METALS USA INC, POS AM, 1998-06-16

METALS USA INC
POS AM, 1998-06-16
METALS SERVICE CENTERS & OFFICES

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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JUNE 16, 1998
REGISTRATION NO. 333-53193

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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

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POST EFFECTIVE AMENDMENT NO. 1 TO
FORM S-1

REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933

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METALS USA, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN CHARTER)
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<CAPTION>
<S> <C> <C>
DELAWARE 5051 76-0533626
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NUMBER)
</TABLE>

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)
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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

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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon
as practicable after this Registration Statement becomes effective.
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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 this form is a post-effective amendment filed pursuant to Rule 462(d)
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. [ ]
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CALCULATION OF REGISTRATION FEE

<TABLE>
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- ------------------------------------------------------------------------------------------------------------------------
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PROPOSED MAXIMUM PROPOSED MAXIMUM NET PROCEEDS TO
TITLE OF EACH CLASS OF AMOUNT TO BE OFFERING PRICE AGGREGATE OFFERING SELLING
SECURITIES TO BE REGISTERED REGISTERED PER SHARE(1) PRICE(1) STOCKHOLDERS(2)
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Common Stock, $.01 par value per share 1,503,384 $18.50 $27,812,604 $27,436,758
- ------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>

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

(2) Does not reflect $70,000 of estimated expenses to be paid by the Company.

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>

1,503,384 SHARES

[LOGO]

METALS USA

COMMON STOCK
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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 1,503,384 shares (the "Shares") of common stock,
$.01 par value (the "Common Stock"), of Metals USA, Inc., a Delaware
corporation (the "Company") offered by certain stockholders (the "Selling
Stockholders") of the Company to or through BT Alex. Brown Incorporated ("BT
Alex. Brown") as placement agent who may act as agent, or who may acquire
Shares as principal. The distribution of the Shares through BT Alex. Brown may
be effected in one or more transactions on the NYSE or in over-the-counter
transactions, including block trades or ordinary broker's transactions, or
through privately negotiated transactions or sales to one or more brokers or
dealers for resale of such securities as principals, or otherwise at market
prices prevailing at the time of sale, at prices related to such prevailing
market prices or at negotiated prices. See "Plan of Distribution." All of the
Shares to be sold by the Selling Stockholders were issued in connection with the
acquisition by the Company of various businesses which were previously owned by
the Selling Stockholders. The Company has not received any of the proceeds from
the sale of any Shares by the Selling Stockholders. All expenses of registration
of the Shares which may be offered hereby under the Securities Act of 1933, as
amended (the "Securities Act") will be paid by the Company (other than selling
commissions, and fees and expenses of advisers to the Selling Stockholders).

The Company currently has 37,143,367 shares of its Common Stock listed on
the NYSE, of which 19,741,145 are registered and available for unrestricted
trading in the public markets unless owned by affiliates of the Company. On June
15, 1998, the closing price of the Common Stock on the NYSE was $18.0625 per
share as published in THE WALL STREET JOURNAL on June 16, 1998. 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.

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 9 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.

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THE DATE OF THIS PROSPECTUS IS JUNE 16, 1998

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[This page intentionally left blank]

<PAGE>
PROSPECTUS SUMMARY

THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY, AND SHOULD BE READ
IN CONJUNCTION WITH, THE MORE DETAILED INFORMATION AND THE PRO FORMA AND
HISTORICAL FINANCIAL STATEMENTS, INCLUDING THE NOTES THERETO, APPEARING
ELSEWHERE IN THIS PROSPECTUS. THIS PROSPECTUS CONTAINS FORWARD-LOOKING
STATEMENTS. DISCUSSIONS CONTAINING SUCH FORWARD-LOOKING STATEMENTS MAY BE FOUND
IN THE INFORMATION SET FORTH UNDER THE CAPTIONS "RISK FACTORS," "MANAGEMENT'S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS" AND
"BUSINESS," AND ELSEWHERE IN THIS PROSPECTUS. ACTUAL EVENTS OR RESULTS MAY
DIFFER MATERIALLY FROM THOSE DISCUSSED IN THE FORWARD-LOOKING STATEMENTS AS A
RESULT OF VARIOUS FACTORS, INCLUDING, WITHOUT LIMITATION, THE RISK FACTORS SET
FORTH HEREIN AND THE MATTERS SET FORTH IN THIS PROSPECTUS GENERALLY. UNLESS
OTHERWISE INDICATED, "METALS USA" MEANS METALS USA, INC. PRIOR TO THE IPO, AND
THE "COMPANY" MEANS METALS USA AND ALL OF ITS SUBSIDIARIES. ADDITIONALLY, THE
TERM "ACQUIRED COMPANIES," AS USED HEREIN, REFERS TO EACH COMPANY ACQUIRED IN
CONNECTION WITH THE IPO AND THEREAFTER. CERTAIN INFORMATION REGARDING THE
ACQUIRED COMPANIES, INCLUDING THE DEFINED TERMS USED TO REFER TO THE INDIVIDUAL
ACQUIRED COMPANIES, APPEARS UNDER THE CAPTION "BUSINESS -- ACQUIRED
COMPANIES."

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 actively the consolidation of the highly
fragmented metals processing industry. On July 11, 1997, Metals USA acquired in
separate concurrent transactions eight companies (the "Founding Companies")
engaged principally in the value-added metals processing business and
consummated its initial public offering (the "IPO"). Subsequent to the IPO and
through the date of this Prospectus, the Company has acquired a number of
companies in the metals processing industry collectively referred to as the
"Subsequent Acquisitions," in continuation of its consolidation strategy. On
average, the Company's subsidiaries have been in business for over 40 years. See
"Business -- Acquired Companies" for a description of the Acquired Companies
and the associated individual defined terms. The Company engages in the
preproduction processing of steel, aluminum and specialty metals and intends to
continue to capitalize on the trend occurring among both primary metals
producers and end-users of metals products to reduce in-house processing and
outsource processing and inventory management requirements. For the twelve
months ended December 31, 1997, the Company had pro forma net sales and net
income of $1,371.9 million and $29.8 million, respectively and for the three
months ended March 31, 1998, the Company had pro forma net sales and net income
of $379.0 million and $10.1 million, respectively.

The Company sells to over 30,000 customers in industries such as aerospace,
furniture, transportation equipment, power and process equipment,
industrial/commercial construction, consumer durables and electrical equipment.
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 in
order to reduce its customers' overall cost of 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.

The Company believes it has successfully established itself as a leading
consolidator in the metals processor/service center industry and has significant
opportunities for growth due to its (i) wide array of products and services;
(ii) broad and diversified customer base; (iii) geographic diversification; and
(iv) successful track record of identifying and consummating accretive
acquisitions. The Company believes these competitive strengths will allow it to
further build upon its consolidation strategy as well as reduce its
susceptibility to economic fluctuations affecting any one industry or geographic
area.

3
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INDUSTRY

The Company believes that the metals processor/service center industry in
the United States currently has over 3,500 participants generating over $75
billion in annual revenues and is undergoing consolidation. Growth in the metal
service center industry has been driven by 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,
customers are increasingly outsourcing their metals processing and inventory
management requirements as they focus on their core competencies and reduce
material costs, decrease capital required for raw materials inventory and
processing equipment and save time, labor and other expenses. Additionally,
customers are seeking to reduce complexity and 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.

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 that
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 enhance its leadership in the
industry's consolidation.

BUSINESS STRATEGY

Key elements of the Company's strategy are:

o GROW THROUGH ADDITIONAL ACQUISITIONS. The Company intends to continue
to grow through its acquisition program, the key elements of which are: to enter
new geographic markets, to expand within existing geographic markets and to
enter complementary processing and service markets. The Company believes that
there continue to be significant opportunities to expand through acquisitions 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 OPERATE ON A DECENTRALIZED BASIS. The Company manages its existing
operations and intends to manage 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 GROW INTERNAL SALES. A key component of the Company's strategy is to
accelerate internal sales growth of its subsidiaries 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 is in the process of
implementing a Company-wide marketing program which will utilize professional
marketing sources and adopting "best-practices" among its subsidiaries to
demonstrate to the numerous customers not currently

4
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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 IMPROVE OPERATING MARGINS. The Company believes that the combination
of the acquired businesses 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 administrative functions. The Company uses 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 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.

RECENT DEVELOPMENTS

On February 11, 1998, the Company completed the sale of $200 million
aggregate principal amount of the Company's 8 5/8% Senior Subordinated Notes due
2008 (the "Notes"). The Notes mature on February 15, 2008 and bear interest at
the rate of 8 5/8% per annum. Interest on the Notes is payable semiannually on
February 15 and August 15 of each year, commencing August 15, 1998. The Notes
are redeemable at the option of the Company, in whole or in part, at any time on
or after February 15, 2003, at the redemption prices set forth in the indenture
together with accrued and unpaid interest to the date of redemption.
Notwithstanding the foregoing, at any time on or prior to February 15, 2001, the
Company may redeem up to 35% of the aggregate principal amount of the Notes
originally issued with the net proceeds of one or more offerings of the Common
Stock of the Company, at a redemption price equal to 108.625% of the principal
amount thereof, plus accrued and unpaid interest to the date of such redemption;
provided that at least 65% of the aggregate principal amount of Notes originally
issued remains outstanding immediately after such redemption.

Additionally, the Company completed an extension and modification of its
revolving credit facility on February 11, 1998. The credit facility provides for
up to $300.0 million of borrowings, matures February 2003 and is secured by the
pledge of all of the capital stock of the Company's material subsidiaries (the
"Credit Facility"). The Credit Facility will be used to make acquisitions,
make capital expenditures, refinance the debt of acquired companies and for the
Company's general working capital requirements. The Company used approximately
$179.3 million of the net proceeds ($194.5 million before expected expenses of
$0.8 million) it received from the sale of the Notes to repay the outstanding
borrowings under the Credit Facility. See "Management's Discussion and Analysis
of Financial Condition and Results of Operations -- Liquidity and Capital
Resources."

The Notes are general unsecured obligations of the Company, subordinated in
right of payment to all existing and future senior indebtedness of the Company,
including indebtedness under the Credit Facility (as amended and restated), and
ranks PARI PASSU or senior in right of payment to any future subordinated
indebtedness of the Company. The Notes are unconditionally guaranteed on a
senior subordinated unsecured basis by each of the Company's subsidiaries. The
indenture governing the Notes (the "Indenture") permits the Company to incur
additional indebtedness, including senior indebtedness, subject to certain
limitations. On April 9, 1998, the Company filed a registration statement on
Form S-4 (No. 333-49823), for the benefit of all holders of the Notes, relating
to an exchange offer for the Notes under the Securities Act of 1933, as amended.

On March 23, 1998, the Company announced that it agreed to make an offer
for all of the issued and outstanding common shares of Ideal Metal Inc.
("Ideal") at a cash price of CAN$5.25 per share. Another company made a
competing offer and on April 28, 1998, the Company received the agreed
compensatory fee of U.S.$1.7 (CAN$2.5) from Ideal as a result of the competing
offer.

5
<PAGE>

Subsequent to March 31, 1998, the Company acquired the following metal
processing companies: Industrial Metals, Inc. ("Industrial"), Sierra Pacific
Steel, Inc. ("Sierra"), Fullerton Industries, Inc. ("Fullerton"), Faitoute
Steel Company, Inc. ("Faitoute") Steel Manufacturing and Warehouse Company
("Steel Manufacturing") and Wilkof-Morris Steel Corporation ("Wilkof").
These acquisitions were accounted for using the "purchase" method of
accounting. Additionally, on May 29, 1998, the Company consummated the
acquisition of Krohn Steel Service Center, Inc. ("Krohn"), which was accounted
for using the "pooling-of-interests" method of accounting. The aggregate
consideration paid by the Company to acquire these companies was approximately
$22.0 million in cash and 2,715,631 shares of common stock (excluding assumed
indebtedness of approximately $18.7 million).

On April 20, 1998, the Company filed a shelf registration statement with
the Securities and Exchange Commission under cover of Form S-1 No. 333-50449
(the "1998 Shelf Registration Statement") relating to the issuance of up to
10,000,000 shares of common stock to be issued in connection with future
acquisitions. The 1998 Shelf Registration Statement was declared effective on
April 22, 1998.

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

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SUMMARY FINANCIAL DATA
(IN MILLIONS, EXCEPT PER SHARE AMOUNTS)

The following supplemental consolidated financial information should be
read in conjunction with the Audited and Unaudited Supplemental Consolidated
Financial Statements of the Company and the applicable Notes thereto and the
following Pro Forma financial information should be read in conjunction with the
Unaudited Pro Forma Financial Statements and the Notes thereto contained
elsewhere in this Prospectus. The supplemental consolidated financial
information for the fiscal years ended 1995 through 1997 and the three months
ended March 31, 1998 and 1997 reflects the historical financial statements of
Metals USA, restated for the effects of the business combinations with Jeffreys,
Wayne and Krohn, which were accounted for as "poolings-of-interests," and the
remaining Acquired Companies from their respective acquisition dates.

<TABLE>
<CAPTION>
THREE MONTHS
ENDED MARCH 31, YEARS ENDED DECEMBER 31,
-------------------- --------------------------------
1998 1997 1997 1996 1995
--------- --------- ---------- --------- ---------
SUPPLEMENTAL CONSOLIDATED STATEMENTS
OF OPERATIONS DATA:
<S> <C> <C> <C> <C> <C>
Net sales.......................... $ 278.5 $ 72.0 $ 537.6 $ 265.5 $ 260.9
Cost of sales...................... 214.6 55.5 414.9 204.0 204.7
Operating and delivery............. 26.0 6.9 53.7 25.4 22.0
Selling, general and
administrative................... 18.1 7.2 41.1 21.4 15.6
Depreciation and amortization...... 3.0 .7 5.6 3.7 3.0
Operating income................... 16.8 1.7 22.3 11.0 15.6
Interest expense................... 4.8 .4 5.0 1.8 2.4
Other income....................... (.1) (.1) (.5) (.7) (.5)
Income before income taxes......... 12.1 1.4 17.8 9.9 13.7
Net income (loss).................. 7.2 (.4) 7.5 4.5 8.1
Earnings per share -- assuming
dilution......................... $ .21 $ (.03) $ .33 $ .38 $ .86
Shares used in computing earnings
per share -- assuming dilution... 34.5 14.2 22.9 11.8 9.4
PRO FORMA STATEMENTS OF OPERATIONS
DATA(1):
Net sales.......................... $ 379.0 $ 1,371.9
Cost of sales...................... 290.5 1,056.5
Operating and delivery(2).......... 34.6 128.9
Selling, general and
administrative(2)................ 26.2 94.8
Depreciation and amortization(3)... 4.0 16.2
Operating income................... 23.7 75.5
Interest expense(4)................ 7.2 24.8
Other income....................... (.5) (1.8)
Income before income taxes......... 17.0 52.5
Net income......................... 10.1 29.8
Earnings per share -- assuming
dilution......................... $ .27 $ .80
Shares used in computing earnings
per share -- assuming dilution... 37.9 37.4
</TABLE>

<TABLE>
<CAPTION>
MARCH 31, 1998
----------------------- DECEMBER 31,
PRO FORMA(5) ACTUAL 1997
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<S> <C> <C> <C>
BALANCE SHEET DATA:
Working capital.................... $ 319.9 $ 279.2 $ 193.0
Total assets....................... 764.9 670.2 480.6
Long-term debt, net of current
maturities....................... 318.1 273.2 167.1
Stockholders' equity............... 292.6 269.8 226.5

</TABLE>

(FOOTNOTES ON FOLLOWING PAGE)

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(1) The pro forma statements of operations data assumes that the IPO, the
acquisition of the Founding Companies, the Subsequent Acquisitions and the
issuance of the Notes occurred on January 1, 1997 and is not necessarily
indicative of the results the Company would have obtained had these events
actually then occurred or of the Company's future results.

(2) The pro forma statements of operations data for the three months ended March
31, 1998 and for the year ended December 31, 1997 reflects (a) in selling,
general and administrative, an aggregate of approximately $.4 million and
$10.3 million, respectively, in pro forma reductions in salary, bonuses and
benefits to the owners of the Acquired Companies to which they have agreed
prospectively (the "Compensation Differential"), (b) in operating and
delivery, a $.2 million and $1.5 million, respectively, reduction in lease
expense pursuant to the renegotiation of certain leases (the "Rent
Differential"), and (c) in selling, general and administrative, a reduction
of $5.7 million attributable to the non-recurring portion of the non-cash
compensation charge ("Compensation Charge").

(3) Includes $.2 million and $3.4 million, respectively, of amortization of
goodwill to be recorded as a result of the acquisition of the Founding
Companies and the Subsequent Acquisitions computed on the basis described in
Notes to the Unaudited Pro Forma Financial Statements for the three months
ended March 31, 1998 and for the year ended December 31, 1997, respectively.

(4) Includes $.1 million and $1.5 million, respectively, reduction in interest
expense due to assumed refinancing of outstanding indebtedness with the
Company's Credit Facility for the three months ended March 31, 1998 and for
the year ended December 31, 1997, respectively. Interest expense is
increased for the three months ended March 31, 1998 and for the year ended
December 31, 1997 by $.8 million and $5.5 million, respectively, due to the
assumed financing of the cash portion of the Acquired Companies' purchase
price with the Company's Credit Facility and by $.7 million and $5.4
million, respectively, due to the issuance of the Notes.

(5) The pro forma balance sheet data assumes that the acquisitions of
Industrial, Sierra, Fullerton, Faitoute, Steel Manufacturing and Wilkof were
completed on March 31, 1998.

<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 Acquired Companies were
operated as separate independent entities prior to their acquisition, 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 historical financial results of the Acquired Companies cover
periods when the Acquired 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 Acquired
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 carbon steel, aluminum, stainless steel, copper, brass,
titanium and various special alloys and other 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 Acquired 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

9
<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 Acquired Companies or other subsequently
acquired businesses will achieve anticipated net sales and earnings. See
"Business -- Strategy."

RESTRICTIVE LOAN COVENANTS. The Credit Facility and the Indenture
governing the Notes contain numerous financial and operating covenants that
limit the discretion of the Company's management with respect to certain
business matters. These covenants place significant restrictions on, among other
things, the ability of the Company to incur additional indebtedness, to create
liens or other encumbrances, to make certain payments and investments, and to
sell or otherwise dispose of assets and merge or consolidate with other
entities. The Credit Facility will also require the Company to meet certain
financial ratios and tests. A failure to comply with the obligations contained
in the Credit Facility or the Indenture could result in an event of default
under either the Credit Facility or the Indenture which could result in
acceleration of the related debt and the acceleration of debt under other
instruments evidencing indebtedness that may contain cross-acceleration or
cross-default provisions.

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 currently maintains a $300.0 million revolving Credit
Facility with a group of commercial banks. On a pro forma basis, after giving
effect to the issuance of the Notes and the acquisitions completed subsequent to
March 31, 1998, the Company would have had $220.6 million of borrowing
availability under the Credit Facility at March 31, 1998. As of June 15, 1998,
$196.1 million was available to the Company under the Credit Facility. 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 "Management's Discussion and Analysis of Financial Condition
and Results of Operations -- 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 Acquired
Companies and subsequently acquired businesses and to continue to expand the net
sales of the Acquired Companies and any subsequently acquired businesses.
Although the Company intends to seek to improve the profitability of the
Acquired 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 Acquired 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 Acquired 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 Acquired 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 Acquired Companies and
subsequently acquired businesses and the Company's overall profitability could
be adversely affected. See "Business -- Strategy -- Operating on a
Decentralized Basis."

10
<PAGE>
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."

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 and the
Subsequent Acquisitions, the Company evaluated the properties owned or leased by
the Acquired 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
Acquired Companies 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 Acquired 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 Acquired Companies and
entities affiliated with them beneficially own approximately 65.2% of the
outstanding shares of Common Stock. Holders of Restricted Common Stock are
entitled to elect one member of the Company's Board of Directors and 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. Accordingly, the Company's executive officers,
directors and the former stockholders of the Acquired Companies control in the
aggregate approximately 66.5% of the votes of all shares of Common Stock, and if
acting in concert, will be able to exercise control over the

11
<PAGE>
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."

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 37,143,367 shares of Common Stock issued and
outstanding, of which 19,741,145 shares are freely tradeable (consisting of
6,785,000 shares sold in the IPO and 12,956,145 shares issued in connection with
certain of the Subsequent Acquisitions and registered pursuant to the Company's
shelf registration statement on Form S-1 (No. 333-35575), dated September 12,
1997, as amended (the "1997 Shelf Registration Statement") or the 1998 Shelf
Registration Statement). 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 3,598,278 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, on April 20, 1998, the Company
filed the 1998 Shelf Registration Statement relating to the issuance of up to
10,000,000 shares of common stock to be issued in connection with future
acquisitions. The 1998 Shelf Registration Statement was declared effective on
April 22, 1998. The shares which will be available for issuance pursuant to the
1998 Shelf Registration Statement will generally 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."

12
<PAGE>
PRICE RANGE OF COMMON STOCK

The Company's Common Stock has traded on the New York Stock Exchange since
July 11, 1997. On June 15, 1998, the last sale price of the Common Stock was
$18.0625 per share, as published in THE WALL STREET JOURNAL on June 16, 1998.
The Company believes there are over 2,000 holders of its Common Stock.

The following table sets forth the range of high and low sales prices for
the Common Stock for the periods indicated:

HIGH LOW
--------- ---------
1997:
July 11, 1997 to September 30,
1997 .......................... $ 16.00 $ 10.00
October 1, 1997 to December 31,
1997 .......................... $ 16.50 $ 13.38
1998:
January 1, 1998 to March 31,
1998 .......................... $ 19.25 $ 14.00
April 1, 1998 to June 15,
1998 .......................... $ 20.12 $ 17.81

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.

13
<PAGE>
CAPITALIZATION

The following table sets forth the current maturities of long-term
obligations and capitalization at March 31, 1998 of the Company on a (i)
consolidated basis and (ii) pro forma basis to give effect to the acquisitions
completed after March 31, 1998 as if each had occurred on March 31, 1998. The
actual March 31, 1998 information presented below reflects the supplemental
consolidated results of the Company, as restated for the effects of the business
combination with Krohn, which was accounted for using the
"pooling-of-interests" method of accounting. This table should be read in
conjunction with the Company's Audited and Unaudited Supplemental Consolidated
Financial Statements together with the applicable Notes thereto and the
Unaudited Pro Forma Financial Statements of the Company and the Notes thereto
included elsewhere in this Prospectus.

MARCH 31, 1998
------------------------
ACTUAL PRO FORMA
------- ----------
(IN MILLIONS OF DOLLARS)
Current maturities of long-term debt
obligations (1)....................... $ 9.8 $ 10.3
======= ==========
Long-term debt (net of current
maturities):
Bank Credit Facility............... $ 50.9 $ 79.4
Other notes payable and capital
lease obligations (1)............ 22.3 38.7
8 5/8% Senior Subordinated Notes
due 2003......................... 200.0 200.0
------- ----------
Total long-term debt.......... 273.2 318.1
------- ----------
Stockholders' equity:
Preferred Stock: $0.01 par value,
5,000,000 shares authorized; none
issued or outstanding............ -- --
Common Stock: $0.01 par value,
203,122,914 shares authorized;
35,646,038 issued and
outstanding; and shares issued
and outstanding, pro forma (2)... .4 .4
Additional paid-in capital......... 223.4 246.2
Unearned compensation.............. (1.5) (1.5)
Retained earnings.................. 47.5 47.5
------- ----------
Total stockholders' equity.... 269.8 292.6
------- ----------
Total capitalization....... $ 543.0 $610.7
======= ==========

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

(1) See Notes to the Company's Audited Supplemental Consolidated Financial
Statements for a description of certain other debt obligations.

(2) Excludes shares of Common Stock subject to options granted upon consummation
of the IPO and shares of Common Stock subject to options granted or to be
granted in connection with the Subsequent Acquisitions. See
"Management -- 1997 Long-Term Incentive Plan" and " -- 1997 Non-Employee
Directors' Stock Plan," and the Notes to the Company's Audited Consolidated
Financial Statements.

14
<PAGE>
SELECTED FINANCIAL DATA
(IN MILLIONS, EXCEPT PER SHARE AMOUNTS)

The following consolidated financial information should be read in
conjunction with the Audited and Unaudited Supplemental Consolidated Financial
Statements of Metals USA, Inc. and Subsidiaries and the applicable Notes thereto
included elsewhere in this Prospectus. The supplemental consolidated financial
information for the fiscal years ended 1993 through 1997 and the three months
ended March 31, 1998 and 1997 reflects the historical financial statements of
Metals USA, restated for the effects of the business combinations with Jeffreys,
Wayne and Krohn, which were accounted for as "poolings-of-interests", and the
remaining Acquired Companies from their respective acquisition dates.

The Acquired Companies operated as privately-owned entities prior to their
acquisition by Metals USA and their results of operations reflect varying tax
structures ("S Corporations" or "C Corporations") which have influenced the
level of owners' compensation. The owners of the Acquired 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 acquisitions. These cost savings, which are not reflected in
the consolidated financial information presented below, are reflected in the pro
forma information presented below and elsewhere in this Prospectus.

THREE MONTHS ENDED
MARCH 31, YEARS ENDED DECEMBER 31,
-------------------- ------------------------------------------------------
1998 1997 1997 1996 1995 1994 1993
--------- --------- ---------- --------- --------- --------- ---------
SUPPLEMENTAL CONSOLIDATED STATEMENTS
OF OPERATIONS DATA:
<S> <C> <C> <C> <C> <C> <C> <C>
Net sales.......................... $ 278.5 $ 72.0 $ 537.6 $ 265.5 $ 260.9 $ 235.7 $ 155.6
Cost of sales...................... 214.6 55.5 414.9 204.0 204.7 185.0 119.1
Operating and delivery............. 26.0 6.9 53.7 25.4 22.0 19.6 13.6
Selling, general and
administrative.................. 18.1 7.2 41.1 21.4 15.6 13.9 10.5
Depreciation and amortization...... 3.0 .7 5.6 3.7 3.0 2.4 2.0
Operating income................... 16.8 1.7 22.3 11.0 15.6 14.7 10.4
Interest expense................... 4.8 .4 5.0 1.8 2.4 1.8 2.0
Other income....................... (.1) (.1) (.5) (.7) (.5) (.4) (1.5)
Income before income taxes......... 12.1 1.4 17.8 9.9 13.7 13.4 9.9
Net income (loss).................. 7.2 (.4) 7.5 4.5 8.1 8.2 6.3
Earnings per share -- assuming
dilution........................ $ .21 $ (.03) $ .33 $ .38 $ .86 $ .87 $ .67
Shares used in computing earnings
per share -- assuming
dilution........................ 34.5 14.2 22.9 11.8 9.4 9.4 9.4
PRO FORMA STATEMENTS OF OPERATIONS
DATA(1):
Net sales.......................... $ 379.0 $ 1,371.9
Cost of sales...................... 290.5 1,056.5
Operating and delivery(2).......... 34.6 128.9
Selling, general and
administrative(2)............... 26.2 94.8
Depreciation and amortization(3)... 4.0 16.2
Operating income................... 23.7 75.5
Interest expense(4)................ 7.2 24.8
Other income....................... (.5) (1.8)
Income before income taxes......... 17.0 52.5
Net income......................... 10.1 29.8
Earnings per share -- assuming
dilution........................ $ .27 $ .80
Shares used in computing earnings
per share -- assuming
dilution........................ 37.9 37.4

</TABLE>
(TABLE CONTINUED ON FOLLOWING PAGE)

15
<PAGE>

<TABLE>
<CAPTION>
MARCH 31, 1998 YEARS ENDED DECEMBER 31,
---------------------- -----------------------------------------------------
PRO FORMA(5) ACTUAL 1997 1996 1995 1994 1993
------------ ------- --------- --------- --------- --------- ---------
(IN MILLIONS)
BALANCE SHEET DATA:
<S> <C> <C> <C> <C> <C> <C> <C>
Working capital.................... $319.9 $ 279.2 $ 193.0 $ 51.6 $ 53.2 $ 47.2 $ 39.7
Total assets....................... 764.9 670.2 480.6 107.3 100.1 99.0 70.5
Long-term debt, net of current
maturities...................... 318.1 273.2 167.1 24.6 31.4 23.2 21.3
Stockholders' equity............... 292.6 269.8 226.5 57.5 50.1 43.3 36.5
Dividends declared(6).............. -- -- -- -- -- -- --
</TABLE>

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

(5) The pro forma balance sheet data assumes that the acquisitions of
Industrial, Sierra, Fullerton, Faitoute, Steel Manufacturing and Wilkof were
completed on March 31, 1998.

(6) Exclusive of pre-acquisition distributions from S Corporations.

<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 Company's Audited and Unaudited Supplemental
Consolidated Financial Statements and applicable 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. Most of the metal sold by the Company is 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 Acquired Companies manufacture finished building
products for commercial and residential applications and machine certain
specialty metals.

The Company anticipates that it will realize savings from: (i) greater
volume discounts from raw materials and other suppliers and (ii) consolidation
of insurance and other general and administrative costs. It is anticipated that
the administrative cost 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. The Company's Unaudited Pro Forma Statements of Operations do not
reflect any amounts as may be realized from future cost savings.

During 1996 and the first half 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 recorded a compensation charge of
$3.6 million in 1996 and $6.0 million in the first half of 1997 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
(the "Compensation Charge").

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 was the designated "accounting
acquiror" and the Company recorded the excess of the fair value of the Merger
consideration paid (exclusive of debt assumed), over the fair value of the net
assets acquired with respect to the Founding Companies as "goodwill."
Collectively, the excess of consideration paid (exclusive of debt assumed) over
the fair value of the net assets acquired from the merger of the Founding
Companies together with the merger of certain of the Subsequent Acquisitions
that were accounted for using the "purchase" method of accounting, totaled
approximately $172.6 million, on a pro forma basis, at March 31, 1998. 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 the amortization expense
attributable to the goodwill created from the application of SAB 97 with respect
to the Founding Companies is approximately $2.1 million per year and is not
deductible for income tax purposes. The pro forma impact of the amortization
expense attributable to the goodwill created from the Subsequent Acquisitions is
approximately $2.2 million per year, a portion of which is deductible for income
tax purposes. Prior to the issuance of SAB 97, most business combinations
similar to the IPO were 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 and the Subsequent Acquisitions
generally conform to the conventions established by the Steel Service Center
Institute ("SSCI") and the National Association of Aluminum Distributors.

17
<PAGE>
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 its Subsidiaries 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. 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. 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

The following supplemental consolidated financial information reflects the
historical consolidated financial statements of Metals USA restated for the
effects of the business combinations with Jeffreys, Wayne and Krohn accounted
for as "poolings-of-interests" and the remaining Acquired Companies from their
respective acquisition dates.

<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
------------------------------------------
1998 % 1997 %
--------- --------- --------- ---------
(IN MILLIONS, EXCEPT PERCENTAGES)
<S> <C> <C> <C> <C>
Net sales............................... $ 278.5 100.0% $ 72.0 100.0%
Cost of sales...................... 214.6 77.1% 55.5 77.1%
Operating and delivery............. 26.0 9.3% 6.9 9.6%
Selling, general and
administrative................... 18.1 6.5% 7.2 10.0%
Depreciation and amortization...... 3.0 1.1% .7 .9%
--------- --------- --------- ---------
Operating income........................ 16.8 6.0% 1.7 2.4%
Interest expense........................ 4.8 1.7% .4 .6%
Other income............................ (.1) -- (.1) (.1%)
--------- --------- --------- ---------
Income before income taxes.............. $ 12.1 4.3% $ 1.4 1.9%
========= ========= ========= =========

</TABLE>

RESULTS FOR THE THREE MONTHS ENDED MARCH 31, 1998 COMPARED TO THE THREE MONTHS
ENDED MARCH 31, 1997

NET SALES. Net sales increased $206.5 million, or 286.8%, from $72.0
million for the three months ended March 31, 1997 to $278.5 million for the
three months ended March 31, 1998. The increase in net sales was principally due
to acquisitions completed during 1997. The purchase acquisitions completed in
the first quarter of 1998 did not have a significant impact on net sales or
results of operations for the three months ended March 31, 1998.

COST OF SALES. Cost of sales increased $159.1 million, or 286.7%, from
$55.5 million for the three months ended March 31, 1997 to $214.6 million for
the three months ended March 31, 1998. The increase in cost of sales was
principally due to the acquisitions described above. As a percentage of net
sales, cost of sales was 77.1% for both periods.

18
<PAGE>

OPERATING AND DELIVERY. Operating and delivery expenses increased $19.1
million, or 276.8%, from $6.9 million for the three months ended March 31, 1997
to $26.0 million for the three months ended March 31, 1998. The increase in
operating and delivery expenses was principally due to the acquisitions
described above. As a percentage of net sales, operating and delivery expenses
decreased from 9.6% for the three months ended March 31, 1997 to 9.3% for the
three months ended March 31, 1998. This percentage decrease was primarily due to
spreading of fixed operating costs over a higher volume of net sales.

SELLING, GENERAL AND ADMINISTRATIVE. Selling, general and administrative
expenses increased $10.9 million, or 151.4%, from $7.2 million for the three
months ended March 31, 1997 to $18.1 million for the three months ended March
31, 1998. This increase in selling, general and administrative expenses was
primarily attributable to the acquisitions described above and, to a lesser
extent, increased volumes of product shipments. As a percentage of net sales,
selling, general and administrative expenses decreased from 10.0% for the three
months ended March 31, 1997 to 6.5% for the three months ended March 31, 1998.
This percentage decrease was primarily due to the non-recurring non-cash
Compensation Charge of $2.8 million the Company incurred in connection with the
sale of common stock to consultants and members of management during the three
months ended March 31, 1997.

OPERATING INCOME. Operating income increased $15.1 million, from $1.7
million for the three months ended March 31, 1997 to $16.8 million for the three
months ended March 31, 1998. The increase in operating income was attributable
to the factors discussed above. As a percentage of net sales, operating income
increased from 2.4% for the three months ended March 31, 1997 to 6.0% for the
three months ended March 31, 1998. This percentage increase was primarily due to
the non-recurring non-cash Compensation Charge described above, partially offset
by higher cost of raw materials during the three months ended March 31, 1998.

INTEREST EXPENSE. Interest expense increased $4.4 million, from $.4
million for the three months ended March 31, 1997 to $4.8 million for the three
months ended March 31, 1998. The increase in interest expense was primarily due
to increased borrowings attributable to the debt assumed and the cash portion of
the purchase price paid in connection with the acquisitions completed by the
Company on July 11, 1997 and periods thereafter.

PROVISION FOR INCOME TAXES. The Company's provision for income taxes
differs from the federal statutory rate principally due to state income taxes
(net of federal income tax benefit), the non-deductibility of the Compensation
Charge and the amortization of goodwill attributable to certain acquisitions.

19
<PAGE>

The following supplemental consolidated financial information reflects the
historical financial statements of Metals USA, restated for the effects of the
business combinations with Jeffreys, Wayne and Krohn accounted for as
"poolings-of-interests" and the remaining Acquired Companies from their
respective acquisition dates. Because of the merger with Metals USA, Jeffreys
changed its fiscal year end from July 31 to December 31, beginning January 1,
1996 to conform to the fiscal periods of Metals USA and the other Acquired
Companies. The historical financial information of Jeffreys for the year ended
July 31, 1995 has been included in the Company's consolidated financial
statements for the year ended December 31, 1995.

<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------------------------------------------
1997 % 1996 % 1995 %
--------- --------- --------- --------- --------- ---------
(IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C>
Net sales............................ $ 537.6 100.0% $ 265.5 100.0% $ 260.9 100.0%
Operating costs and expenses:
Cost of sales................... 414.9 77.2% 204.0 76.8% 204.7 78.5%
Operating and delivery.......... 53.7 10.0% 25.4 9.6% 22.0 8.4%
Selling, general and
administrative................ 41.1 7.6% 21.4 8.1% 15.6 6.0%
Depreciation and amortization... 5.6 1.0% 3.7 1.4% 3.0 1.1%
--------- --------- --------- --------- --------- ---------
Operating income..................... 22.3 4.2% 11.0 4.1% 15.6 6.0%
Interest expense..................... 5.0 .9% 1.8 .7% 2.4 .9%
Other income......................... (.5) -- (.7) -- (.5) --
--------- --------- --------- --------- --------- ---------
Income before income taxes........... $ 17.8 3.3% $ 9.9 3.7% $ 13.7 5.3%
========= ========= ========= ========= ========= =========
</TABLE>

RESULTS FOR 1997 COMPARED TO 1996

NET SALES. Net sales increased $272.1 million, or 102.5%, from $265.5
million in 1996 to $537.6 million in 1997. The increase in net sales was
principally due to acquisitions of the Founding Companies on July 11, 1997 and
the purchase acquisitions of Harvey, Meier and Federal Bronze on September 26,
1997. Average realized prices for steel products declined approximately 3.2% in
1997 compared to 1996.

COST OF SALES. Cost of sales increased $210.9 million, or 103.4%, from
$204.0 million in 1996 to $414.9 million in 1997. The increase in cost of sales
was principally due to the business acquisitions described above. As a
percentage of net sales, cost of sales increased from 76.8% in 1996 to 77.2% in
1997. This percentage increase was due to higher cost of raw materials.

OPERATING AND DELIVERY. Operating and delivery expenses increased $28.3
million, or 111.4%, from $25.4 million in 1996 to $53.7 million in 1997. The
increase in operating and delivery expenses was principally due to the business
acquisitions described above. As a percentage of net sales, operating and
delivery expenses increased from 9.6% in 1996 to 10.0% in 1997. This percentage
increase was primarily due to higher transportation costs to support an
expanding market area.

SELLING, GENERAL AND ADMINISTRATIVE. Selling, general and administrative
expenses increased $19.7 million, or 92.1%, from $21.4 million in 1996 to $41.1
million in 1997. This increase in selling, general and administrative expenses
was primarily attributable to the business acquisitions described above.
Additionally, the Company recorded a Compensation Charge of $3.6 million and
$6.0 million in 1996 and 1997, respectively. As a percentage of net sales,
selling, general and administrative expenses decreased from 8.1% in 1996 to 7.6%
in 1997. This percentage decrease was primarily due to the Compensation Charge
as a percentage of net sales being less for 1997 than for 1996. Excluding the
effect of the Compensation Charges recorded in 1996 and 1997, as a percentage of
net sales, selling, general and administrative expenses decreased from 6.7% in
1996 to 6.5% in 1997. This percentage decrease was primarily due to the
allocation of fixed costs over a higher volume of net sales.

OPERATING INCOME. Operating income increased $11.3 million, or 102.7%,
from $11.0 million in 1996 to $22.3 million in 1997. The increase in operating
income was primarily attributable to the business acquisitions described above,
offset by the $6.0 million Compensation Charge described in the preceding
paragraph. As a percentage of net sales, operating income increased from 4.1% in
1996 to 4.2% in 1997.

20
<PAGE>

INTEREST EXPENSE. Interest expense increased $3.2 million, or 177.8%, from
$1.8 million in 1996 to $5.0 million in 1997. The increase in interest expense
was due to increased borrowings in connection with the business acquisitions
described above.

RESULTS FOR 1996 COMPARED TO 1995

NET SALES. Net sales increased $4.6 million, or 1.8%, from $260.9 million
in 1995 to $265.5 million in 1996. The increase in net sales was principally due
to a 6.0% increase in shipments in 1995 compared to 1996. Additionally, average
realized prices decreased by approximately 2.5%. Approximately one-third of the
increased shipments were from the Oakwood, Georgia facility acquired in March
1995.

COST OF SALES. Cost of sales decreased $.7 million, or .3%, from $204.7
million in 1995 to $204.0 million in 1996. The decrease in cost of sales was
primarily attributable to a 4.4% decline in the cost of raw materials, partially
offset by the increased shipments described above. As a percentage of net sales,
cost of sales decreased from 78.5% in 1995 to 76.8% in 1996 due primarily to the
decline in the cost of raw materials referred to above.

OPERATING AND DELIVERY. Operating and delivery expenses increased $3.4
million, or 15.5%, from $22.0 million in 1995 to $25.4 million in 1996. This
increase was primarily attributable to the increased shipments described above.
As a percentage of net sales, operating and delivery expenses increased from
8.4% in 1995 to 9.6% in 1996. This percentage increase was primarily due to
higher transportation costs to support an expanding market area.

SELLING, GENERAL AND ADMINISTRATIVE. Selling, general and administrative
expenses increased $5.8 million, or 37.2%, from $15.6 million in 1995 to $21.4
million in 1996. The increase in selling, general and administrative expenses
was primarily due to a $3.6 million Compensation Charge recorded during 1996
and, to a lesser extent, the increased selling costs attributable to the
increased shipments described above. As a percentage of net sales, selling,
general and administrative expenses increased from 6.0% for 1995 to 8.1% for
1996. This percentage increase was primarily due to the Compensation Charge
described above.

OPERATING INCOME. Operating income decreased $4.6 million, or 29.5%, from
$15.6 million in 1995 to $11.0 million in 1996. The decrease in operating income
was primarily attributable to the compensation charge discussed above. As a
percentage of net sales, operating income decreased from 6.0% in 1995 to 4.1% in
1996.

INTEREST EXPENSE. Interest expense decreased $0.6 million, or 25.0%, from
$2.4 million in 1995 to $1.8 million in 1996. The decrease in interest expense
was primarily due to lower average balances outstanding under the revolving
credit facilities.

PROVISION FOR INCOME TAXES. The Company's provision for income taxes
differs from the federal statutory rate principally due to state income taxes
(net of federal income tax benefit) and the non-deductibility of the
Compensation Charge.

LIQUIDITY AND CAPITAL RESOURCES

Beginning with the IPO on July 11, 1997, and through February 11, 1998, the
Company has completed a number of financing transactions designed to enhance the
Company's liquidity, reduce incremental interest expense and extend debt
maturities. The transactions included a public equity offering of Common Stock
which resulted in net proceeds of $58.3 million, a private offering for $200.0
million aggregate principal amount of 8 5/8% Senior Subordinated Notes due 2008
(the "Notes") and the establishment of a $300.0 million revolving credit
facility with a group of commercial banks (the "Credit Facility"). As of March
31, 1998, $249.1 million was available to the Company under the Credit Facility.
As of June 15, 1998, the Company had outstanding borrowings of $103.9 million
and $196.1 million available for use under the Credit Facility.

At March 31, 1998, the Company had cash of $11.9 million, working capital
of $279.2 million and total debt of $283.0 million. At December 31, 1997, the
Company had cash of $7.3 million, working capital

21
<PAGE>

of $193.0 million and total debt of $174.3 million (of which $144.8 million was
attributable to the Original Credit Facility, as defined below). At December 31,
1996, the Company had cash of $2.4 million, working capital of $51.6 million and
total debt of $27.8 million. The Company anticipates that its cash flow from
operations (excluding acquisition requirements) will be sufficient to meet the
Company's normal working capital and debt service requirements for at least the
next several years. The Company intends to retain all of its earnings, 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 next several years. In addition, the Company's
Credit Facility and the indenture governing the Notes (the "Indenture")
include restrictions on the ability of the Company to pay dividends.

The Company used $15.0 million in net cash for operating activities and
generated $6.2 million in net cash from operating activities for the three
months ended March 31, 1998 and 1997, respectively. The Company generated $3.3
million and $9.5 million in net cash from operating activities for 1997 and
1996, respectively. Net cash used for investing activities was $36.4 million and
$1.8 million for the three months ended March 31, 1998 and 1997, respectively.
The principal use of cash during the three months ended March 31, 1998 was to
fund the cash portion of the acquisition cost for the Subsequent Acquisitions.
Net cash used in investing activities was $85.9 million and $6.5 million for
1997 and 1996, respectively. The principal use of cash during 1997 was to fund
the cash portion of the acquisition cost for the Acquired Companies. Net cash
provided by financing activities was $56.0 million and net cash used in
financing activities was $2.0 million for the three months ended March 31, 1998
and 1997, respectively. Net cash provided by financing activities was $87.5
million for 1997 and net cash used in financing activities was $5.0 million in
1996. For the three months ended March 31, 1998, the cash provided by financing
activities consisted primarily of the net proceeds from the sale of the Notes of
$193.7 million offset by net repayments on the Credit Facility. For 1997, the
cash provided by financing activities consisted primarily of the net proceeds
from the sale of Common Stock of $58.3 million and borrowings under the initial
$150.0 million unsecured revolving credit facility (the "Original Credit
Facility").

INVESTING ACTIVITIES

Concurrent with the completion of the IPO, Metals USA acquired the Founding
Companies for $27.8 million in cash, 10,128,609 shares of common stock and
assumed approximately $92.6 million of existing indebtedness. Following the IPO,
the Company acquired a number of additional metal processing companies. These
acquisitions include Jeffreys, Wayne, Meier, Harvey, Independent, Royal, RJ
Fabricating, Federal Bronze, Pacific, National, Western, Mark Metals, Metalmart,
Levinson, Seaboard, Sierra, Industrial, Fullerton, Concord, Faitoute, Steel
Manufacturing and Wilkof. The acquisitions of Jeffreys, Wayne and Krohn were
accounted for using the "pooling-of-interests" method of accounting. The
remaining acquisitions were accounted for using the "purchase" method of
accounting. Collectively, the Company paid a total of $106.7 million in cash and
issued 15,476,344 shares of Common Stock in connection with these acquisitions.
Additionally, the Company assumed approximately $119.7 million of existing
indebtedness of these companies.

The Company intends to continue 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 the 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
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.

On April 20, 1998, the Company filed the 1998 Shelf Registration Statement
relating to the issuance of up to 10,000,000 shares of Common Stock to be issued
in connection with future acquisitions. The 1998 Shelf Registration Statement
was declared effective on April 22, 1998.

FINANCING ACTIVITIES

In July 1997, the Company completed its IPO of 5,900,000 shares of Common
Stock for which it received net proceeds of approximately $50.1 million. 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

22
<PAGE>
Companies. Additionally, 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 for net proceeds of $8.2 million. The
Company used the net proceeds from the exercise of the overallotment option to
repay borrowings on the Credit Facility and for other corporate purposes.

Concurrent with the IPO, the Company obtained the Original Credit Facility
which was used to fund acquisitions, refinance certain indebtedness of the
acquired companies and for general corporate and working capital requirements.
In January 1998, the Company obtained a $50.0 million Interim Credit Facility to
meet its acquisition related cash requirements pending the completion of an
extension and modification of the Original Credit Facility to provide for up to
$300.0 million of borrowing availability. The closing of the extension and
modification of the Credit Facility on February 11, 1998 stipulated the
termination of the Interim Credit Facility. The Credit Facility matures in
February 2003 and will be used to fund acquisitions, make capital expenditures,
refinance debt of the companies acquired and for general working capital
requirements. The Credit Facility requires 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 net worth. Borrowings under the Credit Facility
are secured by the pledge of all of the capital stock of each of the Company's
material subsidiaries.

On February 11, 1998, the Company received $194.5 million of net cash
proceeds (before estimated expenses of $.8 million) from the sale of the Notes.
The Notes call for semi-annual interest payments on February 15 and August 15 of
each year, beginning August 15, 1998 and mature on February 15, 2008. The Notes
are guaranteed by substantially all of the Company's current and future
subsidiaries, and contain certain covenants restricting additional indebtedness,
liens, transactions with affiliates, asset sales, investments, payment
restrictions affecting subsidiaries and mergers and acquisitions of
subsidiaries. The Notes are subordinate to borrowings under the Credit Facility
and will rank PARI PASSU in right of payment with all other future subordinated
debt of the Company and will rank senior to other indebtedness that expressly
provides that it is subordinated in right of payment to the Notes. The Company
used $179.3 million of such proceeds to repay the borrowings outstanding under
the Original Credit Facility and Interim Credit Facility on February 11, 1998.

YEAR 2000 ISSUE

The Company recognizes the need to ensure its operations will not be
adversely impacted by Year 2000 software failures. Specifically, computational
errors are a known risk with respect to dates after December 31, 1999. The
Company has addressed the issue with respect to its existing subsidiaries and
potential acquisitions as part of its normal due diligence procedures. The
Company does not believe the cost of achieving Year 2000 compliance, in excess
of the cost of normal software upgrades and replacements incurred through fiscal
1999, will be material to the Company's consolidated results of operations,
financial position or liquidity.

RECENT DEVELOPMENTS

Subsequent to March 31, 1998, the Company acquired the following metal
processing companies: Industrial, Sierra, Fullerton, Faitoute, Steel
Manufacturing and Wilkof. These acquisitions were accounted for using the
"purchase" method of accounting. In addition, the Company completed the
acquisition of Krohn, which was accounted for using the "pooling-of-interests"
method of accounting. The aggregate consideration paid by the Company to acquire
these companies was approximately $22.0 million in cash and 2,715,631 shares of
common stock (excluding assumed indebtedness of approximately $18.7 million).

<PAGE>
BUSINESS

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 aluminum and other
specialty metals, which are the fastest growing segment of the metals processing
industry.

The Acquired Companies sell to over 30,000 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 original equipment manufacturers ("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 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

24
<PAGE>
remain competitive. As a result, during the past two decades, most of the
primary producers have sold their service centers. Accordingly, 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 benefited 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.

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, the acquiror typically installs its operating systems, procedures
and management 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.

25
<PAGE>
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 Acquired Companies by acquiring
well-established value-added metals processors/service centers that, like the
Acquired 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 utilize 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 Acquired 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. While maintaining strong operating and financial controls, the Company
believes that a decentralized structure will retain the entrepreneurial culture
present in each of the Acquired 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 Acquired 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 Acquired Company and at each subsequently acquired company. 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 Acquired 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.

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

26
<PAGE>
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 Acquired 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 Acquired 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 Acquired 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 Acquired Companies will be
instrumental in identifying and completing future acquisitions. Some of the
Acquired Companies have recently completed acquisitions, which has given them
valuable acquisition experience. Moreover, several of the principals of the
Acquired 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 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

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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 PRECISION 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 LASER, 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 wide-flange 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 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

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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 are examples of the types of value-added processes and
services offered by the Company:

One of the Company's larger customers is one of the world's largest
elevator and escalator manufacturers. The Company sells a variety of steel
products to this customer in customized lengths and perform the majority of
its preproduction processing and just-in-time inventory management. The
services and preproduction processing includes sawing, shearing, flame
cutting, forming, punching and drilling holes in the metal parts for
delivery within 24 hours of ordering.

The Company achieved substantial total production cost savings for a
major manufacturer of electrical components once the customer purchased all
of its steel directly from one of the Company's service centers rather than
an integrated mill. Management personnel worked with the customer to
develop a just-in-time inventory management program which enabled the
customer to substantially reduce the amount of on-hand inventory as well as
reduce the need for capital intensive processing equipment. The customer
realized a significant cash flow savings as its steel inventory dropped
from approximately a two month supply to approximately a three day supply.

The Acquired 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. Six of the Acquired Companies'
facilities have International Standards Organization ("ISO") 9002
certification while several others are actively working on their 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
fluctuated 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 a price decrease becomes effective. 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 it can purchase raw materials in

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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.

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, the Company 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 30,000 customers, with
no single customer accounting for more than 2% of the Company's revenues in
1997. The Company believes that its long-term relationships with many of its
customers contribute significantly to its success.

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

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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 pickling operations at three of
its 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 a history 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.

Prior to entering into the agreements relating to the IPO and the
Subsequent Acquisitions, the Company evaluated the properties owned or leased by
the Acquired 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 Acquired Companies 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 consolidated financial condition, results of
operations or liability, should the Company be found 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 Acquired 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. Six of the Acquired 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 Acquired Companies have computer-aided drafting systems
that control equipment used to perform some metals processing functions.

EMPLOYEES

As of March 31, 1998, the Acquired Companies employed a total of
approximately 2,800 persons. Approximately 350 employees at 12 sites were
members of one of six unions: the United Steelworkers of America; the
International Association of Bridge, Structural, and Ornamental Ironworkers of
America; the International Brotherhood of Teamsters; Local 40 of the Glass,
Molders, Pottery, Plastic & Allied Workers International Union; United Auto
Workers; or the International Brotherhood of Boilermakers, Iron Ship Builders,
Blacksmiths, Forgers and Helpers. The Company's relationship with these unions
generally has

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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 is currently a party to 14 collective
bargaining agreements which expire at various times. Collective bargaining
agreements expiring in 1998, 1999, 2000 and 2001 cover 155, 36, 66 and 93
employees, respectively. Historically, the Acquired 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. The Company intends to adopt "best practices" for its
employee benefits programs and human relations functions. The Company believes
that its relations with its employees are good.

VEHICLES

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. The Company maintains 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 consolidated financial condition,
results of operations or liquidity.

SAFETY

The Company is committed to continuing the Acquired Companies' focus and
emphasis on safety in the workplace. The Acquired 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 safe 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 Acquired Companies' emphasis on an
accident-free workplace.

ACQUIRED COMPANIES

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 has about 130 employees. Patrick A.
Notestine, the President of Affiliated, has been employed by Affiliated for nine
years, has signed an employment agreement with Affiliated to continue in that
capacity and is a director of the Company.

CONCORD

Concord Metals Corporation ("Concord"), headquartered in Walker,
Michigan, was founded in 1981 by Michael Sheppard and operates primarily in the
Michigan market area. Concord is a value-added metals processor and distributor
of flat rolled steel. Concord has 18 employees. Concord is a wholly-owned

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subsidiary of Wayne. Michael Sheppard has signed an employment agreement with
Concord and will serve as General Manager and Vice President.

FAITOUTE STEEL COMPANY, INC.

Faitoute Steel Company, Inc. ("Faitoute"), headquartered in Newark, New
Jersey, was founded in 1904 by Moses Faitoute and operates primarily in the
northeast region of the United States. Faitoute is a value-added metals
processor and distributor of wide-flange beams, angle and bar stock and plate
and provides products and services primarily to structural steel fabricators in
the industrial machine, fabrication and construction industries. Ross H. Monks,
Jr., the Chairman and Chief Executive Officer of Faitoute, has been employed by
Faitoute for 39 years and has signed an employment agreement with Faitoute to
continue in that capacity.

FEDERAL BRONZE ALLOYS INC.

Federal Bronze Alloys Inc. ("Federal Bronze"), headquartered in Newark,
New Jersey, is the successor entity to Federal Bronze Products, Inc., which was
founded in 1947 by Steve Stefiuk and operates primarily in the northeast region
of the United States. Federal Bronze is a specialty metals processor, providing
products and services primarily to the fluid power, machine tool and the pump
valve industries. Federal Bronze has about 55 employees. John Stefiuk, the
President and Chief Executive Officer of Federal Bronze, has been employed by
Federal Bronze for 25 years and has signed an employment agreement with Federal
Bronze to continue in that capacity.

FULLERTON INDUSTRIES, INC.

Fullerton Industries, Inc., ("Fullerton"), headquartered in Northbrook,
Illinois, was founded in 1943 and operates primarily in the midwestern region of
the United States. Fullerton is a flat rolled processor of steel and specialty
metal, including copper, brass, and aluminum. Principal customers include
manufacturers of consumer durable goods and the household appliance and
automotive industries. Fullerton has about 150 employees. Craig R. Doveala,
President of Steel Service Systems and a director of the Company, also serves as
the Chief Executive Officer of Fullerton.

HARVEY TITANIUM, LTD.

Harvey Titanium, Ltd. ("Harvey"), headquartered in Santa Monica,
California, was founded in 1978 by Barry Harvey and operates on a global basis
through its international sales office in the United Kingdom and through agents
around the world. Harvey is a value-added metal service center supplying
primarily custom orders of titanium products, as well as nickel-based alloys,
vacuum melted stainless steels and other exotic alloys. Harvey's customers are
primarily in the aerospace industry; however, Harvey also serves customers in
the recreation, petrochemical and biomedical industries. Harvey has about 50
employees. Barry Harvey, the President and Chief Executive Officer of Harvey,
has been employed by Harvey for 19 years and has signed an employment agreement
with Harvey to continue in that capacity.

INDEPENDENT METALS CO., INC.

Independent Metals Co., Inc. ("Independent"), headquartered in
Germantown, Wisconsin, was founded in 1982 by Barry Quinnies and operates
primarily in the upper midwest and southeastern regions of the United States.
Independent operates service centers in Germantown, Wisconsin; Broadview,
Illinois; Minneapolis, Minnesota and Orlando, Florida and is a processor and
distributor of flat rolled stainless steel, aluminum, brass and copper.
Independent sells its products to the industrial machine, transportation, food
processing and electronics manufacturing industries. Independent has about 160
employees. Barry Quinnies, the Chairman and Chief Executive Officer of
Independent, has been employed by Independent for 16 years and has signed an
employment agreement with Independent to continue in that capacity.

INDUSTRIAL METALS, INC.

Industrial Metals Incorporated ("Industrial"), headquartered in Mokena,
Illinois, was founded in 1978 by David Hall, Jr. and operates primarily in the
midwest market area. Industrial is a distributor of stainless steel, aluminum,
and copper based alloys. Industrial has 19 employees. Industrial will operate as
a

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subsidiary of Independent. David Hall, Jr., President of Industrial, has signed
an employment agreement with Industrial to continue in that same capacity.

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 has about 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 an employment agreement with Interstate to continue in
those capacities and is the Vice-Chairman of the Board of the Company.

JEFFREYS STEEL COMPANY, INC.

Jeffreys Steel Company, Inc. ("Jeffreys"), headquartered in Mobile,
Alabama, was founded in 1966 by Leon Jeffreys. Jeffreys operates steel service
centers in the south and southeastern United States. These service center
operations include locations in Mobile, Muscle Shoals and Attalla, Alabama;
Columbus, Mississippi; Kenner, Louisiana; Jacksonville, Lakeland and Fort
Lauderdale, Florida and Oakwood, Georgia. Jeffreys is a value-added
processor/service center specializing in steel plate and structural components
and provides products and services to the marine (including new ship
construction and repair), offshore oil and gas, construction and fabrication,
transportation pulp and paper and chemical industries. Jeffreys Steel has about
450 employees. Toby Jeffreys, the President of Jeffreys, has been employed by
Jeffreys for 23 years, and has signed an employment agreement with Jeffreys to
continue in that capacity. Leon Jeffreys, the Chairman of the Board of Jeffreys,
has signed an employment agreement with Jeffreys to continue in that capacity,
and serves as a director of the Company.

KROHN STEEL SERVICE CENTER, INC.

Krohn Steel Service Center, Inc. ("Krohn"), headquartered in Springfield,
Ohio, was founded in 1969 by Roger L. Krohn and operates primarily in the
midwestern and mid-atlantic regions of the United States. Krohn is a value-added
processor of flat rolled steel providing products and services primarily in the
equipment manufacturing and durable consumer goods industries. Roger S. Krohn,
the President and Chief Executive Officer of Krohn, has been employed by Krohn
for 19 years and has signed an employment agreement with Krohn to continue in
that capacity.

THE LEVINSON STEEL COMPANY

The Levinson Steel Company ("Levinson"), founded in 1902, is a
Pittsburgh-based distributor and processor of plate and other structural
products, including high strength beams. Levinson has additional locations in
Ambridge and York, Pennsylvania; Camden, New Jersey; Seekonk, Massachusetts and
Greenville, Kentucky. Levinson's facilities are a good geographic fit with
Metals USA's Interstate subsidiary and will complement the Jeffreys and
Queensboro operations as well. Levinson has about 165 employees. William
Bennett, the President and CEO of Levinson, has been employed by Levinson for
seven years and has signed an employment agreement to continue in that capacity.

MEIER METAL SERVICENTERS, INC.

Meier Metal Servicenters, Inc. ("Meier"), headquartered in Hazel Park,
Michigan, was founded in 1945 by Louis F. Meier and operates primarily in the
upper midwest and southeastern regions of the United States. Meier operates
service centers in Hazel Park and Grand Rapids, Michigan; Chicago, Illinois;
Dayton and Cleveland, Ohio and Greensboro, North Carolina and is a value-added
processor and distributor of nonferrous metals, including aluminum, brass,
copper, bronze and stainless steel. Meier sells its products to customers in the
tool and die, screw machine products, industrial machinery, transportation and
aerospace industries. Meier has about 115 employees. Lawrence Sauers, recently
appointed President and Chief Operating Officer of Meier, has been employed by
Meier for 36 years and has signed an employment agreement with Meier to continue
in that capacity.

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METALMART, INC. AND MARK METALS, INC.

Metalmart, Inc. ("Metalmart"), founded in 1974, is headquartered in
Carlsbad, California and has a large manufacturing plant in Whittier,
California. Metalmart has exclusive distribution of magnesium bar stock in the
western United States and access to sources for hard-to-find metal alloys.
Metalmart and Mark Metals, Inc. ("Mark Metals") have about 37 employees.
Randall Biggs, the Chief Executive Officer of Metalmart and Mark Metals, has
been employed by Metalmart for 23 years and has signed an employment agreement
with Metalmart to continue in that capacity.

NATIONAL MANUFACTURING, INC.

National Manufacturing, Inc. ("National"), headquartered in North Kansas
City, Missouri was founded in 1943 and manufacturers and distributes a variety
of aluminum products, including windows, storm doors and sidings. National has
about 41 employees. Ramon Coleman, the Chief Operating Officer of National, has
been employed by National for ten years and has signed an employment agreement
with National to continue in that capacity.

PACIFIC METAL COMPANY

Pacific Metal Company ("Pacific"), is headquartered in Portland, Oregon,
was founded in 1876 by Fredrick K. Morrow and operates in Seattle and Spokane,
Washington; Medford and Eugene, Oregon; Boise, Idaho; and Billings, Montana.
Pacific is a value-added metals processor of flat rolled common alloy aluminum
and steel; other products include sheet, bar and rod in a variety of dimensions
and alloys of brass, copper, stainless and galvanized steel. Pacific provides a
number of products and services primarily to the transportation, consumer
durables, electrical and telecommunications equipment and other manufacturing
industries. Pacific has about 160 employees. Don Peck, the Chairman and Chief
Executive Officer of Pacific, has been employed by Pacific for 41 years and has
signed an employment agreement with Pacific to continue in that capacity.

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 has about 200
employees. Mark Alper, the President of Queensboro, has been employed by
Queensboro for 26 years, has signed an employment agreement with Queensboro to
continue in that capacity and is the Vice President Development and a director
of the Company.

R. J. FABRICATING INC.

R. J. Fabricating Inc. ("RJ Fabricating"), headquartered in Milwaukee,
Wisconsin, is a processor of steel products using laser burning,
computer-controlled ("CNC") punching and general fabrication. RJ Fabricating
has about 21 employees. Lester G. Peterson, the President of Williams and a
director of the Company, also serves as the President of RJ Fabricating.

ROYAL ALUMINUM, INC.

Royal Aluminum, Inc. ("Royal"), is headquartered in Leesburg, Florida and
is the successor to a business founded in 1965. Royal manufactures and
distributes aluminum building products through its manufacturing facility in
Leesburg, Florida, and sells its products through five distribution centers
located primarily in the southeastern United States. Royal has about 85
employees. Allen Applebee, the President and Chief Operating Officer of Royal,
has been employed by Royal for 29 years and has signed an employment agreement
with Royal to continue in that capacity.

SEABOARD STEEL AND IRON CORPORATION

Interstate acquired the assets of Seaboard Steel and Iron Corporation
("Seaboard") in January 1998. Seaboard was a Baltimore-based full-line steel
service center with a diverse inventory of heavy carbon

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structural products. Seaboard has been integrated with Interstate and had ten
employees who are now employed by Interstate.

SIERRA PACIFIC STEEL, INC.

Sierra Pacific Steel, Inc. ("Sierra") headquartered in Haywood,
California, was founded in 1957. Sierra is a distributor and processor of steel
pipe, plate, structural tubing, and other steel products to customers in the
Pacific northwest, Arizona and Utah. Sierra has about 34 employees. Joseph I.
Epstein, President of Sierra, has signed an employment agreement with Sierra to
continue in that capacity.

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 has
about 30 employees. William B. Edge, the President of Southern Alloy, has been
employed by Southern Alloy for 16 years, has signed an employment agreement with
Southern Alloy to continue in that capacity and is a Senior Vice President and
director of the Company.

STEEL MANUFACTURING AND WAREHOUSE COMPANY

Steel Manufacturing and Warehouse Company ("Steel Manufacturing"),
headquartered in Kansas City, Missouri, was founded in 1921 and operates
primarily in the midwestern region of the United States. Steel Manufacturing is
a value-added processor of structural and flat rolled steel providing products
and services primarily in the fabrication, heating and air conditioning
equipment and construction industries. Charles H. Donnelly, Jr., the President
and Chief Executive Officer of Steel Manufacturing, has been employed by Steel
Manufacturing for 26 years and has signed an employment agreement with Steel
Manufacturing to continue in that capacity.

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 has about
75 employees. Craig R. Doveala, the President of Service Systems, has been
employed by Service Systems since its founding, has signed an employment
agreement with Service Systems to continue in that capacity and is a director of
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 were 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 has about
275 employees. Michael E. Christopher has been employed by Texas Aluminum for
ten years, has signed an employment agreement with Texas Aluminum/Cornerstone as
President of Texas Aluminum/Cornerstone and is a Senior Vice President and 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,

36
<PAGE>
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 has about 130 employees. Richard A. Singer, the Chief Executive
Officer of Uni-Steel, has been employed by Uni-Steel for 32 years, has signed an
employment agreement with Uni-Steel to continue in such capacity and is a Senior
Vice President and a director of the Company.

WAYNE STEEL, INC.

Wayne Steel, Inc. ("Wayne"), headquartered in Wooster, Ohio, was founded
in 1921 by Meyer Shapiro and operates in Randleman, North Carolina, and opened a
newly-constructed processing facility in Jeffersonville, Indiana in January
1998. Wayne is a value-added metals processor of flat rolled steel providing
products and services primarily in the transportation, electrical and
telecommunications equipment manufacturing industries. Wayne has about 220
employees. Tom Shapiro, the President and Chief Executive Officer of Wayne, has
been employed by Wayne for 25 years and has signed an employment agreement with
Wayne to continue in that capacity.

WESTERN AWNING COMPANY, INC.

Western Awning Company, Inc. ("Western") was founded in 1982 and is
headquartered in Pacific, Washington. Western processes and distributes a
variety of aluminum products. Western currently has 12 employees. Neal Sorenson,
the President of Western, has been employed by Western for 20 years and has
signed an employment agreement with Western to continue in that capacity.

WILKOF-MORRIS STEEL CORPORATION

Wilkof-Morris Steel Corporation ("Wilkof"), headquartered in Canton,
Ohio, was founded in 1931 by Morris Wilkof and operates primarily in the
midwestern region of the United States. Wilkof is a value-added processor of
heavy steel plate providing products and services primarily in the
transportation, industrial fabrication and equipment manufacturing industries.
Todd C. Wilkof, the President and Chief Executive Officer of Wilkof, has been
employed by Wilkof for 20 years and has signed an employment agreement with
Wilkof to continue in that capacity.

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, OEMs and
fabricators. Williams has about 80 employees. Lester G. Peterson, the President
of Williams, has been employed by Williams for 27 years, has signed an
employment agreement with Williams to continue in that capacity and is a
director of the Company.

FACILITIES

The Company operates a number of metals processing facilities that are used
to receive, warehouse, process and ship metals. These facilities utilize various
metals processing and materials handling machinery and equipment. These service
center facilities are as follows:

<TABLE>
<CAPTION>
SQUARE OWNED/
LOCATION FOOTAGE LEASED
--------------------------------- --------- --------
<S> <C>
Affiliated........................... Granite City, Illinois 300,000 Leased
Butler, Indiana 200,000 Owned
Concord.............................. Walker, Michigan 50,000 Leased
Faitoute............................. Newark, New Jersey 100,000 Leased
Federal Bronze....................... Newark, New Jersey 41,000 Leased
Fullerton............................ Northbrook, Illinois 182,000 Owned
Minneapolis, Minnesota 20,000 Owned
Harvey............................... Santa Monica, California 50,000 Leased

</TABLE>
(TABLE CONTINUED ON FOLLOWING PAGE)

37
<PAGE>
<TABLE>
<CAPTION>
SQUARE OWNED/
LOCATION FOOTAGE LEASED
--------------------------------- --------- --------
<S> <C>
Independent.......................... Germantown, Wisconsin 90,000 Owned
New Hope, Minnesota 19,000 Leased
Broadview, Illinois 61,000 Leased
Orlando, Florida 23,000 Leased
Industrial........................... Molena, Illinois 21,000 Leased
Interstate........................... Philadelphia, Pennsylvania 70,000 Leased
Philadelphia, Pennsylvania 120,000 Leased
Baltimore, Maryland 65,000 Leased
Ambridge, Pennsylvania 133,000 Leased
Jeffreys............................. Mobile, Alabama 214,000 Owned
Muscle Shoals, Alabama 104,000 Owned
Attalla, Alabama 53,000 Owned
Columbus, Mississippi 45,000 Owned
Kenner, Louisiana 61,000 Owned
Oakwood, Georgia 206,000 Owned
Jacksonville, Florida 60,000 Owned
Lakeland, Florida 120,000 Owned
Fort Lauderdale, Florida 27,000 Leased
Krohn................................ Springfield, Ohio 60,000 Owned
Levinson............................. Ambridge, Pennsylvania 130,000 Leased
Camden, New Jersey 104,000 Leased
Greenville, Kentucky 33,000 Owned
Seekonk, Massachusetts 115,000 Owned
York, Pennsylvania 109,000 Leased
Meier................................ Hazel Park, Michigan 73,000 Owned
Broadview, Illinois 21,000 Owned
Moraine, Ohio 21,000 Owned
Greensboro, North Carolina 52,000 Leased
Kentwood, Michigan 12,000 Leased
Cleveland, Ohio 12,000 Leased
Metalmart and Mark Metals............ Whittier, California 42,000 Leased
National............................. Kansas City, Missouri 58,000 Leased
Pacific.............................. Billings, Montana 10,000 Leased
Boise, Idaho 26,000 Leased
Eugene, Oregon 33,000 Owned
Medford, Oregon 14,000 Owned
Portland, Oregon 111,000 Leased
Spokane, Washington 49,000 Owned
Tukwila, Washington 80,000 Owned
Queensboro........................... Wilmington, North Carolina 178,000 Leased
Wilmington, North Carolina* 45,000 Owned
Greensboro, North Carolina* 115,000 Owned
Chesapeake, Virginia 62,000 Leased
RJ Fabricating....................... Milwaukee, Wisconsin 31,000 Leased
Royal................................ Leesburg, Florida 69,000 Owned
Leesburg, Florida 76,000 Leased
Irmo, South Carolina 38,000 Leased
Southern Alloy....................... Salisbury, North Carolina 24,000 Leased
Service Systems...................... Horicon, Wisconsin* 103,000 Leased
Sierra Pacific....................... Haywood, California 64,500 Leased
Steel Manufacturing.................. Kansas City, Missouri 120,000 Leased
</TABLE>

(TABLE CONTINUED ON FOLLOWING PAGE)

38
<PAGE>

<TABLE>
<CAPTION>
SQUARE OWNED/
LOCATION FOOTAGE LEASED
--------------------------------- --------- --------
<S> <C>
Texas Aluminum/Cornerstone........... Houston, Texas 165,000 Owned
Houston, Texas 220,000 Leased
Las Vegas, Nevada 42,000 Leased
Ontario, California 11,000 Leased
Tempe, Arizona 24,000 Leased
Rancho Cordova, California 24,000 Leased
Uni-Steel............................ Enid, Oklahoma 112,000 Leased
Muskogee, Oklahoma 134,000 Leased
Wayne................................ Wooster, Ohio* 140,000 Owned
Randleman, North Carolina* 110,000 Owned
Jeffersonville, Indiana* 90,000 Owned
Western.............................. Pacific, Washington 24,000 Leased
Wilkof............................... Canton, Ohio 100,000 Leased
Williams............................. Milwaukee, Wisconsin 137,000 Leased

- ------------
</TABLE>

* These facilities are subject to liens with respect to certain debt agreements.

In addition to the service center facilities listed above, the Company's
aluminum building products division also operates 37 sales and distribution
centers throughout the western, southwestern and southeastern United States.
These facilities, which are all leased, range in size from 4,800 square feet to
50,000 square feet. Many of the Company's facilities are capable of being
utilized at higher capacities, if necessary. The Company is planning to expand
two of its existing facilities over the next 12 months. The Company believes
that its facilities after the planned expansions will be adequate for the
expected needs of its existing businesses over the next several years.

39
<PAGE>
MANAGEMENT

DIRECTORS AND EXECUTIVE OFFICERS

The following table sets forth information concerning the Company's
directors and executive officers.

<TABLE>
<CAPTION>
NAME AGE POSITION
- -------------------------------------------- ---- -------------------------------------
<S> <C>
Arthur L. French............................ 58 Chairman of the Board, Chief
Executive Officer and President
Arnold W. Bradburd.......................... 74 Vice-Chairman of the Board, Chairman
and Chief Executive Officer of
Interstate
J. Michael Kirksey.......................... 43 Senior Vice President, Chief
Financial Officer and Director
Stephen R. Baur............................. 33 Senior Vice President and Chief
Development Officer
John A. Hageman............................. 44 Senior Vice President, General
Counsel and Secretary
Terry L. Freeman............................ 48 Vice President, Corporate Controller
and Chief Accounting Officer
Keith E. St. Clair.......................... 41 Vice President and Treasurer
W. Keith Stubbs, Jr......................... 31 Vice President--Corporate Development
Mark Alper.................................. 54 Vice President -- Development,
President of Queensboro, Director
Michael E. Christopher...................... 38 Senior Vice President, President of
Texas Aluminum/Cornerstone, Director
Craig R. Doveala............................ 47 President of Service Systems,
Director
William B. Edge............................. 39 Senior Vice President, President of
Southern Alloy, Director
Patrick A. Notestine........................ 51 President of Affiliated, Director
Lester G. Peterson.......................... 57 President of Williams, Director
Tom Shapiro................................. 47 Senior Vice President, President of
Wayne, Director
Richard A. Singer........................... 53 Senior Vice President, Chief
Executive Officer of
Uni-Steel, Director
A. Leon Jeffreys............................ 69 Director
Steven S. Harter............................ 36 Director
Tommy E. Knight............................. 59 Director
Richard H. Kristinik........................ 59 Director
T. William Porter........................... 57 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. Mr. French is
also a director of Innovative Valve Technologies, Inc., whose shares are listed
on the NASDAQ.

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

40
<PAGE>
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.

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 Senior 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 a
law firm in Wichita, Kansas.

Terry L. Freeman has served as Vice President and Corporate Controller of
the Company since April 1997 and was appointed the Company's Chief Accounting
Officer on May 20, 1998. 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.

W. Keith Stubbs, Jr. has served as Vice President -- Corporate Development
since his appointment on May 20, 1998, and has been an employee of the Company
since July 1997. From 1993 to 1997, he was employed by J.B. Poindexter & Co.,
Inc. serving as Manager, Business Development from August 1994 to June 1997.
From 1989 through 1993, Mr. Stubbs was a certified public accountant with KPMG
Peat Marwick.

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 Senior Vice President and 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.

A. Leon Jeffreys is the founder and has served as the Chairman of the Board
of Directors of Jeffreys since inception. Mr. Jeffreys was elected to the
Company's Board on October 21, 1997.

41
<PAGE>

Tom Shapiro is a Senior Vice President and a director of the Company,
elected to the Company's Board on May 20, 1998. He has been President of Wayne
since 1985.

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., Comfort-Systems USA, Inc.
and HomeUSA, 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.

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 1999, 2000 and 2001,
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 Acquisition Committee, Audit
Committee, Compensation Committee, Nominating Committee and 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.

42
<PAGE>
COMPENSATION OF EXECUTIVE OFFICERS

The following table provides certain summary information concerning
compensation earned by the Company's Chief Executive Officer and each of the
four other most highly compensated executive officers (the "Named Executive
Officers") during the year ended December 31, 1997.
<TABLE>
<CAPTION>

LONG-TERM COMPENSATION
ANNUAL COMPENSATION -------------------------
------------------- OTHER ANNUAL RESTRICTED NUMBER OF ALL OTHER
SALARY BONUS COMPENSATION STOCK AWARDS OPTIONS COMPENSATION
NAME AND PRINCIPAL POSITION YEAR ($)(1) ($) ($) ($) GRANTED ($)
- ---------------------------------------- ----- ------- ------ ------------ ------------ --------- ------------
<S> <C> <C> <C> <C> <C>
Arthur L. French........................ 1997 75,000 50,000 -- -- 200,000 1,465
Chief Executive Officer
Michael E. Christopher.................. 1997 77,884 -- -- -- -- --
Senior Vice President
William B. Edge......................... 1997 79,448 -- -- -- -- --
Senior Vice President
J. Michael Kirksey...................... 1997 75,000 40,000 -- -- 100,000 266
Senior Vice President and
Chief Financial Officer
Richard A. Singer....................... 1997 75,000 -- -- -- -- 470
Senior Vice President
</TABLE>
- ------------

(1) Reflects the compensation from July 1, 1997 through December 31, 1997 at the
rate stated in their respective employment agreements. Messrs. Christopher
and Edge are paid bi-weekly and Messrs. French, Kirksey and Singer are paid
semi-monthly.

STOCK OPTIONS

The following table reflects certain information regarding stock options
granted to the Named Executive Officers during 1997.

OPTION GRANTS IN 1997
<TABLE>
<CAPTION>

INDIVIDUAL GRANTS
NUMBER OF -------------------------------------------
SECURITIES PERCENT OF TOTAL PRESENT
UNDERLYING OPTIONS GRANTED VALUE AT
OPTIONS TO EXERCISE EXPIRATION GRANT
NAME GRANTED EMPLOYEES IN 1997 PRICE DATE DATE(1)
- ---------------------------------------- ---------- ----------------- -------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Arthur L. French........................ 200,000 6% $ 10 07/11/07 $1,260,000
Michael E. Christopher.................. -- -- -- -- --
William B. Edge......................... -- -- -- -- --
J. Michael Kirksey...................... 100,000 3% $ 10 07/11/07 630,000
Richard A. Singer....................... -- -- -- -- --

- ------------
</TABLE>

(1) Computed using the Black-Scholes model, with the following assumptions:
Expected price volatility -- 43.3%, risk free rate of return -- 6.18%,
Expected dividend yield --0%, and the Expected life of the option was 7.5
years.

43
<PAGE>
The following table reflects certain information concerning the number of
unexercised options held by the Named Executive Officers and the value of such
officers' unexercised options as of December 31, 1997. No options were exercised
by the Named Executive Officers during the year ended December 31, 1997.

YEAR END 1997 OPTION VALUES
<TABLE>
<CAPTION>

NUMBER OF VALUE OF UNEXERCISED
UNEXERCISED OPTIONS "IN-THE-MONEY" OPTIONS
AT DECEMBER 31, 1997 AT DECEMBER 31, 1997(1)
----------------------------- -----------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---------------------------------------- ----------- ------------- ----------- -------------
<S> <C> <C>
Arthur L. French........................ -- 200,000 -- $ 1,050,000
Michael E. Christopher.................. -- -- -- --
William B. Edge......................... -- -- -- --
J. Michael Kirksey...................... -- 100,000 -- 525,000
Richard A. Singer....................... -- -- -- --
</TABLE>

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

(1) Options are "in-the-money" if the closing market price of the Company's
Common Stock exceeds the exercise price of the options. The exercise price
of the options granted to Messrs. French and Kirksey is $10.00 per share.
The value of unexercised options for each of the Named Executive Officers
represents the difference between the exercise price of such options and the
closing price of the Company's Common Stock on December 31, 1997 ($15.25 per
share).

DIRECTORS COMPENSATION

Directors who are also employees of the Company or one of its subsidiaries
do not receive additional compensation for serving as directors. Each director
who is not an employee of the Company or one of its subsidiaries receives 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 is 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.

EMPLOYMENT AGREEMENTS; COVENANTS-NOT-TO-COMPETE

Each of Messrs. French and Kirksey have entered into an employment
agreement with the Company providing for an annual base salary of $150,000. The
employment agreements for Messrs. French and Kirksey are 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 his then-current salary for the remainder of the term or one year, whichever
is greater, payable 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 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

44
<PAGE>
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, Jeffreys,
Notestine, Peterson, Singer and Shapiro have entered into an employment
agreement with one of the Company's subsidiaries 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 respective 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 respective
company without cause during the first five years of the employment term (the
"Initial Term"), the employee will be entitled to receive from the respective
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 administers the Plan and selects the individuals
who receive awards and establishes 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 13%
of the aggregate number of shares of Common Stock outstanding. Metals USA
granted NQSOs to purchase a total of 705,000 shares of Common Stock to key
employees of Metals USA at the initial public offering price upon consummation
of the IPO. In addition, Metals USA granted NQSOs 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. Subsequent to the IPO, the
Company has granted NQSOs to purchase a total of 1,427,254 shares of Common
Stock at prices which vary between $6.810 and $19.8125 a share. These options
will vest at the rate of 20% per year, commencing on the first anniversary of
the IPO or date of grant and will expire ten years from the date of grant or
three months following termination of employment. 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.

45
<PAGE>
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.

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 of an option to purchase 10,000 shares upon such
person's initial election as a director, and (ii) 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.

46
<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 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. Subsequent to the IPO, Notre distributed its shares to its
owners.

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 became
directors of the Company upon consummation of the IPO. The Company also granted
options to purchase 10,000 shares of Common Stock under the Directors' Plan,
effective upon the consummation of the IPO to Messrs. Knight, Kristinik, Porter
and Harter, who are directors of the Company.

The aggregate consideration paid by Metals USA for the Acquired Companies
consists of approximately $134.5 million in cash, 25,604,953 shares of Common
Stock, plus the assumption of $212.3 million of indebtedness. The consideration
paid by Metals USA for each of the Acquired Companies was determined by
negotiation between representatives of each Acquired Company and was based
primarily upon the pro forma adjusted net income of each Acquired Company.

Pursuant to the agreements that were entered into in connection with the
Acquisitions, the principal stockholders of the Acquired Companies have agreed
not to compete with the Company for five years, effective on the respective
dates of acquisition.

LEASES OF REAL PROPERTY BY ACQUIRED 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 leases 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

47
<PAGE>
provides for an annual rental of $420,000. The rental rate will be adjusted
every three years in accordance 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 $458,950. 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.

Jeffreys has a lease agreement for the use of executive aircraft with
J-Air, Inc., an entity controlled by Mr. Toby Jeffreys, President and Chief
Executive Officer of Jeffreys. The lease calls for minimum rental payments
during 1998 of $256,000. Any time used beyond the stated minimums is billed at
actual cost. The lease terminates in December 1998.

OTHER TRANSACTIONS

On or about July 11, 1997, 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 July
11, 1997.

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

48
<PAGE>
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 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 the organizer
of Metals USA prior to July 11, 1997.

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.

49
<PAGE>
PRINCIPAL STOCKHOLDERS

The following table sets forth information regarding the beneficial
ownership of the Common Stock, as of June 8, 1998, 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.

<TABLE>
<CAPTION>
SHARES SHARES
BENEFICIALLY OWNED BENEFICIALLY OWNED
PRIOR TO OFFERING AFTER OFFERING
----------------------- -----------------------
NUMBER PERCENT NUMBER PERCENT
------------ ------- ------------ -------
<S> <C> <C> <C> <C> <C>
Toby L. Jeffreys(1).................. 2,672,075 7.6% 2,472,075 7.0%
Thomas J. Shapiro(2)................. 2,234,607 6.3% 2,234,607 6.3%
Arnold W. Bradburd................... 1,776,032 5.0% 1,776,032 5.0%
A. Leon Jeffreys(1).................. 1,336,203 3.9% 1,266,203 3.6%
Steven S. Harter(3)(4)............... 1,021,048 2.9% 1,021,048 2.9%
Michael E. Christopher............... 648,837 1.8% 648,837 1.8%
Richard A. Singer.................... 483,380 1.4% 483,380 1.4%
Lester G. Peterson................... 477,544 1.4% 477,544 1.4%
Patrick A. Notestine................. 398,703 1.1% 398.703 1.1%
Craig R. Doveala..................... 334,497 * 334,497 *
Mark Alper........................... 289,635 * 289,635 *
Arthur L. French..................... 225,100 * 225,100 *
J. Michael Kirksey(5)................ 120,000 * 118,000 *
Steven R. Baur(6).................... 120,000 * 120,000 *
William B. Edge...................... 116,997 * 116,997 *
John A. Hageman(7)................... 75,000 * 75,000 *
Keith E. St. Clair(8)................ 60,000 * 60,000 *
Terry L. Freeman..................... 60,000 * 60,000 *
Richard H. Kristinik(3).............. 30,000 * 30,000 *
T. William Porter(3)................. 25,000 * 25,000 *
Tommy E. Knight(3)................... 20,000 * 20,000 *
------------ ------------
All Executive officers and directors
as a group (21 persons)(9)......... 11,329,963 32.0% 11,127,963 31.4%
============ ============
</TABLE>

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

* Less than 1%

(1) Includes 1,184,695 shares of Common Stock (before the sale) held by Jeffreys
Family Partnership, of which Mr. Toby Jeffreys and Mr. Leon Jeffreys are
both general partners. Reflects 1,084,695 shares following the sale.

(2) Includes 252,204 shares of Common Stock held by various trusts for which Mr.
Shapiro is a Co-Trustee.

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

(4) Includes 1,011,048 shares of Restricted Common Stock held by Harter Venture
Partners, Ltd., of which Mr. Harter is a general partner. Mr. Harter
disclaims beneficial ownership of 178,420 shares held in trust for his minor
children and of which neither he nor his wife is a trustee.

(5) Includes 12,000 shares of Common Stock (before the sale) held by Mr.
Kirksey's minor children and of which he is custodian. Reflects 10,000
shares following the sale.

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

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

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

(9) This amount has been adjusted to eliminate any duplication of beneficial
ownership attributable to the shares owned by the Jeffreys Family
Partnership and the shares of Common Stock issuable under the Directors
Plan, referred to in footnote 3 above.

50
<PAGE>
SELLING STOCKHOLDERS

The following table sets forth information regarding the beneficial
ownership of the Common Stock, as of June 8, 1998, by each of the Selling
Stockholders. All persons listed have sole voting and investment power with
respect to their shares unless otherwise indicated.

<TABLE>
<CAPTION>
SHARES SHARES
BENEFICIALLY OWNED SHARES BENEFICIALLY OWNED
PRIOR TO SALE SOLD AFTER SALE
----------------------- --------- -----------------------
NUMBER PERCENT NUMBER(1) NUMBER PERCENT
------------ ------- --------- ------------ -------
<S> <C> <C> <C> <C> <C> <C>
Toby L. Jeffreys(2).................. 2,672,075 7.6% 200,000 2,472,075 7.0%
Jeffreys Family Limited
Partnership........................ 1,184,695 3.4% 100,000 1,084,695 3.1%
Jeffreys Steel Company ESOP.......... 1,170,000 3.3% 75,000 1,095,000 3.1%
Ronald L. Stanfa..................... 540,000 1.5% 30,000 510,000 1.4%
Robert N. Yaffe...................... 434,583 1.2% 300,000 134,583 *
CFB Venture Fund I Inc............... 351,647 1.0% 351,647 -- *
Michael and Jackie Alper............. 264,635 * 20,000 244,635 *
Steven N. Alper...................... 264,635 * 20,000 244,635 *
Barbara Alper Behar.................. 264,635 * 20,000 244,635 *
Marilyn Alper Laufer................. 264,635 * 15,000 249,635 *
Francis X. Pischel................... 232,123 * 110,000 122,123 *
Yaffe Iron & Metal Co. ESOP.......... 178,523 * 178,523 -- *
William W. Hudson Trust.............. 160,940 * 20,000 140,940 *
Ferrell H. Russell................... 85,112 * 20,000 65,112 *
David R. Riley....................... 70,000 * 16,732 53,268 *
William A. Sarle..................... 70,000 * 16,732 53,268 *
Don Everett.......................... 70,000 * 20,000 50,000 *
James C. Elkins...................... 61,819 * 1,000 60,819 *
Alan B. Osofsky...................... 38,124 * 12,500 25,624 *
William J. Lynch..................... 30,499 * 15,000 15,499 *
Cape Fear Community Foundation....... 25,000 * 25,000 -- *
Andrew Yaffe......................... 15,000 * 15,000 -- *
Brandy Ann O'Brian................... 15,000 * 10,000 5,000 *
Tricia M. Stanfa..................... 12,035 * 4,000 8,035 *
J. Michael Kirksey as custodian for
his two minor children............. 12,000 * 2,000 10,000 *
Laura F. Smith....................... 10,000 * 4,000 6,000 *
Cindy Barrientes..................... 2,500 * 1,250 1,250 *
------------ --------- ------------
Total(3)................... 7,315,520 20.7% 1,503,384 5,812,136 16.4%
============ ========= ============
</TABLE>

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

* Less than 1%

(1) Represents the number of shares of Common Stock being offered for sale at
various prices. The total number of shares being offered for sale under this
registration statement aggregates approximately 1,503,384.

(2) Includes 1,184,695 shares of Common Stock (before the proposed sale) held by
Jeffreys Family Partnership, of which Mr. Toby Jeffreys is a general
partner. Reflects 1,084,695 shares following the sale.

(3) This amount has been adjusted to eliminate any duplication of beneficial
ownership attributable to the shares owned by the Jeffreys Family
Partnership.

51
<PAGE>
DESCRIPTION OF CAPITAL STOCK

GENERAL

The authorized capital stock of the Company consists of 203,122,914 shares
of capital stock, consisting of 200,000,000 shares of Common Stock, 3,122,914
shares of Restricted Common Stock and 5,000,000 shares of Preferred Stock
("Preferred Stock"). At June 8, 1998, the Company had outstanding 37,143,367
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 Company's Restated Certificate of Incorporation,
copies of which are available from the Company upon request.

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. The Board of Directors
is classified into three classes, 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.

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

52
<PAGE>
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.

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 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.

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<PAGE>
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.

SHARES ELIGIBLE FOR FUTURE SALE

The Company has outstanding 37,143,367 shares of Common Stock, of which
19,741,145 shares 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 350,000 shares, which does not reflect the issuance of the shares
contemplated by this registration statement) 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.

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 July 11, 1997. 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 July 11, 1999. In connection with the foregoing, certain
of the stockholders are offering up to 1,503,384 shares of Common Stock pursuant
to this registration statement " -- See Selling Stockholders."

On April 20, 1998 the Company registered 10,000,000 shares of its Common
Stock under the Securities Act for use by the Company in connection with future
acquisitions. These shares are generally freely tradeable when issued, unless
acquired by persons who become affiliates of the Company or were affiliates of
the acquired entity prior to the acquisition. 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.

54
<PAGE>
PLAN OF DISTRIBUTION

The Shares will be offered to or through BT Alex. Brown, as Placement
Agent, who may act as agent, or who may acquire Shares as principal. The
distribution of the Shares through BT Alex. Brown may be effected in one or more
transactions that may take place on the New York Stock Exchange, or in over-the-
counter transactions, including block trades or ordinary broker's transactions,
or through privately negotiated transactions or sales to one or more brokers or
dealers for resale of such securities as principals, or otherwise at market
prices prevailing at the time of sale, at prices related to such prevailing
market prices or at negotiated prices. Usual and customary or specifically
negotiated brokerage fees or commissions may be paid by the Selling Stockholders
in connection with such sales. In connection with such sales, the Selling
Stockholders and any participating brokers or dealers may be deemed
"underwriters" as such term is defined in the Securities Act and the
commissions paid or discounts allowed to any of such underwriters, brokers,
dealers or agents, in addition to any profits received on resale of the Shares
if any such underwriters, brokers, dealers or agents should purchase any Shares
as a principal, may be deemed to be underwriting discounts or commissions under
the Securities Act.

The Company has agreed to bear all normal and reasonable costs (other than
costs, fees, discounts or expenses of the Placement Agent) in connection with
the registration of the Shares under the Securities Act estimated to be $70,000
in the aggregate.

The Company has agreed to indemnify the Selling Stockholders and BT Alex.
Brown from certain damages or liabilities arising out of or based upon any
untrue statement of a material fact contained in, or material omission from, the
Registration Statement, except to the extent such untrue statement or omission
was made in the Registration Statement in reliance upon written information
furnished by the Selling Stockholders. BT Alex. Brown may have other business
relationships with the Company and its affiliates in the ordinary course of
business.

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. Partners and employees
of Bracewell & Patterson, L.L.P. own less than one percent of the Common Stock
of the Company.

EXPERTS

The financial statements of Metals USA, Affiliated, Interstate, Jeffreys,
Texas Aluminum/Cornerstone, Queensboro, Uni-Steel, Southern Alloy, Independent
and Levinson 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
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. The
financial statements of Harvey included elsewhere in this Prospectus have been
audited by Klein, Bogakos, and Robertson, CPA's, Inc., independent auditors, 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. The
consolidated financial statements of Pacific included elsewhere in this
Prospectus have been audited by Perkins & Company, P.C., independent auditors,
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. The
consolidated financial statements of Fullerton included elsewhere in this
Prospectus and Registration Statement have been audited by Ernst & Young LLP,
independent auditors, as indicated in

55
<PAGE>
their report with respect thereto, and are included herein in reliance upon the
authority of such firm as experts in accounting and auditing.

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.

<PAGE>
INDEX TO FINANCIAL STATEMENTS

PAGE
-----
METALS USA, INC. UNAUDITED PRO FORMA
Introduction to Unaudited Pro
Forma Financial Statements..... F-2
Unaudited Pro Forma Balance
Sheet.......................... F-3
Unaudited Pro Forma Statement of
Operations for the twelve
months ended
December 31, 1997............. F-4
Unaudited Pro Forma Statement of
Operations for the three months
ended March 31, 1998........... F-5
Notes to Unaudited Pro Forma
Financial Statements........... F-6

METALS USA, INC. AND SUBSIDIARIES
Report of Independent Public
Accountants.................... F-9
Supplemental Consolidated
Balance Sheets................. F-10
Supplemental Consolidated
Statements of Operations....... F-11
Supplemental Consolidated
Statements of Cash Flows....... F-12
Supplemental Consolidated
Statements of Stockholders'
Equity......................... F-13
Notes to Supplemental
Consolidated Financial
Statements..................... F-14

METALS USA, INC. AND
SUBSIDIARIES -- UNAUDITED INTERIM
FINANCIAL STATEMENTS
Supplemental Consolidated
Balance Sheets at March 31,
1998 (Unaudited) and December
31, 1997....................... F-29
Unaudited Supplemental
Consolidated Statements of
Operations for the three months
ended March 31, 1998 and
1997........................... F-30
Unaudited Supplemental
Consolidated Statements of Cash
Flows for the three months
ended March 31, 1998 and
1997........................... F-31
Condensed Notes to Supplemental
Unaudited Consolidated
Financial Statements........... F-32

METALS USA, INC. AND SUBSIDIARIES
Report of Independent Public
Accountants.................... F-39
Consolidated Balance Sheets..... F-40
Consolidated Statements of
Operations..................... F-41
Consolidated Statements of Cash
Flows.......................... F-42
Consolidated Statements of
Stockholders' Equity........... F-43
Notes to Consolidated Financial
Statements..................... F-44

METALS USA, INC. AND
SUBSIDIARIES -- UNAUDITED INTERIM
FINANCIAL STATEMENTS
Consolidated Balance Sheets at
March 31, 1998 (Unaudited) and
December 31, 1997.............. F-59
Unaudited Consolidated
Statements of Operations for
the three months ended March
31, 1998 and 1997.............. F-60
Unaudited Consolidated
Statements of Cash Flows for
the three months ended March
31, 1998 and 1997.............. F-61
Condensed Notes to Unaudited
Consolidated Financial
Statements..................... F-62

TEXAS ALUMINUM INDUSTRIES, INC. AND
AFFILIATES
Report of Independent Public
Accountants.................... F-69
Combined Balance Sheets......... F-70
Combined Statements of Income... F-71
Combined Statements of
Stockholders' Equity and
Members' Equity................ F-72
Combined Statements of Cash
Flows.......................... F-73
Notes to Combined Financial
Statements..................... F-74

F-1
<PAGE>
PAGE
-----
INTERSTATE STEEL SUPPLY CO. AND
AFFILIATES
Report of Independent Public
Accountants.................... F-85
Combined Balance Sheets......... F-86
Combined Statements of Income... F-87
Combined Statements of
Stockholders' Equity and
Partners' Capital.............. F-88
Combined Statements of Cash
Flows.......................... F-89
Notes to Combined Financial
Statements..................... F-90

QUEENSBORO STEEL CORPORATION
Report of Independent Public
Accountants.................... F-94
Independent Auditors' Report.... F-95
Balance Sheets.................. F-96
Statements of Income............ F-97
Statements of Stockholders'
Equity......................... F-98
Statements of Cash Flows........ F-99
Notes to Financial Statements... F-100

AFFILIATED METALS COMPANY
Report of Independent Public
Accountants.................... F-106
Report of Independent
Auditors....................... F-107
Report of Independent
Auditors....................... F-108
Balance Sheets.................. F-109
Statements of Operations........ F-110
Statements of Stockholders'
Equity......................... F-111
Statements of Cash Flows........ F-112
Notes to Financial Statements... F-113

SOUTHERN ALLOY OF AMERICA, INC.
Report of Independent Public
Accountants.................... F-119
Balance Sheets.................. F-120
Statements of Operations........ F-121
Statements of Stockholders'
Equity (Deficit)............... F-122
Statements of Cash Flows........ F-123
Notes to Financial Statements... F-124
UNI-STEEL, INC.
Report of Independent Public
Accountants.................... F-129
Balance Sheet................... F-130
Statements of Income............ F-131
Statements of Stockholders'
Equity......................... F-132
Statements of Cash Flows........ F-133
Notes to Financial Statements... F-134

HARVEY TITANIUM, LTD.
Report of Independent
Auditors....................... F-141
Consolidated Balance Sheets..... F-142
Consolidated Statements of
Operations..................... F-143
Consolidated Statements of
Stockholders' Equity........... F-144
Consolidated Statements of Cash
Flows.......................... F-145
Notes to Consolidated Financial
Statements..................... F-146

F-1(a)
<PAGE>
PAGE
-----
INDEPENDENT METALS CO., INC.
Report of Independent Public
Accountants.................... F-152
Consolidated Balance Sheet...... F-153
Consolidated Statements of
Operations..................... F-154
Consolidated Statements of
Shareholders' Equity
(Deficit)...................... F-155
Consolidated Statements of Cash
Flows.......................... F-156
Notes to Consolidated Financial
Statements..................... F-157

PACIFIC METAL COMPANY AND SUBSIDIARY
Independent Auditors' Report.... F-162
Consolidated Balance Sheets..... F-163
Consolidated Statements of
Income......................... F-164
Consolidated Statements of
Stockholders' Equity........... F-165
Consolidated Statements of Cash
Flows.......................... F-166
Notes to Consolidated Financial
Statements..................... F-167

FULLERTON INDUSTRIES, INC.
Report of Independent
Auditors....................... F-176
Consolidated Balance Sheets..... F-177
Consolidated Statements of
Income......................... F-178
Consolidated Statements of
Stockholders' Equity........... F-179
Consolidated Statements of Cash
Flows.......................... F-180
Notes to Consolidated Financial
Statements..................... F-181

THE LEVINSON STEEL COMPANY
Report of Independent Public
Accountants.................... F-185
Balance Sheets.................. F-186
Statements of Income............ F-187
Statements of Stockholders'
Equity......................... F-188
Statements of Cash Flows........ F-189
Notes to Financial Statements... F-190

F-1(b)
<PAGE>
METALS USA, INC.
UNAUDITED PRO FORMA FINANCIAL STATEMENTS
BASIS OF PRESENTATION

The following unaudited pro forma 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") and the outstanding stock of Federal Bronze, Harvey,
Jeffreys, Meier, Wayne, Royal, RJ Fabricating, Independent, Pacific, Metalmart,
Mark Metals, Western, National, Sierra, Concord, Industrial, Levinson,
Fullerton, Faitoute, Krohn, Steel Manufacturing and Wilkof (together, the
"Subsequent Acquisitions" and together with the Founding Companies, "the
Acquired Companies"). The Founding Companies acquisitions 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 were 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, together
with the Founding Companies acquisitions, is hereinafter referred to as the
"IPO". During the third and fourth quarters of 1997, acquisitions were
completed which included Federal Bronze, Harvey, Jeffreys, Meier, Wayne, Royal
and RJ Fabricating, with all except Jeffreys and Wayne accounted for using the
"purchase" method of accounting. During 1998, through June 8, 1998, Metals USA
completed acquisitions which included Independent, Pacific, Metalmart, Mark
Metals, Western, National, Sierra, Concord, Industrial, Levinson, Fullerton,
Faitoute, Steel Manufacturing and Wilkof, which were all accounted for using the
"purchase" method of accounting. In addition, Metals USA completed the
acquisition of Krohn in May 1998, which was accounted for using the
"pooling-of-interests" method of accounting.

The unaudited pro forma balance sheet gives effect to the acquisitions of
Sierra, Industrial, Fullerton, Faitoute, Steel Manufacturing and Wilkof as if
they had occurred on March 31, 1998. The unaudited pro forma statements of
operations give effect to the IPO, the acquisition of the Founding Companies,
the Subsequent Acquisitions and the issuance of the Notes, as if they had
occurred on January 1, 1997.

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 Acquired 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 statement of operations. In addition, the Company has a five-year
revolving credit facility of $300.0 million (as amended, the "Credit
Facility"). Based on terms of the Credit Facility, the Company believes that
its interest expense will be reduced with respect to borrowings made under
revolving credit loans. This reduction in interest expense has been reflected in
the pro forma statement of operations, offset by increased interest expense with
respect to the $200,000,000 aggregate principal amount of 8 5/8% Series
Subordinated Notes due 2008 (the "Notes"). 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 Acquired 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 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 BALANCE SHEET
MARCH 31, 1998
(IN MILLIONS)
<TABLE>
<CAPTION>
1998
SUPPLEMENTAL PURCHASE PRO FORMA
CONSOLIDATED ACQUISITIONS ADJUSTMENTS PRO FORMA
------------- ------------ ----------- ---------
ASSETS
<S> <C> <C> <C> <C>
Cash................................. $ 11.9 $ 7.3 $-- $ 19.2
Accounts receivable.................. 148.1 27.3 -- 175.4
Inventory............................ 223.3 24.2 4.7 252.2
Prepaid expenses..................... 2.6 .2 -- 2.8
Deferred income taxes................ 2.7 -- -- 2.7
Other................................ 4.3 .4 -- 4.7
------------- ------------ ----------- ---------
Total current assets............ 392.9 59.4 4.7 457.0
Property & equipment, net............ 107.1 8.3 6.7 122.1
Goodwill............................. 156.8 1.4 12.2 170.4
Other................................ 13.4 2.0 -- 15.4
------------- ------------ ----------- ---------
Total assets.................... $ 670.2 $ 71.1 $ 23.6 $ 764.9
============= ============ =========== =========

LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable..................... $ 81.5 $ 20.0 $-- $ 101.5
Accrued expenses..................... 19.0 2.4 -- 21.4
Income tax payable................... 3.4 .5 -- 3.9
Notes payable........................ 5.9 6.5 (6.5) 5.9
Current portion of long-term debt.... 3.9 .5 -- 4.4
------------- ------------ ----------- ---------
Total current liabilities....... 113.7 29.9 (6.5) 137.1
Long-term debt....................... 273.2 16.4 28.5 318.1
Deferred income taxes................ 8.6 .6 -- 9.2
Other................................ 4.9 -- 3.0 7.9
------------- ------------ ----------- ---------
Total liabilities............... 400.4 46.9 25.0 472.3
------------- ------------ ----------- ---------

Stockholders' equity:
Preferred stock.................... -- .8 (.8) --
Common stock....................... .4 1.6 (1.6) .4
Additional paid-in capital......... 223.4 4.1 18.7 246.2
Unearned compensation.............. (1.5) -- -- (1.5)
Retained earnings.................. 47.5 20.8 (20.8) 47.5
Treasury stock..................... -- (3.1) 3.1 --
------------- ------------ ----------- ---------
Total stockholders' equity...... 269.8 24.2 (1.4) 292.6
------------- ------------ ----------- ---------
Total liabilities and stockholders'
equity............................. $ 670.2 $ 71.1 $ 23.6 $ 764.9
============= ============ =========== =========
</TABLE>
See accompanying notes to unaudited pro forma financial statements.

F-3
<PAGE>
METALS USA, INC.
UNAUDITED PRO FORMA STATEMENT OF OPERATIONS
TWELVE MONTHS ENDED DECEMBER 31, 1997
(IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
SUPPLEMENTAL PURCHASE PRO FORMA
CONSOLIDATED ACQUISITIONS ADJUSTMENTS PRO FORMA
------------ ------------ ----------- -----------
<S> <C> <C> <C> <C>
Net sales............................... $537.6 $833.2 $ 1.1 $ 1,371.9
Costs and expenses:
Cost of sales...................... 414.9 640.2 1.4 1,056.5
Operating and delivery............. 53.7 77.1 (1.9) 128.9
Selling, general &
administrative................... 41.1 72.6 (18.9) 94.8
Depreciation and amortization...... 5.6 6.7 3.9 16.2
------------ ------------ ----------- -----------
Operating income........................ 22.3 36.6 16.6 75.5
Interest expense........................ 5.0 10.3 9.5 24.8
Other (income) expense.................. (.5) (2.4) 1.1 (1.8)
------------ ------------ ----------- -----------
Income before income taxes.............. 17.8 28.7 6.0 52.5
Provision for income taxes.............. 10.3 6.3 6.1 22.7
------------ ------------ ----------- -----------
Net income.............................. $ 7.5 $ 22.4 $ (.1) $ 29.8
============ ============ =========== ===========
Earnings per share -- assuming
dilution.............................. $ .80
Shares used in computing pro forma
earnings per share -- assuming
dilution.............................. 37.4
</TABLE>
See accompanying notes to unaudited pro forma financial statements.

F-4
<PAGE>
METALS USA, INC.
UNAUDITED PRO FORMA STATEMENT OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 1998
(IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
SUPPLEMENTAL PURCHASE PRO FORMA
CONSOLIDATED ACQUISITIONS ADJUSTMENTS PRO FORMA
------------ ------------ ----------- ---------
<S> <C> <C> <C> <C>
Net sales............................... $278.5 $100.5 $-- $ 379.0
Costs and expenses:
Cost of sales...................... 214.6 75.7 .2 290.5
Operating and delivery............. 26.0 8.9 (.3) 34.6
Selling, general &
administrative................... 18.1 8.9 (.8) 26.2
Depreciation and amortization...... 3.0 .6 .4 4.0
------------ ------------ ----------- ---------
Operating income........................ 16.8 6.4 .5 23.7
Interest expense........................ 4.8 1.1 1.3 7.2
Other (income) expense.................. (.1) (.6) .2 (.5)
------------ ------------ ----------- ---------
Income before income taxes.............. 12.1 5.9 (1.0) 17.0
Provision for income taxes.............. 4.9 1.3 .7 6.9
------------ ------------ ----------- ---------
Net income.............................. $ 7.2 $ 4.6 $ (1.7) $ 10.1
============ ============ =========== =========
Earnings per share -- assuming
dilution.............................. $ .27
Shares used in computing pro forma
earnings per share -- assuming
dilution.............................. 37.9
</TABLE>
See accompanying notes to unaudited pro forma financial statements.

F-5
<PAGE>
METALS USA, INC.
NOTES TO UNAUDITED PRO FORMA FINANCIAL STATEMENTS
(IN MILLIONS, 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 actively 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, with the Subsequent Acquisitions occurring
from September 26, 1997 through May 20, 1998.

The pro forma statements of operations reflect the supplemental
consolidated results of operations of Metals USA as restated for the effects of
the business combinations with Jeffreys, Wayne and Krohn accounted for using the
"pooling-of-interests" method of accounting ("Supplemental Consolidated"
column). The "Purchase Acquisitions" column reflects the pre-acquisition
results of operations of the companies acquired using the "purchase" method of
accounting.

2. ACQUISITION OF 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.
These acquisitions were accounted for using the purchase method of accounting.
During the third and fourth quarters of 1997, acquisitions were completed which
included Federal Bronze, Harvey, Jeffreys, Meier, Wayne, Royal and RJ
Fabricating, with all except Jeffreys and Wayne being accounted for using the
"purchase" method of accounting. During 1998, through June 8, 1998,
acquisitions were completed which included Independent, Pacific, Metalmart, Mark
Metals, Western, National, Sierra, Concord, Industrial, Levinson, Fullerton,
Faitoute, Steel Manufacturing and Wilkof, which were all accounted for using the
"purchase" method of accounting. In addition, the acquisition of Krohn was
completed in May 1998 and was accounted for using the "pooling-of-interests"
method of accounting.

The aggregate consideration paid by Metals USA for the Acquired Companies
consisted of approximately $134.5 in cash, 25,604,953 shares of Common Stock,
plus the assumption of approximately $212.3 of indebtedness. The consideration
paid by Metals USA for each of the Acquired Companies was determined by
negotiation between representatives of each Acquired Company and was based
primarily upon the pro forma adjusted net income of each Acquired Company.

3. UNAUDITED PRO FORMA BALANCE SHEET ADJUSTMENTS AND OFFERING TRANSACTIONS:

The pro forma adjustments in the unaudited pro forma balance sheet give
effect to the acquisitions completed subsequent to March 31, 1998 comprised of
(i) the issuance of 1,497,329 shares of Common Stock and $22.0 of debt incurred
for the cash portion of the consideration exchanged for the common stock of the
companies acquired, (ii) the estimated excess of purchase price paid over fair
value of assets acquired of $12.2 reflected as additional goodwill, (iii) the
purchase of additional property and equipment for $6.7 and (iv) an adjustment of
$4.7 to increase inventory accounted for utilizing the last-in, first-out method
of accounting to fair value.

F-6
<PAGE>
METALS USA, INC.
NOTES TO UNAUDITED PRO FORMA FINANCIAL STATEMENTS -- (CONTINUED)
(IN MILLIONS, EXCEPT SHARE AMOUNTS)

4. UNAUDITED PRO FORMA STATEMENT OF OPERATIONS ADJUSTMENTS:

FOR THE TWELVE MONTHS ENDED DECEMBER 31, 1997:

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

(b) Reflects the $10.3 reduction in salaries, bonuses and benefits to
the owners of the Acquired Companies to which they have agreed
prospectively and the reversal of the $6.0 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 $.3
charge for recurring salary expenses of management.

(c) Reflects the amortization of goodwill to be recorded as a result
of the IPO and Subsequent Acquisitions 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 $1.5 due to
refinancing of the outstanding indebtedness in conjunction with
the IPO and Subsequent Acquisitions, offset by an assumed increase
in interest expense of $5.5 due to financing the Subsequent
Acquisitions.

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

(f) Reflects a $.7 charge eliminating the gains recorded as historical
LIFO adjustments to cost of sales. These adjustments result from
the restatement of base year LIFO costs to the appropriate
replacement costs as if the acquisitions occurred on January 1,
1997. Other adjustments reflect certain other nonrecurring
expenses with respect to the Subsequent Acquisitions, such as
expenses associated with compensation plans which were terminated
in conjunction with the acquisitions of their respective
companies.

(g) Reflects the incremental interest expense of $4.6 and amortization
of deferred financing costs of $.8 incurred as a result of the
issuance of the Notes and the Credit Facility and the repayment of
outstanding indebtedness of the Company.

(h) 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 statements of operations
adjustments:
<TABLE>
<CAPTION>
(A) (B) (C) (D) (E) (F) (G) (H)
--------- --------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net sales............................ $ -- $ -- $ -- $ -- $ .4 $ .7 $ -- $ --
Costs and expenses:
Cost of sales........................ -- -- -- -- .3 1.1 -- --
Operating and delivery............... (1.5) -- -- -- -- (.4) -- --
Selling, general and
administrative..................... (.2) (16.0) -- -- .1 (2.8) -- --
Depreciation and amortization........ .4 -- 3.4 -- -- .1 -- --
--------- --------- --------- --------- --------- --------- --------- ---------
Income from operations............... 1.3 16.0 (3.4) -- -- 2.7 -- --
Other (income) expense:
Interest (income) expense........ .1 -- -- 4.0 -- -- 5.4 --
Other (income) expense........... .1 -- -- -- -- 1.0 -- --
--------- --------- --------- --------- --------- --------- --------- ---------
Income before income taxes........... 1.1 16.0 (3.4) (4.0) -- 1.7 (5.4) --
Provision for income taxes........... -- -- -- -- -- -- -- 6.1
--------- --------- --------- --------- --------- --------- --------- ---------
Net income........................... $ 1.1 $ 16.0 $ (3.4) $ (4.0) $ -- $ 1.7 $ (5.4) $ (6.1)
========= ========= ========= ========= ========= ========= ========= =========
</TABLE>
PRO FORMA
ADJUSTMENTS
-----------
Net sales............................ $ 1.1
Costs and expenses:
Cost of sales........................ 1.4
Operating and delivery............... (1.9)
Selling, general and
administrative..................... (18.9)
Depreciation and amortization........ 3.9
-----------
Income from operations............... 16.6
Other (income) expense:
Interest (income) expense........ 9.5
Other (income) expense........... 1.1
-----------
Income before income taxes........... 6.0
Provision for income taxes........... 6.1
-----------
Net income........................... $ (.1)
===========

F-7
<PAGE>
METALS USA, INC.
NOTES TO UNAUDITED PRO FORMA FINANCIAL STATEMENTS -- (CONTINUED)
(IN MILLIONS, EXCEPT SHARE AMOUNTS)

FOR THE THREE MONTHS ENDED MARCH 31, 1998:

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

(b) Reflects the $.4 reduction in salaries, bonuses and benefits to
the owners of the Acquired Companies to which they have agreed
prospectively.

(c) Reflects the amortization of goodwill to be recorded as a result
of the Subsequent Acquisitions 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 due to
refinancing of the outstanding indebtedness in conjunction with
the Subsequent Acquisitions, offset by an assumed increase in
interest expense of $.8 due to financing the Subsequent
Acquisitions.

(e) Reflects a $.2 charge eliminating the gains recorded as historical
LIFO adjustments to cost of sales. These adjustments result from
the restatement of base year LIFO costs to the appropriate
replacement costs as if the acquisitions occurred on January 1,
1997. Other adjustments reflect certain other nonrecurring
expenses with respect to the Subsequent Acquisitions, such as
expenses associated with compensation plans which were terminated
in conjunction with the acquisitions of their respective
companies.

(f) Reflects the incremental interest expense of $.6 and amortization
of deferred financing costs of $.1 incurred as a result of the
issuance of the Notes and the Credit Facility and the repayment of
outstanding indebtedness of the Company.

(g) 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 statements of operations
adjustments:
<TABLE>
<CAPTION>
PRO FORMA
(A) (B) (C) (D) (E) (F) (G) ADJUSTMENTS
--------- --------- --------- --------- --------- --------- --------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net sales............................ $ -- $ -- $ -- $ -- $ -- $ -- $ -- $--
Costs and expenses:
Cost of sales........................ -- -- -- -- .2 -- -- .2
Operating and delivery............... (.2) -- -- -- (.1) -- -- (.3)
Selling, general and
administrative..................... (.1) (.4) -- -- (.3) -- -- (.8)
Depreciation and amortization........ .1 -- .2 -- .1 -- -- .4
--------- --------- --------- --------- --------- --------- --------- -----------
Income from operations............... .2 .4 (.2) -- .1 -- -- .5
Other (income) expense:
Interest (income) expense........ -- -- -- .7 (.1) .7 -- 1.3
Other (income) expense........... -- -- -- -- .2 -- -- .2
--------- --------- --------- --------- --------- --------- --------- -----------
Income before income taxes........... .2 .4 (.2) (.7) -- (.7) -- (1.0)
Provision for income taxes........... -- -- -- -- -- -- .7 .7
--------- --------- --------- --------- --------- --------- --------- -----------
Net income........................... $ .2 $ .4 $ (.2) $ (.7) $ -- $ (.7) $ (.7) $ (1.7)
========= ========= ========= ========= ========= ========= ========= ===========
</TABLE>
F-8
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To Metals USA, Inc.:

We have audited the accompanying supplemental consolidated balance sheets of
Metals USA, Inc. (a Delaware corporation) and subsidiaries (the "Company") as
of December 31, 1997 and 1996, and the related supplemental consolidated
statements of operations, cash flows and stockholders' equity for each of the
three years in the period ended December 31, 1997. The supplemental consolidated
financial statements give retroactive effect to the merger with Krohn Steel
Service Center, Inc. ("Krohn") on May 29, 1998, which has been accounted for
as a "pooling-of-interests" as described in Note 1. These supplemental
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these supplemental 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 supplemental consolidated financial statements referred to
above present fairly, in all material respects, the supplemental consolidated
financial position of Metals USA, Inc. and subsidiaries as of December 31, 1997
and 1996, and the supplemental consolidated results of their operations and
their cash flows for each of the three years in the period ended December 31,
1997, after giving retroactive effect to the merger with Krohn as described in
Note 1, all in conformity with generally accepted accounting principles.

ARTHUR ANDERSEN LLP

Houston, Texas
May 30, 1998

F-9
<PAGE>
METALS USA, INC. AND SUBSIDIARIES
SUPPLEMENTAL CONSOLIDATED BALANCE SHEETS
(IN MILLIONS, EXCEPT SHARE AND PER SHARE AMOUNTS)

DECEMBER 31,
--------------------
1997 1996
--------- ---------
ASSETS
Current assets:
Cash............................ $ 7.3 $ 2.4
Accounts receivable, net of
allowance of $3.6 and $.3...... 95.1 23.8
Inventories..................... 159.4 45.8
Prepaid expenses................ 1.9 .7
Deferred income tax asset....... 1.5 1.1
Other........................... 2.2 .6
--------- ---------
Total current assets....... 267.4 74.4
Property and equipment, net.......... 86.5 30.7
Goodwill, net........................ 120.1 --
Other assets, net.................... 6.6 2.2
--------- ---------
Total assets............... $ 480.6 $ 107.3
========= =========

LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable................ $ 52.5 $ 16.3
Accrued liabilities............. 13.1 2.8
Current portion of long-term
debt............................ 7.2 3.2
Income taxes payable............ 1.6 .5
--------- ---------
Total current
liabilities.................. 74.4 22.8
Long-term debt, less current
portion.............................. 167.1 24.6
Deferred income taxes................ 8.1 1.4
Other long-term liabilities.......... 4.5 1.0
--------- ---------
Total liabilities.......... 254.1 49.8
--------- ---------
Commitments and contingencies
Stockholders' equity:
Preferred stock, $.01 par value,
5,000,000 shares authorized,
none issued
and outstanding............... -- --
Common stock, $.01 par value,
203,122,914 shares authorized,
32,680,226 and 13,216,227
shares outstanding,
respectively................... .3 .1
Additional paid-in capital...... 184.6 17.3
Unearned compensation........... (1.5) (1.8)
Retained earnings............... 43.1 41.9
--------- ---------
Total stockholders'
equity....................... 226.5 57.5
--------- ---------
Total liabilities and
stockholders' equity......... $ 480.6 $ 107.3
========= =========

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

F-10
<PAGE>
METALS USA, INC. AND SUBSIDIARIES
SUPPLEMENTAL CONSOLIDATED STATEMENTS OF OPERATIONS
(IN MILLIONS, EXCEPT PER SHARE AMOUNTS)

FOR THE YEARS ENDED
DECEMBER 31,
-------------------------------
1997 1996 1995
--------- --------- ---------
Net sales............................... $ 537.6 $ 265.5 $ 260.9
Operating costs and expenses:
Cost of sales...................... 414.9 204.0 204.7
Operating and delivery............. 53.7 25.4 22.0
Selling, general and
administrative................... 41.1 21.4 15.6
Depreciation and amortization...... 5.6 3.7 3.0
--------- --------- ---------
Operating income........................ 22.3 11.0 15.6
Other (income) expense:
Interest expense................... 5.0 1.8 2.4
Other income....................... (.5) (.7) (.5)
--------- --------- ---------
Income before income taxes.............. 17.8 9.9 13.7
Provision for income taxes.............. 10.3 5.4 5.6
--------- --------- ---------
Net income.............................. $ 7.5 $ 4.5 $ 8.1
========= ========= =========
Earnings per share...................... $ .33 $ .38 $ .86
========= ========= =========
Earnings per share -- assuming
dilution.............................. $ .33 $ .38 $ .86
========= ========= =========
Number of common shares used in the per
share calculations:
Earnings per share................. 22.5 11.8 9.4
========= ========= =========
Earnings per share -- assuming
dilution......................... 22.9 11.8 9.4
========= ========= =========

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

F-11
<PAGE>
METALS USA, INC. AND SUBSIDIARIES
SUPPLEMENTAL CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN MILLIONS)

FOR THE YEARS ENDED
DECEMBER 31,
-------------------------------
1997 1996 1995
--------- --------- ---------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income....................... $ 7.5 $ 4.5 $ 8.1
Adjustments to reconcile net
income to net cash provided by
operating activities --
Capital contributions
attributable to deemed tax
payments of S
Corporations.............. 4.0 3.2 3.6
Provision for bad debts..... .6 .2 .3
Depreciation and
amortization.............. 5.6 3.7 3.0
Deferred income taxes....... .7 (.2) .3
Deferred financing costs
incurred.................. (1.0) -- .1
Compensation charged against
notes receivable.......... -- .5 --
Compensation
expense -- management
shares.................... 6.0 3.6 --
Changes in operating assets
and liabilities, net of
business acquisitions --
Accounts receivable..... 1.3 -- 2.7
Inventories............. (7.4) (11.2) 11.2
Prepaid expenses and
other assets.......... (.3) (.2) --
Accounts payable and
accrued liabilities... (14.0) 5.5 (4.0)
Income taxes payable.... .4 .2 --
Other operating............. (.1) (.3) (.2)
--------- --------- ---------
Net cash provided
by operating
activities....... 3.3 9.5 25.1
--------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property............ (18.7) (6.7) (8.9)
Purchase of businesses, net of
acquired cash................... (68.6) -- (6.0)
Other investing.................. 1.4 .2 (.1)
--------- --------- ---------
Net cash used in
investing
activities....... (85.9) (6.5) (15.0)
--------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance of stock................ 58.3 -- --
Distributions to shareholders.... (6.3) (6.0) (5.4)
Net borrowings (repayments) on
long-term debt.................. (4.0) (2.0) 3.1
Net borrowings (repayments) on
revolving credit facilities..... 39.7 3.1 (3.7)
Net payments on notes payable to
affiliates...................... (.3) (.3) (1.0)
Other financing.................. .1 .2 --
--------- --------- ---------
Net cash provided
by (used in)
financing
activities....... 87.5 (5.0) (7.0)
--------- --------- ---------
NET INCREASE (DECREASE) IN CASH...... 4.9 (2.0) 3.1
CASH, beginning of period............ 2.4 4.4 1.3
--------- --------- ---------
CASH, end of period.................. $ 7.3 $ 2.4 $ 4.4
========= ========= =========
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid for --
Interest.................... $ 5.1 $ 1.8 $ 2.3
Income taxes................ 5.5 2.1 1.7
Non-cash activities --
Retirement plan contribution
charged to unearned
compensation and
additional paid-in
capital................... .4 .6 .6
Purchase of businesses for
stock..................... 197.6 -- --

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

F-12
<PAGE>
METALS USA, INC. AND SUBSIDIARIES
SUPPLEMENTAL CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(IN MILLIONS)
<TABLE>
<CAPTION>
ADDITIONAL
COMMON PAID-IN UNEARNED RETAINED
STOCK CAPITAL COMPENSATION EARNINGS TOTAL
------- ----------- ------------- --------- ---------
<S> <C> <C> <C> <C> <C>
BALANCE, December 31, 1994........... $ .1 $ 6.4 $(2.9) $ 39.7 $ 43.3
Shares released under leveraged
ESOP Plan....................... -- .1 .5 -- .6
Capital contributions attributable
to deemed tax payments of S
Corporation..................... -- 3.6 -- -- 3.6
Distributions...................... -- -- -- (5.4) (5.4)
Net income......................... -- -- -- 8.1 8.1
------- ----------- ------------- --------- ---------
BALANCE, December 31, 1995........... .1 10.1 (2.4) 42.4 50.2
Adjustment to conform fiscal
year-ends....................... -- .1 .2 1.0 1.3
Shares released under leveraged
ESOP Plan....................... -- .2 .4 -- .6
Other adjustments.................. -- .1 -- -- .1
Shares issued to members of
management...................... -- 3.6 -- -- 3.6
Capital contributions attributable
to deemed tax payments of S
Corporations.................... -- 3.2 -- -- 3.2
Distributions...................... -- -- -- (6.0) (6.0)
Net income......................... -- -- -- 4.5 4.5
------- ----------- ------------- --------- ---------
BALANCE, December 31, 1996........... .1 17.3 (1.8) 41.9 57.5
Shares issued to members of
management...................... -- 6.0 -- -- 6.0
Shares sold in connection with the
IPO............................. .1 58.2 -- -- 58.3
Shares issued in connection with
the acquisition of the Founding
Companies....................... .1 80.1 -- -- 80.2
Shares issued in connection with
the Subsequent Acquisitions..... -- 18.6 -- -- 18.6
Shares released under leveraged
ESOP Plan....................... -- .1 .3 -- .4
Other adjustments.................. -- .3 -- -- .3
Capital contributions attributable
to deemed tax payments of S
Corporations.................... -- 4.0 -- -- 4.0
Distributions...................... -- -- -- (6.3) (6.3)
Net income......................... -- -- -- 7.5 7.5
------- ----------- ------------- --------- ---------
BALANCE, December 31, 1997........... $ .3 $ 184.6 $(1.5) $ 43.1 $ 226.5
======= =========== ============= ========= =========
</TABLE>
The accompanying notes are an integral part of these supplemental consolidated
financial statements.

F-13
<PAGE>
METALS USA, INC. AND SUBSIDIARIES
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS
(IN MILLIONS, EXCEPT SHARE AND PER SHARE AMOUNTS)

1. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

BASIS OF PRESENTATION

Metals USA, Inc., a Delaware corporation, ("Metals USA") was founded on
July 3, 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. Prior to its initial public offering ("IPO"), Metals USA had
conducted no operations. Concurrent with the consummation of its IPO on July 11,
1997, Metals USA acquired, in separate transactions (the "Mergers") eight
companies (the "Founding Companies") engaged in the processing of steel,
aluminum and specialty metals, as well as the manufacture of metal components.
Following the IPO and through December 31, 1997, Metals USA acquired seven
additional companies and subsequent to December 31, 1997, has acquired numerous
additional companies in similar businesses (See Note 2). Certain of the
companies acquired after the IPO were accounted for using the
"pooling-of-interests" method, resulting in a restatement of the Company's
financial statements for all periods presented (See Note 2). References herein
to the "Company" include Metals USA and its subsidiaries.

The acquisition of Krohn Steel Service Center, Inc. ("Krohn") met the
"pooling-of-interests" requirements of Accounting Principles Board Opinion No.
16 BUSINESS COMBINATIONS ("APB 16"). The acquisition was completed on May 29,
1998 and, accordingly, the Company's accompanying historical consolidated
financial statements have been restated to reflect the results of operations,
cash flows and financial position of Krohn, as if the acquisition occurred on
January 1, 1995. Because the acquisition occurred after December 31, 1997, these
restated financial statements are labeled as "Supplemental" in accordance with
the rules and regulations of the Securitites and Exchange Commission. See Note
2.

The Company sells to 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.

USE OF ESTIMATES AND ASSUMPTIONS

The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect (i) the reported amounts of assets and liabilities, (ii)
the disclosure of contingent assets and liabilities known to exist as of the
date the financial statements are published and (iii) the reported amount of
revenues and expenses recognized during the periods presented. The Company
reviews all significant estimates affecting its consolidated financial
statements on a recurring basis and records the effect of any necessary
adjustments prior to their publication. Adjustments made with respect to the use
of estimates often relate to improved information not previously available.
Uncertainties with respect to such estimates and assumptions are inherent in the
preparation of financial statements.

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

PRINCIPLES OF CONSOLIDATION -- The consolidated financial statements
include the accounts of Metals USA and its subsidiaries. All intercompany
accounts and transactions have been eliminated in the consolidated financial
statements. Certain reclassifications have been made to prior years' financial
statements to be consistent with the current year's presentation.

INVENTORIES -- Inventories are stated at the lower of cost or market.
Certain of the Company's subsidiaries use the last-in first-out ("LIFO")
method of accounting for inventories and other subsidiaries use a variety of
methods including specific identification, average cost and the first-in
first-out ("FIFO") method of accounting. As of December 31, 1997 and 1996,
approximately 51.0% and 57.0%, respectively of the consolidated inventories were
accounted for using the LIFO method of accounting.

F-14
<PAGE>
METALS USA, INC. AND SUBSIDIARIES
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(IN MILLIONS, EXCEPT SHARE AND PER 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.

GOODWILL -- Goodwill represents the excess of cost over the estimated fair
value of identifiable assets of the businesses acquired using the "purchase"
method of accounting. Goodwill is stated at cost, net of accumulated
amortization, and is being amortized over a forty-year life using the
straight-line method. The Company reviews the recoverability of goodwill and
other long-lived assets including other intangible assets for impairment
whenever events or changes in circumstances indicate that the carrying amount of
the asset may be impaired. The Company has not recorded any impairment losses
with respect to goodwill, other long-lived assets or other intangible assets as
of December 31, 1997. Accumulated amortization totaled $1.2 as of December 31,
1997.

OTHER ASSETS -- Other assets include deferred financing costs and other
intangible assets, which are being amortized over the estimated useful life of
the related borrowing or intangible asset. Accumulated amortization of other
assets totaled $1.1 and $.5 as of December 31, 1997 and 1996, respectively.

FAIR VALUE OF FINANCIAL INSTRUMENTS -- The fair value of the notes payable
is estimated based on interest rates for the same or similar debt offered to the
Company 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 the Company to concentrations of credit risk, consist principally of
cash deposits, trade accounts and notes receivable. Concentrations of credit
risk with respect to trade accounts are within the machining, furniture,
transportation equipment, power and process equipment, industrial/commercial
construction, consumer durables and electrical equipment industries, and
machinery and equipment manufacturers. Generally, 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. The Company
periodically reviews the credit history of its customers and generally does not
require collateral for the extension of credit.

INCOME TAXES -- The Company accounts for income taxes in accordance with
Statement of Financial Accounting Standards No. 109 ("SFAS No. 109"),
"Accounting for Income Taxes." Under SFAS No. 109, deferred income taxes are
recognized for the future tax consequences of differences between the tax bases
of assets and liabilities and their financial reporting amounts based on enacted
tax laws and statutory tax rates applicable to the periods in which the
differences are expected to affect taxable income. Valuation allowances are
established when necessary to reduce deferred tax assets to the amount expected
to be realized. Provision for income taxes represents the amount of taxes
payable and the applicable changes in deferred tax assets and liabilities.

EARNINGS PER SHARE -- In February 1997, the Financial Accounting Standards
Board issued Statement of Financial Accounting Standards No. 128 ("SFAS No.
128"), "Earnings Per Share." The Company adopted SFAS No. 128 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 ("Earnings per Share") and
diluted earnings per share ("Earnings per Share -- Assuming Dilution").
Earnings per Share excludes dilution and is determined by dividing income
available to common stockholders by the weighted average number of common shares
outstanding during the period. Earnings per Share -- Assuming Dilution reflects
the potential dilution that could occur if securities and other contracts to
issue common stock were exercised or converted into common stock. Earnings per
Share -- Assuming Dilution is computed similarly to fully diluted earnings per
share under previous accounting rules.

F-15
<PAGE>
METALS USA, INC. AND SUBSIDIARIES
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(IN MILLIONS, EXCEPT SHARE AND PER SHARE AMOUNTS)

Earnings per Share was computed using 9,448,313 shares (the aggregate
number of shares issued in connection with the acquisition of entities accounted
for using the "pooling-of-interests" method of accounting) for periods prior
to July 3, 1996 (date of inception). The 4,753,414 shares issued in connection
with the organization of Metals USA, including shares issued to management, were
considered to be issued and outstanding from the date of inception without
regard to the date such shares were actually issued. The 6,785,000 shares issued
in connection with the IPO and the 11,693,499 shares issued in connection with
the entities acquired using the "purchase" method of accounting have been
included in the Earnings per Share computation only from their respective dates
of issuance, resulting in weighted average shares of 8,341,480 for the year
ended December 31, 1997. Earnings per Share -- Assuming Dilution differs from
the Earnings per Share computation due to the inclusion of stock options that
were dilutive.

STOCK BASED COMPENSATION -- Statement of Financial Accounting Standards No.
123 ("SFAS No. 123"), "Accounting for Stock-Based Compensation," allows
entities to choose between the fair value based method of accounting for
employee stock options or similar equity instruments and the intrinsic,
value-based method of accounting prescribed by Accounting Principles Board
Opinion No. 25 ("APB No. 25"), "Accounting for Stock Issued to Employees."
The Company has elected to account for stock options or similar equity
instruments using the intrinsic, value-based method of accounting prescribed in
APB No. 25.

2. BUSINESS COMBINATIONS

POOLING TRANSACTIONS

On September 26, 1997, Metals USA completed the acquisition of all the
capital stock of Jeffreys Steel Company, Inc. ("Jeffreys") in a business
combination accounted for as a "pooling-of-interests" transaction in
accordance with the requirements of APB No. 16. Jeffreys is headquartered in
Mobile, Alabama, and is engaged in the wholesale and retail sale of steel.
Jeffreys has historically reported on a July 31 fiscal year-end. For purposes of
the merger with Metals USA, the accompanying financial statements reflect
Jeffreys on a calendar year-end basis effective January 1, 1996. The historical
financial information of Jeffreys for the year ended July 31, 1995 has been
included in the Company's consolidated financial statements for the year ended
December 31, 1995. The net sales and net income of Jeffreys for the period from
August 1, 1995, through December 31, 1995, were $51.0 and $1.0, respectively.
The net income of Jeffreys for this transition period is included in the
accompanying consolidated statements of stockholders' equity as an adjustment to
retained earnings in order to conform their fiscal year to that of the Company.

Prior to the acquisition by Metals USA, the shareholders of Wayne and Krohn
had elected to be taxed as S Corporations; accordingly, any federal income tax
liabilities for the periods prior to the acquisition dates were the
responsibility of the respective stockholders. For purposes of these
consolidated financial statements, federal income taxes have been provided as if
Wayne and Krohn had filed C Corporation tax returns for the pre-acquisition
periods, with the current income tax provisions reflected in the consolidated
financial statements as increases to additional paid-in capital. Collectively,
Metals USA issued 9,448,313 shares of common stock in exchange for all of the
capital stock of Jeffreys, Wayne and Krohn. The unaudited aggregate
pre-acquisition net sales and net income for Jeffreys, Wayne and Krohn during
1997 were $239.9 and $8.9, respectively. There were no transactions between
Metals USA, Jeffreys, Wayne or Krohn during periods prior to these business
combinations.

F-16
<PAGE>
METALS USA, INC. AND SUBSIDIARIES
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(IN MILLIONS, EXCEPT SHARE AND PER SHARE AMOUNTS)

The following table summarizes the restated consolidated net sales, net
income and per share data of the Company after giving effect to the acquisition
of Krohn:
<TABLE>
c YEARS ENDED DECEMBER 31,
-----------------------------------------------------------------
1997 1996 1995
------------------- ------------------- -------------------
NET NET NET
NET SALES INCOME NET SALES INCOME NET SALES INCOME
--------- ------ --------- ------ --------- ------
<S> <C> <C> <C> <C> <C> <C>
Net sales and net income --
As previously reported in the
Company's Form 10-K for the year
ended December 31, 1997.......... $ 507.8 $6.0 $ 240.1 $3.3 $ 235.2 $6.9
Acquisition accounted for as
pooling-of-interests............. 29.8 1.5 25.4 1.2 25.7 1.2
--------- ------ --------- ------ --------- ------
As restated................... $ 537.6 $7.5 $ 265.5 $4.5 $ 260.9 $8.1
========= ====== ========= ====== ========= ======
Earnings per share --
As previously reported in the
Company's Form 10-K for the year
ended December 31, 1997.......... $.28 $.31 $.84
Acquisition accounted for as
pooling-of-interests............. .05 .07 .02
------ ------ ------
As restated................... $.33 $.38 $.86
====== ====== ======
Earnings per share -- assuming
dilution --
As previously reported in the
Company's Form 10-K for the year
ended December 31, 1997.......... $.28 $.31 $.84
Acquisition accounted for as
pooling-of-interests............. .05 .07 .02
------ ------ ------
As restated................... $.33 $.38 $.86
====== ====== ======
</TABLE>
PURCHASE TRANSACTIONS

Concurrent with the completion of its IPO on July 11, 1997, Metals USA
acquired the eight Founding Companies, which are in the metal processing and
distribution business. The companies acquired were Affiliated Metals Company
headquartered in Granite City, Illinois; Interstate Steel Supply Co.
headquartered in Philadelphia, Pennsylvania; Queensboro Steel Corporation
headquartered in Wilmington, North Carolina; Southern Alloy of America, Inc.
headquartered in Salisbury, North Carolina; Steel Service Systems, Inc.
headquartered in Horicon, Wisconsin; Texas Aluminum Industries, Inc./The
Cornerstone Group headquartered in Houston, Texas; Uni-Steel, Inc. headquartered
in Enid, Oklahoma and Williams Steel & Supply Co., Inc. headquartered in
Milwaukee, Wisconsin. The acquisition of each of the Founding Companies was
accounted for using the "purchase" method of accounting in accordance with APB
No. 16. The aggregate consideration paid by Metals USA to acquire the Founding
Companies was approximately $27.8 in cash, 10,128,609 shares of common stock and
the assumption of $92.6 of debt.

Subsequent to the IPO, Metals USA acquired five additional companies using
the "purchase" method of accounting in accordance with APB No. 16. The
acquisitions completed in September 1997 included Harvey Titanium, Ltd.
headquartered in Santa Monica, California; Meier Metal Servicenters, Inc.
headquartered in Hazel Park, Michigan and the business of Federal Bronze
Products, Inc., headquartered in Newark, New Jersey. The acquisitions completed
in December 1997 included Royal Aluminum, Inc. headquartered in Leesburg,
Florida and R. J. Fabricating Inc. headquartered in Milwaukee, Wisconsin. These
five companies are referred to collectively as the "1997 Subsequent
Acquisitions." The aggregate

F-17
<PAGE>
METALS USA, INC. AND SUBSIDIARIES
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(IN MILLIONS, EXCEPT SHARE AND PER SHARE AMOUNTS)

consideration paid by Metals USA for the 1997 Subsequent Acquisitions consists
of approximately $44.1 in cash, 1,564,890 shares of common stock and the
assumption of indebtedness of approximately $15.4.

The Company has recorded the excess of the purchase price over the
estimated fair value of identifiable assets acquired in connection with both the
Founding Companies and the 1997 Subsequent Acquisitions as "goodwill" in the
accompanying consolidated balance sheet. The goodwill is being amortized over a
forty-year period. The results of operations of the Founding Companies and the
1997 Subsequent Acquisitions are included in the accompanying consolidated
financial statements from their respective dates of acquisition.

The following summarized unaudited pro forma financial information reflects
the supplemental consolidated financial information of the Company and assumes
the acquisition of the Founding Companies, the 1997 Subsequent Acquisitions and
the issuance of the Notes (as defined in Note 6) occurred on January 1, 1996.
The pro forma decrease in earnings resulting from the issuance of the Notes was
approximately $.11 per share for both periods presented.

YEARS ENDED DECEMBER 31,
--------------------------
1997 1996
------------ ------------
(UNAUDITED)
Net sales............................ $ 884.4 $ 788.9
Operating costs and expenses:
Cost of sales................... 679.8 603.4
Operating and delivery.......... 87.8 76.8
Selling, general and
administrative................ 57.1 51.3
Depreciation and amortization... 10.4 11.3
------------ ------------
Operating income..................... 49.3 46.1
Interest expense..................... 16.4 15.4
Other (income) expense............... (1.2) (1.3)
------------ ------------
Income before income taxes........... 34.1 32.0
Provision for income taxes........... 13.9 13.8
------------ ------------
Net income........................... $ 20.2 $ 18.2
============ ============
Earnings per share................... $ .62 $ .56
============ ============
Earnings per share -- assuming
dilution........................... $ .61 $ .56
============ ============
Number of common shares used in per
share calculations:
Earnings per share.............. 32,680,226 32,680,226
============ ============
Earnings per share -- assuming
dilution...................... 32,994,818 32,705,838
============ ============

The preceding pro forma amounts reflect the supplemental results of
operations for Metals USA, the Founding Companies and the 1997 Subsequent
Acquisitions, assuming the transactions were completed on January 1, 1996.
Additionally, the amounts shown in the table reflect (a) the reduction in
certain related party rental and lease expenses which has been agreed to
prospectively; (b) the reduction in salaries, bonuses and benefits to the owners
of the acquired companies which they have agreed to prospectively and the
reversal of the non-cash compensation charge related to the issuance of 985,500
and 400,000 shares of common stock to management of and consultants to Metals
USA in 1997 and 1996, respectively, partially offset by a charge for recurring
salary expenses of management; (c) the amortization of goodwill recorded as a
result of the acquisition of the Founding Companies and 1997 Subsequent
Acquisitions over a forty-year estimated life plus additional depreciation
expense due to the allocation of a portion of the excess purchase price to
property and equipment; (d) the assumed reductions in interest expense due to
the refinancing of the outstanding indebtedness in conjunction with the
acquisition of the Founding Companies and 1997 Subsequent Acquisitions, offset
by an assumed increase in interest expense incurred in connection

F-18
<PAGE>
METALS USA, INC. AND SUBSIDIARIES
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(IN MILLIONS, EXCEPT SHARE AND PER SHARE AMOUNTS)

with financing the acquisitions; (e) the pre-acquisition results of operations
for subsidiaries or affiliates of the Founding Companies which were acquired by
the Founding Companies prior to the related acquisition by Metals USA, as if
those previous acquisitions were completed as of January 1, 1996; (f) a charge
eliminating the gains recorded as historical LIFO adjustments to cost of sales
as a result of the restatement of base year LIFO costs to the appropriate
replacement costs as if the acquisitions occurred on January 1, 1996; (g)
certain other nonrecurring expenses with respect to the 1997 Subsequent
Acquisitions, such as expenses associated with compensation plans which were
terminated in conjunction with the acquisitions of their respective companies;
(h) the incremental interest expense and amortization of deferred financing
costs incurred as a result of the issuance of the Notes and the Credit Facility
(as defined in Note 6), net of the repayment of outstanding indebtedness of the
Company and (i) the incremental provision for federal and state income taxes for
all entities being combined.

3. INVENTORIES

Inventories consist of the following:

DECEMBER 31,
--------------------
1997 1996
--------- ---------
Raw materials --
Structural steel................ $ 8.4 $ 19.7
Flat-rolled steel............... 44.8 18.0
Specialty metals................ 22.0 --
Aluminum products............... 17.6 .6
Other........................... 1.7 4.0
--------- ---------
Total raw materials........ 94.5 42.3
--------- ---------
Work-in-process and finished goods --
Structural steel................ 35.8 --
Flat-rolled steel............... 19.2 5.1
Specialty metals................ 5.1 --
Aluminum products............... 6.7 .4
--------- ---------
Total work-in-process and
finished goods.......... 66.8 5.5
--------- ---------
Less -- LIFO reserve................. (1.9) (2.0)
--------- ---------
Total...................... $ 159.4 $ 45.8
========= =========

The replacement cost of the Company's inventory exceeds the historical cost
of the inventory, computed using the LIFO method of valuation, as reported in
the accompanying consolidated financial statements. If the FIFO method had been
used for all inventories, the carrying value would have been $161.3 and $47.8 at
December 31, 1997 and 1996, respectively. Additionally, net income would have
been $7.5, $4.5 and $8.4 for the years ended December 31, 1997, 1996 and 1995,
respectively.

F-19
<PAGE>
METALS USA, INC. AND SUBSIDIARIES
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(IN MILLIONS, EXCEPT SHARE AND PER SHARE AMOUNTS)

4. PROPERTY AND EQUIPMENT

Property and equipment consists of the following:

DECEMBER 31,
ESTIMATED --------------------
USEFUL LIVES 1997 1996
------------ --------- ---------
Land................................. $ 3.8 $ 1.5
Building and improvements............ 5-40 years 35.5 18.5
Machinery and equipment.............. 7-30 years 61.1 22.7
Automobiles and trucks............... 3-12 years 7.0 5.3
--------- ---------
107.4 48.0
Less -- Accumulated depreciation..... (20.9) (17.3)
--------- ---------
Total........................... $ 86.5 $ 30.7
========= =========

Depreciation expense for the years ended December 31, 1997, 1996 and 1995
was $4.1, $3.7 and $3.0, respectively. Additionally, following the acquisitions
of Wayne and Jeffreys, the Company revised the estimated useful lives of the
depreciable assets of Wayne and Jeffreys to conform to the conventions adopted
by the Founding Companies. This revision reduced depreciation expense in 1997 as
compared to 1996 by approximately $1.2.

5. ACCRUED LIABILITIES

Accrued liabilities consist of the following:

DECEMBER 31,
--------------------
1997 1996
--------- ---------
Accrued salaries and employee
benefits........................... $ 5.0 $ 1.0
Accrued taxes other than income...... 1.9 .7
Accrued interest..................... 1.0 .1
Accrued profit sharing............... 1.3 .4
Other................................ 3.9 .6
--------- ---------
Total........................... $ 13.1 $ 2.8
========= =========

6. LONG-TERM DEBT

Long-term debt consists of the following:

DECEMBER 31,
--------------------
1997 1996
--------- ---------
Borrowings under the Credit
Facility............................. $ 144.8 $ --
Revolving credit facility with
interest at prime less 1.0%,
maturing on December 31, 1998,
secured by inventory and trade
accounts receivable................ -- 13.3
Various issues of Industrial Revenue
Bonds.............................. 21.6 8.0
Notes payable to former employee
stock ownership plan and trust
members payable in annual
installments including interest at
prime with an 8.5% cap through
February 1998...................... 1.7 2.1
Obligations under capital leases and
other.............................. 6.2 4.4
--------- ---------
174.3 27.8
Less -- Current portion.............. (7.2) (3.2)
--------- ---------
$ 167.1 $ 24.6
========= =========

F-20
<PAGE>
METALS USA, INC. AND SUBSIDIARIES
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(IN MILLIONS, EXCEPT SHARE AND PER SHARE AMOUNTS)

Scheduled maturities of long-term debt for the years ending December 31 are
as follows: 1998 -- $7.2; 1999 -- $2.2; 2000 -- $2.5; 2001 -- $2.4; 2002 --
$2.3; thereafter -- $157.7.

The Industrial Revenue Bonds (the "IRBs") are payable in installments
ranging from monthly to annual with variable interest ranging from 4.35% to
6.61% per annum at December 31, 1997 and mature from May 1, 2003 to May 1, 2009.
The IRBs are secured by real estate and equipment acquired with proceeds from
these bonds with a net book value of $21.2 at December 31, 1997. The IRBs place
various restrictions on certain of the Company's subsidiaries, including but not
limited to maintenance of required insurance coverage, maintenance of certain
financial ratios, limits on capital expenditures, maintenance of tangible net
worth and letters of credit.

Concurrent with the IPO, the Company obtained an initial $150.0 unsecured
revolving credit facility (the "Original Credit Facility") which was used to
fund acquisitions, refinance certain indebtedness of the acquired companies and
for general corporate and working capital requirements. In January 1998, the
Company obtained a $50.0 unsecured revolving credit facility (the "Interim
Credit Facility") to meet its acquisition related cash requirements pending the
completion of an extension and modification of the Original Credit Facility to
provide for up to $300.0 of borrowing availability. The closing of the extension
and modification of the $300.0 credit facility (the "Credit Facility") on
February 11, 1998 stipulated the termination of the Interim Credit Facility. The
Credit Facility matures in February 2003, bears interest at the bank's prime
rate or LIBOR, at Metals USA'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 Company
will use the Credit Facility to fund acquisitions, make capital expenditures,
refinance debt of the companies acquired and for general working capital
requirements. Borrowings under the Credit Facility are secured by the pledge of
all of the capital stock of each of the Company's material subsidiaries (as
defined). In connection with the IPO, the Mergers and the 1997 Subsequent
Acquisitions, the revolving credit facility and certain other obligations
outstanding as of December 31, 1996 (including certain obligations of the
acquired companies) were repaid with the borrowings under the Credit Facility.

The Credit Facility requires 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 net worth. At December 31, 1997, the Company was precluded
from the payment of dividends under the terms of the Credit Facility.

On February 11, 1998, the Company completed the sale of $200.0 aggregate
principal amount of the Company's 8 5/8% Senior Subordinated Notes due 2008 (the
"Notes"). The Company received $194.5 of net cash proceeds (before expected
expenses of $.8 upon closing). The Company used $179.3 of such proceeds to repay
the borrowings outstanding under the Original Credit Facility and Interim Credit
Facility on February 11, 1998. As of February 12, 1998, the entire amount of the
Credit Facility was available to the Company.

F-21
<PAGE>
METALS USA, INC. AND SUBSIDIARIES
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(IN MILLIONS, EXCEPT SHARE AND PER SHARE AMOUNTS)

date of such redemption; provided that at least 65% of the aggregate principal
amount of Notes originally issued remains outstanding immediately after such
redemption. The Notes are guaranteed by substantially all of the Company's
current and future subsidiaries, and contain certain covenants restricting
additional indebtedness, liens, transactions with affiliates, asset sales,
investments, payment restrictions affecting subsidiaries and mergers and
acquisitions of subsidiaries. The Notes are subordinate to borrowings under the
Credit Facility and will rank PARI PASSU in right of payment with all other
future subordinated debt of the Company and will rank senior to other
indebtedness that expressly provides that it is subordinated in right of payment
to the Notes. The Company has agreed, for the benefit of all holders of the
Notes, that it will file a registration statement within 60 days after the
issuance of the Notes relating to an exchange offer for the Notes under the
Securities Act of 1933, as amended.

7. INCOME TAXES

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

YEARS ENDED DECEMBER 31,
-------------------------------
1997 1996 1995
--------- --------- ---------
Federal --
Current......................... $ 8.7 $ 4.5 $ 4.3
Deferred........................ (.2) (.1) .2
--------- --------- ---------
8.5 4.4 4.5
State --
Current......................... 1.9 1.1 1.0
Deferred........................ (.1) (.1) .1
--------- --------- ---------
1.8 1.0 1.1
--------- --------- ---------
Total provision............ $ 10.3 $ 5.4 $ 5.6
========= ========= =========

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

YEARS ENDED DECEMBER 31,
-------------------------------
1997 1996 1995
--------- --------- ---------
Federal income tax at statutory
rates.............................. $ 6.2 $ 3.5 $ 4.8
State income taxes, net of federal
income tax benefit................. 1.2 .5 .6
Nondeductible expenses:
Stock compensation.............. 2.1 1.3 --
Amortization of goodwill........ .4 -- --
Other........................... .4 .1 .2
--------- --------- ---------
$ 10.3 $ 5.4 $ 5.6
========= ========= =========

F-22
<PAGE>
METALS USA, INC. AND SUBSIDIARIES
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(IN MILLIONS, EXCEPT SHARE AND PER SHARE AMOUNTS)

The significant items giving rise to the deferred tax assets (liabilities)
are as follows:

DECEMBER 31,
----------------------
1997 1996
---------- ----------
Deferred tax assets --
Allowance for doubtful
accounts........................ $ 1.0 $ .1
Uniform capitalization of
inventory....................... 1.8 .8
Nonqualified plan
contribution.................... -- .2
Accrued liabilities............. 2.1 .2
Deferred compensation........... .5 --
Net operating loss
carryforward.................. .3 --
State taxes..................... .3 --
---------- ----------
Total deferred tax
assets................... 6.0 1.3
---------- ----------
Deferred tax liabilities --
Property and equipment.......... (7.6) (1.4)
Inventories -- LIFO reserve..... (3.3) --
Foreign investments............. (.9) --
Other........................... (.5) (.2)
---------- ----------
Total deferred tax
liabilities.............. (12.3) (1.6)
Valuation allowance.................. (.3) --
---------- ----------
Net deferred tax
(liabilities) assets..... $ (6.6) $ (.3)
========== ==========

8. STOCKHOLDERS' EQUITY

COMMON STOCK AND PREFERRED STOCK

Metals USA effected a 135.81-for-one stock split on April 21, 1997 for each
share of $.01 par value common stock ("Common Stock") then outstanding. In
addition, Metals USA increased the number of authorized shares of Common Stock
to 50,000,000 and the authorized shares of Restricted Common Stock, as defined
below, to 3,122,914 and authorized 5,000,000 shares of $.01 par value preferred
stock, which may be designated in the future. On May 20, 1998, the Company's
stockholders approved an increase in the number of authorized shares of Common
Stock to 200,000,000. The effects of the Common Stock split and the increase in
the shares of authorized Common Stock have been retroactively reflected in the
consolidated balance sheets and in the accompanying notes.

In connection with its organization and initial capitalization, Metals USA
issued 135,810 shares of Common Stock at $.01 per share to Notre Capital
Ventures II, L.L.C. ("Notre"). Notre received 3,232,104 additional shares (at
approximately $.01 per share) in exchange for the contribution of incurred
expenses 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, Metals USA issued
a total of 985,500 shares of Common Stock to management of and consultants to
Metals USA at a price of $.01 per share. As a result, Metals USA has recorded a
non-recurring, non-cash compensation charge of $3.6 in 1996 and $6.0 in 1997,
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.

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 Metals USA's Board of Directors and to .55 of one vote for each share held on
all other matters on which they are entitled to vote.

F-23
<PAGE>
METALS USA, INC. AND SUBSIDIARIES
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(IN MILLIONS, EXCEPT SHARE AND PER SHARE AMOUNTS)

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, 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, Metals USA 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.

INITIAL PUBLIC OFFERING

On July 11, 1997 the Company completed its IPO, issuing to the public
5,900,000 shares of its common stock at a price of $10.00 per share, resulting
in net proceeds to the Company of $50.1 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.

9. STOCK BASED COMPENSATION

LONG-TERM INCENTIVE PLAN

In April 1997, Metals USA'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 ("NQSOs"), stock
appreciation rights, restricted or deferred stock, dividend equivalents and
other incentive awards to officers, key employees and consultants to Metals USA.
The number of shares authorized and reserved for issuance under the Plan is
limited to 13% of the aggregate number of shares of Common Stock outstanding.
The terms of the option awards are established by the Compensation Committee of
Metals USA's Board of Directors. These options will vest at the rate of 20% per
year, commencing on the first anniversary of the IPO or date of grant and will
expire ten years from the date of grant or three months following termination of
employment. The Company did not issue any stock options prior to January 1,
1996. Options granted in 1996 were attributable to an acquired company that was
accounted for as a "pooling-of-interest" business combination. Those options
were converted at the applicable share conversion ratio specified in the merger
agreement and exchanged for Company options issued under the Plan.

NON-EMPLOYEE DIRECTORS' STOCK PLAN

Metals USA's 1997 Non-Employee Directors' Stock Plan (the "Directors'
Plan"), which was adopted by the Board of Directors and approved by Metals
USA'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 at each annual meeting of
stockholders thereafter of an option to purchase 5,000 shares to each
non-employee director at which meeting 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 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.

F-24
<PAGE>
METALS USA, INC. AND SUBSIDIARIES
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(IN MILLIONS, EXCEPT SHARE AND PER SHARE AMOUNTS)

The following is a summary of activity:
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE
"FAIR
VALUE" OPTIONS FOR
PER SHARE WEIGHTED SHARES OF
OF OPTIONS AVERAGE PRICE COMMON
GRANTED PER SHARE STOCK
------------- ------------- -----------
<S> <C> <C> <C>
Balance January 1, 1996.............. --
Granted.............................. $ 10.06 $ 6.81 172,788
Exercised............................ (42,237)
Canceled or expired.................. --
-----------
Balance December 31, 1996............ 130,551
Granted in connection with the IPO... 6.30 10.00 2,134,024
Granted to directors................. 6.30 10.00 40,000
Granted.............................. 8.22 14.41 949,683
Exercised............................ --
Canceled or expired.................. --
-----------
Balance December 31, 1997............ 3,254,258
===========
</TABLE>
At December 31, 1997, exercisable options for shares of Common Stock were
61,440 at a weighted average price of $6.81 per share and 40,000 at a weighted
average price of $10.00 per share.

The Company used the Black-Scholes model to calculate the estimated
"fair-value" of stock options and similar awards. The model requires the use
of a number of subjective assumptions including: (i) risk free rate of return,
(ii) expected price volatility of the Common Stock, (iii) expected dividend
yield and (iv) estimated life of the option. Principal assumptions used in
estimating the "fair-value" of the Company's stock options using the
Black-Scholes model were as follows:

DECEMBER 31,
--------------------
1997 1996
--------- ---------
Risk free rate of return........ 6.18% 6.32%
Expected price volatility....... 43.3% 46.0%
Expected dividend yield......... -- --
Expected life of the option (in
years)......................... 7.5 7.5

The Company applies APB No. 25 and related interpretations in accounting
for its stock option plans. Had compensation cost for the Company's stock option
plans been determined based upon the fair value at the grant rate, consistent
with the methodology prescribed under the SFAS No. 123, the Company's net income
and earnings per share would have been reduced by the amortization of the
estimated fair value of stock options over the applicable vesting period of such
awards. The following pro forma disclosures may not be representative of similar
future disclosures because: (i) additional options may be granted in future
years and (ii) the computations used to estimate the "fair value" of the stock
options are subject to

F-25
<PAGE>
METALS USA, INC. AND SUBSIDIARIES
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(IN MILLIONS, EXCEPT SHARE AND PER SHARE AMOUNTS)

significant subjective assumptions, any one or all of which may differ in
material respects from actual amounts.

YEARS ENDED DECEMBER 31,
-------------------------------
1997 1996 1995
--------- --------- ---------
Net income as reported............... $ 7.5 $ 4.5 $ 8.1
Estimated "fair value" of stock
options vesting during the periods,
net of federal income tax
benefit............................ (1.1) (.1) --
--------- --------- ---------
Adjusted net income.................. $ 6.4 $ 4.4 $ 8.1
========= ========= =========
Adjusted earnings per share.......... $ .28 $ .37 $ .86
========= ========= =========
Adjusted earnings per
share -- assuming dilution......... $ .28 $ .37 $ .86
========= ========= =========
Number of common shares used in the
per share calculations:
Adjusted earnings per share..... 22.5 11.8 9.4
========= ========= =========
Adjusted earnings per
share -- assuming dilution..... 22.9 11.8 9.4
========= ========= =========

10. EMPLOYEE BENEFIT PLANS

PROFIT-SHARING PLANS

Certain subsidiaries of the Company provide various defined contributions
savings plans for their employees (the "Plans"). The Plans cover substantially
all full-time employees of such subsidiaries. Participants vest at varying rates
ranging from full vesting upon participation to those that provide for vesting
to begin after three years of service and are fully vested after seven years.
Certain Plans provide for a deferral option that allows employees to elect to
contribute a portion of their pay into the plan and provide for a discretionary
profit sharing contribution by the individual subsidiary. Generally the
subsidiaries match a portion of the amount deferred by participating employees.
Contributions for the profit sharing portion of the plan are generally at the
discretion of the individual subsidiary board of directors. The aggregate
contributions to the Plans were $.9, $.3 and $.2 for the years ended December
31, 1997, 1996 and 1995, respectively.

EMPLOYEE STOCK OWNERSHIP PLAN AND TRUST

Under the provisions of an employee stock ownership plan ("ESOP") and its
related trust, Jeffreys made annual contributions to the plan which were
invested in stock of Jeffreys and other qualifying securities for the benefit of
Jeffreys' employees. The plan provided for Jeffreys' purchases of employee
shares to be paid in cash and with the issuance of a note payable. Effective
September 26, 1997, the participation was frozen. Concurrent with the merger
with Metals USA, ESOP shares were exchanged for shares of Metals USA common
stock.

LEVERAGED ESOP ARRANGEMENT

The following disclosure has been restated to reflect the equivalent shares
of Metals USA common stock that were issued in connection with the acquisition
of Jeffreys.

Jeffreys' ESOP held 434,616 shares of stock prior to the purchase of
735,384 shares of outstanding stock from a majority stockholder for $5.31 per
share. The ESOP borrowed the funds to purchase such stock and Jeffreys
guaranteed the repayment of this loan. Jeffreys will repay this loan, plus
interest, through deductible contributions to the plan. As Jeffreys makes
contributions to the plan, which reduces the principal on the note, the plan
will release the corresponding shares related to the reduction in the note
principal. At the point when these shares are no longer specifically secured by
the note payable, they will be allocated to the individual participants of the
plan and considered earned by those employees at that time. Jeffreys accounts
for its ESOP in accordance with Statement of Position 93-6 ("SOP 93-6"),
"Employers' Accounting for Employee Stock Ownership Plans". Accordingly, the
debt of the ESOP is recorded as long-term debt and the shares pledged as
collateral are reported as unearned compensation. As shares are released from
collateral, Jeffreys reports compensation expense equal to the current estimated
market price of the

F-26
<PAGE>
METALS USA, INC. AND SUBSIDIARIES
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(IN MILLIONS, EXCEPT SHARE AND PER SHARE AMOUNTS)

shares. ESOP share compensation expense was $.4, $.6 and $.6 for the years ended
December 31, 1997, 1996 and 1995, respectively.

Since the obligation is secured by the shares purchased and the note is
guaranteed by Jeffreys, all amounts relating to this transaction are considered
unearned compensation of the employees until such time as the note is deemed
paid and the corresponding shares are released to the individual participants of
the plan. The balance in unearned compensation at December 31, 1997 and 1996 of
$1.5 and $1.8, respectively, results from the leveraged ESOP stock purchase less
the deemed release of shares at cost.

The activity relating to the ESOP shares was as follows:

YEARS ENDED DECEMBER 31,
-------------------------------------
1997 1996 1995
----------- ----------- -----------
Allocated shares at beginning of
year............................... 795,639 710,970 635,856
Shares deemed released for the
current period 87,165 84,669 75,114
Unallocated shares................... 287,196 374,361 459,030
----------- ----------- -----------
Total ESOP shares............... 1,170,000 1,170,000 1,170,000
=========== =========== ===========

In accordance with SOP 93-6, additional paid-in capital is adjusted
whenever the market value of the shares released is more or less than the cost
of the shares released. The increase in additional paid-in capital attributable
to this difference in market value and cost was $.1 and $.2 for the years ended
December 31, 1997 and 1996, respectively.

11. COMMITMENTS AND CONTINGENCIES

OPERATING LEASE AGREEMENTS

The Company's minimum lease obligations under certain long-term
non-cancelable lease agreements for office space, warehouse space and equipment
are as follows: 1998 -- $6.6; 1999 -- $6.0; 2000 -- $5.3; 2001 -- $5.0;
2002 -- $3.9; thereafter -- $26.5.

The Company paid approximately $3.2, $.6 and $.7 in rent expense during the
years ended December 31, 1997, 1996 and 1995, respectively, under operating
leases. Certain of these leases are with affiliated individuals and companies
(see Note 12).

CONTINGENCIES

Subsidiaries of the Company are involved in a variety of claims, lawsuits
and other disputes arising in the ordinary course of business. The Company
believes the resolution of these matters and the incurrence of their related
costs and expenses should not have a material adverse effect on the Company's
consolidated financial position, results of operations or liquidity.

12. RELATED-PARTY TRANSACTIONS

Transactions with directors, officers, employees (including affiliates of
the foregoing) or affiliates of the Company must be at terms that are no less
favorable to the Company than those available from third parties and must be
approved in advance by a majority of disinterested members of the Board of
Directors.

In connection with the Mergers and certain of the subsequent acquisitions,
subsidiaries of the Company have entered into a number of lease arrangements for
facilities and equipment. These lease arrangements are for periods ranging from
10 to 20 years. Lease payments for these items in respect of the years ended
December 31, 1997, 1996 and 1995 were $1.4, $.3 and $.3, respectively. Future
commitments in respect of these leases are included in the schedule of minimum
lease payments in Note 11.

At December 31, 1997 and 1996 the aggregate principal amount of notes
receivable held by the Company were $.8 and $.1, respectively. Interest accrues
on the notes at rates ranging from 7.5% to 8.0% per annum. The notes call for
regular periodic payments of principal and interest and mature at varying dates
through March 1, 2007. The notes are secured by liens on specific assets of the
affiliates and personnel guarantees of the individuals. As of December 31, 1997,
the notes were current as to payment terms.

F-27
<PAGE>
METALS USA, INC. AND SUBSIDIARIES
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(IN MILLIONS, EXCEPT SHARE AND PER SHARE AMOUNTS)

At December 31, 1997 and 1996, a subsidiary of the Company (Krohn) had
outstanding notes payable to shareholders in the aggregate principal amount of
$1.3. The notes bear interest at prime plus 2% and are payable on demand.
Interest expense related to these notes for each of the years ended December 31,
1997, 1996 and 1995 was $.1.

13. SUBSEQUENT EVENTS (UNAUDITED)

On May 20, 1998, the Company's stockholders approved an increase in the
number of authorized shares of Common Stock to 200,000,000.

The Unaudited Supplemental Financial Statements included elsewhere in this
Prospectus should be read in conjunction with those presented above with respect
to events occurring after the date of the auditors report.

F-28
<PAGE>
METALS USA, INC. AND SUBSIDIARIES
SUPPLEMENTAL CONSOLIDATED BALANCE SHEETS
(IN MILLIONS, EXCEPT SHARE AND PER SHARE AMOUNTS)

MARCH 31, DECEMBER 31,
1998 1997
------------ -------------
(UNAUDITED)
ASSETS
Current assets:
Cash............................... $ 11.9 $ 7.3
Accounts receivable, net of
allowance of $4.8 and $3.6....... 148.1 95.1
Inventories........................ 223.3 159.4
Prepaid expenses................... 2.6 1.9
Deferred income tax asset.......... 2.7 1.5
Other.............................. 4.3 2.2
------------ -------------
Total current assets....... 392.9 267.4
Property and equipment, net.......... 107.1 86.5
Goodwill, net........................ 156.8 120.1
Other assets, net.................... 13.4 6.6
------------ -------------
Total assets............... $ 670.2 $ 480.6
============ =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable................... $ 81.5 $ 52.5
Accrued liabilities................ 19.0 13.1
Current portion of long-term
debt............................. 9.8 7.2
Income taxes payable............... 3.4 1.6
------------ -------------
Total current
liabilities.................. 113.7 74.4
Long-term debt, less current
portion............................ 273.2 167.1
Deferred income tax liability........ 8.6 8.1
Other long-term liabilities.......... 4.9 4.5
------------ -------------
Total liabilities.......... 400.4 254.1
------------ -------------
Commitments and contingencies
Stockholders' equity:
Preferred stock, $0.01 par,
5,000,000 shares authorized and
outstanding, none issued and
outstanding..................... -- --
Common stock, $0.01 par,
203,122,914 shares authorized,
35,646,038 and 32,680,226 shares
issued and outstanding
respectively.................... .4 .3
Additional paid-in capital......... 223.4 184.6
Unearned compensation.............. (1.5) (1.5)
Retained earnings.................. 47.5 43.1
------------ -------------
Total stockholders'
equity....................... 269.8 226.5
------------ -------------
Total liabilities and
stockholders' equity......... $ 670.2 $ 480.6
============ =============

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

F-29
<PAGE>
METALS USA, INC. AND SUBSIDIARIES
UNAUDITED SUPPLEMENTAL CONSOLIDATED STATEMENTS OF OPERATIONS
(IN MILLIONS, EXCEPT PER SHARE AMOUNTS)

THREE MONTHS ENDED
MARCH 31,
--------------------
1998 1997
--------- ---------
Net sales............................... $ 278.5 $ 72.0
Operating costs and expenses:
Cost of sales...................... 214.6 55.5
Operating and delivery............. 26.0 6.9
Selling, general and
administrative.................... 18.1 7.2
Depreciation and amortization...... 3.0 .7
--------- ---------
Operating income........................ 16.8 1.7
Other (income) expense:
Interest expense................... 4.8 .4
Other income....................... (.1) (.1)
--------- ---------
Income before income taxes.............. 12.1 1.4
Provision for income taxes.............. 4.9 1.8
--------- ---------
Net income (loss)....................... $ 7.2 $ (.4)
========= =========
Earnings per share...................... $ .21 $ (.03)
========= =========
Earnings per share -- assuming
dilution.............................. $ .21 $ (.03)
========= =========
Number of common shares used in the per
share calculations:
Earnings per share................. 33.8 14.2
========= =========
Earnings per share -- assuming
dilution.......................... 34.5 14.2
========= =========

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

F-30
<PAGE>
METALS USA, INC. AND SUBSIDIARIES
UNAUDITED SUPPLEMENTAL CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN MILLIONS)

THREE MONTHS ENDED
MARCH 31,
--------------------
1998 1997
--------- ---------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)............... $ 7.2 $ (.4)
Adjustments to reconcile net
income (loss) to net cash (used
in) provided by
operating activities --
Capital contributions
attributable to deemed
tax payments of S
Corporations............. .3 .9
Provision for bad debts.... .6 --
Depreciation and
amortization............. 3.0 .7
Deferred financing costs
incurred................. (7.0) (.1)
Amortization of deferred
financing costs.......... .1 --
Compensation
expense -- management
shares................... -- 2.8
Changes in operating assets
and liabilities, net of
business acquisitions --
Accounts receivable... (20.9) (3.7)
Inventories........... (2.6) 2.0
Prepaid expenses and
other assets........ (3.8) (1.2)
Accounts payable and
accrued
liabilities......... 7.2 4.9
Income taxes
payable............. 1.2 .7
Other liabilities..... .4 (.6)
Other operating............ (.7) .2
--------- ---------
Net cash (used
in) provided by
operating
activities..... (15.0) 6.2
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of assets.... .3 --
Purchase of property and
equipment...................... (2.9) (1.8)
Purchase of businesses, net of
acquired cash.................. (33.8) --
--------- ---------
Net cash used in
investing
activities..... (36.4) (1.8)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Distributions to shareholders... (2.7) (1.0)
Issuance of 8 5/8% Senior
Subordinated Notes............. 200.0 --
Net repayments on the Credit
Facility....................... (93.9) --
Net repayments on Industrial
Revenue Bonds and other
long-term debt................. (47.4) (1.8)
Other financing................. -- .8
--------- ---------
Net cash
provided by
(used in)
financing
activities..... 56.0 (2.0)
--------- ---------
NET INCREASE IN CASH................. 4.6 2.4
CASH, beginning of period............ 7.3 2.4
--------- ---------
CASH, end of period.................. $ 11.9 $ 4.8
========= =========

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

F-31
<PAGE>
METALS USA, INC. AND SUBSIDIARIES
CONDENSED NOTES TO UNAUDITED SUPPLEMENTAL CONSOLIDATED
FINANCIAL STATEMENTS
(IN MILLIONS, EXCEPT SHARE AND PER SHARE AMOUNTS)

1. ORGANIZATION AND BASIS OF PRESENTATION

ORGANIZATION

Metals USA, Inc., a Delaware corporation, ("Metals USA") 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. Prior to its IPO, Metals USA had not conducted any operations relating
to the generation of net sales. Concurrent with the consummation of the IPO,
Metals USA acquired, in separate merger transactions, eight companies engaged in
the processing of steel, aluminum and specialty metals, as well as the
manufacture of metal components. Following the IPO and through March 31, 1998,
the Company has acquired numerous additional companies in similar businesses.
(See Note 5). Metals USA, together with its wholly-owned subsidiaries, is
referred to as the "Company."

BASIS OF PRESENTATION
INTERIM FINANCIAL INFORMATION -- The interim consolidated 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 interim consolidated financial information as of and for
the periods indicated. All intercompany transactions and balances have been
eliminated. Accounting measurements at interim dates inherently involves 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.

The information contained in the following notes to the accompanying
supplemental consolidated financial statements is condensed from that which
would appear in the annual audited financial statements; accordingly, the
financial statements included herein should be reviewed in conjunction with the
Company's audited supplemental consolidated financial statements and related
notes thereto contained elsewhere in this prospectus. Certain capitalized terms
used herein have the same meaning given to them in the Supplemental Consolidated
Financial Statements.

F-32
<PAGE>
METALS USA, INC. AND SUBSIDIARIES
CONDENSED NOTES TO UNAUDITED SUPPLEMENTAL CONSOLIDATED
FINANCIAL STATEMENTS -- (CONTINUED)
(IN MILLIONS, EXCEPT SHARE AND PER SHARE AMOUNTS)

RESTATEMENT OF HISTORICAL FINANCIAL STATEMENTS
On May 29, 1998, Metals USA completed the acquisition of all the capital
stock of Krohn Steel Service Center, Inc. ("Krohn") in a business combination
accounted for as a "pooling-of-interests" transaction in accordance with the
requirements of APB No. 16. Because the acquisition occurred after March 31,
1998, these restated financial statements are labeled as "Supplemental" in
accordance with the rules and regulations of the Securities and Exchange
Commission. The following table summarizes the restated consolidated net sales,
net income and per shared data of the Company after giving effect to the
acquisition of Krohn:
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
----------------------------------------------
1998 1997
-------------------- ---------------------
NET
NET INCOME/
NET SALES INCOME NET SALES (LOSS)
--------- ------ --------- -------
<S> <C> <C> <C> <C>
Net sales and net income (loss) --
As previously reported in the
Company's Form 10-Q for the three
months ended March 31, 1998...... $ 270.5 $6.7 $65.1 $ (.7)
Acquisition accounted for as
pooling-of-interests............. 8.0 .5 6.9 .3
--------- ------ --------- -------
As restated................... $ 278.5 $7.2 $72.0 $ (.4)
========= ====== ========= =======
Earnings per share --
As previously reported in the
Company's Form 10-Q for the three
months ended March 31, 1998...... $.21 $(.05)
Acquisition accounted for as
pooling-of-interests............. -- .02
------ -------
As restated................... $.21 $(.03)
====== =======
Earnings per share -- assuming
dilution --
As previously reported in the
Company's Form 10-Q for the three
months ended March 31, 1998...... $.20 $(.05)
Acquisition accounted for as
pooling-of-interests............. .01 .02
------ -------
As restated................... $.21 $(.03)
====== =======

</TABLE>
USE OF ESTIMATES AND ASSUMPTIONS

2. EARNINGS PER SHARE

The number of shares of common stock used in the computation of Earnings
per Share excludes the potential dilution that could occur if securities and
other contracts to issue common stock were exercised or converted into common
stock. The number of shares of common stock used in the computation of Earnings
per Share -- Assuming Dilution reflects the potential dilution that could occur
if securities and other contracts to issue common stock were exercised or
converted into common stock. The computations result from dividing income
available to common stockholders by the applicable weighted average number of
common shares outstanding during the period.

Pro forma combined earnings per share were computed assuming all of the
shares issued and outstanding upon completion of the IPO (21,667,023 shares)
were issued and outstanding as of January 1,

F-33
<PAGE>
METALS USA, INC. AND SUBSIDIARIES
CONDENSED NOTES TO UNAUDITED SUPPLEMENTAL CONSOLIDATED
FINANCIAL STATEMENTS -- (CONTINUED)
(IN MILLIONS, EXCEPT SHARE AND PER SHARE AMOUNTS)

1997. These shares include shares issued to consultants, members of management
and the former owners of the Founding Companies, together with the shares sold
pursuant to the IPO. Shares issued in connection with the acquisitions are
included in the computation of weighted average shares outstanding only for
those periods subsequent to their respective dates of acquisition, except for
those acquisitions accounted for using the "pooling-of-interests" method, in
which case the shares are reflected in the computation of weighted average
shares outstanding as of the beginning of the earliest period presented.

Earnings per Share for the three months ended March 31, 1997, was computed
using 9,448,313 shares (the aggregate number of shares issued in connection with
the acquisition of entities accounted for using the "pooling-of-interests"
method of accounting) for periods prior to July 3, 1996 (date of inception),
together with the 4,753,414 shares issued in connection with the organization of
Metals USA (which includes shares issued to consultants and management prior to
the IPO). Shares issued to consultants and management prior to the IPO were
considered to be issued and outstanding from the date of inception without
regard to the date such shares were actually issued. Earnings per Share for the
three months ended March 31, 1998 was computed using the shares issued in
connection with the entities acquired subsequent to December 31, 1997 (all of
which were accounted for using the "purchase" method of accounting) such
shares in the Earnings per Share computation only from their respective dates of
issuance. Earnings per Share -- Assuming Dilution differs from the Earnings per
Share computation due to the potential dilution that could occur if options to
acquire common stock were exercised or converted into common stock.

3. INVENTORIES

Inventories consist of the following:

MARCH 31, DECEMBER 31,
1998 1997
----------- ------------
(UNAUDITED)
Raw materials --
Structural steel................... $ 27.2 $ 8.4
Flat-rolled steel.................. 70.5 44.8
Specialty metals................... 43.5 22.0
Aluminum products.................. 9.6 17.6
Other.............................. .1 1.7
----------- ------------
Total raw materials........... 150.9 94.5
----------- ------------
Work-in-process and finished goods --
Structural steel................... 32.6 35.8
Flat-rolled steel.................. 11.0 19.2
Specialty metals................... 9.5 5.1
Aluminum products.................. 21.2 6.7
----------- ------------
Total work-in-process and
finished goods............. 74.3 66.8
Less -- LIFO reserve.................... (1.9) (1.9)
----------- ------------
Total......................... $ 223.3 $159.4
=========== ============

4. LONG-TERM DEBT

Long-term debt consists of the following:

MARCH 31, DECEMBER 31,
1998 1997
----------- ------------
(UNAUDITED)
8 5/8% Senior Subordinated Notes........ $ 200.0 $--
Borrowings under the Credit Facility.... 50.9 144.8
Various issues of Industrial Revenue
Bonds................................. 21.5 21.6
Obligations under capital leases and
other................................. 10.6 7.9
----------- ------------
283.0 174.3
Less -- Current portion................. (9.8) (7.2)
----------- ------------
$ 273.2 $167.1
=========== ============

F-34
<PAGE>
METALS USA, INC. AND SUBSIDIARIES
CONDENSED NOTES TO UNAUDITED SUPPLEMENTAL CONSOLIDATED
FINANCIAL STATEMENTS -- (CONTINUED)
(IN MILLIONS, EXCEPT SHARE AND PER SHARE AMOUNTS)

The Company entered into an amended and restated five-year revolving credit
facility which provides for borrowings of up to $300.0 on February 11, 1998.
Additionally, on February 11, 1998, the Company completed the sale of $200.0
aggregate principal amount of its 8 5/8% Senior Subordinated Notes due 2008 and
received $194.5 of net cash proceeds (before estimated expenses of $.8)
therefrom. The Company used $179.3 of such proceeds to repay the borrowings
outstanding under the Original Credit Facility and Interim Credit Facility on
February 11, 1998.

The Notes call for semi-annual interest payments on February 15 and August
15 of each year, beginning August 15, 1998 and mature on February 15, 2008. The
Notes are redeemable at the option of the Company, in whole or in part, at any
time on or after February 15, 2003, at redemption rates stated in the indenture
governing the Notes (the "Indenture") together with accrued and unpaid
interest to the date of redemption. Notwithstanding the foregoing, at any time
on or prior to February 15, 2001, the Company may redeem up to 35% of the
aggregate principal amount of the Notes originally issued with the net proceeds
of one or more offerings of the common stock of the Company, at a redemption
price equal to 108.625% of the principal amount thereof, plus accrued and unpaid
interest to the date of such redemption; provided that at least 65% of the
aggregate principal amount of Notes originally issued remains outstanding
immediately after such redemption. The Notes are guaranteed by substantially all
of the Company's current and future subsidiaries, and contain covenants
restricting additional indebtedness, liens, transactions with affiliates, asset
sales, investments and mergers and acquisitions of subsidiares. The Notes are
subordinate to borrowings under the Credit Facility and will rank PARI PASSU in
the right of payment with all other future subordinated debt of the Company and
will rank senior to other indebtedness that expressly provides that it is
subordinated in right of payment to the Notes. The Company filed a registration
statement with the Securities and Exchange Commission on April 9, 1998, under
cover of Form S-4 (the "Exchange Offer Registration Statement") relating to an
exchange offer for the Notes under the Securities Act of 1933, as amended. The
Company has agreed, for the benefit of all holders of the Notes, that it will
use its best efforts to cause the Exchange Offer Registration Statement declared
effective within 150 days after the issuance of the Notes.

The Credit Facility matures on February 11, 2003, 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. At March 31, 1998, $249.1 was available to the Company under the
Credit Facility. The Credit Facility is used to fund acquisitions, capital
expenditures, refinance debt of the companies acquired and for general 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 on additional
indebtedness, (iii) restrictions on liens, guarantees and dividends, (iv)
obtaining the lenders' consent with respect to certain individual acquisitions,
and (v) the maintenance of a specified level of consolidated net worth. In
addition, the Company's Credit Facility and the Indenture include restrictions
on the ability of the Company to pay dividends. Borrowings under the Credit
Facility are secured by the pledge of all of the capital stock of each of the
Company's material subsidiaries (as defined). As of June 15, 1998, the Company
had outstanding borrowings of $103.9 and $196.1 available for use under the
Credit Facility.

5. ACQUISITIONS

F-35
<PAGE>
METALS USA, INC. AND SUBSIDIARIES
CONDENSED NOTES TO UNAUDITED SUPPLEMENTAL CONSOLIDATED
FINANCIAL STATEMENTS -- (CONTINUED)
(IN MILLIONS, EXCEPT SHARE AND PER SHARE AMOUNTS)

Corporation ("Concord"), and the assets of Seaboard Steel and Iron Corporation
("Seaboard"). These acquisitions were accounted for using the "purchase"
method of accounting. The aggregate consideration paid by Metals to acquire
these companies was approximately $40.7 in cash and 2,965,812 shares of common
stock (excluding assumed indebtedness of approximately $47.4).

The following summarized unaudited pro forma financial information reflects
the supplemental consolidated financial information of the Company and assumes
the acquisition of the Founding Companies, the Companies acquired through March
31, 1998, and the issuance of the Notes occurred on January 1, 1997. The pro
forma decrease in earnings resulting from the issuance of the Notes was
approximately $.02 per share for both periods presented.

THREE MONTHS ENDED
MARCH 31,
--------------------------
1998 1997
------------ ------------
(UNAUDITED)
Net Sales............................ $ 323.5 $ 282.1
Operating costs and expenses:
Cost of sales................... 247.0 216.7
Operating and delivery.......... 30.2 27.0
Selling, general and
administrative................ 21.8 18.8
Depreciation and amortization... 3.5 3.6
------------ ------------
Operating income..................... 21.0 16.0
Other (income) expenses:
Interest expense................ 6.7 5.5
Other........................... .3 (.2)
------------ ------------
Income before income taxes...... 14.0 10.7
Provision for income taxes........... 5.7 4.7
------------ ------------
Net income........................... $ 8.3 $ 6.0
============ ============
Earnings per share................... $ .23 $ .17
============ ============
Earnings per share -- assuming
dilution........................... $ .23 $ .17
============ ============
Number of common shares used in the
per share calculations:
Earnings per share.............. 35,646,038 35,646,038
============ ============
Earnings per share -- assuming
dilution...................... 36,358,286 35,671,650
============ ============

The preceding unaudited pro forma amounts reflect the results supplemental
of operations for Metals USA, the Founding Companies and the other acquisitions
completed through March 31, 1998, assuming the transactions were completed on
January 1, 1997. Additionally, the amounts shown in the table reflect (a) the
reduction in certain related party rental and lease expenses which has been
agreed to prospectively; (b) the reduction in salaries, bonuses and benefits to
the owners of the acquired companies which they have agreed to prospectively and
the reversal of the non-cash compensation charge related to the issuance of
common stock to management of and consultants to Metals USA in 1997, partially
offset by a charge for recurring salary expenses of management; (c) the
amortization of goodwill recorded as a result of the acquisition of the
companies acquired over a forty-year estimated life plus additional depreciation
expense due to the allocation of a portion of the excess purchase price to
property and equipment; (d) the assumed reductions in interest expense due to
the refinancing of the outstanding indebtedness in conjunction with the
acquisition of the companies acquired, offset by an assumed increase in interest
expense incurred in connection with financing the acquisitions; (e) the
pre-acquisition results of operations for subsidiares of affiliates of the
Founding Companies which were acquired by the Founding Companies prior to the
related

F-36
<PAGE>
METALS USA, INC. AND SUBSIDIARIES
CONDENSED NOTES TO UNAUDITED SUPPLEMENTAL CONSOLIDATED
FINANCIAL STATEMENTS -- (CONTINUED)
(IN MILLIONS, EXCEPT SHARE AND PER SHARE AMOUNTS)

acquisition by Metals USA, as if those previous acquisitions were completed as
of January 1, 1997; (f) a charge eliminating the gains recorded as historical
LIFO adjustments to cost of sales as a result of the restatement of base year
LIFO costs to the appropriate replacement costs as if the acquisitions occured
on January 1, 1997; (g) certain other nonrecurring expenses with respect to the
companies acquired, such as expenses associated with compensation plans which
were terminated in conjunction with the acquisitions of their repective
companies; (h) the incremental interest expense and amortization of deferred
financing costs incurred as a result of the issuance of the Notes and the Credit
Facility, net of the repayment of outstanding indebtedness of the Company and
(i) the incremental provision for federal and state income taxes for all
entities being combined.

6. SUPPLEMENTAL INFORMATION

SUPPLEMENTAL CASH FLOW INFORMATION

THREE MONTHS ENDED
MARCH 31,
--------------------
1998 1997
--------- ---------
Supplemental cash flow information:
Cash paid for interest............. $ 2.6 $ .4
Cash paid for income taxes......... 2.8 .2
Non-cash investing and financing
activities:
Purchase of businesses for stock... 38.6 --

COMPENSATION CHARGE

During the three months ended March 31, 1997, the Company sold an aggregate
of 309,500 shares of common stock to management and consultants to the Company
for $0.01 per share. As a result, the Company recorded a non-recurring, non-cash
compensation charge of $2.8 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.

7. COMMITMENTS AND CONTINGENCIES

8. SUBSEQUENT EVENTS

Subsequent to March 31, 1998, the Company acquired the following metal
processing companies: Industrial Metals, Inc. ("Industrial"), Sierra Pacific
Steel, Inc. ("Sierra"), Fullerton Industries, Inc. ("Fullerton"), Faitoute
Steel Company, Inc. ("Faitoute"), Steel Manufacturing and Warehouse Company
("Steel Manufacturing") and Wilkof-Morris Steel Corporation ("Wilkof").
These acquisitions were accounted for using the "purchase" method of
accounting. In addition, the Company completed the acquisition of Krohn Steel
Service Center, Inc. ("Krohn"), which was accounted for using the
"pooling-of-interests" method of accounting. The aggregate consideration paid
by the Company to acquire these

F-37
<PAGE>
METALS USA, INC. AND SUBSIDIARIES
CONDENSED NOTES TO UNAUDITED SUPPLEMENTAL CONSOLIDATED
FINANCIAL STATEMENTS -- (CONTINUED)
(IN MILLIONS, EXCEPT SHARE AND PER SHARE AMOUNTS)

companies was approximately $22.0 in cash and 2,715,631 shares of common stock
(excluding assumed indebtedness of approximately $18.7).

On April 20, 1998, the Company filed a shelf registration statement with
the Securities and Exchange Commission under cover of Form S-1 (the "1998 Shelf
Registration Statement") relating to the issuance of up to 10,000,000 shares of
common stock to be issued in connection with future acquisitions. The 1998 Shelf
Registration Statement was declared effective on April 22, 1998.

On May 20, 1998, the Company's stockholders approved an increase in the
number of authorized shares of Common Stock to 200,000,000.

F-38

<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To Metals USA, Inc.:

We have audited the accompanying consolidated balance sheets of Metals USA, Inc.
(a Delaware corporation) and subsidiaries (the "Company") as of December 31,
1997 and 1996, and the related consolidated statements of operations, cash flows
and stockholders' equity for each of the three years in the period ended
December 31, 1997. 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 consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of Metals
USA, Inc. and subsidiaries as of December 31, 1997 and 1996, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended December 31, 1997, in conformity with generally
accepted accounting principles.

ARTHUR ANDERSEN LLP

Houston, Texas
February 12, 1998

F-39
<PAGE>
METALS USA, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN MILLIONS, EXCEPT SHARE AND PER SHARE AMOUNTS)

DECEMBER 31,
--------------------
1997 1996
--------- ---------
ASSETS
Current assets:
Cash............................ $ 7.3 $ 1.7
Accounts receivable, net of
allowance of $3.6 and $.3...... 91.4 21.1
Inventories..................... 153.8 41.2
Prepaid expenses................ 1.8 .7
Deferred income tax asset....... 1.4 1.0
Other........................... 2.2 .6
--------- ---------
Total current assets....... 257.9 66.3
Property and equipment, net.......... 82.5 26.7
Goodwill, net........................ 120.1 --
Other assets, net.................... 6.5 2.1
--------- ---------
Total assets............... $ 467.0 $ 95.1
========= =========

LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable................ $ 50.9 $ 15.2
Accrued liabilities............. 12.9 2.4
Current portion of long-term
debt............................ 5.9 1.9
Income taxes payable............ 1.6 .5
--------- ---------
Total current
liabilities.................. 71.3 20.0
Long-term debt, less current
portion.............................. 167.1 24.6
Deferred income taxes................ 7.0 .3
Other long-term liabilities.......... 4.5 1.0
--------- ---------
Total liabilities.......... 249.9 45.9
--------- ---------
Commitments and contingencies
Stockholders' equity:
Preferred stock, $.01 par value,
5,000,000 shares authorized,
none issued
and outstanding............... -- --
Common stock, $.01 par value,
53,122,914 shares authorized,
31,461,924 and 11,997,925
shares outstanding,
respectively................... .3 .1
Additional paid-in capital...... 183.2 17.0
Unearned compensation........... (1.5) (1.8)
Retained earnings............... 35.1 33.9
--------- ---------
Total stockholders'
equity....................... 217.1 49.2
--------- ---------
Total liabilities and
stockholders' equity......... $ 467.0 $ 95.1
========= =========

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

F-40
<PAGE>
METALS USA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN MILLIONS, EXCEPT PER SHARE AMOUNTS)

FOR THE YEARS ENDED
DECEMBER 31,
-------------------------------
1997 1996 1995
--------- --------- ---------
Net sales............................... $ 507.8 $ 240.1 $ 235.2
Operating costs and expenses:
Cost of sales...................... 390.7 183.6 183.8
Operating and delivery............. 52.2 24.0 20.7
Selling, general and
administrative................... 39.4 19.8 14.2
Depreciation and amortization...... 5.4 3.5 2.8
--------- --------- ---------
Operating income........................ 20.1 9.2 13.7
Other (income) expense:
Interest expense................... 5.0 1.7 2.3
Other income....................... (.1) (.4) (.3)
--------- --------- ---------
Income before income taxes.............. 15.2 7.9 11.7
Provision for income taxes.............. 9.2 4.6 4.8
--------- --------- ---------
Net income.............................. $ 6.0 $ 3.3 $ 6.9
========= ========= =========
Earnings per share...................... $ .28 $ .31 $ .84
========= ========= =========
Earnings per share -- assuming
dilution.............................. $ .28 $ .31 $ .84
========= ========= =========
Number of common shares used in the per
share calculations:
Earnings per share................. 21.3 10.6 8.2
========= ========= =========
Earnings per share -- assuming
dilution......................... 21.6 10.6 8.2
========= ========= =========

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

F-41
<PAGE>
METALS USA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN MILLIONS)

FOR THE YEARS ENDED
DECEMBER 31,
-------------------------------
1997 1996 1995
--------- --------- ---------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income....................... $ 6.0 $ 3.3 $ 6.9
Adjustments to reconcile net
income to net cash provided by
operating activities --
Capital contributions
attributable to deemed tax
payments of S
Corporations.............. 2.9 2.4 2.9
Provision for bad debts..... .6 .2 .3
Depreciation and
amortization.............. 5.4 3.5 2.8
Deferred income taxes....... .6 (.2) .1
Deferred financing costs
incurred.................. (1.0) -- .1
Compensation charged against
notes receivable.......... -- .5 --
Compensation
expense -- management
shares.................... 6.0 3.6 --
Changes in operating assets
and liabilities, net of
business acquisitions --
Accounts receivable..... 2.4 -- 2.7
Inventories............. (6.4) (9.7) 10.4
Prepaid expenses and
other assets.......... (.3) (.2) .1
Accounts payable and
accrued liabilities... (14.2) 4.7 (3.5)
Income taxes payable.... .4 .2 --
Other operating............. (.1) (.4) (.2)
--------- --------- ---------
Net cash provided
by operating
activities....... 2.3 7.9 22.6
--------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property............ (18.5) (6.5) (8.5)
Purchase of businesses, net of
acquired cash................... (68.6) -- (6.0)
Other investing.................. 1.4 .2 (.1)
--------- --------- ---------
Net cash used in
investing
activities....... (85.7) (6.3) (14.6)
--------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance of stock................ 58.3 -- --
Distributions to shareholders.... (4.8) (3.9) (5.1)
Net borrowings (repayments) on
long-term debt.................. (4.0) (2.0) 3.1
Net borrowings (repayments) on
revolving credit facilities..... 39.6 3.1 (3.7)
Net payments on notes payable to
affiliates...................... (.3) (.4) (.5)
Other financing.................. .2 .2 --
--------- --------- ---------
Net cash provided
by (used in)
financing
activities....... 89.0 (3.0) (6.2)
--------- --------- ---------
NET INCREASE (DECREASE) IN CASH...... 5.6 (1.4) 1.8
CASH, beginning of period............ 1.7 3.1 1.3
--------- --------- ---------
CASH, end of period.................. $ 7.3 $ 1.7 $ 3.1
========= ========= =========
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid for --
Interest.................... $ 4.9 $ 1.6 $ 2.2
Income taxes................ 5.5 2.1 1.7
Non-cash activities --
Retirement plan contribution
charged to unearned
compensation and
additional paid-in
capital................... .4 .6 .6
Purchase of businesses for
stock..................... 197.6 -- --

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

F-42
<PAGE>
METALS USA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(IN MILLIONS)
<TABLE>
<CAPTION>
ADDITIONAL
COMMON PAID-IN UNEARNED RETAINED
STOCK CAPITAL COMPENSATION EARNINGS TOTAL
------- ----------- ------------- --------- ---------
<S> <C> <C> <C> <C> <C>
BALANCE, December 31, 1994........... $ .1 $ 7.6 $(2.9) $ 31.7 $ 36.5
Shares released under leveraged
ESOP Plan....................... -- .1 .5 -- .6
Capital contributions attributable
to deemed tax payments of S
Corporation..................... -- 2.9 -- -- 2.9
Distributions...................... -- -- -- (5.1) (5.1)
Net income......................... -- -- -- 6.9 6.9
------- ----------- ------------- --------- ---------
BALANCE, December 31, 1995........... .1 10.6 (2.4) 33.5 41.8
Adjustment to conform fiscal
year-ends....................... -- .1 .2 1.0 1.3
Shares released under leveraged
ESOP Plan....................... -- .2 .4 -- .6
Other adjustments.................. -- .1 -- -- .1
Shares issued to members of
management...................... -- 3.6 -- -- 3.6
Capital contributions attributable
to deemed tax payments of S
Corporations.................... -- 2.4 -- -- 2.4
Distributions...................... -- -- -- (3.9) (3.9)
Net income......................... -- -- -- 3.3 3.3
------- ----------- ------------- --------- ---------
BALANCE, December 31, 1996........... .1 17.0 (1.8) 33.9 49.2
Shares issued to members of
management...................... -- 6.0 -- -- 6.0
Shares sold in connection with the
IPO............................. .1 58.2 -- -- 58.3
Shares issued in connection with
the acquisition of the Founding
Companies....................... .1 80.1 -- -- 80.2
Shares issued in connection with
the Subsequent Acquisitions..... -- 18.6 -- -- 18.6
Shares released under leveraged
ESOP Plan....................... -- .1 .3 -- .4
Other adjustments.................. -- .3 -- -- .3
Capital contributions attributable
to deemed tax payments of S
Corporations.................... -- 2.9 -- -- 2.9
Distributions...................... -- -- -- (4.8) (4.8)
Net income......................... -- -- -- 6.0 6.0
------- ----------- ------------- --------- ---------
BALANCE, December 31, 1997........... $ .3 $ 183.2 $(1.5) $ 35.1 $ 217.1
======= =========== ============= ========= =========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.

F-43
<PAGE>
METALS USA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN MILLIONS, EXCEPT SHARE AND PER SHARE AMOUNTS)

1. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

BASIS OF PRESENTATION

Metals USA, Inc., a Delaware corporation, ("Metals USA") was founded on
July 3, 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. Prior to its initial public offering ("IPO"), Metals USA had
conducted no operations. Concurrent with the consummation of its IPO on July 11,
1997, Metals USA acquired, in separate transactions (the "Mergers") eight
companies (the "Founding Companies") engaged in the processing of steel,
aluminum and specialty metals, as well as the manufacture of metal components.
Following the IPO and through December 31, 1997, Metals USA acquired seven
additional companies and subsequent to December 31, 1997, acquired eight
additional companies in similar businesses (See Note 2). Certain of the
companies acquired after the IPO were accounted for using the
"pooling-of-interests" method, resulting in a restatement of the Company's
financial statements for all periods presented (See Note 2). References herein
to the "Company" include Metals USA and its subsidiaries.

USE OF ESTIMATES AND ASSUMPTIONS

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

INVENTORIES -- Inventories are stated at the lower of cost or market.
Certain of the Company's subsidiaries use the last-in first-out ("LIFO")
method of accounting for inventories and other subsidiaries use a variety of
methods including specific identification, average cost and the first-in
first-out ("FIFO") method of accounting. As of December 31, 1997 and 1996,
approximately 46.4% and 52.2%, respectively of the consolidated inventories were
accounted for using the LIFO method of accounting.

F-44
<PAGE>
METALS USA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(IN MILLIONS, EXCEPT SHARE AND PER SHARE AMOUNTS)

accumulated amortization, and is being amortized over a forty-year life using
the straight-line method. The Company reviews the recoverability of goodwill and
other long-lived assets including other intangible assets for impairment
whenever events or changes in circumstances indicate that the carrying amount of
the asset may be impaired. The Company has not recorded any impairment losses
with respect to goodwill, other long-lived assets or other intangible assets as
of December 31, 1997. Accumulated amortization totaled $1.2 as of December 31,
1997.

Earnings per Share was computed using 8,230,011 shares (the aggregate
number of shares issued in connection with the acquisition of entities accounted
for using the "pooling-of-interests" method of accounting) for periods prior
to July 3, 1996 (date of inception). The 4,753,414 shares issued in connection
with the organization of Metals USA, including shares issued to management, were
considered to be issued and outstanding from the date of inception without
regard to the date such shares were actually issued. The

F-45
<PAGE>
METALS USA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(IN MILLIONS, EXCEPT SHARE AND PER SHARE AMOUNTS)

6,785,000 shares issued in connection with the IPO and the 11,693,499 shares
issued in connection with the entities acquired using the "purchase" method of
accounting have been included in the Earnings per Share computation only from
their respective dates of issuance, resulting in weighted average shares of
8,341,480 for the year ended December 31, 1997. Earnings per Share -- Assuming
Dilution differs from the Earnings per Share computation due to the inclusion of
stock options that were dilutive.

2. BUSINESS COMBINATIONS

POOLING TRANSACTIONS

On September 26, 1997, Metals USA completed the acquisition of all the
capital stock of Jeffreys Steel Company, Inc. ("Jeffreys") in a business
combination accounted for as a "pooling-of-interests" transaction in
accordance with the requirements of Accounting Principles Board Opinion No. 16
("APB No. 16"), "Business Combinations." Jeffreys is headquartered in
Mobile, Alabama, and is engaged in the wholesale and retail sale of steel.
Jeffreys has historically reported on a July 31 fiscal year-end. For purposes of
the merger with Metals USA, the accompanying financial statements reflect
Jeffreys on a calendar year-end basis effective January 1, 1996. The historical
financial information of Jeffreys for the year ended July 31, 1995 has been
included in the Company's consolidated financial statements for the year ended
December 31, 1995. The net sales and net income of Jeffreys for the period from
August 1, 1995, through December 31, 1995, were $51.0 and $1.0, respectively.
The net income of Jeffreys for this transition period is included in the
accompanying consolidated statements of stockholders' equity as an adjustment to
retained earnings in order to conform their fiscal year to that of the Company.

On November 20, 1997, Metals USA completed the acquisition of all the
capital stock of Wayne Steel, Inc. ("Wayne") in a business combination
accounted for as a "pooling-of-interests" transaction in accordance with the
requirements of APB No. 16. Wayne operates as a wholesaler and processor of
steel and aluminum flat rolled products and is headquartered in Wooster, Ohio.
Prior to the acquisition by Metals USA, the shareholders of Wayne had elected to
be taxed as an S Corporation; accordingly, any federal income tax liabilities
for the periods prior to the acquisition date were the responsibility of the
respective stockholders. For purposes of these consolidated financial
statements, federal income taxes have been provided as if Wayne had filed C
Corporation tax returns for the pre-acquisition periods, with the current income
tax provisions reflected in the consolidated financial statements as increases
to additional paid-in capital. Collectively, Metals USA issued 8,230,011 shares
of common stock in exchange for all of the capital stock of Jeffreys and Wayne.
The unaudited aggregate pre-acquisition net sales and net income for Jeffreys
and Wayne during 1997 were $210.1 and $7.3, respectively. There were no
transactions between Metals USA, Jeffreys or Wayne during periods prior to these
business combinations.

PURCHASE TRANSACTIONS

F-46
<PAGE>
METALS USA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(IN MILLIONS, EXCEPT SHARE AND PER SHARE AMOUNTS)

Group headquartered in Houston, Texas; Uni-Steel, Inc. headquartered in Enid,
Oklahoma and Williams Steel & Supply Co., Inc. headquartered in Milwaukee,
Wisconsin. The acquisition of each of the Founding Companies was accounted for
using the "purchase" method of accounting in accordance with APB No. 16. The
aggregate consideration paid by Metals USA to acquire the Founding Companies was
approximately $27.8 in cash, 10,128,609 shares of common stock and the
assumption of $92.6 of debt.

The following summarized unaudited pro forma financial information assumes
the acquisition of the Founding Companies, the 1997 Subsequent Acquisitions and
the issuance of the Notes (as defined in Note 6) occurred on January 1, 1996.
The pro forma decrease in earnings resulting from the issuance of the Notes was
approximately $.11 per share for both periods presented.

YEARS ENDED DECEMBER
31,
--------------------
1997 1996
--------- ---------
(UNAUDITED)
Net sales............................ $ 854.5 $ 763.5
Operating costs and expenses:
Cost of sales................... 655.7 583.0
Operating and delivery.......... 86.2 75.4
Selling, general and
administrative................ 56.0 50.2
Depreciation and amortization... 10.2 11.1
--------- ---------
Operating income..................... 46.4 43.8
Interest expense..................... 16.4 15.4
Other (income) expense............... .7 (1.0)
--------- ---------
Income before income taxes........... 29.3 29.4
Provision for income taxes........... 12.4 12.7
--------- ---------
Net income........................... $ 16.9 $ 16.7
========= =========
Earnings per share................... $ .54 $ .53
========= =========
Earnings per share -- assuming
dilution........................... $ .53 $ .53
========= =========
Number of common shares used in per
share calculations:
Earnings per share.............. 31.5 31.5
========= =========
Earnings per share -- assuming
dilution...................... $ 31.8 $ 31.5
========= =========

The preceding pro forma amounts reflect the results of operations for the
Metals USA, the Founding Companies and the 1997 Subsequent Acquisitions,
assuming the transactions were completed on January 1,

F-47
<PAGE>
METALS USA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(IN MILLIONS, EXCEPT SHARE AND PER SHARE AMOUNTS)

1996. Additionally, the amounts shown in the table reflect (a) the reduction in
certain related party rental and lease expenses which has been agreed to
prospectively; (b) the reduction in salaries, bonuses and benefits to the owners
of the acquired companies which they have agreed to prospectively and the
reversal of the non-cash compensation charge related to the issuance of 985,500
and 400,000 shares of common stock to management of and consultants to Metals
USA in 1997 and 1996, respectively, partially offset by a charge for recurring
salary expenses of management; (c) the amortization of goodwill recorded as a
result of the acquisition of the Founding Companies and 1997 Subsequent
Acquisitions over a forty-year estimated life plus additional depreciation
expense due to the allocation of a portion of the excess purchase price to
property and equipment; (d) the assumed reductions in interest expense due to
the refinancing of the outstanding indebtedness in conjunction with the
acquisition of the Founding Companies and 1997 Subsequent Acquisitions, offset
by an assumed increase in interest expense incurred in connection with financing
the acquisitions; (e) the pre-acquisition results of operations for subsidiaries
or affiliates of the Founding Companies which were acquired by the Founding
Companies prior to the related acquisition by Metals USA, as if those previous
acquisitions were completed as of January 1, 1996; (f) a charge eliminating the
gains recorded as historical LIFO adjustments to cost of sales as a result of
the restatement of base year LIFO costs to the appropriate replacement costs as
if the acquisitions occurred on January 1, 1996; (g) certain other nonrecurring
expenses with respect to the 1997 Subsequent Acquisitions, such as expenses
associated with compensation plans which were terminated in conjunction with the
acquisitions of their respective companies; (h) the incremental interest expense
and amortization of deferred financing costs incurred as a result of the
issuance of the Notes and the Credit Facility (as defined in Note 6), net of the
repayment of outstanding indebtedness of the Company and (i) the incremental
provision for federal and state income taxes for all entities being combined.

3. INVENTORIES

Inventories consist of the following:

DECEMBER 31,
--------------------
1997 1996
--------- ---------
Raw materials --
Structural steel................ $ 8.4 $ 19.7
Flat-rolled steel............... 39.0 13.2
Specialty metals................ 22.0 --
Aluminum products............... 17.6 .6
Other........................... 1.9 3.9
--------- ---------
Total raw materials........ 88.9 37.4
--------- ---------
Work-in-process and finished goods --
Structural steel................ 35.8 --
Flat-rolled steel............... 19.2 5.1
Specialty metals................ 5.1 --
Aluminum products............... 6.7 .4
--------- ---------
Total work-in-process and
finished goods.......... 66.8 5.5
--------- ---------
Less -- LIFO reserve................. (1.9) (1.7)
--------- ---------
Total...................... $ 153.8 $ 41.2
========= =========

The replacement cost of the Company's inventory exceeds the historical cost
of the inventory, computed using the LIFO method of valuation, as reported in
the accompanying consolidated financial statements. If the FIFO method had been
used for all inventories, the carrying value would have been $155.7 and $42.9 at
December 31, 1997 and 1996, respectively. Additionally, net income would have
been $6.1, $3.4 and $6.6 for the years ended December 31, 1997, 1996 and 1995,
respectively.

F-48
<PAGE>
METALS USA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(IN MILLIONS, EXCEPT SHARE AND PER SHARE AMOUNTS)

4. PROPERTY AND EQUIPMENT

Property and equipment consists of the following:

DECEMBER 31,
ESTIMATED --------------------
USEFUL LIVES 1997 1996
------------ --------- ---------
Land................................. $ 3.8 $ 1.5
Building and improvements............ 5-40 years 34.3 17.3
Machinery and equipment.............. 7-25 years 56.7 19.2
Automobiles and trucks............... 3-12 years 7.3 4.9
--------- ---------
102.1 42.9
Less -- Accumulated depreciation..... (19.6) (16.2)
--------- ---------
Total........................... $ 82.5 $ 26.7
========= =========

Depreciation expense for the years ended December 31, 1997, 1996 and 1995
was $3.9, $3.3 and $2.7, respectively. Additionally, following the acquisitions
of Wayne and Jeffreys, the Company revised the estimated useful lives of the
depreciable assets of Wayne and Jeffreys to conform to the conventions adopted
by the Founding Companies. This revision reduced depreciation expense in 1997 as
compared to 1996 by approximately $1.2.

5. ACCRUED LIABILITIES

Accrued liabilities consist of the following:

DECEMBER 31,
--------------------
1997 1996
--------- ---------
Accrued salaries and employee
benefits........................... $ 5.0 $ 1.0
Accrued taxes other than income...... 1.8 .4
Accrued interest..................... 1.3 .2
Accrued profit sharing............... 1.2 .3
Other................................ 3.6 .5
--------- ---------
Total........................... $ 12.9 $ 2.4
========= =========

6. LONG-TERM DEBT

Long-term debt consists of the following:

DECEMBER 31,
--------------------
1997 1996
--------- ---------
Borrowings under the Credit
Facility............................. $ 144.8 $ --
Revolving credit facility with
interest at prime less 1.0%,
maturing on December 31, 1998,
secured by inventory and trade
accounts receivable................ -- 13.3
Various issues of Industrial Revenue
Bonds.............................. 21.6 8.0
Notes payable to former employee
stock ownership plan and trust
members payable in annual
installments including interest at
prime with an 8.5% cap through
February 1998...................... 1.7 2.1
Obligations under capital leases and
other.............................. 4.9 3.1
--------- ---------
173.0 26.5
Less -- Current portion.............. (5.9) (1.9)
--------- ---------
$ 167.1 $ 24.6
========= =========

F-49
<PAGE>
METALS USA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(IN MILLIONS, EXCEPT SHARE AND PER SHARE AMOUNTS)

Scheduled maturities of long-term debt for the years ending December 31 are
as follows: 1998 -- $5.9; 1999 -- $2.2; 2000 -- $2.5; 2001 -- $2.4; 2002 --
$2.3; thereafter -- $157.7.

F-50
<PAGE>
METALS USA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(IN MILLIONS, EXCEPT SHARE AND PER SHARE AMOUNTS)

7. INCOME TAXES

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

YEARS ENDED DECEMBER 31,
-------------------------------
1997 1996 1995
--------- --------- ---------
Federal --
Current......................... $ 7.9 $ 3.9 $ 3.8
Deferred........................ (.3) (.2) .1
--------- --------- ---------
7.6 3.7 3.9
State --
Current......................... 1.6 .9 .9
--------- --------- ---------
Total provision............ $ 9.2 $ 4.6 $ 4.8
========= ========= =========

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

YEARS ENDED DECEMBER 31,
-------------------------------
1997 1996 1995
--------- --------- ---------
Federal income tax at statutory
rates.............................. $ 5.3 $ 2.8 $ 4.1
State income taxes, net of federal
income tax benefit................. 1.0 .4 .5
Nondeductible expenses:
Stock compensation.............. 2.1 1.3 --
Amortization of goodwill........ .4 -- --
Other........................... .4 .1 .2
--------- --------- ---------
$ 9.2 $ 4.6 $ 4.8
========= ========= =========

F-51
<PAGE>
METALS USA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(IN MILLIONS, EXCEPT SHARE AND PER SHARE AMOUNTS)

The significant items giving rise to the deferred tax assets (liabilities)
are as follows:

DECEMBER 31,
----------------------
1997 1996
---------- ----------
Deferred tax assets --
Allowance for doubtful
accounts....................... $ 1.0 $ .1
Uniform capitalization of
inventory...................... 1.7 .6
Nonqualified plan
contribution................... -- .2
Accrued liabilities............. 2.0 .2
Deferred compensation........... .5 --
Net operating loss
carryforward.................. .3 --
State taxes..................... .3 --
---------- ----------
Total deferred tax
assets..................... 5.8 1.1
---------- ----------
Deferred tax liabilities --
Property and equipment.......... (6.5) (.3)
Inventories -- LIFO reserve..... (3.3) --
Foreign investments............. (.9) --
Other........................... (.5) (.1)
---------- ----------
Total deferred tax
liabilities............... (11.2) (.4)
Valuation allowance.................. (.3) --
---------- ----------
Net deferred tax
(liabilities) assets...... $ (5.7) $ .7
========== ==========

8. STOCKHOLDERS' EQUITY

COMMON STOCK AND PREFERRED STOCK

Metals USA effected a 135.81-for-one stock split on April 21, 1997 for each
share of $.01 par value common stock ("Common Stock") then outstanding. In
addition, Metals USA increased the number of authorized shares of Common Stock
to 50,000,000 and the authorized shares of Restricted Common Stock, as defined
below, to 3,122,914 and 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 in the consolidated balance sheets and in the
accompanying notes.

RESTRICTED COMMON STOCK

F-52
<PAGE>
METALS USA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(IN MILLIONS, EXCEPT SHARE AND PER SHARE AMOUNTS)

INITIAL PUBLIC OFFERING

9. STOCK BASED COMPENSATION

LONG-TERM INCENTIVE PLAN

NON-EMPLOYEE DIRECTORS' STOCK PLAN

F-53
<PAGE>
METALS USA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(IN MILLIONS, EXCEPT SHARE AND PER SHARE AMOUNTS)

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.

F-54
<PAGE>
METALS USA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(IN MILLIONS, EXCEPT SHARE AND PER SHARE AMOUNTS)

significant subjective assumptions, any one or all of which may differ in
material respects from actual amounts.

YEARS ENDED DECEMBER 31,
-------------------------------
1997 1996 1995
--------- --------- ---------
Net income as reported............... $ 6.0 $ 3.3 $ 6.9
Estimated "fair value" of stock
options vesting during the periods,
net of federal income tax
benefit............................ (1.1) (.1) --
--------- --------- ---------
Adjusted net income.................. $ 4.9 $ 3.2 $ 6.9
========= ========= =========
Adjusted earnings per share.......... $ .23 $ .30 $ .84
========= ========= =========
Adjusted earnings per
share -- assuming dilution......... $ .23 $ .30 $ .84
========= ========= =========
Number of common shares used in the
per share calculations:
Adjusted earnings per share..... 21.3 10.6 8.2
========= ========= =========
Adjusted earnings per
share -- assuming dilution..... 21.6 10.6 8.2
========= ========= =========

10. EMPLOYEE BENEFIT PLANS

PROFIT-SHARING PLANS

Certain subsidiaries of the Company provide various defined contributions
savings plans for their employees (the "Plans"). The Plans cover substantially
all full-time employees of such subsidiaries. Participants vest at varying rates
ranging from full vesting upon participation to those that provide for vesting
to begin after three years of service and are fully vested after seven years.
Certain Plans provide for a deferral option that allows employees to elect to
contribute a portion of their pay into the plan and provide for a discretionary
profit sharing contribution by the individual subsidiary. Generally the
subsidiaries match a portion of the amount deferred by participating employees.
Contributions for the profit sharing portion of the plan are generally at the
discretion of the individual subsidiary board of directors. The aggregate
contributions to the Plans were $.9, $.2 and $.2 for the years ended December
31, 1997, 1996 and 1995, respectively.

EMPLOYEE STOCK OWNERSHIP PLAN AND TRUST

LEVERAGED ESOP ARRANGEMENT

The following disclosure has been restated to reflect the equivalent shares
of Metals USA common stock that were issued in connection with the acquisition
of Jeffreys.

F-55
<PAGE>
METALS USA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(IN MILLIONS, EXCEPT SHARE AND PER SHARE AMOUNTS)

allocated to the individual participants of the plan and considered earned by
those employees at that time. Jeffreys accounts for its ESOP in accordance with
Statement of Position 93-6 ("SOP 93-6"), "Employers' Accounting for Employee
Stock Ownership Plans". Accordingly, the debt of the ESOP is recorded as long-
term debt and the shares pledged as collateral are reported as unearned
compensation. As shares are released from collateral, Jeffreys reports
compensation expense equal to the current estimated market price of the shares.
ESOP share compensation expense was $.4, $.6 and $.6 for the years ended
December 31, 1997, 1996 and 1995, respectively.

The activity relating to the ESOP shares was as follows:

11. COMMITMENTS AND CONTINGENCIES

OPERATING LEASE AGREEMENTS

The Company's minimum lease obligations under certain long-term
non-cancelable lease agreements for office space, warehouse space and equipment
are as follows: 1998 -- $6.4; 1999 -- $5.8; 2000 -- $5.1; 2001 -- $4.8;
2002 -- $3.7; thereafter -- $26.3.

The Company paid approximately $3.0, $.4 and $.5 in rent expense during the
years ended December 31, 1997, 1996 and 1995, respectively, under operating
leases. Certain of these leases are with affiliated individuals and companies
(see Note 12).

CONTINGENCIES

12. RELATED-PARTY TRANSACTIONS

F-56
<PAGE>
METALS USA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(IN MILLIONS, EXCEPT SHARE AND PER SHARE AMOUNTS)

In connection with the Mergers and certain of the subsequent acquisitions,
subsidiaries of the Company have entered into a number of lease arrangements for
facilities and equipment. These lease arrangements are for periods ranging from
10 to 20 years. Lease payments for these items in respect of the years ended
December 31, 1997, 1996 and 1995 were $1.3, $.1 and $.1, respectively. Future
commitments in respect of these leases are included in the schedule of minimum
lease payments in Note 11.

13. SUBSEQUENT EVENTS (UNAUDITED)

The Unaudited Financial Statements included elsewhere in this Registration
Statement should be read in conjunction with those presented above with respect
to events occurring after the date of the auditors report.

On May 20, 1998, the Company's stockholders approved an increase in the
number of authorized shares of Common Stock to 200,000,000.

RESTATEMENT OF HISTORICAL FINANCIAL STATEMENTS

On May 29, 1998, Metals USA completed the acquisition of all the capital
stock of Krohn Steel Service Center, Inc. ("Krohn") in a business combination
accounted for as a "pooling-of-interests" transaction in accordance with the
requirements of APB No. 16. The following table summarizes the restated
consolidated net sales, net income and per share data of the Company after
giving effect to the acquisition of Krohn:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-----------------------------------------------------------------
1997 1996 1995
------------------- ------------------- -------------------
NET NET NET
NET SALES INCOME NET SALES INCOME NET SALES INCOME
--------- ------ --------- ------ --------- ------
<S> <C> <C> <C> <C> <C> <C>
Net sales and net income --
As previously reported in the
Company's Form 10-K for the
year ended December 31,
1997.......................... $ 507.8 $6.0 $ 240.1 $3.3 $ 235.2 $6.9
Acquisition accounted for as
pooling-of-interests.......... 29.8 1.5 25.4 1.2 25.7 1.2
--------- ------ --------- ------ --------- ------
As restated................ $ 537.6 $7.5 $ 265.5 $4.5 $ 260.9 $8.1
========= ====== ========= ====== ========= ======
Earnings per share --
As previously reported in the
Company's Form 10-K for the
year ended December 31,
1997.......................... $.28 $.31 $.84
Acquisition accounted for as
pooling-of-interests.......... .05 .07 .02
------ ------ ------
As restated................ $.33 $.38 $.86
====== ====== ======
</TABLE>
(TABLE CONTINUED ON FOLLOWING PAGE)

F-57
<PAGE>
METALS USA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(IN MILLIONS, EXCEPT SHARE AND PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-----------------------------------------------------------------
1997 1996 1995
------------------- ------------------- -------------------
NET NET NET
NET SALES INCOME NET SALES INCOME NET SALES INCOME
--------- ------ --------- ------ --------- ------
<S> <C> <C> <C> <C> <C> <C>
Earnings per share -- assuming
dilution --
As previously reported in the
Company's Form 10-K for the
year ended December 31,
1997.......................... $.28 $.31 $.84
Acquisition accounted for as
pooling-of-interests.......... .05 .07 .02
------ ------ ------
As restated................ $.33 $.38 $.86
====== ====== ======
</TABLE>
Because the acquisition occurred after December 31, 1997, the Company has
restated these financial statements, and as presented elsewhere in this
Prospectus, such restated financial statements are labeled "Supplemental" in
accordance with the rules and regulations of the Securities and Exchange
Commission. The "Supplemental" financial statements reflect the results of
operations, cash flows and financial position of Krohn, as if the acquisition
occurred on January 1, 1995.

F-58
<PAGE>
METALS USA, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN MILLIONS, EXCEPT SHARE AND PER SHARE AMOUNTS)

MARCH 31, DECEMBER 31,
1998 1997
------------ -------------
(UNAUDITED)
ASSETS
Current assets:
Cash............................... $ 11.9 $ 7.3
Accounts receivable, net of
allowance of $4.8 and $3.6......... 144.4 91.4
Inventories........................ 219.3 153.8
Prepaid expenses................... 2.5 1.8
Deferred income tax asset.......... 2.7 1.4
Other.............................. 2.4 2.2
------------ -------------
Total current assets....... 383.2 257.9
Property and equipment, net.......... 103.3 82.5
Goodwill, net........................ 156.8 120.1
Other assets, net.................... 13.3 6.5
------------ -------------
Total assets............... $ 656.6 $ 467.0
============ =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable................... $ 80.2 $ 50.9
Accrued liabilities................ 18.5 12.9
Current portion of long-term
debt.............................. 6.5 5.9
Income taxes payable............... 3.4 1.6
------------ -------------
Total current
liabilities.................. 108.6 71.3
Long-term debt, less current
portion............................. 273.2 167.1
Deferred income tax liability........ 7.5 7.0
Other long-term liabilities.......... 4.9 4.5
------------ -------------
Total liabilities.......... 394.2 249.9
------------ -------------
Commitments and contingencies
Stockholders' equity:
Preferred stock, $0.01 par,
5,000,000 shares authorized and
outstanding, none issued and
outstanding..................... -- --
Common stock, $0.01 par, 53,122,914
shares authorized, 34,427,736
and 31,461,924 shares issued and
outstanding, respectively....... .3 .3
Additional paid-in capital......... 222.0 183.2
Unearned compensation.............. (1.7) (1.5)
Retained earnings.................. 41.8 35.1
------------ -------------
Total stockholders'
equity....................... 262.4 217.1
------------ -------------
Total liabilities and
stockholders' equity......... $ 656.6 $ 467.0
============ =============

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

F-59
<PAGE>
METALS USA, INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS
(IN MILLIONS, EXCEPT PER SHARE AMOUNTS)

THREE MONTHS ENDED
MARCH 31,
--------------------
1998 1997
--------- ---------
Net sales............................... $ 270.5 $ 65.1
Operating costs and expenses:
Cost of sales...................... 208.1 49.9
Operating and delivery............. 25.6 6.6
Selling, general and
administrative.................... 17.7 6.7
Depreciation and amortization...... 3.0 .7
--------- ---------
Operating income........................ 16.1 1.2
Other (income) expense:
Interest expense................... 4.8 .4
Other income....................... -- (.1)
--------- ---------
Income before income taxes.............. 11.3 .9
Provision for income taxes.............. 4.6 1.6
--------- ---------
Net income (loss)....................... $ 6.7 $ (.7)
========= =========
Earnings per share...................... $ .21 $ (.05)
========= =========
Earnings per share -- assuming
dilution.............................. $ .20 $ (.05)
========= =========
Number of common shares used in the per
share calculations:
Earnings per share................. 32.5 13.0
========= =========
Earnings per share -- assuming
dilution.......................... 33.3 13.0
========= =========

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

F-60
<PAGE>
METALS USA, INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN MILLIONS)

THREE MONTHS ENDED
MARCH 31,
--------------------
1998 1997
--------- ---------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)............... $ 6.7 $ (.7)
Adjustments to reconcile net
income (loss) to net cash (used
in) provided by
operating activities --
Capital contributions
attributable to deemed
tax payments of S
Corporations............. -- .7
Provision for bad debts.... .6 --
Depreciation and
amortization............. 3.0 .7
Deferred financing costs
incurred................. (7.0) (.1)
Amortization of deferred
financing costs.......... .1 --
Compensation
expense -- management
shares................... -- 2.8
Changes in operating assets
and liabilities, net of
business acquisitions --
Accounts receivable... (21.1) (3.5)
Inventories........... (4.1) (.3)
Prepaid expenses and
other assets........ (1.9) (1.2)
Accounts payable and
accrued
liabilities......... 7.2 5.8
Income taxes
payable............. 1.2 .7
Other liabilities..... .4 (.6)
Other operating............ (.8) .1
--------- ---------
Net cash (used
in) provided by
operating
activities...... (15.7) 4.4
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of assets.... .3 --
Purchase of property and
equipment...................... (2.9) (1.8)
Purchase of businesses, net of
acquired cash.................. (33.8) --
--------- ---------
Net cash used in
investing
activities...... (36.4) (1.8)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance of 8 5/8% Senior
Subordinated Notes............. 200.0 --
Net repayments on the Credit
Facility....................... (141.7) --
Net repayments on Industrial
Revenue Bonds and other
long-term debt................. (1.6) (1.8)
Other financing................. -- (.2)
--------- ---------
Net cash
provided by
(used in)
financing
activities...... 56.7 (2.0)
--------- ---------
NET INCREASE IN CASH................. 4.6 .6
CASH, beginning of period............ 7.3 1.7
--------- ---------
CASH, end of period.................. $ 11.9 $ 2.3
========= =========

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

F-61
<PAGE>
METALS USA, INC. AND SUBSIDIARIES
CONDENSED NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(IN MILLIONS, EXCEPT SHARE AND PER SHARE AMOUNTS)

1. ORGANIZATION AND BASIS OF PRESENTATION

ORGANIZATION

BASIS OF PRESENTATION

INTERIM FINANCIAL INFORMATION -- The interim consolidated 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 interim consolidated financial information as of and for
the periods indicated. All intercompany transactions and balances have been
eliminated. Accounting measurements at interim dates inherently involves 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.

The information contained in the following notes to the accompanying
consolidated financial statements is condensed from that which would appear in
the annual audited financial statements; accordingly, the financial statements
included herein should be reviewed in conjunction with the Company's audited
consolidated financial statements and related notes thereto contained elsewhere
in this report. Certain capitalized terms used herein have the same meaning
given to them in the audited consolidated financial statements.

USE OF ESTIMATES AND ASSUMPTIONS

2. EARNINGS PER SHARE

F-62
<PAGE>
METALS USA, INC. AND SUBSIDIARIES
CONDENSED NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(IN MILLIONS, EXCEPT SHARE AND PER SHARE AMOUNTS)

from dividing income available to common stockholders by the applicable weighted
average number of common shares outstanding during the period.

Pro forma combined earnings per share were computed assuming all of the
shares issued and outstanding upon completion of the IPO (21,667,023 shares)
were issued and outstanding as of January 1, 1997. These shares include shares
issued to consultants, members of management and the former owners of the
Founding Companies, together with the shares sold pursuant to the IPO. Shares
issued in connection with the acquisitions are included in the computation of
weighted average shares outstanding only for those periods subsequent to their
respective dates of acquisition, except for those acquisitions accounted for
using the "pooling-of-interests" method, in which case the shares are
reflected in the computation of weighted average shares outstanding as of the
beginning of the earliest period presented.

Earnings per Share for the three months ended March 31, 1997, was computed
using 8,230,011 shares (the aggregate number of shares issued in connection with
the acquisition of entities accounted for using the "pooling-of-interests"
method of accounting) for periods prior to July 3, 1996 (date of inception),
together with the 4,753,414 shares issued in connection with the organization of
Metals USA (which includes shares issued to consultants and management prior to
the IPO). Shares issued to consultants and management prior to the IPO were
considered to be issued and outstanding from the date of inception without
regard to the date such shares were actually issued. Earnings per Share for the
three months ended March 31, 1998 was computed using the shares issued in
connection with the entities acquired subsequent to December 31, 1997 (all of
which were accounted for using the "purchase" method of accounting) such
shares in the Earnings per Share computation only from their respective dates of
issuance. Earnings per Share -- Assuming Dilution differs from the Earnings per
Share computation due to the potential dilution that could occur if options to
acquire common stock were exercised or converted into common stock.

3. INVENTORIES

Inventories consist of the following:

MARCH 31, DECEMBER 31,
1998 1997
----------- ------------
(UNAUDITED)
Raw materials --
Structural steel................... $ 27.2 $ 8.4
Flat-rolled steel.................. 66.3 39.0
Specialty metals................... 43.5 22.0
Aluminum products.................. 9.6 17.6
Other.............................. .1 1.9
----------- ------------
Total raw materials........... 146.7 88.9
----------- ------------
Work-in-process and finished goods --
Structural steel................... 32.6 35.8
Flat-rolled steel.................. 11.0 19.2
Specialty metals................... 9.5 5.1
Aluminum products.................. 21.2 6.7
----------- ------------
Total work-in-process and
finished goods............. 74.3 66.8
Less -- LIFO reserve.................... (1.7) (1.9)
----------- ------------
Total......................... $ 219.3 $153.8
=========== ============

F-63
<PAGE>
METALS USA, INC. AND SUBSIDIARIES
CONDENSED NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(IN MILLIONS, EXCEPT SHARE AND PER SHARE AMOUNTS)

4. LONG-TERM DEBT

Long-term debt consists of the following:

MARCH 31, DECEMBER 31,
1998 1997
----------- ------------
(UNAUDITED)
8 5/8% Senior Subordinated Notes........ $ 200.0 $--
Borrowings under the Credit Facility.... 50.9 144.8
Various issues of Industrial Revenue
Bonds................................. 21.5 21.6
Obligations under capital leases and
other................................. 7.3 6.6
----------- ------------
279.7 173.0
Less -- Current portion................. (6.5) (5.9)
----------- ------------
$ 273.2 $167.1
=========== ============

F-64
<PAGE>
METALS USA, INC. AND SUBSIDIARIES
CONDENSED NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(IN MILLIONS, EXCEPT SHARE AND PER SHARE AMOUNTS)

restrictions on additional indebtedness, (iii) restrictions on liens, guarantees
and dividends, (iv) obtaining the lenders' consent with respect to certain
individual acquisitions, and (v) the maintenance of a specified level of
consolidated net worth. In addition, the Company's Credit Facility and the
Indenture include restrictions on the ability of the Company to pay dividends.
Borrowings under the Credit Facility are secured by the pledge of all of the
capital stock of each of the Company's material subsidiaries (as defined). As of
June 15, 1998, the Company had outstanding borrowings of $103.9 and $196.1
available for use under the Credit Facility.

5. ACQUISITIONS

During the three months ended March 31, 1998, the Company acquired the
following metal processing companies: Independent Metals Co., Inc.
("Independent"), Pacific Metal Company ("Pacific"), National Manufacturing,
Inc. ("National"), Western Awning Company, Inc. ("Western"), Mark Metals,
Inc. and Metalmart, Inc. (collectively, "Metalmart"), The Levinson Steel
Company ("Levinson"), Concord Metals Corporation ("Concord"), and the assets
of Seaboard Steel and Iron Corporation ("Seaboard"). These acquisitions were
accounted for using the "purchase" method of accounting. The aggregate
consideration paid by Metals to acquire these companies was approximately $40.7
in cash and 2,965,812 shares of common stock (excluding assumed indebtedness of
approximately $47.4).

The following summarized unaudited pro forma financial information assumes
the acquisition of the Founding Companies, the companies acquired through March
31, 1998, and the issuance of the Notes occurred on January 1, 1997. The pro
forma decrease in earnings resulting from the issuance of the Notes was
approximately $.02 per share for both periods presented.

THREE MONTHS ENDED
MARCH 31,
--------------------
1998 1997
--------- ---------
(UNAUDITED)
Net Sales............................ $ 315.5 $ 275.2
Operating costs and expenses:
Cost of sales................... 240.5 211.1
Operating and delivery.......... 29.8 26.6
Selling, general and
administrative................. 21.6 18.6
Depreciation and amortization... 2.2 2.5
--------- ---------
Operating income..................... 21.4 16.4
Other (income) expenses:
Interest expense................ 6.7 5.5
Other........................... .3 (.2)
--------- ---------
Income before income taxes...... 14.4 11.1
Provision for income taxes........... 5.4 4.4
--------- ---------
Net income........................... $ 9.0 $ 6.7
========= =========
Earnings per share................... $ .26 $ .19
========= =========
Earnings per share -- assuming
dilution........................... $ .26 $ .19
========= =========
Number of common shares used in the
per share calculations:
Earnings per share.............. 34.5 34.5
========= =========
Earnings per share -- assuming
dilution....................... 35.2 34.5
========= =========

F-65
<PAGE>
METALS USA, INC. AND SUBSIDIARIES
CONDENSED NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(IN MILLIONS, EXCEPT SHARE AND PER SHARE AMOUNTS)

The preceding unaudited pro forma amounts reflect the results of operations
for Metals USA, the Founding Companies and the other acquisitions completed
through March 31, 1998, assuming the transactions were completed on January 1,
1997. Additionally, the amounts shown in the table reflect (a) the reduction in
certain related party rental and lease expenses which has been agreed to
prospectively; (b) the reduction in salaries, bonuses and benefits to the owners
of the acquired companies which they have agreed to prospectively and the
reversal of the non-cash compensation charge related to the issuance of common
stock to management of and consultants to Metals USA in 1997, partially offset
by a charge for recurring salary expenses of management; (c) the amortization of
goodwill recorded as a result of the acquisition of the companies acquired over
a forty-year estimated life plus additional depreciation expense due to the
allocation of a portion of the excess purchase price to property and equipment;
(d) the assumed reductions in interest expense due to the refinancing of the
outstanding indebtedness in conjunction with the acquisition of the companies
acquired, offset by an assumed increase in interest expense incurred in
connection with financing the acquisitions; (e) the pre-acquisition results of
operations for subsidiares of affiliates of the Founding Companies which were
acquired by the Founding Companies prior to the related acquisition by Metals
USA, as if those previous acquisitions were completed as of January 1, 1997; (f)
a charge eliminating the gains recorded as historical LIFO adjustments to cost
of sales as a result of the restatement of base year LIFO costs to the
appropriate replacement costs as if the acquisitions occured on January 1, 1997;
(g) certain other nonrecurring expenses with respect to the companies acquired,
such as expenses associated with compensation plans which were terminated in
conjunction with the acquisitions of their repective companies; (h) the
incremental interest expense and amortization of deferred financing costs
incurred as a result of the issuance of the Notes and the Credit Facility, net
of the repayment of outstanding indebtedness of the Company and (i) the
incremental provision for federal and state income taxes for all entities being
combined.

6. SUPPLEMENTAL INFORMATION

SUPPLEMENTAL CASH FLOW INFORMATION

THREE MONTHS ENDED
MARCH 31,
--------------------
1998 1997
--------- ---------
Supplemental cash flow information:
Cash paid for interests............ $ 2.6 $ .4
Cash paid for income taxes......... 2.8 .2
Non-cash investing and financing
activities:
Purchase of businesses for stock... 38.6 --

COMPENSATION CHARGE

During the three months ended March 31, 1997, the Company sold an aggregate
of 309,500 shares of common stock to management and consultants to the Company
for $.01 per share. As a result, the Company recorded a non-recurring, non-cash
compensation charge of $2.8 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.

7. COMMITMENTS AND CONTINGENCIES

F-66
<PAGE>
METALS USA, INC. AND SUBSIDIARIES
CONDENSED NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(IN MILLIONS, EXCEPT SHARE AND PER SHARE AMOUNTS)

8. SUBSEQUENT EVENTS

On March 23, 1998, the Company announced that it agreed to make an offer
for all of the issued and outstanding common shares of Ideal Metal Inc.
("Ideal") at a cash price of CAN$5.25 per share. Another company made a
competing offer and on April 28, 1998, the Company received the agreed
compensatory fee of U.S. $1.7 (CAN$2.5) as a result of the competing offer.

Subsequent to March 31, 1998, the Company acquired the following metal
processing companies: Industrial Metals, Inc. ("Industrial"), Sierra Pacific
Steel, Inc. ("Sierra") and Fullerton Industries, Inc. ("Fullerton"). These
acquisitions will be accounted for using the "purchase" method of accounting.
The aggregate consideration paid by the Company to acquire these companies was
approximately $16.5 in cash and 984,702 shares of common stock (excluding
assumed indebtedness of approximately $12.0).

On May 20, 1998, the Company's stockholders approved an increase in the
number of authorized shares of Common Stock to 200,000,000.

RESTATEMENT OF HISTORICAL FINANCIAL STATEMENTS

On May 29, 1998, Metals USA completed the acquisition of all the capital
stock of Krohn Steel Service Center, Inc. ("Krohn") in a business combination
accounted for as a "pooling-of-interests" transaction in accordance with the
requirements of APB No. 16. The following table summarizes the restated
consolidated net sales, net income and per share data of the Company after
giving effect to the acquisition of Krohn:
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
----------------------------------------------
1998 1997
-------------------- ---------------------
NET
NET INCOME/
NET SALES INCOME NET SALES (LOSS)
--------- ------ --------- -------
<S> <C> <C> <C> <C>
Net sales and net income (loss) --
As previously reported in the
Company's Form 10-Q for the
three months ended March 31,
1998.......................... $ 270.5 $ 6.7 $ 65.1 $ (.7)
Acquisition accounted for as
pooling-of-interests.......... 8.0 .5 6.9 .3
--------- ------ --------- -------
As restated................ $ 278.5 $ 7.2 $ 72.0 $ (.4)
========= ====== ========= =======
Earnings per share --
As previously reported in the
Company's Form 10-Q for the
three months ended March 31,
1998.......................... $ .21 $(.05)
Acquisition accounted for as
pooling-of-interests.......... -- .02
------ -------
As restated................ $ .21 $(.03)
====== =======
Earnings per share -- assuming
dilution --
As previously reported in the
Company's Form 10-Q for the
three months ended March 31,
1998.......................... $ .20 $(.05)
Acquisition accounted for as
pooling-of-interests.......... .01 .02
------ -------
As restated................ $ .21 $(.03)
====== =======
</TABLE>
F-67
<PAGE>
METALS USA, INC. AND SUBSIDIARIES
CONDENSED NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(IN MILLIONS, EXCEPT SHARE AND PER SHARE AMOUNTS)

Because the acqusition occurred after December 31, 1997, the Company has
restated these financial statements and, as presented elsewhere in this
Prospectus, such restated financial statements are labeled as "Supplemental"
in accordance with the rules and regulations of the Securities and Exchange
Commission. The "Supplemental" financial statements reflect the results of
operations, cash flows and financial position of Krohn, as if the acquisition
occurred on January 1, 1997.

F-68
<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 and for
the period from January 1, 1997 through July 10, 1997. 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.

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 and for the period from January 1, 1997 through July 10, 1997
in conformity with generally accepted accounting principles.

ARTHUR ANDERSEN LLP

Houston, Texas
January 30, 1998

F-69
<PAGE>
TEXAS ALUMINUM INDUSTRIES, INC. AND AFFILIATES
COMBINED BALANCE SHEETS
(IN THOUSANDS OF DOLLARS)

JUNE 30, DECEMBER 31,
1995 1996
-------- -------------
ASSETS
Current assets:
Cash............................ $ 359 $ 156
Accounts and notes receivable,
net of allowance of
$519 and $677................. 3,432 4,221
Accounts and notes receivable
from affiliates................ 993 81
Inventories..................... 8,193 10,878
Prepaid expenses................ 47 38
Deferred income taxes........... 591 754
-------- -------------
Total current assets....... 13,615 16,128

Property and equipment, net.......... 3,712 4,058
Notes receivable from affiliates..... -- 465
Other assets......................... 715 576
Goodwill............................. 690 822
-------- -------------
Total assets.......... $ 18,732 $22,049
======== =============

LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of notes
payable........................ $ 593 $ 683
Current portion of notes payable
and capital lease obligations
to affiliates.................. 54 77
Accounts payable................ 3,882 5,540
Income taxes payable............ 269 396
Accrued liabilities............. 1,416 1,158
-------- -------------
Total current
liabilities............. 6,214 7,854

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

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

F-70
<PAGE>
TEXAS ALUMINUM INDUSTRIES, INC. AND AFFILIATES
COMBINED STATEMENTS OF INCOME
(IN THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30, YEAR ENDED PERIOD FROM
-------------------- DECEMBER 31, JANUARY 1, 1997
1994 1995 1996 THROUGH JULY 10, 1997
--------- --------- ------------ ---------------------
<S> <C> <C> <C> <C>
Net sales............................ $ 26,105 $ 34,706 $ 40,651 $25,271
Costs and expenses:
Cost of sales................... 17,991 23,893 27,146 16,553
Operating and delivery.......... 5,621 5,863 6,386 3,232
Selling, general and
administrative................ 1,654 2,810 3,539 4,079
Depreciation and amortization... 346 517 568 409
--------- --------- ------------ ---------------------
Operating income..................... 493 1,623 3,012 998
Other (income) expense:
Interest expense................ 444 837 682 592
Other income.................... (169) (143) (8) (102)
--------- --------- ------------ ---------------------
Income before income taxes........... 218 929 2,338 508
Provision for income taxes........... 93 277 456 207
--------- --------- ------------ ---------------------
Net income........................... $ 125 $ 652 $ 1,882 $ 301
========= ========= ============ =====================
</TABLE>
The accompanying notes are an integral part of these combined financial
statements.

F-71
<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, 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..... -- -- 5 -- -- -- -- --
Purchase of 30 shares of
preferred stock at $100 per
share.......................... -- -- -- -- -- -- -- (3)
Distributions to stockholders.... -- -- -- -- -- -- (3,400) --
Net income....................... -- -- -- -- -- -- 301 --
-------- -------- ----------- -------- ---------- -------- --------- ---------
Balance, July 10, 1997............... $363 $1,128 $ 15 $ 1 $369 $188 $ 1,461 $(287)
======== ======== =========== ======== ========== ======== ========= =========
</TABLE>
TOTAL
---------
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..... 5
Purchase of 30 shares of
preferred stock at $100 per
share.......................... (3)
Distributions to stockholders.... (3,400)
Net income....................... 301
---------
Balance, July 10, 1997............... $ 3,238
=========

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

F-72
<PAGE>
TEXAS ALUMINUM INDUSTRIES, INC. AND AFFILIATES
COMBINED STATEMENTS OF CASH FLOWS
(IN THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
JUNE 30, DECEMBER 31, PERIOD FROM
-------------------- ------------ JANUARY 1, 1997
1994 1995 1996 THROUGH JULY 10, 1997
--------- --------- ------------ ---------------------
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income......................... $ 125 $ 652 $ 1,882 $ 301
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 (98)
Depreciation and amortization.... 346 517 763 409
(Gain) loss on sale of property
and equipment.................. (11) 11 (266) (18)
Deferred income taxes............ (95) (111) (249) (83)
Changes in operating assets and
liabilities, net of business
acquisitions --
Accounts and notes
receivable.................. (1,196) (100) (783) (858)
Accounts and notes receivable
from affiliates............. 124 (654) (167) (30)
Inventories.................... (341) (1,166) (1,970) 204
Other assets................... (17) (82) (29) (59)
Accounts payable............... 39 393 1,476 (1,029)
Accounts payable to
affiliates.................. 11 161 -- --
Income taxes payable........... (18) 171 127 100
Accrued liabilities............ 373 309 (269) 98
--------- --------- ------------ --------
Net cash provided by (used
in) operating
activities................ (204) 602 1,812 (1,063)
--------- --------- ------------ --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of assets....... 104 71 611 25
Purchases of property.............. (438) (606) (739) (247)
Collections on notes receivable.... 129 109 445 11
Purchase of businesses, net of
acquired cash.................... -- (2,500) (150) (1,300)
--------- --------- ------------ --------
Net cash provided by (used
in) investing
activities................ (205) (2,926) 167 (1,511)
--------- --------- ------------ --------
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) (308)
Borrowings on revolving credit
facility......................... 5,498 1,403 3,692 10,491
Payments on revolving credit
facility......................... (6,005) (1,299) (5,160) (4,725)
Payments made to former ESOP
members.......................... (92) (63) (89) (90)
Borrowings on notes payable to
affiliates....................... -- 650 1,020 2,450
Principal payments on notes payable
to affiliates.................... -- (452) (800) (12)
Issuance of common stock and
members' equity.................. -- 10 1 5
Distribution to stockholders....... -- -- (100) (3,400)
--------- --------- ------------ --------
Net cash provided by (used
in) financing
activities................ 222 2,445 (2,182) 4,411
--------- --------- ------------ --------
NET INCREASE (DECREASE) IN CASH...... (187) 121 (203) 1,837
CASH, BEGINNING OF PERIOD............ 425 238 359 156
--------- --------- ------------ --------
CASH, END OF PERIOD.................. $ 238 $ 359 $ 156 $ 1,993
========= ========= ============ ========
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid for:
Interest........................... $ 441 $ 526 $ 699 $ 523
Income taxes....................... 207 217 584 107
Non-cash investing and financing
activities:
Purchase of assets through
assumption of debt............... $ -- $ 19 $ 820 $ 1,734
Purchase of treasury stock through
assumption of debt............... 102 35 32 3
Sale of assets by issuing note
receivable....................... -- -- 330 --
Sale of assets by issuing note
receivable, affiliate............ -- -- -- 300
</TABLE>
The accompanying notes are an integral part of these combined financial
statements.

F-73
<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, Cornerstone Patio
Concepts, L.L.C. ("CPC"), a Nevada limited liability corporation and
Cornerstone Aluminum Company, Inc. ("CAC"), an Arizona Corporation, from the
date of acquisition (see BUSINESS COMBINATIONS). CMC, CBP, CPC and CAC 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, CPC and CAC 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 entered into a merger
agreement with Metals USA, Inc. ("Metals USA") pursuant to which all of Texas
Aluminum/Cornerstone's outstanding shares of capital stock were 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, (see
Note 13).

The financial statements for the period from January 1, 1997 through July
10, 1997 are presented for purposes of complying with certain reporting
requirements of Regulation S-X of the Securities and Exchange Commission and are
not necessarily indicative of the results to be expected for the entire year.

BUSINESS COMBINATIONS

CMC, CBP and CAC are 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,

F-74
<PAGE>
TEXAS ALUMINUM INDUSTRIES, INC. AND AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS OF DOLLARS, EXCEPT SHARE AMOUNTS)

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.

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 $1,734 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.

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-75
<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, 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.

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

F-76
<PAGE>
TEXAS ALUMINUM INDUSTRIES, INC. AND AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS OF DOLLARS, EXCEPT SHARE AMOUNTS)

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
======== ============

3. SUMMARY OF LONG-TERM FINANCING ARRANGEMENTS

Notes payable to non-affiliates consist of the following:

JUNE 30, DECEMBER 31,
1995 1996
-------- ------------
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
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
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
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

(TABLE CONTINUED ON FOLLOWING PAGE)

F-77
<PAGE>
TEXAS ALUMINUM INDUSTRIES, INC. AND AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS OF DOLLARS, EXCEPT SHARE AMOUNTS)

JUNE 30, DECEMBER 31,
1995 1996
-------- ------------
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
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
Note payable to individuals in annual
installments of $25 including
interest, beginning August 5, 1997
and maturing on August 5, 2000,
unsecured.......................... -- 100
Other long-term debt................. 69 8
-------- ------------
8,472 6,687
Less: current portion................ (593) (683)
-------- ------------
$ 7,879 $ 6,004
======== ============

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 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 were 9% and 8.25%,
respectively.

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

JUNE 30, DECEMBER 31,
1995 1996
-------- ------------
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
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
Note payable to an affiliated
corporation in monthly installments
of interest only at 8.5%, paid in
the first quarter 1997,
unsecured.......................... -- 350
-------- ------------
422 1,496
Less: current portion................ (54) (77)
-------- ------------
$ 368 $ 1,419
======== ============

F-78
<PAGE>
TEXAS ALUMINUM INDUSTRIES, INC. AND AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS OF DOLLARS, EXCEPT SHARE AMOUNTS)

Texas Aluminum/Cornerstone's long-term notes payable and capital lease
obligations are subject to mandatory redemption as follows:
<TABLE>
<CAPTION>
AFFILIATES
YEAR ENDING NON- --------------------------------
DECEMBER 31, AFFILIATES NOTES PAYABLE CAPITAL LEASE
------------- ----------- -------------- -------------
<S> <C> <C> <C>
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
=============
</TABLE>
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, $14,314 and
$14,847 at June 30, 1995, December 31, 1996 and July 10, 1997 respectively.
Additionally, net income would have been $286, $1,219, $1,837 and $301 for the
years ended June 30, 1994 and 1995, December 31, 1996 and the period from
January 1, 1997 through July 10, 1997, 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
======== ============

F-79
<PAGE>
TEXAS ALUMINUM INDUSTRIES, INC. AND AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS OF DOLLARS, EXCEPT SHARE AMOUNTS)

6. INCOME TAXES

The components of the provision for income taxes are as follows:
<TABLE>
<CAPTION>
YEAR ENDED
--------------------------------------
JUNE 30, PERIOD FROM
---------------------- DECEMBER 31, JANUARY 1, 1997
1994 1995 1996 THROUGH JULY 10, 1997
---------- ---------- ------------ ---------------------
<S> <C> <C> <C> <C>
Federal:
Current......................... $ 165 $ 338 $ 578 $ 250
Deferred........................ (84) (99) (196) (72)
---------- ---------- ------------ ---------------------
81 239 382 178
---------- ---------- ------------ ---------------------
State:
Current......................... 23 50 107 40
Deferred........................ (11) (12) (33) (11)
---------- ---------- ------------ ---------------------
12 38 74 29
---------- ---------- ------------ ---------------------
Total provision............ $ 93 $ 277 $ 456 $ 207
========== ========== ============ =====================
</TABLE>
The provision for income taxes differs from an amount computed at the
statutory rates as follows:
<TABLE>
<CAPTION>
YEAR ENDED
-------------------------------------
JUNE 30, PERIOD FROM
---------------------- DECEMBER 31, JANUARY 1, 1997
1994 1995 1996 THROUGH JULY 10, 1997
---------- ---------- ------------ ---------------------
<S> <C> <C> <C> <C>
Federal income tax at statutory
rates.............................. $ 76 $ 325 $ 818 $ 148
State income taxes, net of Federal
benefit............................ 12 38 74 19
Effect of S Corporation income....... -- (89) (454) --
Nondeductible expenses (mainly meals
and entertainment)................. 5 3 18 40
---------- ---------- ------------ ---------------------
$ 93 $ 277 $ 456 $ 207
========== ========== ============ =====================
</TABLE>
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
======== ============

F-80
<PAGE>
TEXAS ALUMINUM INDUSTRIES, INC. AND AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS OF DOLLARS, EXCEPT SHARE AMOUNTS)

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.

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. For the period from January 1, 1997 through July 10, 1997,
Texas Aluminum has accrued $20 for their contribution to the plan.

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

F-81
<PAGE>
TEXAS ALUMINUM INDUSTRIES, INC. AND AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS OF DOLLARS, EXCEPT SHARE AMOUNTS)

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. 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.

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, $1,700 and
$985 in rent expense during the years ended June 30, 1994 and 1995 and December
31, 1996 and the period from January 1, 1997 through July 10, 1997,
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.

F-82
<PAGE>
TEXAS ALUMINUM INDUSTRIES, INC. AND AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS OF DOLLARS, EXCEPT SHARE AMOUNTS)

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, December 31, 1996 and for
the period from January 1, 1997 through July 10, 1997 were $36, $43, $64 and
$35, respectively.

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 and the period from January 1, 1997 through July 10, 1997 were
$306, $541, $697 and $510, 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

F-83
<PAGE>
TEXAS ALUMINUM INDUSTRIES, INC. AND AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS OF DOLLARS, EXCEPT SHARE AMOUNTS)

13. SUBSEQUENT EVENTS

On July 11, 1997, Metals USA 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.

During July 1997, subsequent to the merger, $16,059 of Texas
Aluminum/Cornerstone's debt was repaid with advances from Metals USA.

F-84

<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To Interstate Steel Supply Co. and Affiliates

We have audited the accompanying combined balance sheets of Interstate Steel
Supply Co. and Affiliates (collectively, the "Companies") as of December 31,
1995 and 1996, and the related combined statements of operations, stockholders'
equity and partners' capital and cash flows for each of the three years in the
period ended December 31, 1996 and for the period from January 1, 1997 through
July 10, 1997. These 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 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 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 Interstate
Steel Supply Co. and Affiliates as of December 31, 1995 and 1996, and the
combined results of their operations and their cash flows for each of the three
years in the period ended December 31, 1996 and for the period from January 1,
1997 through July 10, 1997, in conformity with generally accepted accounting
principles.

ARTHUR ANDERSEN LLP

Houston, Texas
February 3, 1998

F-85
<PAGE>
INTERSTATE STEEL SUPPLY CO. AND AFFILIATES
COMBINED BALANCE SHEETS
(IN THOUSANDS OF DOLLARS, EXCEPT SHARE AMOUNTS)

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

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

F-86
<PAGE>
INTERSTATE STEEL SUPPLY CO. AND AFFILIATES
COMBINED STATEMENTS OF INCOME
(IN THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31, PERIOD FROM
------------------------------- JANUARY 1, 1997
1994 1995 1996 THROUGH JULY 10, 1997
--------- --------- --------- ---------------------
<S> <C> <C> <C> <C>
Net sales............................ $ 49,299 $ 61,375 $ 66,806 $38,201
Costs and expenses:
Cost of sales................... 37,283 44,868 47,902 28,103
Operating and delivery.......... 6,197 7,916 8,243 4,844
Selling, general and
administrative expenses....... 4,187 5,279 5,391 2,856
Depreciation and amortization... 483 561 550 192
--------- --------- --------- ---------------------
Operating income................ 1,149 2,751 4,720 2,206
Other (income) expense:
Interest expense, net........... 792 908 936 467
Other, net...................... (1) 1 10 --
--------- --------- --------- ---------------------
Income before income taxes........... 358 1,842 3,774 1,739
Provision for income taxes........... -- -- -- --
--------- --------- --------- ---------------------
Net income........................... $ 358 $ 1,842 $ 3,774 $ 1,739
========= ========= ========= =====================
</TABLE>
The accompanying notes are an integral part of these combined financial
statements.

F-87
<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............. -- -- -- (7,893) -- (1,660) (9,553)
Net income.............................. -- -- -- 1,585 -- 154 1,739
------- ------- ----------- --------- --------- -------- ------
Balance, July 10, 1997.................. $ 36 $ 2 $ 72 $ 2,764 $(1,498) $-- $1,376
======= ======= =========== ========= ========= ======== ======
</TABLE>
The accompanying notes are an integral part of these combined financial
statements.

F-88
<PAGE>
INTERSTATE STEEL SUPPLY CO. AND AFFILIATES
COMBINED STATEMENTS OF CASH FLOWS
(IN THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31, PERIOD FROM
------------------------------- JANUARY 1, 1997
1994 1995 1996 THROUGH JULY 10, 1997
--------- --------- --------- ---------------------
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income.......................... $ 358 $ 1,842 $ 3,774 $ 1,739
Adjustments to reconcile net income
to net cash provided by (used in)
operating activities:
Depreciation and
amortization................. 483 561 550 192
Loss (gain) on sale of
assets....................... 2 10 -- --
Changes in operating assets and
liabilities:
Accounts receivable, net... (695) (768) 1,041 (4,511)
Inventories................ (1,272) (1,315) (2,648) 824
Prepaid expenses and other
assets................... 112 6 (121) (563)
Accounts payable and
accrued liabilities...... (3) 158 575 2,965
Other assets............... (119) (178) (129) (109)
--------- --------- --------- --------
Net cash provided by (used
in) operating
activities............... (1,134) 316 3,042 537
--------- --------- --------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property and
equipment......................... (571) (533) (428) (252)
Proceeds from sales of property and
equipment......................... 10 6 -- --
Other, net.......................... 11 -- -- --
--------- --------- --------- --------
Net cash used in investing
activities............... (550) (527) (428) (252)
--------- --------- --------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase (decrease) on
line-of-credit.................... 1,225 750 (1,000) 7,350
Principal payments on long-term
obligations....................... (239) (259) (93) (161)
Proceeds from issuance of long-term
obligations....................... 900 -- -- --
Distributions to shareholders and
partners.......................... (308) (564) (1,436) (6,710)
Capital contributions............... -- 250 -- --
--------- --------- --------- --------
Net cash provided by (used
in) financing
activities............... 1,578 177 (2,529) 479
--------- --------- --------- --------
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS........................... (106) (34) 85 764
CASH AND CASH EQUIVALENTS, BEGINNING OF
PERIOD................................ 223 117 83 168
--------- --------- --------- --------
CASH AND CASH EQUIVALENTS, END OF
PERIOD................................ $ 117 $ 83 $ 168 $ 932
========= ========= ========= ========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION:
Cash paid for interest.............. $ 847 $ 964 $ 930 $ 500
Reduction in notes
receivable -- shareholders and
partners.......................... -- 140 -- --
Distribution of Warehouse Real
Estate Associates' net assets to
partners.......................... -- -- -- 1,660
Distribution of life insurance cash
surrender value to shareholders... -- -- -- 1,183
</TABLE>
The accompanying notes are an integral part of these combined financial
statements.

F-89
<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 entered into a definitive merger agreement with Metals USA,
Inc. ("Metals USA") pursuant to which all of Interstate's outstanding shares
of capital stock were 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 (See Note 8).

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.

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-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.

F-90
<PAGE>
INTERSTATE STEEL SUPPLY CO. AND AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS OF DOLLARS, EXCEPT SHARE AMOUNTS)

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, $13,487 and $11,453 at December 31, 1995
and 1996, and July 10, 1997, respectively. Additionally, net income would have
been $1,030, $2,475, $3,146 and $1,816 for the years ended December 31, 1994,
1995, 1996 and for the period from January 1, 1997 through July 10, 1997,
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-91
<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 depreciation and
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
=========

F-92
<PAGE>
INTERSTATE STEEL SUPPLY CO. AND AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS OF DOLLARS, EXCEPT SHARE AMOUNTS)

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, $472 and
$257 have been charged to operations for the years ended December 31, 1994, 1995
and 1996 and for the period from January 1, 1997 through July 10, 1997,
respectively.

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

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 Warehouse Real Estate
Associates 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.

During July 1997, subsequent to the merger, $16,613 of Interstate's debt
was repaid with advances from Metals USA.

F-93
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To Queensboro Steel Corporation:

We have audited the statement of income, stockholders' equity, and cash flows of
Queensboro Steel Corporation (the "Company") for the period from January 1,
1997 through July 10, 1997. 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, Queensboro Steel Corporation's results of operations and
its cash flows for the period from January 1, 1997 through July 10, 1997, in
conformity with generally accepted accounting principles.

ARTHUR ANDERSEN LLP

Houston, Texas
January 30, 1998

F-94
<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
and Note 12 as to which
the date is July 11, 1997

F-95
<PAGE>
QUEENSBORO STEEL CORPORATION
BALANCE SHEETS
(IN THOUSANDS OF DOLLARS, EXCEPT SHARE AMOUNTS)

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

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

F-96
<PAGE>
QUEENSBORO STEEL CORPORATION
STATEMENTS OF INCOME
(IN THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
PERIOD FROM
YEARS ENDED DECEMBER 31, JANUARY 1, 1997
------------------------------- THROUGH
1994 1995 1996 JULY 10, 1997
--------- --------- --------- ---------------
<S> <C> <C> <C> <C>
Net sales............................ $ 50,795 $ 60,322 $ 54,996 $32,976
Costs and expenses:
Cost of sales................... 37,996 45,945 38,912 24,368
Operating and delivery.......... 7,408 8,080 8,355 4,971
Selling, general and
administrative expenses....... 3,656 3,839 3,870 2,286
Depreciation and amortization... 369 362 405 246
--------- --------- --------- ---------------
Operating income................ 1,366 2,096 3,454 1,105
Other (income) expense:
Interest expense................ 465 612 587 411
Other income.................... (63) (67) (77) (14)
--------- --------- --------- ---------------
Net income........................... $ 964 $ 1,551 $ 2,944 $ 708
========= ========= ========= ===============
</TABLE>
The accompanying notes are an integral part of these financial statements.

F-97
<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...................... -- -- -- 708 -- 708
Dividends....................... -- -- -- (7,116) -- (7,116)
-------- -------- ----------- --------- ----------- -------------
Balance, July 10, 1997............... $ 187 $ 787 $ 870 $ 1,536 $-- $ 3,380
======== ======== =========== ========= =========== =============
</TABLE>
The accompanying notes are an integral part of these financial statements.

F-98
<PAGE>
QUEENSBORO STEEL CORPORATION
STATEMENTS OF CASH FLOWS
(IN THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
PERIOD FROM
YEARS ENDED DECEMBER 31, JANUARY 1, 1997
------------------------------- THROUGH
1994 1995 1996 JULY 10, 1997
--------- --------- --------- ---------------
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income......................... $ 964 $ 1,551 $ 2,944 $ 708
Adjustments to reconcile net income
to net cash provided by (used in)
operating activities:
Depreciation and amortization.... 369 362 405 246
Loss (gain) on sale of assets.... (1) 2 4 --
Increase in deferred
compensation................... 54 40 51 28
Changes in operating assets and
liabilities:
Accounts receivable, net....... (1,225) (2,930) 1,702 22
Inventories.................... (2,241) 1,552 (2,358) (927)
Prepaid expenses and other
assets...................... (69) (63) 99 (45)
Accounts payable and accrued
liabilities................. 925 (173) 258 337
Billings related to cost and
estimated earnings on
uncompleted contracts....... 721 212 49 (659)
Other operating activity....... -- -- -- (14)
--------- --------- --------- ---------------
Net cash provided by (used
in) operating
activities................ (503) 553 3,154 (304)
--------- --------- --------- ---------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property and
equipment...................... (896) (1,519) (1,962) (304)
Proceeds from sales of property
and equipment.................. 2 16 7 51
Other, net....................... (7) (1) 2 --
--------- --------- --------- ---------------
Net cash used in investing
activities................ (901) (1,504) (1,953) (253)
--------- --------- --------- ---------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments on revolving
line-of-credit................. (61,087) (40,844) (43,543) (59,165)
Borrowings on revolving
line-of-credit................. 62,755 42,829 40,210 65,884
Borrowings on long-term debt..... -- -- 3,000 --
Financing costs.................. -- -- (100) --
Net Advances (to) from
Affiliates..................... -- -- -- 173
Principal payments on long-term
debt........................... (125) (125) (10) --
Dividends paid................... (138) (909) (758) (6,334)
--------- --------- --------- ---------------
Net cash provided by (used
in) financing
activities................ 1,405 951 (1,201) 558
--------- --------- --------- ---------------
NET INCREASE IN CASH................. 1 -- -- 1
CASH BEGINNING OF PERIOD............. 4 5 5 5
--------- --------- --------- ---------------
CASH END OF PERIOD................... $ 5 $ 5 $ 5 $ 6
========= ========= ========= ===============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION:
Cash paid for interest........... $ 466 $ 601 $ 559 $ 409
SUPPLEMENTAL SCHEDULE OF NON-CASH
INVESTING AND FINANCING ACTIVITIES:
Investment securities received
(donated)...................... $ -- $ (78) $ 78 $ --
Note received in settlement of an
account receivable............. -- -- 156 --
Distribution of property and
equipment to shareholders...... -- -- -- 782
</TABLE>
The accompanying notes are an integral part of these financial statements.

F-99
<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 entered into a definitive merger agreement
with Metals USA, Inc. ("Metals USA") pursuant to which all of Queensboro's
outstanding shares of capital stock were 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 (see Note 11).

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

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

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

F-100
<PAGE>
QUEENSBORO STEEL CORPORATION
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS OF DOLLARS, EXCEPT SHARE AMOUNTS)

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.

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
========= =========

F-101
<PAGE>
QUEENSBORO STEEL CORPORATION
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS OF DOLLARS, EXCEPT SHARE AMOUNTS)

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 and July 10, 1997, inventories would have been $8,086, $9,776 and $10,671
and net income for the years ended December 31, 1994, 1995, 1996 and for the
period from January 1, 1997 through July 10, 1997, would have been $1,324,
$1,882, $2,279 and $676, 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
========= =========

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
========= =========

F-102
<PAGE>
QUEENSBORO STEEL CORPORATION
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS OF DOLLARS, EXCEPT SHARE AMOUNTS)

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.

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.

F-103
<PAGE>
QUEENSBORO STEEL CORPORATION
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS OF DOLLARS, EXCEPT SHARE AMOUNTS)

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, $40 and $20 for
1994, 1995, 1996 and for the period from January 1, 1997 through July 10, 1997,
respectively. The discretionary profit-sharing contributions were $50, $65, $25
and $15 in 1994, 1995, 1996 and for the period from January 1, 1997 through July
10, 1997, 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.

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 and $221 for the years ended December 31,
1994, 1995, 1996 and for the period from January 1, 1997 through July 10, 1997,
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

F-104
<PAGE>
QUEENSBORO STEEL CORPORATION
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS OF DOLLARS, EXCEPT SHARE AMOUNTS)

the affiliated corporation, for which it billed $274 in 1994, $370 in 1995, $344
in 1996 and $186 for the period from January 1, 1997 through July 10, 1997.

Queensboro leases fabrication shop facilities from an affiliated
partnership under operating lease terms (see Note 9). Lease expense was $137 in
1994, 1995, 1996 and $73 for the period from January 1, 1997 through July 10,
1997.

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. OTHER TRANSACTIONS

On July 11, 1997, Metals USA, 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 monthly 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.

During July 1997, subsequent to the merger, $12,612 of Queensboro's debt
was repaid with advances from Metals USA.

F-105
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To Affiliated Metals Company

We have audited the accompanying statements of operations, stockholders' equity
and cash flows of Affiliated Metals Company (the "Company") for the period
from September 1, 1996 through July 10, 1997. 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.

In our opinion, the financial statements referred to above present fairly, in
all material respects, Affiliated Metals Company's results of operations and its
cash flows for the period from September 1, 1996 through July 10, 1997, in
conformity with generally accepted accounting principles.

ARTHUR ANDERSEN LLP

Houston, Texas
January 30, 1998

F-106
<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-107
<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-108
<PAGE>
AFFILIATED METALS COMPANY
BALANCE SHEETS
(IN THOUSANDS OF DOLLARS, EXCEPT SHARE AMOUNTS)

SEPTEMBER 2, AUGUST 31,
1995 1996
------------ ----------
ASSETS
Current assets:
Cash............................ $ 2 $ 10
Accounts receivable, less
allowances for doubtful
accounts
of $30 at September 2, 1995
and August 31, 1996........... 7,013 7,074
Inventories..................... 6,810 10,658
Prepaid expenses and other
current assets................ 125 130
------------ ----------
Total current assets....... 13,950 17,872
Property and equipment, net.......... 2,699 7,940
Other assets......................... 705 649
------------ ----------
Total assets............... $ 17,354 $ 26,461
============ ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Bank overdraft.................. $ 23 $ 143
Accounts payable................ 5,860 7,154
Accrued liabilities............. 494 529
Current portion of long-term
debt.......................... 407 10,358
------------ ----------
Total current
liabilities............. 6,784 18,184
Long-term debt....................... 8,018 4,337
Deferred income taxes................ 622 599
Redeemable preferred stock, $119.048
par value; 1,680 shares authorized;
840 and 600 shares issued and
outstanding
at September 2, 1995 and August 31,
1996, 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
Retained earnings............... 1,780 3,220
------------ ----------
Total stockholders'
equity.................. 1,830 3,270
------------ ----------
Total liabilities and
stockholders'
equity............. $ 17,354 $ 26,461
============ ==========

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

F-109
<PAGE>
AFFILIATED METALS COMPANY
STATEMENTS OF OPERATIONS
(IN THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
FIFTY-TWO WEEKS ENDED
------------------------------------------ PERIOD FROM
SEPTEMBER 3, SEPTEMBER 2, AUGUST 31, SEPTEMBER 1, 1996
1994 1995 1996 THROUGH JULY 10, 1997
------------ ------------ ---------- ---------------------
<S> <C> <C> <C> <C>
Net sales............................ $ 63,046 $ 78,976 $ 81,002 $88,932

Costs and expenses:

Cost of sales................... 54,600 68,481 67,924 75,992

Operating and delivery
expenses...................... 4,316 5,060 5,871 8,200

Selling, general and
administrative expenses....... 2,352 2,803 3,431 2,633

Depreciation and amortization... 304 313 300 521
------------ ------------ ---------- ---------------------

Operating income..................... 1,474 2,319 3,476 1,586

Other expense:

Interest expense................ 735 1,058 1,011 1,415

Other, net...................... 37 22 38 166
------------ ------------ ---------- ---------------------

Income before income taxes........... 702 1,239 2,427 5

Provision for income taxes........... 297 497 979 18
------------ ------------ ---------- ---------------------

Net income (loss).................... $ 405 $ 742 $ 1,448 $ (13)
============ ============ ========== =====================
</TABLE>
The accompanying notes are an integral part of these financial statements.

F-110
<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..................... -- -- -- (4) (4)

Net loss........................ -- -- -- (13) (13)
------ ------ --- --------- -------------

Balance, July 10, 1997............... 6,000 $ -- $ 50 $ 3,203 $ 3,253
====== ====== === ========= =============
</TABLE>
The accompanying notes are an integral part of these financial statements.

F-111
<PAGE>
AFFILIATED METALS COMPANY
STATEMENTS OF CASH FLOWS
(IN THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
FIFTY-TWO WEEKS ENDED
-------------------------------------------- PERIOD FROM
SEPTEMBER 3, SEPTEMBER 2, AUGUST 31, SEPTEMBER 1, 1996
1994 1995 1996 THROUGH JULY 10, 1997
------------- ------------- ---------- ---------------------
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss).................. $ 405 $ 742 $ 1,448 $ (13)
Adjustments to reconcile net income
to net cash provided by (used in)
operating activities:
Depreciation and
amortization................ 304 313 300 521
Loss on sale of assets......... 3 -- 10 90
Deferred tax provision
(benefit)................... (20) (45) (1) (25)
Changes in operating assets and
liabilities:
Accounts receivable,
net..................... (890) (2,020) (61) (4,627)
Inventories............... (190) 61 (3,848) (3,389)
Prepaid expenses and other
assets.................. (116) 54 (27) (86)
Accounts payable.......... (525) 2,786 1,293 1,332
Accrued liabilities....... (70) 245 35 53
Other..................... (7) (22) -- 29
Other operating activity....... (121)
------------- ------------- ---------- --------
Net cash provided by
(used in) operating
activities............ (1,106) 2,114 (851) (6,236)
------------- ------------- ---------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and
equipment........................ (310) (615) (5,553) (1,338)
Proceeds from sales of property and
equipment........................ 5 -- 58 290
Other, net......................... (36) -- -- --
------------- ------------- ---------- --------
Net cash used in
investing
activities............ (341) (615) (5,495) (1,048)
------------- ------------- ---------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase (decrease) on bank
overdraft........................ 783 (1,259) 120 1,650
Principal payments on long-term
debt............................. (198) (523) (668) (626)
Proceeds from issuance of long-term
debt............................. 1,412 325 6,939 6,399
Purchase of redeemable preferred
stock............................ (529) (29) (29) (71)
Dividends paid on redeemable
preferred stock.................. (21) (11) (8) (4)
------------- ------------- ---------- --------
Net cash provided by
(used in) financing
activities............ 1,447 (1,497) 6,354 7,348
------------- ------------- ---------- --------
NET INCREASE IN CASH................. -- 2 8 64
CASH BEGINNING OF PERIOD............. -- -- 2 10
------------- ------------- ---------- --------
CASH END OF PERIOD................... $-- $ 2 $ 10 $ 74
============= ============= ========== ========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION:
Cash paid for interest (net of
amount capitalized of $153 in
1996)............................ $ 784 $ 1,054 $ 991 $ 1,311
Cash paid for income taxes......... 389 370 1,083 104
</TABLE>
The accompanying notes are an integral part of these financial statements.

F-112
<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.

Affiliated Metals and its shareholders entered into a definitive merger
agreement with Metals USA, Inc. ("Metals USA") pursuant to which all of
Affiliated Metal's outstanding shares of capital stock were exchanged for cash
and shares of Metals USA common stock concurrently with the consummation of the
initial public offering (the "Offering") of Metals common stock (see Note 9).

The financial statements for the period from September 1, 1996 through July
10, 1997 are presented for purposes of complying with certain reporting
requirements of Regulation S-X of the Securities and Exchange Commission and are
not necessarily indicative of the results to be expected for the entire year.

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.

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-113
<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. For the period from September
1, 1996 through July 10, 1997, three customers accounted for 10.6%, 8.0% and
7.9% 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, 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:
<TABLE>
<CAPTION>
ESTIMATED SEPTEMBER 2, AUGUST 31,
USEFUL LIVES 1995 1996
------------- ------------ ----------
<S> <C> <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-114
<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. In April 1997, Affiliated entered into an agreement to extend
until September 1997 the financing agreements related to the construction note
payable.

F-115
<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
==========

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.

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-116
<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
------------------------------------------ PERIOD FROM
SEPTEMBER 3, SEPTEMBER 2, AUGUST 31, SEPTEMBER 1, 1996
1994 1995 1996 THROUGH JULY 10, 1997
------------ ------------ ---------- ---------------------
<S> <C> <C> <C> <C>
Federal:
Current......................... $ 260 $ 442 $ 796 $ 37
Deferred........................ (16) (37) (1) (20)
------------ ------------ ---------- ---------------------
244 405 795 17
State:
Current......................... 57 100 184 (1)
Deferred........................ (4) (8) -- 2
------------ ------------ ---------- ---------------------
53 92 184 1
------------ ------------ ---------- ---------------------
Total provision...................... $ 297 $ 497 $ 979 $ 18
============ ============ ========== =====================
</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
------------------------------------------ PERIOD FROM
SEPTEMBER 2, SEPTEMBER 3, AUGUST 31, SEPTEMBER 1, 1996
1994 1995 1996 THROUGH JULY 10, 1997
------------ ------------ ---------- ---------------------
<S> <C> <C> <C> <C>
U.S. federal statutory rate.......... 34.0% 34.0% 34.0% 35.0%
State income taxes, net of Federal
tax benefit........................ 4.8 4.8 5.0 15.0
Other................................ 3.5 1.3 1.3 290.0
------------ ------------ ---------- ------
42.3% 40.1% 40.3% 340.0%
============ ============ ========== ======
</TABLE>
F-117
<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, August 31, 1996 and the period from September 1, 1996 through
July 10, 1997, of $89, $100, $141 and $114, 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, August 31, 1996 and the period from
September 1, 1996 through July 10, 1997 was $126, $125, $128 and $113,
respectively.

9. SUBSEQUENT EVENT

On July 11, 1997, Metals USA 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.

During July 1997, subsequent to the merger, $22,110 of Affiliated's debt
was repaid with advances from Metals USA.

In December 1997, Affiliated exercised its five-year renewal option on its
lease for the corporate office and one of its production facilities (see Note
8).

F-118
<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. (the "Company") as of December 31, 1995 and 1996, and the related
statements of operations, stockholders' equity and cash flows for the years then
ended and for the period from January 1, 1997 through July 10, 1997. 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 audit provides a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in
all material respects, the combined financial position of Southern Alloy of
America, Inc. as of December 31, 1995 and 1996, and the results of its
operations and its cash flows for each of the two years then ended and for the
period from January 1, 1997 through July 10, 1997, in conformity with generally
accepted accounting principles.

ARTHUR ANDERSEN LLP

Houston, Texas
January 30, 1998

F-119
<PAGE>
SOUTHERN ALLOY OF AMERICA, INC.
BALANCE SHEETS
(IN THOUSANDS OF DOLLARS, EXCEPT SHARE AMOUNTS)

DECEMBER 31,
--------------------
1995 1996
--------- ---------
ASSETS
Current assets:
Cash and cash equivalents....... $ 57 $ --
Accounts receivable:
Trade, less allowances of
$18 and $13.............. 1,483 1,262
Affiliates................. 1,020 945
Inventories..................... 1,050 1,063
Prepaid expenses and other
current assets.................. 22 63
--------- ---------
Total current assets....... 3,632 3,333
Property and equipment, net.......... 456 353
Other assets......................... 84 68
--------- ---------
Total assets............... $ 4,172 $ 3,754
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable................ $ 1,602 $ 1,450
Accrued liabilities............. 97 68
Revolving line-of-credit........ 1,424 1,424
Current portion of obligations
under capital lease............ 68 25
Current portion of long-term
debt........................... 38 24
--------- ---------
Total current
liabilities.................. 3,229 2,991
Obligations under capital lease, less
current portion.................... 69 44
Long-term debt, less current
portion.............................. 24 --
--------- ---------
Total liabilities.......... 3,322 3,035
--------- ---------
Stockholders' equity:
Common stock 100,000 shares
authorized; 19,500 and 17,200
shares issued and outstanding
at December 31, 1995 and 1996,
respectively................... 20 17
Additional paid-in capital...... 410 608
Retained earnings............... 420 94
--------- ---------
Total stockholders'
equity....................... 850 719
--------- ---------
Total liabilities and
stockholders'
equity.............. $ 4,172 $ 3,754
========= =========

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

F-120
<PAGE>
SOUTHERN ALLOY OF AMERICA, INC.
STATEMENTS OF OPERATIONS
(IN THOUSANDS OF DOLLARS)

YEAR ENDED DECEMBER PERIOD FROM
31, JANUARY 1, 1997
-------------------- THROUGH
1995 1996 JULY 10, 1997
--------- --------- ---------------
Net sales............................ $ 12,018 $ 10,815 $ 5,872
Costs and expenses:
Cost of sales................... 7,669 7,084 3,821
Operating and delivery.......... 902 709 412
Selling, general and
administrative expenses....... 2,806 2,850 1,520
Depreciation and amortization... 108 126 82
--------- --------- ---------------
Operating income..................... 533 46 37
Other (income) expense:
Interest expense................ 252 168 72
Interest income................. (146) (108) (17)
--------- --------- ---------------
Income (loss) before income taxes.... 427 (14) (18)
Provision (benefit) for income
taxes................................ -- -- --
--------- --------- ---------------
Net income (loss).................... $ 427 $ (14) $ (18)
========= ========= ===============

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

F-121
<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............ 2,300 3 -- -- 3
Distributions to owners......... -- -- -- (1,099) (1,099)
Net income...................... -- -- -- (18) (18)
------- ------ ----------- --------- -------------
Balance, July 10, 1997............... 19,500 $ 20 $ 608 $ (1,023) $ (395)
======= ====== =========== ========= =============
</TABLE>
The accompanying notes are an integral part of these financial statements.

F-122
<PAGE>
SOUTHERN ALLOY OF AMERICA, INC.
STATEMENTS OF CASH FLOWS
(IN THOUSANDS OF DOLLARS)

YEAR ENDED PERIOD FROM
DECEMBER 31, JANUARY 1, 1997
-------------------- THROUGH
1995 1996 JULY 10, 1997
--------- --------- ---------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss).................. $ 427 $ (14) $ (18)
Adjustments to reconcile net income
(loss) to net cash provided by
operating activities:
Depreciation.................... 108 126 82
Grant of stock option........... -- 246 --
Gain on sale of assets.......... (9) (71) --
Changes in operating assets and
liabilities:
Accounts receivable, net...... (113) 221 (322)
Inventories................... (90) (13) (352)
Prepaid expenses and other
assets..................... (10) (41) (73)
Other long-term assets........ 25 16 47
Accounts payable.............. 529 (152) 617
Accrued liabilities........... (57) (29) 50
Other operating activity...... -- -- (4)
--------- --------- ---------------
Net cash provided by
operating activities.... 810 289 27
--------- --------- ---------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property and
equipment..................... (99) (23) (28)
Proceeds from sales of property
and equipment................. 8 71 --
--------- --------- ---------------
Net cash provided by (used
in) investing
activities.............. (91) 48 (28)
--------- --------- ---------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase on revolving
line-of-credit................ 156 -- 180
Net advances (to) from officers
and affiliates................ (535) 75 945
Payments on capital lease
obligations................... (63) (68) (13)
Principal payments on long-term
obligations................... (30) (38) (15)
Redemption of common stock...... -- (248) --
Sale of common stock............ -- -- 3
Dividends paid.................. (190) (115) (1,099)
--------- --------- ---------------
Net cash provided by (used
in) financing
activities.............. (662) (394) 1
--------- --------- ---------------
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS................... 57 (57) --
CASH AND CASH EQUIVALENTS, BEGINNING
OF PERIOD.......................... -- 57 --
--------- --------- ---------------
CASH AND CASH EQUIVALENTS, END OF
PERIOD............................... $ 57 $ -- $ --
========= ========= ===============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION:
Cash paid for interest.......... $ 26 $ 159 $ 83

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

F-123
<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 entered into a definitive merger
agreement with Metals USA, Inc. ("Metals USA") pursuant to which all of
Southern Alloy's outstanding shares of capital stock were 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. (See Note
10).

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

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 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.

F-124
<PAGE>
SOUTHERN ALLOY OF AMERICA, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS OF DOLLARS, EXCEPT SHARE AMOUNTS)

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
========= =========

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

F-125
<PAGE>
SOUTHERN ALLOY OF AMERICA, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS OF DOLLARS, EXCEPT SHARE AMOUNTS)

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, $16 and $3 in 1995, 1996
and the period from January 1, 1997 through July 10, 1997, respectively.

F-126
<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 $3.

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, $103 and $69 in 1995, 1996 and the period from January 1, 1997
through July 10, 1997, 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, $198 and $112 for 1995, 1996 and the period from
January 1, 1997 through July 10, 1997, 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
========= =========

Southern Alloy made a distribution of receivables from affiliates with a
carrying value of approximately $842.

F-127
<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 and 1996, and the period from January 1, 1997
through July 10, 1997:

PERIOD FROM
JANUARY 1, 1997
THROUGH
1995 1996 JULY 10, 1997
--------- --------- ------------------
SOMAR, Inc........................... $ 109 $ 57 -$-
Engineered Machine Technologies,
Inc................................ 37 51 17
--------- --------- ------------------
$ 146 $ 108 $ 17
========= ========= ==================

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 EVENT

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.

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.

During July 1997, subsequent to the merger, $2,115 of Southern Alloy's debt
was repaid with advances from Metals USA.

F-128
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To Uni-Steel, Inc.:

We have audited the accompanying balance sheet of Uni-Steel, Inc. (the
"Company"), an Oklahoma Corporation, as of September 30, 1996, and the related
statements of income, stockholders' equity and cash flows for the year ended
September 30, 1996 and for the period from October 1, 1996 through July 10,
1997. 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 Uni-Steel, Inc. as of September
30, 1996, and the results of its operations and its cash flow for the year ended
September 30, 1996 and for the period from October 1, 1996 through July 10, 1997
in conformity with generally accepted accounting principles.

ARTHUR ANDERSEN LLP
Houston, Texas
January 30, 1998

F-129
<PAGE>
UNI-STEEL, INC.
BALANCE SHEET
(IN THOUSANDS OF DOLLARS, EXCEPT SHARE AMOUNTS)

SEPTEMBER 30,
1996
-------------
ASSETS
Current assets:
Cash and cash equivalents....... $ 203
Accounts receivable, less
allowance of $122.............. 6,586
Accounts
receivable -- affiliates....... 261
Inventories..................... 9,947
Current portion of note
receivable..................... 25
Deferred income taxes........... 127
Prepaid expenses and other
current assets................. 22
-------------
Total current assets....... 17,171
Property and equipment, net.......... 3,176
Notes receivable, net of current
portion............................ 1,212
Other assets......................... 355
Goodwill............................. 344
-------------
Total assets............... $22,258
=============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable................ $ 3,165
Accounts
payable -- affiliates........... 121
Accrued liabilities............. 419
Note payable to shareholders.... 36
Line of credit.................. 7,100
Current portion of long-term
debt........................... 174
Income taxes payable............ 92
-------------
Total current
liabilities............... 11,107
Long-term debt, net of current
portion............................ 413
Deferred income taxes................ 788
-------------
Total liabilities.......... 12,308
-------------
Commitments and contingencies
Redemption value of 36,533 shares of
common stock $1.00 par value
subject to mandatory redemption.... 4,201
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
Additional paid-in capital...... 1,104
Retained earnings............... 5,743
Less: treasury stock, at cost... (1,161)
-------------
Total stockholders' equity...... 5,749
-------------
Total liabilities and
stockholders' equity...... $22,258
=============

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

F-130
<PAGE>
UNI-STEEL, INC.
STATEMENTS OF INCOME
(IN THOUSANDS OF DOLLARS)

PERIOD FROM
YEAR ENDED OCTOBER 1, 1996
SEPTEMBER 30, THROUGH
1996 JULY 10, 1997
------------- ---------------
Net sales............................ $54,620 $47,891
Operating costs and expenses:
Cost of sales................... 43,192 37,967
Operating and delivery.......... 5,608 5,102
Selling, general and
administrative................ 2,917 2,423
Depreciation and amortization... 542 389
------------- ---------------
Operating income..................... 2,361 2,010
Other (income) expense:
Interest expense................ 575 529
Interest income................. (179) (140)
Other, net...................... (4) --
------------- ---------------
392 389
------------- ---------------
Income before income taxes........... 1,969 1,621
Provision for income taxes........... 741 603
------------- ---------------
Net income........................... $ 1,228 $ 1,018
============= ===============

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

F-131
<PAGE>
UNI-STEEL, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY
(IN THOUSANDS OF DOLLARS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL TOTAL
------------------ PAID-IN RETAINED TREASURY STOCKHOLDERS'
SHARES AMOUNT CAPITAL EARNINGS STOCK EQUITY
------- ------- ----------- --------- --------- -------------
<S> <C> <C> <C> <C> <C> <C>
Balance, September 30, 1995.......... 63,467 $ 63 $ 1,432 $ 4,515 $ (969) $ 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 1,104 5,743 (1,161) 5,749

Increase in redemption value of
common stock subject to
mandatory redemption.......... -- -- (398) -- -- (398)

Net income...................... -- -- -- 1,018 -- 1,018
------- ------- ----------- --------- --------- -------------

Balance, July 10, 1997............... 63,467 $ 63 $ 706 $ 6,761 $ (1,161) $ 6,369
======= ======= =========== ========= ========= =============
</TABLE>
The accompanying notes are an integral part of these financial statements.

F-132
<PAGE>
UNI-STEEL, INC.
STATEMENTS OF CASH FLOWS
(IN THOUSANDS OF DOLLARS)

PERIOD FROM
YEAR ENDED OCTOBER 1, 1996
SEPTEMBER 30, THROUGH
1996 JULY 10, 1997
------------- ---------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income......................... $ 1,228 $ 1,018
Adjustments to reconcile net income
to net cash provided by (used
in) operating activities:
Depreciation and
amortization................. 542 389
Deferred income taxes......... (36) (53)
Increases in cash surrender
values of life insurance..... (56) (57)
Changes in operating assets
and liabilities:
Accounts receivable, net... 181 (85)
Inventories................ (1,748) (1,993)
Prepaid expenses and other
assets................. (4) (3)
Accounts payable and
accrued liabilities.... 233 (190)
Income taxes payable....... (131) (129)
------------- ---------------
Net cash provided by
(used in) operating
activities........... 209 (1,103)
------------- ---------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property and
equipment....................... (362) (346)
Principal collected on notes....... 13 12
Investments acquired............... -- (86)
------------- ---------------
Net cash used in
investing
activities........... (349) (420)
------------- ---------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase on revolving
line-of-credit.................. 800 900
Principal payments on shareholder
debt............................ (95) (36)
Principal payments on long-term
obligations..................... (445) (199)
Principal borrowings on long-term
obligations..................... -- 1,000
Purchase of treasury stock......... (192) --
------------- ---------------
Net cash provided by
financing
activities........... 68 1,665
------------- ---------------
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS................... (72) 142
CASH AND CASH EQUIVALENTS, BEGINNING
OF PERIOD.......................... 275 203
------------- ---------------
CASH AND CASH EQUIVALENTS, END OF
PERIOD............................. $ 203 $ 345
============= ===============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION:
Cash paid for:
Interest........................ $ 568 $ 529
Income taxes.................... 909 702

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

F-133
<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 entered into a merger agreement with Metals
USA, Inc. ("Metals USA") pursuant to which all of Uni-Steel's outstanding
shares of capital stock were 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 (See Note 11).

The financial statements for the period from October 1, 1996 through, July
10, 1997 are presented for purposes of complying with certain reporting
requirements of Regulation S-X of the Securities and Exchange Commission and are
not neccessarily 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 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.

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 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.

F-134
<PAGE>
UNI-STEEL, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS OF DOLLARS, EXCEPT SHARE AMOUNTS)

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-135
<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
Automobiles 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
-------------
$ 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. If the lower of FIFO cost or market had been
used for all inventories, their carrying value would have been equal to the LIFO
value of $9,947 at September 30, 1996 and $11,242 at July 10, 1997.
Additionally, net income would have been the same at $1,228 and $1,018 for the
year ended September 30, 1996 and for the period from October 1, 1996 through
July 10, 1997, respectively.

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 were 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. As of July 10, 1997, Uni-Steel had drawn $8,000 against
its $10,000 line of credit.

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-136
<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
=============

At September 30, 1996, future principal payments of long-term debt are as
follows:

1997................................. $ 174
1998................................. 164
1999................................. 158
2000................................. 91
2001 and Thereafter.................. --
---------
$ 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

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

PERIOD FROM
OCTOBER 1, 1996
YEAR ENDED THROUGH
SEPTEMBER 30, 1996 JULY 10, 1997
------------------ ---------------
Current tax expense:
Federal......................... $ 693 $ 581
State........................... 84 75
Deferred tax expense:
Federal......................... (34) (41)
State........................... (2) (12)
-------- ---------------
Total tax provision.................. $ 741 $ 603
======== ===============

F-137
<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 are as follows:

YEAR ENDED
SEPTEMBER 30, 1996
------------------
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:

PERIOD FROM
OCTOBER 1, 1996
YEAR ENDED THROUGH
SEPTEMBER 30, 1996 JULY 10, 1997
------------------ ---------------
Federal income tax expense at the
statutory rate..................... $ 670 $ 551
State income taxes................... 54 42
Meals and entertainment.............. 17 10
------- ---------------
$ 741 $ 603
======= ===============

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 and $246 for the year
ended September 30, 1996, and the period from October 1, 1996 through July 10,
1997, respectively.

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

F-138
<PAGE>
UNI-STEEL, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS OF DOLLARS, EXCEPT SHARE AMOUNTS)

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 sheet.

OPERATING LEASES

Uni-Steel leases warehouse space under an operating lease expiring in
October 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
=========

Following is a summary of rental expense under non-cancelable operating
leases:

PERIOD FROM
FOR THE OCTOBER 1, 1996
YEAR ENDED THROUGH
SEPTEMBER 30, 1996 JULY 10, 1997
------------------ ---------------
Minimum rentals...................... $ 24 $ 18
Contingent rentals................... 191 369
------- ---------------
Total........................... $ 215 $ 387
======= ===============

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:

PERIOD FROM
OCTOBER 1, 1996
YEAR ENDED THROUGH
SEPTEMBER 30, 1996 JULY 10, 1997
------------------ ---------------
Sales to related companies........... $ 2,807 $ 2,350
================== ===============
Shipping provided by a related
company (Included in operating and
delivery expenses in the
accompanying statements of
income)............................ $ 1,227 $ 989
================== ===============
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 $ 109
================== ===============

F-139
<PAGE>
UNI-STEEL, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS OF DOLLARS, EXCEPT SHARE AMOUNTS)

11. SUBSEQUENT EVENTS

On July 11, 1997, Metals USA 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.

During July 1997, subsequent to the merger, $10,116 of Uni-Steel's debt was
repaid with advances from Metals USA.

F-140
<PAGE>
REPORT OF INDEPENDENT AUDITORS

To the Board of Directors of
Harvey Titanium, Ltd.

We have audited the accompanying consolidated balance sheet of Harvey
Titanium, Ltd. and Subsidiary as of June 30, 1997 and the related consolidated
statements of operations, stockholders' equity and cash flows for the year then
ended. These consolidated financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
consolidated 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 consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Harvey
Titanium, Ltd. and Subsidiary at June 30, 1997 and the results of its operations
and its cash flows for the year then ended in conformity with generally accepted
accounting principles.

KLEIN, BOGAKOS AND ROBERTSON, CPA'S INC.

Santa Monica, Ca
September 23, 1997

F-141
<PAGE>
HARVEY TITANIUM, LTD. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS OF DOLLARS, EXCEPT FOR SHARE AMOUNTS)

JUNE 30, SEPTEMBER 30,
1997 1997
--------- -------------
(UNAUDITED)
ASSETS
Current assets:
Cash and cash equivalents....... $ 428 $ 584
Accounts receivable:
Trade, less allowance of
$230 at June 30 and
September 30, 1997...... 9,149 12,632
Other...................... 91 75
Inventories..................... 15,203 16,789
Deferred income taxes........... 309 309
Prepaid expenses and other
current assets................. 22 114
--------- -------------
Total current
assets................ 25,202 30,503
Property and equipment, net.......... 1,211 1,230
Other assets......................... 56 56
--------- -------------
Total assets.......... $ 26,469 $31,789
========= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable................ $ 10,510 $12,366
Accrued liabilities............. 756 809
Income taxes payable............ 1,275 244
Notes payable -- former
stockholder..................... 400 344
Current portion of long term
debt and capitalized lease
obligation..................... 129 75
--------- -------------
Total current
liabilities........... 13,070 13,838
Long term debt and capitalized lease
obligations........................ 7,286 278
Due to parent........................ -- 10,789
Deferred income taxes................ 855 855
--------- -------------
Total liabilities..... 21,211 25,760
Shareholders' equity:
Common stock, no par value,
7,500 shares authorized, 489
shares issued and outstanding
at June 30 and September 30,
1997 5 5
Retained earnings............... 5,253 6,024
--------- -------------
Total stockholders' equity...... 5,258 6,029
--------- -------------
Total liabilities and
stockholders' equity......... $ 26,469 $31,789
========= =============

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

F-142
<PAGE>
HARVEY TITANIUM, LTD. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF OPERATIONS
(IN THOUSANDS OF DOLLARS)

THREE MONTHS ENDED
YEAR ENDED SEPTEMBER 30,
JUNE 30, --------------------
1997 1996 1997
----------- --------- ---------
(UNAUDITED)
Net Sales............................ $52,630 $ 11,678 $ 15,561
Costs and expenses:
Cost of sales................... 41,121 8,861 12,273
Operating and delivery.......... 2,228 491 594
Selling, general, and
administrative expenses......... 4,226 706 1,004
Depreciation and amortization... 200 50 47
----------- --------- ---------
Operating income........... 4,855 1,570 1,643
Other expense:
Interest expense................ 669 142 283
Loss on abandonment of assets... 60 -- --
----------- --------- ---------
729 142 283
----------- --------- ---------
Income before taxes.................. 4,126 1,428 1,360
Provision for income taxes........... 1,691 586 589
----------- --------- ---------
Net income........................... $ 2,435 $ 842 $ 771
=========== ========= =========

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

F-143
<PAGE>
HARVEY TITANIUM, LTD. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
(IN THOUSANDS OF DOLLARS, EXCEPT FOR SHARE AMOUNTS)
<TABLE>
<CAPTION>
COMMON STOCK TOTAL
----------------- RETAINED STOCKHOLDERS'
SHARES AMOUNT EARNINGS EQUITY
------ ------ --------- -------------
<S> <C> <C> <C> <C>
Balance, July 1, 1996................... 489 $ 5 $ 2,818 $ 2,823
Net income......................... -- -- 2,435 2,435
------ ------ --------- -------------
Balance, June 30, 1997.................. 489 5 5,253 5,258
Net income (unaudited)............. -- -- 771 771
------ ------ --------- -------------
Balance, September 30, 1997
(unaudited)........................... 489 $ 5 $ 6,024 $ 6,029
====== ====== ========= =============
</TABLE>
The accompanying notes are an integral part of these financial statements.

F-144
<PAGE>
HARVEY TITANIUM, LTD. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED SEPTEMBER 30,
JUNE 30, --------------------
1997 1996 1997
---------- --------- ---------
(UNAUDITED)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income.............................. $ 2,435 $ 842 $ 771
Adjustments to reconcile net income to
net cash used by operating activities:
Depreciation and amortization...... 200 50 50
Loss on abandonment of assets...... 60 -- --
Deferred income taxes.............. 52 -- --
Changes in operating assets and
liabilities:
Accounts receivable, net...... (756) 1,838 (3,467)
Inventories................... (7,087) (439) (1,586)
Prepaid expenses and other
assets..................... 14 2 (92)
Other long term assets........ (9) -- --
Accounts payable.............. 3,067 (1,835) 1,856
Accrued liabilities........... 373 19 53
Deferred revenue.............. (25) (25) --
Income taxes payable.......... 715 20 (1,031)
---------- --------- ---------
Net cash provided (used)
in operating
activities............ (961) 472 (3,446)
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property and
equipment........................ (1,073) (69) (69)
---------- --------- ---------
Net cash used in investing
activities................. (1,073) (69) (69)
CASH FLOWS FROM FINANCING ACTIVITIES
Net borrowings (repayment) on
revolving line-of-credit......... 2,450 600 (6,950)
Advances from parent............... -- -- 10,789
Net payments to former
stockholder...................... (129) (99) (56)
Proceeds from capital lease
obligations...................... 301 -- 40
Principal payments on long term
debt............................. (63) (17) (136)
Principal payments on capital lease
obligations...................... (27) (8) (16)
---------- --------- ---------
Net cash provided by
financing
activities............ 2,532 476 3,671
NET INCREASE IN CASH AND CASH
EQUIVALENTS........................... 498 879 156
CASH AND CASH EQUIVALENTS BEGINNING OF
PERIOD................................ (70) (70) 428
---------- --------- ---------
CASH AND CASH EQUIVALENTS END OF
PERIOD................................ $ 428 $ 809 $ 584
========== ========= =========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION:
Cash paid for interest............. $ 636 $ 142 $ 283
Cash paid for income taxes......... 918 564 1,620
</TABLE>
The accompanying notes are an integral part of these financial statements

F-145
<PAGE>
HARVEY TITANIUM, LTD. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS OF DOLLARS, EXCEPT FOR SHARE AMOUNTS)

1. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

BASIS OF PRESENTATION

Harvey Titanium, Ltd., ("Harvey") a California Corporation, is a
specialty metal service center located in Santa Monica, California, specializing
primarily in the distribution of titanium products. Harvey performs services for
its customers including cutting, extruding, machining and treating of titanium
sheet, plate, ingot and billet. Harvey's customers are composed primarily of
manufacturers of aerospace products. Harvey markets its products principally in
the western part of the United States. Total sales to Europe aggregated
approximately $7,200.

As described in Note 10, on September 26, 1997, Harvey and its sole
stockholder entered into a definitive merger agreement with Metals USA, Inc.
("Metals USA") pursuant to which all of Harvey's outstanding shares of capital
stock were exchanged for cash and shares of Metals USA common stock.

PRINCIPLES OF CONSOLIDATION

The consolidated financial statements include the accounts of Harvey and
its wholly-owned subsidiary, Harvey Overseas Sales Corporation, an
Interest-Charge Domestic International Sales Corporation (IC-DISC). Total export
sales amounted to $10,700 for the year ended June 30, 1997. All significant
intercompany balances and transactions have been eliminated.

USE OF ESTIMATES AND ASSUMPTIONS

The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect (i) the reported amounts of assets and liabilities, (ii)
disclosure of contingent assets and liabilities known to exist as of the date
the financial statements are published and, (iii) the reported amount of
revenues and expenses recognized during the periods presented. Harvey reviews
all significant estimates affecting its consolidated financial statements on a
recurring basis and records the effect of any necessary adjustments prior to
their publication. Adjustments made with respect to the use of estimates often
relate to improved information not previously available. Uncertainties with
respect to such estimates and assumptions are inherent in the preparation of
financial statements; accordingly, it is possible that an unfavorable resolution
of the contingency described in Note 8 could have a material adverse effect on
Harvey's consolidated financial position, results of operation or liquidity.

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 Harvey
at September 30, 1997, and the results of its operations and cash flows for the
three months ended September 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.

INCOME TAXES

Harvey accounts for income taxes in accordance with Statement 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, commission payments to an IC-DISC and different inventory
capitalization methods. Valuation allowances

F-146
<PAGE>
HARVEY TITANIUM, LTD. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

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.

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

REVENUE RECOGNITION

Revenue is generally recognized on the sale of goods when the goods are
shipped, all significant contractual obligations have been satisfied, and the
collection of the resulting receivable is reasonably assured.

INVENTORIES

Inventories are stated at the lower of cost of market with cost determined
primarily using the " last-in, first-out" ("LIFO") method, which is not in
excess of market. If the first-in, first-out (FIFO) method of inventory
valuation had been used, inventory would have been $1,328 higher, and income,
before income taxes, would have been $2,651 for the year ended June 30, 1997.

CONCENTRATION OF CREDIT RISK

Financial instruments, which potentially subject Harvey to concentrations
of credit risk, consist principally of cash deposits and trade accounts
receivable. Harvey places its temporary cash investments with credit-worthy
financial institutions and periodically evaluates the credit ratings of such
institutions to mitigate risk. Concentrations of credit risk with respect to
trade accounts receivable result from Harvey having one customer, a large
aerospace company, that accounted for approximately 20% of the accounts
receivable at June 30, 1997. For the year ended June 30, 1997, the same customer
accounted for approximately 30% of 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. Harvey periodically
reviews the credit history of its customers and generally does not require
collateral for the extension of credit.

DEPRECIATION AND AMORTIZATION

Property and equipment is stated at cost, net of accumulated depreciation.
Depreciation is computed on the declining balance method over the estimated
lives of the assets. Amortization of leasehold improvements over their estimated
useful life, regardless of the lease term, is determined on the straight line
method. Expenditures for maintenance and repairs are charged to expense as
incurred.

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. Harvey adopted SFAS No. 121 on July 1, 1996.

F-147
<PAGE>
HARVEY TITANIUM, LTD. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

2. PROPERTY AND EQUIPMENT

Property and equipment at June 30, 1997 consists of the following:

ESTIMATED
USEFUL LIVES
--------------
Machinery and equipment.............. 5-7 years $ 1,184
Auto and trucks...................... 5 years 19
Furniture............................ 5 years 691
Leasehold Improvements............... 7-15 years 357
---------
2,251
Less: accumulated depreciation....... (1,040)
---------
Total property and
equipment, net............. $ 1,211
=========

3. LONG TERM DEBT

Long-term debt at June 30, 1997 consists of the following:

Revolving line of credit.............................. $ 6,950
Loan payable to a lending institution, secured by
equipment and payable in monthly installments of $5,
plus interest at a fixed rate of 8.83%, with the
final payment due in July, 1999..................... 135
---------
7,085
Less: current portion................................. 63
---------
$ 7,022
=========

Harvey has a revolving line of credit agreement with the Bank of
California, effective March 21, 1995, modified on various occasions and restated
in its entirety on February 4, 1997, which provides for borrowings of up to
$7,500 with interest charged monthly at.875% in excess of the bank's prime
lending rate (8.50% at June 30, 1997) and matures January 29, 1998. This line is
secured by substantially all of the assets of Harvey and is personally
guaranteed by the Company's stockholder.

In addition, the credit agreement limits advances pursuant to a "borrowing
base" calculation based upon receivables and inventory and contains restrictive
covenants, which among other things, require Harvey to maintain certain levels
of working capital, net worth, profitability and financial leverage ratios.
Additional restrictions limit new indebtedness, purchase and sale of assets,
investments, mergers and acquisitions and dividend payments. Borrowings of
$6,950 were outstanding at June 30, 1997.

On August 28, 1997 Harvey modified its existing revolving line-of-credit
agreement with Bank of California to provide for increased available borrowings
of up to $13,000 and to extend the maturity date to August 30, 1998. This debt
is classified as noncurrent as a result of this extension.

F-148
<PAGE>
HARVEY TITANIUM, LTD. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

4. OBLIGATIONS UNDER CAPITAL LEASE

Harvey leases certain shop and office equipment under non-cancelable
capital leases through March, 2002, which bear interest at rates ranging from
9.0% to 14.84%.

Future minimum lease payments under capital leases as of June 30, 1997 are
as follows:

YEAR ENDED JUNE 30,
- ----------------------------------------
1998............................... $ 97
1999............................... 97
2000............................... 90
2001............................... 74
2002............................... 53
---------
Total future minimum lease
payments.......................... 411
Less: deferred interest............ 81
---------
Capital lease obligation........... 330
Less: current portion, net of
deferred interest................. 66
---------
$ 264
=========

The cost of equipment under capital leases and accumulated amortization
amounted to approximately $362 and $72 , respectively, at June 30, 1997.

5. INCOME TAXES

Income tax expense for the year ended June 30, 1997 is comprised of the
following:

Federal:
Current............................ $ 1,232
Deferred........................... 67
---------
1,299
State:
Current............................ 407
Deferred........................... (15)
---------
392
---------
Total tax provision..................... $ 1,691
=========

F-149
<PAGE>
HARVEY TITANIUM, LTD. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

The significant items giving rise to the deferred tax (assets) and
liabilities as of June 30, 1997 are as follows:

Deferred tax liabilities:
Bases differences in property and
equipment......................... $ 15
Investment in partnership.......... 97
IC-DISC commission................. 743
---------
Total deferred tax
liabilities................. 855
Deferred tax assets:
Allowance for doubtful accounts.... (100)
Inventory bases differences........ (78)
California franchise tax........... (131)
---------
Total deferred tax assets..... (309)
---------
Net deferred tax liabilities............ $ 546
=========

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

U.S. Federal statutory rate............. 34.0%
State income taxes, net of Federal tax
benefit............................... 6.1%
Other................................... 0.9%
---------
41.0%
=========

6. EMPLOYEE BENEFIT PLANS

Effective June 1, 1997, Harvey adopted a profit sharing 401(k) plan with a
Section 125 component. The plan allows for employee contributions through salary
reductions of up to 15% of total compensation. Harvey contributes an amount
equal to 50% of participant 401(K) contributions, up to a maximum of 3% of their
salaries. Employer contributions vest at the rate of 20% per year starting with
the completion of the second year of employment Participants are entitled, upon
termination, death, or retirement, to their respective portion of retirement
fund assets. The Section 125 component allows employees to use pre-tax
compensation to pay for dependent care and certain medical costs. Harvey's
employer contribution for the year ended June 30, 1997 amounted to $2.

7. LEASE COMMITMENTS

Harvey has leased office and warehouse facilities and transportation
equipment under various non-cancelable long term agreements, which have initial
or remaining non-cancelable terms in excess of one year as of June 30, 1997.
Total rent expense related to such leases aggregated $591 for the year ended
June 30, 1997.

The current office/warehouse lease, effective December 1, 1996, expires in
November, 2001, and is renewable at the option of Harvey for an additional five
years. This lease is a net lease which requires that Harvey pay all executory
expenses such as real estate taxes, insurance, common area and other operating
costs. Harvey also leases office space in London, England for its international
sales office under a lease that expires in October, 1997.

Future minimum rental commitments for fiscal years ending after June 30,
1997, under the leases described above, net of sub-lease income, are as follows:
1998 -- $567; 1999 -- $551; 2000 -- $516; 2001 -- $485; 2002 -- $182.

F-150
<PAGE>
HARVEY TITANIUM, LTD. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

8. CONTINGENCY

Harvey has been notified that it is a party to a product liability claim
(for which it has no product liability insurance) relating to the sale of parts
that allegedly did not comply with certain contract specifications. Harvey and
other parties have entered into a tolling agreement, which effectively delays
the statute of limitations with respect to any potential legal action that may
arise from this matter. Discussions between the parties are in their early
stages with respect to the product liability claim. This matter is subject to
significant uncertainties and, accordingly, it is presently impossible to make a
reasonable estimate of the amount or range of amounts of any monetary liability
that could result from this uncertainty.

9. RELATED PARTY TRANSACTIONS

On June 28, 1996, the stockholder loaned Harvey $595 in the form of a
subordinated note payable. An additional loan of $452 was made by the
stockholder to Harvey on June 30, 1997. Both loans are unsecured, allow for
prepayment of principal and bear interest at a rate of 8% per annum, payable
semiannually. After reductions for principal repayments made at various times
during the year and reclassification of certain personal expenditures at year
end in connection with the annual financial audit, the remaining outstanding
balance was $400 at June 30, 1997. Interest paid to the stockholder during the
year amounted to $25.

Prior to December 1, 1996, Harvey leased its old office and warehouse
facilities from its sole stockholder under a total of two leases. In connection
with the lease of the current office/warehouse facility, the old leases were
terminated in November, 1996.

10. SUBSEQUENT EVENTS -- (UNAUDITED)

On September 26, 1997, Harvey and its sole stockholder entered into a
definitive agreement with a wholly-owned subsidiary of Metals USA, which among
other things, calls for the merger of Harvey with the Metals USA subsidiary.

Subsequent to the merger, (i) Harvey repaid the estimated remaining balance
on the stockholder note and, (ii) the outstanding balances on the revolving line
of credit facility and the long term debt owed to Bank of California totaling
$10,789 were paid by Metals USA.

F-151
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To the Boards of Directors of
Independent Metals Co., Inc.:

We have audited the accompanying consolidated balance sheets of Independent
Metals Co., Inc. (a Wisconsin corporation) and subsidiary as of December 31,
1997 and 1996, and the related consolidated statements of operations,
shareholders' equity (deficit) and cash flows for the years then ended. These
financial statements are the responsibility of the Companies' management. Our
responsibility is to express an opinion on these financial statements based on
our audits.

As discussed in Note 9 to the financial statements, on January 7, 1998, the
shareholders sold all of their stock in the Company.

In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Independent Metals
Co., Inc. and subsidiary as of December 31, 1997 and 1996, and the results of
their operations and their cash flows for the years then ended in conformity
with generally accepted accounting principles.

ARTHUR ANDERSEN LLP

Milwaukee, Wisconsin,
January 23, 1998.

F-152
<PAGE>
INDEPENDENT METALS CO., INC.
CONSOLIDATED BALANCE SHEETS
AS OF DECEMBER 31, 1997 AND 1996
(IN THOUSANDS OF DOLLARS, EXCEPT FOR SHARE AMOUNTS)

1997 1996
--------- ---------
ASSETS
CURRENT ASSETS:
Cash............................ $ 12 $ 12
Accounts receivable -- net of
allowance of $100 and $86,
respectively................... 9,204 8,898
Inventories..................... 14,766 15,417
Other current assets............ 325 290
--------- ---------
Total current assets....... 24,307 24,617
PROPERTY AND EQUIPMENT, net.......... 3,918 4,525
GOODWILL, net of accumulated
amortization of $62 and $32,
respectively....................... 396 427
OTHER ASSETS, net of accumulated
amortization of $218 and $236,
respectively....................... 226 331
--------- ---------
Total assets............... $ 28,847 $ 29,900
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
(DEFICIT)
CURRENT LIABILITIES:
Current portion of long-term
debt........................... $ 439 $ 608
Accounts payable................ 12,071 12,661
Accrued liabilities............. 1,008 983
Current portion of capital
lease.......................... 93 103
--------- ---------
Total current
liabilities.............. 13,611 14,355
LONG-TERM DEBT, less current
portion............................ 16,572 14,587
OTHER LONG-TERM LIABILITIES.......... -- 93
--------- ---------
Total liabilities.......... 30,183 29,035
--------- ---------
SHAREHOLDERS' EQUITY (DEFICIT):
Common stock, $1.00 par value,
56,000
shares authorized, 760 shares
issued......................... 1 1
Additional paid-in capital...... 75 75
Retained earnings (deficit)..... (1,060) 1,141
Less -- Treasury stock, at cost,
90 shares...................... (352) (352)
--------- ---------
Total shareholders' equity
(deficit)................ (1,336) 865
--------- ---------
Total liabilities and
shareholders' equity
(deficit)................ $ 28,847 $ 29,900
========= =========

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

F-153
<PAGE>
INDEPENDENT METALS CO., INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996
(IN THOUSANDS OF DOLLARS)

1997 1996
--------- ---------
NET SALES............................ $ 94,471 $ 94,271
OPERATING COST AND EXPENSES:
Cost of sales................... 78,479 77,917
Operating and delivery.......... 7,297 7,218
Selling, general and
administrative................. 5,056 4,399
Depreciation and amortization... 1,108 1,052
--------- ---------
Operating income........... 2,531 3,685
OTHER (INCOME) EXPENSE:
Interest expense................ 1,451 1,645
Other, net...................... 4 (31)
--------- ---------
Net income................. $ 1,076 $ 2,071
========= =========

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

F-154
<PAGE>
INDEPENDENT METALS CO., INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (DEFICIT)
FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996
(IN THOUSANDS OF DOLLARS, EXCEPT FOR SHARE AMOUNTS)
<TABLE>
<CAPTION>
TOTAL
COMMON STOCK RETAINED TREASURY STOCK SHAREHOLDERS'
---------------- PAID-IN EARNINGS ------------------ EQUITY
SHARES AMOUNT CAPITAL (DEFICIT) SHARES COST (DEFICIT)
------ ------ -------- --------- ------ --------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE, December 31, 1995........... 760 $ 1 $ 75 $ (930) 90 $ (352) $(1,206)
Net income...................... -- -- -- 2,071 -- -- 2,071
------ ------ --- --------- ------ --------- -------------
BALANCE, December 31, 1996........... 760 1 75 1,141 90 (352) 865
Net income...................... -- -- -- 1,076 -- -- 1,076
Distributions to shareholders... -- -- -- (3,277) -- -- (3,277)
------ ------ --- --------- ------ --------- -------------
BALANCE, December 31, 1997........... 760 $ 1 $ 75 $(1,060) 90 $ (352) $(1,336)
====== ====== === ========= ====== ========= =============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.

F-155
<PAGE>
INDEPENDENT METALS CO., INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996
(IN THOUSANDS OF DOLLARS)

1997 1996
--------- ---------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income...................... $ 1,076 $ 2,071
Adjustments to reconcile net
income to net cash provided by
operating activities --
Depreciation and
amortization............. 1,108 1,052
Gain on property and
equipment transactions... -- (2)
Changes in operating assets
and liabilities --
Accounts receivable... (306) 2,679
Inventories........... 651 (478)
Other assets.......... (35) (157)
Accounts payable...... (590) 3,805
Accrued liabilities... 125 (407)
--------- ---------
Total
adjustments.... 953 6,492
--------- ---------
Net cash
provided by
operating
activities..... 2,029 8,563
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of assets.... 21 3
Purchases of property and
equipment...................... (386) (618)
Purchase of businesses, net of
acquired cash.................. -- (641)
--------- ---------
Net cash used in
investing
activities..... (365) (1,256)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds (payments) on line of
credit, net.................... 2,599 (7,531)
Payments on long-term debt and
capitalized lease
obligations.................... (886) (771)
Proceeds from issuance of
long-term debt................. -- 1,048
Payments of noncompete
obligations.................... (100) (53)
Distributions to shareholders... (3,277) --
--------- ---------
Net cash used in
financing
activities..... (1,664) (7,307)
--------- ---------
NET CHANGE IN CASH................... -- --
CASH, beginning of period............ 12 12
--------- ---------
CASH, end of period.................. $ 12 $ 12
========= =========

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

F-156
<PAGE>
INDEPENDENT METALS CO., INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997 AND 1996
(IN THOUSANDS OF DOLLARS)

1. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES --

BASIS OF PRESENTATION

The consolidated financial statements include the accounts of Independent
Metals Co., Inc. and its wholly owned subsidiary, which are collectively
referred to as "Independent." All significant intercompany transactions have
been eliminated. Independent is a flat rolled processor of carbon steel,
stainless steel and specialty metal, including copper, brass, and aluminum, with
operations in Germantown, Wisconsin; Broadview, Illinois; New Hope, Minnesota
and Orlando, Florida. Principal customers include: consumer durable goods
manufacturers, food equipment manufacturers, metal stamping, and electronic
manufacturers. Independent's market areas are concentrated in the midwestern
United States and Florida.

USE OF ESTIMATES AND ASSUMPTIONS

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

RECLASSIFICATIONS

The fiscal 1996 financial statements have been reclassified to conform to
the fiscal 1997 financial statement presentation.

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

INVENTORIES

Inventories are valued at the lower of last-in, first-out (LIFO) cost or
market.

PROPERTY AND EQUIPMENT

GOODWILL

On February 1, 1996, Independent purchased the assets of Jenks Metals, Inc.
("Jenks") for approximately $1,043. The excess of the purchase price over the
fair value of the identifiable assets acquired (approximately $328) was recorded
as goodwill. After giving effect to the amortization of goodwill for the month
of January 1996, on a pro forma basis the results of operations for Independent
did not differ in any material respect from the actual results reported for the
year ended December 31, 1996.

Goodwill is amortized on a straight-line basis over fifteen years. Other
assets consist primarily of start-up costs related to the acquisition that are
being amortized on a straight-line basis over five years.

OTHER ASSETS

Deferred loan costs associated with borrowings related to the Industrial
Development Revenue Bonds and notes payable to the bank are deferred and
amortized on a straight-line basis over the life of the loans. As of December
31, 1997, Independent has paid off all Industrial Development Revenue Bonds.

F-157
<PAGE>
INDEPENDENT METALS CO., INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS OF DOLLARS)

Noncompete agreements associated with the purchase of Jenks, which totaled
$200 as of February 1, 1996, are amortized on a straight-line basis over the
terms of the agreements. The term of the agreements range from four to five
years through 2001.

The liability associated with the noncompete agreement is payable over a
two year period with the last payment due in February 1998.

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 Independent 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 Independent to
concentrations of credit risk, consist principally of cash deposits and trade
account receivables. Independent 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.
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. Independent periodically
reviews the credit history of its customers and generally does not require
collateral for the extension of credit.

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION

Approximate cash paid for:

1997 1996
--------- ---------
Interest............................. $ 1,463 $ 1,706
========= =========

A noncompete obligation of $200 was incurred in connection with the
purchase of Jenks in February, 1996.

2. PROPERTY AND EQUIPMENT

Property and equipment consists of the following:

ESTIMATED DECEMBER 31,
USEFUL LIVES --------------------
(YEARS) 1997 1996
------------- --------- ---------
Land................................. -- $ 118 $ 118
Building and improvements............ 30 2,181 2,208
Machinery and equipment.............. 3-15 7,422 7,073
Automobiles and trucks............... 4-6 688 674
--------- ---------
10,409 10,073
Less -- Accumulated depreciation..... 6,491 5,548
--------- ---------
$ 3,918 $ 4,525
========= =========

F-158
<PAGE>
INDEPENDENT METALS CO., INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS OF DOLLARS)

3. INVENTORIES

The following summarizes the effect on inventories had Independent used the
first-in, first-out ("FIFO") cost method of inventory valuation at December
31:

1997 1996
--------- ---------
Inventories at FIFO cost............. $ 16,698 $ 16,695
Less -- LIFO reserve................. (1,932) (1,278)
--------- ---------
Total........................... $ 14,766 $ 15,417
========= =========

Inventories for financial reporting purposes exceed inventories for income
tax purposes by $1,241 at December 31, 1997.

4. LONG-TERM DEBT AND NOTES PAYABLE

Independent had a Loan and Security Agreement with a bank that covered a
term loan and a revolving line of credit. The agreement was secured by
substantially all business assets.

Independent had $15,788 outstanding under the revolving line of credit
agreement that included an amount of $635 of outstanding checks, net of deposits
in transit, at December 31, 1997. Borrowings under the line of credit carried
interest at an adjustable rate based upon prime (8.5% at December 31, 1997) or
the London Interbank Offered rate (5.78% at December 31, 1997) based upon levels
of net earnings as defined in the agreement. The average interest rate at
December 31, 1997 was 8.4%. Aggregate outstanding borrowings under this
agreement could not exceed the lesser of $18,000 or a percentage of eligible
receivables and of eligible inventories as defined in the agreement. Independent
received additional availability of $1,500 from December 30, 1997 to January 15,
1998.

The entire line of credit has been classified as long-term based upon
assumptions by management that the 1998 levels of eligible receivables and
inventories would have been sufficient to maintain this amount of borrowings and
based on Independent's intent not to reduce the amount in 1998, if the sale (see
Note 9) had not occurred.

Long-term debt consists of:

1997 1996
--------- ---------
Revolving line of credit............. $ 15,788 $ 13,189
Industrial Development Revenue
Bonds(a)........................... -- 350
Note payable to bank, due in monthly
installments of $30,729 plus
interest at prime (8.5% at December
31, 1997) plus 1/2% through
February, 2000(b).................. 799 1,168
Note payable, due in monthly
installments of $8,591, including
interest at 8.5% through January,
2003(c)............................ 424 488
--------- ---------
17,011 15,195
Less -- Current portion of long-term
debt............................... 439 608
--------- ---------
$ 16,572 $ 14,587
========= =========

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

(a) In December, 1988, the Village of Germantown, Wisconsin, issued $1,600 of
Industrial Development Revenue Bonds. The proceeds were loaned to
Independent and were used to expand the building and to purchase equipment.
The principal payments reflect the maturity dates of the bonds and are due
in annual installments of $175 through 1998. The loans bear interest,
payable quarterly, ranging from 7.5% to 7.7%. The bonds were paid in full in
1997.

F-159
<PAGE>
INDEPENDENT METALS CO., INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS OF DOLLARS)

(b) As part of the Jenks acquisition (Note 1), Independent amended its note
payable to bank. An additional $500 was added to the note in February 1996,
to fund the acquisition.

(c) The note payable had an adjustable interest rate. The rate was set annually
at the lesser of prime as of February 1 of each year or 10%. The note was
secured by substantially all business assets located in Florida and was
subordinate to the bank's security interest.

Fixed maturities of long-term debt are as follows:

1998................................. $ 439
1999................................. 16,233
2000................................. 144
2001................................. 90
2002................................. 97
Thereafter........................... 8
---------
$ 17,011
=========

The revolving line of credit and note payable to bank were paid in full
subsequent to year end as part of the sale (see Note 9).

5. INCOME TAXES

The shareholders of Independent have elected to be treated as an "S
Corporation" under the Internal Revenue Code. As an S Corporation,
Independent's taxable income or loss is includable in the individual tax returns
of its shareholders for federal and state income tax purposes.

In the event that the S Corporation election is terminated, the net
deferred income tax liability would be reflected in Independent's financial
statements.

Independent Metals Co., Inc.'s wholly owned subsidiary is organized as a
Limited Liability Corporation ("LLC"). Under the Internal Revenue Code an LLC
is treated in a manner similar to a partnership. As an LLC, the subsidiary's
taxable income or loss is includable in the tax return of Independent.

6. EMPLOYEE BENEFIT PLAN

Independent sponsors the INMETCO Savings and Profit Sharing Plan (the
"Plan"), which covers substantially all employees. The Plan offers a 401(k)
tax deferral option to employees of Independent. Contributions to the Plan can
be made by employees up to a defined percentage of their compensation.
Independent matches twenty percent of employee contributions up to six percent
of the employee's compensation. Independent may, at its discretion, make
additional contributions to the Plan. The total amount charged to operations for
the Plan was $58 and $47 for 1997 and 1996, respectively.

7. LEASES

Leased property under capital leases consists of the following:

Trucks, computer and peripheral
equipment and telephone............ $ 688
Less -- Accumulated amortization..... 598
---------
$ 90
=========

F-160
<PAGE>
INDEPENDENT METALS CO., INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS OF DOLLARS)

Future minimum lease payments at December 31, 1997, under leases that have
noncancellable terms, are as follows:

CAPITAL OPERATING
LEASES LEASES
-------- ----------
1998.................. $ 99 $ 244
1999.................. -- 243
2000.................. -- 196
2001.................. -- 44
2002.................. -- 22
Thereafter............ -- --
-------- ----------
99 $ 749
==========
Less -- Amount representing
interest........................... 6
--------
Less -- Amounts due within one
year............................... 93
--------
$--
========

Total rent expense under operating leases was approximately $514 and $489
in 1997 and 1996, respectively.

8. STOCK PURCHASE AGREEMENTS

Independent has an agreement to repurchase at the option of the
shareholders / employees all of its common stock upon their death or termination
of employment due to disability. In addition, upon termination of a
shareholder / employee for reasons other than disability or death, Independent
has the option to purchase all the common stock held by the
shareholder / employee. The purchase price is based upon a formula.

In addition, should a shareholder/employee receive an offer to buy their
stock from a third-party, Independent has the right of first refusal to purchase
the stock at the third-party offer price.

9. SUBSEQUENT EVENT

On January 7, 1998, the shareholders sold all of their stock in Independent
to Metals USA, Inc.

F-161
<PAGE>
INDEPENDENT AUDITORS' REPORT

Board of Directors
Pacific Metal Company
Portland, Oregon

We have audited the accompanying consolidated balance sheets of Pacific
Metal Company and Subsidiary as of December 31, 1997 and 1996, and the related
consolidated statements of income, stockholders' equity and cash flows for the
years then ended. These consolidated financial statements are the responsibility
of the Company's management. Our responsibility is to express an opinion on
these consolidated financial statements based on our audits.

In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Pacific
Metal Company and Subsidiary as of December 31, 1997 and 1996, and the results
of their operations and their cash flows for the years then ended in conformity
with generally accepted accounting principles.

As described in Note 14 to the financial statements, the Company has
restated its financial statements to correct an error in accounting for stock
appreciation rights.

PERKINS & COMPANY, P.C.

Portland, Oregon
February 11, 1998, except for Note 15 as to
which the date is March 3, 1998

F-162
<PAGE>
PACIFIC METAL COMPANY AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS OF DOLLARS, EXCEPT SHARE AMOUNTS)

DECEMBER 31, DECEMBER 31,
1996 1997
------------ ------------
ASSETS
Current assets:
Cash............................ $ 255 $ --
Trade accounts and notes
receivable, net of allowance of
$185 and $88................... 6,551 7,335
Inventories..................... 11,589 10,634
Refundable income taxes......... 110 124
Prepaid expenses................ 118 148
Deferred income taxes........... 915 1,360
------------ ------------
Total current assets....... 19,538 19,601
Property and equipment, net.......... 5,312 5,344
Other assets......................... 90 56
------------ ------------
Total assets............... $ 24,940 $ 25,001
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Revolving line-of-credit........ $ 7,050 $ 5,327
Checks drawn in excess of
deposits....................... 301 95
Current portion of long-term
debt........................... 426 430
Accounts payable................ 5,049 4,921
Accrued liabilities............. 2,294 4,015
------------ ------------
Total current
liabilities............. 15,120 14,788
Long-term debt, net of current
portion............................ 2,971 2,541
Deferred income taxes................ 465 577
Other long-term liabilities.......... 12 --
------------ ------------
Total liabilities.......... 18,568 17,906
Commitments and contingencies........
Stockholders' equity:
Common stock, $1 par value,
500,000 shares authorized,
177,250 shares issued and
outstanding.................... 177 177
Additional paid-in capital...... 269 308
Unearned ESOP compensation...... (264) (209)
Retained earnings............... 6,190 6,819
------------ ------------
Total stockholders'
equity.................. 6,372 7,095
------------ ------------
Total liabilities and
stockholders' equity.... $ 24,940 $ 25,001
============ ============

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

F-163
<PAGE>
PACIFIC METAL COMPANY AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS OF DOLLARS)

YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31,
1996 1997
------------ ------------
Net sales............................ $ 84,261 $ 85,920
Operating costs and expenses:
Costs of sales.................. 65,236 66,605
Operating and delivery.......... 6,333 6,465
Selling, general and
administrative................. 8,870 10,367
Depreciation and amortization... 710 812
------------ ------------
Operating income..................... 3,112 1,671
Other (income) expense:
Interest expense................ 843 679
Other, net...................... (336) (274)
------------ ------------
507 405
------------ ------------
Income before income taxes........... 2,605 1,266
Provision for income taxes........... 1,008 464
------------ ------------
Net income........................... $ 1,597 $ 802
============ ============

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

F-164
<PAGE>
PACIFIC METAL COMPANY AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(IN THOUSANDS OF DOLLARS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL UNEARNED TOTAL
------------------ PAID-IN ESOP RETAINED STOCKHOLDERS'
SHARES AMOUNT CAPITAL COMPENSATION EARNINGS EQUITY
------- ------- ----------- ------------- --------- -------------
<S> <C> <C> <C> <C> <C> <C>
BALANCE, as previously reported at
December 31, 1995.................. 174,900 $ 175 $ 169 $ (538) $ 5,411 $ 5,217
Prior-period
adjustments -- error in
accounting for stock
appreciation rights........... -- -- -- -- (646) (646)
------- ------- ----------- ------------- --------- -------------
BALANCE, as restated at December 31,
1995............................... 174,900 175 169 (538) 4,765 4,571
Stock options exercised......... 2,350 2 83 -- -- 85
Increase in average fair value
of ESOT shares allocated...... -- -- 17 -- -- 17
Dividends declared.............. -- -- -- -- (177) (177)
Dividends on unallocated ESOT
shares expensed............... -- -- -- -- 5 5
Payments made toward principal
of ESOT obligation............ -- -- -- 274 -- 274
Net income...................... -- -- -- -- 1,597 1,597
------- ------- ----------- ------------- --------- -------------
BALANCE, December 31, 1996........... 177,250 177 269 (264) 6,190 6,372
Increase in average fair value
of ESOT shares allocated...... -- -- 39 -- -- 39
Dividends declared.............. -- -- -- -- (177) (177)
Dividends on unallocated ESOT
shares expensed............... -- -- -- -- 4 4
Payments made toward principal
of ESOT obligation............ -- -- -- 55 -- 55
Net income...................... -- -- -- -- 802 802
------- ------- ----------- ------------- --------- -------------
BALANCE, December 31, 1997........... 177,250 $ 177 $ 308 $ (209) $ 6,819 $ 7,095
======= ======= =========== ============= ========= =============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.

F-165
<PAGE>
PACIFIC METAL COMPANY AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS OF DOLLARS)

YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31,
1996 1997
------------ ------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income......................... $ 1,597 $ 802
Adjustments to reconcile net income
to net cash provided in operating
activities:
Provision for bad debts......... 174 47
Depreciation and amortization... 710 812
(Gain) loss on sale of
equipment....................... (98) 8
Deferred income taxes........... 37 (332)
Dividends accrued on unallocated
ESOT shares..................... 5 4
Increase in average value of
ESOT shares allocated........... 17 39
Deferred compensation........... (11) (12)
Changes in operating assets and
liabilities:
Trade accounts and notes
receivable.................... 296 (832)
Refundable income taxes....... (22) (14)
Inventories................... 1,349 955
Prepaid expenses.............. 43 (30)
Accounts payable.............. 323 (128)
Accrued liabilities........... 226 1,721
------------ ------------
Net cash provided by
operating
activities........... 4,646 3,040
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of property and
equipment......................... 141 23
Purchase of property and
equipment......................... (1,491) (875)
Other assets....................... (38) 34
------------ ------------
Net cash used in
investing
activities........... (1,388) (818)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayment of revolving
line-of-credit, net............... (2,825) (1,723)
Net change in checks drawn in
excess of deposits................ (553) (205)
Borrowings on long-term notes...... 553 --
Repayment of long-term notes....... (196) (350)
Payment of lease obligations....... (20) (22)
Proceeds from stock options
exercised......................... 85 --
Dividends paid..................... (87) (177)
------------ ------------
Net cash used in
financing
activities........... (3,043) (2,477)
------------ ------------
NET INCREASE (DECREASE) IN CASH...... 215 (255)
CASH, beginning of period............ 40 255
------------ ------------
CASH, end of period.................. $ 255 $ --
============ ============
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid for --
Interest........................ $ 865 $ 673
Income taxes.................... 993 810
Noncash activities --
Reduction in unearned ESOP
compensation.................... 274 55
Dividends declared.............. 177 177

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

F-166
<PAGE>
PACIFIC METAL COMPANY AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS OF DOLLARS, EXCEPT SHARE AMOUNTS)

1. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

BASIS OF PRESENTATION

The consolidated financial statements include the accounts of Pacific Metal
Company and its wholly owned subidiary PMCC, Inc., dba Pacific Metal, which are
collectively referred to as "Pacific Metal." All material intercompany
balances and transactions have been eliminated in consolidation. Pacific Metal
operates metal service centers distributing principally flat rolled, common
alloy aluminum and steel from seven branch locations in Oregon, Washington,
Idaho, Montana and California. The products are used predominately in
construction, precision fabrication and in the manufacturing of trucks and
trailers, consumer durables, and machinery and equipment. As a distributor,
Pacific Metal has the ability to select from many alternate sources of supply
for its products.

USE OF ESTIMATES AND ASSUMPTIONS

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

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

INVENTORIES -- Inventories are stated at the lower of cost or market using
principally the last-in, first-out ("LIFO") method.

PROPERTY AND EQUIPMENT -- Property and equipment is stated at cost less
accumulated depreciation and amortization. For financial reporting purposes, the
costs of property and equipment are depreciated over the estimated useful lives
of the assets using the declining-balance and straight-line methods. Capital
leases are amortized over the lease term.

FAIR VALUE OF FINANCIAL INSTRUMENTS -- The carrying amount of notes
receivable approximates fair value at the applicable balance sheet dates. The
fair value of the notes was based on expected cash flows discounted using
current rates at which similar loans would be made to borrowers with similar
credit ratings. The carrying amount of the revolving line-of-credit and
long-term debt approximate fair value at the applicable balance sheet dates. The
fair value of the line-of-credit and long-term debt are estimated based on
interest rates for the same or similar debt offered to Pacific Metal having the
same or similar maturities and collateral requirements.

CONCENTRATIONS OF CREDIT RISK -- Financial instruments, which potentially
subject Pacific Metal to concentrations of credit risk, consist principally of
cash deposits, trade accounts and notes receivable. Pacific Metal places its
cash principally with one large financial institution with balances in excess of
Federal Deposit Insurance Corporation limits. Concentrations of credit risk with
respect to trade accounts are within the machinists and fabricators,
industrial/commercial contractors and transportation equipment manufacturers
industries. Generally, 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. Pacific Metal periodically reviews
the credit history of its customers and generally does not require collateral
for the extension of credit.

INCOME TAXES -- Pacific Metal accounts for income taxes in accordance with
Statement of Financial Accounting Standards (SFAS) No. 109, ACCOUNTING FOR
INCOME TAXES. Under SFAS No. 109, deferred income taxes are recognized for the
future tax consequences of differences between tax bases of assets and
liabilities and their financial reporting amounts based on enacted tax laws and
statutory tax rates applicable

F-167
<PAGE>
PACIFIC METAL COMPANY AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS OF DOLLARS, EXCEPT SHARE AMOUNTS)

to the periods in which the differences are expected to affect taxable income.
Valuation allowances are established when necessary to reduce deferred tax
assets to the amount expected to be realized. Income tax expense represents the
amount of taxes payable and the applicable changes in deferred tax assets and
liabilities.

ADVERTISING COSTS -- Pacific Metal expenses advertising costs as incurred.

RECENT ACCOUNTING PRONOUNCEMENTS -- The Financial Accounting Standards
Board issued Statement of Financial Accounting Standards (SFAS) No. 121,
ACCOUNTING FOR THE IMPAIRMENT OF LONG-LIVED ASSETS AND FOR LONG-LIVED ASSETS TO
BE DISPOSED OF 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. Pacific Metal adopted SFAS 121 on January 1,
1996. The impact of adopting this standard did not have a material impact on the
results of operations.

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"). Pacific Metal has elected to follow APB No. 25 in accounting
for its employee stock options. Under APB No. 25, no compensation expense is
recognized when the exercise price of options equals the fair market value of
the stock on the date of grant.

2. INVENTORIES

Inventories consist of the following:

DECEMBER 31, DECEMBER 31,
1996 1997
------------ ------------
Aluminum products.................... $ 8,437 $ 8,338
Cargon plates and sheets............. 6,167 5,618
Carbon tubular products.............. 99 24
Rolled finished bars/shapes.......... 210 2
Stainless steel products............. 319 277
Other................................ 745 808
Less -- LIFO reserve................. (4,388) (4,433)
------------ ------------
Total........................... $ 11,589 $ 10,634
============ ============

The replacement cost of Pacific Metal's inventory exceeds the historical
cost of the inventory, computed using LIFO the method of valuation, as reported
in the accompanying financial statements. If the average cost method had been
used for all inventories, the carrying value would have been $15,977 and $15,067
at December 31, 1996 and December 31, 1997, respectively. Additionally, net
income would have been $955 and $829 for the years ended December 31, 1996 and
December 31, 1997, respectively.

F-168
<PAGE>
PACIFIC METAL COMPANY AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS OF DOLLARS, EXCEPT SHARE AMOUNTS)

3. PROPERTY AND EQUIPMENT

Property and equipment consists of the following:

DECEMBER 31, DECEMBER 31,
1996 1997
------------ ------------
Land................................. $ 353 $ 353
Buildings and improvements........... 3,272 3,731
Machinery and equipment.............. 7,321 7,555
Automobiles and trucks............... 162 193
------------ ------------
11,108 11,832
Less -- Accumulated depreciation and
amortization....................... (5,796) (6,488)
------------ ------------
Total...................... $ 5,312 $ 5,344
============ ============

4. REVOLVING LINE OF CREDIT

Under a loan agreement dated as May 31, 1996, maturing April 30, 1998, and
as subsequently amended, Pacific Metal has a revolving line-of credit of
$10,000. At Pacific Metal's option, funds are borrowed at either the bank's
prime rate or the London Interbank Offered Rate (LIBOR) plus 1.65%. At December
31, 1997, the bank's prime rate was 8.5%, and the LIBOR rate was 6.75%. Pacific
Metal's advances against the line of credit are limited to 80% of its qualified
accounts receivable and the lesser of 50% of its qualified inventory or $6,500.

Under the credit agreement, which includes the term loan (See Note 5),
inventory, accounts receivable and equipment are pledged as collateral. Also,
the agreement contains provisions, among others, requiring the maintenance of
certain levels of working capital, tangible net worth and cash flow.

5. LONG-TERM DEBT

Long-term debt consists of the following:

DECEMBER 31, DECEMBER 31,
1996 1997
------------ ------------
Note payable to U.S. Bank through
June 2001 consisting of monthly
principal payments of $25 plus
accrued interest. For the period
June, 1, 1996 to May 31, 2000,
interest is accrued at the Index
rate (8.5%) on the principal
balance of $300. Interest is
accrued at the Fixed Interest Rate
(2.12% over the constant maturity
auction average for One-year U.S.
Treasury Bills (5.66% until June 1,
1998)) on the remaining principal
balance. For the period June 1,
2000 until paid in full, interest
is accrued at the Index rate on the
remaining principal balance (See
Note 4)............................ $1,350 $1,050
Mortgage notes payable to U.S. Bank
through 2003 in monthly
installments of $16, including
interest at 8.25%. Property with a
book value of $926 is subject to
the mortgage....................... 1,739 1,689
Guaranteed ESOP debt due in
decreasing annual installments
through 2002 at an average interst
rate of 7.61% (Note 10)............ 264 209
Capital lease obligation (Note 8).... 44 23
------------ ------------
3,397 2,971
Less current portion................. 426 430
------------ ------------
$2,971 $2,541
============ ============

F-169
<PAGE>
PACIFIC METAL COMPANY AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS OF DOLLARS, EXCEPT SHARE AMOUNTS)

As of December 31, 1997, future maturities of long-term debt for the next
five years, exclusive of capital lease obligations, are as follows:

1998................................. $ 407
1999................................. 412
2000................................. 418
2001................................. 272
2002................................. 78

6. DETAIL OF ACCRUED LIABILITIES

Accrued liabilities consist of the following:

DECEMBER 31, DECEMBER 31,
1996 1997
------------ ------------
Accrued salaries and benefits........ $ 701 $1,074
Accrued stock appreciation rights.... 1,380 2,728
Accrued property and sales taxes..... 36 36
Other................................ 177 177
------------ ------------
$2,294 $4,015
============ ============

7. DEFERRED COMPENSATION

Pacific Metal has agreements with three retired management personnel which
provided for their employment until retirement and a monthly payment thereafter
for specified periods of time. All of the agreements provide that if the
employee dies before he has received retirement payments of $50 (except for one
person for whom the payments must exceed $75), his surviving spouse shall
receive the unpaid balance thereof in monthly installments. The estimated
liability under this agreement has been charged to expense over the period of
employment ending with the retirement date of each employee. These agreements
resulted in a charge to income of $22 for each of the years ended December 31,
1996 and 1997.

8. COMMITMENTS

Pacific Metal leases land and buildings under long-term lease agreements
classified as operating leases. The lease for its Portland, Oregon distribution
facilities expires in 2001 with one five-year option for renewal. The lease is
subject to adjustment to fair market value rates, as defined, but not less than
the initial annual rental of $378. Leases for two branch warehouse locations
expire in 1998 and 2001. In addition to stated rentals, Pacific Metal was
responsible for property taxes, maintenance and insurance on the facility.
Pacific Metal also leases automobiles, trucks, warehouse and office equipment
under operating leases expiring through 2002.

Pacific Metal has a capital lease for equipment. The amortization of this
lease had been included in depreciation expense. Cost and accumulated
amortization was $143 and $120, respectively, at December 31, 1996 and $143 and
$143, respectively, at December 31, 1997.

F-170
<PAGE>
PACIFIC METAL COMPANY AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS OF DOLLARS, EXCEPT SHARE AMOUNTS)

The following is a schedule, by years, of future minimum lease payments
under leases that have initial or remaining noncancelable lease terms in excess
of one year as of December 31, 1997, and the present value of net minimum lease
payments under the capital lease which is carried as a liability as of December
31, 1997:

OPERATING
CAPITAL LEASE LEASES
------------- ---------
Year ending December 31,
1998................................. $ 23 $ 930
1999................................. -- 879
2000................................. -- 796
2001................................. -- 499
2002................................. -- 109
Thereafter........................... -- 74
------------- ---------
Total minimum payments required...... 23 $ 3,287
=========
Less amount representing interest.... --
-------------
Present value of minimum payments.... $ 23
=============

The total rental expense for all operating leases amounted to approximately
$1,300 and $1,234 for the years ended December 31, 1996 and 1997, respectively.

Pacific Metal, as lessor, leases portions of its distribution facility in
Medford, Oregon. The facility is leased on a noncancelable operating lease. The
lease was renewed July 1997 and expires in June 2000 with total minimum future
rentals of $90 at December 31, 1997.

Pacific Metal's warehouse employees and truck drivers at its Seattle,
Washington branch, comprising approximately 15% of the Company's employees, are
subject to collective bargaining agreements between the Company and the
International Brotherhood of Teamsters. The agreements are negotiated every
three years and were last negotiated on April 30, 1997.

9. INCOME TAXES

The provision for income taxes consists of the following:

YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31,
1996 1997
------------ ------------
Federal --
Current......................... $ 823 $ 684
Deferred........................ 47 (294)
------------ ------------
870 390
State --
Current......................... 148 112
Deferred........................ (10) (38)
------------ ------------
138 74
------------ ------------
Total provision....... $1,008 $ 464
============ ============

F-171
<PAGE>
PACIFIC METAL COMPANY AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS OF DOLLARS, EXCEPT SHARE AMOUNTS)

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

YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31,
1996 1997
------------ ------------
Federal income tax at statutory
rates.............................. $ 886 $ 430
State income taxes, net of federal
income tax benefit................. 86 41
Nondeductible expenses and other,
net................................ 36 (7)
------------ ------------
$1,008 $ 464
============ ============

The significant items giving rise to the deferred tax assets (liabilities)
are as follows:

DECEMBER 31, DECEMBER 31,
1996 1997
------------ ------------
Deferred tax assets --
Allowance for doubtful
accounts...................... $ 71 $ 34
Uniform capitalization of
inventory..................... 220 194
Deferred compensation........... 9 5
Accrued liabilities............. 616 1,130
Other........................... 7 2
------------ ------------
Total deferred tax
assets............. 923 1,365
------------ ------------
Deferred tax liabilities --
Property and equipment.......... (473) (582)
------------ ------------
Total deferred tax
liabilities........ (473) (582)
------------ ------------
Net deferred tax
assets............. $ 450 $ 783
============ ============

10. EMPLOYEE BENEFIT PLANS

Pacific Metal sponsors a leveraged Employee Stock Ownership Plan ("ESOP")
that covers employees with more than one year of service and whose employment is
not covered by a collective bargaining agreement. An Employee Stock Ownership
Trust ("ESOT") was established in 1984 to fund the ESOP by obtaining financing
to acquire shares of common stock.

In 1994, the ESOT acquired 7,320 shares of common stock for $371 with the
proceeds of a $384 loan from Centennial Bank of Eugene. The loan is payable
through 2001 in monthly installments of $4 plus interest at the bank's prime
rate (8.25% at December 31, 1996) plus .75%. Pacific Metal has guaranteed the
repayment of the loans to the ESOT. Under the guarantee agreement, Pacific Metal
is obligated to make contributions to the ESOT to enable it to make similar
payments against the bank loans and, therefore, the unpaid balance is recorded
as long-term debt. An unearned ESOP compensation amount has been reported as an
offset to stockholder's equity of the same amount.

The ESOT regularly issues notes for shares repurchased from certain former
employees of Pacific Metal. Repurchase notes outstanding as of December 31, 1996
amounted to $3 and were repaid in full during 1997. For 1996, this additional
ESOT obligation has been recorded as long-term debt with stockholders' equity
offset by the same amount.

Pacific Metal's contributions are determined annually by the Board of
Directors, but are not less than the amount necessary to enable the ESOT to make
its regularly scheduled payments of principal and interest due on its term loans
plus an amount sufficient to enable the ESOT to repurchase stock from terminated

F-172
<PAGE>
PACIFIC METAL COMPANY AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS OF DOLLARS, EXCEPT SHARE AMOUNTS)

ESOP participants to the extent not funded by the ESOT. Shares are allocated to
participants ratably over the life of the ESOT loans.

Dividends on allocated shares of the ESOT are paid to participants and are
reported as a reduction of retained earnings. Dividends on unallocated shares
are reported as compensation expense.

Compensation expense for shares acquired prior to January 1, 1994 is
determined based on Pacific Metal's contributions to the ESOT. For shares
acquired after December 31, 1993, Pacific Metal measures compensation expense in
accordance with Statement of Position 93-6 of the Accounting Standards Division
of the American Institute of Certified Public Accountants, which requires
compensation expense to be measured using the fair market value of the shares
when allocated to participants.

Selected financial data pertaining to the ESOT is as follows:

YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31,
1996 1997
------------ ------------
Contributions........................ $ 595 $ 554
Dividends on unallocated shares
reported as expense................ 5 4
Increase in average fair value of
ESOT shares allocated.............. 17 39
------------ ------------
Total ESOP expense................... $ 617 $ 597
============ ============
Interest expense (included in ESOP
expense above)..................... $ 32 $ 22
============ ============

DECEMBER 31, DECEMBER 31,
1996 1997
------------ ------------
Allocated shares..................... 118,562 119,681
Unallocated shares, accounted for
under SOP 93-6..................... 5,213 4,119
------------ ------------
Total ESOT shares.................... 123,775 123,800
============ ============
Fair value of unallocated ESOT shares
accounted for under
SOP 93-6........................... $ 354 $ 419
Fair value of allocated ESOT shares
subject to repurchase by
the Company........................ $ 8,062 $ 12,184

As of December 31, 1996, the fair value of the ESOT shares subject to
repurchase by Pacific Metal represents the best estimate of the fair value of
Pacific Metal continuing to operate as an independent entity. As a result of the
contemplated merger with Metals USA, Inc., the fair value of the ESOT shares is
based upon the proposed transaction price. If this transaction is not completed,
the ultimate fair value may be different.

Pacific Metal contributed $60 and $64 in 1996 and 1997, respectively, to a
multi-employer pension plan for a portion of its employees covered by a
collective bargaining agreement.

11. STOCK OPTIONS

Pacific Metal's non-qualified stock option plan provides for the issuance
of stock options to key executive employees covering up to 100,000 shares of
Pacific Metal's common stock. Any option granted under the plan may include a
stock appreciation right. A stock appreciation right ("SAR") permits the
optionee to receive cash in an amount equal to the excess of the fair market
value per share of the common stock at the date the right is exercised over the
option price per share of the option exercised.

Options to purchase shares of Pacific Metal's common stock, together with
an equivalent number of SARs, have been granted to four employees, and these
options become exercisable in two installments and

F-173
<PAGE>
PACIFIC METAL COMPANY AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS OF DOLLARS, EXCEPT SHARE AMOUNTS)

expire ten years after the date of grant. The first installment was effective
January 1, 1989 and grants options to purchase 24,970 shares of common stock at
a purchase price of $35 per share. The second installment was effective December
31, 1989 and grants options to purchase 25,000 shares of common stock at a
purchase price of $43 per share.

The number of shares which may be purchased under these options will
automatically be changed to reflect any subsequent stock split, merger,
consolidation, reorganization, recapitalization or other event affecting the
outstanding common stock of Pacific Metal.

Upon exercise of stock options, Pacific Metal receives cash equal to the
number of options exercised multiplied by the per share option price. Common
stock is credited for the par value of the shares issued and additional paid-in
capital is credited for an amount equal to the option price of the shares
issued, less the amount credited to common stock. The difference between any
increase and decrease in the fair market value of the SARs and the option price
is recorded currently in the consolidated statement of income. For 1996, the
fair market value of the SARs represents Pacific Metal's best estimate of the
fair value of Pacific Metal continuing to operate as an independent entity. In
1997, the fair value of the SARs is based upon the proposed transaction price
with Metals USA, Inc. Compensation expense in connection with the SARs amounted
to $381 and $1,348 for the years ended December 31, 1996 and 1997, respectively.

A summary of stock option activity is as follows:

NUMBER OF
SHARES UNDER AVERAGE
OPTION PRICE
------------- --------
Balance at December 31, 1995......... 46,100 $39.29
Exercised in 1996.................... (2,350) $36.19
-------------
Balance at December 31, 1996......... 43,750 $39.45
Exercised in 1997.................... -- --
-------------
Balance at December 31, 1997......... 43,750 $39.45
=============

At December 31, 1996 and 1997 there were 19,400 options and SARs
exercisable at $35 per share and 24,350 options and SARs exercisable at $43 per
share. All of these options are fully vested.

12. RELATED PARTY TRANSACTION

Included in trade accounts and notes receivable at December 31, 1997 is a
note receivable from an officer of Pacific Metal for $250. This note bears
interest at Pacific Metal's line-of-credit rate plus 1% and is due May 12, 1998.

13. EXCHANGE OF LAND AND BUILDING

Pacific Metal constructed a new facility in Eugene, Oregon, which was
completed in 1996. A portion of the new land and building was obtained through
an exchange of the previous facility in Eugene which had a book value of $105
and a fair value of $600. Pacific Metal incurred additional costs of $771 in
1996. The new facility has been recorded in the amount of $876, which represents
the book value of the land and building exchanged, plus the additional costs
incurred in 1996.

F-174
<PAGE>
PACIFIC METAL COMPANY AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS OF DOLLARS, EXCEPT SHARE AMOUNTS)

14. PRIOR PERIOD ADJUSTMENT

The accompanying financial statements for 1996 have been restated to
correct an error in accounting for SARs. Previously, Pacific Metal recognized
compensation expense when the SARs were exercised because Pacific Metal did not
expect a significant number of the related stock options to be exercised. The
financial statements have been restated to accrue compensation expense as the
fair market value of Pacific Metal's stock exceeds the exercise price of the
related options. The effect of the restatement was to decrease net income for
1996 by $205, net of an income tax benefit of $128. Retained earnings at
December 31, 1995 has been adjusted for the effects of the restatement on prior
years.

15. SUBSEQUENT EVENT

Pacific Metal and its stockholders entered into a definitive merger
agreement with Metals USA, Inc. on March 3, 1998, pursuant to which all of
Pacific Metal's outstanding shares of common stock were exchanged for cash and
shares of Metals USA, Inc. common stock. The agreement contemplates that the
transaction will be accounted for using the purchase method.

F-175
<PAGE>
REPORT OF INDEPENDENT AUDITORS

The Board of Directors
Fullerton Industries, Inc.

We have audited the accompanying consolidated balance sheets of Fullerton
Industries, Inc. and Subsidiary as of December 31, 1997 and 1996, and the
related consolidated statements of income, 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.

In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Fullerton
Industries, Inc. and Subsidiaries at December 31, 1997 and 1996, and the
consolidated results of their operations and their cash flows for the years then
ended in conformity with generally accepted accounting principles.

ERNST & YOUNG LLP

January 23, 1998, except for Note 10,
for which the date is April 17, 1998
Chicago, Illinois

F-176
<PAGE>
FULLERTON INDUSTRIES, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS OF DOLLARS, EXCEPT SHARE AMOUNTS)

DECEMBER 31,
--------------------
1997 1996
--------- ---------
ASSETS
Current assets:
Cash............................ $ 2,670 $ 1,885
Accounts receivable, less
allowance for doubtful accounts
of $250........................ 8,851 7,662
Inventories, net................ 8,389 8,627
Other current assets............ 384 454
--------- ---------
Total current assets....... 20,294 18,628
Property plant and equipment, at
cost:
Land............................ 623 623
Building........................ 3,199 3,199
Machinery and equipment......... 8,623 8,412
Furniture and fixtures.......... 556 548
--------- ---------
13,001 12,782
Less: Accumulated depreciation
and amortization............... 9,532 8,944
--------- ---------
Net property, plant and equipment.... 3,469 3,838
--------- ---------
Other assets:
Deposits and other.............. 198 198
Cash value of life insurance,
less policy loans of $121...... 27 30
--------- ---------
Total assets............... $ 23,988 $ 22,694
========= =========

LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term
portion........................ $ 200 $ 184
Accounts payable................ 4,156 4,890
Accrued expenses................ 1,239 1,022
Accrued income taxes............ 347 301
--------- ---------
Total current
liabilities............... 5,942 6,397
Long-term obligations, less current
portion............................ 9,678 8,807
Deferred income taxes................ 271 422
Stockholders' equity:
7% noncumulative voting
preferred stock, $10 par
value -- 150,000 shares
authorized, 81,277.89 shares
issued and outstanding......... 813 813
Common stock, $100 par
value -- 15,000 shares
authorized, 6,617.21 shares
issued......................... 662 662
Retained earnings............... 8,504 7,475
--------- ---------
9,979 8,950
Less: Cost of 1,474.94 shares of
common stock in treasury....... 1,882 1,882
--------- ---------
Total stockholders'
equity.................. 8,097 7,068
--------- ---------
Total liabilities and
stockholders' equity.... $ 23,988 $ 22,694
========= =========

See notes to consolidated financial statements.

F-177
<PAGE>
FULLERTON INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS OF DOLLARS)

YEAR ENDED DECEMBER 31
----------------------
1997 1996
---------- ----------
Net sales............................ $ 101,007 $ 92,443
Costs and expenses:
Cost of sales................... 83,612 76,508
Operating and delivery.......... 7,905 7,045
Selling, general and
administrative expenses........ 6,386 5,720
Depreciation and amortization... 588 599
---------- ----------
Operating income................ 2,516 2,571
Other expense:
Interest expense................ 714 755
Other income.................... (20) (76)
---------- ----------
Income before income taxes........... 1,822 1,892
Provision for income taxes........... (793) (830)
---------- ----------
Net income........................... $ 1,029 $ 1,062
========== ==========

See notes to consolidated financial statements.

F-178
<PAGE>
FULLERTON INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(IN THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
PREFERRED COMMON RETAINED TREASURY
STOCK STOCK EARNINGS STOCK TOTAL
--------- ------- --------- --------- ------
<S> <C> <C> <C> <C> <C>
BALANCE, December 31, 1995........... $ 813 $ 662 $ 6,413 $ (1,882) $6,006
Net income...................... -- -- 1,062 -- 1,062
--------- ------- --------- --------- ------
BALANCE, December 31, 1996........... 813 662 7,475 (1,882) 7,068
Net income...................... -- -- 1,029 -- 1,029
--------- ------- --------- --------- ------
BALANCE, December 31, 1997........... $ 813 $ 662 $ 8,504 $ (1,882) $8,097
========= ======= ========= ========= ======
</TABLE>
See notes to consolidated financial statements.

F-179
<PAGE>
FULLERTON INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS OF DOLLARS)

YEAR ENDED DECEMBER
31
--------------------
1997 1996
--------- ---------
CASH FLOWS FROM OPERATING ACTIVITIES
Net income........................... $ 1,029 $ 1,062
Adjustments to reconcile net income
to net cash provided by
operating activities:
Depreciation and amortization... 588 599
Deferred compensation........... 71 60
Loss on sale of land and
equipment...................... -- 4
Deferred income taxes........... (151) (140)
Changes in operating capital:
Accounts receivable............. (1,189) 1,977
Inventories..................... 238 (796)
Other current assets............ 70 228
Accounts payable................ (734) 276
Accrued expenses................ 217 41
Accrued income taxes............ 46 (155)
--------- ---------
Net cash provided by
operating activities.... 185 3,156
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures................. (219) (198)
--------- ---------
Net cash used in investing
activities.............. (219) (198)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES
Payment of long-term obligations..... (184) (186)
Proceeds (repayments) of notes
payable, net....................... 1,000 (2,000)
Change in cash value of life
insurance.......................... 3 (9)
--------- ---------
Net cash provided by (used
in) financing
activities.............. 819 (2,195)
--------- ---------
NET INCREASE IN CASH................. 785 763
CASH, BEGINNING OF YEAR.............. 1,885 1,122
--------- ---------
CASH, END OF YEAR.................... $ 2,670 $ 1,885
========= =========

See notes to consolidated financial statements.

F-180
<PAGE>
FULLERTON INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS OF DOLLARS)

1. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

BASIS OF PRESENTATION

The consolidated financial statements include the accounts of Fullerton
Industries, Inc. and its wholly-owned subsidiary Fullerton Metals Co., which are
collectively referred to as "Fullerton." All significiant intercompany
transactions have been eliminated. Fullerton is a flat rolled processor of
carbon steel, stainless steel and specialty metal, including copper, brass, and
aluminum, with operations in Northbrook, Illinois. Principal customers include
consumer durable goods manufacturers and the household appliance and automotive
industries. Fullerton's market areas are concentrated in the midwestern United
States.

USE OF ESTIMATES AND ASSUMPTIONS

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

INVENTORIES

Inventories are valued at the lower of cost or market. Fullerton determines
cost based on the LIFO (last in, first out) method.

PROPERTY, PLANT, AND EQUIPMENT

Property, plant, and equipment are recorded at cost. Depreciation is
provided over the estimated useful lives of the respective assets
(building -- 40 years; other property and equipment -- 5 to 12 years) generally
using the straight-line method.

FAIR VALUE OF FINANCIAL INSTRUMENTS

The fair value of the long-term debt is estimated based on interest rates
for debt offered to Fullerton having 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 Fullerton to
concentrations of credit risk, consist principally of cash deposits and, trade
account receivables. Fullerton 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.
Fullerton had a credit risk concentration as one customer accounted for 12.3% of
accounts receivable at December 31, 1997. For the years ended December 31, 1997
and 1996, 11.1%, and 12.8%, respectively, of net sales were to a single
customer. 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. Fullerton periodically
reviews the credit history of its customers and generally does not require
collateral for the extension of credit.

F-181
<PAGE>
FULLERTON INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS OF DOLLARS)

2. TRANSACTIONS WITH AFFILIATES

Fullerton leases certain equipment from entities controlled by the
company's principal stockholders under operating leases with month-to-month
terms ($941 and $917 paid in 1997 and 1996, respectively).

Leases with affiliates are generally extended after the expiration of the
initial lease period, and at December 31, 1997, affiliated lessors held $191 of
lease deposits.

3. INVENTORIES

The current cost of inventories if determined by the average cost method
would have been approximately $6,512 and $6,727 greater than that determined by
the LIFO method at December 31, 1997 and 1996, respectively.

4. LONG-TERM OBLIGATIONS AND NOTES PAYABLE TO BANKS

Long-term obligations at December 31 consist of the following:

1997 1996
--------- ---------
Notes payable to banks; interest
ranging from 6.75% to 7.29%........ $ 8,000 $ 7,000
Subordinated notes payable to former
shareholders, payable in monthly
installments (including interest at
8 1/4%) of $26 to November 2004.... 1,543 1,724
Deferred compensation, discounted at
various rates...................... 335 267
--------- ---------
9,878 8,991
Less: Current portion................ 200 184
--------- ---------
$ 9,678 $ 8,807
========= =========

Annual maturities of long-term obligations, excluding notes payable to
banks, are $200 in 1998; $217 in 1999; $235 in 2000; $252 in 2001; $274 in 2002;
and $700 thereafter.

Loan agreements with two banks, as amended, provide for unsecured
borrowings of $10,000 and expire March 31, 1999. During 1996, the company
entered into a three-year interest rate swap agreement (the "Swap") for $3,000
of the loan facility. The Swap, which expires on March 31, 1999, fixes the
interest rate at 7.29%.

As part of the loan agreement and subordinated notes payable to former
shareholders, certain financial covenants are required to be maintained
including limitations on dividends. The subordinated notes are collateralized by
the treasury stock.

Cash payments for interest were $718 and $813 in 1997 and 1996,
respectively.

F-182
<PAGE>
FULLERTON INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS OF DOLLARS)

5. INCOME TAXES

Deferred tax assets and liabilities are determined based on differences
between financial reporting and tax bases of assets and liabilities and are
measured using the enacted tax rates and laws that will be in effect when the
differences are expected to reverse.

Significant components of deferred income tax liabilities and assets at
December 31 are as follows:

1997 1996
--------- ---------
Deferred tax liabilities:
Tax over book depreciation...... $ 580 $ 722
--------- ---------
Total deferred tax liabilities....... $ 580 $ 722
========= =========
Deferred tax assets:
Allowance for doubtful
accounts....................... $ 99 $ 114
Deferred compensation........... 132 105
Other -- Net.................... 78 81
--------- ---------
Total deferred tax assets............ $ 309 $ 300
========= =========
Net deferred tax liabilities......... $ 271 $ 422
========= =========

The income tax provisions for the years ended December 31 are as follows:

1997 1996
--------- ---------
Current:
Federal......................... $ 770 $ 770
State........................... 174 200

Deferred:
Federal......................... (130) (117)
State........................... (21) (23)
--------- ---------
$ 793 $ 830
========= =========

A reconulation of the difference between the federal statutory tax rates
and the effective tax rates as a percentage of net income is as follows:

YEAR ENDED
DECEMBER 31,
--------------------
1997 1996
--------- ---------
U.S. federal statutory rate.......... 34.0% 34.0%
State income taxes, net of federal
benefit.............................. 5.5 6.2
Other, net........................... 4.0 3.7
--------- ---------
43.5% 43.9%
========= =========

Cash payments for income taxes were $898 and $1,125 in 1997 and 1996,
respectively.

F-183
<PAGE>
FULLERTON INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS OF DOLLARS)

6. DESCRIPTION OF LEASING ARRANGEMENTS WITH NONAFFILIATED LESSORS

Fullerton leases certain equipment and a facility under noncancelable
operating leases from nonaffiliated lessors with minimum annual lease payments
as follows:

Year ending December 31
1998............................ $ 197
1999............................ 101
2000............................ 64
2001............................ 14
2002............................ 4
---------
$ 380
=========

Rent expense with nonaffiliated lessors was $504 and $398 in 1997 and 1996,
respectively.

7. EMPLOYEE BENEFIT PLANS

Fullerton contributes to a Section 401(k) plan covering substantially all
employees who are not members of a bargaining unit. Company matching
contributions, which are discretionary, to the plan were $34 and $36 in 1997 and
1996, respectively.

Fullerton contributes to a defined-benefit, multiemployer pension plan
under collective bargaining agreements. Contributions to this plan were $134 and
$100 in 1997 and 1996, respectively.

8. COMMITMENTS

Fullerton periodically uses futures contracts to hedge inventory purchase
commitments. Gains and losses are reported as a component of the related
transaction. No futures contracts existed at December 31, 1997.

9. OTHER INFORMATION (UNAUDITED)

YEAR 2000

Fullerton has developed a plan to modify its information technololgy to be
ready for the year 2000 and has begun converting critical data processing
systems. Fullerton currently expects the project to be substantially completed
by the end of 1998. Fullerton does not expect this project to have a significant
effect on operations or its financial condition.

10. SUBSEQUENT EVENT

On April 17, 1998, Metals USA, Inc. purchased all of the issued and
outstanding equity securities of Fullerton, through the issuance of common stock
and cash pursuant to a definitive merger agreement.

F-184
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To the Stockholders of
The Levinson Steel Company:

We have audited the accompanying balance sheets of The Levinson Steel Company (a
Delaware corporation) as of December 31, 1997 and 1996, and the related
statements of income, 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.

In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of The Levinson Steel Company as
of December 31, 1997 and 1996, 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

Pittsburgh, Pennsylvania,
March 4, 1998
(except with respect to the
matter discussed in Note 8,
as to which the date is
March 11, 1998)

F-185
<PAGE>
THE LEVINSON STEEL COMPANY
BALANCE SHEETS
(IN THOUSANDS OF DOLLARS, EXCEPT SHARE AMOUNTS)

DECEMBER 31
--------------------
1997 1996
--------- ---------
ASSETS
Current assets:
Cash............................ $ 7 $ 19
Accounts receivable, net of
allowance for doubtful accounts
of $200,000 and $150,000,
respectively................... 10,856 6,018
Inventories..................... 20,459 19,151
Other current assets............ 185 202
--------- ---------
Total current assets....... 31,507 25,390
--------- ---------
Property, plant and equipment:
Land............................ 325 325
Building and improvements....... 1,333 1,333
Machinery, equipment and
fixtures....................... 2,579 2,300
--------- ---------
4,237 3,958
Less -- Accumulated
depreciation................... (1,540) (1,267)
--------- ---------
Net property, plant and
equipment................ 2,697 2,691
--------- ---------
Other assets......................... 47 99
--------- ---------
Total assets.......... $ 34,251 $ 28,180
========= =========

LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Revolving credit facility....... $ 17,783 $ 16,408
Current maturities of long-term
debt........................... 443 966
Accounts payable................ 2,976 1,940
Accrued liabilities............. 2,483 964
--------- ---------
Total current
liabilities.............. 23,685 20,278
--------- ---------
Long-term debt, net of current
maturities......................... 702 1,256
--------- ---------
Total liabilities.......... 24,387 21,534
--------- ---------
Commitments
Stockholders' equity:
Common stock, par value $.10 per
share -- authorized 1,000
shares, issued and
outstanding -- 300 shares as of
December 31, 1997.............. -- 80
Paid-in capital................. 3,701 8,028
Retained earnings............... 6,163 2,311
Treasury stock.................. -- (3,773)
--------- ---------
Total stockholders'
equity................... 9,864 6,646
--------- ---------
Total liabilities and
stockholders' equity..... $ 34,251 $ 28,180
========= =========

The accompanying notes are an integral part of these statements.

F-186
<PAGE>
THE LEVINSON STEEL COMPANY
STATEMENTS OF INCOME
(IN THOUSANDS OF DOLLARS)

1997 1996
--------- ---------
Net sales............................ $ 67,923 $ 57,121
Costs and expenses:
Cost of sales................... 48,103 40,362
Operating and delivery.......... 8,813 8,693
Selling, general and
administrative.................. 4,997 4,450
Depreciation and amortization... 345 441
--------- ---------
Operating income................ 5,665 3,175
Other (income) expenses:
Interest expense................ 1,601 1,652
Other income.................... (988) 90
--------- ---------
Income before income taxes........... 5,052 1,433
Provision for income taxes........... 1,200 80
--------- ---------
Net income........................... $ 3,852 $ 1,353
========= =========

The accompanying notes are an integral part of these statements.

F-187
<PAGE>
THE LEVINSON STEEL COMPANY
STATEMENTS OF STOCKHOLDERS' EQUITY
(IN THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
CAPITAL PAID-IN RETAINED TREASURY
STOCK CAPITAL EARNINGS STOCK TOTAL
-------- -------- --------- --------------- ---------
<S> <C> <C> <C> <C> <C>
BALANCE, December 31, 1995........... $ 80 $ 8,028 $ 958 $-- $ 9,066
Repurchase of shares............ -- -- -- (3,773) (3,773)
Net income...................... -- -- 1,353 -- 1,353
-------- -------- --------- --------------- ---------
BALANCE, December 31, 1996........... 80 8,028 2,311 (3,773) 6,646
Repurchase of shares............ -- -- -- (634) (634)
Recapitalization (Note 5)....... (80) (4,327) -- 4,407 --
Net income...................... -- -- 3,852 -- 3,852
-------- -------- --------- --------------- ---------
BALANCE, December 31, 1997........... $-- $ 3,701 $ 6,163 $-- $ 9,864
======== ======== ========= =============== =========
</TABLE>
The accompanying notes are an integral part of these statements.

F-188
<PAGE>
THE LEVINSON STEEL COMPANY
STATEMENTS OF CASH FLOWS
(IN THOUSANDS OF DOLLARS)

1997 1996
--------- ---------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income...................... $ 3,852 $ 1,353
Adjustments to reconcile net
income to net cash provided by
operating activities --
Depreciation and
amortization............. 345 441
Loss on disposition of
equipment................ 11 57
Changes in operating assets
and liabilities --
Accounts receivable... (4,838) 2,029
Inventories........... (1,309) (255)
Other current
assets.............. 17 (75)
Accounts payable...... 1,037 (1,016)
Accrued liabilities... 1,519 (94)
Other liabilities..... -- (20)
--------- ---------
Net cash provided by
operating
activities.......... 634 2,420
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property, plant and
equipment...................... (315) (292)
Proceeds from sale of
equipment...................... 5 524
--------- ---------
Net cash (used in)
provided by
investing
activities.......... (310) 232
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net revolving credit facility
activity....................... 1,375 (430)
Repayment of debt............... (1,077) (1,169)
Borrowings...................... -- 2,731
Repurchase of shares............ (634) (3,773)
--------- ---------
Net cash used in
financing
activities.......... (336) (2,641)
--------- ---------
NET CHANGE IN CASH................... (12) 11
CASH, beginning of year.............. 19 8
--------- ---------
CASH, end of year.................... $ 7 $ 19
========= =========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION:
Cash paid for --
Interest.............. $ 1,469 $ 1,646
Income taxes.......... 118 250

The accompanying notes are an integral part of these statements.

F-189
<PAGE>
THE LEVINSON STEEL 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

The Levinson Steel Company ("Levinson") is a distributor of structural
steel products and operates five regional service centers with warehouse
facilities (Ambridge and York, Pennsylvania; Seekonk, Massachusetts; Camden, New
Jersey and Greenville, Kentucky) and two sales offices (Bethlehem, Pennsylvania
and Birmingham, Alabama) serving customers throughout the eastern United States.

USE OF ESTIMATES AND ASSUMPTIONS

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

ACCOUNTS RECEIVABLE

Levinson grants credit to customers based upon management's assessment of
their creditworthiness. Sales to domestic steel fabricators and service centers,
original equipment manufacturers and customers in the construction industry
account for virtually all of the Levinson trade receivables.

INVENTORIES

Inventories are valued at the lower of cost or market. Costs are determined
on a weighted moving average basis. Levinson's inventories consist primarily of
purchased steel products held for resale through service distribution
warehouses.

PROPERTY, PLANT AND EQUIPMENT

Property, plant and equipment are recorded at cost. Maintenance and repairs
are charged to operations as incurred. Major renewals and betterments, which
increase the value or productive capacity of assets, are capitalized. Upon sale
or retirement, the related value and accumulated depreciation are removed from
the accounts and any resulting gain or loss is reflected in the accompanying
statements of income.

Depreciation is provided based upon the estimated useful lives using the
straight-line method. Estimated useful lives are 5 to 25 years for buildings and
improvements and 3 to 10 years for machinery, equipment and fixtures.

DEFERRED FINANCING COSTS

Costs incurred in connection with securing financing arrangements have been
capitalized and are included with other assets in the accompanying balance
sheets. Deferred financing costs are amortized over the term of the borrowing
facility and are presented net of accumulated amortization of $107 and $55 at
December 31, 1997 and 1996, respectively.

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 Levinson 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.

F-190
<PAGE>
THE LEVINSON STEEL COMPANY
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS OF DOLLARS, EXCEPT SHARE AMOUNTS)

CONCENTRATION OF CREDIT RISK

Financial instruments, which potentially subject Levinson to concentrations
of credit risk, consist principally of cash deposits and, trade account
receivables. Levinson places its cash with several financial institutions
limiting the amount of credit exposure to any one financial institution.
Concentration of credit risk with respect to trade accounts receivable are
within the northeastern regions of the United States. Management performs
ongoing credit evaluations of its customers and providers 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. Levinson periodically reveiws the credit history of its
customers and generally does not require collateral for the extension of credit.

2. DEBT

1997 1996
--------- ---------
Revolving credit facility, interest
at prime plus .25% (8.5% as of
December 31, 1997), payable
monthly............................ $ 17,783 $ 16,408
Term loan, interest at prime plus
.75% (9% as of December 31, 1997),
payable in monthly installments of
$20 excluding interest, maturity
February 28, 2003.................. 934 1,198
Note payable, interest at 7.88%,
payable in monthly installments of
$17 including interest............. 159 352
Capital lease obligation, interest at
9.25%, payable in monthly
installments of $4 including
interest........................... 52 89
Other Indebtedness................... -- 583
--------- ---------
18,928 18,630
Less -- Revolving credit
facility...................... 17,783 16,408
Current maturities...... 443 966
--------- ---------
Long-term debt....................... $ 702 $ 1,256
========= =========

Levinson has a financing agreement with a bank that provides for a
Revolving Credit Facility through November 8, 1998, with an automatic annual
renewal provision. This agreement provides for borrowings up to the lesser of
85% of eligible accounts receivable and 65% of eligible inventory, as defined,
not to exceed borrowings of $19,000. This agreement also provides for additional
borrowings under the term loan and up to $500 under a capital expenditure line
of credit with interest at prime plus 1% convertible to a term loan with
five-year amortization after one year. Borrowings under the various instruments
are secured by virtually all of the assets of Levinson, and limitations on
borrowings are based upon the secured assets.

The agreement provides for adjustments to the interest rates for the
Revolving Credit Facility the term loan, and the transaction loan based upon
financial ratios achieved by Levinson. Additionally, the agreement includes
restrictive covenants that require Levinson to maintain specified levels of
tangible net worth, cash flow coverage and leverage ratios. Certain other
provisions restrict capital expenditures, distributions to stockholders and the
incurrence of additional indebtedness.

F-191
<PAGE>
THE LEVINSON STEEL COMPANY
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS OF DOLLARS, EXCEPT SHARE AMOUNTS)

CAPITAL LEASE OBLIGATION

Levinson leases certain machinery and equipment under a capital lease
agreement, which expires March 1999. The following is a schedule of the
approximate future minimum lease payments under this obligation together with
the present value of the net minimum lease payments:

1998................................. $ 44
1999................................. 11
---------
Total minimum lease payments......... 55
Less -- Amount representing
interest........................... 3
---------
Present value of net minimum lease
payments........................... $ 52
=========

The capitalized value of assets recorded as capitalized leases was
approximately $176 and depreciation expense on these assets was approximately
$18 for each of the years ended December 31, 1997 and 1996.

3. COMMITMENTS

Levinson leases certain warehouses, trucks and equipment under
noncancellable operating leases. Levinson expects to renew these leases upon
expiration. The approximate future minimum obligation under these leases is as
follows:

1998................................. $ 1,156
1999................................. 648
2000................................. 462
2001................................. 184
2002................................. 10
---------
Total................................ $ 2,460
=========

Rent expense for the years ended December 31, 1997 and 1996 was
approximately $1,552 and $1,294, respectively.

4. STOCKHOLDERS EQUITY

During 1997, Levinson affected a recapitalization via a merger with The
Levinson Steel Acquisition Company, a company wholly owned by the majority
shareholders of Levinson. In connection with this merger, Levinson reacquired
24,882 shares of common stock representing the minority ownership for $634. As a
result of this merger, the shares held in treasury were retired and the then
outstanding shares were exchanged for shares of the surviving entity.

During 1996, Levinson reacquired 639 shares of common stock for $3,773. The
shares repurchased were financed with borrowings under the Revolving Credit
Facility, term loan and transaction loan.

5. EMPLOYEE BENEFIT PLANS

Levinson has a 401(k) benefit plan. Levinson incurred matching
contributions expense of approximately $86 and $82 for 1997 and 1996,
respectively.

Levinson contributes to certain pension funds, two of which represent
multiemployer plans, in accordance with union contracts at three locations.
Contributions are based upon hours worked at one location, gross regular
earnings at another location and a monthly amount per eligible employee at the
other location. Pension expense for these plans was approximately $88 for both
fiscal 1997 and 1996.

F-192
<PAGE>
THE LEVINSON STEEL COMPANY
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS OF DOLLARS, EXCEPT SHARE AMOUNTS)

6. INCOME TAXES

The provision for income taxes recognize the tax effects of all income and
expense transactions in the statements of income, regardless of the year in
which the transactions are reported for tax purposes.

The provisions for income taxes consist of the following:

1997 1996
--------- ---------
Current --
Federal......................... $ 720 $ 25
State........................... 480 55
--------- ---------
1,200 80
Deferred............................. -- --
--------- ---------
Total................................ $ 1,200 $ 80
========= =========

Utilization of net operating loss carryforwards, serve to reduce the 1997
tax provision and eliminate the regular tax liability for 1996. The 1996
provision for income taxes results from alternative minimum taxes.

Temporary differences between book and tax income relate primarily to net
operating loss carryforwards, depreciation, inventories and various reserve
balances. Levinson has net operating loss carryforwards for tax purposes of
approximately $4,014 as of December 31, 1997, which will expire on various dates
through 2005.

Deferred tax balances consist of the following as of December 31:

1997 1996
--------- ---------
Net operating loss carryforward...... $ 1,392 $ 2,340
Reserves and other differences....... 303 518
Inventories.......................... 332 766
Accumulated depreciation............. (219) (627)
Valuation allowance.................. (1,808) (2,997)
--------- ---------
Net.................................. $ -- $ --
========= =========

The benefit of the deferred tax asset will be recognized in the years in
which it is realized.

7. OTHER INCOME

During 1997, Levinson entered into a settlement agreement relating to a
lawsuit filed against a software vendor in 1996. As a result, Levinson recorded
a gain of $1,200, which is shown net of related expenses of $211 in the
accompanying statement of income.

8. SUBSEQUENT EVENT

On March 11, 1998, Levinson entered into a definitive agreement to merge
with and into a wholly owned subsidiary of Metals USA, Inc. Subsequent to this
merger, the Company will operate as a wholly owned subsidiary of Metals USA,
Inc. This transaction was completed during April 1998.

F-193

<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
Risk Factors................................... 9
Price Range of Common Stock.................... 13
Dividend Policy................................ 13
Capitalization................................. 14
Selected Financial Data........................ 15
Management's Discussion and Analysis of
Financial Condition and Results of
Operations................................... 17
Business....................................... 24
Management..................................... 40
Certain Transactions........................... 47
Principal Stockholders......................... 50
Selling Stockholders........................... 51
Description of Capital Stock................... 52
Shares Eligible for Future Sale................ 54
Plan of Distribution........................... 55
Legal Matters.................................. 55
Experts........................................ 55
Additional Information......................... 56
Index to Financial Statements.................. F-1

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

1,503,384 SHARES

[LOGO]
METALS USA, INC.

COMMON STOCK

-------------------
PROSPECTUS
-------------------

JUNE 16, 1998

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

<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 which have been paid.

AMOUNT TO BE
PAID
-------------
SEC registration fee................. $ 11,800
Printing expenses.................... $ 25,000
Legal fees and expenses.............. $ 10,000
Accounting fees and expenses......... $ 15,000
Miscellaneous........................ $ 8,200
-------------
Total........................... $ 70,000
=============

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 purchased 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.

On September 26, 1997, the Company issued 4,023,583 shares of its Common
Stock in connection with certain of the Subsequent Acquisitions. This
transaction 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:

EXHIBIT
NUMBER DESCRIPTION
- -------------------------------------------------------------
3.1 -- Amended and Restated Certificate of
Incorporation of Metals USA, Inc.
(the "Company"), as amended,
incorporated by reference to the
Company's registration statement on
Form S-1, Registration No. 333-26601
dated June 17, 1997.

3.2 -- Bylaws of the Company, as amended,
incorporated by reference to the
Company's registration statement on
Form S-1, Registration No. 333-26601
dated May 7, 1997.
4.1 -- Form of certificate evidencing
ownership of Common Stock of the
Company, incorporated by reference to
the Company's registration statement
on Form S-1, Registration No.
333-26601 dated July 9, 1997.
4.2 -- Indenture, dated February 11, 1998,
by and among the Company as issuer
and the Guarantors named therein, and
U.S. Trust Company of California,
N.A., as Trustee regarding the
Company's 8 5/8% Senior Subordinated
Notes due 2008, incorporated by
reference to the Company's
registration statement on Form S-1,
Registration No. 333-35575 dated
February 20, 1998.
4.3 -- Purchase Agreement dated February 6,
1998 by and among the Company and BT
Alex. Brown Incorporated, Bear
Stearns & Co., Inc., Donaldson,
Lufkin & Jenrette Securities
Corporation and NationsBanc
Montgomery Securities LLC regarding
the Company's 8 5/8% Senior
Subordinated Notes due 2008,
incorporated by reference to the
Company's registration statement on
Form S-1, Registration No. 333-35575
dated February 20, 1998.
4.4 -- Registration Rights agreement dated
February 6, 1998 by and among the
Company and BT Alex. Brown
Incorporated, Bear Stearns & Co.,
Inc., Donaldson, Lufkin & Jenrette
Securities Corporation and
NationsBanc Montgomery Securities LLC
regarding the Company's 8 5/8% Senior
Subordinated Notes due 2008,
incorporated by reference to the
Company's registration statement on
Form S-1, Registration No. 333-35575
dated February 20, 1998.
5.1+ -- Opinion of Bracewell & Patterson,
L.L.P.
10.1 -- The Company's 1997 Long-Term
Incentive Plan, incorporated by
reference to the Company's
registration statement on Form S-1,
Registration No. 333-26601 dated May
7, 1997.
10.2 -- The Company's 1997 Non-Employee
Directors' Stock Plan, incorporated
by reference to the Company's
registration statement on Form S-1,
Registration No. 333-26601 dated May
7, 1997.

II-3
<PAGE>

10.3 -- Agreement and Plan of Organization
dated as of April 30, 1997, by and
among the Company, Affiliated Metals
Acquisition Corp., Affiliated Metals
Company and the Stockholders named
therein, incorporated by reference to
the Company's registration statement
on Form S-1, Registration No.
333-26601 dated May 7, 1997.
10.4 -- Agreement and Plan of Organization
dated as of April 30, 1997 by and
among the Company, 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,
incorporated by reference to the
Company's registration statement on
Form S-1, Registration No. 333-26601
dated May 7, 1997.
10.5 -- Agreement and Plan of Organization
dated as of April 30, 1997 by and
among the Company, Queensboro Steel I
Acquisition Corp., Queensboro Steel
Corporation and the Stockholders
named therein, incorporated by
reference to the Company's regis-
tration statement on Form S-1,
Registration No. 333-26601 dated May
7, 1997.
10.6 -- Agreement and Plan of Organization
dated as of April 30, 1997 by and
among the Company, Southern Alloy
Acquisition Corp., Southern Alloy of
America, Inc. and the Stockholders
named therein, incorporated by
reference to the Company's regis-
tration statement on Form S-1,
Registration No. 333-26601 dated May
7, 1997.
10.7 -- Agreement and Plan of Organization
dated as of April 30, 1997 by and
among the Company, Steel Service
Systems Acquisition Corp., Steel
Service Systems, Inc. and the
Stockholders named therein,
incorporated by reference to the
Company's registration statement on
Form S-1, Registration No. 333-26601
dated May 7, 1997.
10.8 -- Agreement and Plan of Organization
dated as of April 30, 1997 by and
among the Company, 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, incorporated by
reference to the Company's
registration statement on Form S-1,
Registration No. 333-26601 dated May
7, 1997.
10.9 -- Agreement and Plan of Organization
dated as of April 30, 1997 by and
among the Company, Uni-Steel
Acquisition Corp., Uni-Steel, Inc.
and the Stockholders named therein,
incorporated by reference to the
Company's registration statement on
Form S-1, Registration No. 333-26601
dated May 7, 1997.
10.10 -- Agreement and Plan of Organization
dated as of April 30, 1997 by and
among the Company, Williams Steel
Acquisition Corp., Williams Steel &
Supply Co., Inc., and the
Stockholders named therein,
incorporated by reference to the
Company's registration statement on
Form S-1, Registration No. 333-26601
dated May 7, 1997.
10.11 -- Form of Employment Agreement between
the Company and Arthur L. French,
incorporated by reference to the
Company's registration statement on
Form S-1, Registration No. 333-26601
dated July 9, 1997.
10.12 -- Form of Employment Agreement between
the Company and J. Michael Kirksey,
incorporated by reference to the
Company's registration statement on
Form S-1, Registration No. 333-26601
dated July 9, 1997.
10.13 -- Form of Employment Agreement between
the Company and Stephen R. Baur,
incorporated by reference to the
Company's registration statement on
Form S-1, Registration No. 333-26601
dated July 9, 1997.
10.14 -- Form of Employment Agreement between
the Company and John A. Hageman,
incorporated by reference to the
Company's registration statement on
Form S-1, Registration No. 333-26601
dated July 9, 1997.
10.15 -- Form of Employment Agreement between
the Company and Terry L. Freeman,
incorporated by reference to the
Company's registration statement on
Form S-1, Registration No. 333-26601
dated July 9, 1997.
10.16 -- Form of Employment Agreement between
the Company and Keith E. St. Clair,
incorporated by reference to the
Company's registration statement on
Form S-1, Registration No. 333-26601
dated July 9, 1997.

II-4
<PAGE>

10.17 -- Form of Founders' Employment
Agreement between Interstate Steel
Supply Company of Maryland and
Interstate Steel Processing Company
and Arnold W. Bradburd, incorporated
by reference to the Company's
registration statement on Form S-1,
Registration No. 333-26601 dated June
17, 1997.
10.18 -- Form of Founders' Employment
Agreement between Steel Service
Systems, Inc. and Craig R. Doveala,
incorporated by reference to the
Company's registration statement on
Form S-1, Registration No. 333-26601
dated June 17, 1997.
10.19 -- Form of Founders' Employment
Agreement between Southern Alloy of
America, Inc. and William Bartley
Edge, incorporated by reference to
the Company's registration statement
on Form S-1, Registration No.
333-26601 dated June 17, 1997.
10.20 -- Form of Founders' Employment
Agreement between Queensboro Steel
Corporation and Mark Alper,
incorporated by reference to the
Company's registration statement on
Form S-1, Registration No. 333-26601
dated June 17, 1997.
10.21 -- Form of Founders' Employment
Agreement between Uni-Steel, Inc. and
Richard A. Singer, incorporated by
reference to the Company's
registration statement on Form S-1,
Registration No. 333-26601 dated June
17, 1997.
10.22 -- Form of Founders' Employment
Agreement between Williams Steel &
Supply Co., Inc. and Lester G.
Peterson, incorporated by reference
to the Company's registration
statement on Form S-1, Registration
No. 333-26601 dated June 17, 1997.
10.23 -- Form of Founders' Employment
Agreement 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, incorporated by
reference to the Company's
registration statement on Form S-1,
Registration No. 333-26601 dated June
17, 1997.
10.24 -- Form of Founders' Employment
Agreement between Affiliated Metals
Company and Patrick A. Notestine,
incorporated by reference to the
Company's registration statement on
Form S-1, Registration No. 333-26601
dated June 17, 1997.
10.25 -- Form of Agreement among certain
stockholders, incorporated by
reference to the Company's
registration statement on Form S-1,
Registration No. 333-26601 dated July
9, 1997.
10.26 -- Indemnity Agreement with Notre
Capital Ventures II, L.L.C.,
incorporated by reference to the
Company's registration statement on
Form S-1, Registration No. 333-26601
dated July 9, 1997.
10.27 -- Agreement and Plan of Merger dated
September 26, 1997, by and among the
Company, HTL Acquisition Corp.,
Harvey Titanium, Ltd. and the
Stockholders named therein,
incorporated by reference to the
Company's registration statement on
Form S-1, Registration No. 333-35575
dated November 14, 1997.
10.28 -- Agreement dated September 26, 1997,
by and among the Company, Meier Metal
Servicenters, Inc. and the
Stockholders named therein,
incorporated by reference to the
Company's registration statement on
Form S-1, Registration No. 333-35575
dated November 14, 1997.
10.29 -- Agreement dated September 26, 1997,
by and among the Company, Jeffreys
Steel Company, Inc. and the
Stockholders named therein,
incorporated by reference to the
Company's registration statement on
Form S-1, Registration No. 333-35575
dated November 14, 1997.
10.30 -- Form of Employment Agreement between
Jeffreys Steel Company, Inc. and Leon
Jeffreys, incorporated by reference
to the Company's registration
statement on Form S-1, Registration
No. 333-35575 dated February 20,
1998.
10.31 -- Agreement and Plan of Merger dated
December 17, 1997, by and among the
Company, IM Acquisition Corp.,
Independent Metals Co. Inc., and the
Stockholders named therein,
incorporated by reference to the
Company's registration statement on
Form S-1, Registration No. 333-35575
dated February 20, 1998.
10.32 -- Amended and Restated Credit Agreement
dated February 11, 1998, by and among
the Company and The First National
Bank of Chicago, as agent,
incorporated by reference to the
Company's registration statement on
Form S-1, Registration No. 333-35575
dated February 20, 1998.

II-5
<PAGE>

10.33 -- Agreement and Plan of Merger dated as
of February 16, 1998, by and among
the Company, PMC Acquisition Corp.,
Pacific Metal Company and the
Stockholders named therein,
incorporated by reference to the
Company's Form 8-K dated March 16,
1998.
21.1+ -- List of subsidiaries of the Company
23.1+ -- Consent of Arthur Andersen LLP
23.2+ -- Consent of Ernst & Young LLP
23.3+ -- Consent of McGladrey & Pullen, LLP
23.4+ -- Consent of Rubin, Brown, Gornstein &
Co.
23.5+ -- Consent of Klein, Bogakos and
Robertson, CPA's Inc.
23.6+ -- Consent of Bracewell & Patterson,
L.L.P. (included in Exhibit 5.1)
23.7+ -- Consent of Ernst & Young LLP
23.8+ -- Consent of Perkins & Company, P.C.
23.9+ -- Consent of Arthur Andersen LLP
23.10+ -- Consent of Arthur Andersen LLP
24.1 -- Form of Power of Attorney

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

+ Included with this filing.

II-6
<PAGE>
(b) Financial Statement Schedules

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 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:

(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-7
<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 June 16, 1998.

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 JUNE 16, 1998.

<TABLE>
<CAPTION>
SIGNATURE TITLE
- -------------------------------------------------------------------------------------------
<S> <C> <C>
/s/ARTHUR L. FRENCH Chairman of the Board; Chief
ARTHUR L. FRENCH Executive Officer and President

J. MICHAEL KIRKSEY* Senior Vice President; Chief
Financial Officer and Director

/s/TERRY L. FREEMAN Vice President, Corporate Controller
TERRY L. FREEMAN and Chief Accounting Officer

STEVEN S. HARTER* Director

ARNOLD W. BRADBURD* Vice Chairman of the Board and
Director

MICHAEL E. CHRISTOPHER* Senior Vice President and Director

MARK ALPER* Director

A. LEON JEFFREYS* Director

PATRICK S. NOTESTINE* Director

RICHARD A. SINGER* Senior Vice President and Director

LESTER G. PETERSON* Director

CRAIG R. DOVEALA* Director

WILLIAM B. EDGE* Senior Vice President and Director

T. WILLIAM PORTER* Director

RICHARD H. KRISTINIK* Director

TOMMY E. KNIGHT* Director

*By:/s/ARTHUR L. FRENCH
ARTHUR L. FRENCH
ATTORNEY-IN-FACT
</TABLE>

II-8

EXHIBIT TO COME

EXHIBIT 21.1

METALS USA, INC.
SUBSIDIARY LIST

Affiliated Metals Company
Concord Metals Corporation
Faitoute Steel Company
Federal Bronze Alloys Inc.
Fullerton Industries, Inc.
Harvey Titanium, Ltd.
Industrial Metals, Inc.
Independent Metals Co., Inc.
Interstate Steel Supply Company
Interstate Steel Supply Company of Pittsburg
Interstate Steel Supply Company of Maryland
Interstate Steel Processing Company
Jeffreys Steel Company, Inc.
Jeffreys Real Estate Corp.
Krohn Steel Service Center, Inc.
The Levinson Steel Company
Mark Metals, Inc.
Meier Metal Servicenters, Inc.
Metalmart, Inc.
Metals USA Management Co., L.P.
MUSA GP, Inc.
MUSA LP, Inc.
Metals USA Service Corporation
Metals USA Finance Corp.
National Manufacturing, Inc.
Pacific Metal Company
Queensboro Steel Corporation
Royal Aluminum, Inc.
R.J. Fabricating, Inc.
Sierra Pacific Steel, Inc.
Southern Alloy of America, Inc.
Steel Manufacturing and Warehouse Company
Steel Service Systems, Inc.
Texas Aluminum Industries, Inc.
Cornerstone Metals Corporation
Cornerstone Building Products, Inc.
Cornerstone Aluminum Company, Inc.
Cornerstone Patio Concepts, L.L.C.
Uni-Steel, Inc.
Wayne Steel, Inc.
Western Awning Company, Inc.
Wilkof-Morris Steel Corporation
Williams Steel & Supply Co., Inc.
WSS Transportation, Inc.

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
June 10, 1998

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 as of August 31, 1996 and for the
fifty-two weeks then ended included in the Registration Statement (Form S-1 No.
333-53193) and the related Prospectus of Metals USA, Inc. for the registration
of 1,503,384 shares of Metals USA, Inc.'s common stock.

Ernst & Young LLP

St. Louis, Missouri
June 15, 1998

EXHIBIT 23.3

CONSENT OF INDEPENDENT ACCOUNTANTS

We hereby consent to the use in this Registration Statement on Form S-1
(No. 333-53193) of our report, dated February 25, 1997, except for Note 11 as to
which the date is April 18, 1997 and Note 12 as to which the date is July 11,
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
June 12, 1998

EXHIBIT 23.4

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
June 11, 1998

EXHIBIT 23.5

CONSENT OF INDEPENDENT AUDITORS

We hereby consent to the use in this Registration Statement on Form S-1 of
our report, dated September 23, 1997, relating to the financial statements of
Harvey Titanium, Ltd. We also consent to the reference to our Firm under the
caption "Experts" in the Prospectus.

KLEIN, BOGAKOS AND ROBERTSON, CPA'S INC.

Santa Monica, California
June 10, 1998

EXHIBIT 23.7

CONSENT OF INDEPENDENT AUDITORS

We consent to the reference to our Firm under the caption "Experts" and
to the use of our report dated January 23, 1998, except for Note 10, for which
the date is April 17, 1998, with respect to the consolidated financial
statements of Fullerton Industries, Inc., included in the Registration Statement
(Form S-1 No. 333-53193) of Metals USA, Inc. for the registration of 1,503,384
shares of Metals USA, Inc. common stock.

Ernst & Young LLP

Chicago, Illinois
June 10, 1998

EXHIBIT 23.8

INDEPENDENT AUDITORS' CONSENT

We consent to the use in this Registration Statement of Metals USA, Inc. on
Form S-1 of our report dated February 11, 1998, on the consolidated financial
statements of Pacific Metal Company and Subsidiary as of December 31, 1997 and
1996 and for the years ended December 31, 1997 and 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.

PERKINS & COMPANY, P.C.
Portland, Oregon
June 11, 1998

EXHIBIT 23.9

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

Milwaukee, Wisconsin
June 11, 1998

EXHIBIT 23.10

CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS

As independent public accountants, we hereby consent to the use of our
report dated March 4, 1998 (except with respect to the matter discussed in Note
8, as to which the date is March 11, 1998), with respect to the financial
statements of The Levinson Steel Company (and to all references to our Firm)
included in or made a part of this registration statement.

ARTHUR ANDERSEN LLP

Pittsburgh, Pennsylvania
June 15, 1998