UNITED STATES SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                    FORM 10-K

              ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
                         SECURITIES EXCHANGE ACT OF 1934

                   For the fiscal year ended December 31, 1998

                         COMMISSION FILE NUMBER 1-13123

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

                DELAWARE                                 76-0533626        
      (State or other jurisdiction                    (I.R.S. Employer     
    of incorporation or organization)              Identification Number)  
                                                                           
        THREE RIVERWAY, SUITE 600                           77056          
             HOUSTON, TEXAS                              (Zip Code)        
(Address of Principal Executive Offices)               
                    
       Registrant's telephone number, including area code: (713) 965-0990

           Securities registered pursuant to Section 12(b) of the Act:

                                                 NAME OF EACH EXCHANGE
              TITLE OF EACH CLASS                 ON WHICH REGISTERED         
              -------------------                 -------------------         
         Common Stock, $.01 par value           New York Stock Exchange   
                                                 
           Securities registered pursuant to Section 12(g) of the Act:

                                      None.

   Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]

   Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]

   Based upon the March 23, 1999 New York Stock Exchange closing price of $8.13
per share, the aggregate market value of the Registrant's outstanding stock held
by non-affiliates was approximately $222.1 million.

                      DOCUMENTS INCORPORATED BY REFERENCE:

   Certain portions of Registrant's definitive proxy statement, to be filed with
the Securities and Exchange Commission pursuant to Regulation 14A not later than
120 days after the close of the Registrant's fiscal year, are incorporated by
reference under Part III.
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   THIS ANNUAL REPORT ON FORM 10-K CONTAINS STATEMENTS WHICH CONSTITUTE
"FORWARD-LOOKING STATEMENTS" WITHIN THE MEANING OF THE PRIVATE SECURITIES
LITIGATION REFORM ACT OF 1995. THESE STATEMENTS APPEAR IN A NUMBER OF PLACES,
INCLUDING ITEM 1. "BUSINESS," ITEM 3. "LEGAL PROCEEDINGS" AND ITEM 7.
"MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS." SUCH STATEMENTS CAN BE IDENTIFIED BY THE USE OF FORWARD-LOOKING
TERMINOLOGY SUCH AS "BELIEVES," "EXPECTS," "MAY," "ESTIMATES," "WILL," "SHOULD,"
"PLANS" OR "ANTICIPATES" OR THE NEGATIVE THEREOF OR OTHER VARIATIONS THEREON OR
COMPARABLE TERMINOLOGY, OR BY DISCUSSIONS OF STRATEGY. READERS ARE CAUTIONED
THAT ANY SUCH FORWARD-LOOKING STATEMENTS ARE NOT GUARANTEES OF FUTURE
PERFORMANCE AND INVOLVE SIGNIFICANT RISKS AND UNCERTAINTIES, AND THAT ACTUAL
RESULTS MAY VARY MATERIALLY FROM THOSE IN THE FORWARD-LOOKING STATEMENTS AS A
RESULT OF VARIOUS FACTORS. THESE FACTORS INCLUDE THE EFFECTIVENESS OF
MANAGEMENT'S STRATEGIES AND DECISIONS, GENERAL ECONOMIC AND BUSINESS CONDITIONS,
DEVELOPMENTS IN TECHNOLOGY, NEW OR MODIFIED STATUTORY OR REGULATORY REQUIREMENTS
AND CHANGING PRICES AND MARKET CONDITIONS. THIS REPORT IDENTIFIES OTHER FACTORS
THAT COULD CAUSE SUCH DIFFERENCES. NO ASSURANCE CAN BE GIVEN THAT THESE ARE ALL
OF THE FACTORS THAT COULD CAUSE ACTUAL RESULTS TO VARY MATERIALLY FROM THE
FORWARD-LOOKING STATEMENTS.

                                       (i)

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                                  P A R T   I

ITEM 1.  BUSINESS

GENERAL

   Metals USA, Inc. ("Metals USA") was founded in 1996 to become a leading
national value-added metals processor/service center, to manufacture
higher-value components from processed metals and to pursue aggressively the
consolidation of the highly-fragmented metals processing industry. In connection
with its initial public offering on July 11, 1997, Metals USA acquired, in
separate merger transactions (collectively, the "IPO") in exchange for cash and
shares of its $.01 par value common stock ("Common Stock"), eight companies
(each a "Founding Company" and, collectively, the "Founding Companies"). The
Founding Companies are engaged in value-added processing of steel, aluminum and
specialty metals, as well as manufacturing metal components. Since that date,
Metals USA has acquired numerous additional metal processing companies and
businesses (the "Subsequent Acquisitions" and collectively with the Founding
Companies, the "Acquired Companies"). On average, the Acquired Companies have
been in business for over 40 years. Unless otherwise indicated, all references
to the "Company" herein include the Acquired Companies and other entities
wholly-owned by Metals USA, and references herein to "Metals USA" mean Metals
USA, Inc. prior to the consummation of the IPO. See "Business -- Strategy."

   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 fostering the development of long-term
working relationships with key suppliers and customers enables it 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, 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 segments of
the metals processing industry.

   The Company sells to over 60,000 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 its susceptibility to economic fluctuations affecting any one
industry or geographical area.

   During 1998 the Company organized itself around the following four business
groups: the Heavy Carbon Steel Group, the Flat Rolled Steel Group, the Specialty
Metals Group and the Aluminum Building Products Group. Each group is led by an
experienced entrepreneurial focused executive, who is supported by a
professional staff in finance, purchasing and sales and marketing. All but two
of the product group staff positions were filled from within the Company. This
organizational structure will facilitate the achievement of the Company's goals
and objectives more efficiently in terms of operational synergies, focused
capital investment and improved working capital turnover.

 HEAVY CARBON STEEL GROUP

   The Heavy Carbon Steel Group has annual revenues of approximately $750
million and forty-two locations throughout the United States, which makes it the
largest business group. This business group sells wide-flange beams, plate,
tubular, angles and other structural shapes. These products are available in a
number of alloy grades and sizes and generally undergo additional processing
prior to customer delivery. Processing services include cutting, cambering/
beveling, punching, bending, shearing, cut-to-length and T-splitting. The Heavy
Carbon Steel Group sells to over 26,000 individual customers in the fabrication,
construction, machinery and equipment, transportation and energy industries.

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 FLAT ROLLED STEEL GROUP

   The Flat Rolled Steel Group has annual revenues of approximately $500 million
and twelve locations in the mid-west region of the United States. This business
group sells steel in a variety of alloy grades and sizes. Steel mills generally
ship steel in sizes less than a quarter of an inch in thickness in continuous
coils that typically weigh forty to fifty thousand pounds each. Few customers
can handle steel in this form. Accordingly, substantially all of the material
sold by the Flat Rolled Steel Group undergo additional processing prior to
customer delivery. Processing services include slitting, precision blanking,
leveling, cut-to-length, laser cutting, beveling, punching, bending and
shearing. The Flat Rolled Steel Group sells to over 1,500 individual customers
in the electrical manufacturing, fabrication, furniture, appliance
manufacturers, machinery and equipment and transportation industries.

 SPECIALTY METALS GROUP

   The Specialty Metals Group has annual revenues of approximately $420 million
and twenty-seven locations throughout the United States. This business group
sells a diverse number of products including stainless steel, ductile iron,
brass, copper, aluminum, magnesium and titanium. These products are available in
a number of alloy grades and sizes and generally undergo additional processing
prior to customer delivery. Processing services include cutting, beveling,
punching, bending, shearing and cut-to-length. The Specialty Metals Group sells
to over 23,000 individual customers in the fabrication, industrial machinery and
equipment, aerospace and electronics industries.

 ALUMINUM BUILDING PRODUCTS GROUP

   The Aluminum Building Products Group has annual revenues of approximately
$110 million and fifty-two locations throughout the southeastern, southwest and
western regions of the United States. This business group sells a number of
finished products that are both cost and energy efficient for use in residential
applications such as sunrooms, awnings and solariums. Commercial uses of these
products include large area covered canopies, awnings and covered walkways. The
Aluminum Building Products Group sells to over 10,000 individual customers in
construction, wholesale trade and building material industries.

   For additional industry segment information, see Note 10 of Notes
to Consolidated Financial Statements in Item 8. "Financial Statements
and Supplementary Data."

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 remain
competitive. As a result, during the past two 

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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, enhance quality, 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 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.
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 use 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 are finding it increasingly difficult to compete as
present industry trends continue, and the Company believes these businesses are
potential acquisition candidates.

   The Company believes significant acquisition opportunities exist for a
well-capitalized, national value-added metals processor/service center that
employs a decentralized operating strategy in order to make the most efficient,
customer focused utilization of its network of processing/service centers of
each of the acquired businesses. The Company believes that this operating
strategy and the highly fragmented nature of the metals industry should allow it
to be a leader in the industry's consolidation.

STRATEGY

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

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 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 processing capabilities
at existing facilities, thereby improving operating efficiencies and more
effectively use 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, through its product group management team, will 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 businesses
and will allow the Company to capitalize on considerable local and regional
market knowledge, goodwill and customer relationships.

 ACCELERATING INTERNAL SALES GROWTH

   A key component of the Company's strategy is to accelerate internal sales
growth at each processor/service center. 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 among the existing processor/service centers. 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 relationships with its 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. During 1998, the Company
appointed three experienced industry professionals, Vice Presidents of the Flat
Rolled, Heavy Carbon and Specialty Metals product groups, to design and
implement a national program to attract significant new accounts and expand the
range of services provided to our larger customers. With their leadership and
the Company's existing well-trained, technically competent sales force, the
Company believes that it can demonstrate to these OEMs the cost savings
achievable through the Company's processing, inventory management and other
services. The Company also intends to implement a Company-wide marketing program
that will use professional marketing services and to adopt "best practices"
throughout its operations to identify, obtain and maintain 

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new customers. In addition, the Company intends to increase its visibility
through trade shows, associations, publications and telemarketing.

 IMPROVING OPERATING MARGINS

   The Company believes there are significant opportunities to realize operating
efficiencies and increase the Company's profitability. The key components of
this strategy are:

   INCREASE OPERATING EFFICIENCIES. The Company believes that its position in
the industry 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 to obtain measurable cost
savings in such areas as vehicle leasing and maintenance, information systems
and purchasing through 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 use, 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 finance, marketing, insurance,
employee benefits, accounting and risk management.

ACQUISITION PROGRAM

   The Company believes it will continue to 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 former 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, inventory management,
centralization of administrative functions, enhanced systems capabilities and
access to increased marketing resources.

   The Company believes the management of the acquired businesses has been and
will continue to be instrumental in identifying and completing future
acquisitions. Certain of the former owners of the acquired businesses 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
leadership of these individuals and the increased visibility of the Company
within the industry will increase the awareness of, and interest of acquisition
candidates with respect to, the Company and its acquisition program.

   As consideration for future acquisitions, the Company intends to use various
combinations of cash, notes and its Common Stock. 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.

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

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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 with, 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 forty
and fifty thousand 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  SAWING -- the cutting to length of bars, tubular goods and beams.

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

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

   o  PLATE FORMING AND ROLLING -- the forming and bending of plates to
      cylindrical or regular specification.

   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 applications engineering and a
variety of other value added processes such as blasting, painting and custom
machining. 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 the metal. Many of the
products and services provided by the Company can be ordered and tracked through
EDI, a sophisticated electronic network that directly connects the Company's
computer system to those of its customers.

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   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 with 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 Company has 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. Thirteen of the Company's subsidiaries have facilities with
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 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 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.

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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 use 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 60,000 customers, with
no single customer accounting for more than 1 1/2% of the Company's revenues in
1998. 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
publicly-held companies. The Company also competes to a lesser extent with
primary metals producers, who typically sell directly only to very large
customers requiring regular shipments of large volumes of metals. The Company
may also face competition for acquisition candidates from these public
companies, most of whom have acquired a number of metals service center
businesses during the past decade. Other smaller metals processors/service
centers may also seek acquisitions from time to time.

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

                                       8
<PAGE>
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 two 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 a
number of its leased properties are located in or near industrial or light
industrial use areas; and accordingly, may have been contaminated by pollutants
which would have migrated from neighboring facilities or have been deposited by
prior occupants. Furthermore, the Company is not aware of any notices from
authoritative agencies with respect to clean-up/remediation claims for
contamination at the leased properties. However, there can be no assurance that
the Company may subsequently be notified of such claims with respect to its
existing leased or owned properties in the future.

   Prior to entering into any agreements with an acquisition target, the Company
evaluates the properties owned or leased by the target and engages an
independent environmental consulting firm to conduct or review assessments of
environmental conditions at each property. 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
former stockholders of the Acquired Companies whose facilities are located at or
near 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 liquidity, should the Company be
held responsible for a share of any 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 businesses acquired 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. Nine of the Company's subsidiaries 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 Company's subsidiaries have computer-aided drafting
systems that control equipment used to perform some metals processing functions.

EMPLOYEES

   As of March 15, 1999, the Company employed a total of approximately 4,000
persons. Approximately 600 employees at 19 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; and the International
Brotherhood of Boilermakers, Iron Ship Builders, Blacksmiths, Forgers and
Helpers. The Company's relationship with these unions generally has been
satisfactory, but occasional work stoppages have occurred. Within the last five
years, one work stoppage occurred at one facility, which involved 28 employees
and lasted 10 days. The Company is currently a party to 19 collective bargaining
agreements which expire at various times. 

                                       9
<PAGE>
Collective bargaining agreements expiring in 1999, 2000, 2001 and 2002 cover 99,
40, 137 and 222 employees, respectively. Historically, the Company has 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 general
liability insurance and liability insurance for bodily injury and third-party
property damage and workers' compensation coverage which it considers sufficient
to insure against these risks.

   From time to time, the Company is 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 it believes will have a
material adverse effect on its consolidated financial condition, results of
operations or liquidity.

SAFETY

   The Company intends to provide an accident-free workplace and is committed to
continuing and improving upon each facilities' focus and emphasis on safety in
the workplace. The Company currently has a number of safety programs in place,
which 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 is actively working on and implementing a
comprehensive "best practices" safety program 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. This program is being led by Mr. Mark Alper, a Vice President and
Director of the Company, with the assistance of each of the Company's product
group presidents, executive officers and industry consultants with expertise in
workplace safety.

                                       10
<PAGE>
ITEM 2.  PROPERTIES

   The Company operates a number of metals processing facilities in the Heavy
Carbon, Flat Rolled and Specialty Metals Groups that are used to receive,
warehouse, process and ship metals. These facilities use various metals
processing and materials handling machinery and equipment. The Company's
Aluminum Building Products Group operates several facilities where it processes
metals into various building products. These service center facilities are as
follows:
<TABLE>
<CAPTION>
                                                                     SQUARE      OWNED/
                                          LOCATION                   FOOTAGE     LEASED
                                          --------                   -------     ------
<S>                                 <C>                                 <C>      <C>
HEAVY CARBON GROUP
Faitoute .........................  Newark, New Jersey                  81,000   Leased
Interstate .......................  Philadelphia, Pennsylvania          70,000   Leased
                                    Philadelphia, Pennsylvania         120,000   Leased
                                    Baltimore, Maryland                 65,000   Leased
                                    Ambridge, Pennsylvania             133,000   Leased
Intsel ...........................  Dallas, Texas                      104,000   Owned
                                    Houston, Texas                     216,000   Owned
                                    Lafayette, Louisiana                32,000   Owned
                                    San Antonio, Texas                  89,000   Owned
                                    Tulsa, Oklahoma                     53,000   Leased
Jeffreys .........................  Birmingham, Alabama                125,000   Owned
                                    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
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
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 Industries ...................   Milwaukee, Wisconsin                31,000   Leased
                                    Schofield, Wisconsin                16,000   Leased
Sierra Pacific ..................   Haywood, California                 64,500   Leased
Steel Manufacturing .............   Kansas City, Missouri              120,000   Leased
Uni-Steel .......................   Enid, Oklahoma                     112,000   Leased
                                    Muskogee, Oklahoma                 134,000   Leased
Wilkof ..........................   Canton, Ohio                       100,000   Leased
Williams ........................   Milwaukee, Wisconsin               137,000   Leased

FLAT ROLLED GROUP
Affiliated ......................   Granite City, Illinois             300,000   Leased
                                    Madison, Illinois                  150,000   Owned
                                    Butler, Indiana                    200,000   Owned
Forest ..........................   Forest, Virginia                    50,000   Leased
</TABLE>
                                       11
<PAGE>
<TABLE>
<CAPTION>
                                                                     SQUARE      OWNED/
                                          LOCATION                   FOOTAGE     LEASED
                                          --------                   -------     ------
<S>                                 <C>                                 <C>      <C>
Fullerton .......................   Northbrook, Illinois               182,000   Owned
                                    Minneapolis, Minnesota              20,000   Owned
Geneva ..........................   Youngstown, Ohio                    83,000   Leased
Krohn ...........................   Springfield, Ohio                   60,000   Owned
Service Systems .................   Horicon, Wisconsin*                103,000   Leased
Wayne ...........................   Wooster, Ohio*                     140,000   Owned
                                    Randleman, North Carolina*         110,000   Owned
                                    Jeffersonville, Indiana*            90,000   Owned
                                    Walker, Michigan                    50,000   Leased

SPECIALTY METALS GROUP
Federal Bronze ..................   Newark, New Jersey                  41,000   Leased
Flagg ...........................   St. Louis, Missouri                 19,000   Leased
Harvey ..........................   Santa Monica, California            50,000   Leased
Independent .....................   Germantown, Wisconsin               90,000   Owned
                                    New Hope, Minnesota                 19,000   Leased
                                    Broadview, Illinois                 61,000   Leased
                                    Orlando, Florida                    23,000   Leased
Industrial ......................   Mokena, Illinois                    21,000   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 .......................   Whittier, California                42,000   Leased
Pacific .........................   Billings, Montana                   10,000   Leased
                                    Boise, Idaho                        26,000   Leased
                                    Eugene, Oregon                      33,000   Owned
                                    Portland, Oregon                   111,000   Leased
                                    Spokane, Washington                 49,000   Owned
                                    Tukwila, Washington                 80,000   Owned
Professional ....................   Liberty, Missouri                   84,000   Leased
                                    Wichita, Kansas                     11,000   Leased
Southern Alloy ..................   Salisbury, North Carolina           24,000   Leased

ALUMINUM BUILDING PRODUCTS GROUP
ABS .............................   Leesburg, Florida                   60,000   Leased
National ........................   Kansas City, Missouri               58,000   Leased
Royal ...........................   Leesburg, Florida                   69,000   Owned
                                    Leesburg, Florida                   76,000   Leased
                                    Irmo, South Carolina                38,000   Leased
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
Valley ..........................   Phoenix, Arizona                   111,000   Leased
                                    Las Vegas, Nevada                   39,000   Leased
Western .........................   Pacific, Washington                 24,000   Leased
</TABLE>
-----------
* These facilities are subject to liens with respect to certain debt agreements.

                                       12
<PAGE>
   In addition to the service center facilities listed above, the Company's
Aluminum Building Products Group also operates 40 sales and distribution centers
throughout the western, southwestern and southeastern United States. These
facilities, which are all leased, range in size from 5,500 square feet to 50,000
square feet. Many of the Company's facilities are capable of being used 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.

                                       13
<PAGE>
ITEM 3.  LEGAL PROCEEDINGS

   THIS SECTION CONTAINS STATEMENTS WHICH CONSTITUTE "FORWARD-LOOKING
STATEMENTS" WITHIN THE MEANING OF THE PRIVATE SECURITIES LITIGATION REFORM ACT
OF 1995. SEE DISCLOSURE PRESENTED ON THE INSIDE OF THE FRONT COVER OF THIS
REPORT FOR CAUTIONARY INFORMATION WITH RESPECT TO SUCH FORWARD-LOOKING
STATEMENTS.

   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.

ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

   None.

                                       14
<PAGE>
                                 P A R T   II

ITEM 5.  MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
         MATTERS

   The Company's Common Stock has traded on The New York Stock Exchange since
July 11, 1997. The following table sets forth the high and low sale prices for
the Common Stock for the period from July 11, 1997, the date of the IPO, through
March 23, 1999.

                                                            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 30, 1998 ................     $20.13        $16.50
       July 1, 1998 to September 30, 1998 ............     $18.00        $ 8.75
       October 1, 1998 to December 31, 1998 ..........     $11.00        $ 6.56
1999:                                                                     
       January 1, 1999 to March 23, 1999 .............     $10.50        $ 8.13
                                                                         
   The Company believes there are approximately 2,100 stockholders of record of
the Company's Common Stock.

   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
includes restrictions on the ability of the Company to pay dividends without the
consent of the lender.

ITEM 6.  SELECTED FINANCIAL DATA

   The following historical consolidated financial information should be read in
conjunction with the audited historical Consolidated Financial Statements of
Metals USA, Inc. and Subsidiaries and the Notes thereto included in Item 8.
"Financial Statements and Supplementary Data." The historical consolidated
financial information for the fiscal years ended 1994 through 1998 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 historical consolidated financial information presented below, are reflected
in the Unaudited Pro Forma Combined Statements of Operations presented in Item
8. "Financial Statements and Supplementary Data."

                                       15
<PAGE>
<TABLE>
<CAPTION>
                                                                             YEARS ENDED DECEMBER 31,(1)
                                                                 ----------------------------------------------
                                                                   1998        1997     1996     1995     1994
                                                                 --------     ------   ------   ------   ------
                                                                    (IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
<S>                                                              <C>          <C>      <C>      <C>      <C>   
STATEMENTS OF OPERATIONS DATA:
  Net sales .................................................    $1,498.8     $537.6   $265.6   $260.9   $235.7
  Cost of sales .............................................     1,135.1      414.9    204.0    204.7    185.0
  Operating and delivery ....................................       145.8       53.7     25.4     22.0     19.6
  Selling, general and administrative .......................       104.7       41.1     21.4     15.6     14.0
  Depreciation and amortization .............................        16.4        5.6      3.7      3.0      2.4
  Operating income ..........................................        96.8       22.3     11.1     15.6     14.7
  Interest expense ..........................................        30.9        5.0      1.8      2.4      1.8
  Other income ..............................................        (1.6)       (.5)     (.6)     (.5)     (.5)
  Income before income taxes ................................        67.5       17.8      9.9     13.7     13.4
  Net income ................................................        40.0        7.5      4.5      8.1      8.2
  Earnings per share ........................................    $   1.09     $  .33   $  .38   $  .86   $  .87
  Earnings per share -- assuming dilution ...................    $   1.07     $  .33   $  .38   $  .86   $  .87
  Number of common shares used in the per
    share calculations:
      Earnings per share ....................................        36.7       22.5     11.8      9.4      9.4
      Earnings per share -- assuming dilution ...............        37.3       22.9     11.8      9.4      9.4

                                                                             YEARS ENDED DECEMBER 31,(1)
                                                                 ----------------------------------------------
                                                                   1998        1997     1996     1995     1994
                                                                 --------     ------   ------   ------   ------
                                                                                    (IN MILLIONS)
BALANCE SHEET DATA:
  Working capital ...........................................    $  407.4     $191.5   $ 51.6   $ 53.2   $ 47.2
  Total assets ..............................................     1,019.5      479.1    107.3    100.1     99.0
  Long-term debt, less current portion ......................       502.6      167.1     24.6     31.4     23.2
  Stockholders' equity ......................................       341.6      226.5     57.5     50.1     43.3
  Dividends declared(2) .....................................        --         --       --       --       --
</TABLE>
-------------
(1) As a result of the merger with Metals USA, Jeffreys changed its fiscal year
    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 years ended July 31, 1995 and 1994 have been
    included in the Company's consolidated financial statements for the years
    ended December 31, 1995 and 1994.

(2) Exclusive of pre-acquisition distributions of S Corporations.

ITEM 7.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
         AND RESULTS OF OPERATIONS

BACKGROUND

   THIS SECTION CONTAINS STATEMENTS WHICH CONSTITUTE "FORWARD-LOOKING
STATEMENTS" WITHIN THE MEANING OF THE PRIVATE SECURITIES LITIGATION REFORM ACT
OF 1995. SEE DISCLOSURE PRESENTED ON THE INSIDE OF THE FRONT COVER OF THIS
REPORT FOR CAUTIONARY INFORMATION WITH RESPECT TO SUCH FORWARD-LOOKING
STATEMENTS.

   The following discussion should be read in conjunction with Item
6. "Selected Financial Data" and the Company's Consolidated Financial
Statements and related Notes thereto in Item 8. "Financial Statements
and Supplementary Data."

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
in some form. 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. See Item 1."Business" for further discussion of the Company's
organization and business plan.

                                       16
<PAGE>
   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"). The Compensation Charge has not been allocated to
the Company's segments; accordingly, it is included in the following table in
"Corporate, Eliminations and Other."

RESULTS OF OPERATIONS

 SEGMENT RESULTS
<TABLE>
<CAPTION>
                                                                              FISCAL YEARS ENDED DECEMBER 31,
                                              --------------------------------------------------------------------------------------
                                                                    OPERATING            OPERATING
                                                NET                 COSTS AND              INCOME                  CAPITAL
                                               SALES        %       EXPENSES      %        (LOSS)       %       EXPENDITURES    %
                                              --------   ------     --------    ------     ------    --------   ------------  ------
1998:                                                                              (DOLLARS IN MILLIONS)
<S>                                           <C>          <C>      <C>           <C>      <C>           <C>       <C>         <C>  
Heavy Carbon ..............................   $  598.8     40.0%    $  555.1      39.6%    $ 43.7        45.1%     $ 11.9      47.1%
Flat Rolled ...............................      445.4     29.7%       419.8      29.9%      25.6        26.4%        8.2      32.4%
Specialty Metals ..........................      371.2     24.8%       343.8      24.5%      27.4        28.3%        3.4      13.4%
Aluminum Building Products ................       93.4      6.2%        84.1       6.0%       9.3         9.6%        1.7       6.7%
Corporate, eliminations and other .........      (10.0)     (.7)%        (.8)       --%      (9.2)       (9.4)%        .1        .4%
                                              --------   ------     --------    ------     ------    --------      ------    ------
   Total ..................................   $1,498.8    100.0%    $1,402.0     100.0%    $ 96.8       100.0%     $ 25.3     100.0%
                                              ========   ======     ========    ======     ======    ========      ======    ======
1997:                                                                                                                        
Heavy Carbon ..............................   $  234.2     43.6%    $  221.2      42.9%    $ 13.0        58.3%     $  4.8      25.7%
Flat Rolled ...............................      237.8     44.2%       223.9      43.5%      13.9        62.3%       12.1      64.7%
Specialty Metals ..........................       41.5      7.7%        37.8       7.3%       3.7        16.6%        1.0       5.3%
Aluminum Building Products ................       24.1      4.5%        21.7       4.2%       2.4        10.8%         .5       2.7%
Corporate, eliminations and other .........       --         --%        10.7       2.1%     (10.7)      (48.0)%        .3       1.6%
                                              --------   ------     --------    ------     ------    --------      ------    ------
   Total ..................................   $  537.6    100.0%    $  515.3     100.0%    $ 22.3       100.0%     $ 18.7     100.0%
                                              ========   ======     ========    ======     ======    ========      ======    ======
1996:                                                                                                                        
Heavy Carbon ..............................   $  134.4     50.6%    $  127.8      50.2%    $  6.6        59.5%     $  3.7      55.2%
Flat Rolled ...............................      131.2     49.4%       123.1      48.4%       8.1        73.0%        3.0      44.8%
Corporate, eliminations and other .........       --         --%         3.6       1.4%      (3.6)      (32.5)%      --          --%
                                              --------   ------     --------    ------     ------    --------      ------    ------
    Total .................................   $  265.6    100.0%    $  254.5     100.0%    $ 11.1       100.0%     $  6.7     100.0%
                                              ========   ======     ========    ======     ======    ========      ======    ======
</TABLE>
 SEGMENT RESULTS -- 1998 COMPARED TO 1997

   HEAVY CARBON STEEL GROUP. Net sales increased $364.6 million, or 155.7%, from
$234.2 million in 1997 to $598.8 million in 1998. The net sales attributable to
the 1998 acquisitions contributed $199.7 million of the increase. Average
realized prices for steel products increased approximately 1.0% in 1998 compared
to 1997. Material shipments increased 153.3% in 1998 compared to 1997.
Acquisitions completed during 1998 accounted for 56.9% of the increase.
Operating costs and expenses increased $333.9 million, or 150.9%, from $221.2
million in 1997 to $555.1 million in 1998. Operating costs and expenses as a
percentage of net sales decreased from 94.4% in 1997 to 92.7% in 1998. This
percentage decrease was primarily the allocation of fixed costs over a higher
volume of net sales. Operating income increased by $30.7 million, or 236.2%,
from $13.0 million in 1997 to $43.7 million in 1998. Operating income as a
percentage of net sales increased from 5.6% in 1997 to 7.3% in 1998. This
percentage increase was due to higher average realized prices and the allocation
of fixed costs over a higher volume of net sales.

   FLAT ROLLED STEEL GROUP. Net sales increased $207.6 million, or 87.3%, from
$237.8 million in 1997 to $445.4 million in 1998. The net sales attributable to
the 1998 acquisitions contributed $88.7 million of the increase. Average
realized prices for steel products increased approximately 2.6% in 1998 compared
to 1997. Material shipments increased 82.3% in 1998 compared to 1997.
Acquisitions completed during 1998 accounted for 29.6% of the increase. Costs
and expenses increased $195.9 million, or 87.5%, from $223.9 million in 1997 to
$419.8 million in 1998. Operating costs and expenses were stable as a percentage
of net sales, increasing marginally from 94.2% in 1997 to 94.3% in 1998.

                                       17
<PAGE>
Operating income increased by $11.7 million, or 84.2%, from $13.9 million in
1997 to $25.6 million in 1998. Operating income as a percentage of net sales
decreased marginally from 5.8% in 1997 to 5.7% in 1998.

   SPECIALTY METALS GROUP. Net sales increased $329.7 million, or 794.5%, from
$41.5 million in 1997 to $371.2 million in 1998. The net sales attributable to
the 1998 acquisitions contributed $202.9 million of the increase. Costs and
expenses increased $306.0 million, or 809.5%, from $37.8 million in 1997 to
$343.8 million in 1998. Operating costs and expenses as a percentage of net
sales increased from 91.1% in 1997 to 92.6% in 1998. This percentage increase
was primarily due to lower realized prices in certain product groups. Operating
income increased by $23.7 million, or 640.5%, from $3.7 million in 1997 to $27.4
million in 1998. This increase was principally due to the majority of the 1998
acquisitions having been acquired during the first half of the year. Operating
income as a percentage of net sales decreased from 8.9% in 1997 to 7.4% in 1998.
This percentage decrease was due to lower realized prices in certain product
groups.

   ALUMINUM BUILDING PRODUCTS. Net sales increased $69.3 million, or 287.6%,
from $24.1 million in 1997 to $93.4 million in 1998. The increase in net sales
is principally due to the 1998 Acquisitions. Operating costs and expenses
increased $62.4 million, or 287.6%, from $21.7 million in 1997 to $84.1 million
in 1998. Operating costs and expenses as a percentage of net sales was unchanged
at 90.0% for both periods. Operating income increased by $6.9 million, or
287.5%, from $2.4 million in 1997 to $9.3 million in 1998. This increase was
principally due to 1998 acquisitions and to 1998 being a full year of operations
for the 1997 acquired companies. Operating income as a percentage of net sales
was unchanged at 10.0% for both periods.

   CORPORATE AND OTHER. This category reflects certain administrative costs and
expenses management has not allocated to its industry segments. The negative net
sales amount represents the elimination of intercompany sales. Operating loss
decreased by $1.5 million, or 14.0%, from $10.7 million in 1997 to $9.2 million
in 1998. This decrease was principally due to a reduction in general and
administrative expense attributable to the elimination of the $6.0 million
Compensation Charge the Company incurred in 1997, offset by the additional
general and administrative costs for a full year in 1998 compared to the period
from July 11, 1997 (date of the IPO) through December 31, 1997 together with the
$2.6 million non-recurring charge associated with the termination of the
Jeffrey's Employee Stock Ownership Plan ("ESOP") in 1998.

 SEGMENT RESULTS --1997 COMPARED TO 1996

   HEAVY CARBON STEEL GROUP. Net sales increased $99.8 million, or 74.3%, from
$134.4 million in 1996 to $234.2 million in 1997. The net sales attributable to
the 1997 acquisitions contributed $110.9 million of the increase. Average
realized prices for steel products increased approximately 5.0% in 1997 compared
to 1996. Material shipments increased 65.8% in 1997 compared to 1996.
Acquisitions completed during 1997 accounted for all of the increase. Costs and
expenses increased $93.4 million, or 73.1%, from $127.8 million in 1996 to
$221.2 million in 1997. Operating costs and expenses as a percentage of net
sales decreased from 95.1% in 1996 to 94.4% in 1997. Operating income increased
by $6.4 million, or 97.0%, from $6.6 million in 1996 to $13.0 million in 1997.
Operating income as a percentage of net sales increased from 4.9% in 1996 to
5.6% in 1997. This percentage increase was due to higher average realized prices
and the allocation of fixed costs over a higher volume of net sales.

   FLAT ROLLED STEEL GROUP. Net sales increased $106.6 million, or 81.3%, from
$131.2 million in 1996 to $237.8 million in 1997. The net sales attributable to
the 1997 acquisitions contributed $74.1 million of the increase. Material
shipments increased 99.5% in 1997 compared to 1996. Acquisitions completed
during 1997 accounted for 67.6% of the increase. Costs and expenses increased
$100.8 million, or 81.9%, from $123.1 million in 1996 to $223.9 million in 1997.
Operating costs and expenses as a percentage of net sales increased from 93.8%
in 1996 to 94.2% in 1997. This percentage increase was primarily due to higher
cost of raw materials. Operating income increased by $5.8 million, or 71.6%,
from $8.1 million in 1996 to $13.9 million in 1997. Operating income as a
percentage of net sales decreased from 6.2% in 1996 to 5.8% in 1997. This
percentage decrease was due to higher raw material costs.

   SPECIALTY METALS GROUP. Prior to the IPO in July 1997 the Company did not
have any operations attributable to the Specialty Metals Group.

                                       18
<PAGE>
   ALUMINUM BUILDING PRODUCTS. Prior to the IPO in July 1997 the Company did not
have any operations attributable to the Aluminum Building Products.

   CORPORATE AND OTHER. This category reflects certain administrative costs and
expenses management has not allocated to its industry segments. Operating loss
increased by $7.1 million, or 197.2%, from $3.6 million in 1996 to $10.7 million
in 1997. This increase was principally due to an increased Compensation Charge
the Company incurred in 1997 of $6.0 million compared to $3.6 million in 1996
together with the additional general and administrative costs for the period
from July 11, 1997 (date of the IPO) through December 31, 1997.

 CONSOLIDATED RESULTS

   The following historical 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.
<TABLE>
<CAPTION>
                                                                            YEARS ENDED DECEMBER 31,
                                              --------------------------------------------------------------------------------
                                                1998              %           1997           %            1996            %
                                              --------        --------      --------      --------      --------      --------
                                                                             (DOLLARS IN MILLIONS)                    
<S>                                           <C>                <C>        <C>              <C>        <C>              <C>   
Net sales ................................    $1,498.8           100.0%     $  537.6         100.0%     $  265.6         100.0%
Operating costs and expenses:
Cost of sales ............................     1,135.1            75.7%        414.9          77.2%        204.0          76.8%
Operating and delivery ...................       145.8             9.7%         53.7          10.0%         25.4           9.6%
Selling, general and administrative ......       104.7             7.0%         41.1           7.6%         21.4           8.1%
Depreciation and amortization ............        16.4             1.1%          5.6           1.0%          3.7           1.4%
                                              --------        --------      --------      --------      --------      --------
Operating income .........................        96.8             6.5%         22.3           4.2%         11.1           4.1%
Interest expense .........................        30.9             2.1%          5.0           1.0%          1.8            .6%
Other (income) expense ...................        (1.6)            (.1)%         (.5)          (.1)%         (.6)          (.2)%
                                              --------        --------      --------      --------      --------      --------
Income before income taxes ...............        67.5             4.5%         17.8           3.3%          9.9           3.7%
                                              ========        ========      ========      ========      ========      ========
</TABLE>
 RESULTS FOR 1998 COMPARED TO 1997

   NET SALES. Net sales increased $961.2 million, or 178.8%, from $537.6 million
in 1997 to $1,498.8 million in 1998. The increase in net sales was principally
due to acquisitions. Average realized prices for steel products increased in
1998 compared to 1997. See "-- Segment Results" for additional information.

   COST OF SALES. Cost of sales increased $720.2 million, or 173.6%, from $414.9
million in 1997 to $1,135.1 million in 1998. The increase in cost of sales was
principally due to the business acquisitions described above. As a percentage of
net sales, cost of sales decreased from 77.2% in 1997 to 75.7% in 1998. This
percentage decrease was principally due to lower cost of raw materials.

   OPERATING AND DELIVERY. Operating and delivery expenses increased $92.1
million, or 171.5%, from $53.7 million in 1997 to $145.8 million in 1998. 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 decreased from 10.0% in 1997 to 9.7% in 1998. This percentage
decrease was primarily due to the allocation of fixed costs over a higher volume
of net sales.

   SELLING, GENERAL AND ADMINISTRATIVE. Selling, general and administrative
expenses increased $63.6 million, or 154.7%, from $41.1 million in 1997 to
$104.7 million in 1998. This increase in selling, general and administrative
expenses was primarily attributable to the business acquisitions described
above. As a percentage of net sales, selling, general and administrative
expenses decreased from 7.6% in 1997 to 7.0% in 1998. Excluding the effect of
the non-recurring, non-cash Compensation Charge of $6.0 million in 1997 and the
non-recurring charge of $2.6 million attributable to the termination of the ESOP
in 1998, as a percentage of net sales, selling, general and administration
expenses increased from 6.5% in 1997 to 6.8% in 1998. This percentage increase
was primarily due to increased compensation and other costs associated with a
full year of corporate expense in 1998.

                                       19
<PAGE>
   OPERATING INCOME. Operating income increased $74.5 million, or 334.1%, from
$22.3 million in 1997 to $96.8 million in 1998. 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 4.2% in 1997 to 6.5%
in 1998.

   INTEREST EXPENSE. Interest expense increased $25.9 million, from $5.0 million
in 1997 to $30.9 million in 1998. The increase in interest expense was due to
increased borrowings in connection with the business acquisitions described
above and the increased interest expense associated with the Company's 8 5/8%
$200.0 Senior Subordinated Notes due 2008 (the "Notes").

   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 amortization of
goodwill attributable to certain acquisitions.

 RESULTS FOR 1997 COMPARED TO 1996

   NET SALES. Net sales increased $272.0 million, or 102.4%, from $265.6 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 in 1997 compared to 1996. See "--
Segment Results" for additional information.

   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 $11.2 million, or 100.9%, from
$11.1 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.

   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.

   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.

                                       20
<PAGE>
 LIQUIDITY AND CAPITAL RESOURCES

   Beginning with the IPO on July 11, 1997, and through March 23, 1999, 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, the sale of $200.0 million
aggregate principal amount of 8 5/8% Senior Subordinated Notes due 2008 (the
"Notes"), the establishment of a $350.0 million revolving credit facility with a
group of commercial banks (the "Credit Facility") and the implementation of a
$100.0 million trade receivable securitization facility.

   At December 31, 1998, the Company had cash of $9.3 million, working capital
of $407.4 million and total debt of $506.6 million. At December 31, 1997, the
Company had cash of $7.3 million, working capital of $191.5 million and total
debt of $174.3 million. As of December 31, 1998 and March 23, 1999, the Company
had $80.0 million and $155.0 million, respectively, of borrowing availability
under the Credit Facility. The Company anticipates that its cash flow from
operations will be sufficient to meet the Company's normal working capital and
debt service requirements for at least the next several years, exclusive of
acquisition requirements. The Company intends to retain all 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 $10.8 million and generated $4.3 million in net cash from
operating activities for 1998 and 1997, respectively. Net cash used in investing
activities was $211.2 million and $85.9 million for 1998 and 1997, respectively.
The principal use of cash during 1998 and 1997 was to fund the cash portion of
the acquisition cost for the Acquired Companies. Net cash provided by financing
activities was $224.0 million and $86.5 million for 1998 and 1997, respectively.
Cash provided by financing activities during 1998 was $200.0 million from the
sale of the Notes and borrowings under the Credit Facility. The cash provided by
financing activities consisted primarily of the net proceeds from the sale of
Common Stock of $58.3 million in 1997 and borrowings under the revolving credit
facility in 1997.

 INVESTING ACTIVITIES

   Concurrent with the completion of the IPO, Metals USA acquired the Founding
Companies for approximately $27.8 million in cash, 10,128,609 shares of Common
Stock and the assumption of indebtedness of $92.6 million. Following the IPO,
the Company acquired seven additional metal processing companies during 1997, of
which Jeffreys and Wayne were accounted for using the "pooling-of-interests"
method of accounting for business combinations. During 1998, the Company
acquired twenty-six additional businesses all of which were accounted for using
the "purchase" method of accounting, except for Krohn which was accounted for
using the "pooling-of-interests" method. The aggregate consideration paid in
connection with these acquisitions was approximately $244.3 million in cash,
16,513,989 shares of Common Stock, the issuance of notes of approximately $3.6
million and the assumption of indebtedness of approximately $143.6 million.

   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
its Credit Facility, accounts receivable securitization 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.

 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
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 

                                       21
<PAGE>
from the exercise of the overallotment option to repay borrowings on its
revolving credit facility and for other corporate purposes.

   Concurrent with the IPO, the Company obtained a $150.0 million revolving
credit facility which was used to fund acquisitions, refinance certain
indebtedness of the acquired companies and for general corporate and working
capital requirements. The closing of an extension and modification of the Credit
Facility on February 11, 1998 provided for up to $300.0 million of borrowings.
On November 25, 1998 the Company amended the Credit Facility to provide for an
additional $50.0 million of borrowings to an aggregate of $350.0 million. 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 corporate and 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 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
its revolving credit facilities on February 11, 1998.

   On January 21, 1999, the Company entered into a three-year agreement (the
"Receivable Securitization Agreement") to sell, on a revolving basis, through
its wholly-owned subsidiary, Metals Receivable Corporation ("MRC"), an undivided
interest in a designated pool of its trade accounts receivable to a commercial
bank ("Purchaser"). The maximum undivided interest in MRC's receivable portfolio
that may be purchased pursuant to this agreement is $100.0 million. The Company,
as agent for Purchaser, retains collection and administrative responsibilities
for the participating interests sold. As collections reduce the receivables
included in MRC's receivable portfolio, the Company may sell additional
undivided interests in new receivables to MRC. The amount of the undivided
interest in MRC's receivable portfolio that is sold typically will change
monthly depending upon the level of defined eligible receivables available for
sale each month adjusted by certain defined ratios. From month to month, the
amount by which MRC's receivable portfolio exceeds the undivided interest
purchased will vary. The Company expects such amount will range between $20.0
million and $30.0 million. The unpurchased portion of the MRC receivable
portfolio is effectively collateral for the benefit of the Purchaser.

   In connection with the initial sale pursuant to the Receivable Securitization
Agreement in January 1999, MRC sold an undivided interest in the first $93.0
million in its aggregate receivable portfolio of $117.0 million. The proceeds
from this sale were used to reduce borrowings under the Company's Credit
Facility. On March 23, 1999, MRC sold an undivided interest in the first $83.0
million of its $112.7 million receivable portfolio.

 TRENDS

   The Company expects that domestic steel prices, for plate and wide flange
beams in particular, will remain depressed during the first half of 1999,
principally due to the higher than normal domestic inventories and the higher
than normal volumes of imported steel. Should domestic steel producers institute
"dumping" suits against the foreign steel importers, price increases for
domestic steel could result during the second half of 1999 assuming no adverse
changes in the United States economy. Such potential price increases could be
deferred, or fail to materialize if the "dumping" suits are deferred or fail to
materialize and the level of foreign steel imports continues at the recent high
levels. The increased level of imports is attributable to the reduction in
consumption resulting from the current economic environment in Asia, Eastern
Europe and South America.

                                       22
<PAGE>
   Although the Company's net sales for certain of its subsidiaries are
influenced by steel prices, its results of operations are primarily dependent
upon the volume and mix of value-added services and products provided to its
customers. The Company expects approximately 40% of its net sales would be
affected by any further decline in steel prices. With respect to flat-rolled
steel products, a majority of the net sales are made pursuant to advance pricing
arrangements that range from six to twelve months, which effectively mitigate
the adverse impact of short-term price declines on those products. Additionally,
approximately 30% of the Company's net sales are attributable to aluminum,
titanium and other specialty metals, which have also experienced price
reductions. In general, however, the price reductions for these other metals
have been much less than for steel.

   The Company purchases the majority of its raw materials, including steel,
from domestic suppliers; however, the Company has increased its purchases of
steel from foreign suppliers during the past nine months to take advantage of
lower cost imported steel. Accordingly, for the reasons stated in the preceding
paragraph, together with the diversity of its product mix, customer and industry
base, and a pro active monitoring of its raw material inventories with the goal
of significantly improving its current inventory turnover ratios, the Company
does not expect that the present depressed domestic steel prices will have a
material adverse effect on its consolidated financial position, results of
operations or liquidity.

 YEAR 2000 ISSUE

   IMPACT OF YEAR 2000. As the century date occurs, computer programs, computers
and embedded microprocessors controlling equipment with date-sensitive systems
may recognize Year 2000 as 1900 or not at all. This inability to recognize or
properly handle the year 2000 date may result in computer system failures or
miscalculations of critical information as well as failures of equipment using
date-sensitive microprocessors. The Company's various financial and operational
information systems and, in some cases, embedded microprocessors in certain
machinery and equipment that have computer systems and applications could be
affected by the Year 2000 issue.

   STATE OF READINESS. In early 1998, the Company formulated a plan to address
the Year 2000 issue. To date, the Company's primary focus has been on its own
internal systems, including all types of systems used by its subsidiaries in
their operations, dealing with the most critical systems first.

   The Company is nearing completion of an assessment of its own systems,
including embedded microprocessors in certain machinery and equipment.
Currently, the Company is establishing timetables for the renovation of its
information systems, including modifying and upgrading software and developing
and purchasing new software, as necessary. The Company expects to complete the
testing and implementation phases by September 30, 1999.

   During 1998, the Company began sending questionnaires to its customers,
vendors and other third parties with which the Company has material
relationships and expects to complete the assessment of such parties by June 30,
1999. The Company is unable to estimate the costs that it may incur to remedy
the Year 2000 issues relating to such parties.

   COSTS TO ADDRESS THE YEAR 2000 ISSUE. The Company's preliminary estimate is
that the cost of assessment, renovation and implementation of its internal
systems will range from approximately $.2 million to $.4 million of which
approximately $.1 million has been incurred. These costs will consist primarily
of consultants and additional personnel costs. In addition, the Company expects
to incur capital expenditures of approximately $6.0 million for new hardware and
software to integrate and upgrade certain of its existing management information
systems. The Company expects that such costs will be funded through operating
cash flows. These estimates, based on currently available information, will be
updated as the Company continues its assessment and proceeds with renovation,
testing and implementation of its systems. These estimates may be adjusted upon
receipt of more information from the Company's vendors, customers and third
parties and upon design and implementation of the Company's contingency plan. In
addition, the availability and cost of consultants and other personnel trained
in this area could materially affect the estimated costs.

   RISKS TO THE COMPANY. Many of the larger operations of the Company have
upgraded their primary operating systems to be Year 2000 compliant; however,
there can be no assurance that the Company will succeed in eliminating all Year
2000 issues. The following disclosure illustrates the Companys' "most reasonably
likely, worst-case scenario," given current uncertainties. If the Company's
renovated or replaced information technology systems fail the testing phase, or
any software applications central to the Company's operations are overlooked in
the assessment or 

                                       23
<PAGE>
implementation phases, the Company could incur higher administrative costs as a
result of having to process financial information, such as payroll, accounts
payable and billings, manually or through alternative microcomputer systems. If
the Company's embedded microprocessors in certain machinery and equipment are
not made Year 2000 compliant, the Company could experience additional costs by
having to outsource certain metal processing for its customers. If suppliers of
commercial infrastructure such as electrical power, natural gas,
telecommunications, rail and marine transportation fail to provide the Company
with such services, the Company may be unable to provide its normal full
complement of services to its customers. If any one or a combination of the
foregoing uncertainties were to occur, the Company's business and consolidated
results of operations, financial condition and liquidity could be adversely
affected.

   Furthermore, as a result of the Company's ongoing acquisition program, the
Company's assessment of its Year 2000 issue may change. As such, there can be no
assurance that the systems of newly acquired companies, vendors and other third
party relationships on which the Company's future acquisitions may rely will be
made Year 2000 compliant in a timely manner.

   CONTINGENCY PLAN. The Company is developing a comprehensive contingency plan
to address Year 2000 issues with respect to the Company's internal information
technology systems and those of its customers, vendors and other third parties.
The Company's contingency plans will include the use of vendors and other third
parties that are Year 2000 compliant and the use of alternative data processing
systems or temporary manual information systems as necessary. The contingency
plan is expected to be completed and approved by management by June 30, 1999.

ITEM 7a.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

   In the normal course of business, the Company is exposed to market risk,
primarily from changes in interest rates. The Company continually monitors
exposure to market risk and develops appropriate strategies to manage this risk.
Accordingly, the Company may enter into certain derivative financial instruments
such as interest rate swap agreements. The Company does not use derivative
financial instruments for trading or to speculate on changes in interest rates.

 INTEREST RATE EXPOSURE

   The Company's exposure to market risk for changes in interest rates relates
primarily to the Company's long-term debt. At December 31, 1998, approximately
53.3% ($270.0 million) of the long-term debt was subject to variable interest
rates. The Company entered into two interest rate swap agreements in 1998 to
reduce exposure to interest rate changes. These agreements fixed interest rates
for two years on $125.0 million of the $270.0 million of variable interest
long-term debt. The effect of these agreements was to decrease the Company's
exposure to variable interest rates to $145.0 million of long-term debt. The
detrimental effect of a hypothetical 100 basis point increase in interest rates
would be to reduce income before taxes by $1.5 million. At December 31, 1998,
the fair value of the Company's fixed rate debt is approximately $226.7 million
based upon discounted future cash flows using current market prices and the fair
value of the interest rate swap agreements was $.2 million.

                                       24
<PAGE>
ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

                          INDEX TO FINANCIAL STATEMENTS

                                                                            PAGE
                                                                            ----
METALS USA, INC. AND SUBSIDIARIES
   Unaudited Pro Forma Combined Statements of Operations.............    26
   Report of Independent Public Accountants..........................    27
   Consolidated Balance Sheets.......................................    28
   Consolidated Statements of Operations.............................    29
   Consolidated Statements of Stockholders' Equity...................    30
   Consolidated Statements of Cash Flows.............................    31
   Notes to Consolidated Financial Statements........................    32

                                       25
<PAGE>
                        METALS USA, INC. AND SUBSIDIARIES
               UNAUDITED PRO FORMA COMBINED STATEMENTS OF OPERATIONS

                                                       FOR THE YEARS ENDED
                                                           DECEMBER 31,
                                                     -----------------------
                                                       1998          1997
                                                     ---------     ---------
                                                       (IN MILLIONS, EXCEPT
                                                        PER SHARE AMOUNTS)
Net sales ........................................   $ 1,498.8     $   769.7
Operating costs and expenses:
  Cost of sales ..................................     1,135.1         593.4
  Operating and delivery .........................       145.8          79.3
  Selling, general and administrative ............       102.1          46.1
  Depreciation and amortization ..................        16.4           8.6
                                                     ---------     ---------
Operating income .................................        99.4          42.3
Other (income) expense:
  Interest expense ...............................        30.9           8.0
  Other income ...................................        (1.6)          (.6)
                                                     ---------     ---------
Income before income taxes .......................        70.1          34.9
Provision for income taxes .......................        28.5          14.5
                                                     ---------     ---------
Net income .......................................   $    41.6     $    20.4
                                                     =========     =========
Earnings per share ...............................   $    1.13     $     .65
                                                     =========     =========
Earnings per share -- assuming dilution ..........   $    1.12     $     .64
                                                     =========     =========
Number of common shares used in the per
 share calculations:
  Earnings per share .............................        36.7          31.5
                                                     =========     =========
  Earnings per share -- assuming dilution ........        37.3          31.7
                                                     =========     =========

   This financial statement should be read in conjunction with the audited
historical Consolidated Financial Statements of Metals USA, Inc. and
Subsidiaries included elsewhere in this report.

   The unaudited pro forma combined statements of operations for the years ended
December 31, 1998 and 1997 include the accounts of Metals USA and the Founding
Companies from January 1, 1997 together with acquisitions accounted for using
the "pooling-of-interests" method of accounting. The acquisitions accounted for
using the "purchase" method of accounting are included from their respective
dates of acquisition. Additionally, the unaudited pro forma combined statements
of operations 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 to which
they have agreed prospectively and the reversal of the non-recurring and
non-cash compensation charge related to the issuance of 985,500 shares 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 Founding Companies 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; (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, 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 occurred on January 1, 1997; (g) certain other nonrecurring
expenses, such as expenses associated with compensation plans which were
terminated in conjunction with the acquisitions of their respective companies
and (h) the adjustment to the provision for federal and state income taxes for
all entities being combined relating to the entries noted above and as if all
entities were C Corporations.

                                       26
<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,
1998 and 1997, and the related consolidated statements of operations, cash flows
and stockholders' equity for each of the three years in the period ended
December 31, 1998. 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 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 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, 1998 and 1997, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended December 31, 1998, in conformity with generally
accepted accounting principles.



ARTHUR ANDERSEN LLP

Houston, Texas
February 16, 1999

                                       27
<PAGE>
                        METALS USA, INC. AND SUBSIDIARIES
                           CONSOLIDATED BALANCE SHEETS
                (IN MILLIONS, EXCEPT SHARE AND PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
                                                                                     DECEMBER 31,
                                                                                 --------------------
                                                                                   1998        1997
                                                                                 --------    --------
<S>                                                                              <C>         <C>     
                                     ASSETS
Current assets:
    Cash ....................................................................    $    9.3    $    7.3
    Accounts receivable, net of allowance of $7.1 and $3.6 ..................       189.8        95.1
    Inventories .............................................................       343.7       159.4
    Prepaid expenses and other ..............................................        16.2         4.1
                                                                                 --------    --------
        Total current assets ................................................       559.0       265.9
Property and equipment, net .................................................       173.2        86.5
Goodwill, net ...............................................................       267.2       120.1
Other assets, net ...........................................................        20.1         6.6
                                                                                 --------    --------
        Total assets ........................................................    $1,019.5    $  479.1
                                                                                 ========    ========
                      LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
    Accounts payable ........................................................    $  107.5    $   52.5
    Accrued liabilities .....................................................        40.1        13.1
    Current portion of long-term debt .......................................         4.0         7.2
    Income taxes payable ....................................................        --           1.6
                                                                                 --------    --------
        Total current liabilities ...........................................       151.6        74.4
Long-term debt, less current portion ........................................       502.6       167.1
Deferred income taxes .......................................................        15.8         6.6
Other long-term liabilities .................................................         7.9         4.5
                                                                                 --------    --------
        Total liabilities ...................................................       677.9       252.6
                                                                                 --------    --------
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,
      38,156,404 and 32,680,226 shares outstanding, respectively ............          .4          .3
    Additional paid-in capital ..............................................       261.2       184.6
    Unearned compensation ...................................................        --          (1.5)
    Retained earnings .......................................................        80.0        43.1
                                                                                 --------    --------
        Total stockholders' equity ..........................................       341.6       226.5
                                                                                 --------    --------
        Total liabilities and stockholders' equity ..........................    $1,019.5    $  479.1
                                                                                 ========    ========
</TABLE>
              The accompanying notes are an integral part of these
                       consolidated financial statements.

                                       28
<PAGE>
                      CONSOLIDATED STATEMENTS OF OPERATIONS
                     (IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
                                                                         FOR THE YEARS ENDED
                                                                             DECEMBER 31,
                                                               -----------------------------------
                                                                 1998          1997        1996
                                                               ---------     ---------   ---------
<S>                                                            <C>           <C>         <C>      
Net sales .................................................    $ 1,498.8     $   537.6   $   265.6

Operating costs and expenses:
    Cost of sales .........................................      1,135.1         414.9       204.0
    Operating and delivery ................................        145.8          53.7        25.4
    Selling, general and administrative ...................        104.7          41.1        21.4
    Depreciation and amortization .........................         16.4           5.6         3.7
                                                               ---------     ---------   ---------
Operating income ..........................................         96.8          22.3        11.1

Other (income) expense:
    Interest expense ......................................         30.9           5.0         1.8
    Other income ..........................................         (1.6)          (.5)        (.6)
                                                               ---------     ---------   ---------
Income before income taxes ................................         67.5          17.8         9.9
Provision for income taxes ................................         27.5          10.3         5.4
                                                               ---------     ---------   ---------
Net income ................................................    $    40.0     $     7.5         4.5
                                                               =========     =========   =========
    Earnings per share ....................................    $    1.09     $     .33   $     .38
                                                               =========     =========   =========
    Earnings per share -- assuming dilution ...............    $    1.07     $     .33   $     .38
                                                               =========     =========   =========
Number of common shares used in the per share calculations:
Earnings per share ........................................         36.7          22.5        11.8
                                                               =========     =========   =========
Earnings per share -- assuming dilution ...................         37.3          22.9        11.8
                                                               =========     =========   =========
</TABLE>
              The accompanying notes are an integral part of these
                       consolidated financial statements.

                                       29
<PAGE>
                  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, 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 by pooled companies prior
         to acquisition .......................         --         --           --          (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 1997
         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 by pooled companies prior
         to acquisition .......................         --         --           --          (6.3)        (6.3)
  Net income ..................................         --         --           --           7.5          7.5
                                                      ------     ------       ------      ------       ------
BALANCE, December 31, 1997 ....................           .3      184.6         (1.5)       43.1        226.5
  Shares issued in connection with the
         1998 Acquisitions ....................           .1       73.8         --          --           73.9
  Shares released under leveraged ESOP Plan ...          2.1        1.5                     --            3.6
  Stock options exercised and other adjustments         --           .2         --          --             .2
  Capital contributions attributable to deemed
         tax payments of S Corporations .......         --           .5         --          --             .5
  Distributions by pooled companies prior
         to acquisition .......................         --         --           --          (3.1)        (3.1)
  Net income ..................................         --         --           --          40.0         40.0
                                                      ------     ------       ------      ------       ------
BALANCE, December 31, 1998 ....................       $   .4     $261.2       $ --        $ 80.0       $341.6
                                                      ======     ======       ======      ======       ======
</TABLE>
              The accompanying notes are an integral part of these
                       consolidated financial statements.

                                       30
<PAGE>
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                                  (IN MILLIONS)
<TABLE>
<CAPTION>
                                                                                             FOR THE YEARS ENDED
                                                                                                  DECEMBER 31,
                                                                                        -----------------------------
                                                                                         1998        1997       1996
                                                                                        ------      ------     ------
<S>                                                                                     <C>         <C>        <C>   
CASH FLOWS FROM OPERATING ACTIVITIES:
    Net income ....................................................................     $ 40.0      $  7.5     $  4.5
    Adjustments to reconcile net income to net cash (used in) provided by operating
      activities --
      Capital contributions attributable to deemed tax payments of S Corporations .         .5         4.0        3.2
      Provision for bad debts .....................................................        1.7          .6         .2
      Depreciation and amortization ...............................................       16.4         5.6        3.7
      Deferred income taxes .......................................................        4.3          .7        (.2)
      Compensation expense -- non-cash ............................................        2.6         6.4        4.2
      Changes in operating assets and liabilities, net of business acquisitions
        and non-cash transactions --
        Accounts receivable .......................................................       (2.7)        1.3       --
        Inventories ...............................................................      (49.0)       (7.4)     (11.2)
        Prepaid expenses and other assets .........................................      (11.8)        (.3)       (.2)
        Accounts payable and accrued liabilities ..................................       (6.4)      (14.0)       5.5
        Income taxes payable ......................................................       (7.7)         .4         .2
      Other operating .............................................................        1.3         (.5)       (.4)
                                                                                        ------      ------     ------
        Net cash (used in) provided by operating activities .......................      (10.8)        4.3        9.5
                                                                                        ------      ------     ------
CASH FLOWS FROM INVESTING ACTIVITIES:
    Purchase of property and equipment ............................................      (25.3)      (18.7)      (6.7)
    Purchase of businesses, net of acquired cash ..................................     (186.2)      (68.6)      --
    Other investing ...............................................................         .3         1.4         .2
                                                                                        ------      ------     ------
        Net cash used in investing activities .....................................     (211.2)      (85.9)      (6.5)
                                                                                        ------      ------     ------
CASH FLOWS FROM FINANCING ACTIVITIES:
    Issuance of stock .............................................................         .3        58.3       --
    Distributions by pooled companies prior to acquisition ........................       (3.1)       (6.3)      (6.0)
    Issuance of notes .............................................................      200.0        --         --
    Deferred financing costs incurred .............................................       (7.9)       (1.0)      --
    Net borrowings (repayments) on long-term debt .................................         .6        (4.0)      (2.0)
    Net borrowings (repayments) on revolving credit facilities ....................       34.7        39.7        3.1
    Net payments on notes payable to affiliates ...................................       --           (.3)       (.3)
    Other financing ...............................................................        (.6)         .1         .2
                                                                                        ------      ------     ------
        Net cash provided by (used in) financing activities .......................      224.0        86.5       (5.0)
                                                                                        ------      ------     ------
NET INCREASE (DECREASE) IN CASH ...................................................        2.0         4.9       (2.0)
CASH, beginning of year ...........................................................        7.3         2.4        4.4
                                                                                        ------      ------     ------
CASH, end of year .................................................................     $  9.3      $  7.3     $  2.4
                                                                                        ======      ======     ======
</TABLE>
              The accompanying notes are an integral part of these
                       consolidated financial statements.

                                       31
<PAGE>
                     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, 1998, Metals USA acquired numerous additional metal
processing companies and 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 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, 1998 and 1997, approximately
29.5% and 47.4%, respectively, of the consolidated inventories were accounted
for using the LIFO method of accounting.

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

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

   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, 1998 and 1997. Accumulated amortization totaled $6.8 and $1.2 as
of December 31, 1998 and 1997, respectively. Amortization expense for the years
ended December 31, 1998, 1997 and 1996 was $5.6, $1.2 and $0, respectively.

   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 $2.4 and $1.1 as of December 31, 1998 and 1997, respectively.

   FAIR VALUE OF FINANCIAL INSTRUMENTS -- The carrying values of cash, accounts
receivable and accounts payable approximate fair value. The fair value of the
long-term debt 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. At December 31, 1998, the fair value of the Company's
fixed rate long-term debt of $236.6 was $226.7. The carrying amount of the
Company's variable rate long-term debt of $270.0 approximates fair value.

   INTEREST RATE SWAP AGREEMENTS -- The Company has entered into interest rate
swap agreements to fix interest rates on variable rate debt and reduce exposure
to interest rate fluctuations. Such agreements involve the exchange of amounts
based on fixed interest rates for amounts based on variable interest rates over
the life of the agreement without an exchange of the notional amount upon which
payments are based. The differential to be paid or received as interest rates
change is accounted for on the accrual method of accounting. The related amount
payable or receivable from counterparties is included as an adjustment to
accrued interest in other accrued liabilities. In the event of early
extinguishment, any gain or loss would be recognized in income at the time of
extinguishment. At December 31, 1998, the fair value of the interest rate swap
agreements was $.2.

   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.

   COMPREHENSIVE INCOME -- In June 1997, the Financial Accounting Standards
Board issued Statement of Financial Accounting Standards No. 130 ("SFAS No.
130") COMPREHENSIVE INCOME. SFAS No. 130 establishes rules for the reporting of
comprehensive income and its components, including foreign currency translation
adjustments, unrealized gains and losses on certain investments in debt and
equity securities and minimum pension liability adjustments. The Company adopted
SFAS No. 130 for the year ended December 31, 1998, however, the adoption of this
statement had no impact on the Company's net income or stockholders' equity.

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

   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 has adopted SFAS No. 128 which simplifies
the standards required under current accounting rules for computing earnings per
share and replaces the presentation of primary earnings per share and fully
diluted earnings per share with a presentation of basic earnings per share
("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.

   The number of shares used in the per share calculations consists of the
following:
<TABLE>
<CAPTION>
                                                                     YEARS ENDED DECEMBER 31,
                                                                      ----------------------
                                                                      1998     1997     1996
                                                                      ----     ----     ----
                                                                         (IN MILLIONS)
<S>                                                                   <C>      <C>      <C> 
Number of shares used in computing earnings per share (weighted
  average shares) ...............................................     36.7     22.5     11.8
Effect of dilutive securities
    Stock Options ...............................................       .5       .4      --
    Convertible securities ......................................       .1      --       --
                                                                      ----     ----     ----
Number of shares used in computing earnings per share -- assuming
  dilution (weighted average shares) ............................     37.3     22.9     11.8
                                                                      ====     ====     ====
</TABLE>

   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 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.

   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.

   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. Krohn is a processor of flat rolled steel and is
headquartered in Springfield, Ohio.

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

   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 the 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 9,490,458 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. The unaudited aggregate pre-acquisition
net sales and net income for Krohn during 1998 were $13.5 and $.9, respectively.
There were no transactions between Metals USA, Jeffreys, Wayne or Krohn during
periods prior to these business combinations.

 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 acquisition of each of the Founding Companies was
accounted for using the "purchase" method of accounting. 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 and prior to December 31, 1997, Metals USA acquired
several additional companies using the "purchase" method of accounting. These
companies are referred to collectively as the "1997 Subsequent Acquisitions."
The aggregate consideration paid by Metals USA for the 1997 Subsequent
Acquisitions was approximately $46.0 in cash, 1,564,890 shares of common stock
and the assumption of indebtedness of approximately $19.0.

   During the year ended December 31, 1998, the Company acquired a number of
additional metal processing companies and businesses using the "purchase" method
of accounting. These companies and businesses are collectively referred to as
the "1998 Acquisitions." The most significant of the 1998 Acquisitions (those
with 1997 annual revenues in excess of $50.0) are as follows: Independent Metals
Co., Inc. ("Independent"), Pacific Metal Company ("Pacific"), The Levinson Steel
Company ("Levinson"), Fullerton Industries, Inc. ("Fullerton") and Intsel
Southwest Limited Partnership ("Intsel"). The aggregate consideration paid by
Metals USA for the 1998 Acquisitions was approximately $198.3 in cash, 5,458,641
shares of common stock, the issuance of notes of approximately $3.6 and the
assumption of indebtedness of approximately $90.1.

   The Company has recorded the excess of the purchase price over the estimated
fair value of identifiable assets acquired in connection with the Founding
Companies, the 1997 Subsequent Acquisitions and the 1998 Acquisitions as
"goodwill" in the accompanying consolidated balance sheet.

   The following summarized unaudited pro forma financial information adjusts
the historical financial information by assuming the acquisition of the Founding
Companies, the 1997 Subsequent Acquisitions, the 1998 Acquisitions and the
issuance of the Notes (as defined in Note 6) occurred on January 1, 1997.

                                       35
<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,
                                                                              ------------------------
                                                                                1998           1997
                                                                              ---------      ---------
                                                                                    (UNAUDITED)
<S>                                                                           <C>            <C>      
Net sales ...............................................................     $ 1,778.4      $ 1,644.2
Operating costs and expenses:
    Cost of sales .......................................................       1,341.4        1,264.5
    Operating and delivery ..............................................         169.4          150.8
    Selling, general and administrative .................................         122.5          112.9
    Depreciation and amortization .......................................          20.1           21.1
                                                                              ---------      ---------
Operating income ........................................................         125.0           94.9
Interest expense ........................................................          39.3           36.2
Other (income) expense ..................................................          (1.7)          (2.5)
                                                                              ---------      ---------
Income before income taxes ..............................................          87.4           61.2
Provision for income taxes ..............................................          35.8           25.8
                                                                              ---------      ---------
Net income ..............................................................     $    51.6      $    35.4
                                                                              =========      =========
Earnings per share ......................................................     $    1.35      $     .93
                                                                              =========      =========
Earnings per share -- assuming dilution .................................     $    1.33      $     .92
                                                                              =========      =========
Number of common shares used in the per share calculations (in millions):
    Earnings per share ..................................................          38.2           38.2
                                                                              =========      =========
    Earnings per share -- assuming dilution .............................          38.8           38.4
                                                                              =========      =========
</TABLE>
   The preceding pro forma amounts reflect the results of operations of Metals
USA, the Founding Companies, the 1997 Subsequent Acquisitions and the 1998
Acquisitions, 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 985,500
shares 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
Founding Companies, 1997 Subsequent Acquisitions and 1998 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, 1997 Subsequent Acquisitions and 1998 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, 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 occurred on January 1, 1997; (g) certain other nonrecurring
expenses with respect to the 1997 Subsequent Acquisitions and 1998 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 adjustment to the provision for federal and state income
taxes for all entities being combined relating to the entries noted above and as
if all entities were C Corporations.

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

3. INVENTORIES

   Inventories consist of the following:

                                                        DECEMBER 31,
                                                     ------------------
                                                      1998        1997
                                                     ------      ------
Raw materials --
    Aluminum building products segment .........     $ 12.3      $ 10.4
    Flat rolled segment ........................       69.4        39.7
    Heavy carbon segment .......................      156.3        58.8
    Specialty metals segment ...................       68.2        29.1
                                                     ------      ------
        Total raw materials ....................      306.2       138.0
                                                     ------      ------
Work-in-process and finished goods --
    Aluminum building products segment .........       16.8         6.7
    Flat rolled segment ........................       17.7        11.8
    Heavy carbon segment .......................         .4          .1
    Specialty metals segment ...................        3.5         4.7
                                                     ------      ------
        Total work-in-process and finished goods       38.4        23.3
                                                     ------      ------
Less -- LIFO reserve ...........................        (.9)       (1.9)
                                                     ------      ------
        Total ..................................     $343.7      $159.4
                                                     ======      ======

   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 $344.6 and $161.3
at December 31, 1998 and 1997, respectively. Additionally, net income would have
been $39.4, $7.5 and $4.5 for the years ended December 31, 1998, 1997 and 1996,
respectively.

4. PROPERTY AND EQUIPMENT

   Property and equipment consists of the following:

                                                              DECEMBER 31,
                                        ESTIMATED       -----------------------
                                       USEFUL LIVES        1998            1997
                                        ----------      ----------   ----------
Land ................................         --        $     10.8   $      3.8
Building and improvements ...........   5-40 years            63.5         31.3
Machinery and equipment .............   7-25 years           114.0         61.1
Automobiles and trucks ..............   3-12 years            10.4          7.0
Construction in progress ............         --               5.5          4.2
                                                        ----------   ----------
                                                             204.2        107.4
Less -- Accumulated depreciation ....                        (31.0)       (20.9)
                                                        ----------   ----------
    Total ...........................                   $    173.2   $     86.5
                                                        ==========   ==========

   Depreciation expense for the years ended December 31, 1998, 1997 and 1996 was
$10.5, $4.1 and $3.5, 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.

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

5. ACCRUED LIABILITIES

   Accrued liabilities consist of the following:

                                                                DECEMBER 31,
                                                             -------------------
                                                              1998          1997
                                                             -----         -----
Accrued salaries and employee benefits .............         $11.4         $ 5.0
Accrued taxes other than income ....................           2.8           1.9
Accrued interest ...................................           7.2           1.0
Accrued insurance ..................................           6.2            .3
Accrued profit sharing .............................           2.2           1.3
Accrued escrow .....................................           2.1          --
Other ..............................................           8.2           3.6
                                                             -----         -----
    Total ..........................................         $40.1         $13.1
                                                             =====         =====

6. LONG-TERM DEBT

   Long-term debt consists of the following:

                                                                DECEMBER 31,
                                                           --------------------
                                                            1998          1997
                                                           ------        ------
Borrowings under the Credit Facility ...............       $270.0        $144.8
8 5/8% Senior Subordinated Notes ...................        200.0          --
Various Issues of Industrial Revenue Bonds .........         26.1          21.6
Obligations under capital leases and other .........         10.5           7.9
                                                           ------        ------
                                                            506.6         174.3
Less -- Current portion ............................         (4.0)         (7.2)
                                                           ------        ------
                                                           $502.6        $167.1
                                                           ======        ======

   Scheduled maturities of long-term debt for the years ending December 31 are
as follows: 1999 -- $4.0; 2000 -- $3.2; 2001 -- $4.0; 2002 -- $3.1; 2003 --
$276.3; thereafter -- $216.0.

 BORROWINGS UNDER THE CREDIT FACILITY

   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. On
November 25, 1998 the Company further amended the Credit Facility to provide for
borrowings of $350.0. On December 31, 1998, the Company had $80.0 million of
borrowing availability under the 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 is
payable on any unused portion of the Credit Facility. The commitment fee varies
between 1/2% and 1/4% per annum, based on certain leverage ratios as defined in
the agreement. 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
guaranteed by each of the Company's material subsidiaries (as defined) and
secured by the pledge of all of the capital stock of such subsidiaries.

                                       38
<PAGE>
                        METALS USA, INC. AND SUBSIDIARIES
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
                (IN MILLIONS, EXCEPT SHARE AND PER SHARE AMOUNTS)

   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, 1998, the Company was precluded
from the payment of dividends under the terms of the Credit Facility.

   The Company has entered into two interest rate swap agreements designed as a
partial hedge to the Company's variable rate borrowings under the Credit
Facility. The purpose of these swap agreements is to fix interest rates on a
portion of its borrowings under the Credit Facility, thereby reducing exposure
to interest rate fluctuations. At December 31, 1998, the Company had interest
rate swap agreements with a notional amount of $125.0 compared to the total
borrowings under the Credit Facility of $270.0. Under these agreements, the
Company will pay the counterparties interest at a weighted average fixed rate of
5.08% and the counterparties will pay the Company interest at a variable rate
equal to LIBOR. The weighted average LIBOR rate applicable to these agreements
was 5.26% at December 31, 1998. The notional amounts do not represent amounts
exchanged by the parties, and thus are not a measure of exposure of the Company.
The weighted average variable rates are subject to change over time based on
fluctuations in the 90 day LIBOR rate. Terms for the agreements expire on
November 30, 2000 and December 4, 2000.

   Neither the Company nor the counterparties, which are prominent financial
institutions, are required to collateralize their respective obligations under
these agreements. The Company is exposed to loss if one or both of the
counterparties default. At December 31, 1998, the Company had no exposure to
credit loss on the interest rate swaps. The Company does not believe that any
reasonably likely change in interest rates would have a material adverse effect
on the financial position, the results of operations or cash flows of the
Company.

 8 5/8% SENIOR SUBORDINATED NOTES

   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 expenses of
$.8 at closing). The Company used $179.3 of such proceeds to repay all 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 the following redemption prices: 2003 --
104.313%; 2004 -- 102.875%; 2005 -- 101.438%; thereafter -- 100.00%, 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.
Additionally, the indenture governing the Notes contains customary restrictions
relating to additional indebtedness, liens, transactions with affiliates, asset
sales, investments, restricted payments 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.

 VARIOUS ISSUES OF INDUSTRIAL REVENUE BONDS

   The Industrial Revenue Bonds (the "IRBs") are payable in installments ranging
from monthly to annual with variable interest ranging from 3.05% to 5.98% per
annum at December 31, 1998 and mature from March 1, 2003 to May 1, 2023. The
IRBs are secured by real estate and equipment acquired with proceeds from these
bonds with a net book value of $28.7 at December 31, 1998. The IRBs place
various restrictions on certain of the Company's 

                                       39
<PAGE>
                        METALS USA, INC. AND SUBSIDIARIES
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
                (IN MILLIONS, EXCEPT SHARE AND PER SHARE AMOUNTS)

subsidiaries, including but not limited to maintenance of required insurance
coverage, maintenance of certain financial ratios, limits on capital
expenditures and maintenance of tangible net worth and are supported by letters
of credit.

7. INCOME TAXES

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

                                                  YEARS ENDED DECEMBER 31,
                                         --------------------------------------
                                           1998           1997            1996
                                         -------        -------         -------
Federal --
    Current .....................        $  21.4        $   8.7         $   4.5
    Deferred ....................            3.1            (.2)            (.1)
                                         -------        -------         -------
                                            24.5            8.5             4.4
State --
    Current .....................            1.3            1.9             1.1
     Deferred ...................            1.2            (.1)            (.1)
                                         -------        -------         -------
                                             2.5            1.8             1.0
Foreign --
    Current .....................             .5           --              --
    Deferred ....................           --             --              --
                                         -------        -------         -------
                                              .5           --              --
                                         -------        -------         -------
        Total provision .........        $  27.5        $  10.3         $   5.4
                                         =======        =======         =======

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

                                                      YEARS ENDED DECEMBER 31,
                                                 -------------------------------
                                                   1998        1997        1996
                                                 -------     -------     -------
Federal income tax at statutory rates ......     $  23.6     $   6.2     $   3.5
State income taxes, net of federal
  income tax benefit .......................         3.0         1.2          .5
Nondeductible expenses:
    Stock compensation .....................          .3         2.1         1.3
    Amortization of goodwill ...............         1.4          .4        --
    Other ..................................        --            .4          .1
                                                 -------     -------     -------
                                                 $  27.5     $  10.3     $   5.4
                                                 =======     =======     =======

                                       40
<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,
                                                         ----------------------
                                                           1998           1997
                                                         -------        -------
Deferred tax assets --
    Accounts receivable ..........................       $   1.5        $   1.0
    Inventories ..................................           1.3           --
    Accrued liabilities ..........................           2.4            1.7
    Net operating loss carryforward ..............           1.6             .3
    Deferred compensation and other ..............            .1             .8
                                                         -------        -------
        Total deferred tax assets ................           6.9            3.8
                                                         -------        -------
Deferred tax liabilities --
    Property and equipment .......................         (20.7)          (7.6)
    Inventories ..................................          --             (1.5)
    Foreign investments ..........................          (1.0)           (.9)
    Other ........................................           (.7)           (.1)
                                                         -------        -------
        Total deferred tax liabilities ...........         (22.4)         (10.1)
Valuation allowance ..............................           (.3)           (.3)
                                                         -------        -------
        Net deferred tax assets (liabilities) ....       $ (15.8)          (6.6)
                                                         =======        =======

   A subsidiary of the Company has a net operating loss carryforward which is
available to reduce the Company's future regular federal income taxes payable
and expire in 2005. A valuation allowance has been established to offset the
portion of the deferred tax asset related to the loss carryforward expected to
expire before their utilization and for other deferred tax assets which the
Company does not expect to realize through future operations.

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.

   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.

                                       41
<PAGE>
                        METALS USA, INC. AND SUBSIDIARIES
            NOTES TO 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.
These options will vest at the rate of 20% per year, commencing on the first
anniversary of 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.

                                       42
<PAGE>
                        METALS USA, INC. AND SUBSIDIARIES
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
                (IN MILLIONS, EXCEPT SHARE AND PER SHARE AMOUNTS)

   The following is a summary of stock option activity:

                                       WEIGHTED
                                       AVERAGE
                                     "FAIR VALUE"              OPTIONS FOR
                                      PER SHARE     WEIGHTED     SHARES OF
                                      OF OPTIONS  AVERAGE PRICE   COMMON
                                       GRANTED     PER SHARE      STOCK
                                       -------      -------     -----------
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       2,131,024
Granted to directors .............        6.30        10.00          40,000
Granted ..........................        8.22        14.41         952,683
Exercised ........................                                     --
Canceled or expired ..............                                     --
                                                                -----------
Balance December 31, 1997 ........                                3,254,258
Granted to directors .............       13.08        19.25          20,000
Granted ..........................       10.26        15.50         843,464
Exercised ........................        6.30        10.00         (25,392)
Canceled or expired ..............        7.16        11.66        (123,680)
                                                                -----------
Balance December 31, 1998 ........                                3,968,650
                                                                ===========

   At December 31, 1998, exercisable options for shares of Common Stock were
595,600 at a weighted average price of $11.63 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,
                                                        -----------------------
                                                          1998            1997
                                                        -------         -------
Risk free rate of return .......................           5.91%           6.18%
Expected price volatility ......................          46.06%           43.3%
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 significant subjective assumptions, any one or all of
which may differ in material respects from actual amounts.

                                       43
<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,
                                                     ------------------------------------
                                                       1998          1997          1996
                                                     --------      --------      --------
<S>                                                  <C>           <C>           <C>     
Net income as reported .........................     $   40.0      $    7.5      $    4.5
Estimated "fair value" of stock options
    vesting during the period, net of
    federal income tax benefit .................         (3.4)         (1.1)          (.1)
                                                     --------      --------      --------
Adjusted net income ............................     $   36.5      $    6.4      $    4.4
                                                     --------      --------      --------
Adjusted earnings per share ....................     $   1.00      $    .28      $    .37
                                                     ========      ========      ========
Adjusted earnings per share -- assuming dilution     $    .98      $    .28      $    .37
                                                     ========      ========      ========
Number of common shares used in the
    per share calculations:
Adjusted earnings per share ....................         36.7          22.5          11.8
                                                     ========      ========      ========
Adjusted earnings per share -- assuming dilution         37.3          22.9          11.8
                                                     ========      ========      ========
</TABLE>
10. SEGMENT AND RELATED INFORMATION

   The Company has four reportable segments with each segment processing and
distributing distinct products for different customer bases. Each segment is
managed separately by product group teams focused on improving and expanding
each segment's operations. The four segments are: the Heavy Carbon Steel Group,
the Flat Rolled Steel Group, the Specialty Metals Group and the Aluminum
Building Products Group.

-  THE HEAVY CARBON STEEL GROUP consists of 13 operating units that maintain an
   inventory focusing on carbon products such as structural plate, beams, bars
   and tubing and provide such processing services to their customers including
   cutting, cambering/leveling, punching, bending, shearing, cut-to-length and
   T-splitting.

-  THE FLAT ROLLED STEEL GROUP consists of eight operating units that maintain
   an inventory of cold rolled and hot rolled steel products and provide
   processing services for their customers such as slitting, precision blanking,
   leveling, cut-to-length, laser cutting, leveling, punching, bending and
   shearing.

-  THE SPECIALTY METALS GROUP consists of 11 operating units that concentrate on
   specialty metals such as aluminum, stainless steel, titanium, copper, nickel
   and tool steels. Processing services provided to customers include cutting,
   leveling, punching, bending, shearing and cut-to-length.

-  THE ALUMINUM BUILDING PRODUCTS GROUP consists of six operating units that
   produce and distribute aluminum and steel building products consisting of
   covered canopies and walkways, awnings, sunrooms, solariums and other
   products primarily for the commercial and residential building products
   industries.

   The accounting policies of the reportable segments are the same as those
described in Note 1 of "Notes to Consolidated Financial Statements." The Company
evaluates the performance of its operating segments based on operating income.

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

   The following table shows summarized financial information concerning the
Company's reportable segments.
<TABLE>
<CAPTION>
                                                                    AS OF AND FOR THE FISCAL YEARS ENDED DECEMBER 31,
                                                 -----------------------------------------------------------------------------------
                                                   HEAVY                                      ALUMINUM     CORPORATE,
                                                  CARBON      FLAT ROLLED     SPECIALTY       BUILDING    ELIMINATIONS
                                                   STEEL         STEEL          METALS        PRODUCTS      AND OTHER        TOTAL
                                                 --------       --------       --------       --------      --------        --------
<S>                                              <C>            <C>            <C>            <C>           <C>             <C>     
1998:
Net sales ..............................         $  598.8       $  445.4       $  371.2       $   93.4      $  (10.0)       $1,498.8
Operating income (loss) ................             43.7           25.6           27.4            9.3          (9.2)           96.8
Total assets ...........................            367.9          214.1          168.9           82.7         185.9         1,019.5
Capital expenditures ...................             11.9            8.2            3.4            1.7            .1            25.3
Depreciation and amortization ..........              5.6            2.8            2.4            1.4           4.2            16.4

1997:
Net sales ..............................         $  234.2       $  237.8       $   41.5       $   24.1      $   --          $  537.6
Operating income (loss) ................             13.0           13.9            3.7            2.4         (10.7)           22.3
Total assets ...........................            133.1          120.7           75.5           35.2         114.6           479.1
Capital expenditures ...................              4.8           12.1            1.0             .5            .3            18.7
Depreciation and amortization ..........              2.6            1.2             .4             .3           1.1             5.6

1996:
Net sales ..............................         $  134.4       $  131.2       $   --         $   --        $   --          $  265.6
Operating income (loss) ................              6.6            8.1           --             --            (3.6)           11.1
Total assets ...........................             54.5           52.7           --             --              .1           107.3
Capital expenditures ...................              3.7            3.0           --             --            --               6.7
Depreciation and amortization ..........              2.4            1.3           --             --            --               3.7
</TABLE>

   The amounts shown as an operating loss under the column heading "Corporate,
Eliminations and Other" consist primarily of general and administrative costs
that are not allocated to the segments and the amortization of goodwill
associated with certain of the Company's acquisitions. Assets not specifically
associated with a specific segment consist primarily of goodwill.

   The reconciliation from total operating income to the Company's income before
income taxes is shown on the accompanying consolidated statement of operations.

   The Company's areas of operations are principally in the United States. No
single foreign country or geographic area is significant to the consolidated
operations. Foreign sales represent less than 3% of consolidated sales and the
Company has no long-lived assets in any foreign country.

   The Company has a broad customer base within the United States with no single
customer being significant to consolidated operations.

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

11. 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 $2.8, $.9 and $.3 for the years ended December
31, 1998, 1997 and 1996, respectively. The Company is in the process of merging
these separate plans into the Metals USA 401(k) Plan.

 LEVERAGED ESOP ARRANGEMENT

   Under the provisions of an employee stock ownership plan ("ESOP") and its
related trust, Jeffreys made annual contributions to the ESOP which were
invested in stock of Jeffreys and other qualifying securities for the benefit of
Jeffreys' employees. The ESOP 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. 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 repaid this loan, plus interest, through
deductible contributions to the plan. As Jeffreys made contributions to the
plan, which reduced the principal on the note, the plan released the
corresponding shares related to the reduction in the note principal. At the
point when these shares were no longer specifically secured by the note payable,
they were allocated to the individual participants of the plan and considered
earned by those employees at that time. Jeffreys accounted 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 was
recorded as long-term debt and the shares pledged as collateral were reported as
unearned compensation. As shares were released from collateral, Jeffreys
reported compensation expense equal to estimated market price of the shares at
that time. ESOP share compensation expense was $2.6, $.4 and $.6 for the years
ended December 31, 1998, 1997 and 1996, respectively.

   Since the obligation was secured by the shares purchased and the note was
guaranteed by Jeffreys, all amounts relating to this transaction were considered
unearned compensation of the employees until such time as the note was repaid
and the corresponding shares are released to the individual participants of the
plan. The balance in unearned compensation at December 31, 1997 of $1.5 results
from the leveraged ESOP stock purchase less the deemed release of shares at
cost. With the termination of the ESOP in August 1998, subsequent to the payment
of the note to Jeffreys and the distribution of the ESOP shares to the
individual participants, all unearned compensation was charged to expense in
1998.

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

   The activity relating to the ESOP shares was as follows:

                                                  YEARS ENDED DECEMBER 31,
                                           -------------------------------------
                                               1998          1997         1996
                                           ----------     ---------    ---------
Allocated shares at beginning of year .       882,804       795,639      710,970
Shares deemed released for the period .       287,196        87,165       84,669
Shares sold ...........................      (125,000)         --           --
Shares distributed to employees .......    (1,045,000)         --           --
Unallocated shares ....................          --         218,196      374,361
                                           ----------     ---------    ---------
    Total ESOP shares .................          --       1,170,000    1,170,000
                                           ==========     =========    =========

   In accordance with SOP 93-6, additional paid-in capital was adjusted whenever
the market value of the shares released was 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 $2.1 and $.1 for the years ended
December 31, 1998 and 1997, respectively.

12. SUPPLEMENTAL INFORMATION

 SUPPLEMENTAL CASH FLOW INFORMATION

                                                       YEARS ENDED DECEMBER 31,
                                                   -----------------------------
                                                      1998       1997       1996
                                                   -------    -------    -------
Supplemental cash flow information:
  Cash paid for interest ......................    $  23.7    $   5.1    $   1.8
  Cash paid for income taxes ..................       29.7        5.5        2.1

Non-cash investing and financing activities:
  Acquisition of businesses:
  Fair value of assets acquired ...............    $ 465.3    $ 364.3    $  --
  Consideration given:
    Cash paid .................................      198.3       73.8       --
    Stock issued ..............................       73.5       98.7       --
    Notes issued ..............................        3.6       --         --
                                                   -------    -------    -------
  Liabilities assumed .........................    $ 189.9    $ 191.8    $  --
                                                   =======    =======    =======
13. 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: 1999 -- $14.4; 2000 -- $12.8; 2001 -- $11.3; 2002 -- $8.6; 2003
-- $6.6; thereafter -- $34.9.

   The Company paid approximately $11.9, $3.2 and $.6 in rent expense during the
years ended December 31, 1998, 1997 and 1996, respectively, under operating
leases. Certain of these leases are with affiliated individuals and companies
(see Note 14).

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

 CONTINGENCIES

   The Company and its subsidiaries 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.

14. 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 with respect to years ended
December 31, 1998, 1997 and 1996 were $3.1, $1.4 and $.3, respectively. Future
commitments in respect of these leases are included in the schedule of minimum
lease payments in Note 13.

   At December 31, 1998 and 1997 the aggregate principal amount of notes
receivable held by the Company were $.7 and $.8, 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, 1998,
the notes were current as to payment terms.

15. SUBSEQUENT EVENT

 ACCOUNTS RECEIVABLE SECURITIZATION FACILITY

   On January 21, 1999, the Company entered into a three-year agreement (the
"Receivable Securitization Agreement") to sell, on a revolving basis, through
its wholly-owned subsidiary, Metals Receivable Corporation ("MRC"), an undivided
interest in a designated pool of its trade accounts receivable to a commercial
bank ("Purchaser"). The maximum undivided interest in MRC's receivable portfolio
that may be purchased pursuant to this agreement is $100.0. The Company, as
agent for Purchaser, retains collection and administrative responsibilities for
the participating interests sold. As collections reduce the receivables included
in MRC's receivable portfolio, the Company may sell additional undivided
interests in new receivables to MRC. The amount of the undivided interest in
MRC's receivable portfolio that is sold typically will change monthly depending
upon the level of defined eligible receivables available for sale each month
adjusted by certain defined ratios. From month to month, the amount by which
MRC's receivable portfolio exceeds the undivided interest purchased will vary.
The Company expects such amount will range between $20.0 and $30.0. The
unpurchased portion of the MRC receivable portfolio is effectively collateral
for the benefit of the Purchaser.

   In connection with the initial sale pursuant to the Receivable Securitization
Agreement in January, 1999, MRC sold an undivided interest in the first $93.0 in
its aggregate receivable portfolio of $117.0. The proceeds from this sale were
used to reduce borrowings under the Company's Credit Facility.

                                       48
<PAGE>
16. QUARTERLY FINANCIAL INFORMATION (UNAUDITED)

   Summarized quarterly financial information for the years ended December 31,
1998 and 1997 is as follows:
<TABLE>
<CAPTION>
                                           Three Months Ended
                            ---------------------------------------------------
                            March 31     June 30      September 30   December 31
                            -------      -------      ------------   --=--------
<S>                         <C>          <C>            <C>           <C>    
1998:                                                            
Net sales ...............   $ 278.5      $ 377.2        $ 438.4       $ 404.7
Operating income ........      16.8         25.3           27.2          27.5
Net income ..............       7.2         12.2           10.4          10.2
Earnings per share --                                              
  assuming dilution(1) ..       .21          .32            .27           .27
                                                                   
1997:                                                              
Net Sales ...............   $  72.0      $  73.1        $ 173.5       $ 219.0
Operating income ........       1.7           .6            8.9          11.1
Net income (loss) .......       (.4)        (1.4)           4.2           5.1
Earnings (loss) per                                                
  share -- assuming                                                
  dilution(1) ...........      (.03)        (.10)           .14           .15
</TABLE>
----------                                          
(1) Earnings per share are computed independently for each of the quarters
    presented. Therefore, the sum of the quarterly earnings per share may not
    equal the total computed for the year.


                                       49
<PAGE>
ITEM 9.  CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
         AND FINANCIAL DISCLOSURE

   None.

                                  P A R T   I I I

   Information required under Part III (Items 10, 11, 12 and 13) has been
omitted from this report since the Company intends to file with the Securities
and Exchange Commission, not later than 120 days after the close of its fiscal
year, a definitive proxy statement pursuant to Regulation 14A which involves the
election of directors.

                                   P A R T   I V

ITEM 14.  EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON
          FORM 8-K

(a) INDEX TO FINANCIAL STATEMENTS

   1. FINANCIAL STATEMENTS (INCLUDED UNDER ITEM 8):

      The Index to the Financial Statements is included on page 25 of this
   report and is incorporated herein by reference.

   2. FINANCIAL STATEMENT SCHEDULES:

      The schedules are inapplicable or the required information is included in
   the Company's Consolidated Financial Statements or the Notes thereto.

(b) REPORTS ON FORM 8-K

    None.

(c) EXHIBITS

      Reference is made to the Index of Exhibits immediately preceding the
   exhibits hereto (beginning on page 52), which index is incorporated herein
   by reference.

                                       50
<PAGE>
                                   SIGNATURES

   Pursuant to the requirements of Section 13 or 15 (d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized on March 29, 1999.

                                             METALS USA, INC.

                                             By: /s/ ARTHUR L. FRENCH
                                                     Arthur L. French
                                                     Chief Executive Officer

   Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities indicated on March 29, 1999.

            SIGNATURE                              TITLE
            ---------                              -----
        /s/  ARTHUR L. FRENCH          Chairman of the Board; Chief Executive
            Arthur L. French               Officer and President

        /s/  J. MICHAEL KIRKSEY        Senior Vice President; Chief Financial 
            J. Michael Kirksey             Officer and Director

        /s/  TERRY L. FREEMAN          Vice President, Corporate Controller and
            Terry L. Freeman               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*           Director

         LESTER G. PETERSON*           Director

          CRAIG R. DOVEALA*            Director

           WILLIAM B. EDGE*            Director

          T. WILLIAM PORTER*           Director

         RICHARD H. KRISTINIK*         Director

           TOMMY E. KNIGHT*            Director

*By: /s/  ARTHUR L. FRENCH             Director
          Arthur L. French
          Attorney-in-Fact

                                       51
<PAGE>

                                INDEX OF EXHIBITS

      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.

        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.

        10.3    -- 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.

        10.4    -- 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.

        10.5    -- 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.

        10.6    -- 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.

        10.7    -- 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.

        10.8    -- 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.

        10.9    -- 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.

        10.10   -- 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.

        10.11   -- 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.

                                       52
<PAGE>
      EXHIBIT
      NUMBER                              DESCRIPTION
      ------                              -----------

        10.12   -- 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.

        10.13   -- 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.

        10.14   -- 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.

        10.15   -- 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.

        10.16   -- 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.

        10.17   -- 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.

        10.18   -- 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.

        10.19   -- 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.

        10.20   -- Amended and Restated Credit Agreement dated February 11,
                1998, by and among the Company and The First National Bank of
                Chicago, as agent, (the "Credit Facility") incorporated by
                reference to the Company's registration statement on Form S-1,
                Registration No. 333-35575 dated February 20, 1998.

        10.21+  -- Receivables Purchase Agreement dated January 21, 1999, by and
                among Metals Receivables Corporation, (a wholly owned subsidiary
                of the Company) and Falcon Asset Securitization Corporation and
                The First National Bank of Chicago as agent.

        10.22+  -- Amendment No. 1 to the Credit Facility dated November 25,
                1998, by and among the Company and The First National Bank of
                Chicago as agent.

        21+     -- List of subsidiaries of the Company

        23.1+   -- Consent of Arthur Andersen LLP

        27+     -- Financial Data Schedule

-------------
+ Included with this filing.

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