3.4 million in 1996. As a percentage of net sales, selling, general and
administrative expenses increased from 3.5% for 1995 to 4.2% 1996. This
percentage increase was primarily attributable to higher incentive compensation
paid to management and certain key employees.

OPERATING INCOME. Operating income increased $1.2 million, or 52.2%, from
$2.3 million in 1995 to $3.5 million in 1996. The increase in operating income
was attributable to the factors discussed above. As a percentage of net sales,
operating income increased from 2.9% in 1995 to 4.3% in 1996.

AFFILIATED RESULTS FOR THE FIFTY-TWO WEEKS ENDED SEPTEMBER 2, 1995 COMPARED TO
THE FIFTY-TWO WEEKS
ENDED SEPTEMBER 3, 1994

NET SALES. Net sales increased $16.0 million, or 25.4%, from $63.0 million
in 1994 to $79.0 million in 1995. Shipments increased by 20.2% and average
realized sales prices increased by 4.6%. Increased shipments to two customers
accounted for approximately one-half of the increased shipment volumes.

COST OF SALES. Cost of sales increased $13.9 million, or 25.5%, from $54.6
million in 1994 to $68.5 million in 1995. The increase in cost of sales was a
direct result of the increase in product shipments and a 1.3% increase in the
average cost of raw materials compared to 1994 costs. As a percentage of net
sales, cost of sales remained constant at 86.7% for both periods.

OPERATING AND DELIVERY EXPENSES. Operating and delivery expenses increased
$0.8 million, or 18.6%, from $4.3 million in 1994 to $5.1 million in 1995. The
increase in operating and delivery expenses was a direct result of the increase
in product shipments. As a percentage of net sales, operating and delivery
expenses declined from 6.8% in 1994 to 6.5% in 1995.

SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses increased $0.5 million, or 21.7%, from $2.3 million in
1994 to $2.8 million in 1995. This increase was primarily attributable to higher
incentive compensation paid to management and certain key employees. As a
percentage of net sales, selling, general and administrative expenses decreased
from 3.7% in 1994 to 3.5% in 1995.

OPERATING INCOME. Operating income increased $0.8 million, or 53.3%, from
$1.5 million in 1994 to $2.3 million in 1995. The increase in operating income
was attributable to the factors discussed above. As a percentage of net sales,
operating income increased from 2.4% in 1994 to 2.9% in 1995.

AFFILIATED LIQUIDITY AND CAPITAL RESOURCES

At May 31, 1997, Affiliated's working capital was $14.9 million, compared
to a deficit of $0.3 million at August 31, 1996. The increase in working capital
is principally due to the reclassification of Affiliated's

33
<PAGE>
revolving credit facility from current to long-term. Absent such
reclassification, the working capital deficit would have been $.9 million.
Affiliated operated with minimal levels of working capital during 1996. Prior to
the Mergers, Affiliated's principal capital requirements were to fund its
working capital and the purchase and improvement of facilities, machinery and
equipment. Historically, these requirements have been met by cash flow generated
from operations and borrowings under bank credit facilities. During the year
ended August 31, 1996, Affiliated incurred capital expenditures of $5.6 million,
primarily associated with the construction of its new facility at Butler,
Indiana. Construction financing for the facility was provided by a bank loan
bearing interest at one percent over the bank's prime rate and is secured by the
facility.

Net cash provided by (used for) operating activities for the fifty-two
weeks ended September 3, 1994, September 2, 1995 and August 31, 1996 was $(1.1)
million, $2.1 million and $(0.9) million, respectively. Net cash used for
operating activities for the thirty-nine weeks ended May 31, 1997 was $6.3
million. These changes were principally due to funding Affiliated's working
capital requirements for accounts receivable, inventories and accounts payable.

Net cash used for investing activities was primarily attributable to
capital expenditures and for the fifty-two weeks ended September 3, 1994,
September 2, 1995 and August 31, 1996 was $0.3 million, $0.6 million and $5.5
million, respectively. Net cash used for investing activities was primarily
attributable to capital expenditures and for the thirty-nine weeks ended May 31,
1997 was $1.1 million. Capital expenditures during 1996 were primarily due to
the construction of the Butler facility.

Net cash provided by (used for) financing activities for the fifty-two
weeks ended September 3, 1994, September 2, 1995 and August 31, 1996 was $1.4
million, $(1.5) million and $6.4 million, respectively. Net cash provided by
financing activities for the thirty-nine weeks ended May 31, 1997 was $7.2
million. Affiliated redeemed $0.5 million of its redeemable preferred stock
during the fifty-two weeks ended September 3, 1994. Borrowings during 1996 were
to fund the capital expenditure requirements attributable to the construction of
the Butler facility. Affiliated funds its working capital requirements for
accounts receivable, inventories and accounts payable primarily through
borrowings (repayments) under existing revolving bank credit facilities.

RESULTS OF OPERATIONS -- SOUTHERN ALLOY

Southern Alloy is a specialty metal processor located in Salisbury, North
Carolina, specializing in ferrous and non-ferrous continuous, centrifugal and
static cast bar stock. Southern Alloy performs a number of metal processing
services, including precision saw cutting, precision and semi-finished
machining, drilling and milling operations. Southern Alloy provides products and
services primarily to the fluid power, machine tools, pump and valve, power
transmission and textile machinery industries. The market for Southern Alloy's
products and services is principally the southeastern United States. Southern
Alloy has a broad customer mix, and has not experienced any significant seasonal
trends.

The following table sets forth the historical results of operations for
Southern Alloy.
<TABLE>
<CAPTION>

SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
------------------------------------------ ------------------------------------------
1995 % 1996 % 1996 % 1997 %
-------------------- -------------------- -------------------- --------------------
(IN MILLIONS OF DOLLARS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net sales............................... $ 12.0 100.0% $ 10.8 100.0% $ 5.9 100.0% $ 5.6 100.0%
Costs and expenses:
Cost of sales....................... 7.7 64.2 7.1 65.7 3.8 64.4 3.6 64.3
Operating and delivery.............. .9 7.5 .7 6.5 .4 6.8 .4 7.1
Selling, general and administrative
expenses.......................... 2.8 23.3 2.9 26.9 1.5 25.4 1.3 23.2
Depreciation and amortization....... .1 .8 .1 .9 .1 1.7 .1 1.8
--------- --------- --------- --------- --------- --------- --------- ---------
Operating income ....................... .5 4.2 -- -- .1 1.7 .2 3.6
</TABLE>

The results of operations for the interim period are unaudited and are not
necessarily indicative of the results for the full year.

34
<PAGE>
SOUTHERN ALLOY RESULTS FOR THE SIX MONTHS ENDED JUNE 30, 1997 COMPARED TO THE
SIX MONTHS ENDED
JUNE 30, 1996

NET SALES. Net sales decreased $0.3 million, or 5.1%, from $5.9 million
for the six months ended June 30, 1996 to $5.6 million for the six months ended
June 30, 1997. This decrease resulted from a decline in value-added processing
outsourced to Southern Alloy. Customers who were having capacity constraints in
1996 requested Southern Alloy to temporarily perform value-added processing.
Customers began returning this processing to their respective internal
operations in late 1996 and continuing into 1997 resulting in the work done by
Southern Alloy returning to normal levels.

COST OF SALES. Cost of sales decreased $0.2 million, or 5.3%, from $3.8
million for the six months ended June 30, 1996 to $3.6 million for the six
months ended June 30, 1997. The decrease in cost of sales was principally due to
the decrease in net sales as described above. As a percentage of net sales, cost
of sales decreased from 64.4% for the six months ended June 30, 1996 to 64.3%
for the six months ended June 30, 1997.

OPERATING AND DELIVERY EXPENSES. Operating and delivery expenses were
essentially unchanged for the six months ended June 30, 1996 compared to the six
months ended June 30, 1997. As a percentage of net sales, operating and delivery
expenses increased from 6.8% for the six months ended June 30, 1996 to 7.1% for
the six months ended June 30, 1997. This percentage increase was primarily due
to spreading of fixed operating costs over a lower volume of net sales.

SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses decreased $0.2 million, or 13.3%, from $1.5 million for
the six months ended June 30, 1996 to $1.3 million for the six months ended June
30, 1997. The decrease was due to a $0.2 million non-recurring non-cash charge
for stock options granted during the six months ended June 30, 1996. As a
percentage of net sales, selling, general and administrative expenses decreased
from 25.4% for the six months ended June 30, 1996 to 23.2% for the six months
ended June 30, 1997.

OPERATING INCOME. Operating income increased $0.1 million, or 100.0%, from
$0.1 million for the six months ended June 30, 1996 to $0.2 million for the six
months ended June 30, 1997. The increase in operating income was attributable to
the factors discussed above. As a percentage of net sales, operating income
increased from 1.7% for the six months ended June 30, 1996 to 3.6% for the six
months ended June 30, 1997.

SOUTHERN ALLOY RESULTS FOR YEAR ENDED DECEMBER 31, 1996 COMPARED TO YEAR ENDED
DECEMBER 31, 1995

NET SALES. Net sales declined $1.2 million, or 10.0%, from $12.0 million
in 1995 to $10.8 million in 1996. This decrease was expected as a significant
portion of 1995 net sales was the result of temporary outsourcing of value-added
processing by certain customers with short-term capacity constraints. In 1996,
these customers returned this processing to their respective internal
operations. Additionally, average realized sales prices for copper-based metals
declined 8% from 1995 to 1996 due to significant competitive pressure.

COST OF SALES. Cost of sales decreased $0.6 million, or 7.8%, from $7.7
million in 1995 to $7.1 million in 1996. This decrease was primarily due to the
decrease in sales as described above. As a percentage of net sales, cost of
sales increased from 64.2% in 1995 to 65.7% in 1996.

OPERATING AND DELIVERY EXPENSES. Operating and delivery expenses decreased
$0.2 million, or 22.2%, from $0.9 million in 1995 to $0.7 million in 1996. This
decrease was primarily due to a reduction in the workforce to meet expected
sales levels. As a percentage of net sales, operating and delivery expense
decreased from 7.5% in 1995 to 6.5% in 1996.

SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses increased $0.1 million, or 3.6%, from $2.8 million in
1995 to $2.9 million in 1996. Reductions in incentive compensation of $0.2
million in 1996 were offset by a $0.2 million non-cash charge attributable to
stock options granted during 1996. As a percentage of net sales, selling,
general and administrative expenses

35
<PAGE>
increased from 23.3% in 1995 to 26.9% in 1996. This percentage increase was due
to the decline in net sales.

OPERATING INCOME. Operating income declined $0.5 million, or 100.0%, from
$0.5 million in 1995 to break-even in 1996. The decrease in operating income was
attributable to the factors discussed above.

SOUTHERN ALLOY LIQUIDITY AND CAPITAL RESOURCES

At June 30, 1997, Southern Alloy's working capital deficit was $0.6
million, compared to working capital of $0.3 million and $0.4 million, at
December 31, 1996 and 1995, respectively. Prior to the Mergers, Southern Alloy's
principal capital requirements were to fund its working capital and the purchase
and improvement of facilities, machinery and equipment. Historically, these
requirements have been met by income generated from operations and borrowings
under bank credit facilities.

Net cash provided by operating activities for 1995 and 1996 was $0.8
million and $0.3 million, respectively. These changes were principally due to
increased earnings, partially offset by funding Southern Alloy's working capital
requirements for accounts receivable, inventories and accounts payable. Net cash
provided by operating activities for the six months ended June 30, 1997 was
insignificant.

Net cash used for financing activities for 1995 and 1996 was $0.7 million
and $0.4 million, respectively. Southern Alloy paid dividends in 1995 and 1996
of $0.2 million and $0.1 million, respectively. Additionally, during 1996
Southern Alloy repurchased $0.2 million of its common stock. During 1995
Southern Alloy loaned $0.5 million to affiliates. Net cash provided by financing
activities for the six months ended June 30, 1997 was insignificant, with
dividends paid of $1.1 million offset by borrowings repaid by affiliates of $0.9
million.

RESULTS OF OPERATIONS -- UNI-STEEL

Uni-Steel is a value-added metals processor/service center with three
locations in Oklahoma. Uni-Steel's products include carbon structural, pressure
vessel, high strength low alloy and alloy grades of steel sold to customers in
Oklahoma, Missouri, Arkansas, Texas, New Mexico, Colorado and Kansas. Uni-Steel
provides value-added metals processing products, and services including
cutting-to-length, leveling, flame cutting, plasma cutting, shearing and sawing.
Uni-Steel services customers in a wide variety of industries, including oil and
gas, truck trailer, mining and construction industries. Uni-Steel has a broad
geographic and customer mix, and has not experienced any significant seasonal
trends.

The following table sets forth the historical results of operations for
Uni-Steel.
<TABLE>
<CAPTION>

YEARS ENDED NINE MONTHS ENDED
SEPTEMBER 30, JUNE 30,
------------------------------------------ ------------------------------------------
1995 % 1996 % 1996 % 1997 %
-------------------- -------------------- -------------------- --------------------
(IN MILLIONS OF DOLLARS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net sales............................... $ 47.7 100.0% $ 54.6 100.0% $ 40.4 100.0% $ 46.1 100.0%
Costs and expenses:
Cost of sales....................... 38.0 79.7 43.4 79.5 32.1 79.5 36.7 79.6
Operating and delivery.............. 4.7 9.9 5.4 9.9 3.9 9.7 4.7 10.2
Selling, general and administrative
expenses.......................... 2.8 5.9 2.9 5.3 2.2 5.4 2.3 5.0
Depreciation and amortization....... .5 .9 .5 .9 .4 .9 .5 1.1
--------- --------- --------- --------- --------- --------- --------- ---------
Operating income........................ 1.7 3.6 2.4 4.4 1.8 4.5 1.9 4.1
</TABLE>

The results of operations for 1995 and the interim periods are unaudited.
The results of operations for the interim periods are not necessarily indicative
of the results for the full year.

36
<PAGE>
UNI-STEEL RESULTS FOR NINE MONTHS ENDED JUNE 30, 1997 COMPARED TO THE NINE
MONTHS ENDED
JUNE 30, 1996

NET SALES. Net sales increased $5.7 million, or 14.1%, from $40.4 million
for the nine months ended June 30, 1996 to $46.1 million for the nine months
ended June 30, 1997. This increase was primarily the result of expanding the
plate steel product line in response to customer demand.

COST OF SALES. Cost of sales increased $4.5 million, or 14.0%, from $32.1
million for the nine months ended June 30, 1996 to $36.7 million for the nine
months ended June 30, 1997. This increase was primarily the result of the
increased sales level. As a percentage of net sales, cost of sales increased
from 79.5% for the nine months ended June 30, 1996 to 79.6% for the nine months
ended June 30, 1997.

OPERATING AND DELIVERY EXPENSES. Operating and delivery expenses increased
$0.8 million, or 20.5%, from $3.9 million for the nine months ended June 30,
1996 to $4.7 million for the nine months ended June 30, 1997. This increase was
primarily attributable to the increased costs for additional warehouse space and
personnel to accommodate the increased sales level. As a percentage of net
sales, operating and delivery expenses increased from 9.7% for the nine months
ended June 30, 1996 to 10.2% for the nine months ended June 30, 1997.

SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses increased $0.1 million, or 4.5%, from $2.2 million for
the nine months ended June 30, 1996 to $2.3 million for the nine months ended
June 30, 1997. This increase was primarily attributable to increases in sales
and marketing expenses necessary to support the increased level of sales. As a
percentage of net sales, selling, general and administrative expenses decreased
from 5.4% for the nine months ended June 30, 1996 to 5.0% for the nine months
ended June 30, 1997.

OPERATING INCOME. Operating income increased $0.1 million, or 5.6%, from
$1.8 million for the nine months ended June 30, 1996 to $1.9 million for the
nine months ended June 30, 1997. This increase in operating income was
attributable to the factors discussed above. As a percentage of net sales,
operating income decreased from 4.5% for the nine months ended June 30, 1996 to
4.1% for the nine months ended June 30, 1997.

UNI-STEEL RESULTS FOR YEAR ENDED SEPTEMBER 30, 1996 COMPARED TO THE YEAR ENDED
SEPTEMBER 30,
1995

NET SALES. Net sales increased $6.9 million, or 14.5%, from $47.7 million
in 1995 to $54.6 million in 1996. This increase was primarily the result of
expanding the plate steel product line in response to customer demand.

COST OF SALES. Cost of sales increased $5.4 million, or 14.2%, from $38.0
million in 1995 to $43.4 million in 1996. This increase was due to the increase
in net sales. As a percentage of net sales, cost of sales decreased from 79.7%
in 1995 to 79.5% in 1996.

OPERATING AND DELIVERY EXPENSES. Operating and delivery expenses increased
$0.7 million, or 14.9%, from $4.7 million in 1995 to $5.4 million in 1996. This
increase was primarily attributable to the increase in net sales. As a
percentage of net sales, operating and delivery expenses remained constant at
9.9% for both periods.

SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses increased $0.1 million, or 3.6%, from $2.8 million in
1995 to $2.9 million in 1996. As a percentage of net sales, selling, general and
administrative expenses decreased from 5.9% in 1995 to 5.3% in 1996. This
percentage decrease was primarily due to the increase in net sales without a
commensurate increase in administrative costs.

OPERATING INCOME. Operating income increased $0.7 million, or 41.2%, from
$1.7 million in 1995 to $2.4 million in 1996. The increase in operating income
was attributable to the factors discussed above. As a percentage of net sales,
operating income increased from 3.6% in 1995 to 4.4% in 1996.

37
<PAGE>
UNI-STEEL LIQUIDITY AND CAPITAL RESOURCES

At June 30, 1997, Uni-Steel's working capital was $7.5 million, compared to
$6.1 million at September 30, 1996. Uni-Steel's principal capital requirements
are to fund its working capital and the purchase and improvement of facilities,
machinery and equipment. Historically, these requirements have been met by
income generated from operations and borrowings under bank credit facilities.

Net cash provided by (used in) operating activities for the year ended
September 30, 1996 and for the nine months ended June 30, 1997 was $0.2 million
and $(2.3) million, respectively. These changes were principally due to funding
Uni-Steel's working capital requirements for accounts receivable, inventories
and accounts payable.

Net cash used for investing activities, primarily for capital expenditures,
for the year ended September 30, 1996 and for the nine months ended June 30,
1997 was $0.3 million and $0.3 million, respectively.

Net cash provided by financing activities for the year ended September 30,
1996 and for the nine months ended June 30, 1997 was $0.1 million and $2.8
million, respectively. During the year ended September 30, 1996, Uni-Steel
repurchased $0.2 million of its capital stock, borrowed an additional $0.8
million under its revolving credit facility and repaid $0.4 million of long-term
debt. During the nine months ended June 30, 1997, Uni-Steel borrowed an
additional $2.0 million under its revolving credit facility and $1.0 million in
long-term debt.

<PAGE>
BUSINESS

Metals USA was founded to become a leading national value-added metals
processor/service center, to manufacture higher-value components from processed
metals and to pursue aggressively the consolidation of the highly-fragmented
metals processing industry. The Company believes that the metals
processor/service center industry in the United States is consolidating and
currently has as many as 3,500 participants collectively generating over $75
billion in annual revenues. The Company intends to play a major role in the
consolidation of this industry by combining a broad-based group of metals
processing and manufacturing companies. To be a leader in the consolidation of
the metals processing industry, the Company will be required to acquire and
deploy the capital-intensive equipment and technology necessary to meet rapidly
changing customer requirements. On July 11, 1997, Metals USA acquired the eight
Founding Companies, which have been in business an average of 40 years and had
1996 pro forma combined net sales of $387.0 million.

The Company intends to capitalize on the trend of both primary metals
producers and end-users of metal products to reduce in-house processing and
outsource processing and inventory management requirements. The Company's metals
processing business purchases metals from primary producers, who focus on large
volume sales of unprocessed metals, and in most cases performs customized
processing services to meet specifications provided by end-use customers. By
providing these services, as well as offering inventory management and
just-in-time delivery services, the Company enables its customers to reduce
material costs, enhance quality, decrease capital required for raw materials
inventory and processing equipment and save time, labor and other expenses. The
Company believes that these "partnering" relationships with suppliers and
customers enable it to reduce its customers' overall cost of their manufactured
metal products. In addition to its metals processing capabilities, the Company
manufactures higher-value components from processed metals, such as finished
building products, and produces a number of finished components machined from
specialty metals, such as bushings, pump parts and hydraulic cylinder parts. The
Company intends to continue its focus on the metal building products industry,
the single fastest growing segment of the metals processing industry.

The eight Founding Companies sell to over 10,000 customers in businesses
such as the machining, furniture, transportation equipment, power and process
equipment, industrial/commercial construction, consumer durables and electrical
equipment industries, and machinery and equipment manufacturers. The Company
believes that its broad customer base and its wide array of metals processing
capabilities, products and services, coupled with its broad geographic coverage
of the United States, reduce the Company's susceptibility to economic
fluctuations affecting any one industry or geographical area.

INDUSTRY OVERVIEW

Companies operating in the metals industry can be generally characterized
as: (i) primary metals producers, (ii) metals processors/service centers or
(iii) end-users. The Company believes that both primary metals producers and
end-users are increasingly seeking to have their metals processing and inventory
management requirements met by value-added metals processors/service centers.
Primary metals producers, which manufacture and sell large volumes of steel,
aluminum and specialty metals in standard sizes and configurations, generally
sell only to those large end-users and metals processors/service centers who do
not require processing of the products and who can tolerate relatively long lead
times. Metals processors/service centers, which offer services ranging from
precision, value-added preproduction processing in accordance with specific
customer demands to storage and distribution of unprocessed metal products,
function as intermediaries between primary metals producers and end-users, such
as contractors and OEMs. End-users incorporate the processed metal into a
product, in some cases without further modification.

Historically, metals service centers provided few value-added services and
were little more than distribution centers, linking metals producers with all
but the largest end-users of metals. In the past two decades, however, the
metals service center business has evolved significantly, and the most
successful metals service centers have added processing capabilities, thereby
offering an increasingly broad range of

39
<PAGE>
value-added services and products both to primary metals producers and
end-users. This evolution has resulted from several trends in the primary metals
industry as well as trends among end-users.

The current trend among primary metals producers is to focus on their core
competency of high-volume production of a limited number of standardized metal
products. This change in focus has been driven by their need to develop and
improve efficient, volume-driven production techniques in order to remain
competitive. As a result, during the past two decades, most of the primary
producers have sold their service centers, many of which are now independently
owned, including several of the Founding Companies.

At the same time, most end-users are no longer able to obtain processed
products directly from primary metals producers and have recognized the economic
advantages associated with outsourcing their customized metals processing and
inventory management requirements. Outsourcing permits end-users to reduce total
production cost by shifting the responsibility for preproduction processing to
value-added metals processors/service centers, whose higher efficiencies in
performing these processing services make the ownership and operation of the
necessary equipment more financially feasible.

Value-added metals processors/service centers have also benefitted from
growing customer demand for inventory management and just-in-time delivery
services. These services, which are not normally available from primary metals
producers, enable end-users to reduce material costs, decrease capital required
for inventory and equipment and save time, labor and other expenses. In response
to customer expectations, the more sophisticated value-added metals
processors/service centers have acquired specialized and expensive equipment to
perform customized processing and have installed sophisticated computer systems
to automate order entry, inventory tracking, management and sourcing and
work-order scheduling. Additionally, some value-added metals processors/service
centers have installed electronic data interchange ("EDI") between their
computer systems and those of their customers to facilitate order entry, timely
delivery and billing.

These trends have resulted in value-added metals processors/service centers
playing an increasingly important role in all segments of the metals industry.
For example, the percentage of total flat-rolled steel shipments sold by service
centers in the United States increased from approximately one-quarter in 1975 to
approximately one-half in 1995. Metals processors/service centers now serve the
needs of over 300,000 OEMs and fabricators nationwide.

INDUSTRY CONSOLIDATION

Based on industry data, the Company believes that the metals
processor/service center industry is highly fragmented, with as many as 3,500
participants. The Company believes that this industry is consolidating and that
most companies are small, owner-operated businesses with limited access to
capital for modernization and expansion. These owners traditionally have not had
a viable exit strategy, leaving them with few attractive liquidity options.
According to industry data, the metals processor/service center industry
generates over $75 billion in annual net sales.

The necessity for value-added metals processors/service centers to add
specialized processing equipment, manage inventory on behalf of their customers
and utilize sophisticated computer systems is requiring industry participants to
make substantial capital investments in order to remain competitive. In
addition, many customers are seeking to reduce their operating costs by limiting
the number of suppliers with whom they do business, often eliminating those
suppliers offering limited ranges of products and services. These trends have
placed the substantial number of small, owner-operated businesses at a
competitive disadvantage because their operations are limited as to product
line, processing equipment, inventory and service area, and they have limited
access to the capital resources necessary to increase their capabilities. As a
result, smaller companies without access to capital for expansion and
modernization are finding it increasingly difficult to compete as present
industry trends continue, and the Company believes these businesses are
potential acquisition candidates.

40
<PAGE>
and eliminates the acquired service center's separate identity, thereby
effectively converting the business into a branch office. The Company believes
that the sale of well-established businesses to these acquirors is not an
attractive alternative for many owners, particularly those who do not wish to
retire from the business. The Company, therefore, believes significant
acquisition opportunities exist for a well-capitalized, national value-added
metals processor/service center that employs a decentralized operating strategy
and preserves the identity of the acquired businesses. The Company believes that
this operating strategy and the highly fragmented nature of the metals industry
should allow it to be a leader in the industry's consolidation.

STRATEGY

The Company's objective is to become a leading national value-added metals
processor/service center, to manufacture higher-value components from processed
metals and to pursue aggressively the consolidation of the highly fragmented
metals processing industry. Management plans to achieve this goal by:

EXPANDING THROUGH ACQUISITIONS. The Company believes that the metals
processor/service center industry is highly fragmented and consolidating, with
as many as 3,500 participants, collectively generating over $75 billion in
annual net sales. The key elements of the Company's acquisition strategy are:

ENTER NEW GEOGRAPHIC MARKETS. The Company intends to expand into
geographic markets not currently served by the Founding Companies by
acquiring well-established value-added metals processors/service centers
that, like the Founding Companies, are leaders in their regional markets.

EXPAND WITHIN EXISTING GEOGRAPHIC MARKETS. The Company also plans to
acquire additional value-added metals processors/service centers in many of
the markets in which it currently operates in order to expand the volume
and scope of the Company's operations in a particular market. The Company
also intends to pursue "tuck-in" acquisitions of smaller operations to
increase utilization at existing facilities, thereby improving operating
efficiencies and more effectively using its capital without a proportionate
increase in administrative costs.

ENTER COMPLEMENTARY PROCESSING AND SERVICES MARKETS. The Company
intends to acquire companies offering complementary processes and services
to those industries currently served by the Company as well as new
industries. This will enable existing and future customers to obtain a
broader range of value-added processes and services from the Company. The
Company also intends to leverage its metals processing capabilities by
acquiring leading companies who manufacture higher-value components from
processed metals.

OPERATING ON A DECENTRALIZED BASIS. The Company intends to manage the
Founding Companies and subsequently acquired companies on a decentralized basis,
with local management retaining responsibility for day-to-day operations,
profitability and growth of the business. The Company believes that, while
maintaining strong operating and financial controls, a decentralized structure
will retain the entrepreneurial culture present in each of the Founding
Companies and will allow the Company to capitalize on the considerable local and
regional market knowledge, goodwill, name recognition and customer relationships
possessed by each Founding Company and subsequently acquired businesses.

ACCELERATING INTERNAL SALES GROWTH. A key component of the Company's
strategy is to accelerate internal sales growth at each Founding Company and at
each subsequently acquired business. The key elements of this internal growth
strategy are:

EXPAND PRODUCTS AND SERVICES TO EXISTING CUSTOMERS. The Company
believes it will be able to expand the products and services it offers to
its existing customers by leveraging the specialized and diverse product,
processing and marketing expertise of individual Founding Companies.
Additionally, the Company believes that there are significant opportunities
to accelerate internal growth by making capital investments in areas such
as inventory management, logistics systems and processing equipment,
thereby expanding the range of processes and services offered by the
Company. The Company intends to develop and maintain long-term
"partnering" relationships with customers in response to their demand for
shorter production cycles, outsourcing, just-in-time delivery and other
services that lower customers' total production costs.

41
<PAGE>
ADD NEW CUSTOMERS. The Company believes that there are numerous OEMs
not currently served by the Company that could reduce their production
costs by taking advantage of the Company's processing, inventory management
and other services. Many of these OEMs currently perform in-house metals
processing tasks and maintain significant inventories of metal. Through its
well-trained, technically competent sales force, the Company believes that
it can demonstrate to these OEMs the cost savings achievable through the
Company's processing, inventory management and other services. The Company
also intends to implement a Company-wide marketing program that will
utilize professional marketing services and to adopt "best practices"
among the Founding Companies to identify, obtain and maintain new
customers. In addition, the Company intends to increase its visibility
through trade shows, associations, publications and telemarketing.

IMPROVING OPERATING MARGINS. The Company believes that the combination of
the Founding Companies will provide significant opportunities to realize
purchasing economies and increase the Company's profitability. The key
components of this strategy are:

INCREASE OPERATING EFFICIENCIES. The Company believes that the
combination of the Founding Companies presents significant opportunities to
achieve operating efficiencies and cost savings. The Company intends to use
its increased purchasing power to gain volume discounts and to develop more
effective inventory management systems. The Company expects measurable cost
savings in such areas as vehicle leasing and maintenance, information
systems and contractual relationships with key suppliers. Moreover, the
Company intends to review its operating and training programs at the local
and regional levels to identify those "best practices" that can be
successfully implemented throughout its operations. As primary metals
producers and end-users continue to follow the industry trend of
outsourcing processing and distribution services to value-added metals
processors/services centers, the Company expects to increase asset
utilization, particularly of its metals processing machinery, and realize
increased efficiencies and economies of scale.

CENTRALIZE APPROPRIATE ADMINISTRATIVE FUNCTIONS. The Company believes
that there are significant opportunities to improve operating margins by
consolidating administrative functions such as financing, marketing,
insurance, employee benefits, accounting and risk management.

ACQUISITION PROGRAM

The Company believes it will be regarded by acquisition candidates as an
attractive acquiror because of: (i) the Company's strategy for creating a
national, comprehensive and professionally managed value-added metals
processor/service center company; (ii) the Company's decentralized operating
strategy which emphasizes an ongoing role for owners, management and key
personnel of acquired businesses, as well as meaningful equity positions for
these individuals which will enable them to participate in the Company's growth;
(iii) the Company's increased visibility and access to financial resources as a
public company; and (iv) the potential for increased profitability of the
acquired company due to purchasing economies, centralization of administrative
functions, enhanced systems capabilities and access to increased marketing
resources.

The Company believes management of the Founding Companies will be
instrumental in identifying and completing future acquisitions. Some of the
Founding Companies have recently completed acquisitions, which have given them
valuable acquisition experience. Moreover, several of the principals of the
Founding Companies currently have leadership roles in industry trade
associations, which has enabled these individuals to become personally
acquainted with the owners of numerous acquisition targets across the country.
The Company expects that the visibility of these individuals and the Company
within the industry will increase the awareness of, and interest of acquisition
candidates in, the Company and its acquisition program. Within the past several
months, the Company has contacted the owners of a number of acquisition
candidates, several of whom have expressed interest in having their businesses
acquired by the Company.

As consideration for future acquisitions, the Company intends to use
various combinations of its Common Stock, cash and notes. The consideration for
each future acquisition will vary on a case-by-case basis, with the major
factors in establishing the purchase price being historical operating results,
future

42
<PAGE>
prospects of the target and the ability of the target to complement the services
offered by the Company. The Company believes that it can structure acquisitions
as tax-free reorganizations by using its Common Stock as consideration, which
will be attractive to those targeted business owners with a low tax basis in the
stock of their businesses.

PROCESSING SERVICES AND PRODUCTS

The Company engages in preproduction processing of steel, aluminum and
specialty metals and acts as an intermediary between primary metals producers
and end-users. The Company purchases metals from primary producers, maintains an
inventory of various metals to allow rapid fulfillment of customer orders and
performs customized processing services to the specifications provided by
end-users and other customers. By providing these services, as well as offering
inventory management and just-in-time delivery services, the Company enables its
customers to reduce overall production costs and decrease capital required for
raw materials inventory and metals processing equipment.

The Company buys steel and aluminum from integrated mills and mini-mills
and specialty metals from foundries. The Company purchases its raw materials in
anticipation of projected customer requirements based on interaction and
feedback from customers, market conditions, historical usage and industry
research. Primary producers typically find it more cost effective to focus on
large volume production and sale of steel, aluminum and specialty metals in
standard sizes and configurations to large volume purchasers. For example,
flat-rolled steel is normally sold by mills in coils typically weighing between
40,000 and 50,000 pounds. The Company processes the metals to the precise
thickness, length, width, shape, temper and surface quality specified by its
customers. Value-added processes provided by the Company include:

o SHEARING AND CUTTING TO LENGTH -- the cutting of metals into pieces
and along the width of a coil to create sheets or plates.

o METALLURGY -- the analysis and testing of the physical and chemical
composition of metals.

o BLANKING -- the process in which flat-rolled metal is cut into precise
two dimensional shapes by passing it through a press employing a
blanking die.

o FLAME AND PLASMA CUTTING -- the cutting of metals to produce various
shapes according to customer-supplied drawings.

o LEVELING -- the flattening of metals to uniform tolerances for proper
machining.

o SLITTING -- the cutting of coiled metals to specified widths along the
length of the coil.

o PICKLING -- a chemical treatment to improve surface quality by
removing the surface oxidation and scale which develops on the metal
shortly after it is hot-rolled.

o TEE-SPLITTING -- the splitting of metal beams.

o EDGE TRIMMING -- a process which removes a specified portion of the
outside edges of coiled metal to produce uniform width and round or
smooth edges.

o CAMBERING -- the bending of structural steel to improve load-bearing
capabilities.

Additional capabilities of the Company include precision roll forming (the
process by which metals are bent and stretched into various shapes), machining
and applications engineering. Using these capabilities, the Company uses
processed metals to manufacture higher-value components, such as finished
building products, and machines specialty metals into such items as bushings,
pump parts and hydraulic cylinder parts.

Once an order is received, the appropriate inventory is selected and
scheduled for processing in accordance with the customer's requirements and
specified delivery date. Orders are monitored by the Company's computer systems,
including in certain locations, the use of bar coding to aid in, and reduce the
cost of, tracking material. The Company's computer systems record the source of
all metal shipped to customers. This enables the Company to identify the source
of any metal which later is shown not to meet

43
<PAGE>
industry standards or that fails during or after manufacture. This capability is
important to the Company's customers as it allows them to assign responsibility
for non-conforming or defective metal to the mill or foundry that produced that
metal. Many of the products and services provided by the Company can be ordered
and tracked through EDI, a sophisticated electronic network that directly
connects the Company's computer system to those of its customers.

A majority of the Company's orders are filled within 24 hours. This is
accomplished through the Company's special inventory management programs which
permit the Company to deliver processed metals in accordance with the
just-in-time inventory programs of its customers. The Company is required to
carry sufficient inventory of raw materials to meet the short lead time and
just-in-time delivery requirements of its customers.

While the Company ships products throughout the United States, most of its
customers are located within a 200-mile radius of the Company's facilities, thus
enabling an efficient delivery system capable of handling a large number of
short lead-time orders. The Company transports most of its products directly to
its customers either through common or contract trucking companies or through
its own trucks for short-distance and/or multi-stop deliveries.

The following table sets forth information on processing and other services
offered by each Founding Company:
<TABLE>
<CAPTION>
TEXAS SOUTHERN
ALUM. INTERSTATE QUEENSBORO AFFILIATED ALLOY UNI-STEEL WILLIAMS
----- ---------- ---------- ---------- -------- --------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Shearing and cutting to length.......... X X X X X X X
Metallurgy and traceability............. X X X X X X X
Blanking................................ X X X X
Shearing/sawing......................... X X X X X
Flame/plasma cutting.................... X X X X
Leveling................................ X X
Slitting................................ X X
Pickling................................ X
Tee-splitting........................... X X X
Edge trimming........................... X X
Cambering............................... X X X
Bar coding.............................. X
EDI..................................... X X X
Just-in-time............................ X X X X X X X
</TABLE>

SERVICE
SYSTEMS
-------
Shearing and cutting to length.......... X
Metallurgy and traceability............. X
Blanking................................ X
Shearing/sawing.........................
Flame/plasma cutting....................
Leveling................................ X
Slitting................................ X
Pickling................................
Tee-splitting...........................
Edge trimming........................... X
Cambering...............................
Bar coding.............................. X
EDI..................................... X
Just-in-time............................ X

The following two case studies are examples of the types of value-added
processes and services provided by two of the Founding Companies for their
customers:

Uni-Steel's largest customer is one of the world's largest elevator
and escalator manufacturers. Uni-Steel sells a variety of steel products to
this customer in customized lengths and performs the majority of its
preproduction processing and just-in-time inventory management. Uni-Steel
saws, shears, flame cuts, forms, punches and drills holes in the metal
parts and delivers the product within 24 hours of ordering.

Affiliated achieved substantial total production cost savings for a
major manufacturer of electrical components. Until the fall of 1995, the
customer bought all its steel directly from an integrated mill which
required this customer to carry substantial amounts of inventory as well as
its own processing equipment. Affiliated explained the benefits of its
inventory management, processing, just-in-time delivery and other services.
As an Affiliated customer, its steel inventory dropped from approximately
two months' supply to an approximately three days' supply, and the customer
realized a significant cash flow savings.

44
<PAGE>
The following table sets forth information with respect to the Founding
Companies' 1996 and six months ended June 30, 1997 combined net sales by metals
type:
<TABLE>
<CAPTION>
TWELVE MONTHS ENDED
SIX MONTHS ENDED
DECEMBER 31, 1996 JUNE 30, 1997
--------------------- ---------------------
NET SALES % NET SALES %
--------- --------- --------- ---------
(IN MILLIONS OF DOLLARS)

Steel:
<S> <C> <C> <C> <C>
Structural......................... $ 73.7 19.6% $ 40.0 18.3%
Plate.............................. 54.1 14.4 35.1 16.1
Bar................................ 30.4 8.1 13.2 6.0
Hot-rolled sheet/coil.............. 85.7 22.8 58.8 26.9
Cold-rolled sheet/coil............. 30.1 8.0 16.8 7.7
Galvanized sheet/coil.............. 7.9 2.1 2.2 1.0
Tubing............................. 16.9 4.5 10.1 4.6
Fabricated products................ 15.0 4.0 7.0 3.2
Other.............................. 6.4 1.7 4.9 2.2
--------- --------- --------- ---------
Total......................... 320.2 85.2 188.1 86.0
--------- --------- --------- ---------

Stainless steel, alloys and specialty
metals................................ 15.4 4.1 6.7 3.1

Metal building products................. 40.2 10.7 23.8 10.9
--------- --------- --------- ---------
Total......................... $ 375.8 100.0% $ 218.6 100.0%
========= ========= ========= =========
</TABLE>

The Founding Companies have quality control systems to ensure product
quality and traceability throughout processing. Quality controls include
periodic supplier audits, customer approved quality standards, inspection
criteria and metals source traceability. Three of the Founding Companies'
facilities are currently seeking ISO (International Standards Organization) 9002
certification. Management believes that the Company's emphasis on quality
assurance is a distinct competitive advantage and is increasingly important to
customers seeking to establish "partnering" relationships with their key
suppliers.

SOURCES OF SUPPLY

In recent years, steel and aluminum production in the United States has
varied from period to period as mills attempt to match production to projected
demand. Periodically, this has resulted in shortages of, or increased ordering
lead times for, some steel or aluminum products as well as fluctuations in
price. Typically, metals producers announce price changes only once or twice per
year, often sufficiently in advance to allow the Company to order additional
products prior to the effective date of a price increase or to defer purchases
until effectiveness of a price decrease. The Company's purchasing decisions are
based on its forecast of the availability of metal products, ordering lead times
and pricing as well as its prediction of customer demand for specific products.

The Company purchases steel and aluminum from domestic and foreign
integrated mills and mini-mills and specialty metals from foundries. The
Company's principal domestic steel suppliers are Nucor Corp., LTV Steel Co.,
Bethlehem Steel Corp. and National Steel Corp. Although most forms of steel and
aluminum produced by mills can be obtained from a number of integrated mills or
mini-mills, both domestically and internationally, there are a few products that
are available from only a limited number of producers. Since most metals are
shipped F.O.B. the mill, and the transportation of metals is a significant cost
factor, the Company seeks to purchase metals to the extent possible from the
nearest mill unless a more distant mill has a significantly lower price. The
Company believes that, following the Mergers, it will purchase raw materials in
sufficient quantities to permit it to realize purchasing economies and discounts
from its suppliers. The Company believes it is not materially dependent on any
one of its suppliers for raw materials and that its relationships with its
suppliers are good.

45
<PAGE>
SALES AND MARKETING; CUSTOMERS

The Company believes that its commitment to consistent quality, service and
just-in-time delivery has enabled it to develop and maintain long-term
relationships with existing customers, while expanding its market penetration
through the use of its sales and marketing program. The Company's sales and
marketing program focuses on the identification of OEMs and other metals
end-users that could achieve significant cost savings through the use of the
Company's inventory management, processing, just-in-time delivery and other
services. The typical target customer carries a significant inventory of
unprocessed metal and performs most of its own processing. The Company uses a
variety of methods to identify these target customers, including the utilization
of databases, telemarketing, direct mail and participation in manufacturers'
trade shows. Customer referrals and the knowledge of the Company's sales force
about regional end-users also result in the identification of target customers.
Once a target customer is identified, the Company's "outside" salespeople
assume responsibility for visiting the appropriate person at the target,
typically the purchasing manager or manager of operations. The Company's
salesperson seeks to explain the potential cost savings achievable through the
Company's services and the Company's commitment to service and quality.

The Company employs a sales force consisting of "inside" and "outside"
salespeople. "Inside" salespeople are primarily responsible for maintaining
customer relationships, receiving and soliciting individual orders and
responding to service and other inquiries by customers. Increasingly, these
"inside" salespeople have been given responsibility for telemarketing to
target customers. The Company's "outside" sales force is primarily responsible
for identifying target customers and calling on them to explain the Company's
services. The sales force is trained and knowledgeable about the characteristics
and applications of various metals and applications as well as the manufacturing
methods employed by the Company's customers. The Company believes that its high
level of interaction with its customers provides it with meaningful feedback and
information about sales opportunities. For example, Southern Alloy has shown
customers that a component of a machine (such as hydraulic cylinder parts) would
be less expensive and more effective if manufactured from Dura-Bar , a
continuous cast iron product which is a registered trademark of Wells
Manufacturing Company, Dura-Bar Division, because Dura-Bar has greater
machinability and improved application performance characteristics.

Nearly all sales by the Company are on a negotiated price basis. In some
cases, sales are the result of a competitive bid process where a customer sends
the Company and several competitors a list of products required, and the Company
submits a bid on each product.

The Company has a diverse customer base of more than 10,000 customers, with
no single customer accounting for more than 4% of the Company's pro forma
combined revenues in 1996. The Company believes that its long-term relationships
with many of its customers contribute significantly to its success.

46
<PAGE>
The following table sets forth information with respect to the Founding
Companies' 1996 and six months ended June 30, 1997 combined net sales by
end-user industry base:
<TABLE>
<CAPTION>

TWELVE MONTHS ENDED
SIX MONTHS ENDED
DECEMBER 31, 1996 JUNE 30, 1997
--------------------- ---------------------
NET SALES % NET SALES %
--------- --------- --------- ---------
(IN MILLIONS OF DOLLARS)
<S> <C> <C> <C> <C>
Machinists and fabricators.............. $ 83.8 22.3% $ 45.3 20.7%
Wholesale distributors.................. 57.5 15.3 21.4 9.8
Machinery and equipment manufacturers... 53.0 14.1 34.4 15.7
Industrial/commercial contractors....... 46.9 12.5 29.3 13.4
Consumer durables and electrical
equipment manufacturers............... 38.3 10.2 31.1 14.2
Transportation equipment
manufacturers......................... 31.9 8.5 16.6 7.6
Furniture manufacturers................. 27.4 7.3 13.0 6.0
Power and process equipment
manufacturers......................... 12.8 3.4 14.6 6.7
Other................................... 24.2 6.4 12.9 5.9
--------- --------- --------- ---------
Total.............................. $ 375.8 100.0% $ 218.6 100.0%
========= ========= ========= =========
</TABLE>

COMPETITION

The Company is engaged in a highly-fragmented and competitive industry.
Competition is based primarily on price, quality, service, timeliness and
geographic proximity. The Company competes with a large number of other metals
processors/service centers on a regional and local basis, some of which may have
greater financial resources than the Company, and several of which are public
companies. The Company also competes to a lesser extent with primary metals
producers, who typically sell directly only to very large customers requiring
regular shipments of large volumes of metals. The Company may also face
competition for acquisition candidates from these public companies, most of whom
have acquired a number of metals service center businesses during the past
decade. Other smaller metals processors/service centers may also seek
acquisitions from time to time.

The Company believes that it will be able to compete effectively because of
its significant number of locations, geographic dispersion, knowledgeable and
trained sales force, integrated computer systems, modern equipment, broad-based
inventory, combined purchasing volume and operational economies of scale. The
Company intends to seek to differentiate itself from its competition in terms of
service and quality by investing in systems and equipment and by offering a
broad range of products and services as well as through its entrepreneurial
culture and decentralized operating structure.

GOVERNMENT REGULATION AND ENVIRONMENTAL MATTERS

The Company's operations are subject to a number of federal, state and
local regulations relating to the protection of the environment and to workplace
health and safety. In particular, the Company's operations are subject to
extensive federal, state and local laws and regulations governing waste
disposal, air and water emissions, the handling of hazardous substances,
environmental protection, remediation, workplace exposure and other matters.
Hazardous materials the Company uses in its operations include lubricants,
cleaning solvents and hydrochloric acid used in its pickling operations at two
facilities.

The Company's management believes that the Company is in substantial
compliance with all such laws and does not currently anticipate that the Company
will be required to expend any substantial amounts in the foreseeable future in
order to meet current environmental or workplace health and safety requirements.
However, some of the properties owned or leased by the Company are located in
areas with histories of heavy industrial use, three of which are on or near
sites listed on the CERCLA National Priority List. The Company believes that as
many as three of the properties leased by the Founding Companies have been
contaminated by pollutants which have migrated from neighboring facilities or
have been deposited by prior occupants.

47
<PAGE>
Prior to entering into the agreements relating to the Mergers, the Company
evaluated the properties owned or leased by the Founding Companies and engaged
an independent environmental consulting firm to conduct or review assessments of
environmental conditions at these properties. Although no environmental claims
have been made against the Company and it has not been named as a potentially
responsible party by the Environmental Protection Agency or any other party, it
is possible that the Company could be identified by the Environmental Protection
Agency, a state agency or one or more third parties as a potentially responsible
party under CERCLA or under analogous state laws. If so, the Company could incur
substantial litigation costs to prove that it is not responsible for the
environmental damage. The Company has obtained limited indemnities from the
stockholders of the Founding Companies (ranging from approximately $50,000 to
$7.6 million per Founding Company) whose facilities are located at the
contaminated sites. The Company believes that these indemnities will be adequate
to protect it from a material adverse effect on its financial condition should
the Company be found to be responsible for a share of the clean-up costs. The
limited indemnities are subject to certain deductible amounts, however, and
there can be no assurance that these limited indemnities will fully protect the
Company.

MANAGEMENT INFORMATION SYSTEMS

Each of the Founding Companies operates a management information system
that is used to purchase, monitor and allocate inventory throughout its
production facilities. The Company believes that these systems enable it to
manage inventory costs effectively and to achieve appropriate inventory turnover
rates. Many of these systems also include computerized order entry, sales
analysis, inventory status, work-in-process status, bar-code tracking, invoicing
and payment. These systems are designed to improve productivity for both the
Company and its customers. Four of the Founding Companies use EDI, through which
they offer their customers a paperless process for order entry, shipment
tracking, customer billing, remittance processing and other routine matters. In
addition, several of the Founding Companies have computer-aided drafting systems
that control equipment used to perform some metals processing functions.

EMPLOYEES

As of June 30, 1997, the Founding Companies employed a total of
approximately 1,100 persons. Of these employees, approximately 200 were in
administration, approximately 250 were in sales and distribution and
approximately 650 were in processing and warehousing. Approximately 175
employees at three sites were members of one of four unions: the United
Steelworkers of America; the International Association of Bridge, Structural,
and Ornamental Ironworkers of America; the International Brotherhood of
Teamsters; or the International Brotherhood of Boilermakers, Iron Ship Builders,
Blacksmiths, Forgers and Helpers. The Company's relationship with these unions
generally has been satisfactory, but occasional work stoppages have occurred.
Within the last five years, one work stoppage occurred at one facility, which
involved 28 employees and lasted 10 days. The Company currently is a party to
four collective bargaining agreements which expire at various times. Collective
bargaining agreements expiring in 1997, 1998 and 1999 cover 38, 126 and nine
employees, respectively. Historically, the Founding Companies have succeeded in
negotiating new collective bargaining agreements without a strike.

From time to time, there are shortages of qualified operators of metals
processing equipment. In addition, turnover among less skilled workers is
relatively high. Following the Mergers, the Company intends to adopt "best
practices" for its employee benefits programs and human relations functions.

FACILITIES AND VEHICLES

The Company operates 13 metal processing facilities that are used to
receive, warehouse, process and ship metals, only one of which is owned. These
facilities utilize various metals processing and materials handling machinery.
Texas Aluminum/Cornerstone operates four facilities where it processes metals
into building products and operates 36 sales and distribution centers throughout
the western, southwestern and southeastern United States. Southern Alloy has one
facility located in Salisbury, North Carolina which has the capability of
machining various specialty metals, such as continuous cast iron and bronze
alloys, into components for manufacturing machinery and equipment. Many of the
Company's facilities are capable of being utilized at higher capacities, if
necessary. The Company is planning to expand three of its existing facilities
over the next 12 months, with one expansion already under construction. The
Company believes that its facilities after the planned expansions will be
adequate for its expected needs over the next several years. See "Certain
Transactions."

48
<PAGE>
The Company operates a fleet of owned or leased trucks and trailers as well
as fork lifts and support vehicles. It believes these vehicles generally are
well-maintained and adequate for the Company's current operations. The Company
expects it will be able to purchase or lease vehicles at lower prices due to its
combined purchasing and leasing volume.

RISK MANAGEMENT, INSURANCE AND LITIGATION

The primary risks in the Company's operations are bodily injury, property
damage and injured workers' compensation. Upon completion of this Offering, the
Company intends to obtain and maintain liability insurance for bodily injury and
third-party property damage and workers' compensation coverage which it
considers sufficient to insure against these risks, subject to self-insured
amounts.

The Company is, from time to time, a party to litigation arising in the
ordinary course of its business, most of which involves claims for personal
injury or property damage incurred in connection with its operations. The
Company is not currently involved in any litigation that the Company believes
will have a material adverse effect on its financial condition or results of
operations.

SAFETY

The Company is committed to continuing the Founding Companies' focus and
emphasis on safety in the workplace. The Founding Companies currently have a
variety of safety programs in place, which may include regular weekly or monthly
field safety meetings, bonuses based on an employee's or a team's safety record
and training sessions to teach proper safety work procedures. The Company plans
to establish "best practices" throughout its operations to ensure that all
employees comply with safety standards established by the Company, its insurance
carriers and federal, state and local laws and regulations. In addition, the
Company intends to continue to promote the Founding Companies' emphasis on an
accident-free workplace.

49
<PAGE>
MANAGEMENT

DIRECTORS AND EXECUTIVE OFFICERS

The following table sets forth information concerning the Company's
directors and executive officers upon completion of this Offering.
<TABLE>
<CAPTION>

NAME AGE POSITION
- -------------------------------------------- --- -------------------------------------
<S> <C>
Arthur L. French............................ 57 Chairman of the Board, Chief
Executive Officer and President
Arnold W. Bradburd.......................... 72 Vice-Chairman of the Board, Chairman
and Chief Executive Officer of
Interstate
J. Michael Kirksey.......................... 42 Senior Vice President, Chief
Financial Officer and Director
Stephen R. Baur............................. 32 Senior Vice President and Chief
Development Officer
John A. Hageman............................. 43 Senior Vice President, General
Counsel and Secretary
Terry L. Freeman............................ 47 Vice President and Corporate
Controller
Keith E. St. Clair.......................... 40 Vice President and Treasurer
Mark Alper.................................. 52 Vice President -- Development,
President of Queensboro, Director
Michael E. Christopher...................... 37 Senior Vice President, President of
Texas Aluminum/Cornerstone, Director
Craig R. Doveala............................ 45 President of Service Systems,
Director
William B. Edge............................. 38 President of Southern Alloy, Director
Patrick A. Notestine........................ 50 President of Affiliated, Director
Lester G. Peterson.......................... 56 President of Williams, Director
Richard A. Singer........................... 51 Senior Vice President, Chief
Executive Officer of
Uni-Steel, Director
Steven S. Harter............................ 35 Director
Tommy E. Knight............................. 58 Director
Richard H. Kristinik........................ 58 Director
T. William Porter........................... 56 Director
</TABLE>

- ------------

Arthur L. French has served as Chairman of the Board, Chief Executive
Officer and President of the Company since December 1996 and has been involved
in the organization of the Company, the acquisition of the Founding Companies
and this Offering. From 1989 through 1996, Mr. French served as Executive Vice
President and a director of Keystone International, Inc. ("Keystone"), a
publicly-traded manufacturer of industrial valves and controls, with
responsibility for domestic and international operations. From 1966 to 1989, Mr.
French held various positions with Fisher Controls International, Inc., a
control valve and instrumentation manufacturer, and served as its President and
Chief Operating Officer and a director prior to joining Keystone.

Arnold W. Bradburd is Vice-Chairman of the Board of the Company. He has
been employed by Interstate since 1974, serving as Chairman of the Board and
Chief Executive Officer since 1979. Mr. Bradburd has served as National
Secretary of the Association of Steel Distributors and as Chairman of SSCI.

J. Michael Kirksey has served as Senior Vice President, Chief Financial
Officer and a director of the Company since March 1997. From 1995 through
February 1997, Mr. Kirksey was Director -- Business Development and Acquisitions
of Keystone. From 1993 to 1995, Mr. Kirksey was Vice President of Finance of
Keystone for European operations based in Brussels, Belgium, and from 1989 to
1993, he was Vice President and Controller of Keystone. From 1976 to 1989, Mr.
Kirksey was a certified public accountant with Arthur Andersen LLP.

50
<PAGE>
Stephen R. Baur is a Senior Vice President and Chief Development Officer of
the Company. From July 1996 until joining the Company, Mr. Baur was a Senior
Vice President of Notre. From November 1995 to June 1996, he was a consultant to
a venture capital firm. From July 1988 through September 1995, he was a
certified public accountant with Arthur Andersen LLP.

John A. Hageman has served as Vice President, General Counsel and Secretary
of the Company since April 1997. From 1987 through March 1997, Mr. Hageman was
Senior Vice President of Legal Affairs, General Counsel and Secretary of
Physician Corporation of America, a publicly-traded health maintenance
organization. From 1981 to 1987, Mr. Hageman was a partner with Klenda,
Mitchell, Austerman & Zuercher, a law firm in Wichita, Kansas.

Terry L. Freeman has served as Vice President and Corporate Controller of
the Company since April 1997. From February 1997 through March 1997, Mr. Freeman
served as Controller of Maxxam Inc. ("Maxxam"), a publicly-traded aluminum,
forest products operations and real estate investment and development company.
From May 1994 to February 1997, he was Assistant Controller of Maxxam, and from
June 1990 to May 1994, he was Director -- Financial Reporting of Maxxam. From
December 1984 to June 1990, he was a certified public accountant with Deloitte &
Touche LLP. From August 1980 to December 1984, Mr. Freeman was a certified
public accountant with Arthur Andersen LLP.

Keith E. St. Clair has served as Vice President and Treasurer of the
Company since April 1997. From 1987 through March 1997, he served as Corporate
Controller of Gundle/SLT Environmental, Inc.
("Gundle/SLT"), a publicly-traded manufacturer and installer of synthetic
lining systems. From 1980 through 1986, Mr. St. Clair was a certified public
accountant with Arthur Andersen LLP.

Mark Alper is the Vice President -- Development and a director of the
Company and President of Queensboro. He has been an employee of Queensboro since
1971 and President since 1995.

Michael E. Christopher is a Senior Vice President and a director of the
Company. He became Executive Vice President of Texas Aluminum in 1987, and
President of Cornerstone in 1995, and became President of Texas
Aluminum/Cornerstone in July 1997. Mr. Christopher currently serves as Vice
President of the Board of Directors of the National Patio Enclosure Association.

Craig R. Doveala is a director of the Company and the President of Service
Systems. He has been President of Service Systems since 1990.

William B. Edge is a director of the Company. He has been President of
Southern Alloy since 1990.

Patrick A. Notestine is a director of the Company and the President of
Affiliated. He has been President of Affiliated since 1988.

Lester G. Peterson is a director of the Company and the President of
Williams. He has been President of Williams since 1981. Mr. Peterson is a member
of the Wisconsin Board of the SSCI.

Richard A. Singer is a Senior Vice President and a director of the Company
and Chief Executive Officer of Uni-Steel. He has been President and Chief
Executive Officer of Uni-Steel since 1972.

Steven S. Harter has been a director of the Company since July 1996. Mr.
Harter is the President of Notre. Prior to becoming the President of Notre, Mr.
Harter was Senior Vice President of Notre Capital Ventures, Ltd. From April 1989
to June 1993, Mr. Harter was Director of Mergers and Acquisitions for Allwaste,
Inc., a publicly-traded environmental services company. From May 1984 to April
1989, Mr. Harter was a certified public accountant with Arthur Andersen LLP. Mr.
Harter also serves as a director of Coach USA, Inc. and Comfort Systems USA,
Inc.

Tommy E. Knight is a director of the Company. Mr. Knight was President and
Chief Executive Officer of Brown and Root, Inc., a subsidiary of Halliburton
Company, and one of the largest international construction firms in the world,
from June 1992 until his retirement in December 1996. Prior to that time, he
served in a variety of other capacities with Brown and Root, Inc. since joining
Brown and Root, Inc. in 1964.

51
<PAGE>
Richard H. Kristinik is a director of the Company. Mr. Kristinik is the
Chairman of the Board of Directors and Chief Executive Officer of Coach USA,
Inc. and has served in that capacity since March 1996. Prior to that time, Mr.
Kristinik was a partner with Arthur Andersen LLP from 1973 to March 1996,
serving in its Houston office for all those years, except for the period from
1979 to 1984, when he served as Managing Partner of the Tulsa office, and the
period from 1985 to 1989, when he served as Managing Partner of the Denver
office.

T. William Porter is a director of the Company. Mr. Porter has been a
partner with Porter & Hedges, L.L.P., a law firm, since 1981 and currently
serves as a director of Gundle/SLT and ITEQ, Inc., a manufacturer of specialized
process equipment.

The Board of Directors has been divided into three classes of five, five
and four directors, respectively, with directors serving staggered three-year
terms, expiring at the annual meeting of stockholders in 1998, 1999 and 2000,
respectively. At each annual meeting of stockholders, one class of directors
will be elected for a full term of three years to succeed that class of
directors whose terms are expiring. The Company's Certificate of Incorporation
permits the holders of the Restricted Common Stock to elect one director. Mr.
Harter is the director elected by the holders of the Restricted Common Stock.
All officers serve at the discretion of the Board of Directors.

The Board of Directors has established an Audit Committee, a Compensation
Committee, a Nominating Committee and an Executive Committee. The members of the
Audit Committee are Messrs. Harter, Kristinik and Knight and the members of the
Compensation Committee are Messrs. Knight, Harter and Porter. The members of the
Executive Committee and the Nominating Committee have not yet been selected. The
Executive Committee will include at least one outside director and the
Nominating Committee will include three members, two of whom will be directors
from the Founding Companies.

DIRECTORS COMPENSATION

Directors who are also employees of the Company or one of its subsidiaries
will not receive additional compensation for serving as directors. Each director
who is not an employee of the Company or one of its subsidiaries will receive a
fee of $2,000 for attendance at each Board of Directors' meeting and $1,000 for
each committee meeting (unless held on the same day as a Board of Directors'
meeting). In addition, under the Company's 1997 Non-Employee Directors' Stock
Plan, each non-employee director will automatically be granted an option to
acquire 10,000 shares of Common Stock upon such person's initial election as a
director, and an annual option to acquire 5,000 shares at each annual meeting of
the Company's stockholders thereafter at which such director is re-elected or
remains a director, unless such annual meeting is held within three months of
such person's initial election as a director. Each non-employee director also
may elect to receive shares of Common Stock or credits representing "deferred
shares" in lieu of cash directors' fees. See " -- 1997 Non-Employee Directors'
Stock Plan." Directors are also reimbursed for out-of-pocket expenses incurred
in attending meetings of the Board of Directors or committees thereof.

EXECUTIVE COMPENSATION; EMPLOYMENT AGREEMENTS; COVENANTS-NOT-TO-COMPETE

The Company was incorporated in July 1996, and prior to the IPO conducted
no operations and generated no net sales. The Company anticipates that during
1997 its most highly compensated executive officers (other than those employed
by a Founding Company) will be Messrs. French, Kirksey, Baur and Hageman.

Each of Messrs. French and Kirksey have entered into an employment
agreement with the Company providing for an annual base salary of $150,000.
Messrs. Hageman and Baur have entered into employment agreements with the
Company providing for an annual base salary of $130,000 and $100,000,
respectively. Each employment agreement is for a term of three years, and unless
terminated or not renewed by the Company or not renewed by the employee, the
term will continue thereafter on a year-to-year basis on the same terms and
conditions existing at the time of renewal. Each of these agreements provide
that, in the event of a termination of employment by the Company without cause,
the employee will be entitled to receive from the Company an amount equal to one
year's salary, payable in one lump sum on the effective

52
<PAGE>
date of termination. In the event of a change in control of the Company (as
defined in the agreement) during the initial three-year term, if the employee is
not given at least five days' notice of such change in control, the employee may
elect to terminate his employment and receive in one lump sum three times the
amount he would receive pursuant to a termination without cause during such
initial term. The non-competition provisions of the employment agreement do not
apply to a termination without such notice. In the event the employee is given
at least five days' notice of such change in control, the employee may elect to
terminate his employment and receive in one lump sum two times the amount he
would receive pursuant to a termination without cause during such initial term.
In such event, the non-competition provisions of the employment agreement would
apply for two years from the effective date of termination. Each employment
agreement contains a covenant not to compete with the Company for a period of
two years immediately following termination of employment or, in the case of a
termination by the Company without cause in the absence of a change in control,
for a period of one year following termination of employment.

Each of Messrs. Bradburd, Christopher, Alper, Doveala, Edge, Notestine,
Peterson and Singer have entered into an employment agreement with his Founding
Company providing for an annual base salary of $150,000. Each employment
agreement is for a term of five years, and unless terminated or not renewed by
the Founding Company or not renewed by the employee, the term will continue
thereafter on a year-to-year basis on the same terms and conditions existing at
the time of renewal. Each of these agreements provides that, in the event of a
termination of employment by the Founding Company without cause during the first
three years of the employment term (the "Initial Term"), the employee will be
entitled to receive from the Founding Company an amount equal to his then
current salary for the remainder of the Initial Term or for one year, whichever
is greater. In the event of a termination of employment with cause during the
final two years of the initial five-year term of the employment agreement, the
employee will be entitled to receive an amount equal to his then current salary
for one year. In either case, payment is due in one lump sum on the effective
date of termination. In the event of a change in control of the Company (as
defined in the agreement) during the Initial Term, if the employee is not given
at least five days' notice of such change in control, the employee may elect to
terminate his employment and receive in one lump sum three times the amount he
would receive pursuant to a termination without cause during the Initial Term.
The non-competition provisions of the employment agreement do not apply to a
termination without such notice. In the event the employee is given at least
five days' notice of such change in control, the employee may elect to terminate
his employment agreement and receive in one lump sum two times the amount he
would receive pursuant to a termination without cause during the Initial Term.
In such event, the non-competition provisions of the employment agreement would
apply for two years from the effective date of termination. Each employment
agreement contains a covenant not to compete with the Company for a period of
two years immediately following termination of employment or, in the case of a
termination by the Company without cause in the absence of a change in control,
for a period of one year following termination of employment.

1997 LONG-TERM INCENTIVE PLAN

No stock options were granted to, or exercised by or held by any executive
officer in 1996. In April 1997, the Board of Directors and the Company's
stockholders approved the Company's 1997 Long-Term Incentive Plan (the
"Plan"). The purpose of the Plan is to provide directors, officers, key
employees, consultants and other service providers with additional incentives by
increasing their ownership interests in the Company. Individual awards under the
Plan may take the form of one or more of: (i) either incentive stock options or
non-qualified stock options ("NQSOs"), (ii) stock appreciation rights; (iii)
restricted or deferred stock, (iv) dividend equivalents and (v) other awards not
otherwise provided for, the value of which is based in whole or in part upon the
value of the Common Stock.

The Compensation Committee will administer the Plan and select the
individuals who will receive awards and establish the terms and conditions of
those awards. The maximum number of shares of Common Stock that may be subject
to outstanding awards, determined immediately after the grant of any award, may
not exceed the greater of 2,500,000 shares or 13% of the aggregate number of
shares of Common Stock

53
<PAGE>
outstanding. Shares of Common Stock which are attributable to awards which have
expired, terminated or been canceled or forfeited are available for issuance or
use in connection with future awards.

The Plan will remain in effect until terminated by the Board of Directors.
The Plan may be amended by the Board of Directors without the consent of the
stockholders of the Company, except that any amendment, although effective when
made, will be subject to stockholder approval if required by any federal or
state law or regulation or by the rules of any stock exchange or automated
quotation system on which the Common Stock may then be listed or quoted.

At the closing of the IPO, NQSOs to purchase a total of 705,000 shares of
Common Stock were granted as follows: 200,000 shares to Mr. French, 100,000
shares to Mr. Kirksey, 100,000 shares to Mr. Baur, 75,000 shares to Mr. Hageman,
50,000 shares to Mr. Freeman, 50,000 shares to Mr. St. Clair and 130,000 shares
to other key employees of the Company. In addition, options to purchase
1,426,024 shares were granted to the employees of the Founding Companies. Each
of the foregoing options has an exercise price equal to the initial public
offering price per share. These options will vest at the rate of 20% per year,
commencing on the first anniversary of the IPO and will expire at the earlier of
ten years from the date of grant or three months following termination of
employment.

1997 NON-EMPLOYEE DIRECTORS' STOCK PLAN

The Company's 1997 Non-Employee Directors' Stock Plan (the "Directors'
Plan"), which was adopted by the Board of Directors and approved by the
Company's stockholders in April 1997, provides for (i) the automatic grant to
each non-employee director serving at the consummation of the IPO of an option
to purchase 10,000 shares, (ii) the automatic grant to each non-employee
director of an option to purchase 10,000 shares upon such person's initial
election as a director, and (iii) an automatic annual grant to each non-employee
director of an option to purchase 5,000 shares at each annual meeting of
stockholders thereafter at which such director is re-elected or remains a
director, unless such annual meeting is held within three months of such
person's initial election as a director. All options have an exercise price per
share equal to the fair market value of the Common Stock on the date of grant
and are immediately vested and expire on the earlier of ten years from the date
of grant or one year after termination of service as a director. The Directors'
Plan also permits non-employee directors to elect to receive, in lieu of cash
directors' fees, shares or credits representing "deferred shares" at future
settlement dates, as selected by the director. The number of shares or deferred
shares received will equal the number of shares of Common Stock which, at the
date the fees would otherwise be payable, will have an aggregate fair market
value equal to the amount of such fees.

54
<PAGE>
CERTAIN TRANSACTIONS

ORGANIZATION OF THE COMPANY

In connection with the formation of the Company, Metals USA issued to Notre
a total of 3,367,914 shares of Common Stock for an aggregate cash consideration
of $35,375. Mr. Harter is the President of Notre and a director of the Company.
In April 1997, Notre exchanged 3,122,914 shares of Common Stock for 3,122,914
shares of Restricted Common Stock. See "Description of Capital Stock." Prior
to the consummation of the IPO, Notre advanced to the Company funds necessary to
effect the Mergers and the IPO. All of Notre's advances were repaid from the net
proceeds of the IPO.

From December 1996 through April 1997, the Company issued a total of
695,000 shares of Common Stock (as adjusted for a 135.81-to-one stock split) at
$.01 per share to various members of management, as follows: Mr.
French -- 260,000 shares, Mr. Kirksey -- 120,000 shares, Mr. Baur -- 120,000
shares, Mr. Freeman -- 60,000 shares, Mr. St. Clair -- 60,000 shares and Mr.
Hageman -- 75,000 shares. The Company also issued 690,500 shares of Common Stock
at $0.01 per share to other employees of and consultants to the Company,
including a total of 405,000 shares of Common Stock to persons who will become
directors of the Company upon consummation of this Offering. The Company also
granted options to purchase 10,000 shares of Common Stock under the Directors'
Plan, effective upon the consummation of this Offering, to Mr. Harter, a
director of the Company, and to Messrs. Knight, Kristinik and Porter.

Simultaneously with the closing of the IPO, Metals USA acquired by merger
all of the issued and outstanding stock of the Founding Companies, and each
Founding Company became a wholly-owned subsidiary of the Company. The aggregate
consideration paid by Metals USA in the Mergers consisted of $27.8 million in
cash and 10,128,609 shares of Common Stock. In addition, prior to the Mergers
certain of the Founding Companies made S Corporation Distributions of $20.4
million and distributed certain real estate and non-operating assets and
liabilities having a net book value of $4.1 million.

The following table sets forth the consideration paid by Metals USA for
each of the Founding Companies. These amounts do not include any S Corporation
Distributions or other distributions of real estate and non-operating assets and
liabilities. (In thousands of dollars, except share amounts.)

SHARES OF
CASH COMMON STOCK
--------- ------------
Texas Aluminum/Cornerstone...... $ 8,203 2,383,874
Interstate...................... 1,143 1,917,814
Queensboro...................... 1,765 1,587,810
Affiliated...................... 4,381 1,022,230
Uni-Steel....................... 6,170 1,112,988
Southern Alloy.................. 2,527 648,525
Williams........................ 1,984 712,574
Service Systems................. 1,653 742,794
--------- ------------
Total...................... $ 27,826 10,128,609
========= ============

55
<PAGE>
In connection with the Mergers, and as consideration for their interests in
the Founding Companies, certain officers, directors and holders of more than 5%
of the outstanding shares of the Company, together with trusts for which they
act as trustees, received cash and shares of Common Stock of the Company as
follows. These amounts do not include any S Corporation Distributions or other
distributions of real estate and non-operating assets and liabilities. (In
thousands of dollars, except share amounts.)

SHARES OF
NAME CASH COMMON STOCK
- ------------------------------------- --------- ------------
Michael E. Christopher.......... $ 1,776 598,837
Arnold W. Bradburd.............. 1,143 1,917,814
Mark Alper...................... 407 366,137
Patrick A. Notestine............ 1,494 348,703
Richard A. Singer............... 2,426 437,706
William B. Edge................. 35 66,997
Lester G. Peterson.............. 1,190 427,544
Craig R. Doveala................ 689 309,497
--------- ------------
Total...................... $ 9,160 4,473,235
========= ============

Pursuant to the agreements that were entered into in connection with the
Mergers, the stockholders of the Founding Companies have agreed not to compete
with the Company for five years, commencing on July 11, 1997.

Prior to the Mergers, certain of the Founding Companies incurred
indebtedness which was personally guaranteed by their stockholders or by
entities controlled by its stockholders. At June 30, 1997, the aggregate amount
of indebtedness of these Founding Companies that was subject to personal
guarantees was approximately $43.0 million. The Company used the net proceeds
from the IPO, together with borrowings available from the Company's revolving
credit facility, to repay substantially all of the indebtedness of the Founding
Companies.

LEASES OF REAL PROPERTY BY FOUNDING COMPANIES

Interstate leases the facilities located in Philadelphia, Pennsylvania and
Baltimore, Maryland from Warehouse Real Estate Associates ("WREA"), a
partnership controlled by Mr. Bradburd, the Vice-Chairman of the Company, and
his wife. The leases are for an initial term of ten years and provide for a
total annual rental of $234,000 during the initial five years, to be adjusted to
an applicable current market rate during the second five years. At the
conclusion of the initial lease term, Interstate has agreed to purchase the real
estate from WREA at a price to be determined by averaging two or more
independent appraisals. Additionally, Interstate pays all utility, taxes and
insurance costs on the leased premises. The Company believes that the rent to be
paid under the lease does not exceed fair market value.

Queensboro leases two adjacent tracts of real property located in
Wilmington, North Carolina from The Alper Company, a partnership of which Mr.
Alper, a director of the Company, is a controlling person. The lease on one
tract of real property is for a term of 20 years, expires in 2017 and provides
for an annual rental of $40,000. The rent will be adjusted every five years in
accordance with the Consumer Price Index ("CPI"). At the conclusion of the
tenth year of the lease, Queensboro has the option to purchase the real property
from The Alper Company for an amount equal to the average of three independent
appraisals. If Queensboro does not exercise its option, the annual rental will
be adjusted to reflect a ten year amortization of the fair market value of the
property. The lease on the other tract of real property is for a term of 20
years, expires in 2017 and provides for an annual rental of $137,200. The rent
will be adjusted every five years in accordance with the CPI. Queensboro will
pay for all utilities, taxes and insurance on the leased properties. The Company
believes that the rent for the properties does not exceed fair market value.

Service Systems leases certain real property located in Horicon, Wisconsin
from an entity owned in part by Mr. Doveala, a director of the Company. The
lease for the real property expires in 2011 and provides for an annual rental of
$420,000. The rental rate will be adjusted every three years in accordance

56
<PAGE>
with the CPI and will increase or decrease with changes in the prime rate.
Additionally, Service Systems pays for all utilities, taxes and insurance on the
leased premises. The Company believes that the rent for the property does not
exceed fair market value. The purchase of the real property, the construction of
improvements and the purchase of equipment was financed by the issuance of $5.0
million of industrial revenue bonds. Service Systems remains obligated to pay
these industrial revenue bonds.

Texas Aluminum leases certain real property located in Jackson, Mississippi
from an entity controlled by Mr. Christopher, a Senior Vice President and
director of the Company. The lease for the real property expires in 2012 and
provides for rental of $3,500 per month. The rent will be adjusted every three
years in accordance with the CPI. Additionally, Texas Aluminum pays for all
utilities, taxes and insurance on the leased premises. Texas Aluminum also
continues to lease from a number of entities owned by Mr. Christopher and/or
related affiliates the following facilities, which are used for manufacturing
and distribution services: (i) a warehouse in Lafayette, Louisiana for a term of
15 years at an annual rental of $24,000, (ii) three warehouses in Houston,
Texas, each for terms of 15 years and an aggregate monthly rental of $27,280,
(iii) a facility in Las Vegas, Nevada for $16,500 per month for a term of 15
years, (iv) a facility in Atlanta, Georgia for $6,000 per month for a term of 15
years, (v) a facility in Beaumont, Texas for $2,500 per month for a term of 15
years, (vi) a building in Weslaco, Texas for $2,500 per month for a term of 15
years, and (vii) a building in Oklahoma City, Oklahoma for $7,000 per month for
a term of 15 years. The Company believes that the rent for each of these
properties does not exceed fair market value.

Uni-Steel leases certain real property located in Enid, Oklahoma from
Garfield Development, LLC, an entity owned in part by Mr. Singer, a director of
the Company. The lease for the real property has a ten-year term and provides
for an annual rental of $115,000. The rent rate will be adjusted every five
years in accordance with the CPI. The Company believes that the rent for the
properties does not exceed fair market value.

Williams leases certain real property located in Milwaukee, Wisconsin from
PP&W, L.L.C., an entity owned in part by Mr. Peterson, a director of the
Company. The lease for the rental property expires on December 31, 2011, and
provides for an annual rental of $278,050, which rental shall increase to
$458,950 upon completion of improvements currently underway. The rent will be
adjusted every five years in accordance with the CPI. Additionally, Williams
pays for all utilities, taxes and insurance on the leased premises. The Company
believes that the rent for the properties does not exceed fair market value.

OTHER TRANSACTIONS

Upon comsummation of the IPO, Interstate purchased certain equipment from
WREA for $530,000. WREA is controlled by Mr. Bradburd, the Vice-Chairman of the
Company. The Company believes that the purchase price for the equipment does not
exceed the fair market value thereof. Interstate has guaranteed bank loans to
WREA. The balance of the loans guaranteed was $769,000 and $694,000 at December
31, 1995 and 1996, respectively. These guarantees were released prior to the
consummation of the IPO.

Queensboro provides administrative services to Southern Metals Recycling,
Inc. ("Southern"), an entity owned in part by Mr. Alper, a director of the
Company. In its last fiscal year, Queensboro provided services and billed
Southern $344,000 for these services. The Company believes that the fees charged
for such services represent the fair market value of such services.

An entity owned in part by Mr. Christopher leases equipment to Texas
Aluminum/Cornerstone under several leases totaling $96,000 per year. The leases
expire December 31, 2011. Mr. Christopher is a director and officer of the
Company.

Texas Aluminum/Cornerstone holds two promissory notes from EmC Industries,
LLC ("EmC") having balances as of June 30, 1997, in the amounts of $116,433
and $324,401, which are payable monthly and are due on May 1, 2001, and March 1,
2007, respectively. In November 1996, Texas Aluminum/Cornerstone sold certain
machinery and equipment to EmC resulting in a gain of $242,000. Texas
Aluminum/Cornerstone is leasing this machinery from EmC for $72,000 per year
through December 2001. EmC is owned in part by Mr. Christopher, a director and
officer of the Company. The indebtedness was in each case incurred in connection
with the sale of equipment to EmC. The largest aggregate amount of

57
<PAGE>
indebtedness in each case at any time in the past three fiscal years on the
notes is $142,795 and $330,000, respectively. The rates of interest charged on
the loans are 8% and 7.5%, respectively. Texas Aluminum/Cornerstone holds a
promissory note in the original principal amount of $120,279 from EmC issued
June 1, 1996. The note was issued in connection with the sale of equipment to
EmC and earns interest at a rate of 8%. The note is payable monthly and matures
on May 1, 2001. The largest aggregate amount of indebtedness outstanding on the
note at any time in the past three fiscal years is $120,279 and the amount
outstanding as of December 31, 1996 was $108,866. Additionally, Texas
Aluminum/Cornerstone leases certain roll-former machines from EmC for a monthly
rental of $14,000.

The Company has agreed to indemnify Notre for liabilities arising in
connection with action taken by it in connection with its role as a promoter
prior to and during the IPO.

COMPANY POLICY

Any future transactions with directors, officers, employees or affiliates
of the Company are anticipated to be minimal, and must be approved in advance by
a majority of disinterested members of the Board of Directors.

58
<PAGE>
PRINCIPAL STOCKHOLDERS

The following table sets forth information regarding the beneficial
ownership of the Common Stock, as of September 10, 1997, by (i) each person
known to own beneficially more than 5% of the outstanding shares of Common
Stock; (ii) each Company director; (iii) each named executive officer; and (iv)
all executive officers and directors as a group. All persons listed have an
address c/o the Company's principal executive offices and have sole voting and
investment power with respect to their shares unless otherwise indicated.

SHARES BENEFICIALLY
OWNED
---------------------
NUMBER PERCENT
----------- -------
Notre Capital Ventures II, L.L.C..... 3,367,914 15.5%
Steven S. Harter(1).................. 3,377,914 15.6
Arnold W. Bradburd................... 1,967,814 9.1
Michael E. Christopher............... 648,837 3.0
Mark Alper........................... 416,137 1.9
Patrick A. Notestine................. 398,703 1.8
Richard A. Singer.................... 487,706 2.3
Lester G. Peterson................... 477,544 2.2
Craig R. Doveala..................... 334,497 1.5
Arthur L. French(2).................. 223,846 1.0
J. Michael Kirksey(3)................ 120,000 *
Stephen R. Baur(4)................... 120,000 *
William B. Edge...................... 116,997 *
John A. Hageman(5)................... 75,000 *
Terry L. Freeman..................... 60,000 *
Keith E. St. Clair(6)................ 60,000 *
Richard H. Kristinik(7)(8)........... 30,000 *
T. William Porter(2)(7).............. 23,846 *
Tommy E. Knight(7)................... 20,000 *
All executive officers, directors and
named directors as a group
(18 persons)....................... 8,958,841 41.3%

- ------------

* Less than 1%

(1) Includes 10,000 shares of Common Stock issuable upon the exercise of options
granted under the Directors' Plan and 3,367,914 shares of Common Stock
issued to Notre. Mr. Harter is the President of Notre.

(2) Includes 3,846 shares of Common Stock issuable on conversion of a
convertible note issued by Notre which is convertible into Common Stock of
the Company owned by Notre.

(3) Includes 12,000 shares of Common Stock held by Mr. Kirksey's minor children
and of which he is custodian.

(4) Includes 10,000 shares of Common Stock held by Mr. Baur's minor children and
of which he is custodian.

(5) Includes 15,000 shares of Common Stock held by Mr. Hageman's minor children
and of which he is custodian.

(6) Includes 4,000 shares of Common Stock held by Mr. St. Clair's minor children
and of which he is custodian.

(7) Includes 10,000 shares of Common Stock issuable upon the exercise of options
granted under the Directors' Plan.

(8) Includes 10,000 shares of Common Stock issuable on conversion of a
convertible note issued by Notre which is convertible into Common Stock of
the Company owned by Notre.

59
<PAGE>
DESCRIPTION OF CAPITAL STOCK

GENERAL

The authorized capital stock of the Company consists of 58,122,914 shares
of capital stock, consisting of 50,000,000 shares of Common Stock, 3,122,914
shares of Restricted Common Stock and 5,000,000 shares of Preferred Stock
("Preferred Stock"). Following the Mergers and the IPO, the Company had
outstanding 21,667,023 shares of Common Stock, including 3,122,914 shares of
Restricted Common Stock and no shares of Preferred Stock. The following
discussion is qualified in its entirety by reference to the Restated Certificate
of Incorporation of Metals USA, which is included as an exhibit to the
Registration Statement of which this Prospectus is a part.

COMMON STOCK AND RESTRICTED COMMON STOCK

The holders of Common Stock are each entitled to one vote for each share
held on all matters to which they are entitled to vote, including the election
of directors. The holders of Restricted Common Stock, voting together as a
single class, are entitled to elect one member of the Company's Board of
Directors and to 0.55 of one vote for each share held on all other matters on
which they are entitled to vote. Holders of Restricted Common Stock are not
entitled to vote on the election of any other directors. Upon consummation of
this Offering, the Board of Directors will be classified into three classes as
nearly equal in number as possible, with the term of each class expiring on a
staggered basis. The classification of the Board of Directors may make it more
difficult to change the composition of the Board of Directors and thereby may
discourage or make more difficult an attempt by a person or group to obtain
control of the Company. Cumulative voting for the election of directors is not
permitted. Any director, or the entire Board of Directors, may be removed at any
time, with cause, by a majority of the aggregate number of votes which may be
cast by the holders of outstanding shares of Common Stock and Restricted Common
Stock entitled to vote for the election of directors, provided, however, that
only the holders of the Restricted Common Stock may remove the director such
holders are entitled to elect.

Subject to the rights of any then outstanding shares of Preferred Stock,
holders of Common Stock and Restricted Common Stock are entitled to participate
pro rata in such dividends as may be declared in the discretion of the Board of
Directors out of funds legally available therefor. Holders of Common Stock and
Restricted Common Stock are entitled to share ratably in the net assets of the
Company upon liquidation after payment or provision for all liabilities and any
preferential liquidation rights of any Preferred Stock then outstanding. Holders
of Common Stock and holders of Restricted Common Stock have no preemptive rights
to purchase shares of stock of the Company. Shares of Common Stock are not
subject to any redemption provisions and are not convertible into any other
securities of the Company. Shares of Restricted Common Stock are not subject to
any redemption provisions but are convertible into Common Stock, on the
occurrence of certain events. All outstanding shares of Common Stock and
Restricted Common Stock are fully paid and non-assessable.

Each share of Restricted Common Stock will automatically convert to Common
Stock on a share-for-share basis (i) in the event of a disposition of such share
of Restricted Common Stock by the holder thereof (other than a distribution
which is a distribution by a holder to its partners or beneficial owners, or a
transfer to a related party of such holder (as defined in Sections 267, 707, 318
and/or 4946 of the Internal Revenue Code of 1986, as amended)), (ii) in the
event any person acquires beneficial ownership of 15% or more of the outstanding
shares of Common Stock, or (iii) in the event any person offers to acquire 15%
or more of the total number of outstanding shares of Common Stock. After July 1,
1998, the Board of Directors may elect to convert any outstanding shares of
Restricted Common Stock into shares of Common Stock in the event 80% or more of
the originally outstanding shares of Restricted Common Stock have been
previously converted into shares of Common Stock.

The Common Stock is listed on The New York Stock Exchange under the symbol
"MUI." The Restricted Common Stock is not listed on any exchange.

60
<PAGE>
PREFERRED STOCK

The Preferred Stock may be issued from time to time by the Board of
Directors in one or more series. Subject to the provisions of the Company's
Certificate of Incorporation and limitations prescribed by law, the Board of
Directors is expressly authorized to adopt resolutions to issue the shares, to
fix the number of shares and to change the number of shares constituting any
series and to provide for or change the voting powers, designations, preferences
and relative, participating, optional or other special rights, qualifications,
limitations or restrictions thereof, including dividend rights (including
whether dividends are cumulative), dividend rates, terms of redemption
(including sinking fund provisions), redemption prices, conversion rights and
liquidation preferences of the shares constituting any series of the Preferred
Stock, in each case without any further action or vote by the stockholders. The
Company has no current plans to issue any shares of Preferred Stock.

One of the effects of undesignated Preferred Stock may be to enable the
Board of Directors to render more difficult or to discourage an attempt to
obtain control of the Company by means of a tender offer, proxy contest, merger
or otherwise, and thereby to protect the continuity of the Company's management.
The issuance of shares of the Preferred Stock pursuant to the Board of
Directors' authority described above may adversely affect the rights of the
holders of Common Stock. For example, Preferred Stock issued by the Company may
rank prior to the Common Stock and Restricted Common Stock as to dividend
rights, liquidation preference or both, may have full or limited voting rights
and may be convertible into shares of Common Stock. Accordingly, the issuance of
shares of Preferred Stock may discourage bids for the Common Stock or may
otherwise adversely affect the market price of the Common Stock.

STATUTORY BUSINESS COMBINATION PROVISION

The Company is subject to Section 203 of the DGCL which, with certain
exceptions, prohibits a Delaware corporation from engaging in any of a broad
range of business combinations with any "interested stockholder" for a period
of three years following the date that such stockholder became an interested
stockholder, unless: (i) prior to such date, the Board of Directors of the
corporation approved either the business combination or the transaction which
resulted in the stockholder becoming an interested stockholder, (ii) upon
consummation of the transaction which resulted in the stockholder becoming an
interested stockholder, the interested stockholder owned at least 85% of the
voting stock of the corporation outstanding at the time the transaction
commenced, excluding for purposes of determining the number of shares
outstanding those shares owned (a) by persons who are directors and officers and
(b) by employee stock plans in which employee participants do not have the right
to determine confidentially whether shares held subject to the plan will be
tendered in a tender or exchange offer, or (iii) on or after such date, the
business combination is approved by the Board of Directors and authorized at an
annual or special meeting of stockholders by the affirmative vote of at least
66 2/3% of the outstanding voting stock which is not owned by the interested
stockholder. An "interested stockholder" is defined as any person that is (a)
the owner of 15% or more of the outstanding voting stock of the corporation or
(b) an affiliate or associate of the corporation and was the owner of 15% or
more of the outstanding voting stock of the corporation at any time within the
three-year period immediately prior to the date on which it is sought to be
determined whether such person is an interested stockholder.

CERTAIN PROVISIONS OF THE CERTIFICATE OF INCORPORATION AND BYLAWS

Pursuant to the Company's Certificate of Incorporation and as permitted by
Delaware law, directors of the Company are not liable to the Company or its
stockholders for monetary damages for breach of fiduciary duty, except for
liability in connection with a breach of duty of loyalty, for acts or omissions
not in good faith or which involve intentional misconduct or a knowing violation
of law, for dividend payments or stock repurchases illegal under Delaware law or
any transaction in which a director has derived an improper personal benefit.

Additionally, the Certificate of Incorporation of the Company provides that
directors and officers of the Company shall be, and at the discretion of the
Board of Directors non-officer employees and agents may be, indemnified by the
Company to the fullest extent authorized by Delaware law, as it now exists or
may in

61
<PAGE>
the future be amended, against all expenses and liabilities actually and
reasonably incurred in connection with service for or on behalf of the Company,
and further permits the advancing of expenses incurred in defense of claims.

The Certificate of Incorporation also provides that any action required or
permitted to be taken by the stockholders of the Company at an annual or special
meeting of stockholders must be effected at a duly called meeting and may not be
taken or effected by a written consent of stockholders in lieu thereof. The
Company's Bylaws provide that a special meeting of stockholders may be called
only by the Chief Executive Officer, by a majority of the Board of Directors or
by a majority of the Executive Committee of the Board of Directors. The Bylaws
provide that only those matters set forth in the notice of the special meeting
may be considered or acted upon at that special meeting. To amend or repeal the
Company's Bylaws, an amendment or repeal thereof must first be approved by the
Board of Directors or by affirmative vote of the holders of at least 66 2/3% of
the total votes eligible to be cast by holders of voting stock with respect to
such amendment or repeal.

The Company's Bylaws establish an advance notice procedure with regard to
the nomination, other than by or at the direction of the Board of Directors or a
committee thereof, of candidates for election as directors (the "Nomination
Procedure") and with regard to other matters to be brought by stockholders
before an annual meeting of stockholders of the Company (the "Business
Procedure"). The Nomination Procedure requires that a stockholder give prior
written notice, in proper form, of a planned nomination for the Board of
Directors to the Secretary of the Company. The requirements as to the form and
timing of that notice are specified in the Company's Bylaws. If the Chairman of
the Board of Directors determines that a person was not nominated in accordance
with the Nomination Procedure, such person will not be eligible for election as
a director. Under the Business Procedure, a stockholder seeking to have any
business conducted at an annual meeting must give prior written notice, in
proper form, to the Secretary of the Company. The requirements as to the form
and timing of that notice are specified in the Company's Bylaws. If the Chairman
of the Board of Directors determines that the other business was not properly
brought before such meeting in accordance with the Business Procedure, such
business will not be conducted at such meeting.

Although the Company's Bylaws do not give the Board of Directors any power
to approve or disapprove stockholder nominations for the election of directors
or of any other business desired by stockholders to be conducted at an annual or
any other meeting, the Company's Bylaws (i) may have the effect of precluding a
nomination for the election of directors or precluding the conduct of business
at a particular meeting if the proper procedures are not followed or (ii) may
discourage or deter a third party from conducting a solicitation of proxies to
elect its own slate of directors or otherwise attempting to obtain control of
the Company, even if the conduct of such solicitation or such attempt might be
beneficial to the Company and its stockholders.

TRANSFER AGENT AND REGISTRAR

The Transfer Agent and Registrar for the Common Stock is First Chicago
Trust Company of New York, 525 Washington Blvd., Jersey City, New Jersey 07303.

62
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE

The Company has outstanding 21,667,023 shares of Common Stock. The
6,785,000 shares sold in the IPO are freely tradeable without restriction unless
acquired by affiliates of the Company. None of the remaining outstanding shares
of Common Stock or Restricted Common Stock has been registered under the
Securities Act, which means that they may be resold publicly only upon
registration under the Securities Act or in compliance with an exemption from
the registration requirements of the Securities Act, including the exemption
provided by Rule 144 thereunder.

In general, under Rule 144, if a period of at least one year has elapsed
between the later of the date on which restricted securities were acquired from
the Company or the date on which they were acquired from an affiliate, the
holder of such restricted securities (including an affiliate) is entitled to
sell a number of shares within any three-month period that does not exceed the
greater of (i) one percent of the then outstanding shares of the Common Stock
(approximately 216,670 shares upon completion of this Offering) or (ii) the
average weekly reported volume of trading of the Common Stock during the four
calendar weeks preceding such sale. Sales under Rule 144 are also subject to
certain requirements pertaining to the manner of such sales, notices of such
sales and the availability of current public information concerning the Company.
Affiliates may sell shares not constituting restricted securities in accordance
with the foregoing volume limitations and other requirements but without regard
to the one year holding period. Under Rule 144(k), if a period of at least two
years has elapsed between the later of the date on which restricted securities
were acquired from the Company and the date on which they were acquired from an
affiliate, a holder of such restricted securities who is not an affiliate at the
time of the sale and has not been an affiliate for a least three months prior to
the sale is entitled to sell the shares immediately without regard to the volume
limitations and other conditions described above.

The Company and its officers, directors and certain stockholders who
beneficially own 14,882,023 shares in the aggregate have agreed not to sell or
otherwise dispose of any shares of Common Stock for a period of 180 days after
the date of this Prospectus without the prior written consent of Alex. Brown &
Sons Incorporated, except that the Company may issue Common Stock in connection
with acquisitions or in connection with the Plan and the Directors' Plan (the
"Plans") or upon conversion of shares of the Restricted Common Stock. See
"Underwriting." In addition, all of the stockholders of the Founding Companies
and the Company's officers, certain directors and certain stockholders, which
beneficially own 14,882,023 shares of Common Stock, have agreed with the Company
that they will not sell any of their shares for a period of one year after the
closing of this Offering. These stockholders, however, have the right, in the
event the Company proposes to register under the Securities Act any Common Stock
for its own account or for the account of others, subject to certain exceptions,
to require the Company to include their shares in the registration, subject to
the right of the Company to exclude some or all of the shares in the offering
upon the advice of the managing underwriter. In addition, certain of such
stockholders have certain limited demand registration rights to require the
Company to register shares held by them following the second anniversary of the
closing of this Offering.

The Company is registering 10,000,000 shares of its Common Stock under the
Securities Act for use by the Company in connection with future acquisitions.
After the effective date of such registration, these shares will generally be
freely tradeable, unless acquired by persons who become affiliates of the
Company. In some instances, however, the Company may contractually restrict the
sale of shares issued in connection with future acquisitions. The piggyback
registration rights described above do not apply to the registration statement
relating to these 10,000,000 shares.

No prediction can be made as to the effect, if any, that the sale of shares
or the availability of shares for sale will have on the market price for the
Common Stock prevailing from time to time. Nevertheless, sales, or the
availability for sale of, substantial amounts of the Common Stock in the public
market could adversely affect prevailing market prices and the future ability of
the Company to raise equity capital and complete any additional acquisitions for
Common Stock.

63
<PAGE>
LEGAL MATTERS

The validity of the Common Stock offered hereby will be passed on for the
Company by Bracewell & Patterson, L.L.P., Houston, Texas.

EXPERTS

The financial statements of Metals USA, Texas Aluminum/Cornerstone,
Uni-Steel, and Southern Alloy included elsewhere in this Prospectus, and
Registration Statement, to the extent and for the periods indicated in their
reports, have been audited by Arthur Andersen LLP, independent public
accountants, as indicated in their reports with respect thereto, and are
included herein in reliance upon the authority of said firm as experts in giving
said reports. The financial statements of Affiliated at August 31, 1996, and for
the fifty-two weeks then ended, appearing in this Prospectus and Registration
Statement have been audited by Ernst & Young LLP, independent auditors, and at
September 2, 1995, and for each of the two fifty-two week periods then ended, by
Rubin, Brown, Gornstein & Co. LLP, independent auditors, as set forth in their
respective reports thereon appearing elsewhere herein, and are included in
reliance upon such reports given upon the authority of such firms as experts in
accounting and auditing. The combined financial statements of Interstate as of
December 31, 1996 and 1995 and for each of the three years in the period ended
December 31, 1996 included in this Prospectus have been audited by Deloitte &
Touche LLP, independent public accountants, as stated in their report which is
included herein, and have been so included in reliance upon the report of such
firm given upon their authority as experts in accounting and auditing. The
financial statements of Queensboro included elsewhere in this Prospectus have
been audited by McGladrey & Pullen, LLP, independent public accountants, as
indicated in their report with respect thereto, and are included herein in
reliance upon the authority of said firm as experts in giving said report.

ADDITIONAL INFORMATION

The Company has filed with the SEC a Registration Statement (which term
shall encompass any and all amendments thereto) on Form S-1 (the "Registration
Statement") under the Securities Act of 1933, as amended (the "Securities
Act"), with respect to the Common Stock offered hereby. This Prospectus, which
is part of the Registration Statement, does not contain all the information set
forth in the Registration Statement and the exhibits and schedules thereto,
certain items of which are omitted in accordance with the rules and regulations
of the SEC. Statements made in this Prospectus as to the contents of any
contract, agreement or other document referred to are not necessarily complete.
With respect to each such contract, agreement or other document filed as an
exhibit to the Registration Statement, reference is hereby made to the exhibit
for a more complete description of the matter involved, and each such statement
shall be deemed qualified in its entirety by such reference. For further
information with respect to the Company, reference is hereby made to the
Registration Statement and such exhibits and schedules filed as a part thereof,
which may be inspected, without charge, at the Public Reference Section of the
SEC at Room 1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C.
20549, and at the regional offices of the SEC located at Seven World Trade
Center, 13th Floor, New York, New York 10048 and at Citicorp Center, 500 West
Madison Street, Suite 1400, Chicago, Illinois 60661. The SEC maintains a web
site that contains reports, proxy and information statements regarding
registrants that file electronically with the SEC. The address of this web site
is (http://www.sec.gov). Copies of all or any portion of the Registration
Statement may be obtained from the Public Reference Section of the SEC, upon
payment of the prescribed fees.

The Common Stock is listed on The New York Stock Exchange. Proxy Statments,
reports and other information concerning the Company that are filed under the
Exchange Act can be inspected at the offices of The New York Stock Exchange,
Inc., 20 Broad Street, New York, New York 10005.

64
<PAGE>
INDEX TO FINANCIAL STATEMENTS

PAGE
METALS USA, INC. UNAUDITED PRO FORMA -----
Introduction to Unaudited Pro
Forma Combined Financial
Statements..................... F-2
Unaudited Pro Forma Combined
Balance Sheet.................. F-3
Unaudited Pro Forma Combined
Statement of Operations........ F-4
Notes to Unaudited Pro Forma
Combined Financial
Statements..................... F-6

METALS USA, INC.
Report of Independent Public
Accountants.................... F-11
Balance Sheets.................. F-12
Statements of Operations........ F-13
Statements of Stockholders'
Equity......................... F-14
Statements of Cash Flows........ F-15
Notes to Financial Statements... F-16

FOUNDING COMPANIES
TEXAS ALUMINUM INDUSTRIES, INC. AND
AFFILIATES
Report of Independent Public
Accountants.................... F-20
Combined Balance Sheets......... F-21
Combined Statements of Income... F-22
Combined Statements of
Stockholders' Equity and
Members' Equity................ F-23
Combined Statements of Cash
Flows.......................... F-24
Notes to Combined Financial
Statements..................... F-25

INTERSTATE STEEL SUPPLY CO. AND
AFFILIATES
Independent Auditors' Report.... F-36
Combined Balance Sheets......... F-37
Combined Statements of Income... F-38
Combined Statements of
Stockholders' Equity and
Partners' Capital.............. F-39
Combined Statements of Cash
Flows.......................... F-40
Notes to Combined Financial
Statements..................... F-41

QUEENSBORO STEEL CORPORATION
Independent Auditors' Report.... F-45
Balance Sheets.................. F-46
Statements of Income............ F-47
Statements of Stockholders'
Equity......................... F-48
Statements of Cash Flows........ F-49
Notes to Financial Statements... F-50

AFFILIATED METALS COMPANY
Report of Independent
Auditors....................... F-56
Report of Independent
Auditors....................... F-57
Balance Sheets.................. F-58
Statements of Operations........ F-59
Statements of Stockholders'
Equity......................... F-60
Statements of Cash Flows........ F-61
Notes to Financial Statements... F-62

F-1
<PAGE>
PAGE
-----
SOUTHERN ALLOY OF AMERICA, INC.
Report of Independent Public
Accountants.................... F-68
Balance Sheets.................. F-69
Statements of Operations........ F-70
Statements of Stockholders'
Equity......................... F-71
Statements of Cash Flows........ F-72
Notes to Financial Statements... F-73

UNI-STEEL, INC.
Report of Independent Public
Accountants.................... F-78
Balance Sheets.................. F-79
Statements of Income............ F-80
Statements of Stockholders'
Equity......................... F-81
Statements of Cash Flows........ F-82
Notes to Financial Statements... F-83

F-1(a)
<PAGE>
METALS USA, INC. AND FOUNDING COMPANIES
UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS
BASIS OF PRESENTATION

The following unaudited pro forma combined financial statements give effect
to the acquisitions by Metals USA, Inc. ("Metals USA") of the outstanding
capital stock of Affiliated, Interstate, Texas Aluminum/Cornerstone, Queensboro,
Southern Alloy, Uni-Steel, Service Systems and Williams (together, the
"Founding Companies"). These acquisitions (the "Mergers") occurred
concurrently with the consummation of Metals USA's initial public offering of
5,900,000 shares of its Common Stock on July 11, 1997, and are accounted for
using the purchase method of accounting. On August 12, 1997, the Company sold
885,000 of its common stock pursuant to an over allotment option with the
underwriters. The sale by the Company of the 6,785,000 shares of its Common
Stock is hereinafter referred to as the "IPO".

The unaudited pro forma combined balance sheet gives effect to the Mergers
and the IPO as if they had occurred on June 30, 1997. The unaudited pro forma
combined statements of operations give effect to the Mergers and the IPO as if
they had occurred on January 1, 1996.

Metals USA has preliminarily analyzed the savings that it expects to be
realized from reductions in salaries and certain benefits to the owners and
reductions in lease cost resulting from renegotiations of certain leases. To the
extent the owners of the Founding Companies have agreed prospectively to
reductions in salary, bonuses and benefits and the reduction in lease cost has
been confirmed by lease agreements, these reductions have been reflected in the
pro forma combined statement of operations. In addition, the Company has a
five-year revolving credit facility of $150.0 million. Based on terms of the
Credit Facility, the Company believes that its interest expense will be reduced.
This reduction in interest expense has been reflected in the pro forma combined
statements of operations. The refinancing of outstanding indebtedness with the
new credit facility has been reflected in the pro forma combined balance sheet.
It is anticipated that other potential cost savings will be realized which will
be offset by costs related to Metals USA's new corporate management and by the
costs associated with being a public company. However, because these factors
cannot be accurately quantified at this time, they have not been included in the
pro forma financial information of Metals USA.

The pro forma adjustments are based on estimates, available information and
certain assumptions and may be revised as additional information becomes
available. The pro forma financial data do not purport to represent what Metals
USA's financial position or results of operations would actually have been if
such transactions had in fact occurred on those dates and are not necessarily
representative of Metals USA's financial position or results of operations of
Metals USA for any future period. Since the Founding Companies were not under
common control or management, historical combined results may not be comparable
to, or indicative of, future performance. The unaudited pro forma combined
financial statements should be read in conjunction with the other financial
statements and notes thereto included elsewhere in this Prospectus. See "Risk
Factors" included elsewhere herein.

F-2
<PAGE>
METALS USA, INC.
UNAUDITED PRO FORMA COMBINED BALANCE SHEET
JUNE 30, 1997
(IN THOUSANDS OF DOLLARS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
TEXAS OTHER
AIUMINUM/ SOUTHERN FOUNDING
AFFILIATED INTERSTATE CORNERSTONE QUEENSBORO ALLOY UNI-STEEL COMPANIES
---------- ---------- ------------ ---------- -------- --------- ---------
ASSETS
<S> <C> <C> <C> <C> <C> <C> <C>
Cash................................. $ -- $ 385 $ 1,493 $ 7 $-- $ 346 $ 145
Accounts receivable.................. 11,703 8,905 5,659 8,614 1,405 7,459 7,196
Inventory............................ 14,045 10,726 11,475 9,504 1,440 11,242 10,580
Prepaid expenses..................... 237 754 32 197 136 25 195
Deferred income taxes................ 22 -- 477 -- -- 123 --
Other................................ -- -- -- 1,310 -- 17 --
---------- ---------- ------------ ---------- -------- --------- ---------
Total current assets.............. 26,007 20,770 19,136 19,632 2,981 19,212 18,116
Property & equipment, net............ 8,421 3,331 4,425 4,748 303 3,153 4,347
Goodwill............................. 580 -- 1,609 -- -- 336 (321)
Other................................ 125 1,225 1,644 306 21 1,707 86
---------- ---------- ------------ ---------- -------- --------- ---------
Total assets...................... $ 35,133 $ 25,326 $ 26,814 $ 24,686 $3,305 $24,408 $22,228
========== ========== ============ ========== ======== ========= =========

LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable..................... $ 10,080 $ 2,779 $ 4,570 $ 2,383 $1,790 $ 1,838 $ 7,981
Accrued liabilities.................. 397 782 1,257 1,661 118 395 379
Income taxes payable................. 93 -- -- -- -- 42 --
Notes payable........................ -- 11,600 -- -- 1,604 9,100 8,835
Current portion of long-term debt.... 371 75 1,181 -- 35 358 25
Payable to stockholders.............. -- -- -- -- -- -- 1,531
Other................................ -- -- -- 522 -- -- --
---------- ---------- ------------ ---------- -------- --------- ---------
Total current liabilities......... 10,941 15,236 7,008 4,566 3,547 11,733 18,751
Long-term debt....................... 20,258 581 16,042 15,170 30 1,034 2,137
Deferred income taxes................ 580 -- 222 -- -- 753 --
Other................................ -- -- 253 438 -- -- --
---------- ---------- ------------ ---------- -------- --------- ---------
Total liabilities................. 31,779 15,817 23,525 20,174 3,577 13,520 20,888

Stockholders' equity:
Preferred stock..................... 177 -- 369 -- -- -- --
Common stock........................ -- 38 1,506 974 20 100 362
Additional paid-in capital.......... 50 72 189 870 608 5,268 842
Retained earnings (deficit)......... 3,327 10,897 1,513 2,668 (900) 6,681 136
Treasury stock...................... (200) (1,498) (288) -- -- (1,161) --
---------- ---------- ------------ ---------- -------- --------- ---------
Total stockholders' equity........ 3,354 9,509 3,289 4,512 (272) 10,888 1,340
---------- ---------- ------------ ---------- -------- --------- ---------
Total liabilities and stockholders'
equity.............................. $ 35,133 $ 25,326 $ 26,814 $ 24,686 $3,305 $24,408 $22,228
========== ========== ============ ========== ======== ========= =========
</TABLE>
<TABLE>
<CAPTION>
POST
METALS PRO FORMA MERGER AS
USA ADJUSTMENTS PRO FORMA ADJUSTMENTS ADJUSTED
------- ----------- --------- ----------- --------
ASSETS
<S> <C> <C> <C> <C> <C>
Cash................................. $ 15 $ (21) $ 2,370 $ -- $ 2,370
Accounts receivable.................. -- (224) 50,717 -- 50,717
Inventory............................ -- 6,696 75,708 -- 75,708
Prepaid expenses..................... -- -- 1,576 -- 1,576
Deferred income taxes................ -- -- 622 -- 622
Other................................ -- -- 1,327 -- 1,327
------- ----------- --------- ----------- --------
Total current assets.............. 15 6,451 132,320 -- 132,320
Property & equipment, net............ -- (1,070) 27,658 -- 27,658
Goodwill............................. -- 80,641 82,845 -- 82,845
Other................................ 4,045 (1,102) 8,057 (4,393) 3,664
------- ----------- --------- ----------- --------
Total assets...................... $ 4,060 $ 84,920 $250,880 $ (4,393) $246,487
======= =========== ========= =========== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable..................... $ -- $ (34) $ 31,387 $ -- $31,387
Accrued liabilities.................. 3,911 29 8,929 (3,911) 5,018
Income taxes payable................. -- -- 135 -- 135
Notes payable........................ -- (31,139) -- -- --
Current portion of long-term debt.... -- (2,045) -- -- --
Payable to stockholders.............. -- 27,825 29,356 (29,356) --
Other................................ -- -- 522 -- 522
------- ----------- --------- ----------- --------
Total current liabilities......... 3,911 (5,364) 70,329 (33,267) 37,062
Long-term debt....................... -- 37,366 92,618 (29,692) 62,926
Deferred income taxes................ 40 4,509 6,104 -- 6,104
Other................................ -- -- 691 -- 691
------- ----------- --------- ----------- --------
Total liabilities................. 3,951 36,511 169,742 (62,959) 106,783
Stockholders' equity:
Preferred stock..................... -- (546) -- -- --
Common stock........................ 48 (2,899) 149 68 217
Additional paid-in capital.......... 9,685 73,029 90,613 58,498 149,111
Retained earnings (deficit)......... (9,624) (24,322) (9,624) -- (9,624)
Treasury stock...................... -- 3,147 -- -- --
------- ----------- --------- ----------- --------
Total stockholders' equity........ 109 48,409 81,138 58,566 139,704
------- ----------- --------- ----------- --------
Total liabilities and stockholders'
equity.............................. $ 4,060 $ 84,920 $250,880 $ (4,393) $246,487
======= =========== ========= =========== ========
</TABLE>
F-3
<PAGE>
METALS USA, INC.
UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS
TWELVE MONTHS ENDED DECEMBER 31, 1996
(IN THOUSANDS OF DOLLARS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
TEXAS OTHER
ALUMINUM/ SOUTHERN FOUNDING
AFFILIATED INTERSTATE CORNERSTONE QUEENSBORO ALLOY UNI-STEEL COMPANIES
---------- ---------- ------------ ---------- -------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Net sales............................ $ 84,587 $ 66,806 $ 40,651 $ 54,996 $10,815 $56,726 $61,201
Costs and expenses:
Cost of sales..................... 72,952 47,902 27,146 38,912 7,084 45,069 48,999
Operating and delivery............ 5,604 8,243 6,386 8,355 709 5,696 6,178
Selling, general & administrative
expenses........................ 3,296 5,391 3,539 3,870 2,850 3,018 3,361
Depreciation and amortization..... 417 550 568 405 126 535 421
---------- ---------- ------------ ---------- ------- --------- ---------
Operating income..................... 2,318 4,720 3,012 3,454 46 2,408 2,242
Interest expense..................... 1,164 936 682 587 168 561 753
Other................................ 78 10 (8) (77) (108) (193) (15)
---------- ---------- ------------ ---------- ------- --------- ---------
Income before tax.................... 1,076 3,774 2,338 2,944 (14) 2,040 1,504
Taxes................................ 402 -- 456 -- -- 770 --
---------- ---------- ------------ ---------- ------- --------- ---------
Net income........................... $ 674 $ 3,774 $ 1,882 $ 2,944 $ (14) $ 1,270 $ 1,504
========== ========== ============ ========== ======= ========= =========
Earnings per share...................
Shares used in computing pro forma
earnings per share(1)...............
</TABLE>
METALS PRO FORMA PRO FORMA
USA ADJUSTMENTS 1996
--------- ------------ ----------
Net sales............................ $ -- $ 11,256 $ 387,038
Costs and expenses:
Cost of sales..................... -- 7,437 295,501
Operating and delivery............ -- (14) 41,157
Selling, general & administrative
expenses........................ 3,636 (4,919) 24,042
Depreciation and amortization..... -- 2,573 5,595
--------- ------------ ----------
Operating income..................... (3,636) 6,179 20,743
Interest expense..................... -- (1,405) 3,446
Other................................ -- (125) (438)
--------- ------------ ----------
Income before tax.................... (3,636) 7,709 17,735
Taxes................................ -- 6,357 7,985
--------- ------------ ----------
Net income........................... $ (3,636) $ 1,352 $ 9,750
========= ============ ==========
Earnings per share................... .45
==========
Shares used in computing pro forma
earnings per share(1)............... 21,667,023
==========

(1) Includes (i) 3,367,914 shares issued to Notre, (ii) 1,385,500 shares
issued to management of and consultants to Metals USA, (iii)
10,128,609 shares issued to owners of the Founding Companies and (iv)
6,785,000 shares sold in the IPO. Excludes options to purchase
2,171,024 shares granted upon consummation of the IPO.

F-4
<PAGE>
METALS USA, INC.
UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 1997
(IN THOUSANDS OF DOLLARS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
TEXAS OTHER
ALUMINUM/ SOUTHERN FOUNDING
AFFILIATED INTERSTATE CORNERSTONE QUEENSBORO ALLOY UNI-STEEL COMPANIES
---------- ---------- ------------ ---------- -------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Net sales............................ $ 56,017 $ 35,774 $ 23,776 $ 31,222 $ 5,568 $31,734 $34,485
Costs and expenses:
Cost of sales..................... 47,810 26,161 15,577 22,810 3,596 25,390 27,098
Operating and delivery............ 5,026 4,554 3,011 4,623 392 3,178 3,529
Selling, general & administrative
expenses........................ 1,443 2,663 3,961 2,163 1,343 1,533 1,817
Depreciation and amortization..... 337 193 386 236 78 256 266
---------- ---------- ------------ ---------- -------- --------- ---------
Operating income..................... 1,401 2,203 841 1,390 159 1,377 1,775
Interest expense..................... 884 426 573 366 71 278 449
Other................................ 1 (2) (96) -- (17) (13) 9
---------- ---------- ------------ ---------- -------- --------- ---------
Income before tax.................... 516 1,779 364 1,024 105 1,112 1,317
Taxes................................ 199 -- 11 -- -- 453 --
---------- ---------- ------------ ---------- -------- --------- ---------
Net income........................... $ 317 $ 1,779 $ 353 $ 1,024 $ 105 $ 659 $ 1,317
========== ========== ============ ========== ======== ========= =========
Earnings per share...................
Shares used in computing pro forma
earnings per share(1)...............
</TABLE>
METALS PRO FORMA
USA ADJUSTMENTS PRO FORMA
--------- ------------ ----------
Net sales............................ $ -- $ 395 $ 218,971
Costs and expenses:
Cost of sales..................... -- 272 168,714
Operating and delivery............ (100) (266) 23,947
Selling, general & administrative
expenses........................ 6,048 (8,772) 12,199
Depreciation and amortization..... -- 1,184 2,936
--------- ------------ ----------
Operating income..................... (5,948) 7,977 11,175
Interest expense..................... -- (849) 2,198
Other................................ -- -- (118)
--------- ------------ ----------
Income before tax.................... (5,948) 8,826 9,095
Taxes................................ 40 3,366 4,069
--------- ------------ ----------
Net income........................... $ (5,988) $ 5,460 $ 5,026
========= ============ ==========
Earnings per share................... $ .23
==========
Shares used in computing pro forma
earnings per share(1)............... 21,667,023
==========

(1) Includes (i) 3,367,914 shares issued to Notre, (ii) 1,385,500 shares
issued to management of and consultants to Metals USA, (iii)
10,128,609 shares issued to owners of the Founding Companies and (iv)
the 6,785,000 shares sold in the IPO. Excludes options to purchase
2,171,024 shares granted upon consummation of the IPO.

F-5
<PAGE>
METALS USA, INC. AND FOUNDING COMPANIES
NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS
(IN THOUSANDS OF DOLLARS, EXCEPT SHARE AMOUNTS)

1. GENERAL:

Metals USA, Inc. ("Metals USA") was founded to become a leading national
value-added metals processor/service center, to manufacture higher-value
components from processed metals and to pursue aggressively the consolidation of
the highly-fragmented metals processing industry. Prior to the IPO, Metals USA
had conducted no operations. Metals USA acquired the Founding Companies
concurrently with the consummation of the IPO.

The historical financial statements reflect the financial position and
results of operations of the Founding Companies and were derived from the
respective Founding Companies' financial statements where indicated. The periods
included in these financial statements for the individual Founding Companies are
as of and for the six months ended June 30, 1997 and for the twelve months ended
December 31, 1996.

2. ACQUISITION OF FOUNDING COMPANIES:

Concurrently with and as a condition to the consummation of the IPO, Metals
USA acquired all of the outstanding capital stock of the Founding Companies. The
acquisitions were accounted for using the purchase method of accounting.

The following table sets forth the consideration paid (a) in cash and (b)
in shares of Common Stock to the common stockholders of each of the Founding
Companies. For purposes of computing the estimated purchase price for accounting
purposes, the value of the shares was determined using an estimate of the fair
value. The estimated purchase price for the acquisitions and related allocations
of the excess purchase price are based upon preliminary estimates and are
subject to adjustment. The table does not reflect the distributions totaling
$20,446 from the Founding Companies that are S Corporations that represent
substantially all of the previously taxed undistributed earnings and tax
payments on current earnings of such Founding Companies ("S Corporation
Distributions") or $4,123 of other distributions of real estate and
non-operating assets and liabilities. However, these amounts are reflected in
the pro forma adjustments as further described in Note 3.

SHARES
CASH OF COMMON STOCK
--------- ---------------
Texas Aluminum/Cornerstone........... $ 8,203 2,383,874
Interstate........................... 1,143 1,917,814
Queensboro........................... 1,765 1,587,810
Affiliated........................... 4,381 1,022,230
Uni-Steel............................ 6,170 1,112,988
Southern Alloy....................... 2,527 648,525
Williams............................. 1,984 712,574
Service Systems...................... 1,653 742,794
--------- ---------------
Total........................... $ 27,826 10,128,609
========= ===============

F-6
<PAGE>
METALS USA, INC. AND FOUNDING COMPANIES
NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS OF DOLLARS, EXCEPT SHARE AMOUNTS)

3. UNAUDITED PRO FORMA COMBINED BALANCE SHEET ADJUSTMENTS AS OF JUNE 30, 1997:

(a) Records the borrowings assumed to be required to fund the S
Corporation Distributions of $20,446 of which $15,471 had been
made through June 30, 1997.

(b) Records the distribution of real estate and nonoperating assets and
liabilities in connection with the Mergers.

(c) Records the purchase of the Founding Companies by Metals USA
consisting of $27.8 million in cash and 10,128,609 shares of
Common Stock valued at $8.00 per share (or $81.0 million) for a
total estimated purchase price of $108.9 million resulting in
excess purchase price over the fair value of assets acquired of
$82.9 million, the issuance of 676,000 shares of Common Stock to
management and consultants and the refinancing of the outstanding
indebtedness. See Note 2.

(d) Records the deferred income tax liability attributable to the
temporary differences between the financial reporting and tax
basis of assets and liabilities held in S Corporations.

(e) Records the net cash proceeds of $58.6 million from the issuance
of shares of Common Stock net of offering costs of $9.3 million
(based on an initial public offering price of $10 per share and
includes the payment of accrued offering costs of $3.9 million
incurred through June 30, 1997). Offering costs primarily consist
of underwriting discounts and commissions, accounting fees, legal
fees and printing expenses.

(f) Records the cash portion of the consideration to be paid to the
stockholders of the Founding Companies in connection with the
Mergers and the reduction of certain debt obligations with the
proceeds from this Offering.

The following table summarizes unaudited pro forma combined balance sheet
adjustments:
<TABLE>
<CAPTION>
ADJUSTMENT
------------------------------------------ PRO FORMA
(A) (B) (C) (D) ADJUSTMENTS
--------- --------- --------- --------- -----------
ASSETS
<S> <C> <C> <C> <C> <C>
Cash and cash equivalents............... $ -- $ (21) $ -- $ -- $ (21)
Accounts receivable..................... -- (224) -- -- (224)
Inventory............................... -- (4) 6,700 -- 6,696
--------- --------- --------- --------- -----------
Total current assets................ -- (249) 6,700 -- 6,451
Property & equipment, net............... -- (3,570) 2,500 -- (1,070)
Goodwill, net........................... -- -- 79,812 829 80,641
Other................................... -- (1,102) -- -- (1,102)
--------- --------- --------- --------- -----------
Total assets............................ $ -- $ (4,921) $ 89,012 $ 829 $ 84,920
========= ========= ========= ========= ===========

LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable........................ $ -- $ (34) $ -- $ -- $ (34)
Accrued liabilities..................... -- 29 -- -- 29
Income taxes payable.................... -- -- -- -- --
Notes payable........................... -- (793) (30,346) -- (31,139)
Current maturities of long-term debt.... -- -- (2,045) -- (2,045)
Payable to stockholder.................. -- -- 27,825 -- 27,825
--------- --------- --------- --------- -----------
Total current liabilities........... -- (798) (4,566) -- (5,364)
Long-term debt, net of current
maturities............................ 4,975 -- 32,391 -- 37,366
Deferred income taxes................... -- -- 3,680 829 4,509
--------- --------- --------- --------- -----------
Total liabilities................... 4,975 (798) 31,505 829 36,511
Stockholders' equity:
Preferred Stock..................... -- -- (546) -- (546)
Common stock........................ -- (1,751) (1,148) -- (2,899)
Additional paid-in capital.......... -- -- 73,029 -- 73,029
Retained earnings................... (4,975) (2,527) (16,820) -- (24,322)
Treasury stock...................... -- 155 2,992 -- 3,147
--------- --------- --------- --------- -----------
Total stockholders' equity...... (4,975) (4,123) 57,507 -- 48,409
--------- --------- --------- --------- -----------
Total liabilities and stockholders'
equity................................ $ -- $ (4,921) $ 89,012 $ 829 $ 84,920
========= ========= ========= ========= ===========
</TABLE>
POST MERGER
(E) (F) ADJUSTMENTS
--------- --------- -----------
ASSETS
Cash and cash equivalents............... $ 58,600 $ (58,600) $ --
Other................................... -- -- --
--------- --------- -----------
Total current assets................ 58,600 (58,600) --
Property & equipment, net............... -- -- --
Other................................... (3,945) (448) (4,393)
--------- --------- -----------
Total assets............................ $ 54,655 $ (59,048) $ (4,393)
========= ========= ===========

LIABILITIES AND STOCKHOLDERS' EQUITY
Accrued liabilities..................... $ (3,911) $ -- $ (3,911)
Payable to stockholder.................. -- (29,356) (29,356)
--------- --------- -----------
Total current liabilities........... (3,911) (29,356) (33,267)
Long-term debt, net of current
maturities............................ -- (29,692) (29,692)
--------- --------- -----------
Total liabilities................... (3,911) (59,048) (62,959)
Stockholders' equity:
Common stock........................ 68 -- 68
Additional paid-in capital.......... 58,498 -- 58,498
Retained earnings................... -- -- --
Treasury stock...................... -- -- --
--------- --------- -----------
Total stockholders' equity...... 58,566 -- 58,566
--------- --------- -----------
Total liabilities and stockholders'
equity................................ $ 54,655 $ (59,048) $ (4,393)
========= ========= ===========

F-7
<PAGE>
METALS USA, INC. AND FOUNDING COMPANIES
NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS OF DOLLARS, EXCEPT SHARE AMOUNTS)

4. UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS ADJUSTMENTS:
TWELVE MONTHS ENDED DECEMBER 31, 1996

(a) Reflects the reduction in certain related party rental and lease
expenses which has been agreed prospectively.

(b) Reflects the $3,558 reduction in salaries, bonuses and benefits to
the owners of the Founding Companies to which they have agreed
prospectively and the reversal of the $3,636 non-cash compensation
charge related to the issuance of 400,000 shares of common stock
to management of and consultants to the Company offset by a $400
charge for recurring salary expenses of management.

(c) Reflects the amortization of goodwill to be recorded as a result
of these Mergers over a 40-year estimated life plus additional
depreciation expense due to the allocation of a portion of the
excess purchase price to property and equipment.

(d) Reflects the assumed reductions in interest expense of $1,010 due
to refinancing of the outstanding indebtedness in conjunction with
the Mergers and $601 due to a reduction of $9,246 in outstanding
indebtedness assumed to be paid with a portion of the IPO
proceeds.

(e) Reflects the pre-acquisition results of operations for Cornerstone
Patio (acquired August 1996), Cornerstone Aluminum (acquired
February 1997) and Williams (acquired March 1996) as if the
acquisitions were completed as of January 1, 1996.

(f) Reflects the incremental provision for federal and state income
taxes for all entities being combined and other statements of
operations adjustments.

The following table summarizes unaudited pro forma combined statements of
operations adjustments:
<TABLE>
<CAPTION>
PRO FORMA
(A) (B) (C) (D) (E) (F) ADJUSTMENTS
--------- --------- --------- --------- --------- --------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Net sales............................ $ -- $ -- $ -- $ -- $ 11,256 $ -- $ 11,256
Costs and expenses:
Cost of sales........................ -- -- -- -- 7,437 -- 7,437
Operating and delivery............... (514) -- -- -- 500 -- (14)
Selling, general and
administrative..................... -- (6,794) -- -- 1,875 -- (4,919)
Depreciation and amortization........ -- -- 2,376 -- 197 -- 2,573
--------- --------- --------- --------- --------- --------- -----------
Income from operations............... 514 6,794 (2,376) -- 1,247 -- 6,179
Other (income) expense:
Interest (income) expense........ -- -- -- (1,611) 206 -- (1,405)
Other (income) expense........... -- -- -- -- (125) -- (125)
--------- --------- --------- --------- --------- --------- -----------
Income before income taxes........... 514 6,794 (2,376) 1,611 1,166 -- 7,709
Provision for income taxes........... -- -- -- -- 459 5,898 6,357
--------- --------- --------- --------- --------- --------- -----------
Net income........................... $ 514 $ 6,794 $ (2,376) $ 1,611 $ 707 $ (5,898) $ 1,352
========= ========= ========= ========= ========= ========= ===========
</TABLE>
F-8
<PAGE>
METALS USA, INC. AND FOUNDING COMPANIES
NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS OF DOLLARS, EXCEPT SHARE AMOUNTS)

4. UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS ADJUSTMENTS
(CONTINUED):
SIX MONTHS ENDED JUNE 30, 1997

(a) Reflects the reduction in certain related party rental and lease
expenses which has been agreed prospectively.

(b) Reflects the $3,142 reduction in salaries, bonuses and benefits to
the owners of the Founding Companies to which they have agreed
prospectively and the reversal of the $6,048 non-cash compensation
charge related to the issuance of 985,500 shares of common stock
to management of and consultants to the Company offset by a $350
charge for recurring salary expenses of management.

(d) Reflects the assumed reductions in interest expense of $579 due to
refinancing of the outstanding indebtedness in conjunction with
the Mergers and $300 due to a reduction of $9,246 in outstanding
indebtedness assumed to be paid with a portion of the IPO
proceeds.

(e) Reflects the pre-acquisition results of Cornerstone Aluminum
(acquired February 1997) as if the acquisition was completed as of
January 1, 1997.

(f) Reflects the incremental provision for federal and state income
taxes for all entities being combined and other statements of
operations adjustments.

The following table summarizes unaudited pro forma combined statements of
operations adjustments:
<TABLE>
<CAPTION>
PRO FORMA
(A) (B) (C) (D) (E) (F) ADJUSTMENTS
--------- --------- --------- --------- --------- --------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Net sales............................ $ -- $ -- $ -- $ -- $ 395 $ -- $ 395
Costs and expenses:
Cost of sales........................ -- -- -- -- 272 -- 272
Operating and delivery............... (282) -- 16 -- (266)
Selling, general and
administrative..................... -- (8,840) -- -- 68 -- (8,772)
Depreciation and amortization........ -- -- 1,153 -- 31 -- 1,184
--------- --------- --------- --------- --------- --------- -----------
Income from operations............... 282 8,840 (1,153) -- 8 -- 7,977
Other (income) expense:
Interest (income) expense........ -- -- -- (879) 30 -- (849)
Other (income) expense........... -- -- -- -- -- -- --
--------- --------- --------- --------- --------- --------- -----------
Income before income taxes........... 282 8,840 (1,153) 879 (22) -- 8,826
Provision for income taxes........... -- -- -- -- -- 3,366 3,366
--------- --------- --------- --------- --------- --------- -----------
Net income........................... $ 282 $ 8,840 $ (1,153) $ 879 $ (22) $ (3,366) $ 5,460
========= ========= ========= ========= ========= ========= ===========
</TABLE>
F-9
<PAGE>
METALS USA, INC. AND FOUNDING COMPANIES
NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS OF DOLLARS, EXCEPT SHARE AMOUNTS)

5. SUBSEQUENT EVENTS:

NEW ACCOUNTING PRONOUNCEMENT

In February 1997, the Financial Accounting Standards Board issued Statement
of Accounting Standards No. 128, Earnings Per Share ("SFAS No. 128") which
simplifies the standards required under current accounting rules for computing
earnings per share and replaces the presentation of primary earnings per share
and fully diluted earnings per share with a presentation of basic earnings per
share ("basic EPS") and diluted earnings per share ("diluted EPS"). Basic
EPS excludes dilution and is determined by dividing income available to common
stockholders by the weighted average number of common shares outstanding during
the period. Diluted EPS reflects the potential dilution that could occur if
securities and other contracts to issue common stock were exercised or converted
into common stock. Diluted EPS is computed similarly to fully diluted earnings
per share under current accounting rules. The implementation of SFAS No. 128 in
1997 is not expected to have a material effect on the Company's earnings per
share as determined under current accounting rules.

F-10
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To Metals USA, Inc.

We have audited the accompanying balance sheet of Metals USA, Inc. as of
December 31, 1996 and the related statements of operations, stockholders' equity
and cash flows for the year then ended. 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 audit.

We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether these 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. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audit provides a reasonable basis for our
opinion.

In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Metals USA, Inc. as of
December 31, 1996, and the results of its operations and cash flows for the year
then ended in conformity with generally accepted accounting principles.

ARTHUR ANDERSEN LLP
Houston, Texas
May 2, 1997

F-11
<PAGE>
METALS USA, INC.
BALANCE SHEETS
(IN THOUSANDS OF DOLLARS, EXCEPT SHARE AMOUNTS)

DECEMBER 31, JUNE 30,
1996 1997
------------ -----------
(UNAUDITED)
ASSETS
CASH AND CASH EQUIVALENTS............... $ 5 $ 15
DEFERRED OFFERING COSTS AND OTHER....... 83 4,045
------------ -----------
Total assets.................. $ 88 $ 4,060
============ ===========

LIABILITIES AND STOCKHOLDERS' EQUITY

ACCRUED LIABILITIES AND AMOUNTS DUE TO
STOCKHOLDER........................... $ 49 $ 3,951
------------ -----------
STOCKHOLDERS' EQUITY:
Preferred stock, $.01 par,
5,000,000 authorized, none issued
and outstanding................... -- --
Common stock, $.01 par, 53,122,914
shares authorized, 3,767,914 and
4,753,414 shares issued and
outstanding at December 31, 1996
and June 30, 1997, respectively... 38 48
Additional paid in capital......... 3,637 9,685
Retained deficit................... (3,636) (9,624)
------------ -----------
Total stockholders' equity.... 39 109
------------ -----------
Total liabilities and
stockholders' equity....... $ 88 $ 4,060
============ ===========

Reflects a 135.81-for-one stock split effective on April 21, 1997.

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

F-12
<PAGE>
METALS USA, INC.
STATEMENTS OF OPERATIONS
(IN THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
FOR THE PERIOD
FROM INCEPTION SIX MONTHS
(JULY 3, 1996) THROUGH ENDED
DECEMBER 31, 1996 JUNE 30, 1997
---------------------- -------------
(UNAUDITED)

<S> <C> <C>
REVENUES................................ $ -- $ --

SELLING, GENERAL AND ADMINISTRATIVE
EXPENSES.............................. 3,636 5,988
---------------------- -------------

LOSS BEFORE INCOME TAXES................ (3,636) (5,988)

INCOME TAX EXPENSE...................... -- --
---------------------- -------------

NET LOSS................................ $ (3,636) $(5,988)
====================== =============
</TABLE>
The accompanying notes are an integral part of these financial statements.

F-13
<PAGE>
METALS USA, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY
(IN THOUSANDS OF DOLLARS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL TOTAL
------------------- PAID-IN RETAINED STOCKHOLDERS'
SHARES AMOUNT CAPITAL DEFICIT EQUITY
--------- ------ ---------- -------- -------------
<S> <C> <C> <C> <C> <C>
Initial Capitalization (July 3, 1996)... 135,810 $ 1 $-- $ -- $ 1
Issuance of Notre Shares........... 3,232,104 33 1 -- 34
Issuance of Management Shares...... 400,000 4 3,636 -- 3,640
Net loss........................... -- -- -- (3,636) (3,636)
--------- ------ ---------- -------- -------------
BALANCE, December 31, 1996.............. 3,767,914 38 3,637 (3,636) 39
Issuance of Management Shares
(unaudited)...................... 985,500 10 6,048 -- 6,058
Net loss (unaudited)............... -- -- -- (5,988) (5,988)
--------- ------ ---------- -------- -------------
BALANCE, June 30, 1997 (unaudited)...... 4,753,414 $ 48 $9,685 $ (9,624) $ 109
========= ====== ========== ======== =============
</TABLE>
The accompanying notes are an integral part of these financial statements.

F-14
<PAGE>
METALS USA, INC.
STATEMENTS OF CASH FLOWS
(IN THOUSANDS OF DOLLARS)

FOR THE PERIOD
FROM INCEPTION SIX MONTHS
(JULY 3, 1996) THROUGH ENDED
DECEMBER 31, 1996 JUNE 30, 1997
---------------------- -------------
(UNAUDITED)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss ................................ $(3,636) $(5,988)
Adjustments to reconcile net
loss to net cash provided by
operating activities --
Compensation expense related to
issuance of management
shares ........................... 3,636 6,048
Other .............................. -- (60)
------- -------
Net cash provided by
operating activities ....... -- --
------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance of stock .................. 5 10
------- -------
Net cash provided by
financing activities ....... 5 10
------- -------
NET INCREASE IN CASH .................... 5 10
CASH, beginning of period ............... -- 5
------- -------
CASH, end of period ..................... $ 5 $ 15
======= =======
Supplemental Cash Flow Information:
Contribution of services in exchange
for stock ............................... $ 34 $--
======= =======

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

F-15
<PAGE>
METALS USA, INC.
NOTES TO FINANCIAL STATEMENTS
(IN THOUSANDS OF DOLLARS, EXCEPT SHARE AND PER SHARE AMOUNTS)

1. BUSINESS AND ORGANIZATION

Metals USA, Inc., a Delaware corporation, (the "Company") was founded in
July 1996 to become a leading national value-added metals processor service
center to manufacture higher-value components from processed metals and to
pursue aggressively the consolidation of the highly fragmented metals processing
industry. The Company intends to acquire eight businesses (the "Founding
Company Mergers" (see Note 5)), complete an initial public offering (the
"IPO") of its common stock and, subsequent to the IPO, continue to acquire
through merger or purchase, similar companies to expand its national operations.

The Company has not conducted any revenue generating operations subsequent
to its formation and all of its activities to date have related to the IPO and
the Founding Company Mergers. Cash of $5 was generated from the initial
capitalization of the Company and subsequent sales of common stock to certain
members of management (see Note 3). All expenditures to July 11, 1997 were
funded by Notre Capital Ventures II, L.L.C. ("Notre") on behalf of the
Company. As of December 31, 1996 and June 30, 1997, costs of approximately $83
and $3,945, respectively, have been incurred by Notre in connection with the
IPO. The Company treated these costs as deferred offering costs. There is no
assurance that the Company will be able to consummate future mergers or expand
its national operations.

2. INTERIM FINANCIAL INFORMATION

The interim financial statements included herein are unaudited; however,
they include all adjustments of a normal recurring nature, which, in the opinion
of management, are necessary to present fairly the financial position of the
Company at June 30, 1997, and the results of its operations and cash flows for
the six months ended June 30, 1997. Accounting measurements at interim dates
inherently involve greater reliance on estimates than at year end. The results
of operations for the interim periods presented are not necessarily indicative
of the results to be expected for the entire year.

USE OF ESTIMATES AND ASSUMPTIONS

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

3. STOCKHOLDERS' EQUITY

Common Stock and Preferred Stock

The Company effected a 135.81-for-one stock split on April 21, 1997 for
each share of common stock ("Common Stock") then outstanding. In addition, the
Company increased the number of authorized shares of Common Stock to 50,000,000
and the authorized shares of Restricted Common Stock to 3,122,914. The Company
also authorized 5,000,000 shares of $.01 par value preferred stock, which may be
designated in the future. The effects of the Common Stock split and the increase
in the shares of authorized Common Stock have been retroactively reflected on
the balance sheet and in the accompanying notes.

In connection with its organization and initial capitalization, the Company
issued 135,810 shares of Common Stock at $.01 per share to Notre. Notre incurred
$34 of expenses on behalf of the Company for which the Company issued 3,232,104
additional shares to Notre in December 1996.

In December 1996, 400,000 shares of Common Stock were sold to management at
$.01 per share. During the first and second quarters of 1997, the Company issued
a total of 985,500 shares of Common Stock to management of and consultants to
the Company at a price of $.01 per share. As a result, the

F-16
<PAGE>
METALS USA, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS OF DOLLARS, EXCEPT SHARE AND PER SHARE AMOUNTS)

Company has recorded a non-recurring, non-cash compensation charge of $3,636 in
1996 and $2,813 and $4,725 in the first and second quarters of 1997,
respectively, representing the difference between the amount paid for the shares
and the estimated fair value of the shares on the date of sale as if the
companies were combined. The second quarter of 1997 also includes a reduction in
compensation expense of $1,490 representing a revision of the estimated fair
value of the shares sold to management and consultants in 1996 and the first
quarter of 1997.

Restricted Common Stock

In April 1997, Notre exchanged 3,122,914 shares of Common Stock for an
equal number of shares of restricted voting common stock ("Restricted Common
Stock"). The holder of Restricted Common Stock is entitled to elect one member
of the Company's Board of Directors and to 0.55 of one vote for each share held
on all other matters on which they are entitled to vote.

Each share of Restricted Common Stock will automatically convert into
Common Stock on a share-for-share basis (a) in the event of a disposition of
such share of Restricted Common Stock by the holder thereof (other than a
disposition which is a distribution by a holder to its partners or beneficial
owners or a transfer to a related party of such holder (as defined)), (b) in the
event any person acquires beneficial ownership of 15% or more of the outstanding
shares of Common Stock of the Company, or (c) in the event any person offers to
acquire 15% or more of the total number of outstanding shares of Common Stock.

After July 1, 1998, the Company may elect to convert any outstanding shares
of Restricted Common Stock into shares of Common Stock in the event 80% or more
of the outstanding shares of Restricted Common Stock have been converted into
shares of Common Stock.

Long-Term Incentive Plan

In April 1997, the Company's stockholders approved the Company's 1997
Long-Term Incentive Plan (the "Plan"), which provides for the granting or
awarding of incentive or non-qualified stock options, stock appreciation rights,
restricted or deferred stock, dividend equivalents and other incentive awards to
directors, officers, key employees and consultants to the Company. The number of
shares authorized and reserved for issuance under the Plan is the greater of
2,500,000 shares or 13% of the aggregate number of shares of Common Stock
outstanding. The terms of the option awards will be established by the
Compensation Committee of the Company's Board of Directors. The Company granted
non-qualified stock options to purchase a total of 705,000 shares of Common
Stock to key employees of the Company at the initial public offering price upon
consummation of the IPO. In addition, the Company granted options to purchase a
total of 1,426,024 shares of Common Stock to certain employees of the Founding
Companies at the initial public offering price per share. These options will
vest at the rate of 20% per year, commencing on the first anniversary of the IPO
and will expire ten years from the date of grant or three months following
termination of employment.

Non-Employee Directors Stock Plan

The Company's 1997 Non-Employee Directors' Stock Plan (the "Director's
Plan"), which was adopted by the Board of Directors and approved by the
Company's stockholders in April 1997, provides for (i) the automatic grant to
each non-employee director serving at the consummation of the IPO of an option
to purchase 10,000 shares, (ii) the automatic grant to each non-employee
director of an option to purchase 10,000 shares upon such person's initial
election as a director, and (iii) an automatic annual grant to each non-employee
director of an option to purchase 5,000 shares at each annual meeting of
stockholders thereafter at which such director is re-elected or remains a
director, unless such annual meeting is held within three months of such
person's initial election as a director. All options will have an exercise price
per

F-17
<PAGE>
METALS USA, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS OF DOLLARS, EXCEPT SHARE AND PER SHARE AMOUNTS)

share equal to the fair market value of the Common Stock on the date of grant
and are immediately vested and expire on the earlier of ten years from the date
of grant or one year after termination of service as a director. The Director's
Plan also permits non-employee directors to elect to receive, in lieu of cash
directors' fees, shares or credits representing "deferred shares" at future
settlement dates, as selected by the director. The number of shares or deferred
shares received will equal the number of shares of Common Stock which, at the
date the fees would otherwise be payable, will have an aggregate fair market
value equal to the amount of such fees.

4. NEW ACCOUNTING PRONOUNCEMENTS

Statement of Financial Accounting Standards ("SFAS") No. 123, "Accounting
for Stock-Based Compensation," allows entities to choose between a new fair
value based method of accounting for employee stock options or similar equity
instruments and the current intrinsic, value-based method of accounting
prescribed by Accounting Principles Board Opinion No. 25 ("APB No. 25").
Entities electing to remain with the accounting in APB Opinion No. 25 must make
pro forma disclosures of net income and earnings per share as if the fair value
method of accounting had been applied. The Company will provide pro forma
disclosure of net income and earnings per share, as applicable, in the notes to
future consolidated financial statements.

In February 1997, the Financial Accounting Standards Board issued Statement
of Accounting Standards No. 128, Earnings Per Share ("SFAS No. 128"). For the
Company, SFAS No. 128 will be effective for the year ended December 31, 1997.
SFAS No. 128 simplifies the standards required under current accounting rules
for computing earnings per share and replaces the presentation of primary
earnings per share and fully diluted earnings per share with a presentation of
basic earnings per share ("basic EPS") and diluted earnings per share
("diluted EPS"). Basic EPS excludes dilution and is determined by dividing
income available to common stockholders by the weighted average number of common
shares outstanding during the period. Diluted EPS reflects the potential
dilution that could occur if securities and other contracts to issue common
stock were exercised or converted into common stock. Diluted EPS is computed
similarly to fully diluted earnings per share under current accounting rules.
The implementation of SFAS No. 128 is not expected to have a material effect on
the Company's earnings per share as determined under current accounting rules.

5. EVENTS SUBSEQUENT TO DATE OF AUDITORS' REPORT (UNAUDITED)

The Company acquired eight companies ("Founding Companies") effective
with the completion of its IPO on July 11, 1997. The companies acquired were
Texas Aluminum/Cornerstone group of companies, Interstate Steel Supply Co.,
Queensboro Steel Corporation, Affiliated Metals Company, Uni-Steel Incorporated,
Southern Alloy of America, Inc., Williams Steel & Supply Co., Inc. and Steel
Service Systems, Inc. The aggregate consideration paid by the Company to acquire
the Founding Companies was approximately $27,826 in cash and 10,128,609 shares
of Common Stock.

The Company has an unsecured $150,000 revolving credit facility which
became available upon the closing of the IPO. The Company entered into the
Credit Facility with the First National Bank of Chicago as agent, on July 15,
1997. The Credit Facility matures on July 15, 2002, bears interest at the bank's
prime rate or LIBOR, at the Company's option, plus an applicable margin based on
the ratio of funded debt to cash flows (as defined). An annual commitment fee of
up to 1/4% is payable on any unused portion of the Credit Facility.

The Credit Facility will be used to fund acquisitions, capital expenditures
and working capital requirements. Under the terms of the Credit Facility the
Company is required to comply with various affirmative and negative covenants
including: (i) the maintenance of certain financial ratios, (ii) restrictions

F-18
<PAGE>
METALS USA, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS OF DOLLARS, EXCEPT SHARE AND PER SHARE AMOUNTS)

on additional indebtedness, (iii) restrictions on liens, guarantees and
dividends, (iv) obtaining the lenders' consent with respect to certain
individual acquisitions, and (v) maintain a specified level of consolidated
tangible net worth. In July 1997, the Company used a portion of the Credit
Facility together with the net proceeds from the IPO to retire substantially all
of the indebtedness of the Founding Companies.

On July 30, 1997, the Company filed a registration statement on Form S-8
under the Securities Act registering the issuance of Common Stock pursuant to
the exercise of options under the Plan and the Directors' Plan described in Note
3.

On August 12, 1997, the Company sold 885,000 shares of its common stock
pursuant to the overallotment option granted to the underwriters in connection
with the IPO. The Company realized net proceeds of approximately $8,231 from the
sale.

The Company is in the process of filing with the Securities and Exchange
Commission to register 10,000,000 shares of its Common Stock which may be
offered and issued by the Company from time to time in connection with merger or
acquisition transactions entered into by the Company.

F-19
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To Texas Aluminum Industries, Inc.:

We have audited the accompanying combined balance sheets of Texas Aluminum
Industries, Inc., and the affiliated Cornerstone Companies (collectively the
Companies), as of June 30, 1995 and December 31, 1996, and the related combined
statements of income, stockholders' equity and members' equity and cash flows
for the years ended June 30, 1994 and 1995, and December 31, 1996. These
combined financial statements are the responsibility of the Companies'
management. Our responsibility is to express an opinion on these combined
financial statements based on our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the combined financial statements referred to above present
fairly, in all material respects, the combined financial position of Texas
Aluminum Industries, Inc. and the affiliated Cornerstone Companies as of June
30, 1995 and December 31, 1996, and the results of their combined operations and
their combined cash flows for the years ended June 30, 1994 and 1995, and
December 31, 1996 in conformity with generally accepted accounting principles.

ARTHUR ANDERSEN LLP

Houston, Texas
April 18, 1997

F-20
<PAGE>
TEXAS ALUMINUM INDUSTRIES, INC. AND AFFILIATES
COMBINED BALANCE SHEETS
(IN THOUSANDS OF DOLLARS)

JUNE 30, DECEMBER 31, JUNE 30,
1995 1996 1997
-------- ------------- -----------
(UNAUDITED)
ASSETS
Current assets:
Cash............................ $ 359 $ 156 $ 1,493
Accounts and notes receivable,
net of allowance of
$519, $677 and $704........... 3,432 4,221 5,548
Accounts and notes receivable
from affiliates............... 993 81 111
Inventory....................... 8,193 10,878 11,475
Prepaid expenses................ 47 38 32
Deferred income taxes........... 591 754 477
-------- ------------- -----------
Total current assets....... 13,615 16,128 19,136

Property and equipment, net.......... 3,712 4,058 4,425
Notes receivable from affiliates..... -- 465 454
Other assets......................... 715 576 1,190
Goodwill............................. 690 822 1,609
-------- ------------- -----------
Total assets.......... $ 18,732 $22,049 $26,814
======== ============= ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of notes
payable....................... $ 593 $ 683 $ 1,159
Current portion of notes payable
and capital lease obligations
to affiliates................. 54 77 22
Accounts payable................ 3,882 5,540 4,570
Income taxes payable............ 269 396 --
Accrued liabilities............. 1,416 1,158 1,256
-------- ------------- -----------
Total current
liabilities............. 6,214 7,854 7,007

Notes payable, less current
portion............................ 7,879 6,004 12,220
Notes payable and capital lease
obligations payable to affiliates,
less current portion............... 368 1,419 3,822
Deferred income taxes................ 249 163 222
Other long-term liabilities.......... 41 274 253
-------- ------------- -----------
Total liabilities..... 14,751 15,714 23,524
-------- ------------- -----------
Commitments and contingencies
Stockholders' equity:
Preferred stock................. 379 369 369
Common stock.................... 1,517 1,501 1,506
Members' equity................. -- 1 1
Additional paid-in capital...... 198 188 188
Retained earnings............... 2,199 4,560 1,513
Less: treasury stock, at
cost.................... (312) (284) (287)
-------- ------------- -----------
Total stockholders'
equity.................. 3,981 6,335 3,290
-------- ------------- -----------
Total liabilities and
stockholders'
equity............. $ 18,732 $22,049 $26,814
======== ============= ===========

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

F-21
<PAGE>
TEXAS ALUMINUM INDUSTRIES, INC. AND AFFILIATES
COMBINED STATEMENTS OF INCOME
(IN THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED JUNE 30, YEAR ENDED JUNE 30,
-------------------- DECEMBER 31, --------------------
1994 1995 1996 1996 1997
--------- --------- ------------ --------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Net sales............................ $ 26,105 $ 34,706 $ 40,651 $ 18,966 $ 23,776
Costs and expenses:
Cost of sales................... 17,991 23,893 27,146 12,766 15,577
Operating and delivery.......... 5,621 5,863 6,386 3,094 3,011
Selling, general and
administrative................ 1,654 2,810 3,539 2,032 3,961
Depreciation and amortization... 346 517 568 284 386
--------- --------- ------------ --------- ---------
Operating income..................... 493 1,623 3,012 790 841
Other (income) expense:
Interest expense................ 444 837 682 357 573
Other income.................... (169) (143) (8) (1) (96)
--------- --------- ------------ --------- ---------
Income before income taxes........... 218 929 2,338 434 364
Provision (benefit) for income
taxes.............................. 93 277 456 (3) 11
--------- --------- ------------ --------- ---------
Net income........................... $ 125 $ 652 $ 1,882 $ 437 $ 353
========= ========= ============ ========= =========
</TABLE>
The accompanying notes are an integral part of these combined financial
statements.

F-22
<PAGE>
TEXAS ALUMINUM INDUSTRIES, INC. AND AFFILIATES
COMBINED STATEMENTS OF STOCKHOLDERS' EQUITY AND MEMBERS' EQUITY
(IN THOUSANDS OF DOLLARS, EXCEPT SHARE AND PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
COMMON STOCK
------------------- CORNERSTONE MEMBERS' PREFERRED PAID-IN RETAINED TREASURY
CLASS A CLASS B COMMON EQUITY STOCK CAPITAL EARNINGS STOCK
-------- -------- ----------- -------- ---------- -------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, June 30, 1993............... $363 $1,239 $-- $-- $414 $254 $ 1,422 $(315)
Purchase of 6,757 shares of Class
B common stock at $16 per
share.......................... -- -- -- -- -- -- -- (108)
Purchase of 315 shares of
preferred stock at $100 per
share.......................... -- -- -- -- -- -- -- (31)
Cancellation of treasury stock... -- (74) -- -- (21) (44) -- 139
Net income....................... -- -- -- -- -- -- 125 --
-------- -------- ----------- -------- ---------- -------- --------- ---------
Balance, June 30, 1994............... 363 1,165 -- -- 393 210 1,547 (315)
Purchase of 2,142 shares of Class
B common stock at $16 per
share.......................... -- -- -- -- -- -- -- (34)
Purchase of 97 shares of
preferred stock at $100 per
share.......................... -- -- -- -- -- -- -- (10)
Cancellation of treasury stock... -- (21) -- -- (14) (12) -- 47
Issuance of Cornerstone Metals
Corporation common stock....... -- -- 5 -- -- -- -- --
Issuance of Cornerstone Building
Products, Inc. common stock.... -- -- 5 -- -- -- -- --
Net income....................... -- -- -- -- -- -- 652 --
-------- -------- ----------- -------- ---------- -------- --------- ---------
Balance, June 30, 1995............... 363 1,144 10 -- 379 198 2,199 (312)
Purchase of 249 shares of Class B
common stock at $16 per
share.......................... -- -- -- -- -- -- -- (4)
Purchase of 37 shares of
preferred stock at $100 per
share.......................... -- -- -- -- -- -- -- (4)
Issuance of Cornerstone Patio
Concepts L.L.C. members'
equity......................... -- -- -- 1 -- -- -- --
Cancellation of treasury stock... -- (16) -- -- (10) (10) -- 36
Adjustment to conform fiscal year
ends........................... -- -- -- -- -- -- 579 --
Distributions to stockholders.... -- -- -- -- -- -- (100) --
Net income....................... -- -- -- -- -- -- 1,882 --
-------- -------- ----------- -------- ---------- -------- --------- ---------
Balance, December 31, 1996........... 363 1,128 10 1 369 188 4,560 (284)
Issuance of Cornerstone Aluminum
Company, Inc. common stock
(unaudited).................... -- -- 5 -- -- -- -- --
Purchase of 30 shares of
preferred stock at $100 per
share (unaudited).............. -- -- -- -- -- -- -- (3)
Distributions to stockholders
(unaudited).................... -- -- -- -- -- -- (3,400) --
Net income (unaudited)........... -- -- -- -- -- -- 353 --
-------- -------- ----------- -------- ---------- -------- --------- ---------
Balance, June 30, 1997 (unaudited)... $363 $1,128 $ 15 $ 1 $369 $188 $ 1,513 $(287)
======== ======== =========== ======== ========== ======== ========= =========
</TABLE>
TOTAL
---------
Balance, June 30, 1993............... $ 3,377
Purchase of 6,757 shares of Class
B common stock at $16 per
share.......................... (108)
Purchase of 315 shares of
preferred stock at $100 per
share.......................... (31)
Cancellation of treasury stock... --
Net income....................... 125
---------
Balance, June 30, 1994............... 3,363
Purchase of 2,142 shares of Class
B common stock at $16 per
share.......................... (34)
Purchase of 97 shares of
preferred stock at $100 per
share.......................... (10)
Cancellation of treasury stock... --
Issuance of Cornerstone Metals
Corporation common stock....... 5
Issuance of Cornerstone Building
Products, Inc. common stock.... 5
Net income....................... 652
---------
Balance, June 30, 1995............... 3,981
Purchase of 249 shares of Class B
common stock at $16 per
share.......................... (4)
Purchase of 37 shares of
preferred stock at $100 per
share.......................... (4)
Issuance of Cornerstone Patio
Concepts L.L.C. members'
equity......................... 1
Cancellation of treasury stock... --
Adjustment to conform fiscal year
ends........................... 579
Distributions to stockholders.... (100)
Net income....................... 1,882
---------
Balance, December 31, 1996........... 6,335
Issuance of Cornerstone Aluminum
Company, Inc. common stock
(unaudited).................... 5
Purchase of 30 shares of
preferred stock at $100 per
share (unaudited).............. (3)
Distributions to stockholders
(unaudited).................... (3,400)
Net income (unaudited)........... 353
---------
Balance, June 30, 1997 (unaudited)... $ 3,290
=========

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

F-23
<PAGE>
TEXAS ALUMINUM INDUSTRIES, INC. AND AFFILIATES
COMBINED STATEMENTS OF CASH FLOWS
(IN THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED SIX MONTHS ENDED
JUNE 30, DECEMBER 31, JUNE 30,
-------------------- ------------ --------------------
1994 1995 1996 1996 1997
--------- --------- ------------ --------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income......................... $ 125 $ 652 $ 1,882 $ 437 $ 353
Adjustments to reconcile net income
to net cash provided by (used in)
operating activities:
Adjustment to conform fiscal year
ends........................... -- -- 579 -- --
Provision for bad debts.......... 456 501 718 174 206
Depreciation and amortization.... 346 517 763 284 386
(Gain) loss on sale of property
and equipment.................. (11) 11 (266) -- --
Deferred income taxes............ (95) (111) (249) (20) 336
Changes in operating assets and
liabilities, net of business
acquisitions --
Accounts and notes
receivable.................. (1,196) (100) (783) (1,182) (1,106)
Accounts and notes receivable
from affiliates............. 124 (654) (167) -- (19)
Inventory...................... (341) (1,166) (1,970) (15) 239
Other assets................... (17) (82) (29) (291) (27)
Accounts payable............... 39 393 1,476 1,166 (940)
Accounts payable to
affiliates.................. 11 161 -- -- --
Income taxes payable........... (18) 171 127 (157) (514)
Accrued liabilities............ 373 309 (269) 269 98
--------- --------- ------------ --------- ---------
Net cash provided by (used
in) operating activities.. (204) 602 1,812 665 (988)
--------- --------- ------------ --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of assets....... 104 71 611 330 --
Purchases of property.............. (438) (606) (739) (167) (270)
Collections on notes receivable.... 129 109 445 250 --
Purchase of businesses, net of
acquired cash.................... -- (2,500) (150) -- (1,300)
--------- --------- ------------ --------- ---------
Net cash provided by (used
in) investing activities.. (205) (2,926) 167 413 (1,570)
--------- --------- ------------ --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings on notes payable........ 2,566 2,518 -- -- --
Principal payments on notes payable
and capital leases............... (1,745) (322) (746) (110) (81)
Borrowings on revolving credit
facility......................... 5,498 1,403 3,692 2,605 9,861
Payments on revolving credit
facility......................... (6,005) (1,299) (5,160) (4,108) (4,850)
Payments made to former ESOP
members.......................... (92) (63) (89) (17) (90)
Borrowings on notes payable to
affiliates....................... -- 650 1,020 850 2,450
Principal payments on notes payable
to affiliates.................... -- (452) (800) -- --
Issuance of common stock and
members' equity.................. -- 10 1 -- 5
Distribution to stockholders....... -- -- (100) (100) (3,400)
--------- --------- ------------ --------- ---------
Net cash provided by (used
in) financing activities.. 222 2,445 (2,182) (880) 3,895
--------- --------- ------------ --------- ---------
NET INCREASE (DECREASE) IN CASH...... (187) 121 (203) 198 1,337
CASH, BEGINNING OF PERIOD............ 425 238 359 147 156
--------- --------- ------------ --------- ---------
CASH, END OF PERIOD.................. $ 238 $ 359 $ 156 $ 345 $ 1,493
========= ========= ============ ========= =========
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid for:
Interest........................... $ 441 $ 526 $ 699 $ 157 $ 280
Income taxes....................... 207 217 584 82 33
Non-cash investing and financing
activities:
Purchase of assets through
assumption of debt............... $ -- $ 19 $ 820 $ 820 $ 1,700
Purchase of treasury stock through
assumption of debt............... 102 35 32 4 --
Sale of assets by issuing note
receivable....................... -- -- 330 -- --
</TABLE>
The accompanying notes are an integral part of these combined financial
statements.

F-24
<PAGE>
TEXAS ALUMINUM INDUSTRIES, INC. AND AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS
(IN THOUSANDS OF DOLLARS, EXCEPT SHARE AMOUNTS)

1. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

BASIS OF PRESENTATION

The accompanying combined financial statements include the accounts of
Texas Aluminum Industries, Inc. ("Texas Aluminum"), a Texas corporation,
Cornerstone Metals Corporation ("CMC"), a Nevada Corporation, Cornerstone
Building Products, Inc. ("CBP"), a Nevada corporation, and Cornerstone Patio
Concepts, L.L.C. ("CPC"), a Nevada limited liability corporation. CMC, CBP and
CPC are collectively referred to herein as "Cornerstone". Texas Aluminum and
Cornerstone are under common control and ownership and are presented herein on a
combined basis. Texas Aluminum and Cornerstone are collectively referred to as
"Texas Aluminum/Cornerstone." Texas Aluminum/Cornerstone produces and
distributes aluminum and steel building products consisting of windows, doors,
insulated wall panels, canopies and awnings. These products are used by
commercial and residential contractors in the construction of sun rooms,
solariums, walkways, canopies and coverings, aluminum support structures, as
well as for facia coverings for retail buildings. Texas Aluminum/Cornerstone's
products are produced in five manufacturing plants. The products are marketed
and sold to contractors, architects and wholesale distributors through 36 sales
and distribution outlets across the United States, primarily concentrated in the
Sunbelt.

Texas Aluminum has historically reported on a June 30 fiscal year end,
whereas Cornerstone has historically reported on a December 31 year end. For
purposes of combined presentation, Texas Aluminum began reporting on a calendar
year end basis effective January 1, 1996. Cornerstone began operations on April
1, 1995 as further discussed below. Accordingly, the year ended June 30, 1994
includes the operations of Texas Aluminum, the year ended June 30, 1995 includes
the operations of Texas Aluminum for the twelve months ended June 30, 1995
combined with the operations of Cornerstone for the nine months ended December
31, 1995, and the year ended December 31, 1996 includes Texas Aluminum and
Cornerstone for the twelve months ended December 31, 1996. The net sales and net
income of Texas Aluminum for the period from July 1, 1995 through December 31,
1995 were $15,547 and $579, respectively. The net sales and net income of
Cornerstone for the period from July 1, 1995 through December 31, 1995 were
$3,671 and $165, respectively. The net income of Texas Aluminum for this
transition period is included in the accompanying statements of stockholders'
equity as an adjustment to retained earnings in order to conform the fiscal
years of these combined companies.

Intercompany transactions and ending balances among Texas Aluminum, CMC,
CBP and CPC have been eliminated except for certain transactions and balances
for the year ended June 30, 1995 which could not be eliminated due to the
combining of year ends (See Note 12).

Texas Aluminum/Cornerstone and its stockholders expect to enter into a
definitive merger agreement with Metals USA, Inc. ("Metals USA") pursuant to
which all of the Companies' outstanding shares of capital stock will be
exchanged for cash and shares of Metals USA common stock concurrently with the
consummation of the initial public offering (the "Offering") of Metals USA
common stock.

BUSINESS COMBINATIONS

CMC and CBP are both S Corporations, as defined by the Internal Revenue
Code, and were acquired April 1, 1995. Accordingly, the financial statements for
1995 include the nine-month period from the date of acquisition through December
31, 1995. CPC, a Limited Liability Corporation, was acquired in August, 1996.
The aggregate consideration paid for CMC and CBP was $2,500 in cash and $828 in
notes payable to the seller. The consideration paid for CPC was $150 in cash and
$415 in notes payable to the seller. The accompanying combined balance sheet as
of December 31, 1996, includes allocations of the respective purchase prices
which resulted in goodwill recognized of $887.

F-25
<PAGE>
TEXAS ALUMINUM INDUSTRIES, INC. AND AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS OF DOLLARS, EXCEPT SHARE AMOUNTS)

The following summarizes the assets acquired and liabilities assumed.

JUNE 30, DECEMBER 31,
1995 1996
--------- -------------
Fair value of assets acquired, net of
cash acquired...................... $ 2,615 $ 607
Goodwill and other intangibles....... 713 174
Liabilities assumed.................. -- (216)
Notes issued to sellers.............. (828) (415)
--------- -------------
Cash paid, net of cash acquired...... $ 2,500 $ 150
========= =============

The results of operations for CPC are included in the combined income
statement from the date of acquisition.

The following presents the unaudited results of operations for Texas
Aluminum/Cornerstone for the years ended June 30, 1995 and December 31, 1996, as
if CPC had been acquired as of April 1, 1995, the effective date Cornerstone
began operations.

JUNE 30, DECEMBER 31,
1995 1996
-------- ------------
Unaudited pro forma sales............ $ 36,503 $ 42,041
Unaudited pro forma income before
income taxes....................... 734 1,957

In February 1997, the owners of Cornerstone, through a newly formed
corporation, Cornerstone Aluminum Company, Inc. ("CAC"), acquired the business
and assets of Amalgamated Building Components, Inc. CAC paid $1,300 in cash and
issued $1,700 in notes payable to the former owner. CAC is headquartered in
Tucson, Arizona with three additional locations in the western and southwestern
United States.

USE OF ESTIMATES AND ASSUMPTIONS

The preparation of financial statements 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.

INTERIM FINANCIAL INFORMATION

The interim financial statements included herein are unaudited; however,
they include all adjustments of a normal recurring nature, which, in the opinion
of management, are necessary to present fairly the financial position of Texas
Aluminum/Cornerstone at June 30, 1997, and the results of its operations and
cash flows for the six months ended June 30, 1996 and 1997. Accounting
measurements at interim dates inherently involve greater reliance on estimates
than at year end. The results of operations for the interim periods presented
are not necessarily indicative of the results to be expected for the entire
year.

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

CASH EQUIVALENTS

Cash equivalents consist of highly liquid money market instruments with
original maturities of three months or less.

INVENTORIES

Inventories are stated at the lower of cost or market. Cost is determined
using the last-in, first-out ("LIFO") method for Texas Aluminum and the
first-in, first-out ("FIFO") method for Cornerstone.

F-26
<PAGE>
TEXAS ALUMINUM INDUSTRIES, INC. AND AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS OF DOLLARS, EXCEPT SHARE AMOUNTS)

PROPERTY AND EQUIPMENT

Property and equipment is stated at cost, net of accumulated depreciation.
Depreciation is computed utilizing the straight-line method at rates based upon
the estimated useful lives of the various classes of assets.

FAIR VALUE OF FINANCIAL INSTRUMENTS

The carrying amounts of cash equivalents approximate their fair value. The
carrying amount of notes receivable approximates fair value at the applicable
balance sheet dates. The fair value of such notes receivable was based on
expected cash flows discounted using current rates at which similar loans would
be made to borrowers with similar credit ratings. The fair value of the notes
payable is estimated based on interest rates for the same or similar debt
offered to Texas Aluminum/Cornerstone having the same or similar remaining
maturities and collateral requirements. The carrying amounts of notes payable
approximate fair value at the applicable balance sheet dates.

CONCENTRATION OF CREDIT RISK

Financial instruments, which potentially subject Texas Aluminum/Cornerstone
to concentrations of credit risk, consist principally of cash deposits and,
trade accounts and notes receivable. Texas Aluminum/Cornerstone places its cash
with several financial institutions limiting the amount of credit exposure to
any one financial institution. Concentrations of credit risk with respect to
trade accounts and notes receivable are within the home improvement and general
construction industry. Credit is extended once appropriate credit history and
references have been obtained. Adjustments to the allowance for doubtful
accounts are made periodically (as circumstances warrant) based upon the
expected collectibility of all such accounts. Texas Aluminum/Cornerstone
periodically reviews the credit history of its customers and generally does not
require collateral for the extension of credit.

INCOME TAXES

Texas Aluminum accounts for income taxes in accordance with Statement of
Financial Accounting Standards No. 109, ACCOUNTING FOR INCOME TAXES ("SFAS
109"). Under SFAS 109, deferred income taxes are recognized for the tax
consequences in future years of differences between the tax bases of assets and
liabilities and their financial reporting amounts at each year-end based on
enacted tax laws and statutory tax rates applicable to the periods in which the
differences are expected to affect taxable income. The principal items resulting
in the differences are different depreciation methods, use of the allowance
method for bad debts, and different inventory capitalization methods. Valuation
allowances are established when necessary to reduce deferred assets to the
amount to be realized. Income tax expense is the tax payable for the year and
the change during the year in deferred tax assets and liabilities.

Cornerstone, with the consent of its stockholders, elected to be taxed
under sections of the federal and state income tax laws which provide that, in
lieu of corporate income taxes, the stockholders separately account for
Cornerstone's items of income, deductions, losses and credits on their
individual income tax returns. The financial statements will not include a
provision for income taxes (credits) as long as the S Corporation election
remains in effect. As long as Cornerstone's S Corporation income tax election
remains in effect, Cornerstone may, from time to time, pay dividends to its
stockholders in amounts sufficient to enable the stockholders to pay the taxes
due on their share of Cornerstone's items of income, deductions, losses, and
credits which have been allocated to them for reporting on their individual
income tax returns.

F-27
<PAGE>
TEXAS ALUMINUM INDUSTRIES, INC. AND AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS OF DOLLARS, EXCEPT SHARE AMOUNTS)

GOODWILL AND OTHER INTANGIBLES

Goodwill represents the excess of the consideration paid over the fair
market value of assets acquired and is being amortized on the straight-line
method over 40 years. Other intangibles include covenants not to compete,
trademarks, patents and consulting agreements, which are being amortized over
their respective lives ranging from 5-15 years. Accumulated amortization totaled
$23 and $65 as of June 30, 1995 and December 31, 1996, respectively.

RECENT ACCOUNTING PRONOUNCEMENTS

The Financial Accounting Standards Board issued 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") in March 1995. SFAS
121 requires that long-lived assets and certain intangibles to be held and used
by an entity be reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be
recoverable. Texas Aluminum/Cornerstone adopted SFAS No. 121 on January 1, 1996.
The impact of adopting this standard did not have a material impact on the
results of operations.

2. PROPERTY AND EQUIPMENT

Property and equipment consists of the following:

ESTIMATED JUNE 30, DECEMBER 31,
USEFUL LIVES 1995 1996
-------------- -------- ------------
Land............................. $ 423 $ 410
Buildings and improvements....... 5 - 30 years 1,645 1,835
Machinery and equipment.......... 7 - 10 years 6,102 6,162
Automobiles and trucks........... 3 - 10 years 643 643
-------- ------------
8,813 9,050
Less: accumulated depreciation... (5,101) (4,992)
-------- ------------
Total....................... $ 3,712 $ 4,058
======== ============

F-28
<PAGE>
TEXAS ALUMINUM INDUSTRIES, INC. AND AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS OF DOLLARS, EXCEPT SHARE AMOUNTS)

3. SUMMARY OF LONG-TERM FINANCING ARRANGEMENTS

Notes payable to non-affiliates consist of the following:

JUNE 30, DECEMBER 31, JUNE 30,
1995 1996 1997
-------- ------------ -----------
(UNAUDITED)
Revolving credit facility with
interest at prime plus .25%
maturing on October 29, 1998,
secured by inventory, trade
accounts and notes receivable, and
equipment and personally guaranteed
by stockholders.................... $ 3,128 $ 2,753 $ 5,800
Revolving credit facility with
interest at prime plus .5%,
maturing on May 15, 1998, secured
by inventory, trade accounts and
notes receivable and equipment, and
personally guaranteed by
stockholders....................... 1,405 311 1,550
Revolving credit facility with
interest at prime plus .25%
maturing in May, 1998, secured by
inventory, trade accounts and notes
receivable and equipment and
personally guaranteed by
stockholders....................... -- -- 950
Term loan payable to a bank in
quarterly installments of $63 plus
monthly payments of interest at
7.86%, due October 29, 1998,
secured by inventory, trade
accounts and notes receivable, and
equipment and personally guaranteed
by stockholders.................... 2,175 1,800 1,675
Term loan payable to a bank in
monthly installments of $17 plus
monthly payments of interest at
prime plus .5%, due June 30, 2000,
secured by inventory, trade
accounts and notes receivable and
equipment, and personally
guaranteed by stockholders......... 900 700 600
Notes payable to individuals in
annual installments of $240 plus
accrued interest, beginning
February 10, 1997 and maturing on
February 10, 2002, secured by
certain property................... -- -- 1,734
Note payable to individuals in
monthly installments of $13
including interest, maturing on
July 1, 1998, at which time the
note can be extended 20 months at
prime plus 2%...................... 795 701 651
Note payable to individual in annual
installments of $100 plus accrued
interest at 8%, beginning August 5,
1997 and maturing on August 5,
2000, unsecured.................... -- 314 314
Note payable to individuals in annual
installments of $25 including
interest, beginning August 5, 1997
and maturing on August 5, 2000,
unsecured.......................... -- 100 100
Other long-term debt................. 69 8 5
-------- ------------ -----------
8,472 6,687 13,379
Less: current portion................ (593) (683) (1,159)
-------- ------------ -----------
$ 7,879 $ 6,004 $12,220
======== ============ ===========

The maximum credit available under the Texas Aluminum revolving credit
facility was increased from $4,000 to $7,000 in February 1997 and the due dates
of the revolver and the term loan were extended to October 29, 1998. The maximum
credit available under the Cornerstone revolving credit facility was increased
from $2,000 to $3,000 in February 1997 and the due dates of the revolver and the
term loan were

F-29
<PAGE>
TEXAS ALUMINUM INDUSTRIES, INC. AND AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS OF DOLLARS, EXCEPT SHARE AMOUNTS)

extended to May 15, 1998 and June 30, 2000, respectively. The terms of the loan
agreements, which provide the revolvers and the term loans to Texas
Aluminum/Cornerstone, include certain restrictive covenants of which Texas
Aluminum/Cornerstone was in compliance as of December 31, 1996. The prime rate
of interest at June 30, 1995 and December 31, 1996 was 9% and 8.25%,
respectively.

Notes payable and capital lease obligations to affiliates consists of the
following:

JUNE 30, DECEMBER 31, JUNE 30,
1995 1996 1997
-------- ------------ -----------
(UNAUDITED)
Notes payable to former employee
stock ownership plan and trust
members payable in annual
installments including interest at
7% and 9%, through October 1999,
secured by treasury stock (See Note
7)................................. $ 172 $ 90 $--
Capital lease obligation to an
affiliated company with monthly
installments payable through
December 2011 (See Note 12)........ -- 806 794
Note payable to an affiliated company
in monthly installments of interest
only at 8%, maturing on July 31,
2000, unsecured.................... 100 -- --
Notes payable to stockholders,
accruing interest at prime, due at
various dates from October 1998
through February 2002, unsecured... 150 250 2,650
Note payable to an affiliated
corporation in monthly installments
of interest only at 8.5%, paid in
the first quarter 1997,
unsecured.......................... -- 350 400
-------- ------------ -----------
422 1,496 3,844
Less: current portion................ (54) (77) (22)
-------- ------------ -----------
$ 368 $ 1,419 $ 3,822
======== ============ ===========

Texas Aluminum/Cornerstone's long-term notes payable and capital lease
obligations are subject to mandatory redemption as follows:

AFFILIATES
YEAR ENDING NON- ------------------------------
DECEMBER 31, AFFILIATES NOTES PAYABLE CAPITAL LEASE
- ------------- ----------- ------------- -------------
1997.......................... $ 683 $ 49 $ 96
1998.......................... 5,541 191 96
1999.......................... 325 100 96
2000.......................... 138 -- 96
2001.......................... -- 350 96
Thereafter.................... -- -- 960
----------- ------------- -------------
$ 6,687 $ 690 $ 1,440
=========== =============
Less: amounts representing
interest........................ (634)
-------------
Present value of capital lease
obligations................... $ 806
=============

F-30
<PAGE>
TEXAS ALUMINUM INDUSTRIES, INC. AND AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS OF DOLLARS, EXCEPT SHARE AMOUNTS)

4. INVENTORIES

Inventories consist of the following:

JUNE 30, DECEMBER 31,
1995 1996
-------- ------------
Aluminum coil and roll-formed
aluminum............................. $ 2,325 $ 3,430
Aluminum extrusions.................. 2,246 3,163
Steel coil and roll-formed steel..... 242 358
Miscellaneous purchased and
manufactured goods................... 3,380 3,927
-------- ------------
$ 8,193 $ 10,878
======== ============

The replacement cost of Texas Aluminum's inventory exceeds the historical
cost of the inventory, computed using the LIFO method of valuation, as reported
in the accompanying financial statements. If the FIFO method had been used for
all inventories, their carrying value would have been $11,818 and $14,314 at
June 30, 1995 and December 31, 1996, respectively. Additionally, net income
would have been $286, $1,219 and $1,837 for the years ended June 30, 1994 and
1995 and December 31, 1996, respectively.

5. DETAIL OF ACCRUED LIABILITIES

Accrued liabilities consist of the following:

JUNE 30, DECEMBER 31,
1995 1996
-------- ------------
Accrued salaries and benefits........ $ 683 $ 425
Accrued ad valorem and sales taxes... 337 447
Other................................ 396 286
-------- ------------
$ 1,416 $ 1,158
======== ============

6. INCOME TAXES

The components of the provision for income taxes are as follows:

YEAR ENDED
---------------------------------------
JUNE 30,
---------------------- DECEMBER 31,
1994 1995 1996
---------- ---------- ------------
Federal:
Current......................... $ 165 $ 338 $ 578
Deferred........................ (84) (99) (196)
---------- ---------- ------------
81 239 382
---------- ---------- ------------
State:
Current......................... 23 50 107
Deferred........................ (11) (12) (33)
---------- ---------- ------------
12 38 74
---------- ---------- ------------
Total provision............ $ 93 $ 277 $ 456
========== ========== ============

F-31
<PAGE>
TEXAS ALUMINUM INDUSTRIES, INC. AND AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS OF DOLLARS, EXCEPT SHARE AMOUNTS)

The provision for income taxes differs from an amount computed at the
statutory rates as follows:

YEAR ENDED
--------------------------------------
JUNE 30,
---------------------- DECEMBER 31,
1994 1995 1996
---------- ---------- ------------
Federal income tax at statutory
rates.............................. $ 76 $ 325 $ 818
State income taxes................... 12 38 74
Effect of S Corporation income....... -- (89) (454)
Nondeductible expenses (mainly meals
and entertainment)................. 5 3 18
---------- ---------- ------------
$ 93 $ 277 $ 456
========== ========== ============

The significant items giving rise to the deferred tax assets and
(liabilities) as of June 30, 1995 and December 31, 1996 are as follows:

JUNE 30, DECEMBER 31,
1995 1996
-------- ------------
Deferred tax assets --
Allowance for doubtful
accounts...................... $ 199 $ 220
UNICAP inventory................ 380 402
Other accrued expenses.......... 82 197
-------- ------------
Total deferred tax
assets.................. 661 819
-------- ------------
Deferred tax liabilities --
Bases differences in property
and equipment................. (249) (163)
Other........................... (70) (65)
-------- ------------
Total deferred income tax
liabilities............. (319) (228)
-------- ------------
Net deferred tax assets.... $ 342 $ 591
======== ============

7. COMPANY STOCK

Texas Aluminum has three classes of stock which include Class A voting
common stock, Class B non-voting common stock and cumulative, participating
preferred stock. The cumulative, participating preferred stock includes a
conversion right which can be exercised by the holder in the event of the sale
or transfer of more than fifty percent of the common stock or assets of the
corporation or the consolidation, merger or other reorganization or similar
transfer of a majority of the corporation's assets or common stock. The
conversion option allows the holder to convert a preferred share into two shares
of Class A voting common stock.

F-32
<PAGE>
TEXAS ALUMINUM INDUSTRIES, INC. AND AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS OF DOLLARS, EXCEPT SHARE AMOUNTS)

Texas Aluminum and Cornerstone's capital structure consists of:

JUNE 30, DECEMBER 31,
1995 1996
-------- ------------
Texas Aluminum:
Preferred stock, cumulative and
participating, authorized
100,000 shares, $100 par
value; 3,790 and 3,693 shares
issued and outstanding........ $ 379 $ 369
Common stock Class A voting,
authorized 5,000,000 shares,
no par value; 159,570 shares
issued and outstanding........ 363 363
Common stock Class B non-voting,
authorized 5,000,000 shares,
$10 par value; 114,441 and
112,827 shares issued and
outstanding................... 1,144 1,128
Treasury stock, 15,326 and
13,961 shares of Class B
common stock, respectively,
and 667 and 608 shares of
preferred stock shares,
respectively.................. (312) (284)
Cornerstone:
CMC common stock, authorized
1,000 shares, no par value;
1,000 shares issued and
outstanding................... 5 5
CBP common stock, authorized
1,000 shares, no par value;
1,000 shares issued and
outstanding................... 5 5
CPC members' equity............. -- 1

Treasury stock transactions are a result of employees exercising their put
options on shares awarded through the employee stock ownership plan. Texas
Aluminum cancels treasury stock and the corresponding Class B common stock or
preferred stock when the related note payable is fully paid (See Note 8).

8. EMPLOYEE BENEFIT PLANS

401(K) DEFERRED PROFIT SHARING PLAN AND TRUST

Texas Aluminum adopted a 401(k) salary deferral/savings plan effective July
1, 1989, for the benefit of all its employees. Employees electing to participate
in the plan may contribute up to 15% of annual compensation, limited to the
maximum amount that can be deducted for income tax purposes each year.

Texas Aluminum, at its discretion, has the option to match the employee's
contribution each plan year. Texas Aluminum elected to make contributions of
$24, $23 and $22 for the years ended June 30, 1994 and 1995 and December 31,
1996, respectively.

EMPLOYEE STOCK OWNERSHIP PLAN AND TRUST

Texas Aluminum had an employee stock ownership plan and trust. Under the
provisions of this plan, Texas Aluminum made annual contributions to the plan
which were invested in stock and other qualifying securities of Texas Aluminum
for the benefit of Texas Aluminum's employees. Effective July 1, 1989, the ESOP
was frozen. As a result, all participants' accounts became fully vested on that
date.

Under the provisions of the plan, employees received a put option which
required Texas Aluminum to purchase their shares at fair market value.
Additionally, Texas Aluminum had the right of first refusal for any shares sold
by the employee. The plan provided for Texas Aluminum purchases of employee
shares to be paid in cash and with the issuance of a note payable.

In January 1997, Texas Aluminum terminated the plan and gave its employees
the option to receive a cash distribution, roll their account balances into an
IRA account, or have the account distributed in Texas Aluminum stock.

F-33
<PAGE>
TEXAS ALUMINUM INDUSTRIES, INC. AND AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS OF DOLLARS, EXCEPT SHARE AMOUNTS)

Texas Aluminum's practice has generally been to purchase shares from
employees at $16 per share for the Class B non-voting common stock and $100 per
share for the cumulative, participating preferred stock. The distribution under
the termination is based on these prices. Management believes that these prices
approximate fair value and has obtained valuations from independent appraisers
to assist them in their determination. In March 1997, Gene C. Elkins, a
shareholder of Texas Aluminum, purchased the shares tendered by employees who
opted for a cash distribution. The remaining employees received shares of Texas
Aluminum stock. The put options were terminated upon the execution of these
transactions.

9. COMMITMENTS

OPERATING LEASE AGREEMENTS

Texas Aluminum/Cornerstone is obligated under certain long-term
non-cancelable lease agreements for office space, warehouse space and equipment
as summarized below:

YEAR ENDING
DECEMBER 31,
-------------
1997................................. $ 1,706
1998................................. 1,358
1999................................. 1,044
2000................................. 480
2001 and thereafter.................. 322
---------
$ 4,910
=========

Texas Aluminum/Cornerstone paid approximately $1,300, $1,700 and $1,700 in
rent expense during the years ended June 30, 1994 and 1995 and December 31,
1996, respectively, under operating leases. Certain of these leases are with
affiliated individuals and companies (see Note 12).

10. DIVESTITURE OF A RETAIL DIVISION

On June 30, 1993, Texas Aluminum divested its retail division under a
licensing agreement, whereby the Company transferred certain assets and existing
sales in exchange for $100 and the licensing agreement. The license grants the
licensee the right to sell certain proprietary products under the name of Air
Vent and/or Air Vent Awning Company. In accordance with the agreement, Texas
Aluminum is entitled to receive monthly license fees of $9 beginning on August
1, 1993, and continuing for a five-year period. These fees are included in other
income in the accompanying statements of income.

Under the terms of the agreement, the licensee has agreed to purchase the
merchandise used to market and install the products exclusively from Texas
Aluminum. During the term of the agreement, Texas Aluminum has agreed not to
compete with the licensee in the retail market in the state of Texas.

As part of the license agreement, Texas Aluminum granted an option for the
sale of the stock of Air Vent Awning Company for a purchase price of $100. This
option has a one year term and is extendable up to four successive one-year
terms. Consideration for these options is $5 per quarter which shall be applied
towards the purchase price.

11. LICENSING AGREEMENT

Texas Aluminum entered into a licensing agreement in July 1992, whereby it
is required to pay licensing fees to a third party on the sale of certain
products. Texas Aluminum has capitalized $94 in costs incurred in connection
with obtaining the licensing agreement which are being amortized over the life
of the agreement. The unamortized balance of capitalized licensing costs was $78
and $66 as of June 30, 1995 and December 31, 1996, respectively. Total licensing
fees paid for the years ended June 30, 1994 and 1995, and December 31, 1996 were
$36, $43 and $64, respectively.

F-34
<PAGE>
TEXAS ALUMINUM INDUSTRIES, INC. AND AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS OF DOLLARS, EXCEPT SHARE AMOUNTS)

12. RELATED-PARTY TRANSACTIONS

Texas Aluminum/Cornerstone has various transactions with affiliated
individuals and companies as follows:

FACILITY AND EQUIPMENT LEASES

Texas Aluminum/Cornerstone leases certain facilities and equipment from
affiliated individuals and companies. Lease payments made to these affiliated
individuals and companies during the years ended June 30, 1994 and 1995 and
December 31, 1996 were $306, $541 and $697, respectively.

In June 1996, Texas Aluminum sold certain equipment with a net book value
of $143 to an affiliated company. This equipment is being leased to Cornerstone
for $48 per year through December 2011. Also in June 1996, Cornerstone sold
certain equipment with a net book value of $120 to the same affiliated company.
This equipment is being leased to Texas Aluminum for $48 per year through
December 2011. These leases are being accounted for as capital leases. In
November 1996, Texas Aluminum sold certain machinery and equipment to this
affiliated company resulting in a gain of $242. Texas Aluminum is leasing this
machinery from the affiliated company for $72 per year through December 2001.
The resulting gain has been deferred and will be recognized over the term of the
lease.

NOTES RECEIVABLE

Texas Aluminum/Cornerstone has unsecured notes receivable from an
affiliated corporation of $546 as of December 31, 1996, which is included in
accounts and notes receivable from affiliates. This note accrues interest at 8%
and is due June 1, 2001.

Texas Aluminum/Cornerstone believes the related party transactions are on
terms no more or less favorable than what could have been obtained from third
parties.

INTERCOMPANY ELIMINATIONS

The balance sheet as of June 30, 1995 and the statement of income for the
year ended June 30, 1995, include certain intercompany balances and transactions
between Texas Aluminum and Cornerstone which have not been eliminated due to the
conforming of year ends, as follows:

Affiliated receivables............... $ 993
Affiliated management fee expense.... $ 60

13. SUBSEQUENT EVENTS (UNAUDITED)

Certain transactions occurred subsequent to year end as follows:

i) On July 11, 1997, Metals USA, Inc. purchased all of the issued and
outstanding equity securities of Texas Aluminum/Cornerstone, through the
issuance of common stock and cash pursuant to a definitive merger agreement
dated May 1997.

ii) Prior to the merger, Cornerstone made cash distributions of
approximately $2,000 which represents Cornerstone's estimated S Corporation
accumulated adjustment account. Cornerstone funded this $2,000 distribution
through short-term borrowings.

iii) Texas Aluminum/Cornerstone made a cash distribution of $1,400 to
its stockholders to cover their tax liabilities due to Cornerstone's S
Corporation status.

iv) Discretionary bonuses totalling $1,600 were made to stockholders.

v) A stockholder and an affiliated entity purchased the shares of
Texas Aluminum's common and preferred stock which were tendered by the
Company's employees upon termination of the ESOP plan (See Note 8).

vi) Two stockholders made loans to the Company totalling $2,500 to
help fund potential future acquisitions.

F-35
<PAGE>
INDEPENDENT AUDITORS' REPORT

To the Board of Directors of
Interstate Steel Supply Company and Affiliates

We have audited the accompanying combined balance sheets of Interstate
Steel Supply Company and Affiliates as of December 31, 1996 and 1995 and the
related statements of income, stockholders' equity and partners' capital and
cash flows for each of the three years in the period ended December 31, 1996.
The individual companies and partnership which comprise the Company are under
common ownership and common management (see Note 1). 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 audit.

We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.

In our opinion, the financial statements present fairly, in all material
respects, the combined financial position of Interstate Steel Company and
Affiliates at December 31, 1996 and 1995, and the combined results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1996 in conformity with generally accepted accounting principles.

DELOITTE & TOUCHE LLP

April 11, 1997
Philadelphia, Pennsylvania

F-36
<PAGE>
INTERSTATE STEEL SUPPLY CO. AND AFFILIATES
COMBINED BALANCE SHEETS
(IN THOUSANDS OF DOLLARS, EXCEPT SHARE AMOUNTS)

DECEMBER 31,
-------------------- JUNE 30,
1995 1996 1997
--------- --------- -----------
(UNAUDITED)
ASSETS
Current assets:
Cash and cash equivalents....... $ 83 $ 168 $ 385
Accounts receivable -- trade,
less allowance of $225, $300
and $351...................... 7,864 6,821 8,905
Inventories..................... 8,755 11,403 10,726
Prepaid expenses and other
current assets................ 69 191 754
--------- --------- -----------
Total current assets....... 16,771 18,583 20,770
Property and equipment, net.......... 3,447 3,325 3,331
Other assets......................... 987 1,116 1,225
--------- --------- -----------
Total assets............... $ 21,205 $ 23,024 $25,326
========= ========= ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable................ $ 1,401 $ 1,866 $ 2,779
Accrued liabilities............. 941 1,051 782
Lines of credit................. 11,100 10,100 11,600
Current portion of long-term
debt.......................... 93 94 75
--------- --------- -----------
Total current
liabilities............. 13,535 13,111 15,236
Long-term debt....................... 817 723 581
--------- --------- -----------
Total liabilities.......... 14,352 13,834 15,817
--------- --------- -----------
Stockholders' equity:
Common stock; 200,000 shares,
$1.00 par value authorized,
35,500 issued and
outstanding................... 36 36 36
Common stock; 2,000 shares, no
par value authorized, 2,000
issued and outstanding........ 2 2 2
Additional paid-in capital...... 72 72 72
Retained earnings............... 6,739 9,072 9,237
Partners' capital............... 1,502 1,506 1,660
Treasury stock.................. (1,498) (1,498) (1,498)
--------- --------- -----------
Total stockholders'
equity.................. 6,853 9,190 9,509
--------- --------- -----------
Total liabilities and
stockholders' equity.... $ 21,205 $ 23,024 $25,326
========= ========= ===========

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

F-37
<PAGE>
INTERSTATE STEEL SUPPLY CO. AND AFFILIATES
COMBINED STATEMENTS OF INCOME
(IN THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEARS ENDED DECEMBER 31, JUNE 30,
------------------------------- --------------------
1994 1995 1996 1996 1997
--------- --------- --------- --------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Net sales............................ $ 49,299 $ 61,375 $ 66,806 $ 34,110 $ 35,774
Costs and expenses:
Cost of sales................... 37,283 44,868 47,902 24,303 26,161
Operating and delivery.......... 6,197 7,916 8,243 4,185 4,554
Selling, general and
administrative expenses....... 4,187 5,279 5,391 2,777 2,663
Depreciation and amortization... 483 561 550 280 193
--------- --------- --------- --------- ---------
Operating income................ 1,149 2,751 4,720 2,565 2,203
Other (income) expense:
Interest expense, net........... 792 908 936 474 426
Other, net...................... (1) 1 10 10 (2)
--------- --------- --------- --------- ---------
Income before income taxes........... 358 1,842 3,774 2,081 1,779
Provision for income taxes........... -- -- -- -- --
--------- --------- --------- --------- ---------
Net income........................... $ 358 $ 1,842 $ 3,774 $ 2,081 $ 1,779
========= ========= ========= ========= =========
</TABLE>
The accompanying notes are an integral part of these combined financial
statements.

F-38
<PAGE>
INTERSTATE STEEL SUPPLY CO. AND AFFILIATES
COMBINED STATEMENTS OF STOCKHOLDERS' EQUITY AND PARTNERS' CAPITAL
(IN THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
COMMON STOCK
------------------ ADDITIONAL
$1 PAR NO PAR PAID-IN RETAINED TREASURY PARTNERS'
VALUE VALUE CAPITAL EARNINGS STOCK CAPITAL TOTAL
------- ------- ----------- --------- --------- -------- ------
<S> <C> <C> <C> <C> <C> <C> <C>
January 1, 1994......................... $ 36 $ 2 $ 72 $ 5,688 $(1,498) $1,116 $5,416
Dividends and distributions............. -- -- -- (228) -- (80) (308)
Net income.............................. -- -- -- 239 -- 119 358
------- ------- ----------- --------- --------- -------- ------
Balance, December 31, 1994.............. 36 2 72 5,699 (1,498) 1,155 5,466
Dividends and distributions............. -- -- -- (705) -- -- (705)
Contributions........................... -- -- -- -- -- 250 250
Net income.............................. -- -- -- 1,745 -- 97 1,842
------- ------- ----------- --------- --------- -------- ------
Balance, December 31, 1995.............. 36 2 72 6,739 (1,498) 1,502 6,853
Dividends and distributions............. -- -- -- (1,437) -- -- (1,437)
Net income.............................. -- -- -- 3,770 -- 4 3,774
------- ------- ----------- --------- --------- -------- ------
Balance, December 31, 1996.............. 36 2 72 9,072 (1,498) 1,506 9,190
Dividends and distributions
(unaudited)........................... -- -- -- (1,460) -- -- (1,460)
Net income (unaudited).................. -- -- -- 1,625 -- 154 1,779
------- ------- ----------- --------- --------- -------- ------
Balance, June 30, 1997 (unaudited)...... $ 36 $ 2 $ 72 $ 9,237 $(1,498) $1,660 $9,509
======= ======= =========== ========= ========= ======== ======
</TABLE>
The accompanying notes are an integral part of these combined financial
statements.

F-39
<PAGE>
INTERSTATE STEEL SUPPLY CO. AND AFFILIATES
COMBINED STATEMENTS OF CASH FLOWS
(IN THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEARS ENDED DECEMBER 31, JUNE 30,
------------------------------- --------------------
1994 1995 1996 1996 1997
--------- --------- --------- --------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income.......................... $ 358 $ 1,842 $ 3,774 $ 2,081 $ 1,779
Adjustments to reconcile net income
to net cash provided by (used in)
operating activities:
Depreciation and
amortization................. 483 561 550 280 193
Loss (gain) on sale of
assets....................... 2 10 -- -- (6)
Changes in operating assets and
liabilities:
Accounts receivable, net... (695) (768) 1,041 611 (2,084)
Inventories................ (1,272) (1,315) (2,648) (5,352) 677
Prepaid expenses and other
assets................... 112 6 (121) (720) (672)
Accounts payable and
accrued liabilities...... (3) 158 575 1,495 644
Other assets............... (119) (178) (129) -- --
--------- --------- --------- --------- ---------
Net cash provided by (used
in) operating
activities............... (1,134) 316 3,042 (1,605) 531
--------- --------- --------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property and
equipment......................... (571) (533) (428) (130) (193)
Proceeds from sales of property and
equipment......................... 10 6 -- -- --
Other, net.......................... 11 -- -- -- --
--------- --------- --------- --------- ---------
Net cash used in investing
activities............... (550) (527) (428) (130) (193)
--------- --------- --------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase (decrease) on
line-of-credit.................... 1,225 750 (1,000) 2,950 1,500
Principal payments on long-term
obligations....................... (239) (259) (93) (48) (161)
Proceeds from issuance of long-term
obligations....................... 900 -- -- -- --
Distributions to shareholders and
partners.......................... (308) (564) (1,436) (1,138) (1,460)
Capital contributions............... -- 250 -- -- --
--------- --------- --------- --------- ---------
Net cash provided by (used
in) financing
activities............... 1,578 177 (2,529) 1,764 (121)
--------- --------- --------- --------- ---------
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS........................... (106) (34) 85 29 217
CASH AND CASH EQUIVALENTS, BEGINNING OF
PERIOD................................ 223 117 83 83 168
--------- --------- --------- --------- ---------
CASH AND CASH EQUIVALENTS, END OF
PERIOD................................ $ 117 $ 83 $ 168 $ 112 $ 385
========= ========= ========= ========= =========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION:
Cash paid for interest.............. $ 847 $ 964 $ 930 $ 449 $ 500
</TABLE>
The accompanying notes are an integral part of these combined financial
statements.

F-40
<PAGE>
INTERSTATE STEEL SUPPLY CO. AND AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS
(IN THOUSANDS OF DOLLARS, EXCEPT SHARE AMOUNTS)

1. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

BASIS OF PRESENTATION

Interstate Steel Supply Company and Affiliates ("Interstate") is
comprised of the following companies under common control and ownership;
Interstate Steel Supply Company (a Pennsylvania Subchapter "S" corporation)
and its affiliates, Interstate Steel Supply Company of Pittsburgh (a
Pennsylvania Subchapter "S" corporation), Interstate Steel Processing Company
(a Pennsylvania Subchapter "S" corporation), Interstate Steel Supply Company
of Maryland (a Maryland Subchapter "S" corporation) and Warehouse Real Estate
Associates (a Pennsylvania partnership). All intercompany transactions and
balances have been eliminated in the accompanying combined financial statements.

Interstate is a carbon structural steel service center with operations in
Baltimore, MD, Philadelphia and Pittsburgh, PA. Interstate services customers
primarily in the Northeast and Midatlantic regions of United States, ranging
from Virginia to Maine and west through Eastern Ohio. Interstate supplies
structural steel for steel buildings, bridges, shopping malls, shipbuilding,
railroad switch and gear manufacturers and electric power generating plants.
Approximately one-half of net sales include value-added processing services such
as saw cutting, shearing, flame cutting, cambering and tee-splitting.

Interstate (exclusive of Warehouse Real Estate Associates, see Note 8) and
its shareholders expect to enter into a definitive merger agreement with Metals
USA, Inc. ("Metals USA") pursuant to which all of Interstate's outstanding
shares of capital stock will be exchanged for cash and shares of Metals USA
common stock concurrently with the consummation of the initial public offering
(the "Offering") of Metals USA common stock.

RECLASSIFICATIONS

Certain amounts in the 1994 and 1995 financial statements have been
reclassified to conform to the 1996 presentation. These reclassifications have
no effect on previously reported net income or stockholders' equity.

USE OF ESTIMATES AND ASSUMPTIONS

INTERIM FINANCIAL INFORMATION

The interim financial statements included herein are unaudited; however,
they include all adjustments of a normal recurring nature, which, in the opinion
of management, are necessary to present fairly the financial position of
Interstate at June 30, 1997, and the result of its operations and cash flows for
the six months ended June 30, 1996, and 1997. Accounting measurements at interim
dates inherently involve greater reliance on estimates than at year end. The
results of operations for the interim periods presented are not necessarily
indicative of the results to be expected for the entire year.

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

CASH EQUIVALENTS

Cash equivalents consist of highly liquid money market instruments with
original maturities of three months or less.

INVENTORIES

Inventories are stated at the lower of cost or market. Cost is primarily
determined using the last-in, first-out ("LIFO") method.

PROPERTY AND EQUIPMENT

Property and equipment is stated at cost, net of accumulated depreciation.
Depreciation for buildings and equipment are based upon the estimated useful
lives of the various classes of assets, using the straight-

F-41
<PAGE>
INTERSTATE STEEL SUPPLY CO. AND AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS OF DOLLARS, EXCEPT SHARE AMOUNTS)

line and the declining balance method, respectively. Leasehold improvements are
amortized over the shorter of their useful lives or the term of the lease using
the straight-line method.

FAIR VALUE OF FINANCIAL INSTRUMENTS

The carrying amounts of cash equivalents approximate their fair value. The
fair value of the line-of-credit facilities and long-term debt are estimated
based on interest rates for the same or similar debt offered to Interstate
having the same or similar remaining maturities and collateral requirements. The
carrying amounts of the line-of-credit facility and long-term debt approximates
their fair value at the applicable balance sheet dates.

CONCENTRATION OF CREDIT RISK

Financial instruments, which potentially subject Interstate to
concentrations of credit risk, consist principally of cash deposits and, trade
account and note receivables. Concentrations of credit risk with respect to
trade accounts receivable are within the Northeast and Midatlantic United
States. Credit is extended once appropriate credit history and references have
been obtained. Adjustments to the allowance for doubtful accounts are made
periodically (as circumstances warrant) based upon the expected collectibility
of all such accounts. Interstate periodically reviews the credit history of its
customers and generally does not require collateral for the extension of credit.

INCOME TAXES

Interstate elected to be taxed under sections of the federal and state
income tax laws which provide that, in lieu of corporation income taxes, the
stockholders separately account for Interstate's items of income, deductions,
losses and credits on their individual income tax returns. The financial
statements will not include a provision for income taxes (credits) as long as
the S Corporation election remains in effect. As long as Interstate's S
Corporation income tax election remains in effect, Interstate may, from
time-to-time, pay dividends to its stockholders in amounts sufficient to enable
the stockholders to pay the taxes due on their share of Interstate's items of
income, deductions, losses, and credits which has been allocated to them for
reporting on their individual income tax returns. Taxes on partnership income
accrue to the partners and, accordingly, are not reflected in the financial
statements.

RECENT ACCOUNTING PRONOUNCEMENTS

The Financial Accounting Standards Board issued 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") in March 1995. SFAS
121 requires that long-lived assets and certain intangibles to be held and used
by an entity be reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be
recoverable. Interstate adopted SFAS No. 121 on January 1, 1996. The impact of
adopting this standard did not have a material impact on the results of
operations.

2. INVENTORIES

Interstate utilizes the LIFO method of inventory accounting. If the
first-in first-out, ("FIFO") method had been used for all inventories, their
carrying value would have been $11,466 and $13,487 at December 31, 1995 and
1996, respectively. Additionally, net income would have been $1,030, $2,475 and
$3,146 for the years ended December 31, 1994, 1995 and 1996, respectively.
During the years ended December 31, 1994 and 1996, Interstate recorded favorable
adjustments to cost of goods sold of approximately $90 and $627, respectively.
The adjustments were due to the lower costs associated with the reduced
quantities (for certain items) that prevailed in prior periods compared to the
cost prevailing in 1994 and 1996.

F-42
<PAGE>
INTERSTATE STEEL SUPPLY CO. AND AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS OF DOLLARS, EXCEPT SHARE AMOUNTS)

3. PROPERTY AND EQUIPMENT

Property and equipment consists of the following:

DECEMBER 31,
ESTIMATED --------------------
USEFUL LIVES 1995 1996
------------ --------- ---------
Land................................. -- $ 488 $ 488
Buildings............................ 40 years 3,694 3,725
Machinery and equipment.............. 5-25 years 2,539 2,753
Automobiles and trucks............... 3-7 years 1,034 1,105
Office equipment and furniture....... 3-10 years 678 739
Leasehold improvements............... 3-10 years 333 333
--------- ---------
8,766 9,143
Less: accumulated amortization....... (5,319) (5,818)
--------- ---------
$ 3,447 $ 3,325
========= =========

4. LINE-OF-CREDIT

Interstate has unsecured $14,500 demand line-of-credit facilities with two
banks. The line-of-credit facilities bear interest at rates between 6.75% and
8.25% at December 31, 1996. The line-of-credit agreements require Interstate to
meet and maintain certain nonfinancial covenants, including the maintenance of
life insurance policies on the sole stockholder of Interstate Steel Supply
Company in the amount of $3,000, with Interstate Steel Supply Company as the
designated beneficiary.

5. LONG-TERM DEBT

DECEMBER 31,
--------------------
1995 1996
--------- ---------
Note payable to bank, interest at
prime plus 0.25% (8.50% at
December 31, 1996), payable in
monthly installments of $6
(plus interest); matures in 2006;
secured by certain buildings and
equipment.......................... $ 769 $ 694
Note payable to PIDC, interest at
7.0%, payable in installments of
$2; matures in 2006................ 141 123
--------- ---------
910 817
Less: current maturities............. (93) (94)
--------- ---------
$ 817 $ 723
========= =========

Long-term debt consists of notes payable issued by Warehouse Real Estate
Associates to purchase premises and equipment and to make improvements at the
facilities leased to the two operating companies; the buildings and equipment
are collateral. At December 31, 1996, future principal payments of long-term
debt are as follows:

1997................................. $ 94
1998................................. 95
1999................................. 97
2000................................. 98
2001................................. 100
Thereafter........................... 333
---------
$ 817
=========

6. EMPLOYEE BENEFIT PLANS

Interstate maintains profit-sharing plans which provide for voluntary
Company contributions at the discretion of the Board of Directors of up to 15%
of the salaries of eligible employees. Contributions of $260, $405 and $472 have
been charged to operations for the years ended December 31, 1994, 1995 and 1996,
respectively.

F-43
<PAGE>
INTERSTATE STEEL SUPPLY CO. AND AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS OF DOLLARS, EXCEPT SHARE AMOUNTS)

7. MAJOR CUSTOMERS AND SUPPLIERS

During 1996, Interstate had two customers, each of which accounted for
approximately 10% of net sales. Interstate did not have any major customers that
accounted for more than 10% of net sales in 1995 or 1994.

Interstate primarily acquires structural and plate steel, its most
significant inventory, from three suppliers. Those suppliers made up 19%, 17%,
and 10%, respectively, in purchases for the fiscal year ending December 31,
1996. The same suppliers accounted for 10%, 13.5%, and 20%, respectively, in
total steel purchased for the year ended December 31, 1995.

8. SUBSEQUENT EVENT (UNAUDITED)

On July 11, 1997, Metals USA, Inc. purchased all of the issued and
outstanding equity securities of Interstate, through the issuance of common
stock and cash pursuant to a definitive merger agreement dated May 1997.

Prior to the merger, Interstate made a cash distribution of approximately
$5,250 which represented Interstate's estimated S Corporation accumulated
adjustment account. Had these distributions been made at December 31, 1996 or
June 30, 1997, the effect on Interstate's balance sheet would have been to
increase liabilities by $5,250, and decrease stockholder's equity by $5,250.
Interstate funded this distribution by using its existing credit facilities.

As described in Note 1, Warehouse Real Estate Associates will not be a
party to the merger. Following the sale of equipment described below,
approximately $1,800 of property and equipment, debt of $817 and other
obligations of approximately $133 which are included in the combined balance
sheet at December 31, 1996 will remain with Warehouse Real Estate Associates.
Concurrent with the merger, Interstate entered into agreements with Warehouse
Real Estate Associates to purchase certain equipment from Interstate Steel
Supply Company in exchange for an existing note receivable, having a carrying
value of $530 at December 31, 1996. The value of the equipment approximates the
value of the note. Additionally, an affiliate of Interstate entered into a 10
year lease with Warehouse Real Estate Associates with respect to certain real
property where Interstate conducts its operations for an annual lease payment of
$233. This annual lease amount will remain in effect for five years. At the end
of year five the annual rental will be redetermined. An affiliate of Interstate
has agreed to purchase the real estate at the end of year ten for the then
appraised fair market value of such property.

Prior to the merger, Interstate Steel Supply Company dividended a life
insurance policy to its sole stockholder, which had a book value at June 30,
1997 of approximately $1,183.

F-44
<PAGE>
INDEPENDENT AUDITORS' REPORT

To the Board of Directors
Queensboro Steel Corporation
Wilmington, North Carolina

We have audited the accompanying balance sheets of Queensboro Steel
Corporation as of
December 31, 1996 and 1995, and the related statements of income, stockholders'
equity, and cash flows for each of the three years in the period ended December
31, 1996. 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.

In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Queensboro Steel Corporation
as of December 31, 1996 and 1995, and the results of its operations and its cash
flows for each of the three years in the period ended December 31, 1996, in
conformity with generally accepted accounting principles.

McGladrey & Pullen, LLP

Wilmington, North Carolina
February 25, 1997, except for Note 11 as to
which the date is April 18, 1997

F-45
<PAGE>
QUEENSBORO STEEL CORPORATION
BALANCE SHEETS
(IN THOUSANDS OF DOLLARS, EXCEPT SHARE AMOUNTS)

DECEMBER 31,
-------------------- JUNE 30,
1995 1996 1997
--------- --------- -----------
(UNAUDITED)
ASSETS
Current assets:
Cash............................ $ 5 $ 5 $ 7
Accounts receivable:
Trade, less allowance of
$20, $20 and $20........ 10,249 8,390 8,533
Other...................... 108 173 81
Inventories..................... 6,217 8,574 9,504
Costs and estimated earnings in
excess of billings on
uncompleted contracts......... 406 971 1,310
Prepaid expenses and other
current assets................ 184 165 197
--------- --------- -----------
Total current assets....... 17,169 18,278 19,632
Property and equipment, net.......... 3,085 4,638 4,748
Other assets......................... 281 307 306
--------- --------- -----------
Total assets............... $ 20,535 $ 23,223 $24,686
========= ========= ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable................ $ 2,857 $ 3,007 $ 2,383
Accrued liabilities............. 517 625 1,661
Billings in excess of costs and
estimated earnings on
uncompleted contracts......... 228 842 522
Current portion of long-term
debt.......................... 10 -- --
--------- --------- -----------
Total current
liabilities............. 3,612 4,474 4,566
Long-term debt....................... 8,884 8,551 15,170
Deferred compensation................ 359 410 438
--------- --------- -----------
Total liabilities.......... 12,855 13,435 20,174
--------- --------- -----------
Stockholders' equity:
Capital stock, 200,000 shares
authorized:
Class A voting, $10 par value,
18,666 shares issued and
outstanding................ 187 187 187
Class B non-voting, $10 par
value, 78,666 shares issued
and outstanding............ 787 787 787
Additional paid-in capital...... 870 870 870
Retained earnings............... 5,758 7,944 2,668
Unrealized gain on securities... 78 -- --
--------- --------- -----------
Total stockholders'
equity.................. 7,680 9,788 4,512
--------- --------- -----------
Total liabilities and
stockholders' equity.... $ 20,535 $ 23,223 $24,686
========= ========= ===========

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

F-46
<PAGE>
QUEENSBORO STEEL CORPORATION
STATEMENTS OF INCOME
(IN THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEARS ENDED DECEMBER 31, JUNE 30,
------------------------------- --------------------
1994 1995 1996 1996 1997
--------- --------- --------- --------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Net sales............................ $ 50,795 $ 60,322 $ 54,996 $ 29,135 $ 31,222
Costs and expenses:
Cost of sales................... 37,996 45,945 38,912 21,196 22,810
Operating and delivery.......... 7,408 8,080 8,355 4,110 4,623
Selling, general and
administrative expenses....... 3,656 3,839 3,870 1,954 2,163
Depreciation and amortization... 369 362 405 186 236
--------- --------- --------- --------- ---------
Operating income................ 1,366 2,096 3,454 1,689 1,390
Other (income) expense:
Interest expense................ 465 612 587 294 366
Other income.................... (63) (67) (77) 18 --
--------- --------- --------- --------- ---------
Net income........................... $ 964 $ 1,551 $ 2,944 $ 1,377 $ 1,024
========= ========= ========= ========= =========
</TABLE>
The accompanying notes are an integral part of these financial statements.

F-47
<PAGE>
QUEENSBORO STEEL CORPORATION
STATEMENTS OF STOCKHOLDERS' EQUITY
(IN THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
UNREALIZED
COMMON STOCK ADDITIONAL GAIN ON TOTAL
-------------------- PAID-IN RETAINED INVESTMENT STOCKHOLDERS'
CLASS A CLASS B CAPITAL EARNINGS SECURITIES EQUITY
-------- -------- ----------- --------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1993........... $ 187 $ 787 $ 870 $ 4,290 $-- $ 6,134
Net income...................... -- -- -- 964 -- 964
Dividends....................... -- -- -- (138) -- (138)
-------- -------- ----------- --------- ----------- -------------
Balance, December 31, 1994........... 187 787 870 5,116 -- 6,960
Net income...................... -- -- -- 1,551 -- 1,551
Dividends....................... -- -- -- (909) -- (909)
Investment securities received
from insurance cooperative.... -- -- -- -- 78 78
-------- -------- ----------- --------- ----------- -------------
Balance, December 31, 1995........... 187 787 870 5,758 78 7,680
Net income...................... -- -- -- 2,944 -- 2,944
Dividends....................... -- -- -- (758) -- (758)
Donation of investment
securities received from
insurance cooperative......... -- -- -- -- (78) (78)
-------- -------- ----------- --------- ----------- -------------
Balance, December 31, 1996........... 187 787 870 7,944 -- 9,788
Net income (unaudited).......... -- -- -- 1,024 -- 1,024
Dividends (unaudited)........... -- -- -- (6,300) -- (6,300)
-------- -------- ----------- --------- ----------- -------------
Balance, June 30, 1997 (unaudited)... $ 187 $ 787 $ 870 $ 2,668 $-- $ 4,512
======== ======== =========== ========= =========== =============
</TABLE>
The accompanying notes are an integral part of these financial statements.

F-48
<PAGE>
QUEENSBORO STEEL CORPORATION
STATEMENTS OF CASH FLOWS
(IN THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEARS ENDED DECEMBER 31, JUNE 30,
------------------------------- --------------------
1994 1995 1996 1996 1997
--------- --------- --------- --------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income......................... $ 964 $ 1,551 $ 2,944 $ 1,377 $ 1,024
Adjustments to reconcile net income
to net cash provided by (used in)
operating activities:
Depreciation and amortization.... 369 362 405 186 236
Loss (gain) on sale of assets.... (1) 2 4 -- --
Increase in deferred
compensation................... 54 40 51 25 28
Changes in operating assets and
liabilities:
Accounts receivable, net....... (1,225) (2,930) 1,702 1,325 (51)
Inventories.................... (2,241) 1,552 (2,358) (1,615) (930)
Prepaid expenses and other
assets...................... (69) (63) 99 (75) (31)
Accounts payable and accrued
liabilities................. 925 (173) 258 (881) 412
Billings related to cost and
estimated earnings on
uncompleted contracts....... 721 212 49 534 (659)
--------- --------- --------- --------- ---------
Net cash provided by (used
in) operating activities.. (503) 553 3,154 876 29
--------- --------- --------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property and
equipment...................... (896) (1,519) (1,962) (1,215) (346)
Proceeds from sales of property
and equipment.................. 2 16 7 -- --
Other, net....................... (7) (1) 2 -- --
--------- --------- --------- --------- ---------
Net cash used in investing
activities................ (901) (1,504) (1,953) (1,215) (346)
--------- --------- --------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments on revolving
line-of-credit................. (61,087) (40,844) (43,543) (30,648) (29,346)
Borrowings on revolving
line-of-credit................. 62,755 42,829 40,210 32,609 35,965
Borrowings on long-term debt..... -- -- 3,000 -- --
Financing costs.................. -- -- (100) -- --
Principal payments on long-term
debt........................... (125) (125) (10) -- --
Dividends paid................... (138) (909) (758) (570) (6,300)
--------- --------- --------- --------- ---------
Net cash provided by (used
in) financing activities.. 1,405 951 (1,201) 1,391 319
--------- --------- --------- --------- ---------
NET INCREASE IN CASH................. 1 -- -- 1,052 2
CASH BEGINNING OF PERIOD............. 4 5 5 5 5
--------- --------- --------- --------- ---------
CASH END OF PERIOD................... $ 5 $ 5 $ 5 $ 1,057 $ 7
========= ========= ========= ========= =========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION:
Cash paid for interest........... $ 466 $ 601 $ 559 $ 300 $ 364
SUPPLEMENTAL SCHEDULE OF NON-CASH
INVESTING AND FINANCING ACTIVITIES:
Investment securities received
(donated)...................... $ -- $ (78) $ 78 $ -- $ --
Note received in settlement of an
account receivable............. -- -- 156 -- --
</TABLE>
The accompanying notes are an integral part of these financial statements.

F-49
<PAGE>
QUEENSBORO STEEL CORPORATION
NOTES TO FINANCIAL STATEMENTS
(IN THOUSANDS OF DOLLARS, EXCEPT SHARE AMOUNTS)

1. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

BASIS OF PRESENTATION

Queensboro Steel Corporation ("Queensboro") is a heavy carbon steel
service center and structural fabricator with operations in Wilmington and
Greensboro, North Carolina and Norfolk, Virginia. Queensboro markets its
products primarily in the Southeast region of the United States. Sales consist
principally of beams, angles, channels, sheet, plate, bar, tubing and fabricated
steel for buildings. Value-added processing includes shearing, bending,
drilling, tee-splitting, rolling, cambering, burning and coil processing.
Queensboro's diversified customer base includes shipbuilding, transportation,
building construction, pulp and paper mills, chemical, public utility, farm
equipment, crane manufacturing, plant maintenance and other industries.

Queensboro and its shareholders expect to enter into a definitive merger
agreement with Metals USA, Inc. ("Metals USA") pursuant to which all of
Queensboro's outstanding shares of capital stock will be exchanged for cash and
shares of Metals USA common stock concurrently with the consummation of the
initial public offering (the "Offering") of Metals USA common stock.

RECLASSIFICATIONS

USE OF ESTIMATES AND ASSUMPTIONS

INTERIM FINANCIAL INFORMATION

The interim financial statements included herein are unaudited; however,
they include all adjustments of a normal recurring nature, which, in the opinion
of managment, are necessary to present fairly the financial position of
Queensboro at June 30, 1997, and the results of its operations and cash flows
for the six months ended June 30, 1996 and 1997. Accounting measurements at
interim dates inherently involve greater reliance on estimates than at year end.
The results of operations for the interim periods presented are not necessarily
indicative of the results to be expected for the entire year.

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

INVENTORIES

Inventories are stated at the lower of cost or market. Cost is primarily
determined using the last-in, first-out ("LIFO") method.

PROPERTY AND EQUIPMENT

F-50
<PAGE>
QUEENSBORO STEEL CORPORATION
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS OF DOLLARS, EXCEPT SHARE AMOUNTS)

LONG-TERM CONTRACTS

Sales are recorded at the time products and materials are shipped or as
services are provided. Income from fabrication contracts are recognized by
applying estimated percentages-of-completion to the total estimated profit for
the respective contracts, commencing at the time the contracts are at least
one-tenth complete. The percentage-of-completion is determined by relating the
actual cost of work performed through year end to the total estimated cost of
the respective contracts. Provisions for estimated losses on uncompleted
contracts are made in the period in which such losses are determined. Changes in
job performance, job conditions, and estimated profitability, including those
arising from contract penalty provisions, and final contract settlements may
result in revisions to costs and income, and are recognized in the period in
which the revisions are determined. Contract costs include direct materials,
direct labor and related overhead.

FAIR VALUE OF FINANCIAL INSTRUMENTS

The fair value of the long-term debt is estimated based on interest rates
for the same or similar debt offered to Queensboro having the same or similar
remaining maturities and collateral requirements. The carrying amounts of
long-term debt approximates fair value at the applicable balance sheet dates.

CONCENTRATION OF CREDIT RISK

Financial instruments, which potentially subject Queensboro to
concentrations of credit risk, consist principally of trade account receivables.
Concentrations of credit risk with respect to trade accounts receivable are
within the Southeast region of the United States. Credit is extended once
appropriate credit history and references have been obtained. Adjustments to the
allowance for doubtful accounts are made periodically (as circumstances warrant)
based upon the expected collectibility of all such accounts. Queensboro
periodically reviews the credit history of its customers and generally does not
require collateral for the extension of credit.

INCOME TAXES

Queensboro, with the consent of its stockholders, elected to be taxed under
sections of the federal and state income tax laws which provide that, in lieu of
corporation income taxes, the stockholders separately account for Queensboro's
items of income, deductions, losses and credits on their individual income tax
returns. The financial statements will not include a provision for income taxes
(credits) as long as the S Corporation election remains in effect. As long as
Queensboro's S Corporation income tax election remains in effect, Queensboro
may, from time-to-time, pay dividends to its stockholders in amounts sufficient
to enable the stockholders to pay the taxes due on their share of Queensboro's
items of income, deductions, losses, and credits which has been allocated to
them for reporting on their individual income tax returns.

RECENT ACCOUNTING PRONOUNCEMENTS

The Financial Accounting Standards Board issued 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") in March 1995. SFAS
121 requires that long-lived assets and certain intangibles to be held and used
by an entity be reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be
recoverable. Queensboro adopted SFAS No. 121 on January 1, 1996. The impact of
adopting this standard did not have a material impact on the results of
operations.

F-51
<PAGE>
QUEENSBORO STEEL CORPORATION
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS OF DOLLARS, EXCEPT SHARE AMOUNTS)

2. TRADE RECEIVABLES

Trade receivables consist of the following:

DECEMBER 31,
--------------------
1995 1996
--------- ---------
Steel service center:
Trade receivables............... $ 4,686 $ 4,016
Fabrication division:
Contract receivables:
Contracts in progress...... 4,325 2,656
Completed contracts........ 324 732
Retained................... 914 986
--------- ---------
$ 10,249 $ 8,390
========= =========

3. INVENTORIES

Inventories of the steel service center consist primarily of unprocessed
steel and are carried at the lower of cost or market using the last-in,
first-out (LIFO) method. Inventories of the fabrication division ($340 and $366
at December 31, 1995 and 1996, respectively) approximate the lower of cost or
market using the first-in, first-out (FIFO) method. If the FIFO cost method of
inventory valuation had been used for all inventories at December 31, 1995 and
1996, inventories would have been $8,086 and $9,776 and net income for the years
ended December 31, 1994, 1995 and 1996, would have been $1,324, $1,882 and
$2,279, respectively.

4. PROPERTY AND EQUIPMENT

Property and equipment consists of the following:

DECEMBER 31,
ESTIMATED --------------------
USEFUL LIVES 1995 1996
------------ --------- ---------
Land................................. -- $ 120 $ 120
Buildings............................ 40 years 2,315 3,608
Machinery and equipment.............. 5-12 years 3,639 5,266
Automobiles, trucks and trailers..... 3- 5 years 800 872
Construction in progress............. -- 1,227 --
--------- ---------
8,101 9,866
Less: accumulated depreciation....... (5,016) (5,228)
--------- ---------
$ 3,085 $ 4,638
========= =========

F-52
<PAGE>
QUEENSBORO STEEL CORPORATION
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS OF DOLLARS, EXCEPT SHARE AMOUNTS)

5. CONTRACTS IN PROCESS

Information with respect to contracts in process is as follows:

DECEMBER 31,
--------------------
1995 1996
--------- ---------
Costs incurred on uncompleted
contracts.......................... $ 21,397 $ 17,550
Estimated earnings................... 1,962 2,934
--------- ---------
23,359 20,484
Less: billings to date............... 23,181 20,355
--------- ---------
$ 178 $ 129
========= =========
Included in accompanying balance
sheets under the following
captions:
Costs and estimated earnings in
excess of billings on
uncompleted contracts......... $ 406 $ 971
Billings in excess of costs and
estimated earnings on
uncompleted contracts......... (228) (842)
--------- ---------
$ 178 $ 129
========= =========

6. LONG-TERM DEBT

Long-term obligations consist of the following:

DECEMBER 31,
--------------------
1995 1996
--------- ---------
Revolving line-of-credit, interest at
prime plus 0.125%, interest payable
monthly, principal and unpaid
interest due June 30, 1998; secured
by accounts receivable and
inventory.......................... $ 8,884 $ 5,551
Industrial revenue bonds............. -- 3,000
Industrial revenue bond, interest at
65% of commercial prime borrowing
rates ranging from 6.5% to 11%,
payable in monthly installments of
$10 (plus interest); matured in
January 1996....................... 10 --
--------- ---------
8,894 8,551
Less: current maturities............. (10) --
--------- ---------
$ 8,884 $ 8,551
========= =========

REVOLVING LINE-OF-CREDIT

Queensboro has a $10,000 committed revolving line-of-credit facility with a
bank whereby Queensboro may borrow the lesser of (i) $10,000 or (ii) 80% of
eligible accounts receivable plus 60% of inventories. The agreement provides,
among other things, for restrictions on additional borrowings, capital
expenditures, investing, and the payment of dividends. The agreement also
requires the maintenance of certain working capital and debt-to-equity ratios,
minimum net worth, and furnishing periodic financial statements.

Additionally, Queensboro's cash accounts are tied directly to the revolving
line-of-credit such that the line is increased automatically when checks
presented to the bank for payment exceed the funds available in Queensboro's
bank accounts. At December 31, 1995 and 1996, outstanding checks approximating
$1,507 and $604, respectively, have been classified as long-term debt on the
balance sheet.

F-53
<PAGE>
QUEENSBORO STEEL CORPORATION
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS OF DOLLARS, EXCEPT SHARE AMOUNTS)

INDUSTRIAL REVENUE BONDS

Queensboro secured financing for the construction and equipping of its
current steel processing facility located in Greensboro, North Carolina with
industrial revenue bonds. These industrial revenue bonds were issued by Guilford
County Industrial Facilities and Pollution Control Financing Authority and the
proceeds loaned to Queensboro on identical terms. As required by the terms of
the bond agreement, Queensboro has provided an irrevocable bank letter-of-credit
for up to $3,043 as security for the industrial revenue bonds, which expires May
15, 1997. The future maturities of the industrial revenue bonds have been
classified in accordance with established sinking fund requirements in
anticipation that the letter-of-credit will be renewed at the expiration date.

Queensboro has the option to have interest determined on a weekly, flexible
or fixed rate basis. The bonds were issued and have remained on a weekly rate
basis. The rate at December 31, 1996 was 4.45%. Interest is payable in arrears
on May 1, and November 1. Beginning May 1, 1998, the bond sinking fund
requirements will be payable in annual installments of $300 through May 1, 2008,
except for 1998, 2002 and 2006, for which years the installments will be $200.
Additional conditional mandatory redemption features exist for such items as
taxability of the bonds and expiration of the letter-of-credit agreement.
Optional prepayment features also exist.

This letter of credit agreement, as amended, contains various covenant
requirements similar to those of the revolving line-of-credit described above
and is collateralized by accounts receivable, inventory and equipment.

The prime rate at December 31, 1996, was 8.25%.

At December 31, 1996, future principal payments of long-term debt are as
follows:

1997................................. $ --
1998................................. 5,751
1999................................. 300
2000................................. 300
2001................................. 300
Thereafter........................... 1,900
---------
$ 8,551
=========

7. EMPLOYEE BENEFIT PLANS

Queensboro participates in a multi-employer 401(k) profit-sharing plan with
a related corporation, which covers all employees at least twenty-one years of
age who have completed at least 1,000 hours of service in a twelve-month period
subsequent to employment. The Plan allows for employee contributions through
salary reduction of up to 15% of total compensation. The employer will match
these contributions at rate of 25%, up to 4% of the employees' total
compensation. Employer matching contributions were $37, $39 and $40 for 1994,
1995 and 1996, respectively. The discretionary profit-sharing contributions were
$50, $65 and $25 in 1994, 1995 and 1996, respectively.

8. DEFERRED COMPENSATION AND LIFE INSURANCE

In connection with a deferred compensation plan between Queensboro and
certain key employees, provision has been made for the future compensation which
is payable upon their death or retirement. At December 31, 1995 and 1996, $242
and $239, respectively, has been accrued under these contracts.

The deferred compensation is to be paid to the individuals or their
beneficiaries over a period of ten years commencing with the first business day
of the calendar month following the month of retirement or death.

F-54
<PAGE>
QUEENSBORO STEEL CORPORATION
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS OF DOLLARS, EXCEPT SHARE AMOUNTS)

The employment agreements with the employees mentioned in the preceding
paragraphs also provide that death benefits totaling $335 at December 31, 1996,
will be paid to their beneficiaries in the event these employees should die
while they are employees of Queensboro. Queensboro is the owner and beneficiary
of life insurance policies with a total face value of $853 on these employees.
In the event that a death benefit related to the employees mentioned above
should become payable, such benefit shall be in lieu of all deferred
compensation.

Queensboro also entered into a salary continuation agreement during 1992
which provides 50% salary continuation payments for up to ten years to the wife
of an officer upon death of that officer. The liability accrued for these
payments is $117 and $171 at December 31, 1995 and 1996, respectively.

9. LEASE COMMITMENTS

Queensboro has leased facilities and equipment under non-cancelable
long-term agreements, which have initial or remaining non-cancelable terms in
excess of one year as of December 31, 1996. Total rent expense related to such
leases aggregated $499, $417, and $417 for the years ended December 31, 1994,
1995 and 1996, respectively.

The future minimum rental commitments at December 31, 1996, under the
leases described above are due in future years as follows: 1997--$280;
1998--$93.

10. RELATED PARTY TRANSACTIONS

At December 31, 1995 and 1996, Queensboro had a receivable from a
corporation related through common ownership of $32 and $34, respectively.
Queensboro provides certain administrative services to the affiliated
corporation, for which it billed $274 in 1994, $370 in 1995 and $344 in 1996.

Queensboro leases fabrication shop facilities from an affiliated
partnership under operating lease terms (see Note 9). Lease expense was $137 in
1994, 1995 and 1996.

11. SUBSEQUENT EVENT

On April 4, 1997, Queensboro further amended its bank line-of-credit
agreement (see Note 6) to extend the termination date to June 30, 1998. The debt
is classified as noncurrent as a result of this extension.

Queensboro made a cash distribution on April 11, 1997, of approximately
$5,040 which represents Queensboro's estimated S corporation accumulated
adjustment account. To affect this transaction, Queensboro also entered into a
ninety-day, $3,000 bank loan collateralized by the accounts receivable and
inventory and personal guarantees of certain shareholders. Had these
transactions been made at December 31, 1996, the effect on Queensboro's balance
sheet would have been to increase liabilities by $5,040 and decrease
stockholders' equity by $5,040. These transactions caused covenant violations
with respect to the debt disclosed in Note 6. On April 18, 1997, the bank waived
these covenants through July 11, 1997. Queensboro expects, on or before July 11,
1997, the above mentioned merger will have been consummated or the guarantors
will satisfy the $3,000 debt.

12. SUBSEQUENT EVENTS (UNAUDITED)

On July 11, 1997, Metals USA, Inc. purchased all of the issued and
outstanding equity securities of Queensboro, through the issuance of common
stock and cash pursuant to a definitive merger agreement dated May 1997.

Queensboro dividended its Wilmington facility to its stockholders
concurrently with the Merger. An affiliate of Queensboro entered into a
long-term lease for the facility which calls for annual lease payments of $40.
At December 31, 1996 the carrying value of the facility was approximately $601.
Additionally, immediately prior to the Merger, Queensboro transferred the salary
continuation agreement described in the last paragraph of Note 8 to an entity
that is not a party to the Merger.

F-55
<PAGE>
REPORT OF INDEPENDENT AUDITORS

To the Board of Directors of
Affiliated Metals Company

We have audited the accompanying balance sheet of Affiliated Metals Company
as of August 31, 1996 and the related statements of operations, stockholders'
equity and cash flows for the fifty-two weeks then ended. 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 audit.

We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Affiliated Metals Company at
August 31, 1996 and the results of its operations and its cash flows for the
fifty-two weeks then ended in conformity with generally accepted accounting
principles.

ERNST & YOUNG LLP

St. Louis, Missouri
October 4, 1996

F-56
<PAGE>
REPORT OF INDEPENDENT AUDITORS

Board of Directors
Affiliated Metals Company
Granite City, Illinois

We have audited the accompanying balance sheet of Affiliated Metals Company
as of September 2, 1995 and the related statements of operations, stockholder's
equity and cash flows for the fifty-two weeks ended September 3, 1994 and
September 2, 1995. 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.

In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Affiliated Metals Company as
of September 2, 1995 and the results of its operations and its cash flows for
the fifty-two weeks ended September 3, 1994 and September 2, 1995 in conformity
with generally accepted accounting principles.

RUBIN, BROWN, GORNSTEIN
& CO. L.L.P.

St. Louis, Missouri
October 19, 1995

F-57
<PAGE>
AFFILIATED METALS COMPANY
BALANCE SHEETS
(IN THOUSANDS OF DOLLARS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
SEPTEMBER 2, AUGUST 31, MAY 31,
1995 1996 1997
------------ ---------- ------------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash............................ $ 2 $ 10 $ --
Accounts receivable, less
allowances for doubtful
accounts
of $30 at September 2, 1995,
August 31, 1996 and
May 31, 1997.................. 7,013 7,074 11,955
Inventories..................... 6,810 10,658 14,582
Prepaid expenses and other
current assets................ 125 130 257
------------ ---------- ------------
Total current assets....... 13,950 17,872 26,794
Property and equipment, net.......... 2,699 7,940 8,195
Other assets......................... 705 649 686
------------ ---------- ------------
Total assets............... $ 17,354 $ 26,461 $ 35,675
============ ========== ============

LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Bank overdraft.................. $ 23 $ 143 $ 1,386
Accounts payable................ 5,860 7,154 9,248
Accrued liabilities............. 494 529 467
Current portion of long-term
debt.......................... 407 10,358 771
------------ ---------- ------------
Total current
liabilities............. 6,784 18,184 11,872
Long-term debt....................... 8,018 4,337 19,949
Deferred income taxes................ 622 599 582
Redeemable preferred stock, $119.048
par value; 1,680 shares authorized;
840, 600 and 0 shares issued and
outstanding
at September 2, 1995, August 31,
1996 and May 31, 1997,
respectively....................... 100 71 --
Common stock purchase warrant........ -- -- --
Stockholders' equity:
Common stock, $0.01 par value;
100,000 authorized;
6,000 shares issued and
outstanding................... -- -- --
Additional paid-in capital...... 50 50 50
Retained earnings............... 1,780 3,220 3,222
------------ ---------- ------------
Total stockholders'
equity.................. 1,830 3,270 3,272
------------ ---------- ------------
Total liabilities and
stockholders'
equity............. $ 17,354 $ 26,461 $ 35,675
============ ========== ============
</TABLE>
The accompanying notes are an integral part of these financial statements.

F-58
<PAGE>
AFFILIATED METALS COMPANY
STATEMENTS OF OPERATIONS
(IN THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
THIRTY-NINE WEEKS
FIFTY-TWO WEEKS ENDED ENDED
------------------------------------------ --------------------
SEPTEMBER 3, SEPTEMBER 2, AUGUST 31, JUNE 1, MAY 31,
1994 1995 1996 1996 1997
------------ ------------ ---------- -------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Net sales............................ $ 63,046 $ 78,976 $ 81,002 $ 60,830 $ 75,369

Costs and expenses:

Cost of sales................... 54,600 68,481 67,924 49,882 64,371

Operating and delivery
expenses...................... 4,316 5,060 5,871 5,243 7,011

Selling, general and
administrative expenses....... 2,352 2,803 3,431 2,236 2,163

Depreciation and amortization... 304 313 300 264 516
------------ ------------ ---------- -------- --------
Operating income..................... 1,474 2,319 3,476 3,205 1,308

Other expense:

Interest expense................ 735 1,058 1,011 815 1,220

Other, net...................... 37 22 38 45 96
------------ ------------ ---------- -------- --------
Income (loss) before income taxes.... 702 1,239 2,427 2,345 (8)

Credit (provision) for income
taxes.............................. (297) (497) (979) (927) 13
------------ ------------ ---------- -------- --------
Net income........................... $ 405 $ 742 $ 1,448 $ 1,418 $ 5
============ ============ ========== ======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.

F-59
<PAGE>
AFFILIATED METALS COMPANY
STATEMENTS OF STOCKHOLDERS' EQUITY
(IN THOUSANDS OF DOLLARS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL TOTAL
---------------- PAID-IN RETAINED STOCKHOLDERS'
SHARES AMOUNT CAPITAL EARNINGS EQUITY
------ ------ ----------- --------- -------------

<S> <C> <C> <C> <C> <C>
Balance, August 31, 1993............. 6,000 $ -- $ 50 $ 665 $ 715

Dividends paid, redeemable
preferred..................... -- -- -- (21) (21)

Net income...................... -- -- -- 405 405
------ ------ --- --------- -------------
Balance, September 3, 1994........... 6,000 -- 50 1,049 1,099

Dividends paid, redeemable
preferred..................... -- -- -- (11) (11)

Net income...................... -- -- -- 742 742
------ ------ --- --------- -------------
Balance, September 2, 1995........... 6,000 -- 50 1,780 1,830

Dividends paid, redeemable
preferred..................... -- -- -- (8) (8)

Net income...................... -- -- -- 1,448 1,448
------ ------ --- --------- -------------
Balance, August 31, 1996............. 6,000 -- 50 3,220 3,270

Dividends paid, redeemable
preferred (unaudited)......... -- -- -- (3) (3)

Net income (unaudited).......... -- -- -- 5 5
------ ------ --- --------- -------------
Balance, May 31, 1997 (unaudited).... 6,000 $ -- $ 50 $ 3,222 $ 3,272
====== ====== === ========= =============
</TABLE>
The accompanying notes are an integral part of these financial statements.

F-60
<PAGE>
AFFILIATED METALS COMPANY
STATEMENTS OF CASH FLOWS
(IN THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
THIRTY-NINE WEEKS
FIFTY-TWO WEEKS ENDED ENDED
-------------------------------------------- --------------------
SEPTEMBER 3, SEPTEMBER 2, AUGUST 31, JUNE 1, MAY 31,
1994 1995 1996 1996 1997
------------- ------------- ---------- --------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income......................... $ 405 $ 742 $ 1,448 $ 1,418 $ 5
Adjustments to reconcile net income
to net cash provided by (used in)
operating activities:
Depreciation and
amortization................ 304 313 300 264 516
Loss on sale of assets......... 3 -- 10 -- 87
Deferred tax provision
(benefit)................... (20) (45) (1) (17) (17)
Changes in operating assets and
liabilities:
Accounts receivable,
net..................... (890) (2,020) (61) 127 (4,881)
Inventories............... (190) 61 (3,848) (2,712) (3,924)
Prepaid expenses and other
assets.................. (116) 54 (27) (61) (164)
Accounts payable.......... (525) 2,786 1,293 (1,597) 2,094
Accrued liabilities....... (70) 245 35 237 (62)
Other..................... (7) (22) -- -- --
------------- ------------- ---------- --------- ---------
Net cash provided by
(used in) operating
activities............ (1,106) 2,114 (851) (2,341) (6,346)
------------- ------------- ---------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and
equipment........................ (310) (615) (5,553) (4,311) (1,148)
Proceeds from sales of property and
equipment........................ 5 -- 58 -- 290
Other, net......................... (36) -- -- -- --
------------- ------------- ---------- --------- ---------
Net cash used in
investing
activities............ (341) (615) (5,495) (4,311) (858)
------------- ------------- ---------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase (decrease) on bank
overdraft........................ 783 (1,259) 120 300 1,243
Principal payments on long-term
debt............................. (198) (523) (668) (456) (515)
Proceeds from issuance of long-term
debt............................. 1,412 325 6,939 6,834 6,540
Purchase of redeemable preferred
stock............................ (529) (29) (29) (21) (71)
Dividends paid on redeemable
preferred
stock............................ (21) (11) (8) (7) (3)
------------- ------------- ---------- --------- ---------
Net cash provided by
(used in) financing
activities............ 1,447 (1,497) 6,354 6,650 7,194
------------- ------------- ---------- --------- ---------
NET INCREASE (DECREASE) IN CASH...... -- 2 8 (2) (10)
CASH BEGINNING OF PERIOD............. -- -- 2 2 10
------------- ------------- ---------- --------- ---------
CASH END OF PERIOD................... $-- $ 2 $ 10 $ -- $ --
============= ============= ========== ========= =========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION:
Cash paid for interest (net of
amount capitalized of $153 in
1996)............................ $ 784 $ 1,054 $ 991 $ 800 $ 1,163
Cash paid for income taxes......... 389 370 1,083 802 --
</TABLE>
The accompanying notes are an integral part of these financial statements.

F-61
<PAGE>
AFFILIATED METALS COMPANY
NOTES TO FINANCIAL STATEMENTS
(IN THOUSANDS OF DOLLARS, EXCEPT SHARE AMOUNTS)

1. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

BASIS OF PRESENTATION

Affiliated Metals Company ("Affiliated") is a high-volume flat rolled
steel processor, with operations in Granite City, Illinois and a newly
constructed facility in Butler, Indiana. The operating plants are strategically
located near primary steel producers. Affiliated purchases wide, coiled hot
rolled, cold rolled and galvanized flat rolled steel from primary producers and
pickles (hot rolled) and slits coils to narrower widths. Principal customers
include; consumer durable goods manufacturers, commercial transportation,
appliance, furniture, pallet rack, and automotive industries as well as
independent stamping operations. Service areas include Missouri, Kansas, Texas,
Oklahoma, Tennessee, Kentucky, Indiana, Mississippi, Alabama, Georgia, Iowa,
Illinois and Nebraska.

USE OF ESTIMATES AND ASSUMPTIONS

ACCOUNTING PERIOD

Affiliated's fiscal year is the fifty-two or fifty-three week period ending
the Saturday nearest to August 31. The results of operations and cash flows
include fifty-two weeks of activity for the periods ended August 31, 1996,
September 2, 1995, and September 3, 1994.

INTERIM FINANCIAL INFORMATION

The interim financial statements included herein are unaudited; however,
they include all adjustments of a normal recurring nature which, in the opinion
of management, are necessary to present fairly the financial position of the
Affiliated at May 31, 1997, the results of its operations and cash flows for the
thirty-nine weeks ended June 1, 1996 and May 31, 1997. Accounting measurements
at interim dates inherently involve greater reliance on estimates than at year
end. The results of operations for the interim periods presented are not
necessarily indicative of the results to be expected for the entire year.

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

INVENTORIES

Inventories are stated at the lower of cost or market. Cost is primarily
determined using the specific identification method. Raw materials generally
represent 80% to 90% of Affiliated's inventories.

PROPERTY AND EQUIPMENT

Property and equipment, including capitalized interest, is stated at cost,
net of accumulated depreciation. Depreciation is computed utilizing the
straight-line and accelerated methods at rates based upon the estimated useful
lives of the various classes of assets.

OTHER ASSETS

Other assets consists primarily of goodwill, net of accumulated
amortization. Goodwill is being amortized over a thirty year period using the
straight line method. Affiliated periodically evaluates the propriety of the
carrying amount of goodwill using expected undiscounted cash flows. At September
2, 1995 and August 31, 1996 goodwill, net of accumulated amortization was $622
and $599, respectively.

F-62
<PAGE>
AFFILIATED METALS COMPANY
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS OF DOLLARS, EXCEPT SHARE AMOUNTS)

FAIR VALUE OF FINANCIAL INSTRUMENTS

The fair value of the long-term debt is estimated based on interest rates
for the same or similar debt offered to Affiliated having the same or similar
remaining maturities and collateral requirements. The carrying amounts of
long-term debt approximate fair value at the applicable balance sheet dates.

CONCENTRATION OF CREDIT RISK

Financial instruments, which potentially subject Affiliated to
concentrations of credit risk, consist principally of cash deposits and, trade
account receivables. Affiliated places its cash with several financial
institutions limiting the amount of credit exposure to any one financial
institution. Concentrations of credit risk with respect to trade accounts
receivable are within the midwest and Great Lakes regions of the United States.
Affiliated had a credit risk concentration since two customers accounted for
approximately 27% of accounts receivable at August 31, 1996. For the fifty-two
weeks ended September 3, 1994, three customers accounted for 16.3%, 17.2%, and
11.1% of sales, respectively. For the fifty-two weeks ended September 2, 1995
and August 31, 1996 two of the same three customers accounted for 16.9% and
20.2%, and 14.5% and 14.0% of sales, respectively. Management performs ongoing
credit evaluations of its customers and provides allowances as deemed necessary.
Credit is extended once appropriate credit history and references have been
obtained. Adjustments to the allowance for doubtful accounts are made
periodically (as circumstances warrant) based upon the expected collectibility
of all such accounts. Affiliated periodically reviews the credit history of its
customers and generally does not require collateral for the extension of credit.

RECENT ACCOUNTING PRONOUNCEMENTS

The Financial Accounting Standards Board issued 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") in March 1995. SFAS
121 requires that long-lived assets and certain intangibles to be held and used
by an entity be reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be
recoverable. Affiliated adopted SFAS No. 121 on September 1, 1997. The impact of
adopting this standard did not have a material impact on the results of
operations.

2. PROPERTY AND EQUIPMENT

Property and equipment consists of the following:
<TABLE>
<CAPTION>
ESTIMATED SEPTEMBER 2, AUGUST 31,
USEFUL LIVES 1995 1996
------------- ------------ ----------
<S> <C> <C>
Land................................. -- $ 46 $ 561
Buildings............................ 39 years -- 2,350
Machinery and equipment.............. 10-30 years 2,897 5,407
Automobiles and trucks............... 7 years 151 148
Office equipment and furniture....... 5-7 years 299 373
Leasehold improvements............... 7-39 years 105 109
------------ ----------
3,498 8,948
Less: accumulated depreciation and
amortization....................... (799) (1,008)
------------ ----------
Total........................... $ 2,699 $ 7,940
============ ==========
</TABLE>
F-63
<PAGE>
AFFILIATED METALS COMPANY
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS OF DOLLARS, EXCEPT SHARE AMOUNTS)

3. LONG-TERM DEBT

Long-term debt consists of the following:

SEPTEMBER 2, AUGUST 31,
1995 1996
------------ ----------
Note payable, interest at 8.75%,
payable in monthly installments of
$30 (plus interest) commencing
September 1996; matures August
2001; secured by certain machinery
and equipment and personal
guarantees of common
stockholders....................... $ -- $ 1,770
Note payable, interest at prime plus
1.0%, payable in 59 monthly
installments of $25 (plus
interest), matures November, 1999;
secured by accounts receivable,
inventories, machinery and
equipment, assignment of life
insurance proceeds on officers'
policies, and personal guarantees
of common stockholders............. 1,250 905
Construction note payable, interest
at prime plus 1.0%, interest
payable monthly, principal payment
due March, 1997; secured by certain
machinery and equipment, certain
land, building, and personal
guarantees of common
stockholders....................... -- 2,432
Note payable, interest at 9.75%,
payable in monthly installments of
$5 (plus interest); secured by
certain machinery and equipment;
refinanced in February, 1996....... 244 --
Revolving line-of-credit, interest at
prime plus 0.5%, interest payable
monthly, expires August, 1997
secured by substantially all assets
of Affiliated, assignment of life
insurance proceeds on officers'
policies, and personal guarantees
of common stockholders............. 6,747 9,421
Notes payable to estate of former
stockholder, interest at prime plus
1.0%, payable in monthly
installments of $2 (plus interest),
principal payment due March 1999;
secured by personal guarantees of
common stockholders................ 102 74
Notes payable, interest at rates
ranging from 7.5% to 10.25%,
payable in monthly installments
ranging from $0.3 to $0.8, through
July, 1999......................... 82 93
------------ ----------
8,425 14,695
Less: current maturities............. (407) (10,358)
------------ ----------
$ 8,018 $ 4,337
============ ==========

Affiliated has obtained financing agreements from its lender that will
convert the construction note to a term loan note payable and a Small Business
Administration ("SBA") note payable in amounts up to $1,600 and $1,000,
respectively. The new notes will be secured by certain machinery and equipment,
certain land and building, and personal guarantees of common stockholders. The
term loan note payable will bear interest at a fixed rate based on prime plus
0.5% at closing during the first five years and will adjust after year five and
will be payable in monthly installments of principal and interest over a
ten-year period from the date of conversion. The SBA note payable will bear
interest at a rate yet to be determined and will be payable in monthly
installments of principal and interest over a 20-year period from the date of
conversion. Because Affiliated had the intent and ability to convert the
construction note payable on a long-term basis, the August 31, 1996
classification and future maturities have been presented under the terms of the
new agreements.

F-64
<PAGE>
AFFILIATED METALS COMPANY
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS OF DOLLARS, EXCEPT SHARE AMOUNTS)

Affiliated's revolving line of credit provides for borrowings up to $12,000
(limited to a borrowing base defined in the agreement as a percentage of
eligible accounts receivable and inventories). The revolving line of credit
agreement requires that all cash receipts of Affiliated be deposited directly
into a lockbox account and applied against the line of credit. Funds are then
drawn from the line of credit as checks are disbursed. Additionally, the
agreement requires, among other things, that Affiliated maintain certain minimum
ratios, including net income, tangible net worth, leverage, cash flow coverage,
and limits on capital expenditures. At August 31, 1996, future principal
payments of long-term debt, as adjusted to reflect the financing agreements, are
as follows:

1997................................. $ 10,358
1998................................. 928
1999................................. 905
2000................................. 573
2001................................. 538
Thereafter........................... 1,393
----------
$ 14,695
==========

4. REDEEMABLE PREFERRED STOCK

Redeemable preferred stock consists of 1,680 shares of authorized at a par
value of $119.048 per share. Shares issued and outstanding at August 31, 1996
and September 2, 1995, were 600 and 840 respectively. The stock is subject to
mandatory redemption of 20 shares per month beginning in March 1992 and
continuing for 84 months. In both fiscal 1996 and fiscal 1995, 240 shares were
redeemed at a price of $119.048 per share. Dividends are calculated cumulatively
(but not compounded) on a daily basis at the rate of 1% over prime. Dividends
are paid on each redemption date.

5. COMMON STOCK PURCHASE WARRANT

In March 1992, in connection with a Securities Purchase Agreement related
to the purchase of Affiliated, Affiliated issued one warrant to an investor in
consideration for $100. The warrant is exercisable at an exercise price of $.01
per share into 34.4% or 3,146 shares of Affiliated's common stock on a fully
diluted basis. The holder of the warrant also may put the warrant or a portion
thereof to Affiliated through November 1999, unless it would cause Affiliated to
be in default of its debt covenants. The put price is determined by the
ownership percentage of the warrants multiplied by the greater of either fair
value of Affiliated, a multiple of earnings before income taxes, interest, and
depreciation and amortization, and book value, all as defined in the agreement.

In addition, the agreement provides the holder of the warrant with certain
registration rights under the Securities Act of 1933 (the "Securities Act") to
cause Affiliated to register the shares of common stock to be received from the
exercise of the warrant. The agreement also provides the holder of the warrant
with certain "piggyback" registration rights which allow the holder of the
warrant to register his common stock in the event Affiliated files a
registration statement under the Securities Act.

F-65
<PAGE>
AFFILIATED METALS COMPANY
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS OF DOLLARS, EXCEPT SHARE AMOUNTS)

6. INCOME TAXES

Affiliated has implemented Statement of Financial Accounting Standards No.
109, ACCOUNTING FOR INCOME TAXES ("SFAS 109"), which provides for a liability
approach to accounting for income taxes.

The provisions for federal and state income taxes are as follows:
<TABLE>
<CAPTION>
FIFTY-TWO WEEKS ENDED
------------------------------------------
SEPTEMBER 3, SEPTEMBER 2, AUGUST 31,
1994 1995 1996
------------ ------------ ----------
<S> <C> <C> <C>
Federal:
Current......................... $ 260 $ 442 $ 796
Deferred........................ (16) (37) (1)
------------ ------------ ----------
244 405 795
State:...............................
Current......................... 57 100 184
Deferred........................ (4) (8) --
------------ ------------ ----------
53 92 184
------------ ------------ ----------
Total provision...................... $ 297 $ 497 $ 979
============ ============ ==========
</TABLE>
The components of deferred income tax liabilities and assets are as
follows:

SEPTEMBER 3, AUGUST 31,
1995 1996
------------ ----------
Deferred income tax liabilities:
Property and equipment.......... $ 634 $ 666
------------ ----------
Total deferred income tax
liabilities............. 634 666
------------ ----------
Deferred income tax assets:
Allowance for doubtful
accounts...................... 12 12
Other, net...................... 44 77
------------ ----------
Total deferred income tax
assets.................. 56 89
------------ ----------
Net deferred tax liabilities......... $ 578 $ 577
============ ==========

A reconciliation of the difference between the federal statutory tax rates
and the effective tax rates as a percentage of net income is as follows:
<TABLE>
<CAPTION>
FIFTY-TWO WEEKS ENDED
------------------------------------------
SEPTEMBER 2, SEPTEMBER 3, AUGUST 31,
1994 1995 1996
------------ ------------ ----------
<S> <C> <C> <C>
U.S. federal statutory rate.......... 34.0% 34.0% 34.0%
State income taxes, net of Federal
tax benefit........................ 4.8 4.8 5.0
Other................................ 3.5 1.3 1.3
------------ ------------ ----------
42.3% 40.1% 40.3%
============ ============ ==========
</TABLE>
F-66
<PAGE>
AFFILIATED METALS COMPANY
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS OF DOLLARS, EXCEPT SHARE AMOUNTS)

7. EMPLOYEE BENEFIT PLANS

Affiliated sponsors a qualified contributory profit sharing plan and 401(k)
plan. The plan covers substantially all full-time employees who have met certain
eligibility requirements. The plan may be amended or terminated at any time by
the Board of Directors. Affiliated, although not required to, has provided
contributions to the plan during each of the fifty-two weeks ended September 3,
1994,
September 2, 1995 and August 31, 1996, of $89, $100 and $141, respectively.

8. COMMITMENTS AND CONTINGENCIES

LEASE COMMITMENTS

Affiliated leases its corporate office and one of its production
facilities. The lease expires on May 31, 1998 and calls for a monthly rental
payment of $9. The lease also provides for an additional five-year renewal
option.

Rent expense for all operating leases for the fifty-two weeks ended
September 3, 1994, September 2, 1995 and August 31, 1996 was $126, $125 and
$128, respectively.

9. SUBSEQUENT EVENT (UNAUDITED)

On July 11, 1997, Metals USA, Inc. purchased all of the issued and
outstanding equity securities of Affiliated, through the issuance of common
stock and cash pursuant to a definitive merger agreement dated May 1997.

In February 1997, Affiliated amended its revolving credit facility, which
reduced the interest to prime, increased the available borrowing up to $16,000
and extended the maturity to August 31, 1998. Additionally, Affiliated also
entered into an agreement to extend until September 1997 the financing
agreements discussed in Note 3 related to the construction loan payable.

F-67
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To Southern Alloy of America, Inc.

We have audited the accompanying balance sheets of Southern Alloy of
America, Inc. as of December 31, 1996 and 1995, and the related statements of
operations, stockholders' equity and cash flows for the years then ended. 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 in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits 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. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Southern Alloy of America,
Inc. as of December 31, 1996 and 1995, and the results of its operations and its
cash flows for the years then ended, in conformity with generally accepted
accounting principles.

ARTHUR ANDERSEN LLP

Charlotte, North Carolina
April 30, 1997.

F-68
<PAGE>
SOUTHERN ALLOY OF AMERICA, INC.
BALANCE SHEETS
(IN THOUSANDS OF DOLLARS, EXCEPT SHARE AMOUNTS)

DECEMBER 31,
-------------------- JUNE 30,
1995 1996 1997
--------- --------- -----------
(UNAUDITED)
ASSETS
Current assets:
Cash and cash equivalents....... $ 57 $ -- $--
Accounts receivable:
Trade, less allowances of
$18, $13 and $11........ 1,483 1,262 1,405
Affiliates................. 1,020 945 --
Inventories..................... 1,050 1,063 1,440
Prepaid expenses and other
current assets.................. 22 63 136
--------- --------- -----------
Total current assets....... 3,632 3,333 2,981
Property and equipment, net.......... 456 353 303
Other assets......................... 84 68 21
--------- --------- -----------
Total assets............... $ 4,172 $ 3,754 $ 3,305
========= ========= ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
(DEFICIT)
Current liabilities:
Accounts payable................ $ 1,602 $ 1,450 $ 1,790
Accrued liabilities............. 97 68 118
Revolving line-of-credit........ 1,424 1,424 1,604
Notes payable................... -- -- --
Current portion of obligations
under capital lease............. 68 25 26
Current portion of long-term
debt............................ 38 24 9
--------- --------- -----------
Total current
liabilities................ 3,229 2,991 3,547
Obligations under capital lease, less
current portion.................... 69 44 30
Long-term debt, less current
portion.............................. 24 -- --
--------- --------- -----------
Total liabilities.......... 3,322 3,035 3,577
--------- --------- -----------
Stockholders' equity (deficit):
Common stock 100,000 shares
authorized; 19,500, 17,200 and
19,500 shares issued and
outstanding at December 31,
1995 and 1996 and June 30,
1997, respectively............ 20 17 20
Additional paid-in capital...... 410 608 608
Retained earnings (deficit)..... 420 94 (900)
--------- --------- -----------
Total stockholders' equity
(deficit).................. 850 719 (272)
--------- --------- -----------
Total liabilities and
stockholders'
equity............. $ 4,172 $ 3,754 $ 3,305
========= ========= ===========

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

F-69
<PAGE>
SOUTHERN ALLOY OF AMERICA, INC.
STATEMENTS OF OPERATIONS
(IN THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER SIX MONTHS ENDED
31, JUNE 30,
-------------------- --------------------
1995 1996 1996 1997
--------- --------- --------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C>
Net sales............................ $ 12,018 $ 10,815 $ 5,877 $ 5,568
Costs and expenses:
Cost of sales................... 7,669 7,084 3,811 3,596
Operating and delivery.......... 902 709 373 392
Selling, general and
administrative expenses....... 2,806 2,850 1,504 1,343
Depreciation and amortization... 108 126 62 78
--------- --------- --------- ---------
Operating income .................... 533 46 127 159
Other (income) expense:
Interest expense................ 252 168 85 71
Interest income................. (146) (108) (69) (17)
--------- --------- --------- ---------
Income (loss) before income taxes.... 427 (14) 111 105
Provision (benefit) for income
taxes................................ -- -- -- --
--------- --------- --------- ---------
Net income (loss).................... $ 427 $ (14) $ 111 $ 105
========= ========= ========= =========
</TABLE>
The accompanying notes are an integral part of these financial statements.

F-70
<PAGE>
SOUTHERN ALLOY OF AMERICA, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
(IN THOUSANDS OF DOLLARS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
TOTAL
COMMON STOCK ADDITIONAL RETAINED STOCKHOLDERS'
------------------ PAID-IN EARNINGS EQUITY
SHARES AMOUNT CAPITAL (DEFICIT) (DEFICIT)
------- ------ ----------- --------- -------------
<S> <C> <C> <C> <C> <C>
Balance, January 1, 1995............. 19,500 $ 20 $ 410 $ 183 $ 613
Distributions to owners......... -- -- -- (190) (190)
Net income...................... -- -- -- 427 427
------- ------ ----------- --------- -------------
Balance, December 31, 1995........... 19,500 20 410 420 850
Purchase of common stock........ (2,300) (3) (48) (197) (248)
Distributions to owners......... -- -- -- (115) (115)
Stock options................... -- -- 246 -- 246
Net loss........................ -- -- -- (14) (14)
------- ------ ----------- --------- -------------
Balance, December 31, 1996........... 17,200 17 608 94 719
Sale of common stock
(unaudited)................... 2,300 3 -- -- 3
Distributions to owners
(unaudited)................... -- -- -- (1,099) (1,099)
Net income (unaudited).......... -- -- -- 105 105
------- ------ ----------- --------- -------------
Balance, June 30, 1997 (unaudited)... 19,500 $ 20 $ 608 $ (900) $ (272)
======= ====== =========== ========= =============
</TABLE>
The accompanying notes are an integral part of these financial statements.

F-71
<PAGE>
SOUTHERN ALLOY OF AMERICA, INC.
STATEMENTS OF CASH FLOWS
(IN THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
YEAR ENDED SIX MONTHS ENDED
DECEMBER 31, JUNE 30,
-------------------- --------------------
1995 1996 1996 1997
--------- --------- --------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss).................. $ 427 $ (14) $ 111 $ 105
Adjustments to reconcile net income
(loss) to net cash provided by
operating activities:
Depreciation.................... 108 125 62 78
Grant of stock option........... -- 246 246 --
Gain on sale of assets.......... (9) (71) (71) --
Changes in operating assets and
liabilities:
Accounts receivable, net...... (113) 221 2 (143)
Inventories................... (90) (13) (222) (377)
Prepaid expenses and other
assets..................... (10) (41) (159) (73)
Other long-term assets........ 25 17 28 47
Accounts payable.............. 529 (152) 182 340
Accrued liabilities........... (57) (29) (36) 50
--------- --------- --------- ---------
Net cash provided by
operating activities.... 810 289 143 27
--------- --------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property and
equipment..................... (99) (23) (16) (28)
Proceeds from sales of property
and equipment................. 8 71 71 --
--------- --------- --------- ---------
Net cash provided by (used
in) investing
activities.............. (91) 48 55 (28)
--------- --------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase on revolving
line-of-credit................ 156 -- 243 180
Net increase (decrease) in notes
payable....................... -- -- 202 --
Net advances (to) from officers
and affiliates................ (535) 75 (178) 945
Payments on capital lease
obligations................... (63) (68) (35) (13)
Principal payments on long-term
obligations................... (30) (38) (19) (15)
Redemption of common stock...... -- (248) (248) --
Sale of common stock............ -- -- -- 3
Dividends paid.................. (190) (115) (220) (1,099)
--------- --------- --------- ---------
Net cash provided by
(used in) financing
activities.............. (662) (394) (255) 1
--------- --------- --------- ---------
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS................... 57 (57) (57) --
CASH AND CASH EQUIVALENTS, BEGINNING
OF PERIOD.......................... -- 57 57 --
--------- --------- --------- ---------
CASH AND CASH EQUIVALENTS, END OF
PERIOD............................... $ 57 $ -- $ -- $ --
========= ========= ========= =========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION:
Cash paid for interest.......... $ 26 $ 159 $ 84 $ 81
</TABLE>
The accompanying notes are an integral part of these financial statements.

F-72
<PAGE>
SOUTHERN ALLOY OF AMERICA, INC.
NOTES TO FINANCIAL STATEMENTS
(IN THOUSANDS OF DOLLARS, EXCEPT SHARE AMOUNTS)

1. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

BASIS OF PRESENTATION

Southern Alloy of America, Inc. ("Southern Alloy"), a North Carolina
corporation, is a specialty metal service center located in Salisbury, North
Carolina specializing in ferrous and non-ferrous continuous, centrifugal and
static cast bar stock. Southern Alloy performs a number of metal processing
services, including precision saw cutting, precision and semi-finished
machining, drilling and milling operations. Southern Alloy's customers are
comprised of original equipment manufacturers and machine shops servicing the
fluid power, power transmission, material handling and textile machinery
industries. Market areas are principally located in the Southeastern United
States.

Southern Alloy and its shareholders expect to enter into a definitive
merger agreement with Metals USA, Inc. ("Metals USA") pursuant to which all of
Southern Alloy's outstanding shares of capital stock will be exchanged for cash
and shares of Metals USA common stock concurrently with the consummation of the
initial public offering (the "Offering") of Metals USA common stock.

RECLASSIFICATIONS

Certain amounts in the 1995 financial statements have been reclassified to
conform to the 1996 presentation. These reclassifications have no effect on
previously reported net income or stockholders' equity.

USE OF ESTIMATES AND ASSUMPTIONS

INTERIM FINANCIAL INFORMATION

The interim financial statements included herein are unaudited; however,
they include all adjustments of a normal recurring nature, which, in the opinion
of management, are necessary to present fairly the financial position of
Southern Alloy at June 30, 1997, and the results of its operations and cash
flows for the six months ended June 30, 1996 and 1997. Accounting measurements
at interim dates inherently involve greater reliance on estimates than at year
end. The results of operations for the interim periods presented are not
necessarily indicative of the results to be expected for the entire year.

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

INVENTORIES

Inventories are stated at the lower of cost or market. Cost is primarily
determined using the specific identification method.

PROPERTY AND EQUIPMENT

FAIR VALUE OF FINANCIAL INSTRUMENTS

The carrying amounts of cash surrender value of life insurance policies
approximate their fair value. The fair value of the long-term debt is estimated
based on interest rates for the same or similar debt offered

F-73
<PAGE>
SOUTHERN ALLOY OF AMERICA, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS OF DOLLARS, EXCEPT SHARE AMOUNTS)

to Southern Alloy having the same or similar remaining maturities and collateral
requirements. The carrying amounts of long-term debt approximate fair value at
the applicable balance sheet dates.

CONCENTRATION OF CREDIT RISK

Financial instruments, which potentially subject Southern Alloy to
concentrations of credit risk, consist principally of cash deposits and, trade
account and note receivables. Concentrations of credit risk with respect to
trade accounts receivable are within the Southeastern United States.
Additionally, Southern Alloy has one customer that accounts for approximately
10% of net sales. Credit is extended once appropriate credit history and
references have been obtained. Adjustments to the allowance for doubtful
accounts are made periodically (as circumstances warrant) based upon the
expected collectibility of all such accounts. Southern Alloy periodically
reviews the credit history of its customers and generally does not require
collateral for the extension of credit.

INCOME TAXES

Southern Alloy, with the consent of its stockholders, elected to be taxed
under sections of the federal and state income tax laws which provide that, in
lieu of corporation income taxes, the stockholders separately account for
Southern Alloy's items of income, deductions, losses and credits on their
individual income tax returns. The financial statements will not include a
provision for income taxes (credits) as long as the S Corporation election
remains in effect. As long as Southern Alloy's S Corporation income tax election
remains in effect, Southern Alloy may, from time-to-time, pay dividends to its
stockholders in amounts sufficient to enable the stockholders to pay the taxes
due on their share of Southern Alloy's items of income, deductions, losses, and
credits which has been allocated to them for reporting on their individual
income tax returns.

RECENT ACCOUNTING PRONOUNCEMENTS

The Financial Accounting Standards Board issued 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") in March 1995. SFAS
121 requires that long-lived assets and certain intangibles to be held and used
by an entity be reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be
recoverable. Southern Alloy adopted SFAS No. 121 on January 1, 1996. The impact
of adopting this standard did not have a material impact on the results of
operations.

2. PROPERTY AND EQUIPMENT

Property and equipment consists of the following:

DECEMBER 31,
ESTIMATED --------------------
USEFUL LIVES 1995 1996
------------- --------- ---------
Machinery and equipment.............. 3-7 years $ 1,112 $ 962
Furniture and fixtures............... 3-7 years 173 176
Leasehold improvements............... 5 years 85 85
--------- ---------
1,370 1,223
Less: accumulated depreciation....... (914) (870)
--------- ---------
$ 456 $ 353
========= =========

F-74
<PAGE>
SOUTHERN ALLOY OF AMERICA, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS OF DOLLARS, EXCEPT SHARE AMOUNTS)

3. LINE OF CREDIT

At December 31, 1995, Southern Alloy had a line of credit with Freemont
Financial Corporation. On January 3, 1996, Southern Alloy entered into an
agreement with NationsBank of Georgia, N.A. which was to expire on January 1,
1997. The original agreement was terminated and Southern Alloy entered into a
new line-of-credit agreement with NationsBank N.A. ("NationsBank"), which
expires on July 31, 1997. This agreement provides a maximum borrowing limit of
$2,000 with interest payable monthly at the bank's prime rate (8.25% at December
31, 1996). The borrowing base under the new NationsBank line of credit is
limited to 80% of eligible receivables as defined by the agreement plus 50% of
the eligible inventory. Southern Alloy had $75 of unused availability under the
line-of-credit at December 31, 1996. The line is secured by accounts receivable,
inventory, equipment and guarantees of Southern Investments, The Development
Group, Inc. (both of which are affiliates of Southern Alloy) and stockholders of
Southern Alloy.

The new NationsBank agreement contains restrictive covenants which, among
other things, require Southern Alloy to maintain certain financial ratios, limit
capital expenditures and bonuses and restrict future indebtedness. At December
31, 1996, Southern Alloy was in compliance with, or had obtained all necessary
waivers regarding instances of non-compliance with the terms of the loan
agreement.

4. LONG-TERM DEBT

Long-term obligations consist of three notes payable to Amada Cutting
Technologies, Inc. The notes bear interest at rates ranging from 9.0% to 9.4%
and are payable in monthly installments totaling $4 through April 1997, and $1
from May 1997 to December 1997. The notes are secured by related equipment.

5. OBLIGATIONS UNDER CAPITAL LEASE

Southern Alloy leases certain shop equipment under capital leases through
1999, which bear interest at rates ranging from 9.0% to 11.27%.

Future minimum payments under capital leases as of December 31, 1996, are
as follows:

1997................................. $ 30
1998................................. 30
1999 and thereafter.................. 18
---------
78
Less: interest portion............... 9
---------
Capital lease obligation............. 69
Less: current portion................ 25
---------
$ 44
=========

The cost of equipment under capital leases amounted to approximately $256
and $135 at December 31, 1995 and 1996, respectively. Accumulated amortization
amounted to $107 and $65 at December 31, 1995 and 1996, respectively.

6. EMPLOYEE BENEFIT PLANS

Southern Alloy sponsors a defined contribution 401(k) profit-sharing plan
for employees who have attained at least 21 years of age and one year of
service. Company contributions to the plan, which are determined annually at the
discretion of the Board of Directors, amounted to $12 and $16 in 1995 and 1996,
respectively.

F-75
<PAGE>
SOUTHERN ALLOY OF AMERICA, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS OF DOLLARS, EXCEPT SHARE AMOUNTS)

7. COMMITMENTS AND CONTINGENCIES

GUARANTEE

Southern Alloy had guaranteed a line-of-credit agreement for SOMAR, Inc.
(an affiliate of Southern Alloy). The outstanding balance under this agreement
amounted to approximately $1,200 at December 31, 1995. As of August 12, 1996,
Southern Alloy was no longer a guarantor on this line of credit.

8. STOCK OPTIONS

In February 1996, Southern Alloy purchased 2,300 shares from a primary
stockholder of Southern Alloy for $248.

In September 1996, 2,300 stock options were issued to two directors of
Southern Alloy (one of which also serves as an officer) at an option price of
$1.00 per share. The options were exercisable at any time through September
2001. The deemed value for accounting purposes at the date of grant was $108.00
per share. Accordingly, $246 of compensation expense was recorded at the date of
grant.

In January 1997, the directors exercised their options and purchased 2,300
shares of Southern Alloy for $2.

9. RELATED-PARTY TRANSACTIONS

Southern Investments (a partnership), The Development Group, Inc. and
Engineered Machine Technologies, Inc. are affiliated with Southern Alloy through
common ownership. SOMAR, Inc. was affiliated with Southern Alloy through common
ownership through August 12, 1996. On that date, SOMAR, Inc. was sold to an
unaffiliated company.

Southern Alloy leases commercial real estate from Southern Investments
under a non-cancelable operating lease. Rent expense related to this lease
amounted to $130 and $103 in 1995 and 1996, respectively.

Southern Alloy leases certain automobiles and operating equipment from
Southern Investments on a month-to-month basis. Rent expense related to these
leases amounted to $136 and $198 for 1995 and 1996, respectively.

During the years ended December 31, 1995 and 1996, Southern Alloy made
loans to or borrowed from SOMAR, Inc., Southern Investments, The Development
Group, Inc., Engineered Machine Technologies, Inc. and officers. Following is a
schedule of net receivable balances due from or payable to affiliated companies
at December 31, 1995 and 1996:

DUE FROM
(PAYABLE TO)
--------------------
1995 1996
--------- ---------
SOMAR, Inc........................... $ 563 $ --
Engineered Machine Technologies,
Inc................................ 334 640
Southern Investments................. 125 130
The Development Group, Inc........... (16) 7
Officers and affiliates.............. 14 168
--------- ---------
$ 1,020 $ 945
========= =========

F-76
<PAGE>
SOUTHERN ALLOY OF AMERICA, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS OF DOLLARS, EXCEPT SHARE AMOUNTS)

Following is a summary of interest income from affiliated companies for the
years ending December 31:

1995 1996
--------- ---------
SOMAR, Inc........................... $ 109 $ 57
Engineered Machine Technologies,
Inc................................ 37 51
--------- ---------
$ 146 $ 108
========= =========

Southern Alloy leases certain office space and equipment under
non-cancelable operating leases with initial or remaining lease terms in excess
of one year. Certain office and equipment leases contain renewal options and
purchase options at fair market value at the end of the lease term. Following is
a schedule of future minimum lease payments under non-cancelable leases as of
December 31, 1996:

RELATED
PARTIES OTHERS TOTAL
-------- ------- ------
1997................................. $ 193 $ 7 $ 200
1998................................. 128 7 135
1999................................. 77 4 81
2000................................. 77 4 81
2001................................. 77 1 78
Thereafter........................... 77 -- 77
-------- ------- ------
$ 629 $ 23 $ 652
======== ======= ======

10. SUBSEQUENT EVENTS (UNAUDITED)

On July 11, 1997, Metals USA, Inc. purchased all of the issued and
outstanding equity securities of Southern Alloy, through the issuance of common
stock and cash pursuant to a definitive merger agreement dated May 1997.

Prior to the merger, Southern Alloy made a distribution of receivables from
affiliates with a carrying value of approximately $842. This distribution
exceeded Southern Alloy's estimated S Corporation accumulated adjustment
account.

Concurrent with the Merger, Southern Alloy entered into an agreement with a
related party to lease certain real property for an annual lease payment of $48.
This lease runs through 2012, and provides for periodic increases in the annual
lease payment every five years equal to the cumulative change in the Consumer
Price Index. Additionally, Southern Alloy entered into a lease for certain
equipment from a related party on a month to month basis for $4 per month.
Southern Alloy believes these lease arrangements are no less favorable than
could be obtained from unaffiliated third parties.

F-77
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To Uni-Steel, Inc.:

We have audited the accompanying balance sheet of Uni-Steel, Inc., an
Oklahoma Corporation, as of September 30, 1996, and the related statement of
income, stockholders' equity and cash flows for the year then ended. 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 audit.

We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Uni-Steel, Inc. as of
September 30, 1996, and the results of its operations and its cash flows for the
year then ended in conformity with generally accepted accounting principles.

ARTHUR ANDERSEN LLP
Houston, Texas
March 28, 1997

F-78
<PAGE>
UNI-STEEL, INC.
BALANCE SHEETS
(IN THOUSANDS OF DOLLARS, EXCEPT SHARE AMOUNTS)

SEPTEMBER 30, JUNE 30,
1996 1997
------------- -----------
(UNAUDITED)
ASSETS
Current assets:
Cash and cash equivalents....... $ 203 $ 346
Accounts receivable, less
allowance of $122 and $250..... 6,586 7,459
Accounts
receivable -- affiliates....... 261 --
Inventories..................... 9,947 11,242
Current portion of note
receivable..................... 25 17
Deferred income taxes........... 127 123
Prepaid expenses and other
current assets................. 22 25
------------- -----------
Total current assets....... 17,171 19,212
Property and equipment, net.......... 3,176 3,153
Notes receivable, net of current
portion............................ 1,212 1,174
Other assets......................... 355 533
Goodwill............................. 344 336
------------- -----------
Total assets............... $22,258 $24,408
============= ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable................ $ 3,165 $ 1,838
Accounts
payable -- affiliates........... 121 --
Accrued liabilities............. 419 395
Note payable to shareholders.... 36 --
Line of credit.................. 7,100 9,100
Current portion of long-term
debt........................... 174 358
Income taxes payable............ 92 42
------------- -----------
Total current
liabilities............. 11,107 11,733
Long-term debt, net of current
portion............................ 413 1,034
Deferred income taxes................ 788 753
------------- -----------
Total liabilities.......... 12,308 13,520
------------- -----------
Commitments and contingencies
Redemption value of 36,533 shares of
common stock $1.00 par value
subject to mandatory redemption.... 4,201 4,597
Stockholders' equity:
Common stock $1.00 par value,
500,000 shares authorized,
63,467 shares issued (net of
36,533 shares subject to
redemption).................... 63 63
Additional paid-in capital...... 1,104 708
Retained earnings............... 5,743 6,681
Less: treasury stock, at cost... (1,161) (1,161)
------------- -----------
Total stockholders' equity...... 5,749 6,291
------------- -----------
Total liabilities and
stockholders' equity.... $22,258 $24,408
============= ===========

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

F-79
<PAGE>
UNI-STEEL, INC.
STATEMENTS OF INCOME
(IN THOUSANDS OF DOLLARS)

NINE MONTHS ENDED
YEAR ENDED JUNE 30,
SEPTEMBER 30, --------------------
1996 1996 1997
------------- --------- ---------
(UNAUDITED)
Net sales............................ $54,620 $ 40,442 $ 46,070
Operating costs and expenses:
Cost of sales................... 43,445 32,135 36,732
Operating and delivery.......... 5,355 3,909 4,704
Selling, general and
administrative................ 2,917 2,211 2,335
Depreciation and amortization... 542 402 378
------------- --------- ---------
Operating income..................... 2,361 1,785 1,921
Other (income) expense:
Interest expense................ 575 443 505
Interest income................. (179) (99) (132)
Other, net...................... (4) (9) (16)
------------- --------- ---------
392 335 357
------------- --------- ---------
Income before income taxes........... 1,969 1,450 1,564
Provision for income taxes........... 741 563 626
------------- --------- ---------
Net income........................... $ 1,228 $ 887 $ 938
============= ========= =========

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

F-80
<PAGE>
UNI-STEEL, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY
(IN THOUSANDS OF DOLLARS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL TOTAL
------------------ TREASURY PAID-IN RETAINED STOCKHOLDERS'
SHARES AMOUNT STOCK CAPITAL EARNINGS EQUITY
------- ------- --------- ----------- --------- -------------

<S> <C> <C> <C> <C> <C> <C>
Balance, September 30, 1995.......... 63,467 $ 63 $ (969) $ 1,432 $ 4,515 $ 5,041

Purchase of 1,901 shares of
common stock.................. -- -- (192) -- -- (192)

Increase in redemption value of
common stock subject to
mandatory redemption.......... -- -- -- (328) -- (328)

Net income...................... -- -- -- -- 1,228 1,228
------- ------- --------- ----------- --------- -------------
Balance, September 30, 1996.......... 63,467 63 (1,161) 1,104 5,743 5,749

Increase in redemption value of
common stock (unaudited)...... -- -- -- (396) -- (396)

Net income (unaudited).......... -- -- -- -- 938 938
------- ------- --------- ----------- --------- -------------
Balance, June 30, 1997
(unaudited)........................ 63,467 $ 63 $ (1,161) $ 708 $ 6,681 $ 6,291
======= ======= ========= =========== ========= =============
</TABLE>
The accompanying notes are an integral part of these financial statements.

F-81
<PAGE>
UNI-STEEL, INC.
STATEMENTS OF CASH FLOWS
(IN THOUSANDS OF DOLLARS)

NINE MONTHS ENDED
YEAR ENDED JUNE 30,
SEPTEMBER 30, --------------------
1996 1996 1997
------------- --------- ---------
(UNAUDITED)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income......................... $ 1,228 $ 887 $ 938
Adjustments to reconcile net income
to net cash provided by (used
in) operating activities:
Depreciation and
amortization............... 542 402 378
Deferred tax provision
(benefit).................. (36) (32) (30)
Increases in cash surrender
values of life insurance... (56) (34) (57)
Changes in operating assets
and liabilities:
Accounts receivable, net... 181 668 (612)
Inventories................ (1,748) (1,073) (1,295)
Prepaid expenses and other
assets.................. (4) (42) (92)
Accounts payable and
accrued liabilities..... 233 1,609 (1,473)
Income tax payable......... (131) (181) (50)
------------- --------- ---------
Net cash provided by
(used in) operating
activities............ 209 2,204 (2,293)
------------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property and
equipment....................... (362) (295) (345)
Principal collected on notes....... 13 12 12
------------- --------- ---------
Net cash used in
investing
activities............ (349) (283) (333)
------------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase on revolving
line-of-credit.................. 800 (1,400) 2,000
Principal payments on shareholder
debt............................ (95) (94) (36)
Principal payments on long-term
obligations..................... (445) (334) (195)
Principal borrowings on long-term
obligations..................... -- -- 1,000
Purchase of treasury stock......... (192) (192) --
------------- --------- ---------
Net cash provided by
(used in) financing
activities............ 68 (2,020) 2,769
------------- --------- ---------
NET DECREASE IN CASH AND CASH
EQUIVALENTS........................ (72) (99) 143
CASH AND CASH EQUIVALENTS, BEGINNING
OF PERIOD.......................... 275 275 203
------------- --------- ---------
CASH AND CASH EQUIVALENTS, END OF
PERIOD............................. $ 203 $ 176 $ 346
============= ========= =========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION:
Cash paid for interest.......... $ 568 $ 483 $ 498
Cash paid for income taxes...... 909 528 762

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

F-82
<PAGE>
UNI-STEEL, INC.
NOTES TO FINANCIAL STATEMENTS
(IN THOUSANDS OF DOLLARS, EXCEPT SHARE AMOUNTS)

1. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

BASIS OF PRESENTATION

Uni-Steel, Inc. ("Uni-Steel") is a structural steel service center with
three locations in Oklahoma. Uni-Steel's products include carbon structural,
pressure vessel, high strength low alloy and alloy grades of steel sold to
customers in Oklahoma, Missouri, Arkansas, Texas, New Mexico, Colorado and
Kansas. Value added processing services include cut-to-length, leveling, flame
cutting, plasma cutting, shearing, and sawing and press brake forming. Uni-Steel
services customers in a wide variety of industries including oil and gas, truck
trailer, construction equipment, mining machinery, elevators, wholesale trade
and the construction industries.

Uni-Steel and its shareholders expect to enter into a definitive merger
agreement with Metals USA, Inc. ("Metals USA") pursuant to which all of
Uni-Steel's outstanding shares of capital stock will be exchanged for cash and
shares of Metals USA common stock concurrent with the consummation of the
initial public offering (the "Offering") of Metals USA common stock.

USE OF ESTIMATES AND ASSUMPTIONS

INTERIM FINANCIAL INFORMATION

The interim financial statements included herein are unaudited; however,
they include all adjustments of a normal recurring nature, which, in the opinion
of management, are necessary to present fairly the financial position of
Uni-Steel at June 30, 1997, and the results of its operations and cash flows for
the nine months ended June 30, 1996 and 1997. Accounting measurements at interim
dates inherently involve greater reliance on estimates than at year end. The
results of operations for the interim periods presented are not necessarily
indicative of the results to be expected for the entire year.

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

CASH EQUIVALENTS

Cash equivalents consist of highly liquid money market instruments with
original maturities of three months or less.

INVENTORIES

Inventories are stated at the lower of cost or market. Cost is primarily
determined using the last-in, first-out ("LIFO") method.

PROPERTY AND EQUIPMENT

Property and equipment, including capitalized interest, is stated at cost,
net of accumulated depreciation. Depreciation is computed utilizing the
straight-line method at rates based upon the estimated useful lives of the
various classes of assets.

FAIR VALUE OF FINANCIAL INSTRUMENTS

The carrying amounts of cash equivalents approximate their fair value. The
carrying amount of notes receivable approximate fair value at the applicable
balance sheet dates. The fair value of such notes receivable was based on
expected cash flows discounted using current rates at which similar loans would
be

F-83
<PAGE>
UNI-STEEL, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS OF DOLLARS, EXCEPT SHARE AMOUNTS)

made to borrowers with similar credit ratings. The fair value of the long-term
debt is estimated based on interest rates for the same or similar debt offered
to Uni-Steel having the same or similar remaining maturities and collateral
requirements. The carrying amounts of long-term debt approximate fair value at
the applicable balance sheet dates.

CONCENTRATION OF CREDIT RISK

Financial instruments, which potentially subject Uni-Steel to
concentrations of credit risk, consist principally of cash deposits, trade
accounts and note receivables. Concentrations of credit risk with respect to
trade accounts receivable are within the southwest region of the United States.
Credit is extended once appropriate credit history and references have been
obtained. Adjustments to the allowance for doubtful accounts are made
periodically (as circumstances warrant) based upon the expected collectibility
of all such accounts. Uni-Steel periodically reviews the credit history of its
customers and generally does not require collateral for the extension of credit.

INCOME TAXES

Uni-Steel accounts for income taxes in accordance with Statement of
Financial Accounting Standards No. 109, ACCOUNTING FOR INCOME TAXES ("SFAS
109"). Under SFAS 109, deferred income taxes are recognized for the tax
consequences in future years of differences between the tax bases of assets and
liabilities and their financial reporting amounts at each year-end based on
enacted tax laws and statutory tax rates applicable to the period in which the
differences are expected to affect taxable income. The principal items resulting
in the differences are different depreciation methods, use of the allowance
method for bad debts, and different inventory capitalization methods. Valuation
allowances are established when necessary to reduce deferred assets to the
amount to be realized. Income tax expense is the tax payable for the year and
the change during the year in deferred tax assets and liabilities.

RECENT ACCOUNTING PRONOUNCEMENTS

The Financial Accounting Standards Board issued 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") in March 1995. SFAS
121 requires that long-lived assets and certain intangibles to be held and used
by an entity be reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be
recoverable. Uni-Steel adopted SFAS No. 121 on January 1, 1996. The impact of
adopting this standard did not have a material impact on the results of
operations.

2. NOTE RECEIVABLE

Uni-Steel has a note receivable with a balance of $1,208 at September 30,
1996. The note bears interest at 8% and is due in monthly installments of
principal and interest totaling $9 with a balloon payment of the remaining
balance due in September 2002. This note is secured by a mortgage on real estate
in Fountain, Colorado.

F-84
<PAGE>
UNI-STEEL, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS OF DOLLARS, EXCEPT SHARE AMOUNTS)

3. PROPERTY AND EQUIPMENT

Property and equipment consists of the following:

ESTIMATED SEPTEMBER 30,
USEFUL LIVES 1996
-------------- -------------
Land................................. $ 32
Buildings and improvements........... 5 - 33 years 2,452
Yard equipment....................... 3 - 10 years 544
Shop equipment....................... 3 - 10 years 2,408
Autos and trucks..................... 3 - 5 years 17
Office equipment..................... 4 - 8 years 476
Computer software.................... 3 - 6 years 291
-------------
6,220
Less: accumulated depreciation....... (3,044)
-------------
Total........................... $ 3,176
=============

4. INVENTORIES

Inventories consist of the following:

SEPTEMBER 30,
1996
-------------
Steel products....................... $ 9,482
Work in process...................... 372
Other................................ 93
-------------
Totals.......................... $ 9,947
=============

Net realizable value approximates cost on the first-in, first-out method.
In 1996, LIFO cost exceeded market value by $54. This 1996 amount was recorded
as a reduction of inventory and an increase in cost of sales. Management has
determined that lower of LIFO cost or market is the valuation method that most
accurately reflects the results of operations in accordance with generally
acceptable accounting principles. Had the statements of income been prepared on
the lower of FIFO cost or market basis, inventories would have been $9,947 and
net income for the year ended September 30, 1996 would have been $1,165.

5. LINE OF CREDIT

At September 30, 1996, Uni-Steel had drawn $7,100 against its $7,500 line
of credit at a bank. Interest is computed at prime (8.25% at September 30,
1996). Payments of interest are due monthly and the principal balance was due
February 28, 1997. This line of credit was amended in February 1997 to increase
the maximum borrowings under the facility to $10,000 and extend the maturity
date to April 30, 1999. Interest is computed at prime or Uni-Steel may elect for
interest to be computed at LIBOR plus 2.5%. This election must be made in
borrowing increments of $1,000 and no more than two such LIBOR advances may be
outstanding at one time.

Concurrently with the renewal of the line of credit, Uni-Steel also
obtained a $1,000 working capital term loan from its principal bank. Payments of
principal and interest are payable in equal monthly installments with final
maturity on February 28, 2002. Interest is also computed at Uni-Steel's option
at prime or LIBOR plus 2.5%. The line of credit and working capital term loan
include certain covenants which, among other things, restrict future borrowings
and set certain ratio, cash flow and net worth

F-85
<PAGE>
UNI-STEEL, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS OF DOLLARS, EXCEPT SHARE AMOUNTS)

requirements. Uni-Steel was in compliance as of December 31, 1996. These loans
are secured by a primary security interest in the inventory and accounts
receivable of Uni-Steel.

6. LONG-TERM DEBT

Long-term debt consists of the following:

SEPTEMBER 30,
1996
-------------
Notes payable to bank, interest at
prime (8.25% at September 30, 1996,
payable in monthly installments of
$13 (plus interest) through April
2000; secured by equipment......... $ 567
Note payable to a supplier, interest
at 10.0%, payable in monthly
installments of $1 (including
interest) through May 1998; secured
by equipment....................... 13
Notes payable to bank, interest at
prime (8.25% at September 30,
1996), payable in monthly
installments of $12 (plus interest)
through July 1997; secured by
equipment.......................... 7
-------------
587
Less: current maturities............. (174)
-------------
$ 413
=============

The prime rate was 8.25% at September 30, 1996.

At September 30, 1996, future principal payments of long-term debt are as
follows:

1997................................. $ 174
1998................................. 164
1999................................. 158
2000................................. 91
2001................................. --
---------
$ 587
=========

Uni-Steel also has a note payable due to a shareholder which pays interest
at prime and is payable on demand. The outstanding balance at September 30, 1996
was $36.

7. INCOME TAXES

Income tax expense for the year ended September 30, 1996 is comprised of
the following:

Current tax expense:
Federal......................... $ 693
State........................... 84
Deferred tax expense:
Federal......................... (34)
State........................... (2)
---------
Total tax provision.................. $ 741
=========

F-86
<PAGE>
UNI-STEEL, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS OF DOLLARS, EXCEPT SHARE AMOUNTS)

The significant items giving rise to the deferred tax (assets) and
liabilities as of September 30, 1996 are as follows:

Deferred tax liabilities:
Bases differences in property
and equipment................. $ 592
Installment sales accounting.... 246
---------
Total deferred tax
liabilities............. 838
Deferred tax assets:
Allowance for doubtful
accounts...................... (49)
Inventory bases differences..... (85)
Other........................... (43)
---------
Total deferred tax
assets.................. (177)
---------
Net deferred tax liabilities......... $ 661
=========

The provision for income taxes differs from an amount computed at the
statutory rates as follows:

Income tax expense at the statutory
rate............................... $ 670
State taxes.......................... 54
Meals and entertainment.............. 17
---------
$ 741
=========

8. EMPLOYEE BENEFIT PLANS

Uni-Steel has a qualified profit sharing plan covering substantially all
employees. Employer contributions to the plan are made at the Board of
Directors' discretion. On July 1, 1990, the plan was amended to include a
deferred compensation 401(k) provision which allows employees to defer up to 15%
of their salaries and provides for employer matching of the first 4%. The total
employer contribution and match made to the plan was $290 for the year ended
September 30, 1996.

9. COMMITMENTS AND CONTINGENCIES

STOCK PURCHASE AGREEMENTS

Uni-Steel has an agreement with certain common stockholders which
effectively restricts trading of their common stock. The agreement also requires
Uni-Steel to repurchase this stock from certain stockholders who are terminated
from employment, becomes totally disabled, or die. The price is determined
pursuant to agreements between the parties and is subject to revision annually.
In January 1996, Uni-Steel repurchased 1,901 shares from a retired stockholder
for $192. At September 30, 1996, there are 2,501 (2.9%) shares of common stock
remaining under this agreement. Uni-Steel also has an agreement with Richard A.
Singer, an officer and stockholder, which restricts trading of 34,031 shares
(39%) of its common stock. The agreement requires Uni-Steel to purchase Mr.
Singer's stock in the event of his death, permanent disability or retirement.
The purchase price is to be determined pursuant to the agreement and is subject
to revision annually. Uni-Steel has committed certain life insurance policies to
fund this agreement. Uni-Steel's obligations under this agreement have been
guaranteed by its other major shareholder, Yaffe Iron and Metal Company, Inc. As
these shares are subject to mandatory redemption, they have not been classified
as a component of permanent equity in the accompanying balance sheets.

OPERATING LEASES

Uni-Steel leases warehouse space under an operating lease expiring in
September 1998. Minimum future rental payments under this non-cancelable
operating lease as of September 30, 1996, are as follows:

1997................................. $ 24
1998................................. 24
1999................................. 2
---------
$ 50
=========

F-87
<PAGE>
UNI-STEEL, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS OF DOLLARS, EXCEPT SHARE AMOUNTS)

Following is a summary of rental expense under non-cancelable operating
leases:

Minimum rentals...................... $ 24
Contingent rentals................... 191
---------
Total........................... $ 215
=========

The contingent rentals are based on inventory levels in excess of a
specified minimum.

PURCHASE COMMITMENTS

During the normal course of business, Uni-Steel enters into commitments to
purchase raw materials from steel mills. These commitments are made for
purchases of up to nine months into the future. In certain cases, prices paid
are calculated at the time the commitment is entered into. In other cases, they
are calculated at time of shipment. Uni-Steel estimates outstanding purchase
commitments at September 30, 1996 to be approximately $11,500.

10. RELATED PARTY TRANSACTIONS

A summary of transactions with Yaffe Iron and Metal Company, Inc., a
shareholder of Uni-Steel and other affiliated companies or individuals follows:

SEPTEMBER 30,
1996
-------------
Sales to related companies........... $ 2,807
=============
Shipping provided by a related
company (Included in operating and
delivery expenses in the
accompanying statements of
income)............................ $ 1,227
=============
Warehouse rent paid to related entity
under a one-year lease with seven
one-year options remaining.
(Included in operating and delivery
expenses in the accompanying
statements of income).............. $ 145
=============

11. SUBSEQUENT EVENTS (UNAUDITED)

On July 11, 1997, Metals USA, Inc. purchased all of the issued and
outstanding equity securites of Uni-Steel, through the issuance of common stock
and cash pursuant to a definitive merger agreement dated May 1997.

Concurrent with the merger, Uni-Steel sold certain real property to an
affiliated party for $630 and entered into an agreement with the affiliate to
lease the real property for an annual lease payment of $115. This lease runs
through 2027, and provides for periodic increases in the annual lease payment
every five years equal to the cumulative change in the Consumer Price Index.

The parties to the stock purchase agreements discussed in Note 9 agreed to
waive such agreements upon the consumation of the Merger.

F-88

<PAGE>
================================================================================

NO PERSON HAS BEEN AUTHORIZED IN CONNECTION WITH THE OFFERING MADE HEREBY
TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATION NOT CONTAINED IN THIS
PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENATION MUST NOT BE
RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR ANY UNDERWRITER. THIS
PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF ANY OFFER
TO BUY ANY OF THE SECURITIES OFFERED HEREBY TO ANY PERSON OR BY ANYONE IN ANY
JURISDICTION IN WHICH IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION. NEITHER
THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY
CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THE INFORMATION CONTAINED HEREIN IS
CORRECT AS OF ANY DATE SUBSEQUENT TO THE DATE HEREOF.

------------------

TABLE OF CONTENTS

PAGE
-----
Prospectus Summary............................. 3
The Company.................................... 8
Risk Factors................................... 10
Price Range of Common Stock.................... 14
Dividend Policy................................ 15
Capitalization................................. 16
Selected Financial Data........................ 17
Management's Discussion and Analysis of
Financial Condition and Results of
Operations................................... 19
Business....................................... 39
Management..................................... 50
Certain Transactions........................... 55
Principal Stockholders......................... 59
Description of Capital Stock................... 60
Shares Eligible for Future Sale................ 63
Legal Matters.................................. 64
Experts........................................ 64
Additional Information......................... 64
Index to Financial Statements.................. F-1

------------------

10,000,000 SHARES

[LOGO]
METALS USA, INC.

COMMON STOCK

-----------------
PROSPECTUS
-----------------

, 1997

================================================================================
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS

ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.

The following table sets forth the costs and expenses, other than
underwriting discounts and commissions, payable by the Company in connection
with the sale of the securities being registered. All amounts are estimates
except for the fees payable to the SEC.

AMOUNT TO BE
PAID
-------------
SEC registration fee................. $ 42,046
Printing expenses.................... $ 25,000
Legal fees and expenses.............. $ 20,000
Accounting fees and expenses......... $ 20,000
Transfer Agent's and Registrar's
fees............................... $ 1,000
Miscellaneous........................ $ 41,954
-------------
Total........................... $ 150,000
=============

ITEM 14. INDEMNIFICATION OF OFFICERS AND DIRECTORS.

The Company's Certificate of Incorporation, as amended, and Bylaws
incorporate substantially the provisions of the Delaware General Corporation Law
("DGCL") providing for indemnification of directors and officers of the
Company against expenses, judgments, fines, settlements and other amounts
actually and reasonably incurred in connection with any proceeding arising by
reason of the fact that such person is or was an officer or director of the
Company or is or was serving at the request of the Company as a director,
officer or employee of another corporation, partnership, joint venture, trust,
employee benefit plan or other enterprise.

As permitted by Section 102 of the DGCL, the Company's Certificate of
Incorporation, as amended, contains provisions eliminating a director's personal
liability for monetary damages to the Company and its stockholders arising from
a breach of a director's fiduciary duty except for liability (a) for any breach
of the director's duty of loyalty to the Company or its stockholders, (b) for
acts or omissions not in good faith or which involve intentional misconduct or a
knowing violation of law, (c) under Section 174 of the DGCL, or (d) for any
transaction from which the director derived an improper personal benefit.

Section 145 of the DGCL provides generally that a person sued as a
director, officer, employee or agent of a corporation may be indemnified by the
corporation for reasonable expenses, including attorneys' fees, if in the case
of other than derivative suits such person has acted in good faith and in a
manner such person reasonably believed to be in or not opposed to the best
interests of the corporation (and, in the case of a criminal proceeding, had no
reasonable cause to believe that such person's conduct was unlawful). In the
case of a derivative suit, an officer, employee or agent of the corporation
which is not protected by the Certificate of Incorporation may be indemnified by
the corporation for reasonable expenses, including attorneys' fees, if such
person has acted in good faith and in a manner such person reasonably believed
to be in or not opposed to the best interests of the corporation, except that no
indemnification shall be made in the case of a derivative suit in respect of any
claim as to which an officer, employee or agent has been adjudged to be liable
to the corporation unless that person is fairly and reasonably entitled to
indemnity for proper expenses. Indemnification is mandatory in the case of a
director, officer, employee, or agent who is successful on the merits in defense
of a suit against such person.

The Company has entered into Indemnity Agreements with its directors and
certain key officers pursuant to which the Company generally is obligated to
indemnify its directors and such officers to the full extent permitted by the
DGCL as described above.

The Company has purchase liability insurance policies covering directors
and officers in certain circumstances.

II-1
<PAGE>
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.

On July 3, 1996, Metals USA issued and sold 1,000 shares of Common Stock to
Notre for a consideration of $1,000. This sale was exempt from registration
under Section 4(2) of the Securities Act, no public offering being involved.

On December 14, 1996, Metals USA issued and sold shares of Common Stock to
the following parties in the amounts and for the consideration indicated. These
sales were exempt from registration under Section 4(2) of the Securities Act:
Arthur L. French -- 1,472.645 shares for a consideration of $2,000; J. Michael
Kirksey -- 736.322 shares for a consideration of $1,000; Stephen R.
Baur -- 736.322 shares for a consideration of $1,000; and Notre -- 23,798.718
shares for a consideration of $34,375.

On January 31, 1997, Metals USA issued and sold shares of Common Stock to
the following parties in the amounts and for the consideration indicated. These
sales were exempt from registration under Section 4(2) of the Securities Act:
Terry Freeman -- 368.161 shares for a consideration of $500; Frank W. Montfort
- -- 73.632 shares for a consideration of $100; Cary Vollintine -- 73.632 shares
for a consideration of $100; Shellie Gray LePori -- 184.080 shares for a
consideration of $250; Fred Ferreira -- 73.632 shares for a consideration of
$100; Emmett E. Moore -- 368.161 shares for a consideration of $500; William J.
Lynch -- 36.816 shares for a consideration of $50; James George Lynch -- 36.816
shares for a consideration of $50; Leonard A. Potter -- 73.632 shares for a
consideration of $100; Dr. Bernard A. Millstein -- 36.816 shares for a
consideration of $50; Infoscope Partners, Inc. -- 7.363 shares for a
consideration of $10; Jennifer Summerford -- 73.632 shares for a consideration
of $100; Melinda Malek -- 7.363 shares for a consideration of $10; L. E.
Peterson -- 55.224 shares for a consideration of $75; and Don Shirtcliff --
73.632 shares for a consideration of $100.

On February 19, 1997, Metals USA issued and sold 368.161 shares of Common
Stock to Keith E. St. Clair for a consideration of $500. This sale was exempt
from registration under Section 4(2) of the Securities Act, no public offering
being involved.

On March 4, 1997, Metals USA issued and sold shares of Common Stock to the
following parties in the amounts and for the consideration indicated. These
sales were exempt from registration under Section 4(2) of the Securities Act: T.
William Porter -- 73.632 shares for a consideration of $100; Donald D. Temperton
- -- 257.712 shares for a consideration of $350; and Kaye M. Wiggins -- 36.816
shares for a consideration of $50.

On April 15, 1997, Metals USA issued and sold shares of Common Stock to the
following parties in the amounts and for the consideration indicated. These
sales were exempt from registration under Section 4(2) of the Securities Act:
John A. Hageman -- 552.242 shares for a consideration of $750; Robert DuBose --
18.408 shares for a consideration of $25; Cindy Barrientes -- 18.408 shares for
a consideration of $25; Martha Spradley -- 18.408 shares for a consideration of
$25; Claudia Cedillo -- 18.408 shares for a consideration of $25; Mark Alper --
368.161 shares for a consideration of $500; Jonathan Alper -- 184.080 shares for
a consideration of $250; Lester Peterson -- 368.161 shares for a consideration
of $500; Richard A. Singer -- 368.161 shares for a consideration of $500; Arnold
Bradburd -- 368.161 shares for a consideration of $500; William B. Edge --
368.161 shares for a consideration of $500; Patrick A. Notestine -- 368.161
shares for a consideration of $500; Craig R. Doveala -- 184.080 shares for a
consideration of $250; Robert J. McCluskey -- 184.080 shares for a consideration
of $250; Michael E. Christopher -- 368.161 shares for a consideration of $500;
Arthur L. French -- 441.793 shares for a consideration of $600; J. Michael
Kirksey -- 147.264 shares for a consideration of $200; Steven R. Baur -- 147.264
shares for a consideration of $200; Tommy E. Knight -- 73.632 shares for a
consideration of $100; Richard H. Kristinik -- 73.632 shares for a consideration
of $100; Keith E. St. Clair -- 73.632 shares for a consideration of $100; Terry
Freeman -- 73.632 shares for a consideration of $100; Cheryl Ketchie -- 110.448
shares for a consideration of $150; Kaye Wiggins -- 7.363 shares for a
consideration of $10; and Richard T. Howell -- 73.632 shares for a consideration
of $100.

Effective April 21, 1997, Metals USA effected a 135.81-to-1 stock split on
outstanding shares of Common Stock as of April 20, 1997.

II-2
<PAGE>
Effective April 21, 1997, Metals USA issued and sold 3,122,914 shares of
Restricted Common Stock to Notre in exchange for 3,122,914 shares of Common
Stock. This sale was exempt from registration under Section 4(2) of the
Securities Act, no public offering being involved.

On July 11, in connection with the IPO, the Company issued 10,128,609
shares of its Common Stock in connection with the Mergers of the Founding
Companies. Each of these transactions was completed without registration under
the Securities Act in reliance upon the exemption provided by Section 4(2) of
the Securities Act.

ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.

(a) Exhibits

The exhibits listed below are filed as exhibits to this Registration
Statement and are filed herewith or are incorporated by reference as
indicated below:
<TABLE>
<CAPTION>
INCORPORATED BY
REFERENCE TO THE
EXHIBIT AND THE
FILING WITH THE
COMMISSION INDICATED
BELOW.
--------------------
EXHIBIT EXHIBIT
NO. DESCRIPTION OF EXHIBIT NO. FILE NO.
- ---------------------------------------------------------------- ------- ---------
<C> <S> <C> <C>
3.1 -- Amended and Restated Certificate of 3.1 333-26601
Incorporation of Metals USA, Inc., as
amended
3.2 -- Bylaws of Metals USA, Inc., as amended 3.2 333-26601
4.1 -- Form of certificate evidencing ownership 4.1 333-26601
of Common Stock of Metals USA, Inc.
5.1+ -- Opinion of Bracewell & Patterson, L.L.P.
10.1 -- Metals USA, Inc. 1997 Long-Term 10.1 333-26601
Incentive Plan
10.2 -- Metals USA, Inc. 1997 Non-Employee 10.2 333-26601
Directors' Stock Plan
10.3 -- Agreement and Plan of Organization dated 10.3 333-26601
as of April 30, 1997, by and among
Metals USA, Inc., Affiliated Metals
Acquisition Corp., Affiliated Metals
Company and the Stockholders named
therein
10.4 -- Agreement and Plan of Organization dated 10.4 333-26601
as of April 30, 1997 by and among Metals
USA, Inc., Interstate Steel I
Acquisition Corp., Interstate Steel II
Acquisition Corp., Interstate Steel III
Acquisition Corp., Interstate Steel IV
Acquisition Corp., Interstate Steel
Supply Company, Interstate Steel Supply
Company of Pittsburgh, Interstate Steel
Supply Company of Maryland, Interstate
Steel Processing Company and the
Stockholders named therein
10.5 -- Agreement and Plan of Organization dated 10.5 333-26601
as of April 30, 1997 by and among Metals
USA, Inc., Queensboro Steel I
Acquisition Corp., Queensboro Steel
Corporation and the Stockholders named
therein
10.6 -- Agreement and Plan of Organization dated 10.6 333-26601
as of April 30, 1997 by and among Metals
USA, Inc., Southern Alloy Acquisition
Corp., Southern Alloy of America, Inc.
and the Stockholders named therein

II-3
<PAGE>
<CAPTION>
INCORPORATED BY
REFERENCE TO THE
EXHIBIT AND THE
FILING WITH THE
COMMISSION INDICATED
BELOW.
--------------------
EXHIBIT EXHIBIT
NO. DESCRIPTION OF EXHIBIT NO. FILE NO.
- ---------------------------------------------------------------- ------- ---------
<C> <S> <C> <C>
10.7 -- Agreement and Plan of Organization dated 10.7 333-26601
as of April 30, 1997 by and among Metals
USA, Inc., Steel Service Systems
Acquisition Corp., Steel Service
Systems, Inc. and the Stockholders named
therein
10.8 -- Agreement and Plan of Organization dated 10.8 333-26601
as of April 30, 1997 by and among Metals
USA, Inc., Texas Aluminum I Acquisition
Corp., Texas Aluminum II Acquisition
Corp., Texas Aluminum III Acquisition
Corp., Texas Aluminum IV Acquisition
Corp., Texas Aluminum V Acquisition
Corp., Texas Aluminum Industries, Inc.,
Cornerstone Metals Corporation,
Cornerstone Building Products, Inc.,
Cornerstone Aluminum Company, Inc.,
Cornerstone Patio Concepts, L.L.C. and
the Stockholders named therein
10.9 -- Agreement and Plan of Organization dated 10.9 333-26601
as of April 30, 1997 by and among Metals
USA, Inc., Uni-Steel Acquisition Corp.,
Uni-Steel, Inc. and the Stockholders
named therein
10.10 -- Agreement and Plan of Organization dated 10.10 333-26601
as of April 30, 1997 by and among Metals
USA, Inc., Williams Steel Acquisition
Corp., Williams Steel & Supply Co.,
Inc., and the Stockholders named therein
10.11 -- Form of Employment Agreement between 10.11 333-26601
Metals USA, Inc. and Arthur L. French
10.12 -- Form of Employment Agreement between 10.12 333-26601
Metals USA, Inc. and J. Michael Kirksey
10.13 -- Form of Employment Agreement between 10.13 333-26601
Metals USA, Inc. and Stephen R. Baur
10.14 -- Form of Employment Agreement between 10.14 333-26601
Metals USA, Inc. and John A. Hageman
10.15 -- Form of Employment Agreement between 10.15 333-26601
Metals USA, Inc. and Terry L. Freeman
10.16 -- Form of Employment Agreement between 10.16 333-26601
Metals USA, Inc. and Keith E. St. Clair
10.17 -- Form of Founders' Employment Agreement 10.17 333-26601
between Williams Steel & Supply Co.,
Inc. and Joseph F. Petkewicz
10.18 -- Form of Founders' Employment Agreement 10.18 333-26601
between Interstate Steel Supply Company
of Maryland and Interstate Steel
Processing Company and Arnold W.
Bradburd
10.19 -- Form of Founders' Employment Agreement 10.19 333-26601
between Williams Steel & Supply Co.,
Inc. and David A. Weber
10.20 -- Form of Founders' Employment Agreement 10.20 333-26601
between Steel Service Systems, Inc. and
Craig R. Doveala
10.21 -- Form of Founders' Employment Agreement 10.21 333-26601
between Southern Alloy of America, Inc.
and William Bartley Edge
10.22 -- Form of Founders' Employment Agreement 10.22 333-26601
between Steel Service Systems, Inc. and
Robert J. McCluskey

II-4
<PAGE>
<CAPTION>
INCORPORATED BY
REFERENCE TO THE
EXHIBIT AND THE
FILING WITH THE
COMMISSION INDICATED
BELOW.
--------------------
EXHIBIT EXHIBIT
NO. DESCRIPTION OF EXHIBIT NO. FILE NO.
- ---------------------------------------------------------------- ------- ---------
<C> <S> <C> <C>
10.23 -- Form of Founders' Employment Agreement 10.23 333-26601
between Queensboro Steel Corporation and
Mark Alper
10.24 -- Form of Founders' Employment Agreement 10.24 333-26601
between Queensboro Steel and Jonathan
Alper
10.25 -- Form of Founders' Employment Agreement 10.25 333-26601
between Uni-Steel, Inc. and Richard A.
Singer
10.26 -- Form of Founders' Employment Agreement 10.26 333-26601
between Williams Steel & Supply Co.,
Inc. and Lester G. Peterson
10.27 -- Form of Founders' Employment Agreement 10.27 333-26601
between Texas Aluminum Industries, Inc.,
Cornerstone Metals Corporation,
Cornerstone Building Products, Inc.,
Cornerstone Aluminum Company, Inc.,
Cornerstone Patio Concepts, L.L.C. and
Michael E. Christopher
10.28 -- Form of Founders' Employment Agreement 10.28 333-26601
between Affiliated Metals Company and
Patrick A. Notestine
10.29 -- Form of Agreement among certain 10.29 333-26601
stockholders.
10.30+ -- Indemnity Agreement with Notre Capital
Ventures II, L.L.C.
21.1 -- List of subsidiaries of Metals USA, Inc. 21.1 333-26601
23.1+ -- Consent of Arthur Andersen LLP
23.2+ -- Consent of Ernst & Young LLP
23.3+ -- Consent of Deloitte & Touche LLP
23.4+ -- Consent of McGladrey & Pullen, LLP
23.5+ -- Consent of Rubin, Brown Gornstein & Co.
23.6+ -- Consent of Arthur Andersen LLP
23.7+ -- Consent of Bracewell & Patterson, L.L.P.
(contained in Exhibit 5.1)
27+ -- Financial Data Schedule
</TABLE>
- ------------
+ Filed herewith

(b) Financial Statement Schedules

The following financial statement schedules are included herein.

Schedule I

All other schedules for which provision is made in the applicable
accounting regulation of the SEC are not required under the related
instructions, are inapplicable, or the information is included in the
consolidated financial statements, and therefore have been omitted.

ITEM 17. UNDERTAKINGS.

(a) Insofar as indemnification for liabilities arising under the
Securities Act may be permitted to directors, officers and controlling persons
of the Company pursuant to the provisions described in Item 14, or otherwise,
the Company has been advised that in the opinion of the SEC such indemnification
is against public policy as expressed in the Securities Act and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than payment by the Company of expenses incurred or paid by a
director, officer or controlling person of the Company in the successful defense
of any action, suit or

II-5
<PAGE>
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the Company will, unless in the
opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Securities
Act and will be governed by the final adjudication of such issue.

(b) The undersigned registrant hereby undertakes that: (i) for purposes of
determining any liability under the Securities Act of 1933, the information
omitted from the form of prospectus filed as part of this registration statement
in reliance upon Rule 430A and contained in a form of prospectus filed by the
registrant pursuant to Rule 424(b)(1) or (4) or 497(h) under the Securities Act
shall be deemed to be part of this registration statement as of the time it was
declared effective; (ii) for the purpose of determining any liability under the
Securities Act of 1933, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities at that time
shall be deemed to be the initial bona fide offering thereof.

(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement:

(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;

(ii) To reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the aggregate,
represents a fundamental change in the information set forth in the
registration statement. Notwithstanding the foregoing, any increase or
decrease in volume of securities offered (if the total dollar value of
securities offered would not exceed that which was registered) and any
deviation from the low or high and of the estimated maximum offering range
may be reflected in the form of prospectus filed with the Commission
pursuant to Rule 424(b), if, in the aggregate, the changes in volume and
price represent no more than 20 percent change in the maximum aggregate
offering price set forth in the "Calculation of Registration Fee" table
in the effective registration statement.

(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the registration statement or any
material change in the registration statement.

(2) That, for the purpose of determining any liability under the Securities
Act of 1933, each such post-effective amendment shall be deemed to be a new
registration statement relating to the securities offered therein, and the
offering of such securities at the time shall be deemed to be the initial bona
fide offering thereof.

(3) To remove from registration by means of a post-effective amendment any
of the securities being registered which remain unsold at the termination of the
offering.

II-6
<PAGE>
SIGNATURES

Pursuant to the requirements of the Securities Act of 1933, Metals USA,
Inc. has duly caused this Registration Statement or amendment thereto to be
signed on its behalf by the undersigned, thereunto duly authorized, in the City
of Houston, State of Texas, on September 12, 1997.

METALS USA, INC.
By: /s/ ARTHUR L. FRENCH
ARTHUR L. FRENCH
CHIEF EXECUTIVE OFFICER

PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS
REGISTRATION STATEMENT OR AMENDMENT THERETO HAS BEEN SIGNED BELOW BY THE
FOLLOWING PERSONS IN THE INDICATED CAPACITIES ON SEPTEMBER 12, 1997.

SIGNATURE TITLE
- --------------------------------------------------------------------------------
Chairman of the Board; Chief
ARTHUR L. FRENCH Executive Officer and President

Senior Vice President; Chief
J. MICHAEL KIRKSEY Financial Officer and Director
(Chief Accounting Officer)

Director
STEVEN S. HARTER

Vice Chairman of the Board and
ARNOLD W. BRADBURD Director

Senior Vice President and Director
MICHAEL E. CHRISTOPHER

Director
MARK ALPER

Director
PATRICK A. NOTESTINE

Director
RICHARD A. SINGER

Director
LESTER G. PETERSEN

Director
CRAIG R. DOVEALA

Director
WILLIAM B. EDGE

Director
T. WILLIAM PORTER

Director
RICHARD H. KRISTINIK

Director
TOMMY E. KNIGHT

II-7

EXHIBIT 5.1

September, 1997

Metals USA, Inc.
Three Riverway, Suite 600
Houston, Texas 77056

Gentlemen:

We have acted as counsel to Metals USA, Inc., a Delaware corporation (the
"Company"), in connection with the preparation of its Registration Statement on
Form S-1 (Registration No. _________)(the "Registration Statement"), filed by
the Company under the Securities Act of 1933, as amended (the "Securities Act"),
with respect to the offering and sale by the Company of up to 10,000,000 shares
of its common stock, par value $.01 per share (the "Common Stock").

We have examined originals or copies of (i) the Amended and Restated Certificate
of Incorporation of the Company, or amended; (ii) the Bylaws of the Company, as
amended; (iii) certain resolutions of the Board of Directors of the Company; and
(iv) such other documents and records as we have deemed necessary and relevant
for purposes hereof. We have relied upon certificates of public officials and
officers of the Company as to certain matters of fact relating to this opinion
and have made such investigations of law as we have deemed necessary and
relevant as a basis hereof. We have not independently verified any factual
matter relating to this opinion.

We have assumed the genuineness of all signatures, the authenticity of all
documents, certificates and records submitted to us as copies, and the
conformity to original documents, certificates and records of all documents,
certificates and records submitted to us as copies.

Based upon the foregoing, and subject to the limitations and assumptions set
forth herein, and having due regard for such legal considerations as we deem
relevant, we are of the opinion that:

1. The Company is a corporation duly incorporated, validly existing and
in good standing under the laws of the State of Delaware.
<PAGE>
Metals USA, Inc.
September, 1997
Page 2

2. The issuance of the Common Stock has been duly authorized, and when
issued and delivered by the Company against payment therefor as described in the
Registration Statement, such shares will be validly issued, fully paid and
nonassessable.

The foregoing opinion is based on and is limited to the laws of the State of
Delaware and the relevant law of the United States of America, and we render no
opinion with respect to the law of any other jurisdiction.

We hereby consent to the filing of this opinion with the Securities and Exchange
Commission as Exhibit 5.1 to the Registration Statement and to the reference to
this firm as having passed on the validity of the issuance of the Common Stock
under the caption "Legal Matters" in the prospectus contained in the
Registration Statement. By giving such consent, we do not admit that we are
included within the category of persons whose consent is required under Section
7 of the Securities Act or the rules and regulations issued thereunder.

Very truly yours,

Bracewell & Patterson, L.L.P.

EXHIBIT 10.30
INDEMNITY AGREEMENT

This Indemnity Agreement ("Agreement") is made and entered into by and
between Metals USA, Inc., a Delaware corporation ("Company"), and Notre Capital
Ventures II, L.L.C., a Texas limited liability company ("Indemnitee").

INTRODUCTION

Indemnitee is an organizer and promoter of the Company and has provided,
and continues to provide, the Company with valuable expertise in connection with
the organization of the Company and the formulation of its strategy regarding
the consolidation of the metals processing industry and related matters. In
consideration of these services, the Company has agreed to indemnify Indemnitee
against any and all liabilities asserted against the Indemnitee or its managers,
officers, directors, employees, agents, members, partners and owners
(collectively, the "Indemnified Parties") in connection with or as a result of
Indemnitee's status as an organizer and/or promoter (as that term is defined in
Rule 405 under the Securities Act of 1933, as amended) of the Company. Based on
such premise, and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereby agree as
follows:

1. INDEMNIFICATION. The Company shall indemnify the Indemnified Parties as
follows:

1.1. The Company shall indemnify the Indemnified Parties when any of
such Indemnified Parties is a party or is threatened to be made a party to any
threatened, pending or completed action, suit or proceeding, whether civil
(including under federal and/or state securities laws), criminal, administrative
or investigative, by reason of the fact that the Indemnified Parties, or any of
them, is or was an organizer and/or promoter of the Company, against expenses
(including attorneys' fees), judgments, fines and amounts paid in settlement
actually and reasonably incurred by such Indemnified Parties in connection with
such action, suit or proceeding.

1.2. Expenses (including attorneys' fees) incurred by the
Indemnified Parties, or any of them, in defending any such civil (including
under federal and/or state securities laws), criminal, administrative, or
investigative action, suit or proceeding shall be paid by the Company in advance
of the final disposition of such action, suit or proceeding, within 14 days
after the receipt by the Company from the Indemnified Parties, or any of them,
of notice in which such Indemnified Party states that it has reasonably incurred
actual expenses in defending a civil (including under federal and/or state
securities laws), criminal, administrative, or investigative action, suit or
<PAGE>
proceeding by reason of the fact that such Indemnified Party is or was an
organizer and/or promoter of the Company.

1.3. The indemnification and advancement of expenses provided by, or
granted pursuant to, this Section 1 shall not be deemed exclusive of any other
rights to which the Indemnified Parties may be entitled under any law or
agreement, and shall continue after each of the Indemnified Parties has ceased
to be an organizer and/or promoter of the Company.

2. ATTORNEYS' FEES. If the Indemnified Parties, or any of them, institute
any legal action to enforce their rights under this Agreement, or to recover
damages for breach of this Agreement, such Indemnified Parties, if they prevail
in whole or in part, shall be entitled to recover from the Company all fees and
expenses (including attorneys' fees) incurred by such Indemnified Parties, or
any of them, in connection therewith.

3. DEPOSIT OF FUNDS IN TRUST. If the Company voluntarily decides to
dissolve or to file a petition for relief under the applicable bankruptcy,
moratorium or similar laws, then not later than 10 days prior to such
dissolution or filing, the Company shall deposit in trust for the sole and
exclusive benefit of the Indemnified Parties a cash amount equal to all amounts
previously authorized to be paid to the Indemnified Parties hereunder, such
amounts to be used to discharge the Company's obligations to the Indemnified
Parties hereunder. Any amounts in such trust not required for such purpose shall
be returned to the Company.

4. MERGER, CONSOLIDATION OR CHANGE IN CONTROL. If the Company is a
constituent corporation in a merger or consolidation, whether the Company is the
resulting or surviving corporation or is absorbed as a result thereof, or if
there is a change in control of the Company, The Indemnified Parties shall stand
in the same position under this Agreement with respect to the resulting,
surviving or changed corporation as the Indemnified Parties would have with
respect to the Company if its separate existence had continued or if there had
been no change in the control of the Company.

5. LITIGATION. To the best of Indemnitee's and Indemnitor's knowledge,
there is no action, suit or proceeding currently existing, pending or threatened
against Indemnitee.

6. MISCELLANEOUS PROVISIONS.

6.1. NOTIFICATION. Each party agrees to give prompt notice to the
other upon its discovery of facts giving rise to a claim for indemnity under the
provisions of this Agreement,

-2-
<PAGE>
including receipt by it of notice of any demand, assertion, claim, action or
proceeding, judicial or otherwise.

6.2. SURVIVAL. The provisions of this Agreement shall survive the
termination of any of the Indemnified Parties' status as an organizer and/or
promoter of the Company.

6.3. ENTIRE AGREEMENT. This Agreement constitutes the full
understanding of the parties and a complete and exclusive statement of the terms
and conditions of their agreement relating to the subject matter hereof and
supersedes all prior negotiations, understandings and agree ments, whether
written or oral, between the parties, their affiliates, and their respective
principals, shareholders, directors, officers, employees, consultants and agents
with respect thereto.

6.4. AMENDMENTS AND WAIVERS. No alteration, modification, amendment,
change or waiver of any provision of this Agreement shall be effective or
binding on any party hereto unless the same is in writing and is executed by all
parties hereto.

6.5. MODIFICATION AND SEVERABILITY. If a court of competent
jurisdiction declares that any provision of this Agreement is illegal, invalid
or unenforceable, then such provision shall be modified automatically to the
extent necessary to make such provision fully legal, valid or enforce able. If
such court does not modify any such provision as contemplated herein, but
instead declares it to be wholly illegal, invalid or unenforceable, then such
provision shall be severed from this Agreement, this Agreement and the rights
and obligations of the parties hereto shall be construed as if this Agreement
did not contain such severed provision, and this Agreement otherwise shall
remain in full force and effect.

6.6. ENFORCEABILITY. This Agreement shall be enforceable by and
against the Company, the Indemnified Parties and their respective successors and
assignees.

6.7. GOVERNING LAW. This Agreement shall be governed by, construed
under, and enforce in accordance with the laws of the State of Delaware without
reference to the conflict-of- laws provisions thereof.

6.8. MULTIPLE COUNTERPARTS. This Agreement may be executed by the
parties hereto in multiple counterparts, each of which shall be deemed an
original for all purposes, and all of which together shall constitute one and
the same instrument.

-3-
<PAGE>
The parties hereto have executed this Agreement on July 11, 1997.

COMPANY:

Metals USA, Inc.

By: /s/ A.L. FRENCH
Name: A.L. French
Title: C.E.O.

INDEMNITEE:

Notre Capital Ventures II, L.L.C.

By: /s/ STEVE HARTER
Name: Steve Harter
Title: President

-4-

EXHIBIT 23.1

CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS

As independent public accountants, we hereby consent to the use of our
reports (and to all references to our Firm) included in or made a part of this
registration statement.

ARTHUR ANDERSEN LLP

Houston, Texas
September 10, 1997

EXHIBIT 23.2

CONSENT OF INDEPENDENT AUDITORS

We consent to the reference to our Firm under the caption "Experts" and
to the use of our report dated October 4, 1996, with respect to the financial
statements of Affiliated Metals Company included in the Registration Statement
and related Prospectus of Metals USA, Inc. for the registration of 10,000,000
shares of Metals USA, Inc.'s common stock.

Ernst & Young LLP

St. Louis, Missouri
September 10, 1997

EXHIBIT 23.3

INDEPENDENT AUDITORS' CONSENT

We consent to the use in this Registration Statement of Metals USA, Inc. on
Form S-1 of our report dated April 11, 1997 on the combined financial statements
of Interstate Steel Supply Company and Affiliates as of December 31, 1996 and
1995 and for each of the three years in the period ended December 31, 1996
appearing in the Prospectus, which is part of this Registration Statement.

We also consent to the reference to us under the heading "Experts" in
such Prospectus.

DELOITTE & TOUCHE LLP

Philadelphia, PA
September 10, 1997

EXHIBIT 23.4

CONSENT OF INDEPENDENT ACCOUNTANTS

We hereby consent to the use in this Registration Statement on Form S-1 of
our report, dated February 27, 1997, relating to the financial statements of
Queensboro Steel Corporation. We also consent to the reference to our Firm under
the caption "Experts" in the Prospectus.

McGladrey & Pullen, LLP

Wilmington, North Carolina
September 10, 1997

EXHIBIT 23.5

INDEPENDENT AUDITORS' CONSENT

We hereby consent to the use in this Registration Statement on Form S-1 of
Metals USA, Inc. of our report, dated October 19, 1995 on Affiliated Metals
Company for the years ended September 3, 1994 and September 2, 1995, and to the
reference to us under the heading "Independent Auditors" in the Prospectus
which is a part of this Registration Statement.

We also consent to the reference to us under the heading "Experts" in the
Prospectus which is a part of this Registration Statement.

RUBIN, BROWN, GORNSTEIN & CO. LLP

St. Louis, Missouri
September 10, 1997

EXHIBIT 23.6

CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS

As independent public accountants, we hereby consent to the use of our
report (and to all references to our Firm) included in or made a part of this
registration statement.

ARTHUR ANDERSEN LLP

Charlotte, North Carolina
September 10, 1997

<ARTICLE> 5
<LEGEND>
THE FINANCIAL DATA SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED
FROM METALS USA, INC. AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000

<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> JUN-30-1997
<CASH> 15
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 15
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 4,060
<CURRENT-LIABILITIES> 3,951
<BONDS> 0
0
0
<COMMON> 48
<OTHER-SE> 61
<TOTAL-LIABILITY-AND-EQUITY> 4,060
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 5,988
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (5,988)
<INCOME-TAX> 0
<INCOME-CONTINUING> (5,988)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (5,988)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0

</TABLE>