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                                 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, 1997

                         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. [X]

     Based upon the March 24, 1998 New York Stock Exchange closing price of
$17.81 per share, the aggregate market value of the Registrant's outstanding
stock held by non-affiliates was approximately $342.4 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 -- GOVERNMENT REGULATION AND ENVIRONMENTAL
MATTERS," 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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                                     PART 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 15 additional companies (the
"Subsequent Acquisitions" and collectively with the Founding Companies, the
"Acquired Companies") in similar businesses. On average, the Acquired
Companies have been in business for over 40 years. Unless otherwise indicated,
all references to the "Company" herein include the Founding Companies, the
Subsequent Acquisitions 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 and the Subsequent Acquisitions. See
"Business -- Strategy" and " -- Acquired Companies."

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

     The Acquired Companies sell to over 25,000 customers in businesses such as
the machining, furniture, transportation equipment, power and process equipment,
industrial/commercial construction, consumer durables and electrical equipment
industries, and machinery and equipment manufacturers. The Company believes that
its broad customer base and its wide array of metals processing capabilities,
products and services, coupled with its broad geographic coverage of the United
States, reduce the Company's susceptibility to economic fluctuations affecting
any one industry or geographical area.

INDUSTRY OVERVIEW

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

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

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

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

INDUSTRY CONSOLIDATION

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

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

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

STRATEGY

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

  EXPANDING THROUGH ACQUISITIONS.

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

    ENTER NEW GEOGRAPHIC MARKETS.

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

    EXPAND WITHIN EXISTING GEOGRAPHIC MARKETS.

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

    ENTER COMPLEMENTARY PROCESSING AND SERVICES MARKETS.

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

  OPERATING ON A DECENTRALIZED BASIS.

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

  ACCELERATING INTERNAL SALES GROWTH.

     A key component of the Company's strategy is to accelerate internal sales
growth at each Acquired Company and at each subsequently acquired company. The
key elements of this internal growth strategy are:

                                       3
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     EXPAND PRODUCTS AND SERVICES TO EXISTING CUSTOMERS.

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

     ADD NEW CUSTOMERS.

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

  IMPROVING OPERATING MARGINS.

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

     INCREASE OPERATING EFFICIENCIES.

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

     CENTRALIZE APPROPRIATE ADMINISTRATIVE FUNCTIONS.

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

ACQUISITION PROGRAM

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

                                       4
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centralization of administrative functions, enhanced systems capabilities and
access to increased marketing resources.

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

     As consideration for future acquisitions, the Company intends to use
various combinations of its Common Stock, cash and notes. The consideration for
each future acquisition will vary on a case-by-case basis, with the major
factors in establishing the purchase price being historical operating results,
future prospects of the target and the ability of the target to complement the
services offered by the Company. The Company believes that it can structure
acquisitions as tax-free reorganizations by using its Common Stock as
consideration, which will be attractive to those targeted business owners with a
low tax basis in the stock of their businesses.

PROCESSING SERVICES AND PRODUCTS

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

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

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

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

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

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

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

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

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

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

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

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

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

     Once an order is received, the appropriate inventory is selected and
scheduled for processing in accordance with the customer's requirements and
specified delivery date. Orders are monitored by the Company's computer systems
including, in certain locations, the use of bar coding to aid in and reduce the
cost of tracking material. The Company's computer systems record the source of
all metal shipped to customers. This enables the Company to identify the source
of any metal which later is shown not to meet industry standards or that fails
during or after manufacture. This capability is important to the Company's
customers as it allows them to assign responsibility for non-conforming or
defective metal to the mill or foundry that produced that metal. Many of the
products and services provided by the Company can be ordered and tracked through
EDI, a sophisticated electronic network that directly connects the Company's
computer system to those of its customers.

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

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

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

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

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

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

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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.

SALES AND MARKETING; CUSTOMERS

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

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

                                       7
<PAGE>
     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 25,000 customers, with
no single customer accounting for more than 2% of the Company's revenues in
1997. The Company believes that its long-term relationships with many of its
customers contribute significantly to its success.

COMPETITION

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

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

GOVERNMENT REGULATION AND ENVIRONMENTAL MATTERS

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

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

     Prior to entering into the agreements relating to the Mergers and the
Subsequent Acquisitions, the Company evaluated the properties owned or leased by
the Acquired Companies and engaged an independent environmental consulting firm
to conduct or review assessments of environmental conditions at these
properties. Although no environmental claims have been made against the Company
and it has not been named as a potentially responsible party by the
Environmental Protection Agency or any other party, it is possible that the
Company could be identified by the Environmental Protection Agency, a state
agency or one or more third parties as a potentially responsible party under
CERCLA or under analogous state laws. If so, the Company could incur substantial
litigation costs to prove that it is not responsible for the environmental
damage. The Company has obtained limited indemnities from the stockholders of
the Acquired Companies whose facilities are located at the contaminated sites.
The Company believes that these indemnities will be adequate to protect it from
a material adverse effect on its consolidated financial

                                       8
<PAGE>
condition, results of operations or liability, should the Company be found
responsible for a share of the clean-up costs. The limited indemnities are
subject to certain deductible amounts, however, and there can be no assurance
that these limited indemnities will fully protect the Company.

MANAGEMENT INFORMATION SYSTEMS

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

EMPLOYEES

     As of March 15, 1998, the Acquired Companies employed a total of
approximately 2,700 persons. Approximately 350 employees at 12 sites were
members of one of six unions: the United Steelworkers of America; the
International Association of Bridge, Structural, and Ornamental Ironworkers of
America; the International Brotherhood of Teamsters; Local 40 of the Glass,
Molders, Pottery, Plastic & Allied Workers International Union; United Auto
Workers; or the International Brotherhood of Boilermakers, Iron Ship Builders,
Blacksmiths, Forgers and Helpers. The Company's relationship with these unions
generally has been satisfactory, but occasional work stoppages have occurred.
Within the last five years, one work stoppage occurred at one facility, which
involved 28 employees and lasted 10 days. The Company is currently a party to 14
collective bargaining agreements which expire at various times. Collective
bargaining agreements expiring in 1998, 1999, 2000 and 2001 cover 155, 36, 66
and 93 employees, respectively. Historically, the Acquired Companies have
succeeded in negotiating new collective bargaining agreements without a strike.

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

VEHICLES

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

RISK MANAGEMENT, INSURANCE AND LITIGATION

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

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

                                       9
<PAGE>
SAFETY

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

ACQUIRED COMPANIES

  AFFILIATED METALS COMPANY

     Affiliated Metals Company ("Affiliated"), headquartered in Granite City,
Illinois, was founded in 1979 and operates primarily in the midwestern region of
the United States. Affiliated operates service centers in Granite City, Illinois
and a newly-constructed facility in Butler, Indiana and is a value-added metals
processor/service center providing products and services primarily to
manufacturers of consumer durables, commercial transportation equipment,
appliances and furniture. Affiliated has about 130 employees. Patrick A.
Notestine, the President of Affiliated, has been employed by Affiliated for nine
years, has signed an employment agreement with Affiliated to continue in that
capacity and is a director of the Company.

  FEDERAL BRONZE ALLOYS INC.

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

  HARVEY TITANIUM, LTD.

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

  INDEPENDENT METALS CO., INC.

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

                                       10
<PAGE>
  INTERSTATE STEEL SUPPLY CO.

     Interstate Steel Supply Co. ("Interstate"), headquartered in
Philadelphia, Pennsylvania, was founded in 1949 and operates primarily in the
northeast and mid-Atlantic regions of the United States. Interstate operates
service centers in Philadelphia and Pittsburgh, Pennsylvania and Baltimore,
Maryland and is a value-added metals processor/service center providing products
and services primarily to structural steel fabricators of buildings and bridges
and to the shipbuilding, railroad and electric power generation industries.
Interstate has about 180 employees. Arnold W. Bradburd, the Chairman of the
Board and Chief Executive Officer of Interstate, has been employed by Interstate
for 23 years, has signed an employment agreement with Interstate to continue in
those capacities and is the Vice-Chairman of the Board of the Company.

  JEFFREYS STEEL COMPANY, INC.

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

  THE LEVINSON STEEL COMPANY

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

  MEIER METAL SERVICENTERS, INC.

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

  METALMART, INC. AND MARK METALS, INC.

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

                                       11
<PAGE>
  NATIONAL MANUFACTURING, INC.

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

  PACIFIC METAL COMPANY

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

  QUEENSBORO STEEL CORPORATION

     Queensboro Steel Corporation ("Queensboro"), headquartered in Wilmington,
North Carolina, was founded in 1952 by George and Seymour Alper and operates
primarily in the southeastern region of the United States. Queensboro operates
service centers in Wilmington and Greensboro, North Carolina and Norfolk,
Virginia and is a value-added metals processor/service center and fabricator,
providing products and services primarily to the shipbuilding, transportation,
construction, pulp and paper and chemical industries. Queensboro has about 200
employees. Mark Alper, the President of Queensboro, has been employed by
Queensboro for 26 years, has signed an employment agreement with Queensboro to
continue in that capacity and is the Vice President Development and a director
of the Company.

  R. J. FABRICATING INC.

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

  ROYAL ALUMINUM, INC.

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

  SEABOARD STEEL AND IRON CORPORATION

     Interstate acquired the assets of Seaboard Steel and Iron Corporation
("Seaboard") in January 1998. Seaboard was a Baltimore-based full-line steel
service center with a diverse inventory of heavy carbon structural products.
Seaboard has been integrated with Interstate and had ten employees who are now
employed by Interstate.

  SOUTHERN ALLOY OF AMERICA, INC.

     Southern Alloy of America, Inc. ("Southern Alloy"), headquartered in
Salisbury, North Carolina, was founded in 1977 and operates primarily in the
southeastern region of the United States. Southern Alloy operates a plant in
Salisbury, North Carolina and is a specialty metals processor, providing
products and

                                       12
<PAGE>
services primarily to the fluid power, machine tools, pump and valve, power
transmission and textile machinery industries. Southern Alloy has about 30
employees. William B. Edge, the President of Southern Alloy, has been employed
by Southern Alloy for 16 years, has signed an employment agreement with Southern
Alloy to continue in that capacity and is a Senior Vice President and director
of the Company.

  STEEL SERVICE SYSTEMS, INC.

     Steel Service Systems, Inc. ("Service Systems"), headquartered in
Horicon, Wisconsin, was founded in 1990 and operates primarily in the midwestern
region of the United States. Service Systems operates a service center in
Horicon, Wisconsin and is a value-added metals processor/service center
providing products and services primarily for manufacturers of lawn and garden
equipment, outdoor recreation vehicles and furniture. Service Systems has about
75 employees. Craig R. Doveala, the President of Service Systems, has been
employed by Service Systems since its founding, has signed an employment
agreement with Service Systems to continue in that capacity and is a director of
the Company.

  TEXAS ALUMINUM INDUSTRIES, INC./THE CORNERSTONE GROUP

     Texas Aluminum Industries, Inc. ("Texas Aluminum"), headquartered in
Houston, Texas, was founded in 1949 by Gene C. Elkins. The Cornerstone Group
("Cornerstone") includes four entities founded in 1995, 1996 and 1997 by
Michael E. Christopher and Mark Elkins, who were the principal stockholders of
Texas Aluminum (Texas Aluminum and Cornerstone being collectively referred to
herein as "Texas Aluminum/Cornerstone"). Texas Aluminum/Cornerstone operates
through five manufacturing plants and 37 service centers and distribution
facilities primarily in the Sunbelt. Texas Aluminum/Cornerstone produces and
distributes aluminum and steel building products consisting of windows, doors,
insulated wall panels, canopies and awnings primarily for the commercial and
residential building products industries. Texas Aluminum/Cornerstone has about
275 employees. Michael E. Christopher has been employed by Texas Aluminum for
ten years, has signed an employment agreement with Texas Aluminum/Cornerstone as
President of Texas Aluminum/Cornerstone and is a Senior Vice President and a
director of the Company.

  UNI-STEEL, INC.

     Uni-Steel, Inc. ("Uni-Steel"), headquartered in Enid, Oklahoma, was
founded in 1987 as a result of the merger of two companies which began
operations in 1907 and 1924, and operates primarily in the southwestern and
midwestern regions of the United States. Uni-Steel operates service centers in
Enid, Muskogee and the Port of Muskogee, Oklahoma and is a value-added metals
processor/service center providing products and services primarily to customers
in the oil and gas, transportation, mining and manufacturing industries.
Uni-Steel has about 130 employees. Richard A. Singer, the Chief Executive
Officer of Uni-Steel, has been employed by Uni-Steel for 32 years, has signed an
employment agreement with Uni-Steel to continue in such capacity and is a Senior
Vice President and a director of the Company.

  WAYNE STEEL, INC.

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

  WESTERN AWNING COMPANY, INC.

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

                                       13
<PAGE>
  WILLIAMS STEEL & SUPPLY CO., INC.

     Williams Steel & Supply Co., Inc. ("Williams"), headquartered in
Milwaukee, Wisconsin, was founded in 1944 and operates primarily in the midwest
region of the United States. Williams operates a service center in Milwaukee,
Wisconsin and is a value-added metals processor/service center, providing
products and services primarily to the construction industry, OEMs and
fabricators. Williams has about 80 employees. Lester G. Peterson, the President
of Williams, has been employed by Williams for 27 years, has signed an
employment agreement with Williams to continue in that capacity and is a
director of the Company.

                                       14

<PAGE>
ITEM 2.  PROPERTIES

     The Company operates 53 metals processing facilities that are used to
receive, warehouse, process and ship metals. These facilities utilize various
metals processing and materials handling machinery and equipment. The Company's
aluminum building products division operates 11 facilities where it processes
metals into various building products. These 64 service center facilities are as
follows:
<TABLE>
<CAPTION>
                                                                           SQUARE        OWNED/
                                                   LOCATION                FOOTAGE       LEASED
                                       ---------------------------------  ---------     --------
<S>                                                                         <C>
Affiliated...........................  Granite City, Illinois               300,000       Leased
                                       Butler, Indiana                      200,000        Owned
Federal Bronze.......................  Newark, New Jersey                    41,000       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
Interstate...........................  Philadelphia, Pennsylvania            70,000       Leased
                                       Philadelphia, Pennsylvania           120,000       Leased
                                       Baltimore, Maryland                   65,000       Leased
                                       Ambridge, Pennsylvania               133,000       Leased
Jeffreys.............................  Mobile, Alabama                      214,000        Owned
                                       Muscle Shoals, Alabama               104,000        Owned
                                       Attalla, Alabama                      53,000        Owned
                                       Columbus, Mississippi                 45,000        Owned
                                       Kenner, Louisiana                     61,000        Owned
                                       Oakwood, Georgia                     206,000        Owned
                                       Jacksonville, Florida                 60,000        Owned
                                       Lakeland, Florida                    120,000        Owned
                                       Fort Lauderdale, Florida              27,000       Leased
Levinson.............................  Ambridge, Pennsylvania               130,000       Leased
                                       Camden, New Jersey                   104,000       Leased
                                       Greenville, Kentucky                  33,000        Owned
                                       Seekonk, Massachusetts               115,000        Owned
                                       York, Pennsylvania                   109,000       Leased
Meier................................  Hazel Park, Michigan                  73,000        Owned
                                       Broadview, Illinois                   21,000        Owned
                                       Moraine, Ohio                         21,000        Owned
                                       Greensboro, North Carolina            52,000       Leased
                                       Kentwood, Michigan                    12,000       Leased
                                       Cleveland, Ohio                       12,000       Leased
Metalmart and Mark Metals............  Whittier, California                  42,000       Leased
National.............................  Kansas City, Missouri                 58,000       Leased
Pacific..............................  Billings, Montana                     10,000       Leased
                                       Boise, Idaho                          26,000       Leased
                                       Eugene, Oregon                        33,000        Owned
                                       Medford, Oregon                       14,000        Owned
                                       Portland, Oregon                     111,000       Leased
                                       Spokane, Washington                   49,000        Owned
                                       Tukwila, Washington                   80,000        Owned
Queensboro...........................  Wilmington, North Carolina           178,000       Leased
                                       Wilmington, North Carolina*           45,000        Owned
                                       Greensboro, North Carolina*          115,000        Owned
                                       Chesapeake, Virginia                  62,000       Leased
RJ Fabricating.......................  Milwaukee, Wisconsin                  31,000       Leased
Royal................................  Leesburg, Florida                     69,000        Owned
                                       Leesburg, Florida                     76,000       Leased
                                       Irmo, South Carolina                  38,000       Leased
Southern Alloy.......................  Salisbury, North Carolina             24,000       Leased

                                       15
<PAGE>
<CAPTION>
                                                                           SQUARE        OWNED/
                                                   LOCATION                FOOTAGE       LEASED
                                       ---------------------------------  ---------     --------
Service Systems......................  Horicon, Wisconsin*                  103,000       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
Uni-Steel............................  Enid, Oklahoma                       112,000       Leased
                                       Muskogee, Oklahoma                   134,000       Leased
Wayne................................  Wooster, Ohio*                       140,000        Owned
                                       Randleman, North Carolina*           110,000        Owned
                                       Jeffersonville, Indiana*              90,000        Owned
Western..............................  Pacific, Washington                   24,000       Leased
Williams.............................  Milwaukee, Wisconsin                 137,000       Leased
</TABLE>
------------

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

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

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.

                                       16
<PAGE>
                                    PART 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 24, 1998.

                                         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 24,
     1998............................  $   18.00  $   14.00

     The Company believes there are over 2,000 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.

                                       17
<PAGE>
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 1993 through 1997 reflects the
historical financial statements of Metals USA, restated for the effects of the
business combinations with Jeffreys and Wayne 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."
<TABLE>
<CAPTION>
                                                    YEARS ENDED DECEMBER 31,(1)
                                       -----------------------------------------------------
                                         1997       1996       1995       1994       1993
                                       ---------  ---------  ---------  ---------  ---------
                                              (IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
STATEMENTS OF OPERATIONS DATA:
<S>                                    <C>        <C>        <C>        <C>        <C>
  Net sales..........................  $   507.8  $   240.1  $   235.2  $   212.3  $   136.1
  Cost of sales......................      390.7      183.6      183.8      165.3      103.7
  Operating and delivery.............       52.2       24.0       20.7       18.5       12.5
  Selling, general and
     administrative..................       39.4       19.8       14.2       12.8        9.1
  Depreciation and amortization......        5.4        3.5        2.8        2.2        1.8
  Operating income...................       20.1        9.2       13.7       13.5        9.0
  Interest expense...................        5.0        1.7        2.3        1.7        1.9
  Other income.......................        (.1)       (.4)       (.3)       (.3)      (1.3)
  Income before income taxes.........       15.2        7.9       11.7       12.1        8.4
  Net income.........................        6.0        3.3        6.9        7.3        5.2
  Earnings per share.................  $     .28  $     .31  $     .84  $     .89  $     .63
  Earnings per share -- assuming
     dilution........................  $     .28  $     .31  $     .84  $     .89  $     .63
  Number of common shares used in the
     per share calculations:
     Earnings per share..............       21.3       10.6        8.2        8.2        8.2
     Earnings per share -- assuming
       dilution......................       21.6       10.6        8.2        8.2        8.2

                                                       FISCAL YEARS ENDED(1)
                                       -----------------------------------------------------
                                         1997       1996       1995       1994       1993
                                       ---------  ---------  ---------  ---------  ---------
                                                           (IN MILLIONS)
BALANCE SHEET DATA:
  Working capital....................  $   186.6  $    46.3  $    48.0  $    43.5  $    36.5
  Total assets.......................      467.0       95.1       88.8       88.5       62.0
  Long-term debt, less current
     portion.........................      167.1       24.6       31.4       23.2       21.3
  Stockholders' equity...............      217.1       49.2       41.8       36.5       30.0
  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, 1994 and 1993
    have been included in the Company's consolidated financial statements for
    the years ended December 31, 1995, 1994 and 1993.

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

                                       18

<PAGE>
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
by the Company. The Company processes various metals to specified thickness,
length, width, shape and surface quality pursuant to specific customer orders.
Additionally, certain of the Acquired Companies manufacture finished building
products for commercial and residential applications and machine certain
specialty metals.

     The Company anticipates that it will realize savings from: (i) greater
volume discounts from raw materials and other suppliers and (ii) consolidation
of insurance and other general and administrative costs. It is anticipated that
the administrative cost savings will be offset by costs related to the Company's
new corporate management and by the costs attributable to being a public
company, at least until the Company's cost savings program can be fully
implemented. The Company's Unaudited Pro Forma Combined Statements of Operations
do not reflect any amounts as may be realized from future cost savings.

     During 1996 and the first half of 1997, the Company sold an aggregate of
1,385,500 shares of Common Stock to management of and consultants to the Company
for $0.01 per share. Accordingly, the Company recorded a compensation charge of
$3.6 million in 1996 and $6.0 million in the first half of 1997 representing the
difference between the amount paid for the shares and the estimated fair value
of the shares on the date of sale, as if the Founding Companies were combined,
(the "Compensation Charge").

     In July 1996, the Securities and Exchange Commission issued Staff
Accounting Bulletin No. 97 ("SAB 97") relating to business combinations
immediately prior to an initial public offering. SAB 97 requires that these
combinations be accounted for using the "purchase" method of acquisition
accounting. Under SAB 97, the company receiving the largest voting position from
the shares issued in connection with the mergers must be designated as the
accounting acquiror. Accordingly, Metals USA was the designated "accounting
acquiror" and the Company recorded the excess of the fair value of the Merger
consideration paid (exclusive of debt assumed), over the fair value of the net
assets acquired with respect to the Founding Companies as "goodwill."
Collectively, the excess of consideration paid (exclusive of debt assumed) over
the fair value of the net assets acquired from the merger of the Founding
Companies together with the merger of certain of the Subsequent Acquisitions
that were accounted for using the "purchase" method of accounting, totaled
approximately $121.3 million at December 31, 1997. Generally accepted accounting
principles require the amortization of goodwill over its useful life, not to
exceed 40 years. The amortization of goodwill is a non-cash charge to operating
income. The pro forma impact of the amortization expense attributable to the
goodwill created from the application of SAB 97 with respect to the Founding
Companies is approximately $2.1 million per year and is not deductible for
income tax purposes. The pro forma impact of the amortization expense
attributable to the goodwill created from the Subsequent Acquisitions is
approximately $.9 million per year, a portion of which will be deductible for
income tax purposes. Prior to the issuance of SAB 97, most business combinations
similar to the IPO were accounted for by combining the historical financial
statements of the respective companies without the revaluation of acquired
assets and liabilities and, therefore, did not result in the creation of
"goodwill."

     The accounting classifications used by the Company to present the combined
results of operations for the Founding Companies and the Subsequent Acquisitions
generally conform to the conventions established

                                       19
<PAGE>
by the Steel Service Center Institute ("SSCI") and the National Association of
Aluminum Distributors. Depreciation and amortization expenses are shown
separately as management believes certain investors find the information
beneficial. Brief descriptions of the classifications are as follows:

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

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

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

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

RESULTS OF OPERATIONS

     The following historical financial information reflects the historical
financial statements of Metals USA, restated for the effects of the business
combinations with Jeffreys and Wayne accounted for as "poolings-of-interests"
and the remaining Acquired Companies from their respective acquisition dates.
Because of the merger with Metals USA, Jeffreys changed its fiscal year end from
July 31 to December 31, beginning January 1, 1996 to conform to the fiscal
periods of Metals USA and the other Acquired Companies. The historical financial
information of Jeffreys for the year ended July 31, 1995 has been included in
the Company's consolidated financial statements for the year ended December 31,
1995.
<TABLE>
<CAPTION>
                                                           YEARS ENDED DECEMBER 31,
                                       ----------------------------------------------------------------
                                         1997         %        1996         %        1995         %
                                       ---------  ---------  ---------  ---------  ---------  ---------
                                                                (IN MILLIONS)
<S>                                    <C>            <C>    <C>            <C>    <C>            <C>
Net sales............................  $   507.8      100.0% $   240.1      100.0% $   235.2      100.0%
Operating costs and expenses:
     Cost of sales...................      390.7       76.9%     183.6       76.5%     183.8       78.1%
     Operating and delivery..........       52.2       10.3%      24.0       10.0%      20.7        8.8%
     Selling, general and
       administrative................       39.4        7.8%      19.8        8.2%      14.2        6.0%
     Depreciation and amortization...        5.4        1.0%       3.5        1.5%       2.8        1.3%
                                       ---------  ---------  ---------  ---------  ---------  ---------
Operating income.....................       20.1        4.0%       9.2        3.8%      13.7        5.8%
</TABLE>

  RESULTS FOR 1997 COMPARED TO 1996

     NET SALES.  Net sales increased $267.7 million, or 111.5%, from $240.1
million in 1996 to $507.8 million in 1997. The increase in net sales was
principally due to acquisitions of the Founding Companies on July 11, 1997 and
the purchase acquisitions of Harvey, Meier and Federal Bronze on September 26,
1997. Average realized prices for steel products declined approximately 3.2% in
1997 compared to 1996.

     COST OF SALES.  Cost of sales increased $207.1 million, or 112.8%, from
$183.6 million in 1996 to $390.7 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 76.5% in 1996 to 76.9% in
1997. This percentage increase was due to higher cost of raw materials.

                                       20
<PAGE>
     OPERATING AND DELIVERY.  Operating and delivery expenses increased $28.2
million, or 117.5%, from $24.0 million in 1996 to $52.2 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 10.0% in 1996 to 10.3% 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 $19.6 million, or 99.0%, from $19.8 million in 1996 to $39.4
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 8.2% in 1996 to 7.8%
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 6.6% 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 $10.9 million, or 118.5%,
from $9.2 million in 1996 to $20.1 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 3.8% in
1996 to 4.0% in 1997.

     INTEREST EXPENSE.  Interest expense increased $3.3 million, or 194.1%, from
$1.7 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.

  RESULTS FOR 1996 COMPARED TO 1995

     NET SALES.  Net sales increased $4.9 million, or 2.1%, from $235.2 million
in 1995 to $240.1 million in 1996. The increase in net sales was principally due
to a 6.0% increase in shipments from 388,600 tons in 1995 to 411,900 tons in
1996. Additionally, average realized prices decreased by approximately 2.5%.
Approximately one-third of the increased shipments were from the Oakwood,
Georgia facility acquired in March 1995.

     COST OF SALES.  Cost of sales decreased $0.2 million, or 0.1%, from $183.8
million in 1995 to $183.6 million in 1996. The decrease in cost of sales was
primarily attributable to a 4.4% decline in the cost of raw materials, partially
offset by the increased shipments described above. As a percentage of net sales,
cost of sales decreased from 78.1% in 1995 to 76.5% in 1996 due primarily to the
decline in the cost of raw materials referred to above.

     OPERATING AND DELIVERY.  Operating and delivery expenses increased $3.3
million, or 15.9%, from $20.7 million in 1995 to $24.0 million in 1996. This
increase was primarily attributable to the increased shipments described above.
As a percentage of net sales, operating and delivery expenses increased from
8.8% in 1995 to 10.0% in 1996. This percentage increase was primarily due to
higher transportation costs to support an expanding market area.

     SELLING, GENERAL AND ADMINISTRATIVE.  Selling, general and administrative
expenses increased $5.6 million, or 39.4%, from $14.2 million in 1995 to $19.8
million in 1996. The increase in selling, general and administrative expenses
was primarily due to a $3.6 million Compensation Charge recorded during 1996
and, to a lesser extent, the increased selling costs attributable to the
increased shipments described above. As a percentage of net sales, selling,
general and administrative expenses increased from 6.0% for 1995 to 8.2% for
1996. This percentage increase was primarily due to the Compensation Charge
described above.

                                       21
<PAGE>
     OPERATING INCOME.  Operating income decreased $4.5 million, or 32.8%, from
$13.7 million in 1995 to $9.2 million in 1996. The decrease in operating income
was primarily attributable to the compensation charge discussed above. As a
percentage of net sales, operating income decreased from 5.8% in 1995 to 3.8% in
1996.

     INTEREST EXPENSE.  Interest expense decreased $0.6 million, or 26.1%, from
$2.3 million in 1995 to $1.7 million in 1996. The decrease in interest expense
was primarily due to lower average balances outstanding under the revolving
credit facilities.

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

  LIQUIDITY AND CAPITAL RESOURCES

     Beginning with the IPO on July 11, 1997, and through March 30, 1998, the
Company has completed a number of financing transactions designed to enhance the
Company's liquidity, reduce incremental interest expense and extend debt
maturities. The transactions included a public equity offering of Common Stock
which resulted in net proceeds of $58.3 million, a private offering for $200.0
million aggregate principal amount of 8 5/8% Senior Subordinated Notes due 2008
(the "Notes") and the establishment of a $300.0 million revolving credit
facility with a group of commercial banks (the "Credit Facility"). As of March
27, 1998, $253.1 million was available to the Company under the Credit Facility.

     At December 31, 1997, the Company had cash of $7.3 million, working capital
of $186.6 million and total debt of $173.0 million (of which $144.8 million was
attributable to the Original Credit Facility, as defined below). At December 31,
1996, the Company had cash of $1.7 million, working capital of $46.3 million and
total debt of $26.5 million. The Company anticipates that its cash flow from
operations (excluding acquisition requirements) will be sufficient to meet the
Company's normal working capital and debt service requirements for at least the
next several years. The Company intends to retain all of its earnings, to
finance the expansion of its business and for general corporate purposes,
including future acquisitions, and does not anticipate paying any cash dividends
on its Common Stock for the next several years. In addition, the Company's
Credit Facility and the indenture governing the Notes (the "Indenture")
include restrictions on the ability of the Company to pay dividends.

     The Company generated $2.3 million and $7.9 million in net cash from
operating activities for 1997 and 1996, respectively. Net cash used in investing
activities was $85.7 million and $6.3 million for 1997 and 1996, respectively.
The principal use of cash during 1997 was to fund the cash portion of the
acquisition cost for the Acquired Companies. Net cash provided by financing
activities was $89.0 million for 1997 and net cash used in financing was $3.0
million in 1996. For 1997, the cash provided by financing activities consisted
primarily of the net proceeds from the sale of Common Stock of $58.3 million and
borrowings under the initial $150.0 million unsecured revolving credit facility
(the "Original Credit Facility").

  INVESTING ACTIVITIES

     Concurrent with the completion of the IPO, Metals USA acquired the Founding
Companies for $27.8 million in cash and 10,128,609 shares of common stock.
Following the IPO, the Company acquired 15 additional metal processing
companies. These acquisitions include Jeffreys, Wayne, Meier, Harvey,
Independent, Royal, RJ Fabricating, Federal Bronze, Pacific, National, Western,
Mark Metals, Metalmart, Levinson and Seaboard. The acquisitions of Jeffreys and
Wayne have been accounted for using the "pooling-of-interests" method of
accounting. The remaining acquisitions were accounted for using the "purchase"
method of accounting. Collectively, the Company paid a total of $83.8 million in
cash and issued 12,784,820 shares of Common Stock in connection with these
acquisitions. Additionally, the Company assumed approximately $92.3 million of
existing indebtedness of these companies.

     The Company intends to continue to actively pursue acquisition
opportunities. The Company expects to fund future acquisitions through the
issuance of additional Common Stock, borrowings, including use of

                                       22
<PAGE>
amounts available under its Credit Facility, and cash flow from operations.
Capital expenditures for equipment and expansion of facilities are expected to
be funded from cash flow from operations and supplemented as necessary by
borrowings from the Credit Facility or other sources of financing. To the extent
the Company 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 from the exercise of the overallotment option to
repay borrowings on the Credit Facility and for other corporate purposes.

     Concurrent with the IPO, the Company obtained the Original Credit Facility
which was used to fund acquisitions, refinance certain indebtedness of the
acquired companies and for general corporate and working capital requirements.
In January 1998, the Company obtained a $50.0 million 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 million of borrowing
availability. The closing of the extension and modification of the Credit
Facility on February 11, 1998 stipulated the termination of the Interim Credit
Facility. The Credit Facility matures in February 2003 and will be used to fund
acquisitions, make capital expenditures, refinance debt of the companies
acquired and for general working capital requirements. The Credit Facility
requires the Company to comply with various affirmative and negative covenants
including: (i) the maintenance of certain financial ratios, (ii) restrictions on
additional indebtedness, (iii) restrictions on liens, guarantees and dividends,
(iv) obtaining the lenders' consent with respect to certain individual
acquisitions and (v) maintenance of a specified level of consolidated net worth.
Borrowings under the Credit Facility are secured by the pledge of all of the
capital stock of each of the Company's material subsidiaries.

     On February 11, 1998, the Company received $194.5 million of net cash
proceeds (before expected expenses of $0.8 million) from the sale of the Notes.
The Notes call for semi-annual interest payments on February 15 and August 15 of
each year, beginning August 15, 1998 and mature on February 15, 2008. The Notes
are guaranteed by substantially all of the Company's current and future
subsidiaries, and contain certain covenants restricting additional indebtedness,
liens, transactions with affiliates, asset sales, investments, payment
restrictions affecting subsidiaries and mergers and acquisitions of
subsidiaries. The Notes are subordinate to borrowings under the Credit Facility
and will rank PARI PASSU in right of payment with all other future subordinated
debt of the Company and will rank senior to other indebtedness that expressly
provides that it is subordinated in right of payment to the Notes. The Company
used $179.3 million of such proceeds to repay the borrowings outstanding under
the Original Credit Facility and Interim Credit Facility on February 11, 1998.

  YEAR 2000 ISSUE

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

                                       23
<PAGE>
  RECENT DEVELOPMENTS

     On March 23, 1998, the Company announced that it has agreed to make an
offer for all of the issued and outstanding common shares of Ideal Metal Inc.
("Ideal") at a cash price of CAN$5.25 per share. The cash paid with respect to
the offer would total approximately CAN $57.0 million. The offer is subject to
the valid deposit of not less than 66 2/3% of the common shares of Ideal. The
offer is subject to other usual conditions, including the receipt of any
required regulatory approval and the absence of material adverse changes. As an
inducement to making the offer, Ideal has entered into a support agreement with
the Company pursuant to which Ideal has agreed to support the offer and to pay
the Company a compensatory fee of CAN$2.5 million in certain circumstances,
including if a competing offer is made.

     The Company has been advised by the Board of Directors of Ideal ("the
Board") that it unanimously recommends that shareholders accept the offer and
tender their shares in response and that, based on advice from its financial
advisors and other considerations, the Board has determined that the offer is
fair from a financial point of view and is in the best interests of Ideal
shareholders. Additionally, Ideal's directors have expressed the intention to
deposit their Ideal shares in the offer. Furthermore, 146670 Canada Inc. has
informed the Board that it intends to tender its 65.3% interest in Ideal in
response to the offer.

     Ideal is a processor and distributor of non-ferrous specialty metals with
locations in Montreal, Toronto, Calgary, and Vancouver, as well as Pittsburgh
and Lansdale, Pennsylvania and Loudon, Tennessee. Ideal had revenue in 1997 of
approximately U.S.$130.0 million. Ideal's shares are publicly traded on the
Montreal exchange.

                                       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.......     27
     Report of Independent Public
     Accountants.....................     28
     Consolidated Balance Sheets.....     29
     Consolidated Statements of
     Operations......................     30
     Consolidated Statements of Cash
     Flows...........................     31
     Consolidated Statements of
     Stockholders' Equity............     32
     Notes to Consolidated Financial
     Statements......................     33

TEXAS ALUMINUM INDUSTRIES, INC. AND
AFFILIATES
     Report of Independent Public
     Accountants.....................     47
     Combined Balance Sheets.........     48
     Combined Statements of Income...     49
     Combined Statements of
     Stockholders' Equity and
     Members' Equity.................     50
     Combined Statements of Cash
     Flows...........................     51
     Notes to Combined Financial
     Statements......................     52

INTERSTATE STEEL SUPPLY CO. AND
AFFILIATES
     Report of Independent Public
     Accountants.....................     63
     Combined Balance Sheets.........     64
     Combined Statements of Income...     65
     Combined Statements of
     Stockholders' Equity and
     Partners' Capital...............     66
     Combined Statements of Cash
     Flows...........................     67
     Notes to Combined Financial
     Statements......................     68
QUEENSBORO STEEL CORPORATION
     Report of Independent Public
     Accountants.....................     72
     Independent Auditors' Report....     73
     Balance Sheets..................     74
     Statements of Income............     75
     Statements of Stockholders'
     Equity..........................     76
     Statements of Cash Flows........     77
     Notes to Financial Statements...     78

AFFILIATED METALS COMPANY
     Report of Independent Public
     Accountants.....................     84
     Report of Independent
     Auditors........................     85
     Report of Independent
     Auditors........................     86
     Balance Sheets..................     87
     Statements of Operations........     88
     Statements of Stockholders'
     Equity..........................     89
     Statements of Cash Flows........     90
     Notes to Financial Statements...     91

                                       25
<PAGE>

                                        PAGE
                                        ----
SOUTHERN ALLOY OF AMERICA, INC.
     Report of Independent Public
     Accountants.....................     97
     Balance Sheets..................     98
     Statements of Operations........     99
     Statements of Stockholders'
     Equity (Deficit)................    100
     Statements of Cash Flows........    101
     Notes to Financial Statements...    102

UNI-STEEL, INC.
     Report of Independent Public
     Accountants.....................    107
     Balance Sheet...................    108
     Statements of Income............    109
     Statements of Stockholders'
     Equity..........................    110
     Statements of Cash Flows........    111
     Notes to Financial Statements...    112

                                       26
<PAGE>
                       METALS USA, INC. AND SUBSIDIARIES
             UNAUDITED PRO FORMA COMBINED STATEMENTS OF OPERATIONS

                                       FOR THE YEARS ENDED
                                           DECEMBER 31,
                                       --------------------
                                         1997       1996
                                       ---------  ---------
                                       (IN MILLIONS, EXCEPT
                                        PER SHARE AMOUNTS)
Net sales............................  $   739.8  $   627.2
Operating costs and expenses:
     Cost of sales...................      569.3      480.0
     Operating and delivery..........       77.8       65.7
     Selling, general and
     administrative..................       45.0       37.2
     Depreciation and amortization...        8.5        9.0
                                       ---------  ---------
Operating income.....................       39.2       35.3
Other (income) expense:
     Interest expense................        7.5        5.9
     Other income....................        (.2)       (.8)
                                       ---------  ---------
Income before income taxes...........       31.9       30.2
Provision for income taxes...........       13.3       12.9
                                       ---------  ---------
Net income...........................  $    18.6  $    17.3
                                       =========  =========
Earnings per share...................  $     .61  $     .58
                                       =========  =========
Earnings per share -- assuming
  dilution...........................  $     .61  $     .58
                                       =========  =========
Number of common shares used in the
  per share calculations:
     Earnings per share..............       30.3       29.9
                                       =========  =========
     Earnings per share -- assuming
     dilution........................       30.6       29.9
                                       =========  =========

     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, 1997 and 1996 include the accounts of Metals USA, the
Founding Companies and the acquisitions accounted for using the
"pooling-of-interests" method of accounting from January 1, 1996. 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 and 400,000 shares of common stock to management of and consultants to
Metals USA in 1997 and 1996, respectively, partially offset by a charge for
recurring salary expenses of management; (c) the amortization of goodwill
recorded as a result of the acquisition of the Founding Companies 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, 1996; (f) a charge eliminating the
gains recorded as historical LIFO adjustments to cost of sales as a result of
the restatement of base year LIFO costs to the appropriate replacement costs as
if the acquisitions occurred on January 1, 1996; (g) certain other nonrecurring
expenses, such as expenses associated with compensation plans which were
terminated in conjunction with the acquisitions of their respective companies
and (h) the incremental provision for federal and state income taxes for all
entities being combined.

                                       27
<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") of December 31, 1997
and 1996, and the related consolidated statements of operations, cash flows and
stockholders' equity for each of the three years in the period ended December
31, 1997. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.

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, 1997 and 1996, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended December 31, 1997, in conformity with generally
accepted accounting principles.

ARTHUR ANDERSEN LLP

Houston, Texas
February 12, 1998

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

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

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

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

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

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

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

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

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

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

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

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

1.  BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

  BASIS OF PRESENTATION

     Metals USA, Inc., a Delaware corporation, ("Metals USA") was founded on
July 3, 1996 to become a leading national value-added metals processor service
center, to manufacture higher-value components from processed metals and to
pursue aggressively the consolidation of the highly fragmented metals processing
industry. Prior to its initial public offering ("IPO"), Metals USA had
conducted no operations. Concurrent with the consummation of its IPO on July 11,
1997, Metals USA acquired, in separate transactions (the "Mergers") eight
companies (the "Founding Companies") engaged in the processing of steel,
aluminum and specialty metals, as well as the manufacture of metal components.
Following the IPO and through December 31, 1997, Metals USA acquired seven
additional companies and subsequent to December 31, 1997, acquired eight
additional companies in similar businesses (See Note 2). Certain of the
companies acquired after the IPO were accounted for using the
"pooling-of-interests" method, resulting in a restatement of the Company's
financial statements for all periods presented (See Note 2). References herein
to the "Company" include Metals USA and its subsidiaries.

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

  USE OF ESTIMATES AND ASSUMPTIONS

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

  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

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

     INVENTORIES -- Inventories are stated at the lower of cost or market.
Certain of the Company's subsidiaries use the last-in first-out ("LIFO")
method of accounting for inventories and other subsidiaries use a variety of
methods including specific identification, average cost and the first-in
first-out ("FIFO") method of accounting. As of December 31, 1997 and 1996,
approximately 46.4% and 52.2%, 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 utilizing the straight-line
method at rates based upon the estimated useful lives of the various classes of
assets.

     GOODWILL -- Goodwill represents the excess of cost over the estimated fair
value of identifiable assets of the businesses acquired using the "purchase"
method of accounting. Goodwill is stated at cost, net of accumulated
amortization, and is being amortized over a forty-year life using the
straight-line method. The

                                       33
<PAGE>
                       METALS USA, INC. AND SUBSIDIARIES
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
               (IN MILLIONS, EXCEPT SHARE AND PER SHARE AMOUNTS)
Company reviews the recoverability of goodwill and other long-lived assets
including other intangible assets for impairment whenever events or changes in
circumstances indicate that the carrying amount of the asset may be impaired.
The Company has not recorded any impairment losses with respect to goodwill,
other long-lived assets or other intangible assets as of December 31, 1997.
Accumulated amortization totaled $1.2 as of December 31, 1997.

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

     FAIR VALUE OF FINANCIAL INSTRUMENTS -- The fair value of the notes payable
is estimated based on interest rates for the same or similar debt offered to the
Company having the same or similar remaining maturities and collateral
requirements. The carrying amounts of notes payable approximate fair value at
the applicable balance sheet dates.

     CONCENTRATION OF CREDIT RISK -- Financial instruments, which potentially
subject the Company to concentrations of credit risk, consist principally of
cash deposits, trade accounts and notes receivable. Concentrations of credit
risk with respect to trade accounts are within the machining, furniture,
transportation equipment, power and process equipment, industrial/commercial
construction, consumer durables and electrical equipment industries, and
machinery and equipment manufacturers. Generally, credit is extended once
appropriate credit history and references have been obtained. Adjustments to the
allowance for doubtful accounts are made periodically (as circumstances warrant)
based upon the expected collectibility of all such accounts. The Company
periodically reviews the credit history of its customers and generally does not
require collateral for the extension of credit.

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

     EARNINGS PER SHARE -- In February 1997, the Financial Accounting Standards
Board issued Statement of Financial Accounting Standards No. 128 ("SFAS No.
128"), "Earnings Per Share." The Company adopted SFAS No. 128 for the year
ended December 31, 1997. SFAS No. 128 simplifies the standards required under
current accounting rules for computing earnings per share and replaces the
presentation of primary earnings per share and fully diluted earnings per share
with a presentation of basic earnings per share ("Earnings per Share") and
diluted earnings per share ("Earnings per Share -- Assuming Dilution").
Earnings per Share excludes dilution and is determined by dividing income
available to common stockholders by the weighted average number of common shares
outstanding during the period. Earnings per Share -- Assuming Dilution reflects
the potential dilution that could occur if securities and other contracts to
issue common stock were exercised or converted into common stock. Earnings per
Share -- Assuming Dilution is computed similarly to fully diluted earnings per
share under previous accounting rules.

     Earnings per Share was computed using 8,230,011 shares (the aggregate
number of shares issued in connection with the acquisition of entities accounted
for using the "pooling-of-interests" method of accounting) for periods prior
to July 3, 1996 (date of inception). The 4,753,414 shares issued in connection
with the organization of Metals USA, including shares issued to management, were
considered to be issued and outstanding from the date of inception without
regard to the date such shares were actually issued. The 6,785,000 shares issued
in connection with the IPO and the 11,693,499 shares issued in connection with
the

                                       34
<PAGE>
                       METALS USA, INC. AND SUBSIDIARIES
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
               (IN MILLIONS, EXCEPT SHARE AND PER SHARE AMOUNTS)
entities acquired using the "purchase" method of accounting have been included
in the Earnings per Share computation only from their respective dates of
issuance, resulting in weighted average shares of 8,341,480 for the year ended
December 31, 1997. Earnings per Share -- Assuming Dilution differs from the
Earnings per Share computation due to the inclusion of stock options that were
dilutive.

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

2.  BUSINESS COMBINATIONS

  POOLING TRANSACTIONS

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

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

  PURCHASE TRANSACTIONS

     Concurrent with the completion of its IPO on July 11, 1997, Metals USA
acquired the eight Founding Companies, which are in the metal processing and
distribution business. The companies acquired were Affiliated Metals Company
headquartered in Granite City, Illinois; Interstate Steel Supply Co.
headquartered in Philadelphia, Pennsylvania; Queensboro Steel Corporation
headquartered in Wilmington, North Carolina; Southern Alloy of America, Inc.
headquartered in Salisbury, North Carolina; Steel Service Systems, Inc.
headquartered in Horicon, Wisconsin; Texas Aluminum Industries, Inc./The
Cornerstone Group headquartered in Houston, Texas; Uni-Steel, Inc. headquartered
in Enid, Oklahoma and Williams

                                       35
<PAGE>
                       METALS USA, INC. AND SUBSIDIARIES
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
               (IN MILLIONS, EXCEPT SHARE AND PER SHARE AMOUNTS)
Steel & Supply Co., Inc. headquartered in Milwaukee, Wisconsin. The acquisition
of each of the Founding Companies was accounted for using the "purchase"
method of accounting in accordance with APB No. 16. The aggregate consideration
paid by Metals USA to acquire the Founding Companies was approximately $27.8 in
cash, 10,128,609 shares of common stock and the assumption of $92.6 of debt.

     Subsequent to the IPO, Metals USA acquired five additional companies using
the "purchase" method of accounting in accordance with APB No. 16. The
acquisitions completed in September 1997 included Harvey Titanium, Ltd.
headquartered in Santa Monica, California; Meier Metal Servicenters, Inc.
headquartered in Hazel Park, Michigan and the business of Federal Bronze
Products, Inc., headquartered in Newark, New Jersey. The acquisitions completed
in December 1997 included Royal Aluminum, Inc. headquartered in Leesburg,
Florida and R. J. Fabricating Inc. headquartered in Milwaukee, Wisconsin. These
five companies are referred to collectively as the "1997 Subsequent
Acquisitions." The aggregate consideration paid by Metals USA for the 1997
Subsequent Acquisitions consists of approximately $44.1 in cash, 1,564,890
shares of common stock and the assumption of indebtedness of approximately
$15.4.

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

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

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

     The preceding pro forma amounts reflect the results of operations for the
Metals USA, the Founding Companies and the 1997 Subsequent Acquisitions,
assuming the transactions were completed on January 1, 1996. Additionally, the
amounts shown in the table reflect (a) the reduction in certain related party
rental

                                       36
<PAGE>
                       METALS USA, INC. AND SUBSIDIARIES
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
               (IN MILLIONS, EXCEPT SHARE AND PER SHARE AMOUNTS)
and lease expenses which has been agreed to prospectively; (b) the reduction in
salaries, bonuses and benefits to the owners of the acquired companies which
they have agreed to prospectively and the reversal of the non-cash compensation
charge related to the issuance of 985,500 and 400,000 shares of common stock to
management of and consultants to Metals USA in 1997 and 1996, respectively,
partially offset by a charge for recurring salary expenses of management; (c)
the amortization of goodwill recorded as a result of the acquisition of the
Founding Companies and 1997 Subsequent Acquisitions over a forty-year estimated
life plus additional depreciation expense due to the allocation of a portion of
the excess purchase price to property and equipment; (d) the assumed reductions
in interest expense due to the refinancing of the outstanding indebtedness in
conjunction with the acquisition of the Founding Companies and 1997 Subsequent
Acquisitions, offset by an assumed increase in interest expense incurred in
connection with financing the acquisitions; (e) the pre-acquisition results of
operations for subsidiaries or affiliates of the Founding Companies which were
acquired by the Founding Companies prior to the related acquisition by Metals
USA, as if those previous acquisitions were completed as of January 1, 1996; (f)
a charge eliminating the gains recorded as historical LIFO adjustments to cost
of sales as a result of the restatement of base year LIFO costs to the
appropriate replacement costs as if the acquisitions occurred on January 1,
1996; (g) certain other nonrecurring expenses with respect to the 1997
Subsequent Acquisitions, such as expenses associated with compensation plans
which were terminated in conjunction with the acquisitions of their respective
companies; (h) the incremental interest expense and amortization of deferred
financing costs incurred as a result of the issuance of the Notes and the Credit
Facility (as defined in Note 6), net of the repayment of outstanding
indebtedness of the Company and (i) the incremental provision for federal and
state income taxes for all entities being combined.

3.  INVENTORIES

     Inventories consist of the following:

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

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

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

4.  PROPERTY AND EQUIPMENT

     Property and equipment consists of the following:

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

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

5.  ACCRUED LIABILITIES

     Accrued liabilities consist of the following:

                                           DECEMBER 31,
                                       --------------------
                                         1997       1996
                                       ---------  ---------
Accrued salaries and employee
  benefits...........................  $     5.0  $     1.0
Accrued taxes other than income......        1.8        0.4
Accrued interest.....................        1.3        0.2
Accrued profit sharing...............        1.2        0.3
Other................................        3.6        0.5
                                       ---------  ---------
     Total...........................  $    12.9  $     2.4
                                       =========  =========

6.  LONG-TERM DEBT

     Long-term debt consists of the following:

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

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

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

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

     Concurrent with the IPO, the Company obtained an initial $150.0 unsecured
revolving credit facility (the "Original Credit Facility") which was used to
fund acquisitions, refinance certain indebtedness of the acquired companies and
for general corporate and working capital requirements. In January 1998, the
Company obtained a $50.0 unsecured revolving credit facility (the "Interim
Credit Facility") to meet its acquisition related cash requirements pending the
completion of an extension and modification of the Original Credit Facility to
provide for up to $300.0 of borrowing availability. The closing of the extension
and modification of the $300.0 credit facility (the "Credit Facility") on
February 11, 1998 stipulated the termination of the Interim Credit Facility. The
Credit Facility matures in February 2003, bears interest at the bank's prime
rate or LIBOR, at Metals USA's option, plus an applicable margin based on the
ratio of funded debt to cash flows (as defined). An annual commitment fee of up
to 1/4% is payable on any unused portion of the Credit Facility. The Company
will use the Credit Facility to fund acquisitions, make capital expenditures,
refinance debt of the companies acquired and for general working capital
requirements. Borrowings under the Credit Facility are secured by the pledge of
all of the capital stock of each of the Company's material subsidiaries (as
defined). In connection with the IPO, the Mergers and the 1997 Subsequent
Acquisitions, the revolving credit facility and certain other obligations
outstanding as of December 31, 1996 (including certain obligations of the
acquired companies) were repaid with the borrowings under the Credit Facility.

     The Credit Facility requires the Company to comply with various affirmative
and negative covenants including: (i) the maintenance of certain financial
ratios, (ii) restrictions on additional indebtedness, (iii) restrictions on
liens, guarantees and dividends, (iv) obtaining the lenders' consent with
respect to certain individual acquisitions, and (v) maintenance of a specified
level of consolidated net worth. At December 31, 1997, the Company was precluded
from the payment of dividends under the terms of the Credit Facility.

     On February 11, 1998, the Company completed the sale of $200.0 aggregate
principal amount of the Company's 8 5/8% Senior Subordinated Notes due 2008 (the
"Notes"). The Company received $194.5 of net cash proceeds (before expected
expenses of $0.8 upon closing). The Company used $179.3 of such proceeds to
repay the borrowings outstanding under the Original Credit Facility and Interim
Credit Facility on February 11, 1998. As of February 12, 1998, the entire amount
of the Credit Facility was available to the Company.

     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

                                       39
<PAGE>
                       METALS USA, INC. AND SUBSIDIARIES
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
               (IN MILLIONS, EXCEPT SHARE AND PER SHARE AMOUNTS)
date of such redemption; provided that at least 65% of the aggregate principal
amount of Notes originally issued remains outstanding immediately after such
redemption. The Notes are guaranteed by substantially all of the Company's
current and future subsidiaries, and contain certain covenants restricting
additional indebtedness, liens, transactions with affiliates, asset sales,
investments, payment restrictions affecting subsidiaries and mergers and
acquisitions of subsidiaries. The Notes are subordinate to borrowings under the
Credit Facility and will rank PARI PASSU in right of payment with all other
future subordinated debt of the Company and will rank senior to other
indebtedness that expressly provides that it is subordinated in right of payment
to the Notes. The Company has agreed, for the benefit of all holders of the
Notes, that it will file a registration statement within 60 days after the
issuance of the Notes relating to an exchange offer for the Notes under the
Securities Act of 1933, as amended.

7.  INCOME TAXES

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

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

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

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

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

8.  STOCKHOLDERS' EQUITY

  COMMON STOCK AND PREFERRED STOCK

     Metals USA effected a 135.81-for-one stock split on April 21, 1997 for each
share of $.01 par value common stock ("Common Stock") then outstanding. In
addition, Metals USA increased the number of authorized shares of Common Stock
to 50,000,000 and the authorized shares of Restricted Common Stock, as defined
below, to 3,122,914 and authorized 5,000,000 shares of $0.01 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 $0.01 per share to Notre Capital
Ventures II, L.L.C. ("Notre"). Notre received 3,232,104 additional shares (at
approximately $0.01 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 0.55 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.
The terms of the option awards are established by the Compensation Committee of
Metals USA's Board of Directors. These options will vest at the rate of 20% per
year, commencing on the first anniversary of the IPO or date of grant and will
expire ten years from the date of grant or three months following termination of
employment. The Company did not issue any stock options prior to January 1,
1996. Options granted in 1996 were attributable to an acquired company that was
accounted for as a "pooling-of-interest" business combination. Those options
were converted at the applicable share conversion ratio specified in the merger
agreement and exchanged for Company options issued under the Plan.

  NON-EMPLOYEE DIRECTORS' STOCK PLAN

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

                                       42
<PAGE>
                       METALS USA, INC. AND SUBSIDIARIES
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
               (IN MILLIONS, EXCEPT SHARE AND PER SHARE AMOUNTS)
Stock which, at the date the fees would otherwise be payable, will have an
aggregate fair market value equal to the amount of such fees.

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

     At December 31, 1997, exercisable options for shares of Common Stock were
61,440 at a weighted average price of $6.81 per share and 40,000 at a weighted
average price of $10.00 per share.

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

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

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

                                       43
<PAGE>
                       METALS USA, INC. AND SUBSIDIARIES
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
               (IN MILLIONS, EXCEPT SHARE AND PER SHARE AMOUNTS)
significant subjective assumptions, any one or all of which may differ in
material respects from actual amounts.

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

10.  EMPLOYEE BENEFIT PLANS

  PROFIT-SHARING PLANS

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

  EMPLOYEE STOCK OWNERSHIP PLAN AND TRUST

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

  LEVERAGED ESOP ARRANGEMENT

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

     Jeffreys' ESOP held 434,616 shares of stock prior to the purchase of
735,384 shares of outstanding stock from a majority stockholder for $5.31 per
share. The ESOP borrowed the funds to purchase such stock and Jeffreys
guaranteed the repayment of this loan. Jeffreys will repay this loan, plus
interest, through deductible contributions to the plan. As Jeffreys makes
contributions to the plan, which reduces the principal on the note, the plan
will release the corresponding shares related to the reduction in the note
principal. At the point when these

                                       44
<PAGE>
                       METALS USA, INC. AND SUBSIDIARIES
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
               (IN MILLIONS, EXCEPT SHARE AND PER SHARE AMOUNTS)
shares are no longer specifically secured by the note payable, they will be
allocated to the individual participants of the plan and considered earned by
those employees at that time. Jeffreys accounts for its ESOP in accordance with
Statement of Position 93-6 ("SOP 93-6"), "Employers' Accounting for Employee
Stock Ownership Plans". Accordingly, the debt of the ESOP is recorded as
long-term debt and the shares pledged as collateral are reported as unearned
compensation. As shares are released from collateral, Jeffreys reports
compensation expense equal to the current estimated market price of the shares.
ESOP share compensation expense was $.4, $.6 and $.6 for the years ended
December 31, 1997, 1996 and 1995, respectively.

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

     The activity relating to the ESOP shares was as follows:

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

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

11.  COMMITMENTS AND CONTINGENCIES

  OPERATING LEASE AGREEMENTS

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

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

  CONTINGENCIES

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

12.  RELATED-PARTY TRANSACTIONS

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

     In connection with the Mergers and certain of the subsequent acquisitions,
subsidiaries of the Company have entered into a number of lease arrangements for
facilities and equipment. These lease arrangements are for periods ranging from
10 to 20 years. Lease payments for these items in respect of the years ended

                                       45
<PAGE>
                       METALS USA, INC. AND SUBSIDIARIES
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
               (IN MILLIONS, EXCEPT SHARE AND PER SHARE AMOUNTS)
December 31, 1997, 1996 and 1995 were $1.3, $.1 and $.1, respectively. Future
commitments in respect of these leases are included in the schedule of minimum
lease payments in Note 11.

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

13.  SUBSEQUENT EVENTS (UNAUDITED)

     Subsequent to December 31, 1997, Metals USA acquired eight additional
companies, including Independent Metals Co., Inc., Mark Metals, Inc., Metalmart,
Inc., National Manufacturing, Inc., Pacific Metal Company, The Levinson Steel
Company, Inc., Western Awning Company, Inc and the assets of Seaboard Steel and
Iron Corporation. The aggregate consideration paid by Metals USA for these
acquisitions consists of approximately $39.7 in cash and 2,989,919 shares of
Common Stock, plus the assumption of indebtedness of approximately $45.9. The
consideration paid by Metals USA for each of these acquisitions was determined
by negotiation and was based primarily upon the pro forma adjusted net income
for each entity.

     On March 23, 1998, the Company announced that it has agreed to make an
offer for all of the issued and outstanding common shares of Ideal Metal Inc.
("Ideal") at a cash price of CAN$5.25 per share. The cash paid with respect to
the offer would total approximately CAN$57.0. The offer is subject to the valid
deposit of not less than 66 2/3% of the common shares of Ideal. The offer is
subject to other usual conditions, including the receipt of any required
regulatory approval, and the absence of material adverse changes. As an
inducement to making the offer, Ideal has entered into a support agreement with
the Company pursuant to which Ideal has agreed to support the offer and to pay
the Company a compensatory fee of CAN$2.5 in certain circumstances, including if
a competing offer is made.

     The Company has been advised by the Board of Directors of Ideal ("the
Board") that it unanimously recommends that shareholders accept the offer and
tender their shares in response and that, based on advice from its financial
advisors and other considerations, the Board has determined that the offer is
fair from a financial point of view and is in the best interests of Ideal
shareholders. Additionally, Ideal's directors have expressed the intention to
deposit their Ideal shares in the offer. Furthermore, 146670 Canada Inc. has
informed the Board that it intends to tender its 65.3% interest in Ideal in
response to the offer.

     Ideal is a processor and distributor of non-ferrous specialty metals with
locations in Montreal, Toronto, Calgary, and Vancouver, as well as Pittsburgh
and Lansdale, Pennsylvania and Loudon, Tennessee. Ideal had revenue in 1997 of
approximately U.S.$130.0. Ideal's shares are publicly traded on the Montreal
exchange.

                                       46

<PAGE>
                    REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To Texas Aluminum Industries, Inc.:

We have audited the accompanying combined balance sheets of Texas Aluminum
Industries, Inc., and the affiliated Cornerstone Companies (collectively, the
"Companies"), as of June 30, 1995 and December 31, 1996, and the related
combined statements of income, stockholders' equity and members' equity and cash
flows for the years ended June 30, 1994 and 1995 and December 31, 1996 and for
the period from January 1, 1997 through July 10, 1997. These combined financial
statements are the responsibility of the Companies' management. Our
responsibility is to express an opinion on these combined financial statements
based on our audits.

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

In our opinion, the combined financial statements referred to above present
fairly, in all material respects, the combined financial position of Texas
Aluminum Industries, Inc. and the affiliated Cornerstone Companies as of June
30, 1995 and December 31, 1996, and the results of their combined operations and
their combined cash flows for the years ended June 30, 1994 and 1995 and
December 31, 1996 and for the period from January 1, 1997 through July 10, 1997
in conformity with generally accepted accounting principles.

ARTHUR ANDERSEN LLP

Houston, Texas
January 30, 1998

                                       47
<PAGE>
                 TEXAS ALUMINUM INDUSTRIES, INC. AND AFFILIATES
                            COMBINED BALANCE SHEETS
                           (IN THOUSANDS OF DOLLARS)

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

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

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

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

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

                                       48
<PAGE>
                 TEXAS ALUMINUM INDUSTRIES, INC. AND AFFILIATES
                         COMBINED STATEMENTS OF INCOME
                           (IN THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
                                       YEAR ENDED JUNE 30,     YEAR ENDED          PERIOD FROM
                                       --------------------   DECEMBER 31,       JANUARY 1, 1997
                                         1994       1995          1996        THROUGH JULY 10, 1997
                                       ---------  ---------   ------------    ---------------------
<S>                                    <C>        <C>           <C>                  <C>
Net sales............................  $  26,105  $  34,706     $ 40,651             $25,271
Costs and expenses:
     Cost of sales...................     17,991     23,893       27,146              16,553
     Operating and delivery..........      5,621      5,863        6,386               3,232
     Selling, general and
       administrative................      1,654      2,810        3,539               4,079
     Depreciation and amortization...        346        517          568                 409
                                       ---------  ---------   ------------    ---------------------
Operating income.....................        493      1,623        3,012                 998
Other (income) expense:
     Interest expense................        444        837          682                 592
     Other income....................       (169)      (143)          (8)               (102)
                                       ---------  ---------   ------------    ---------------------
Income before income taxes...........        218        929        2,338                 508
Provision for income taxes...........         93        277          456                 207
                                       ---------  ---------   ------------    ---------------------
Net income...........................  $     125  $     652     $  1,882             $   301
                                       =========  =========   ============    =====================

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

                                       49
<PAGE>
                 TEXAS ALUMINUM INDUSTRIES, INC. AND AFFILIATES
        COMBINED STATEMENTS OF STOCKHOLDERS' EQUITY AND MEMBERS' EQUITY
         (IN THOUSANDS OF DOLLARS, EXCEPT SHARE AND PER SHARE AMOUNTS)

                                          COMMON STOCK
                                       -------------------   CORNERSTONE   MEMBERS'   PREFERRED    PAID-IN    RETAINED    TREASURY
                                       CLASS A    CLASS B      COMMON       EQUITY      STOCK      CAPITAL    EARNINGS      STOCK
                                       --------   --------   -----------   --------   ----------   --------   ---------   ---------
Balance, June 30, 1994...............    $363      $1,165       $--          $--         $393        $210      $ 1,547      $(315)
    Purchase of 2,142 shares of Class
      B common stock at $16 per
      share..........................    --         --          --           --         --           --          --           (34)
    Purchase of 97 shares of
      preferred stock at $100 per
      share..........................    --         --          --           --         --           --          --           (10)
    Cancellation of treasury stock...    --           (21)      --           --           (14)        (12)       --            47
    Issuance of Cornerstone Metals
      Corporation common stock.......    --         --              5        --         --           --          --         --
    Issuance of Cornerstone Building
      Products, Inc. common stock....    --         --              5        --         --           --          --         --
    Net income.......................    --         --          --           --         --           --            652      --
                                       --------   --------   -----------   --------   ----------   --------   ---------   ---------
Balance, June 30, 1995...............     363       1,144          10        --           379         198        2,199       (312)
    Purchase of 249 shares of Class B
      common stock at $16 per
      share..........................    --         --          --           --         --           --          --            (4)
    Purchase of 37 shares of
      preferred stock at $100 per
      share..........................    --         --          --           --         --           --          --            (4)
    Issuance of Cornerstone Patio
      Concepts L.L.C. members'
      equity.........................    --         --          --              1       --           --          --         --
    Cancellation of treasury stock...    --           (16)      --           --           (10)        (10)       --            36
    Adjustment to conform fiscal year
      ends...........................    --         --          --           --         --           --            579      --
    Distributions to stockholders....    --         --          --           --         --           --           (100)     --
    Net income.......................    --         --          --           --         --           --          1,882      --
                                       --------   --------   -----------   --------   ----------   --------   ---------   ---------
Balance, December 31, 1996...........     363       1,128          10           1         369         188        4,560       (284)
    Issuance of Cornerstone Aluminum
      Company, Inc. common stock.....    --         --              5        --         --           --          --         --
    Purchase of 30 shares of
      preferred stock at $100 per
      share..........................    --         --          --           --         --           --          --            (3)
    Distributions to stockholders....    --         --          --           --         --           --         (3,400)     --
    Net income.......................    --         --          --           --         --           --            301      --
                                       --------   --------   -----------   --------   ----------   --------   ---------   ---------
Balance, July 10, 1997...............    $363      $1,128       $  15        $  1        $369        $188      $ 1,461      $(287)
                                       ========   ========   ===========   ========   ==========   ========   =========   =========
</TABLE>
                                         TOTAL
                                       ---------
Balance, June 30, 1994...............  $   3,363
    Purchase of 2,142 shares of Class
      B common stock at $16 per
      share..........................        (34)
    Purchase of 97 shares of
      preferred stock at $100 per
      share..........................        (10)
    Cancellation of treasury stock...     --
    Issuance of Cornerstone Metals
      Corporation common stock.......          5
    Issuance of Cornerstone Building
      Products, Inc. common stock....          5
    Net income.......................        652
                                       ---------
Balance, June 30, 1995...............      3,981
    Purchase of 249 shares of Class B
      common stock at $16 per
      share..........................         (4)
    Purchase of 37 shares of
      preferred stock at $100 per
      share..........................         (4)
    Issuance of Cornerstone Patio
      Concepts L.L.C. members'
      equity.........................          1
    Cancellation of treasury stock...     --
    Adjustment to conform fiscal year
      ends...........................        579
    Distributions to stockholders....       (100)
    Net income.......................      1,882
                                       ---------
Balance, December 31, 1996...........      6,335
    Issuance of Cornerstone Aluminum
      Company, Inc. common stock.....          5
    Purchase of 30 shares of
      preferred stock at $100 per
      share..........................         (3)
    Distributions to stockholders....     (3,400)
    Net income.......................        301
                                       ---------
Balance, July 10, 1997...............  $   3,238
                                       =========

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

                                       50
<PAGE>
                 TEXAS ALUMINUM INDUSTRIES, INC. AND AFFILIATES
                       COMBINED STATEMENTS OF CASH FLOWS
                           (IN THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
                                            YEAR ENDED         YEAR ENDED
                                             JUNE 30,         DECEMBER 31,         PERIOD FROM
                                       --------------------   ------------       JANUARY 1, 1997
                                         1994       1995          1996        THROUGH JULY 10, 1997
                                       ---------  ---------   ------------    ---------------------
<S>                                    <C>        <C>           <C>                  <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
  Net income.........................  $     125  $     652     $  1,882             $   301
  Adjustments to reconcile net income
    to net cash provided by (used in)
    operating activities:
    Adjustment to conform fiscal year
      ends...........................     --         --              579            --
    Provision for bad debts..........        456        501          718                 (98)
    Depreciation and amortization....        346        517          763                 409
    (Gain) loss on sale of property
      and equipment..................        (11)        11         (266)                (18)
    Deferred income taxes............        (95)      (111)        (249)                (83)
    Changes in operating assets and
      liabilities, net of business
      acquisitions --
      Accounts and notes
         receivable..................     (1,196)      (100)        (783)               (858)
      Accounts and notes receivable
         from affiliates.............        124       (654)        (167)                (30)
      Inventories....................       (341)    (1,166)      (1,970)                204
      Other assets...................        (17)       (82)         (29)                (59)
      Accounts payable...............         39        393        1,476              (1,029)
      Accounts payable to
         affiliates..................         11        161       --                --
      Income taxes payable...........        (18)       171          127                 100
      Accrued liabilities............        373        309         (269)                 98
                                       ---------  ---------   ------------          --------
         Net cash provided by (used
           in) operating
           activities................       (204)       602        1,812              (1,063)
                                       ---------  ---------   ------------          --------
CASH FLOWS FROM INVESTING ACTIVITIES:
  Proceeds from sale of assets.......        104         71          611                  25
  Purchases of property..............       (438)      (606)        (739)               (247)
  Collections on notes receivable....        129        109          445                  11
  Purchase of businesses, net of
    acquired cash....................     --         (2,500)        (150)             (1,300)
                                       ---------  ---------   ------------          --------
         Net cash provided by (used
           in) investing
           activities................       (205)    (2,926)         167              (1,511)
                                       ---------  ---------   ------------          --------
CASH FLOWS FROM FINANCING ACTIVITIES:
  Borrowings on notes payable........      2,566      2,518       --                --
  Principal payments on notes payable
    and capital leases...............     (1,745)      (322)        (746)               (308)
  Borrowings on revolving credit
    facility.........................      5,498      1,403        3,692              10,491
  Payments on revolving credit
    facility.........................     (6,005)    (1,299)      (5,160)             (4,725)
  Payments made to former ESOP
    members..........................        (92)       (63)         (89)                (90)
  Borrowings on notes payable to
    affiliates.......................     --            650        1,020               2,450
  Principal payments on notes payable
    to affiliates....................     --           (452)        (800)                (12)
  Issuance of common stock and
    members' equity..................     --             10            1                   5
  Distribution to stockholders.......     --         --             (100)             (3,400)
                                       ---------  ---------   ------------          --------
         Net cash provided by (used
           in) financing
           activities................        222      2,445       (2,182)              4,411
                                       ---------  ---------   ------------          --------
NET INCREASE (DECREASE) IN CASH......       (187)       121         (203)              1,837
CASH, BEGINNING OF PERIOD............        425        238          359                 156
                                       ---------  ---------   ------------          --------
CASH, END OF PERIOD..................  $     238  $     359     $    156               1,993
                                       =========  =========   ============          ========
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid for:
  Interest...........................  $     441  $     526     $    699             $   523
  Income taxes.......................        207        217          584                 107
Non-cash investing and financing
  activities:
  Purchase of assets through
    assumption of debt...............  $  --      $      19     $    820             $ 1,734
  Purchase of treasury stock through
    assumption of debt...............        102         35           32                   3
  Sale of assets by issuing note
    receivable.......................     --         --              330            --
  Sale of assets by issuing note
    receivable, affiliate............     --         --           --                     300
</TABLE>
    The accompanying notes are an integral part of these combined financial
                                  statements.

                                       51
<PAGE>
                 TEXAS ALUMINUM INDUSTRIES, INC. AND AFFILIATES
                     NOTES TO COMBINED FINANCIAL STATEMENTS
                (IN THOUSANDS OF DOLLARS, EXCEPT SHARE AMOUNTS)

1.  BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

  BASIS OF PRESENTATION

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

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

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

     Texas Aluminum/Cornerstone and its stockholders entered into a merger
agreement with Metals USA, Inc. ("Metals USA") pursuant to which all of Texas
Aluminum/Cornerstone's outstanding shares of capital stock were exchanged for
cash and shares of Metals USA common stock concurrently with the consummation of
the initial public offering (the "Offering") of Metals USA common stock, (see
Note 13).

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

     BUSINESS COMBINATIONS

     CMC, CBP and CAC are S Corporations, as defined by the Internal Revenue
Code, and were acquired April 1, 1995. Accordingly, the financial statements for
1995 include the nine-month period from the date of acquisition through December
31, 1995. CPC, a Limited Liability Corporation, was acquired in August,

                                       52
<PAGE>
                 TEXAS ALUMINUM INDUSTRIES, INC. AND AFFILIATES
             NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
                (IN THOUSANDS OF DOLLARS, EXCEPT SHARE AMOUNTS)

1996. The aggregate consideration paid for CMC and CBP was $2,500 in cash and
$828 in notes payable to the seller. The consideration paid for CPC was $150 in
cash and $415 in notes payable to the seller. The accompanying combined balance
sheet as of December 31, 1996, includes allocations of the respective purchase
prices which resulted in goodwill recognized of $887.

     The following summarizes the assets acquired and liabilities assumed.

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

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

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

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

     In February 1997, the owners of Cornerstone, through a newly formed
corporation, Cornerstone Aluminum Company, Inc. ("CAC"), acquired the business
and assets of Amalgamated Building Components, Inc. CAC paid $1,300 in cash and
issued $1,734 in notes payable to the former owner. CAC is headquartered in
Tucson, Arizona with three additional locations in the western and southwestern
United States.

     USE OF ESTIMATES AND ASSUMPTIONS

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

  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

     CASH EQUIVALENTS

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

     INVENTORIES

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

                                       53
<PAGE>
                 TEXAS ALUMINUM INDUSTRIES, INC. AND AFFILIATES
             NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
                (IN THOUSANDS OF DOLLARS, EXCEPT SHARE AMOUNTS)

     PROPERTY AND EQUIPMENT

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

     FAIR VALUE OF FINANCIAL INSTRUMENTS

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

     CONCENTRATION OF CREDIT RISK

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

     INCOME TAXES

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

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

     GOODWILL AND OTHER INTANGIBLES

     Goodwill represents the excess of the consideration paid over the fair
market value of assets acquired and is being amortized on the straight-line
method over 40 years. Other intangibles include covenants not to

                                       54
<PAGE>
                 TEXAS ALUMINUM INDUSTRIES, INC. AND AFFILIATES
             NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
                (IN THOUSANDS OF DOLLARS, EXCEPT SHARE AMOUNTS)

compete, trademarks, patents and consulting agreements, which are being
amortized over their respective lives ranging from 5-15 years. Accumulated
amortization totaled $23 and $65 as of June 30, 1995 and December 31, 1996,
respectively.

     RECENT ACCOUNTING PRONOUNCEMENTS

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

2.  PROPERTY AND EQUIPMENT

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

3.  SUMMARY OF LONG-TERM FINANCING ARRANGEMENTS

     Notes payable to non-affiliates consist of the following:

                                        JUNE 30,    DECEMBER 31,
                                          1995          1996
                                        --------    ------------
Revolving credit facility with
  interest at prime plus .25%
  maturing on October 29, 1998,
  secured by inventory, trade
  accounts and notes receivable, and
  equipment and personally guaranteed
  by stockholders....................   $  3,128      $  2,753
Revolving credit facility with
  interest at prime plus .5%,
  maturing on May 15, 1998, secured
  by inventory, trade accounts and
  notes receivable and equipment, and
  personally guaranteed by
  stockholders.......................      1,405           311
Term loan payable to a bank in
  quarterly installments of $63 plus
  monthly payments of interest at
  7.86%, due October 29, 1998,
  secured by inventory, trade
  accounts and notes receivable, and
  equipment and personally guaranteed
  by stockholders....................      2,175         1,800
Term loan payable to a bank in
  monthly installments of $17 plus
  monthly payments of interest at
  prime plus .5%, due June 30, 2000,
  secured by inventory, trade
  accounts and notes receivable and
  equipment, and personally
  guaranteed by stockholders.........        900           700

                                             (TABLE CONTINUED ON FOLLOWING PAGE)

                                       55
<PAGE>
                 TEXAS ALUMINUM INDUSTRIES, INC. AND AFFILIATES
             NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
                (IN THOUSANDS OF DOLLARS, EXCEPT SHARE AMOUNTS)

                                        JUNE 30,    DECEMBER 31,
                                          1995          1996
                                        --------    ------------
Note payable to individuals in
  monthly installments of $13
  including interest, maturing on
  July 1, 1998, at which time the
  note can be extended 20 months at
  prime plus 2%......................        795           701
Note payable to individual in annual
  installments of $100 plus accrued
  interest at 8%, beginning August 5,
  1997 and maturing on August 5,
  2000, unsecured....................      --              314
Note payable to individuals in annual
  installments of $25 including
  interest, beginning August 5, 1997
  and maturing on August 5, 2000,
  unsecured..........................      --              100
Other long-term debt.................         69             8
                                        --------    ------------
                                           8,472         6,687
Less: current portion................       (593)         (683)
                                        --------    ------------
                                        $  7,879      $  6,004
                                        ========    ============

     The maximum credit available under the Texas Aluminum revolving credit
facility was increased from $4,000 to $7,000 in February 1997 and the due dates
of the revolver and the term loan were extended to October 29, 1998. The maximum
credit available under the Cornerstone revolving credit facility was increased
from $2,000 to $3,000 in February 1997 and the due dates of the revolver and the
term loan were extended to May 15, 1998 and June 30, 2000, respectively. The
terms of the loan agreements, which provide the revolvers and the term loans to
Texas Aluminum/Cornerstone, include certain restrictive covenants of which Texas
Aluminum/Cornerstone was in compliance as of December 31, 1996. The prime rate
of interest at June 30, 1995 and December 31, 1996 were 9% and 8.25%,
respectively.

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

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

                                       56
<PAGE>
                 TEXAS ALUMINUM INDUSTRIES, INC. AND AFFILIATES
             NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
                (IN THOUSANDS OF DOLLARS, EXCEPT SHARE AMOUNTS)

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

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

4.  INVENTORIES

     Inventories consist of the following:

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

     The replacement cost of Texas Aluminum's inventory exceeds the historical
cost of the inventory, computed using the LIFO method of valuation, as reported
in the accompanying financial statements. If the FIFO method had been used for
all inventories, their carrying value would have been $11,818, $14,314 and
$14,847 at June 30, 1995, December 31, 1996 and July 10, 1997 respectively.
Additionally, net income would have been $286, $1,219, $1,837 and $301 for the
years ended June 30, 1994 and 1995, December 31, 1996 and the period from
January 1, 1997 through July 10, 1997, respectively.

5.  DETAIL OF ACCRUED LIABILITIES

     Accrued liabilities consist of the following:

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

                                       57
<PAGE>
                 TEXAS ALUMINUM INDUSTRIES, INC. AND AFFILIATES
             NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
                (IN THOUSANDS OF DOLLARS, EXCEPT SHARE AMOUNTS)

6.  INCOME TAXES

     The components of the provision for income taxes are as follows:
<TABLE>
<CAPTION>
                                                     YEAR ENDED
                                       --------------------------------------
                                              JUNE 30,                                 PERIOD FROM
                                       ----------------------    DECEMBER 31,        JANUARY 1, 1997
                                          1994        1995           1996         THROUGH JULY 10, 1997
                                       ----------  ----------    ------------     ---------------------
<S>                                    <C>         <C>            <C>                 <C>
Federal:
     Current.........................  $      165  $      338      $    578             $     250
     Deferred........................         (84)        (99)         (196)                  (72)
                                       ----------  ----------    ------------     ---------------------
                                               81         239           382                   178
                                       ----------  ----------    ------------     ---------------------
State:
     Current.........................          23          50           107                    40
     Deferred........................         (11)        (12)          (33)                  (11)
                                       ----------  ----------    ------------     ---------------------
                                               12          38            74                    29
                                       ----------  ----------    ------------     ---------------------
          Total provision............  $       93  $      277      $    456             $     207
                                       ==========  ==========    ============     =====================

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

                                                    YEAR ENDED
                                       -------------------------------------
                                              JUNE 30,                               PERIOD FROM
                                       ----------------------   DECEMBER 31,       JANUARY 1, 1997
                                          1994        1995          1996        THROUGH JULY 10, 1997
                                       ----------  ----------   ------------    ---------------------
Federal income tax at statutory
  rates..............................  $       76  $      325     $    818            $     148
State income taxes, net of Federal
  benefit............................          12          38           74                   19
Effect of S Corporation income.......          --         (89)        (454)                  --
Nondeductible expenses (mainly meals
  and entertainment).................           5           3           18                   40
                                       ----------  ----------   ------------    ---------------------
                                       $       93  $      277     $    456            $     207
                                       ==========  ==========   ============    =====================
</TABLE>

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

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

                                       58
<PAGE>
                 TEXAS ALUMINUM INDUSTRIES, INC. AND AFFILIATES
             NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
                (IN THOUSANDS OF DOLLARS, EXCEPT SHARE AMOUNTS)

7.  COMPANY STOCK

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

     Texas Aluminum and Cornerstone's capital structure consists of:

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

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

8.  EMPLOYEE BENEFIT PLANS

  401(K) DEFERRED PROFIT SHARING PLAN AND TRUST

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

     Texas Aluminum, at its discretion, has the option to match the employee's
contribution each plan year. Texas Aluminum elected to make contributions of
$24, $23 and $22 for the years ended June 30, 1994 and 1995 and December 31,
1996, respectively. For the period from January 1, 1997 through July 10, 1997,
Texas Aluminum has accrued $20 for their contribution to the plan.

  EMPLOYEE STOCK OWNERSHIP PLAN AND TRUST

     Texas Aluminum had an employee stock ownership plan and trust. Under the
provisions of this plan, Texas Aluminum made annual contributions to the plan
which were invested in stock and other qualifying

                                       59
<PAGE>
                 TEXAS ALUMINUM INDUSTRIES, INC. AND AFFILIATES
             NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
                (IN THOUSANDS OF DOLLARS, EXCEPT SHARE AMOUNTS)

securities of Texas Aluminum for the benefit of Texas Aluminum's employees.
 Effective July 1, 1989, the ESOP was frozen. As a result, all participants'
accounts became fully vested on that date.

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

     In January 1997, Texas Aluminum terminated the plan and gave its employees
the option to receive a cash distribution, roll their account balances into an
IRA account, or have the account distributed in Texas Aluminum stock. A
stockholder and an affiliated entity purchased the shares of Texas Aluminum's
common and preferred stock which were tendered by the Company's employees upon
termination of the ESOP plan.

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

9.  COMMITMENTS

  OPERATING LEASE AGREEMENTS

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

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

     Texas Aluminum/Cornerstone paid approximately $1,300, $1,700, $1,700 and
$985 in rent expense during the years ended June 30, 1994 and 1995 and December
31, 1996 and the period from January 1, 1997 through July 10, 1997,
respectively, under operating leases. Certain of these leases are with
affiliated individuals and companies (see Note 12).

10.  DIVESTITURE OF A RETAIL DIVISION

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

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

                                       60
<PAGE>
                 TEXAS ALUMINUM INDUSTRIES, INC. AND AFFILIATES
             NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
                (IN THOUSANDS OF DOLLARS, EXCEPT SHARE AMOUNTS)

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

11.  LICENSING AGREEMENT

     Texas Aluminum entered into a licensing agreement in July 1992, whereby it
is required to pay licensing fees to a third party on the sale of certain
products. Texas Aluminum has capitalized $94 in costs incurred in connection
with obtaining the licensing agreement which are being amortized over the life
of the agreement. The unamortized balance of capitalized licensing costs was $78
and $66 as of June 30, 1995 and December 31, 1996, respectively. Total licensing
fees paid for the years ended June 30, 1994 and 1995, December 31, 1996 and for
the period from January 1, 1997 through July 10, 1997 were $36, $43, $64 and
$35, respectively.

12.  RELATED-PARTY TRANSACTIONS

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

     FACILITY AND EQUIPMENT LEASES

     Texas Aluminum/Cornerstone leases certain facilities and equipment from
affiliated individuals and companies. Lease payments made to these affiliated
individuals and companies during the years ended June 30, 1994 and 1995 and
December 31, 1996 and the period from January 1, 1997 through July 10, 1997 were
$306, $541, $697 and $510, respectively.

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

     NOTES RECEIVABLE

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

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

     INTERCOMPANY ELIMINATIONS

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

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

                                       61
<PAGE>
                 TEXAS ALUMINUM INDUSTRIES, INC. AND AFFILIATES
             NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
                (IN THOUSANDS OF DOLLARS, EXCEPT SHARE AMOUNTS)

13.  SUBSEQUENT EVENTS

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

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

                                       62

<PAGE>
                    REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To Interstate Steel Supply Co. and Affiliates

We have audited the accompanying combined balance sheets of Interstate Steel
Supply Co. and Affiliates (collectively, the "Companies") as of December 31,
1995 and 1996, and the related combined statements of operations, stockholders'
equity and partners' capital and cash flows for each of the three years in the
period ended December 31, 1996 and for the period from January 1, 1997 through
July 10, 1997. These financial statements are the responsibility of the
Companies' management. Our responsibility is to express an opinion on these
combined financial statements based on our audits.

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

In our opinion, the combined financial statements referred to above present
fairly, in all material respects, the combined financial position of Interstate
Steel Supply Co. and Affiliates as of December 31, 1995 and 1996, and the
combined results of their operations and their cash flows for each of the three
years in the period ended December 31, 1996 and for the period from January 1,
1997 through July 10, 1997, in conformity with generally accepted accounting
principles.

ARTHUR ANDERSEN LLP

Houston, Texas
February 3, 1998

                                       63
<PAGE>
                   INTERSTATE STEEL SUPPLY CO. AND AFFILIATES
                            COMBINED BALANCE SHEETS
                (IN THOUSANDS OF DOLLARS, EXCEPT SHARE AMOUNTS)

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

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

                                       64
<PAGE>
                   INTERSTATE STEEL SUPPLY CO. AND AFFILIATES
                         COMBINED STATEMENTS OF INCOME
                           (IN THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
                                          YEARS ENDED DECEMBER 31,            PERIOD FROM
                                       -------------------------------      JANUARY 1, 1997
                                         1994       1995       1996      THROUGH JULY 10, 1997
                                       ---------  ---------  ---------   ---------------------
<S>                                    <C>        <C>        <C>                <C>
Net sales............................  $  49,299  $  61,375  $  66,806          $38,201
Costs and expenses:
     Cost of sales...................     37,283     44,868     47,902           28,103
     Operating and delivery..........      6,197      7,916      8,243            4,844
     Selling, general and
       administrative expenses.......      4,187      5,279      5,391            2,856
     Depreciation and amortization...        483        561        550              192
                                       ---------  ---------  ---------   ---------------------
     Operating income................      1,149      2,751      4,720            2,206
Other (income) expense:
     Interest expense, net...........        792        908        936              467
     Other, net......................         (1)         1         10         --
                                       ---------  ---------  ---------   ---------------------
Income before income taxes...........        358      1,842      3,774            1,739
Provision for income taxes...........     --         --         --             --
                                       ---------  ---------  ---------   ---------------------
Net income...........................  $     358  $   1,842  $   3,774          $ 1,739
                                       =========  =========  =========   =====================
</TABLE>
    The accompanying notes are an integral part of these combined financial
                                  statements.

                                       65
<PAGE>
                   INTERSTATE STEEL SUPPLY CO. AND AFFILIATES
                  COMBINED STATEMENTS OF STOCKHOLDERS' EQUITY
                             AND PARTNERS' CAPITAL
                           (IN THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
                                              COMMON STOCK
                                           ------------------    ADDITIONAL
                                           $1 PAR     NO PAR       PAID-IN      RETAINED     TREASURY     PARTNERS'
                                            VALUE      VALUE       CAPITAL      EARNINGS       STOCK      CAPITAL     TOTAL
                                           -------    -------    -----------    ---------    ---------    --------    ------
<S>                                         <C>        <C>          <C>          <C>          <C>          <C>        <C>
January 1, 1994.........................    $  36      $   2        $  72        $ 5,688      $(1,498)     $1,116     $5,416
Dividends and distributions.............     --         --          --              (228)       --            (80)      (308)
Net income..............................     --         --          --               239        --            119        358
                                           -------    -------    -----------    ---------    ---------    --------    ------
Balance, December 31, 1994..............       36          2           72          5,699       (1,498)      1,155      5,466
Dividends and distributions.............     --         --          --              (705)       --          --          (705)
Contributions...........................     --         --          --             --           --            250        250
Net income..............................     --         --          --             1,745        --             97      1,842
                                           -------    -------    -----------    ---------    ---------    --------    ------
Balance, December 31, 1995..............       36          2           72          6,739       (1,498)      1,502      6,853
Dividends and distributions.............     --         --          --            (1,437)       --          --        (1,437)
Net income..............................     --         --          --             3,770        --              4      3,774
                                           -------    -------    -----------    ---------    ---------    --------    ------
Balance, December 31, 1996..............       36          2           72          9,072       (1,498)      1,506      9,190
Dividends and distributions.............     --         --          --            (7,893)       --         (1,660)    (9,553)
Net income..............................     --         --          --             1,585        --            154      1,739
                                           -------    -------    -----------    ---------    ---------    --------    ------
Balance, July 10, 1997..................    $  36      $   2        $  72        $ 2,764      $(1,498)     $--        $1,376
                                           =======    =======    ===========    =========    =========    ========    ======
</TABLE>
    The accompanying notes are an integral part of these combined financial
                                  statements.

                                       66
<PAGE>
                   INTERSTATE STEEL SUPPLY CO. AND AFFILIATES
                       COMBINED STATEMENTS OF CASH FLOWS
                           (IN THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
                                             YEARS ENDED DECEMBER 31,            PERIOD FROM
                                          -------------------------------      JANUARY 1, 1997
                                            1994       1995       1996      THROUGH JULY 10, 1997
                                          ---------  ---------  ---------   ---------------------
<S>                                       <C>        <C>        <C>                <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
    Net income..........................  $     358  $   1,842  $   3,774          $ 1,739
    Adjustments to reconcile net income
      to net cash provided by (used in)
      operating activities:
         Depreciation and
           amortization.................        483        561        550              192
         Loss (gain) on sale of
           assets.......................          2         10     --             --
         Changes in operating assets and
           liabilities:
             Accounts receivable, net...       (695)      (768)     1,041           (4,511)
             Inventories................     (1,272)    (1,315)    (2,648)             824
             Prepaid expenses and other
               assets...................        112          6       (121)            (563)
             Accounts payable and
               accrued liabilities......         (3)       158        575            2,965
             Other assets...............       (119)      (178)      (129)            (109)
                                          ---------  ---------  ---------         --------
             Net cash provided by (used
               in) operating
               activities...............     (1,134)       316      3,042              537
                                          ---------  ---------  ---------         --------
CASH FLOWS FROM INVESTING ACTIVITIES:
    Additions to property and
      equipment.........................       (571)      (533)      (428)            (252)
    Proceeds from sales of property and
      equipment.........................         10          6     --             --
    Other, net..........................         11     --         --             --
                                          ---------  ---------  ---------         --------
             Net cash used in investing
               activities...............       (550)      (527)      (428)            (252)
                                          ---------  ---------  ---------         --------
CASH FLOWS FROM FINANCING ACTIVITIES:
    Net increase (decrease) on
      line-of-credit....................      1,225        750     (1,000)           7,350
    Principal payments on long-term
      obligations.......................       (239)      (259)       (93)            (161)
    Proceeds from issuance of long-term
      obligations.......................        900     --         --             --
    Distributions to shareholders and
      partners..........................       (308)      (564)    (1,436)          (6,710)
    Capital contributions...............     --            250     --             --
                                          ---------  ---------  ---------         --------
             Net cash provided by (used
               in) financing
               activities...............      1,578        177     (2,529)             479
                                          ---------  ---------  ---------         --------
NET INCREASE (DECREASE) IN CASH AND CASH
  EQUIVALENTS...........................       (106)       (34)        85              764
CASH AND CASH EQUIVALENTS, BEGINNING OF
  PERIOD................................        223        117         83              168
                                          ---------  ---------  ---------         --------
CASH AND CASH EQUIVALENTS, END OF
  PERIOD................................  $     117  $      83  $     168          $   932
                                          =========  =========  =========         ========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
  INFORMATION:
    Cash paid for interest..............  $     847  $     964  $     930          $   500
    Reduction in notes
      receivable -- shareholders and
      partners..........................     --            140     --             --
    Distribution of Warehouse Real
      Estate Associates' net assets to
      partners..........................     --         --         --                1,660
    Distribution of life insurance cash
      surrender value to shareholders...     --         --         --                1,183

    The accompanying notes are an integral part of these combined financial
                                  statements.
</TABLE>
                                       67
<PAGE>
                   INTERSTATE STEEL SUPPLY CO. AND AFFILIATES
                     NOTES TO COMBINED FINANCIAL STATEMENTS
                (IN THOUSANDS OF DOLLARS, EXCEPT SHARE AMOUNTS)

1.  BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

  BASIS OF PRESENTATION

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

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

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

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

     USE OF ESTIMATES AND ASSUMPTIONS

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

  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

     CASH EQUIVALENTS

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

     INVENTORIES

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

     PROPERTY AND EQUIPMENT

     Property and equipment is stated at cost, net of accumulated depreciation.
Depreciation for buildings and equipment are based upon the estimated useful
lives of the various classes of assets, using the straight-line and the
declining balance method, respectively. Leasehold improvements are amortized
over the shorter of their useful lives or the term of the lease using the
straight-line method.

                                       68
<PAGE>
                   INTERSTATE STEEL SUPPLY CO. AND AFFILIATES
             NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
                (IN THOUSANDS OF DOLLARS, EXCEPT SHARE AMOUNTS)

     FAIR VALUE OF FINANCIAL INSTRUMENTS

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

     CONCENTRATION OF CREDIT RISK

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

     INCOME TAXES

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

     RECENT ACCOUNTING PRONOUNCEMENTS

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

2.  INVENTORIES

     Interstate utilizes the LIFO method of inventory accounting. If the
first-in first-out, ("FIFO") method had been used for all inventories, their
carrying value would have been $11,466, $13,487 and $11,453 at December 31, 1995
and 1996, and July 10, 1997, respectively. Additionally, net income would have
been $1,030, $2,475, $3,146 and $1,816 for the years ended December 31, 1994,
1995, 1996 and for the period from January 1, 1997 through July 10, 1997,
respectively. During the years ended December 31, 1994 and 1996, Interstate
recorded favorable adjustments to cost of goods sold of approximately $90 and
$627, respectively. The adjustments were due to the lower costs associated with
the reduced quantities (for certain items) that prevailed in prior periods
compared to the cost prevailing in 1994 and 1996.

                                       69
<PAGE>
                   INTERSTATE STEEL SUPPLY CO. AND AFFILIATES
             NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
                (IN THOUSANDS OF DOLLARS, EXCEPT SHARE AMOUNTS)

3.  PROPERTY AND EQUIPMENT

     Property and equipment consists of the following:

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

4.  LINE-OF-CREDIT

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

5.  LONG-TERM DEBT

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

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

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

                                       70
<PAGE>
                   INTERSTATE STEEL SUPPLY CO. AND AFFILIATES
             NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
                (IN THOUSANDS OF DOLLARS, EXCEPT SHARE AMOUNTS)

6.  EMPLOYEE BENEFIT PLANS

     Interstate maintains profit-sharing plans which provide for voluntary
Company contributions at the discretion of the Board of Directors of up to 15%
of the salaries of eligible employees. Contributions of $260, $405, $472 and
$257 have been charged to operations for the years ended December 31, 1994, 1995
and 1996 and for the period from January 1, 1997 through July 10, 1997,
respectively.

7.  MAJOR CUSTOMERS AND SUPPLIERS

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

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

8.  SUBSEQUENT EVENT

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

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

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

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

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

                                       71

<PAGE>
                    REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To Queensboro Steel Corporation:

We have audited the statement of income, stockholders' equity, and cash flows of
Queensboro Steel Corporation (the "Company") for the period from January 1, 1997
through July 10, 1997. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audit.

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

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

ARTHUR ANDERSEN LLP

Houston, Texas
January 30, 1998

                                       72
<PAGE>
                          INDEPENDENT AUDITORS' REPORT

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

     We have audited the accompanying balance sheets of Queensboro Steel
Corporation as of
December 31, 1996 and 1995, and the related statements of income, stockholders'
equity, and cash flows for each of the three years in the period ended December
31, 1996. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.

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

                                          McGladrey & Pullen, LLP

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

                                       73
<PAGE>
                          QUEENSBORO STEEL CORPORATION
                                 BALANCE SHEETS
                (IN THOUSANDS OF DOLLARS, EXCEPT SHARE AMOUNTS)

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

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

                                       74
<PAGE>
                          QUEENSBORO STEEL CORPORATION
                              STATEMENTS OF INCOME
                           (IN THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
                                                                            PERIOD FROM
                                          YEARS ENDED DECEMBER 31,        JANUARY 1, 1997
                                       -------------------------------        THROUGH
                                         1994       1995       1996        JULY 10, 1997
                                       ---------  ---------  ---------    ---------------
<S>                                    <C>        <C>        <C>              <C>
Net sales............................  $  50,795  $  60,322  $  54,996        $32,976
Costs and expenses:
     Cost of sales...................     37,996     45,945     38,912         24,368
     Operating and delivery..........      7,408      8,080      8,355          4,971
     Selling, general and
       administrative expenses.......      3,656      3,839      3,870          2,286
     Depreciation and amortization...        369        362        405            246
                                       ---------  ---------  ---------    ---------------
     Operating income................      1,366      2,096      3,454          1,105
Other (income) expense:
     Interest expense................        465        612        587            411
     Other income....................        (63)       (67)       (77)           (14)
                                       ---------  ---------  ---------    ---------------
Net income...........................  $     964  $   1,551  $   2,944        $   708
                                       =========  =========  =========    ===============
</TABLE>

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

                                       75
<PAGE>
                          QUEENSBORO STEEL CORPORATION
                       STATEMENTS OF STOCKHOLDERS' EQUITY
                           (IN THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
                                                                                            UNREALIZED
                                            COMMON STOCK        ADDITIONAL                    GAIN ON          TOTAL
                                        --------------------      PAID-IN      RETAINED     INVESTMENT     STOCKHOLDERS'
                                        CLASS A     CLASS B       CAPITAL      EARNINGS     SECURITIES        EQUITY
                                        --------    --------    -----------    ---------    -----------    -------------
<S>                                      <C>         <C>           <C>          <C>           <C>             <C>
Balance, December 31, 1993...........    $  187      $  787        $ 870        $ 4,290       $--             $ 6,134
     Net income......................     --          --           --               964        --                 964
     Dividends.......................     --          --           --              (138)       --                (138)
                                        --------    --------    -----------    ---------    -----------    -------------
Balance, December 31, 1994...........       187         787          870          5,116        --               6,960
     Net income......................     --          --           --             1,551        --               1,551
     Dividends.......................     --          --           --              (909)       --                (909)
     Investment securities received
       from insurance cooperative....     --          --           --             --               78              78
                                        --------    --------    -----------    ---------    -----------    -------------
Balance, December 31, 1995...........       187         787          870          5,758            78           7,680
     Net income......................     --          --           --             2,944        --               2,944
     Dividends.......................     --          --           --              (758)       --                (758)
     Donation of investment
       securities received from
       insurance cooperative.........     --          --           --             --              (78)            (78)
                                        --------    --------    -----------    ---------    -----------    -------------
Balance, December 31, 1996...........       187         787          870          7,944        --               9,788
     Net income......................     --          --           --               708        --                 708
     Dividends.......................     --          --           --            (7,116)       --              (7,116)
                                        --------    --------    -----------    ---------    -----------    -------------
Balance, July 10, 1997...............    $  187      $  787        $ 870        $ 1,536       $--             $ 3,380
                                        ========    ========    ===========    =========    ===========    =============
</TABLE>
   The accompanying notes are an integral part of these financial statements.

                                       76
<PAGE>
                          QUEENSBORO STEEL CORPORATION
                            STATEMENTS OF CASH FLOWS
                           (IN THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
                                                                           PERIOD FROM
                                          YEARS ENDED DECEMBER 31,       JANUARY 1, 1997
                                       -------------------------------       THROUGH
                                         1994       1995       1996       JULY 10, 1997
                                       ---------  ---------  ---------   ---------------
<S>                                    <C>        <C>        <C>            <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
  Net income.........................  $     964  $   1,551  $   2,944      $     708
  Adjustments to reconcile net income
    to net cash provided by (used in)
    operating activities:
    Depreciation and amortization....        369        362        405            246
    Loss (gain) on sale of assets....         (1)         2          4        --
    Increase in deferred
      compensation...................         54         40         51             28
    Changes in operating assets and
      liabilities:
      Accounts receivable, net.......     (1,225)    (2,930)     1,702             22
      Inventories....................     (2,241)     1,552     (2,358)          (927)
      Prepaid expenses and other
         assets......................        (69)       (63)        99            (45)
      Accounts payable and accrued
         liabilities.................        925       (173)       258            337
      Billings related to cost and
         estimated earnings on
         uncompleted contracts.......        721        212         49           (659)
      Other operating activity.......     --         --         --                (14)
                                       ---------  ---------  ---------   ---------------
         Net cash provided by (used
           in) operating
           activities................       (503)       553      3,154           (304)
                                       ---------  ---------  ---------   ---------------
CASH FLOWS FROM INVESTING ACTIVITIES:
    Additions to property and
      equipment......................       (896)    (1,519)    (1,962)          (304)
    Proceeds from sales of property
      and equipment..................          2         16          7             51
    Other, net.......................         (7)        (1)         2        --
                                       ---------  ---------  ---------   ---------------
         Net cash used in investing
           activities................       (901)    (1,504)    (1,953)          (253)
                                       ---------  ---------  ---------   ---------------
CASH FLOWS FROM FINANCING ACTIVITIES:
    Payments on revolving
      line-of-credit.................    (61,087)   (40,844)   (43,543)       (59,165)
    Borrowings on revolving
      line-of-credit.................     62,755     42,829     40,210         65,884
    Borrowings on long-term debt.....     --         --          3,000        --
    Financing costs..................     --         --           (100)       --
    Net Advances (to) from
      Affiliates.....................     --         --         --                173
    Principal payments on long-term
      debt...........................       (125)      (125)       (10)       --
    Dividends paid...................       (138)      (909)      (758)        (6,334)
                                       ---------  ---------  ---------   ---------------
         Net cash provided by (used
           in) financing
           activities................      1,405        951     (1,201)           558
                                       ---------  ---------  ---------   ---------------
NET INCREASE IN CASH.................          1     --         --                  1
CASH BEGINNING OF PERIOD.............          4          5          5              5
                                       ---------  ---------  ---------   ---------------
CASH END OF PERIOD...................  $       5  $       5  $       5      $       6
                                       =========  =========  =========   ===============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
  INFORMATION:
    Cash paid for interest...........  $     466  $     601  $     559      $     409
SUPPLEMENTAL SCHEDULE OF NON-CASH
  INVESTING AND FINANCING ACTIVITIES:
    Investment securities received
      (donated)......................  $  --      $     (78) $      78      $ --
    Note received in settlement of an
      account receivable.............     --         --            156        --
    Distribution of property and
      equipment to shareholders......     --         --         --                782

   The accompanying notes are an integral part of these financial statements.
</TABLE>
                                       77
<PAGE>
                          QUEENSBORO STEEL CORPORATION
                         NOTES TO FINANCIAL STATEMENTS
                (IN THOUSANDS OF DOLLARS, EXCEPT SHARE AMOUNTS)

1.  BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

  BASIS OF PRESENTATION

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

     Queensboro and its shareholders entered into a definitive merger agreement
with Metals USA, Inc. ("Metals USA") pursuant to which all of Queensboro's
outstanding shares of capital stock were exchanged for cash and shares of Metals
USA common stock concurrently with the consummation of the initial public
offering (the "Offering") of Metals USA common stock (see Note 11).

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

     RECLASSIFICATIONS

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

     USE OF ESTIMATES AND ASSUMPTIONS

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

  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

     INVENTORIES

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

     PROPERTY AND EQUIPMENT

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

     LONG-TERM CONTRACTS

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

                                       78
<PAGE>
                          QUEENSBORO STEEL CORPORATION
                  NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
                (IN THOUSANDS OF DOLLARS, EXCEPT SHARE AMOUNTS)
provisions, and final contract settlements may result in revisions to costs and
income, and are recognized in the period in which the revisions are determined.
Contract costs include direct materials, direct labor and related overhead.

     FAIR VALUE OF FINANCIAL INSTRUMENTS

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

     CONCENTRATION OF CREDIT RISK

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

     INCOME TAXES

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

     RECENT ACCOUNTING PRONOUNCEMENTS

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

2.  TRADE RECEIVABLES

     Trade receivables consist of the following:

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

                                       79
<PAGE>
                          QUEENSBORO STEEL CORPORATION
                  NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
                (IN THOUSANDS OF DOLLARS, EXCEPT SHARE AMOUNTS)

3.  INVENTORIES

     Inventories of the steel service center consist primarily of unprocessed
steel and are carried at the lower of cost or market using the last-in,
first-out (LIFO) method. Inventories of the fabrication division ($340 and $366
at December 31, 1995 and 1996, respectively) approximate the lower of cost or
market using the first-in, first-out (FIFO) method. If the FIFO cost method of
inventory valuation had been used for all inventories at December 31, 1995 and
1996 and July 10, 1997, inventories would have been $8,086, $9,776 and $10,671
and net income for the years ended December 31, 1994, 1995, 1996 and for the
period from January 1, 1997 through July 10, 1997, would have been $1,324,
$1,882, $2,279 and $676, respectively.

4.  PROPERTY AND EQUIPMENT

     Property and equipment consists of the following:

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

5.  CONTRACTS IN PROCESS

     Information with respect to contracts in process is as follows:

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

                                       80
<PAGE>
                          QUEENSBORO STEEL CORPORATION
                  NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
                (IN THOUSANDS OF DOLLARS, EXCEPT SHARE AMOUNTS)

6.  LONG-TERM DEBT

     Long-term obligations consist of the following:

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

     REVOLVING LINE-OF-CREDIT

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

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

     INDUSTRIAL REVENUE BONDS

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

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

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

                                       81
<PAGE>
                          QUEENSBORO STEEL CORPORATION
                  NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
                (IN THOUSANDS OF DOLLARS, EXCEPT SHARE AMOUNTS)

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

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

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

7.  EMPLOYEE BENEFIT PLANS

     Queensboro participates in a multi-employer 401(k) profit-sharing plan with
a related corporation, which covers all employees at least twenty-one years of
age who have completed at least 1,000 hours of service in a twelve-month period
subsequent to employment. The Plan allows for employee contributions through
salary reduction of up to 15% of total compensation. The employer will match
these contributions at rate of 25%, up to 4% of the employees' total
compensation. Employer matching contributions were $37, $39, $40 and $20 for
1994, 1995, 1996 and for the period from January 1, 1997 through July 10, 1997,
respectively. The discretionary profit-sharing contributions were $50, $65, $25
and $15 in 1994, 1995, 1996 and for the period from January 1, 1997 through July
10, 1997, respectively.

8.  DEFERRED COMPENSATION AND LIFE INSURANCE

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

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

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

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

9.  LEASE COMMITMENTS

     Queensboro has leased facilities and equipment under non-cancelable
long-term agreements, which have initial or remaining non-cancelable terms in
excess of one year as of December 31, 1996. Total rent expense related to such
leases aggregated $499, $417, and $417 and $221 for the years ended December 31,
1994, 1995, 1996 and for the period from January 1, 1997 through July 10, 1997,
respectively.

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

10.  RELATED PARTY TRANSACTIONS

     At December 31, 1995 and 1996, Queensboro had a receivable from a
corporation related through common ownership of $32 and $34, respectively.
Queensboro provides certain administrative services to

                                       82
<PAGE>
                          QUEENSBORO STEEL CORPORATION
                  NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
                (IN THOUSANDS OF DOLLARS, EXCEPT SHARE AMOUNTS)
the affiliated corporation, for which it billed $274 in 1994, $370 in 1995, $344
in 1996 and $186 for the period from January 1, 1997 through July 10, 1997.

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

11.  SUBSEQUENT EVENT

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

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

12.  OTHER TRANSACTIONS

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

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

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

                                       83

<PAGE>
                    REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To Affiliated Metals Company

We have audited the accompanying statements of operations, stockholders' equity
and cash flows of Affiliated Metals Company (the "Company") for the period from
September 1, 1996 through July 10, 1997. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audit.

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

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

ARTHUR ANDERSEN LLP

Houston, Texas
January 30, 1998

                                       84
<PAGE>
                         REPORT OF INDEPENDENT AUDITORS

To the Board of Directors of
  Affiliated Metals Company

     We have audited the accompanying balance sheet of Affiliated Metals Company
as of August 31, 1996 and the related statements of operations, stockholders'
equity and cash flows for the fifty-two weeks then ended. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.

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

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

                                                         ERNST & YOUNG LLP

St. Louis, Missouri
October 4, 1996

                                       85
<PAGE>
                         REPORT OF INDEPENDENT AUDITORS

Board of Directors
Affiliated Metals Company
Granite City, Illinois

     We have audited the accompanying balance sheet of Affiliated Metals Company
as of September 2, 1995 and the related statements of operations, stockholder's
equity and cash flows for the fifty-two weeks ended September 3, 1994 and
September 2, 1995. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.

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

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

St. Louis, Missouri
October 19, 1995

                                       86
<PAGE>
                           AFFILIATED METALS COMPANY
                                 BALANCE SHEETS
                (IN THOUSANDS OF DOLLARS, EXCEPT SHARE AMOUNTS)

                                        SEPTEMBER 2,    AUGUST 31,
                                            1995           1996
                                        ------------    ----------
               ASSETS
Current assets:
     Cash............................     $      2       $     10
     Accounts receivable, less
       allowances for doubtful
       accounts
       of $30 at September 2, 1995
       and August 31, 1996...........        7,013          7,074
     Inventories.....................        6,810         10,658
     Prepaid expenses and other
       current assets................          125            130
                                        ------------    ----------
          Total current assets.......       13,950         17,872
Property and equipment, net..........        2,699          7,940
Other assets.........................          705            649
                                        ------------    ----------
          Total assets...............     $ 17,354       $ 26,461
                                        ============    ==========

LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
     Bank overdraft..................     $     23       $    143
     Accounts payable................        5,860          7,154
     Accrued liabilities.............          494            529
     Current portion of long-term
       debt..........................          407         10,358
                                        ------------    ----------
          Total current
             liabilities.............        6,784         18,184
Long-term debt.......................        8,018          4,337
Deferred income taxes................          622            599
Redeemable preferred stock, $119.048
  par value; 1,680 shares authorized;
  840 and 600 shares issued and
  outstanding
  at September 2, 1995 and August 31,
  1996, respectively.................          100             71
Common stock purchase warrant........       --             --
Stockholders' equity:
     Common stock, $0.01 par value;
       100,000 authorized;
       6,000 shares issued and
       outstanding...................       --             --
     Additional paid-in capital......           50             50
     Retained earnings...............        1,780          3,220
                                        ------------    ----------
          Total stockholders'
             equity..................        1,830          3,270
                                        ------------    ----------
               Total liabilities and
                  stockholders'
                  equity.............     $ 17,354       $ 26,461
                                        ============    ==========

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

                                       87
<PAGE>
                           AFFILIATED METALS COMPANY
                            STATEMENTS OF OPERATIONS
                           (IN THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
                                                  FIFTY-TWO WEEKS ENDED
                                        ------------------------------------------         PERIOD FROM
                                        SEPTEMBER 3,    SEPTEMBER 2,    AUGUST 31,      SEPTEMBER 1, 1996
                                            1994            1995           1996       THROUGH JULY 10, 1997
                                        ------------    ------------    ----------    ---------------------
<S>                                     <C>             <C>             <C>           <C>
Net sales............................     $ 63,046        $ 78,976       $ 81,002            $88,932

Costs and expenses:

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

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

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

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

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

Other expense:

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

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

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

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

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

                                       88
<PAGE>
                           AFFILIATED METALS COMPANY
                       STATEMENTS OF STOCKHOLDERS' EQUITY
                (IN THOUSANDS OF DOLLARS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
                                          COMMON STOCK      ADDITIONAL                      TOTAL
                                        ----------------      PAID-IN      RETAINED     STOCKHOLDERS'
                                        SHARES    AMOUNT      CAPITAL      EARNINGS        EQUITY
                                        ------    ------    -----------    ---------    -------------

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

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

     Net income......................     --        --         --               405            405
                                        ------    ------         ---       ---------    -------------

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

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

     Net income......................     --        --         --               742            742
                                        ------    ------         ---       ---------    -------------

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

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

     Net income......................     --        --         --             1,448          1,448
                                        ------    ------         ---       ---------    -------------

Balance, August 31, 1996.............    6,000      --            50          3,220          3,270

     Dividends paid, redeemable
       preferred.....................     --        --         --                (4)            (4)

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

Balance, July 10, 1997...............    6,000    $ --         $  50        $ 3,203        $ 3,253
                                        ======    ======         ===       =========    =============

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

                                       89
<PAGE>
                           AFFILIATED METALS COMPANY
                            STATEMENTS OF CASH FLOWS
                           (IN THOUSANDS OF DOLLARS)

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

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

                                       90
<PAGE>
                           AFFILIATED METALS COMPANY
                         NOTES TO FINANCIAL STATEMENTS
                (IN THOUSANDS OF DOLLARS, EXCEPT SHARE AMOUNTS)

1.  BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

  BASIS OF PRESENTATION

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

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

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

     USE OF ESTIMATES AND ASSUMPTIONS

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

     ACCOUNTING PERIOD

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

  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

     INVENTORIES

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

     PROPERTY AND EQUIPMENT

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

     OTHER ASSETS

     Other assets consists primarily of goodwill, net of accumulated
amortization. Goodwill is being amortized over a thirty year period using the
straight-line method. Affiliated periodically evaluates the propriety of the
carrying amount of goodwill using expected undiscounted cash flows. At September
2, 1995 and August 31, 1996 goodwill, net of accumulated amortization was $622
and $599, respectively.

                                       91
<PAGE>
                           AFFILIATED METALS COMPANY
                  NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
                (IN THOUSANDS OF DOLLARS, EXCEPT SHARE AMOUNTS)

     FAIR VALUE OF FINANCIAL INSTRUMENTS

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

     CONCENTRATION OF CREDIT RISK

     Financial instruments, which potentially subject Affiliated to
concentrations of credit risk, consist principally of cash deposits and, trade
account receivables. Affiliated places its cash with several financial
institutions limiting the amount of credit exposure to any one financial
institution. Concentrations of credit risk with respect to trade accounts
receivable are within the midwest and Great Lakes regions of the United States.
Affiliated had a credit risk concentration since two customers accounted for
approximately 27% of accounts receivable at August 31, 1996. For the fifty-two
weeks ended September 3, 1994, three customers accounted for 16.3%, 17.2%, and
11.1% of sales, respectively. For the fifty-two weeks ended September 2, 1995
and August 31, 1996, two of the same three customers accounted for 16.9% and
20.2%, and 14.5% and 14.0% of sales, respectively. For the period from September
1, 1996 through July 10, 1997, three customers accounted for 10.6%, 8.0% and
7.9% of sales, respectively. Management performs ongoing credit evaluations of
its customers and provides allowances as deemed necessary. Credit is extended
once appropriate credit history and references have been obtained. Adjustments
to the allowance for doubtful accounts are made periodically (as circumstances
warrant) based upon the expected collectibility of all such accounts. Affiliated
periodically reviews the credit history of its customers and generally does not
require collateral for the extension of credit.

     RECENT ACCOUNTING PRONOUNCEMENTS

     The Financial Accounting Standards Board issued Statement of Financial
Accounting Standards No. 121, ACCOUNTING FOR THE IMPAIRMENT OF LONG-LIVED ASSETS
AND FOR LONG-LIVED ASSETS TO BE DISPOSED OF ("SFAS 121") in March 1995. SFAS
121 requires that long-lived assets and certain intangibles to be held and used
by an entity be reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be
recoverable. Affiliated adopted SFAS No. 121 on September 1, 1996. The impact of
adopting this standard did not have a material impact on the results of
operations.

2.  PROPERTY AND EQUIPMENT

     Property and equipment consists of the following:
<TABLE>
<CAPTION>
                                          ESTIMATED       SEPTEMBER 2,     AUGUST 31,
                                        USEFUL LIVES          1995            1996
                                        -------------     ------------     ----------
<S>                                          <C>                               <C>
Land.................................        --             $     46        $    561
Buildings............................        39 years         --               2,350
Machinery and equipment..............     10-30 years          2,897           5,407
Automobiles and trucks...............         7 years            151             148
Office equipment and furniture.......       5-7 years            299             373
Leasehold improvements...............      7-39 years            105             109
                                                          ------------     ----------
                                                               3,498           8,948
Less: accumulated depreciation and
  amortization.......................                           (799)         (1,008)
                                                          ------------     ----------
     Total...........................                       $  2,699        $  7,940
                                                          ============     ==========
</TABLE>
                                       92
<PAGE>
                           AFFILIATED METALS COMPANY
                  NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
                (IN THOUSANDS OF DOLLARS, EXCEPT SHARE AMOUNTS)

3.  LONG-TERM DEBT

     Long-term debt consists of the following:

                                        SEPTEMBER 2,     AUGUST 31,
                                            1995            1996
                                        ------------     ----------
Note payable, interest at 8.75%,
  payable in monthly installments of
  $30 (plus interest) commencing
  September 1996; matures August
  2001; secured by certain machinery
  and equipment and personal
  guarantees of common
  stockholders.......................     $ --            $   1,770
Note payable, interest at prime plus
  1.0%, payable in 59 monthly
  installments of $25 (plus
  interest), matures November, 1999;
  secured by accounts receivable,
  inventories, machinery and
  equipment, assignment of life
  insurance proceeds on officers'
  policies, and personal guarantees
  of common stockholders.............        1,250              905
Construction note payable, interest
  at prime plus 1.0%, interest
  payable monthly, principal payment
  due March, 1997; secured by certain
  machinery and equipment, certain
  land, building, and personal
  guarantees of common
  stockholders.......................       --                2,432
Note payable, interest at 9.75%,
  payable in monthly installments of
  $5 (plus interest); secured by
  certain machinery and equipment;
  refinanced in February, 1996.......          244           --
Revolving line-of-credit, interest at
  prime plus 0.5%, interest payable
  monthly, expires August, 1997
  secured by substantially all assets
  of Affiliated, assignment of life
  insurance proceeds on officers'
  policies, and personal guarantees
  of common stockholders.............        6,747            9,421
Notes payable to estate of former
  stockholder, interest at prime plus
  1.0%, payable in monthly
  installments of $2 (plus interest),
  principal payment due March 1999;
  secured by personal guarantees of
  common stockholders................          102               74
Notes payable, interest at rates
  ranging from 7.5% to 10.25%,
  payable in monthly installments
  ranging from $0.3 to $0.8, through
  July, 1999.........................           82               93
                                        ------------     ----------
                                             8,425           14,695
Less: current maturities.............         (407)         (10,358)
                                        ------------     ----------
                                          $  8,018        $   4,337
                                        ============     ==========

     Affiliated has obtained financing agreements from its lender that will
convert the construction note to a term loan note payable and a Small Business
Administration ("SBA") note payable in amounts up to $1,600 and $1,000,
respectively. The new notes will be secured by certain machinery and equipment,
certain land and building, and personal guarantees of common stockholders. The
term loan note payable will bear interest at a fixed rate based on prime plus
0.5% at closing during the first five years and will adjust after year five and
will be payable in monthly installments of principal and interest over a
ten-year period from the date of conversion. The SBA note payable will bear
interest at a rate yet to be determined and will be payable in monthly
installments of principal and interest over a 20-year period from the date of
conversion. Because Affiliated had the intent and ability to convert the
construction note payable on a long-term basis, the August 31, 1996
classification and future maturities have been presented under the terms of the
new agreements. In April 1997, Affiliated entered into an agreement to extend
until September 1997 the financing agreements related to the construction note
payable.

                                       93
<PAGE>
                           AFFILIATED METALS COMPANY
                  NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
                (IN THOUSANDS OF DOLLARS, EXCEPT SHARE AMOUNTS)

     Affiliated's revolving line of credit provides for borrowings up to $12,000
(limited to a borrowing base defined in the agreement as a percentage of
eligible accounts receivable and inventories). The revolving line of credit
agreement requires that all cash receipts of Affiliated be deposited directly
into a lockbox account and applied against the line of credit. Funds are then
drawn from the line of credit as checks are disbursed. Additionally, the
agreement requires, among other things, that Affiliated maintain certain minimum
ratios, including net income, tangible net worth, leverage, cash flow coverage,
and limits on capital expenditures. At August 31, 1996, future principal
payments of long-term debt, as adjusted to reflect the financing agreements, are
as follows:

1997.................................  $   10,358
1998.................................         928
1999.................................         905
2000.................................         573
2001.................................         538
Thereafter...........................       1,393
                                       ----------
                                       $   14,695
                                       ==========

     In February 1997, Affiliated amended its revolving credit facility, which
reduced the interest to prime, increased the available borrowing up to $16,000
and extended the maturity to August 31, 1998.

4.  REDEEMABLE PREFERRED STOCK

     Redeemable preferred stock consists of 1,680 shares of authorized at a par
value of $119.048 per share. Shares issued and outstanding at August 31, 1996
and September 2, 1995, were 600 and 840 respectively. The stock is subject to
mandatory redemption of 20 shares per month beginning in March 1992 and
continuing for 84 months. In both fiscal 1996 and fiscal 1995, 240 shares were
redeemed at a price of $119.048 per share. Dividends are calculated cumulatively
(but not compounded) on a daily basis at the rate of 1% over prime. Dividends
are paid on each redemption date.

5.  COMMON STOCK PURCHASE WARRANT

     In March 1992, in connection with a Securities Purchase Agreement related
to the purchase of Affiliated, Affiliated issued one warrant to an investor in
consideration for $100. The warrant is exercisable at an exercise price of $.01
per share into 34.4% or 3,146 shares of Affiliated's common stock on a fully
diluted basis. The holder of the warrant also may put the warrant or a portion
thereof to Affiliated through November 1999, unless it would cause Affiliated to
be in default of its debt covenants. The put price is determined by the
ownership percentage of the warrants multiplied by the greater of either fair
value of Affiliated, a multiple of earnings before income taxes, interest, and
depreciation and amortization, and book value, all as defined in the agreement.

     In addition, the agreement provides the holder of the warrant with certain
registration rights under the Securities Act of 1933 (the "Securities Act") to
cause Affiliated to register the shares of common stock to be received from the
exercise of the warrant. The agreement also provides the holder of the warrant
with certain "piggyback" registration rights which allow the holder of the
warrant to register his common stock in the event Affiliated files a
registration statement under the Securities Act.

                                       94
<PAGE>
                           AFFILIATED METALS COMPANY
                  NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
                (IN THOUSANDS OF DOLLARS, EXCEPT SHARE AMOUNTS)

6.  INCOME TAXES

     Affiliated has implemented Statement of Financial Accounting Standards No.
109, ACCOUNTING FOR INCOME TAXES ("SFAS 109"), which provides for a liability
approach to accounting for income taxes.

     The provisions for federal and state income taxes are as follows:
<TABLE>
<CAPTION>
                                                  FIFTY-TWO WEEKS ENDED
                                        ------------------------------------------         PERIOD FROM
                                        SEPTEMBER 3,    SEPTEMBER 2,    AUGUST 31,      SEPTEMBER 1, 1996
                                            1994            1995           1996       THROUGH JULY 10, 1997
                                        ------------    ------------    ----------    ---------------------
Federal:
<S>                                       <C>             <C>            <C>                 <C>
     Current.........................     $    260        $    442       $    796            $    37
     Deferred........................          (16)            (37)            (1)               (20)
                                        ------------    ------------    ----------    ---------------------
                                               244             405            795                 17
State:
     Current.........................           57             100            184                 (1)
     Deferred........................           (4)             (8)        --                      2
                                        ------------    ------------    ----------    ---------------------
                                                53              92            184                  1
                                        ------------    ------------    ----------    ---------------------
Total provision......................     $    297        $    497       $    979            $    18
                                        ============    ============    ==========    =====================
</TABLE>

     The components of deferred income tax liabilities and assets are as
follows:

                                        SEPTEMBER 3,     AUGUST 31,
                                            1995            1996
                                        ------------     ----------
Deferred income tax liabilities:
     Property and equipment..........     $    634        $    666
                                        ------------     ----------
          Total deferred income tax
             liabilities.............          634             666
                                        ------------     ----------
Deferred income tax assets:
     Allowance for doubtful
       accounts......................           12              12
     Other, net......................           44              77
                                        ------------     ----------
          Total deferred income tax
             assets..................           56              89
                                        ------------     ----------
Net deferred tax liabilities.........     $    578        $    577
                                        ============     ==========

     A reconciliation of the difference between the federal statutory tax rates
and the effective tax rates as a percentage of net income is as follows:
<TABLE>
<CAPTION>
                                                  FIFTY-TWO WEEKS ENDED
                                        ------------------------------------------         PERIOD FROM
                                        SEPTEMBER 2,    SEPTEMBER 3,    AUGUST 31,      SEPTEMBER 1, 1996
                                            1994            1995           1996       THROUGH JULY 10, 1997
                                        ------------    ------------    ----------    ---------------------
<S>                                         <C>             <C>            <C>                 <C>
U.S. federal statutory rate..........       34.0%           34.0%          34.0%               35.0%
State income taxes, net of Federal
  tax benefit........................        4.8             4.8            5.0                15.0
Other................................        3.5             1.3            1.3               290.0
                                        ------------    ------------    ----------           ------
                                            42.3%           40.1%          40.3%              340.0%
                                        ============    ============    ==========           ======
</TABLE>

                                       95
<PAGE>
                           AFFILIATED METALS COMPANY
                  NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
                (IN THOUSANDS OF DOLLARS, EXCEPT SHARE AMOUNTS)

7.  EMPLOYEE BENEFIT PLANS

     Affiliated sponsors a qualified contributory profit sharing plan and 401(k)
plan. The plan covers substantially all full-time employees who have met certain
eligibility requirements. The plan may be amended or terminated at any time by
the Board of Directors. Affiliated, although not required to, has provided
contributions to the plan during each of the fifty-two weeks ended September 3,
1994,
September 2, 1995, August 31, 1996 and the period from September 1, 1996 through
July 10, 1997, of $89, $100, $141 and $114, respectively.

8.  COMMITMENTS AND CONTINGENCIES

  LEASE COMMITMENTS

     Affiliated leases its corporate office and one of its production
facilities. The lease expires on May 31, 1998 and calls for a monthly rental
payment of $9. The lease also provides for an additional five-year renewal
option.

     Rent expense for all operating leases for the fifty-two weeks ended
September 3, 1994, September 2, 1995, August 31, 1996 and the period from
September 1, 1996 through July 10, 1997 was $126, $125, $128 and $113,
respectively.

9.  SUBSEQUENT EVENT

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

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

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

                                       96

<PAGE>
                    REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To Southern Alloy of America, Inc.

We have audited the accompanying balance sheets of Southern Alloy of America,
Inc. (the "Company") as of December 31, 1995 and 1996, and the related
statements of operations, stockholders' equity and cash flows for the years then
ended and for the period from January 1, 1997 through July 10, 1997. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.

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

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

ARTHUR ANDERSEN LLP

Houston, Texas
January 30, 1998

                                       97
<PAGE>
                        SOUTHERN ALLOY OF AMERICA, INC.
                                 BALANCE SHEETS
                (IN THOUSANDS OF DOLLARS, EXCEPT SHARE AMOUNTS)

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

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

                                       98
<PAGE>
                        SOUTHERN ALLOY OF AMERICA, INC.
                            STATEMENTS OF OPERATIONS
                           (IN THOUSANDS OF DOLLARS)

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

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

                                       99
<PAGE>
                        SOUTHERN ALLOY OF AMERICA, INC.
                  STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
                (IN THOUSANDS OF DOLLARS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
                                                                                                 TOTAL
                                           COMMON STOCK        ADDITIONAL      RETAINED      STOCKHOLDERS'
                                        ------------------       PAID-IN       EARNINGS         EQUITY
                                        SHARES      AMOUNT       CAPITAL       (DEFICIT)       (DEFICIT)
                                        -------     ------     -----------     ---------     -------------
<S>                                      <C>         <C>          <C>           <C>             <C>
Balance, January 1, 1995.............    19,500      $ 20         $ 410         $    183        $   613
     Distributions to owners.........     --         --           --                (190)          (190)
     Net income......................     --         --           --                 427            427
                                        -------     ------     -----------     ---------     -------------
Balance, December 31, 1995...........    19,500        20           410              420            850
     Purchase of common stock........    (2,300)       (3)          (48)            (197)          (248)
     Distributions to owners.........     --         --           --                (115)          (115)
     Stock options...................     --         --             246           --                246
     Net loss........................     --         --           --                 (14)           (14)
                                        -------     ------     -----------     ---------     -------------
Balance, December 31, 1996...........    17,200        17           608               94            719
     Sale of common stock............     2,300         3         --              --                  3
     Distributions to owners.........     --         --           --              (1,099)        (1,099)
     Net income......................     --         --           --                 (18)           (18)
                                        -------     ------     -----------     ---------     -------------
Balance, July 10, 1997...............    19,500      $ 20         $ 608         $ (1,023)       $  (395)
                                        =======     ======     ===========     =========     =============
</TABLE>
   The accompanying notes are an integral part of these financial statements.

                                      100
<PAGE>
                        SOUTHERN ALLOY OF AMERICA, INC.
                            STATEMENTS OF CASH FLOWS
                           (IN THOUSANDS OF DOLLARS)

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

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

                                      101
<PAGE>
                        SOUTHERN ALLOY OF AMERICA, INC.
                         NOTES TO FINANCIAL STATEMENTS
                (IN THOUSANDS OF DOLLARS, EXCEPT SHARE AMOUNTS)

1.  BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

  BASIS OF PRESENTATION

     Southern Alloy of America, Inc. ("Southern Alloy"), a North Carolina
corporation, is a specialty metal service center located in Salisbury, North
Carolina specializing in ferrous and non-ferrous continuous, centrifugal and
static cast bar stock. Southern Alloy performs a number of metal processing
services, including precision saw cutting, precision and semi-finished
machining, drilling and milling operations. Southern Alloy's customers are
comprised of original equipment manufacturers and machine shops servicing the
fluid power, power transmission, material handling and textile machinery
industries. Market areas are principally located in the Southeastern United
States.

     Southern Alloy and its shareholders entered into a definitive merger
agreement with Metals USA, Inc. ("Metals USA") pursuant to which all of
Southern Alloy's outstanding shares of capital stock were exchanged for cash and
shares of Metals USA common stock concurrently with the consummation of the
initial public offering (the "Offering") of Metals USA common stock. (See Note
10).

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

     RECLASSIFICATIONS

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

     USE OF ESTIMATES AND ASSUMPTIONS

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

  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

     INVENTORIES

     Inventories are stated at the lower of cost or market. Cost is primarily
determined using the specific identification method.

     PROPERTY AND EQUIPMENT

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

     FAIR VALUE OF FINANCIAL INSTRUMENTS

     The carrying amounts of cash surrender value of life insurance policies
approximate their fair value. The fair value of the long-term debt is estimated
based on interest rates for the same or similar debt offered to Southern Alloy
having the same or similar remaining maturities and collateral requirements. The
carrying amounts of long-term debt approximate fair value at the applicable
balance sheet dates.

                                      102
<PAGE>
                        SOUTHERN ALLOY OF AMERICA, INC.
                  NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
                (IN THOUSANDS OF DOLLARS, EXCEPT SHARE AMOUNTS)

     CONCENTRATION OF CREDIT RISK

     Financial instruments, which potentially subject Southern Alloy to
concentrations of credit risk, consist principally of cash deposits and, trade
account and note receivables. Concentrations of credit risk with respect to
trade accounts receivable are within the Southeastern United States.
Additionally, Southern Alloy has one customer that accounts for approximately
10% of net sales. Credit is extended once appropriate credit history and
references have been obtained. Adjustments to the allowance for doubtful
accounts are made periodically (as circumstances warrant) based upon the
expected collectibility of all such accounts. Southern Alloy periodically
reviews the credit history of its customers and generally does not require
collateral for the extension of credit.

     INCOME TAXES

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

     RECENT ACCOUNTING PRONOUNCEMENTS

     The Financial Accounting Standards Board issued Statement of Financial
Accounting Standards No. 121, ACCOUNTING FOR THE IMPAIRMENT OF LONG-LIVED ASSETS
AND FOR LONG-LIVED ASSETS TO BE DISPOSED OF ("SFAS 121") in March 1995. SFAS
121 requires that long-lived assets and certain intangibles to be held and used
by an entity be reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be
recoverable. Southern Alloy adopted SFAS No. 121 on January 1, 1996. The impact
of adopting this standard did not have a material impact on the results of
operations.

2.  PROPERTY AND EQUIPMENT

     Property and equipment consists of the following:

                                                            DECEMBER 31,
                                          ESTIMATED     --------------------
                                        USEFUL LIVES      1995       1996
                                        -------------   ---------  ---------
Machinery and equipment..............     3-7 years     $   1,112  $     962
Furniture and fixtures...............     3-7 years           173        176
Leasehold improvements...............      5 years             85         85
                                                        ---------  ---------
                                                            1,370      1,223
Less: accumulated depreciation.......                        (914)      (870)
                                                        ---------  ---------
                                                        $     456  $     353
                                                        =========  =========

3.  LINE OF CREDIT

     At December 31, 1995, Southern Alloy had a line of credit with Freemont
Financial Corporation. On January 3, 1996, Southern Alloy entered into an
agreement with NationsBank of Georgia, N.A. which was to expire on January 1,
1997. The original agreement was terminated and Southern Alloy entered into a
new

                                      103
<PAGE>
                        SOUTHERN ALLOY OF AMERICA, INC.
                  NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
                (IN THOUSANDS OF DOLLARS, EXCEPT SHARE AMOUNTS)
line-of-credit agreement with NationsBank N.A. ("NationsBank"), which expires
on July 31, 1997. This agreement provides a maximum borrowing limit of $2,000
with interest payable monthly at the bank's prime rate (8.25% at December 31,
1996). The borrowing base under the new NationsBank line of credit is limited to
80% of eligible receivables as defined by the agreement plus 50% of the eligible
inventory. Southern Alloy had $75 of unused availability under the
line-of-credit at December 31, 1996. The line is secured by accounts receivable,
inventory, equipment and guarantees of Southern Investments, The Development
Group, Inc. (both of which are affiliates of Southern Alloy) and stockholders of
Southern Alloy.

     The new NationsBank agreement contains restrictive covenants which, among
other things, require Southern Alloy to maintain certain financial ratios, limit
capital expenditures and bonuses and restrict future indebtedness. At December
31, 1996, Southern Alloy was in compliance with, or had obtained all necessary
waivers regarding instances of non-compliance with the terms of the loan
agreement.

4.  LONG-TERM DEBT

     Long-term obligations consist of three notes payable to Amada Cutting
Technologies, Inc. The notes bear interest at rates ranging from 9.0% to 9.4%
and are payable in monthly installments totaling $4 through April 1997, and $1
from May 1997 to December 1997. The notes are secured by related equipment.

5.  OBLIGATIONS UNDER CAPITAL LEASE

     Southern Alloy leases certain shop equipment under capital leases through
1999, which bear interest at rates ranging from 9.0% to 11.27%.

     Future minimum payments under capital leases as of December 31, 1996, are
as follows:

1997.................................  $      30
1998.................................         30
1999 and thereafter..................         18
                                       ---------
                                              78
Less: interest portion...............          9
                                       ---------
Capital lease obligation.............         69
Less: current portion................         25
                                       ---------
                                       $      44
                                       =========

     The cost of equipment under capital leases amounted to approximately $256
and $135 at December 31, 1995 and 1996, respectively. Accumulated amortization
amounted to $107 and $65 at December 31, 1995 and 1996, respectively.

6.  EMPLOYEE BENEFIT PLANS

     Southern Alloy sponsors a defined contribution 401(k) profit-sharing plan
for employees who have attained at least 21 years of age and one year of
service. Company contributions to the plan, which are determined annually at the
discretion of the Board of Directors, amounted to $12, $16 and $3 in 1995, 1996
and the period from January 1, 1997 through July 10, 1997, respectively.

                                      104
<PAGE>
                        SOUTHERN ALLOY OF AMERICA, INC.
                  NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
                (IN THOUSANDS OF DOLLARS, EXCEPT SHARE AMOUNTS)

7.  COMMITMENTS AND CONTINGENCIES

  GUARANTEE

     Southern Alloy had guaranteed a line-of-credit agreement for SOMAR, Inc.
(an affiliate of Southern Alloy). The outstanding balance under this agreement
amounted to approximately $1,200 at December 31, 1995. As of August 12, 1996,
Southern Alloy was no longer a guarantor on this line of credit.

8.  STOCK OPTIONS

     In February 1996, Southern Alloy purchased 2,300 shares from a primary
stockholder of Southern Alloy for $248.

     In September 1996, 2,300 stock options were issued to two directors of
Southern Alloy (one of which also serves as an officer) at an option price of
$1.00 per share. The options were exercisable at any time through September
2001. The deemed value for accounting purposes at the date of grant was $108.00
per share. Accordingly, $246 of compensation expense was recorded at the date of
grant.

     In January 1997, the directors exercised their options and purchased 2,300
shares of Southern Alloy for $3.

9.  RELATED-PARTY TRANSACTIONS

     Southern Investments (a partnership), The Development Group, Inc. and
Engineered Machine Technologies, Inc. are affiliated with Southern Alloy through
common ownership. SOMAR, Inc. was affiliated with Southern Alloy through common
ownership through August 12, 1996. On that date, SOMAR, Inc. was sold to an
unaffiliated company.

     Southern Alloy leases commercial real estate from Southern Investments
under a non-cancelable operating lease. Rent expense related to this lease
amounted to $130, $103 and $69 in 1995, 1996 and the period from January 1, 1997
through July 10, 1997, respectively.

     Southern Alloy leases certain automobiles and operating equipment from
Southern Investments on a month-to-month basis. Rent expense related to these
leases amounted to $136, $198 and $112 for 1995, 1996 and the period from
January 1, 1997 through July 10, 1997, respectively.

     During the years ended December 31, 1995 and 1996, Southern Alloy made
loans to or borrowed from SOMAR, Inc., Southern Investments, The Development
Group, Inc., Engineered Machine Technologies, Inc. and officers. Following is a
schedule of net receivable balances due from or payable to affiliated companies
at December 31, 1995 and 1996:

                                             DUE FROM
                                           (PAYABLE TO)
                                       --------------------
                                         1995       1996
                                       ---------  ---------
SOMAR, Inc...........................  $     563  $  --
Engineered Machine Technologies,
  Inc................................        334        640
Southern Investments.................        125        130
The Development Group, Inc...........        (16)         7
Officers and affiliates..............         14        168
                                       ---------  ---------
                                       $   1,020  $     945
                                       =========  =========

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

                                      105
<PAGE>
                        SOUTHERN ALLOY OF AMERICA, INC.
                  NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
                (IN THOUSANDS OF DOLLARS, EXCEPT SHARE AMOUNTS)

     Following is a summary of interest income from affiliated companies for the
years ending December 31, 1995 and 1996, and the period from January 1, 1997
through July 10, 1997:

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

     Southern Alloy leases certain office space and equipment under
non-cancelable operating leases with initial or remaining lease terms in excess
of one year. Certain office and equipment leases contain renewal options and
purchase options at fair market value at the end of the lease term. Following is
a schedule of future minimum lease payments under non-cancelable leases as of
December 31, 1996:

                                        RELATED
                                        PARTIES       OTHERS       TOTAL
                                        --------      -------      ------
1997.................................    $  193       $     7      $  200
1998.................................       128             7         135
1999.................................        77             4          81
2000.................................        77             4          81
2001.................................        77             1          78
Thereafter...........................        77         --             77
                                        --------      -------      ------
                                         $  629       $    23      $  652
                                        ========      =======      ======

10.  SUBSEQUENT EVENT

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

     Concurrent with the Merger, Southern Alloy entered into an agreement with a
related party to lease certain real property for an annual lease payment of $48.
This lease runs through 2012, and provides for periodic increases in the annual
lease payment every five years equal to the cumulative change in the Consumer
Price Index. Additionally, Southern Alloy entered into a lease for certain
equipment from a related party on a month to month basis for $4 per month.
Southern Alloy believes these lease arrangements are no less favorable than
could be obtained from unaffiliated third parties.

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

                                      106

<PAGE>
                    REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To Uni-Steel, Inc.:

We have audited the accompanying balance sheet of Uni-Steel, Inc. (the
"Company"), an Oklahoma Corporation, as of September 30, 1996, and the related
statements of income, stockholders' equity and cash flows for the year ended
September 30, 1996 and for the period from October 1, 1996 through July 10,
1997. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.

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 financial statements referred to above present fairly, in
all material respects, the financial position of Uni-Steel, Inc. as of September
30, 1996, and the results of its operations and its cash flow for the year ended
September 30, 1996 and for the period from October 1, 1996 through July 10, 1997
in conformity with generally accepted accounting principles.

ARTHUR ANDERSEN LLP
Houston, Texas
January 30, 1998

                                      107
<PAGE>
                                UNI-STEEL, INC.
                                 BALANCE SHEET
                (IN THOUSANDS OF DOLLARS, EXCEPT SHARE AMOUNTS)

                                        SEPTEMBER 30,
                                            1996
                                        -------------
               ASSETS
Current assets:
     Cash and cash equivalents.......      $   203
     Accounts receivable, less
      allowance of $122..............        6,586
     Accounts
      receivable -- affiliates.......          261
     Inventories.....................        9,947
     Current portion of note
      receivable.....................           25
     Deferred income taxes...........          127
     Prepaid expenses and other
      current assets.................           22
                                        -------------
          Total current assets.......       17,171
Property and equipment, net..........        3,176
Notes receivable, net of current
  portion............................        1,212
Other assets.........................          355
Goodwill.............................          344
                                        -------------
          Total assets...............      $22,258
                                        =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
     Accounts payable................      $ 3,165
     Accounts
     payable -- affiliates...........          121
     Accrued liabilities.............          419
     Note payable to shareholders....           36
     Line of credit..................        7,100
     Current portion of long-term
      debt...........................          174
     Income taxes payable............           92
                                        -------------
          Total current
           liabilities...............       11,107
Long-term debt, net of current
  portion............................          413
Deferred income taxes................          788
                                        -------------
          Total liabilities..........       12,308
                                        -------------
Commitments and contingencies
Redemption value of 36,533 shares of
  common stock $1.00 par value
  subject to mandatory redemption....        4,201
Stockholders' equity:
     Common stock $1.00 par value,
      500,000 shares authorized,
      63,467 shares issued (net of
      36,533 shares subject to
      redemption)....................           63
     Additional paid-in capital......        1,104
     Retained earnings...............        5,743
     Less: treasury stock, at cost...       (1,161)
                                        -------------
     Total stockholders' equity......        5,749
                                        -------------
          Total liabilities and
           stockholders' equity......      $22,258
                                        =============

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

                                      108
<PAGE>
                                UNI-STEEL, INC.
                              STATEMENTS OF INCOME
                           (IN THOUSANDS OF DOLLARS)

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

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

                                      109
<PAGE>
                                UNI-STEEL, INC.
                       STATEMENTS OF STOCKHOLDERS' EQUITY
                (IN THOUSANDS OF DOLLARS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
                                           COMMON STOCK       ADDITIONAL                                   TOTAL
                                        ------------------      PAID-IN      RETAINED     TREASURY     STOCKHOLDERS'
                                        SHARES     AMOUNT       CAPITAL      EARNINGS       STOCK         EQUITY
                                        -------    -------    -----------    ---------    ---------    -------------

<S>                                     <C>        <C>        <C>            <C>          <C>          <C>
Balance, September 30, 1995..........    63,467     $  63       $ 1,432       $ 4,515      $   (969)      $ 5,041

     Purchase of 1,901 shares of
       common stock..................     --         --          --             --             (192)         (192)

     Increase in redemption value of
       common stock subject to
       mandatory redemption..........     --         --            (328)        --           --              (328)

     Net income......................     --         --          --             1,228        --             1,228
                                        -------    -------    -----------    ---------    ---------    -------------

Balance, September 30, 1996..........    63,467        63         1,104         5,743        (1,161)        5,749

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

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

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

                                      110
<PAGE>
                                UNI-STEEL, INC.
                            STATEMENTS OF CASH FLOWS
                           (IN THOUSANDS OF DOLLARS)

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

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

                                      111
<PAGE>
                                UNI-STEEL, INC.
                         NOTES TO FINANCIAL STATEMENTS
                (IN THOUSANDS OF DOLLARS, EXCEPT SHARE AMOUNTS)

1.  BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

  BASIS OF PRESENTATION

     Uni-Steel, Inc. ("Uni-Steel") is a structural steel service center with
three locations in Oklahoma. Uni-Steel's products include carbon structural,
pressure vessel, high strength low alloy and alloy grades of steel sold to
customers in Oklahoma, Missouri, Arkansas, Texas, New Mexico, Colorado and
Kansas. Value added processing services include cut-to-length, leveling, flame
cutting, plasma cutting, shearing, and sawing and press brake forming. Uni-Steel
services customers in a wide variety of industries including oil and gas, truck
trailer, construction equipment, mining machinery, elevators, wholesale trade
and the construction industries.

     Uni-Steel and its shareholders entered into a merger agreement with Metals
USA, Inc. ("Metals USA") pursuant to which all of Uni-Steel's outstanding
shares of capital stock were exchanged for cash and shares of Metals USA common
stock concurrent with the consummation of the initial public offering (the
"Offering") of Metals USA common stock (See Note 11).

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

     USE OF ESTIMATES AND ASSUMPTIONS

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

  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

     CASH EQUIVALENTS

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

     INVENTORIES

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

     PROPERTY AND EQUIPMENT

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

     FAIR VALUE OF FINANCIAL INSTRUMENTS

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

                                      112
<PAGE>
                                UNI-STEEL, INC.
                  NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
                (IN THOUSANDS OF DOLLARS, EXCEPT SHARE AMOUNTS)

     CONCENTRATION OF CREDIT RISK

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

     INCOME TAXES

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

     RECENT ACCOUNTING PRONOUNCEMENTS

     The Financial Accounting Standards Board issued Statement of Financial
Accounting Standards No. 121, ACCOUNTING FOR THE IMPAIRMENT OF LONG-LIVED ASSETS
AND FOR LONG-LIVED ASSETS TO BE DISPOSED OF ("SFAS 121") in March 1995. SFAS
121 requires that long-lived assets and certain intangibles to be held and used
by an entity be reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be
recoverable. Uni-Steel adopted SFAS No. 121 on January 1, 1996. The impact of
adopting this standard did not have a material impact on the results of
operations.

2.  NOTE RECEIVABLE

     Uni-Steel has a note receivable with a balance of $1,208 at September 30,
1996. The note bears interest at 8% and is due in monthly installments of
principal and interest totaling $9 with a balloon payment of the remaining
balance due in September 2002. This note is secured by a mortgage on real estate
in Fountain, Colorado.

                                      113
<PAGE>
                                UNI-STEEL, INC.
                  NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
                (IN THOUSANDS OF DOLLARS, EXCEPT SHARE AMOUNTS)

3.  PROPERTY AND EQUIPMENT

     Property and equipment consists of the following:

                                          ESTIMATED        SEPTEMBER 30,
                                         USEFUL LIVES          1996
                                        --------------     -------------
Land.................................                         $    32
Buildings and improvements...........    5 - 33 years           2,452
Yard equipment.......................    3 - 10 years             544
Shop equipment.......................    3 - 10 years           2,408
Automobiles and trucks...............    3 -  5 years              17
Office equipment.....................    4 -  8 years             476
Computer software....................    3 -  6 years             291
                                                           -------------
                                                                6,220
Less: accumulated depreciation.......                          (3,044)
                                                           -------------
     Total...........................                         $ 3,176
                                                           =============

4.  INVENTORIES

     Inventories consist of the following:

                                        SEPTEMBER 30,
                                            1996
                                        -------------
Steel products.......................      $ 9,482
Work in process......................          372
Other................................           93
                                        -------------
                                           $ 9,947
                                        =============

     Net realizable value approximates cost on the first-in, first-out method.
In 1996, LIFO cost exceeded market value by $54. This 1996 amount was recorded
as a reduction of inventory and an increase in cost of sales. Management has
determined that lower of LIFO cost or market is the valuation method that most
accurately reflects the results of operations in accordance with generally
acceptable accounting principles. If the lower of FIFO cost or market had been
used for all inventories, their carrying value would have been equal to the LIFO
value of $9,947 at September 30, 1996 and $11,242 at July 10, 1997.
Additionally, net income would have been the same at $1,228 and $1,018 for the
year ended September 30, 1996 and for the period from October 1, 1996 through
July 10, 1997, respectively.

5.  LINE OF CREDIT

     At September 30, 1996, Uni-Steel had drawn $7,100 against its $7,500 line
of credit at a bank. Interest is computed at prime (8.25% at September 30,
1996). Payments of interest were due monthly and the principal balance was due
February 28, 1997. This line of credit was amended in February 1997 to increase
the maximum borrowings under the facility to $10,000 and extend the maturity
date to April 30, 1999. Interest is computed at prime or Uni-Steel may elect for
interest to be computed at LIBOR plus 2.5%. This election must be made in
borrowing increments of $1,000 and no more than two such LIBOR advances may be
outstanding at one time. As of July 10, 1997, Uni-Steel had drawn $8,000 against
its $10,000 line of credit.

     Concurrently with the renewal of the line of credit, Uni-Steel also
obtained a $1,000 working capital term loan from its principal bank. Payments of
principal and interest are payable in equal monthly installments with final
maturity on February 28, 2002. Interest is also computed at Uni-Steel's option
at prime or LIBOR plus 2.5%. The line of credit and working capital term loan
include certain covenants which, among other things, restrict future borrowings
and set certain ratio, cash flow and net worth

                                      114
<PAGE>
                                UNI-STEEL, INC.
                  NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
                (IN THOUSANDS OF DOLLARS, EXCEPT SHARE AMOUNTS)
requirements. Uni-Steel was in compliance as of December 31, 1996. These loans
are secured by a primary security interest in the inventory and accounts
receivable of Uni-Steel.

6.  LONG-TERM DEBT

     Long-term debt consists of the following:

                                        SEPTEMBER 30,
                                            1996
                                        -------------
Notes payable to bank, interest at
  prime (8.25% at September 30,
  1996), payable in monthly
  installments of $13 (plus interest)
  through April 2000; secured by
  equipment..........................      $   567
Note payable to a supplier, interest
  at 10.0%, payable in monthly
  installments of $1 (including
  interest) through May 1998; secured
  by equipment.......................           13
Notes payable to bank, interest at
  prime (8.25% at September 30,
  1996), payable in monthly
  installments of $12 (plus interest)
  through July 1997; secured by
  equipment..........................            7
                                        -------------
                                               587
Less: current maturities.............         (174)
                                        -------------
                                           $   413
                                        =============

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

1997.................................  $     174
1998.................................        164
1999.................................        158
2000.................................         91
2001 and Thereafter..................     --
                                       ---------
                                       $     587
                                       =========

     Uni-Steel also has a note payable due to a shareholder which pays interest
at prime and is payable on demand. The outstanding balance at September 30, 1996
was $36.

7.  INCOME TAXES

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

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

                                      115
<PAGE>
                                UNI-STEEL, INC.
                  NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
                (IN THOUSANDS OF DOLLARS, EXCEPT SHARE AMOUNTS)

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

                                            YEAR ENDED
                                        SEPTEMBER 30, 1996
                                        ------------------
Deferred tax liabilities:
     Bases differences in property
       and equipment.................         $  592
     Installment sales accounting....            246
                                             -------
          Total deferred tax
             liabilities.............            838
                                             -------
Deferred tax assets:
     Allowance for doubtful
       accounts......................            (49)
     Inventory bases differences.....            (85)
     Other...........................            (43)
                                             -------
          Total deferred tax
             assets..................           (177)
                                             -------
Net deferred tax liabilities.........         $  661
                                             =======

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

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

8.  EMPLOYEE BENEFIT PLANS

     Uni-Steel has a qualified profit sharing plan covering substantially all
employees. Employer contributions to the plan are made at the Board of
Directors' discretion. On July 1, 1990, the plan was amended to include a
deferred compensation 401(k) provision which allows employees to defer up to 15%
of their salaries and provides for employer matching of the first 4%. The total
employer contribution and match made to the plan was $290 and $246 for the year
ended September 30, 1996, and the period from October 1, 1996 through July 10,
1997, respectively.

9.  COMMITMENTS AND CONTINGENCIES

  STOCK PURCHASE AGREEMENTS

     Uni-Steel has an agreement with certain common stockholders which
effectively restricts trading of their common stock. The agreement also requires
Uni-Steel to repurchase this stock from certain stockholders who are terminated
from employment, becomes totally disabled, or die. The price is determined
pursuant to agreements between the parties and is subject to revision annually.
In January 1996, Uni-Steel repurchased 1,901 shares from a retired stockholder
for $192. At September 30, 1996, there are 2,501 (2.9%) shares of common stock
remaining under this agreement. Uni-Steel also has an agreement with Richard A.
Singer, an officer and stockholder, which restricts trading of 34,031 shares
(39%) of its common stock. The agreement requires Uni-Steel to purchase Mr.
Singer's stock in the event of his death, permanent disability or retirement.
The purchase price is to be determined pursuant to the agreement and is subject
to revision annually. Uni-Steel has committed certain life insurance policies to
fund this agreement. Uni-Steel's obligations under this agreement have been
guaranteed by its other major shareholder, Yaffe

                                      116
<PAGE>
                                UNI-STEEL, INC.
                  NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
                (IN THOUSANDS OF DOLLARS, EXCEPT SHARE AMOUNTS)
Iron and Metal Company, Inc. As these shares are subject to mandatory
redemption, they have not been classified as a component of permanent equity in
the accompanying balance sheet.

  OPERATING LEASES

     Uni-Steel leases warehouse space under an operating lease expiring in
October 1998. Minimum future rental payments under this non-cancelable operating
lease as of September 30, 1996, are as follows:

1997.................................  $      24
1998.................................         24
1999.................................          2
                                       ---------
                                       $      50
                                       =========

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

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

     The contingent rentals are based on inventory levels in excess of a
specified minimum.

  PURCHASE COMMITMENTS

     During the normal course of business, Uni-Steel enters into commitments to
purchase raw materials from steel mills. These commitments are made for
purchases of up to nine months into the future. In certain cases, prices paid
are calculated at the time the commitment is entered into. In other cases, they
are calculated at time of shipment. Uni-Steel estimates outstanding purchase
commitments at September 30, 1996 to be approximately $11,500.

10.  RELATED PARTY TRANSACTIONS

     A summary of transactions with Yaffe Iron and Metal Company, Inc., a
shareholder of Uni-Steel and other affiliated companies or individuals follows:

                                                                PERIOD FROM
                                                              OCTOBER 1, 1996
                                            YEAR ENDED            THROUGH
                                        SEPTEMBER 30, 1996     JULY 10, 1997
                                        ------------------    ---------------
Sales to related companies...........        $  2,807             $ 2,350
                                        ==================    ===============
Shipping provided by a related
  company (Included in operating and
  delivery expenses in the
  accompanying statements of
  income)............................        $  1,227             $   989
                                        ==================    ===============
Warehouse rent paid to related entity
  under a one-year lease with seven
  one-year options remaining.
  (Included in operating and delivery
  expenses in the accompanying
  statements of income)..............        $    145             $   109
                                        ==================    ===============

                                      117
<PAGE>
                                UNI-STEEL, INC.
                  NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
                (IN THOUSANDS OF DOLLARS, EXCEPT SHARE AMOUNTS)

11.  SUBSEQUENT EVENTS

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

     Concurrent with the merger, Uni-Steel sold certain real property to an
affiliated party for $630 and entered into an agreement with the affiliate to
lease the real property for an annual lease payment of $115. This lease runs
through 2027, and provides for periodic increases in the annual lease payment
every five years equal to the cumulative change in the Consumer Price Index.

     The parties to the stock purchase agreements discussed in Note 9 agreed to
waive such agreements upon the consumation of the Merger.

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

                                      118

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

     None.

                                    PART III

     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.

                                    PART IV

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 pages 25 and 26
     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

          On October 2, 1997, the Company filed a Current Report on Form 8-K
     (under Item 2), dated September 26, 1997, relating to the acquisitions of
     Jeffreys, Harvey, Meier and Federal Bronze.

          On November 25, 1997, the Company filed a Current Report on Form 8-K
     (under Item 2), dated November 25, 1997, relating to the acquisition of
     Wayne.

          On January 13, 1998, the Company filed a Current Report on Form 8-K
     (under Item 2), dated January 13, 1998, relating to the acquisitions of
     Independent and two other companies.

          On March 16, 1998, the Company filed a Current Report on Form 8-K
     (under Item 2), dated March 16, 1998, relating to the acquisitions of
     Pacific and two other companies.

(C)  EXHIBITS

          Reference is made to the Index of Exhibits immediately preceding the
     exhibits hereto (beginning on page 122), which index is incorporated herein
     by reference.

                                      119
<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 30, 1998.

                                          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 30, 1998.

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

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

                          120
<PAGE>
                            SIGNATURES -- (CONTINUED)

          SIGNATURE                              TITLE
          ---------                              -----
        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

                                      121
<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.

           4.3       -- Purchase Agreement dated February 6,
                        1998 by and among the Company and BT
                        Alex. Brown Incorporated, Bear
                        Stearns & Co., Inc., Donaldson,
                        Lufkin & Jenrette Securities
                        Corporation and NationsBanc
                        Montgomery Securities LLC regarding
                        the Company's 8 5/8% Senior
                        Subordinated Notes due 2008,
                        incorporated by reference to the
                        Company's registration statement on
                        Form S-1, Registration No. 333-35575
                        dated February 20, 1998.

           4.4       -- Registration Rights agreement dated
                        February 6, 1998 by and among the
                        Company and BT Alex. Brown
                        Incorporated, Bear Stearns & Co.,
                        Inc., Donaldson, Lufkin & Jenrette
                        Securities Corporation and
                        NationsBanc Montgomery Securities LLC
                        regarding the Company's 8 5/8% Senior
                        Subordinated Notes due 2008,
                        incorporated by reference to the
                        Company's registration statement on
                        Form S-1, Registration No. 333-35575
                        dated February 20, 1998.

          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       -- Agreement and Plan of Organization
                        dated as of April 30, 1997, by and
                        among the Company, Affiliated Metals
                        Acquisition Corp., Affiliated Metals
                        Company and the Stockholders named
                        therein, incorporated by reference to
                        the Company's registration statement
                        on Form S-1, Registration No.
                        333-26601 dated May 7, 1997.

          10.4       -- Agreement and Plan of Organization
                        dated as of April 30, 1997 by and
                        among the Company, Interstate Steel I
                        Acquisition Corp., Interstate Steel
                        II Acquisition Corp., Interstate
                        Steel III Acquisition Corp.,
                        Interstate Steel IV Acquisition
                        Corp., Interstate Steel Supply
                        Company, Interstate Steel Supply
                        Company of Pittsburgh, Interstate
                        Steel Supply Company of Maryland,
                        Interstate Steel Processing Company
                        and the Stockholders named therein,
                        incorporated by reference to the
                        Company's registration statement on
                        Form S-1, Registration No. 333-26601
                        dated May 7, 1997.

          10.5       -- Agreement and Plan of Organization
                        dated as of April 30, 1997 by and
                        among the Company, Queensboro Steel I
                        Acquisition Corp., Queensboro Steel
                        Corporation and the Stockholders
                        named therein, incorporated by
                        reference to the Company's regis-
                        tration statement on Form S-1,
                        Registration No. 333-26601 dated May
                        7, 1997.

          10.6       -- Agreement and Plan of Organization
                        dated as of April 30, 1997 by and
                        among the Company, Southern Alloy
                        Acquisition Corp., Southern Alloy of
                        America, Inc. and the Stockholders
                        named therein, incorporated by
                        reference to the Company's regis-
                        tration statement on Form S-1,
                        Registration No. 333-26601 dated May
                        7, 1997.

                                      122
<PAGE>
        EXHIBIT
        NUMBER                      DESCRIPTION
        ------                      -----------

          10.7       -- Agreement and Plan of Organization
                        dated as of April 30, 1997 by and
                        among the Company, Steel Service
                        Systems Acquisition Corp., Steel
                        Service Systems, Inc. and the
                        Stockholders named therein,
                        incorporated by reference to the
                        Company's registration statement on
                        Form S-1, Registration No. 333-26601
                        dated May 7, 1997.


          10.8       -- Agreement and Plan of Organization
                        dated as of April 30, 1997 by and
                        among the Company, Texas Aluminum I
                        Acquisition Corp., Texas Aluminum II
                        Acquisition Corp., Texas Aluminum III
                        Acquisition Corp., Texas Aluminum IV
                        Acquisition Corp., Texas Aluminum V
                        Acquisition Corp., Texas Aluminum
                        Industries, Inc., Cornerstone Metals
                        Corporation, Cornerstone Building
                        Products, Inc., Cornerstone Aluminum
                        Company, Inc., Cornerstone Patio
                        Concepts, L.L.C. and the Stockholders
                        named therein, incorporated by
                        reference to the Company's
                        registration statement on Form S-1,
                        Registration No. 333-26601 dated May
                        7, 1997.

          10.9       -- Agreement and Plan of Organization
                        dated as of April 30, 1997 by and
                        among the Company, Uni-Steel
                        Acquisition Corp., Uni-Steel, Inc.
                        and the Stockholders named therein,
                        incorporated by reference to the
                        Company's registration statement on
                        Form S-1, Registration No. 333-26601
                        dated May 7, 1997.

          10.10      -- Agreement and Plan of Organization
                        dated as of April 30, 1997 by and
                        among the Company, Williams Steel
                        Acquisition Corp., Williams Steel &
                        Supply Co., Inc., and the
                        Stockholders named therein,
                        incorporated by reference to the
                        Company's registration statement on
                        Form S-1, Registration No. 333-26601
                        dated May 7, 1997.

          10.11      -- Form of Employment Agreement between
                        the Company and Arthur L. French,
                        incorporated by reference to the
                        Company's registration statement on
                        Form S-1, Registration No. 333-26601
                        dated July 9, 1997.

          10.12      -- Form of Employment Agreement between
                        the Company and J. Michael Kirksey,
                        incorporated by reference to the
                        Company's registration statement on
                        Form S-1, Registration No. 333-26601
                        dated July 9, 1997.

          10.13      -- Form of Employment Agreement between
                        the Company and Stephen R. Baur,
                        incorporated by reference to the
                        Company's registration statement on
                        Form S-1, Registration No. 333-26601
                        dated July 9, 1997.

          10.14      -- Form of Employment Agreement between
                        the Company and John A. Hageman,
                        incorporated by reference to the
                        Company's registration statement on
                        Form S-1, Registration No. 333-26601
                        dated July 9, 1997.

          10.15      -- Form of Employment Agreement between
                        the Company and Terry L. Freeman,
                        incorporated by reference to the
                        Company's registration statement on
                        Form S-1, Registration No. 333-26601
                        dated July 9, 1997.

          10.16      -- Form of Employment Agreement between
                        the Company and Keith E. St. Clair,
                        incorporated by reference to the
                        Company's registration statement on
                        Form S-1, Registration No. 333-26601
                        dated July 9, 1997.

          10.17      -- Form of Founders' Employment
                        Agreement between Interstate Steel
                        Supply Company of Maryland and
                        Interstate Steel Processing Company
                        and Arnold W. Bradburd, incorporated
                        by reference to the Company's
                        registration statement on Form S-1,
                        Registration No. 333-26601 dated June
                        17, 1997.

          10.18      -- Form of Founders' Employment
                        Agreement between Steel Service
                        Systems, Inc. and Craig R. Doveala,
                        incorporated by reference to the
                        Company's registration statement on
                        Form S-1, Registration No. 333-26601
                        dated June 17, 1997.

          10.19      -- Form of Founders' Employment
                        Agreement between Southern Alloy of
                        America, Inc. and William Bartley
                        Edge, incorporated by reference to
                        the Company's registration statement
                        on Form S-1, Registration No.
                        333-26601 dated June 17, 1997.

          10.20      -- Form of Founders' Employment
                        Agreement between Queensboro Steel
                        Corporation and Mark Alper,
                        incorporated by reference to the
                        Company's registration statement on
                        Form S-1, Registration No. 333-26601
                        dated June 17, 1997.

          10.21      -- Form of Founders' Employment
                        Agreement between Uni-Steel, Inc. and
                        Richard A. Singer, incorporated by
                        reference to the Company's
                        registration statement on Form S-1,
                        Registration No. 333-26601 dated June
                        17, 1997.

                                      123
<PAGE>

        EXHIBIT
        NUMBER                      DESCRIPTION
        ------                      -----------

          10.22      -- Form of Founders' Employment
                        Agreement between Williams Steel &
                        Supply Co., Inc. and Lester G.
                        Peterson, incorporated by reference
                        to the Company's registration
                        statement on Form S-1, Registration
                        No. 333-26601 dated June 17, 1997.

          10.23      -- Form of Founders' Employment
                        Agreement between Texas Aluminum
                        Industries, Inc., Cornerstone Metals
                        Corporation, Cornerstone Building
                        Products, Inc., Cornerstone Aluminum
                        Company, Inc., Cornerstone Patio
                        Concepts, L.L.C. and Michael E.
                        Christopher, incorporated by
                        reference to the Company's
                        registration statement on Form S-1,
                        Registration No. 333-26601 dated June
                        17, 1997.

          10.24      -- Form of Founders' Employment
                        Agreement between Affiliated Metals
                        Company and Patrick A. Notestine,
                        incorporated by reference to the
                        Company's registration statement on
                        Form S-1, Registration No. 333-26601
                        dated June 17, 1997.

          10.25      -- Form of Agreement among certain
                        stockholders, incorporated by
                        reference to the Company's
                        registration statement on Form S-1,
                        Registration No. 333-26601 dated July
                        9, 1997.

          10.26      -- Indemnity Agreement with Notre
                        Capital Ventures II, L.L.C.,
                        incorporated by reference to the
                        Company's registration statement on
                        Form S-1, Registration No. 333-26601
                        dated July 9, 1997.

          10.27      -- Agreement and Plan of Merger dated
                        September 26, 1997, by and among the
                        Company, HTL Acquisition Corp.,
                        Harvey Titanium, Ltd. and the
                        Stockholders named therein,
                        incorporated by reference to the
                        Company's registration statement on
                        Form S-1, Registration No. 333-35575
                        dated November 14, 1997.

          10.28      -- Agreement dated September 26, 1997,
                        by and among the Company, Meier Metal
                        Servicenters, Inc. and the
                        Stockholders named therein,
                        incorporated by reference to the
                        Company's registration statement on
                        Form S-1, Registration No. 333-35575
                        dated November 14, 1997.

          10.29      -- Agreement dated September 26, 1997,
                        by and among the Company, Jeffreys
                        Steel Company, Inc. and the
                        Stockholders named therein,
                        incorporated by reference to the
                        Company's registration statement on
                        Form S-1, Registration No. 333-35575
                        dated November 14, 1997.

          10.30      -- Form of Employment Agreement between
                        Jeffreys Steel Company, Inc. and Leon
                        Jeffreys, incorporated by reference
                        to the Company's registration
                        statement on Form S-1, Registration
                        No. 333-35575 dated February 20,
                        1998.

          10.31      -- Agreement and Plan of Merger dated
                        December 17, 1997, by and among the
                        Company, IM Acquisition Corp.,
                        Independent Metals Co. Inc., and the
                        Stockholders named therein,
                        incorporated by reference to the
                        Company's registration statement on
                        Form S-1, Registration No. 333-35575
                        dated February 20, 1998.

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

          10.33      -- Agreement and Plan of Merger dated as
                        of February 16, 1998, by and among
                        the Company, PMC Acquisition Corp.,
                        Pacific Metal Company and the
                        Stockholders named therein,
                        incorporated by reference to the
                        Company's Form 8-K dated March 16,
                        1998.

          21+        -- List of subsidiaries of the Company

          23.1+      -- Consent of Arthur Andersen LLP

          23.2+      -- Consent of Ernst & Young LLP

          23.3+      -- Consent of McGladrey & Pullen, LLP

          23.4+      -- Consent of Rubin, Brown, Gornstein &
                        Co.

          25         -- Form T-1 Statement of Eligibility of
                        U.S. Trust Company of California,
                        N.A., as trustee, incorporated by
                        reference to the Company's
                        registration statement on Form S-1,
                        Registration No. 333-35575 dated
                        February 20, 1998.

          27+        -- Financial Data Schedule
------------
+ Included with this filing.

                                      124

<PAGE>
                                                                      EXHIBIT 21

                                METALS USA, INC.
                                SUBSIDIARY LIST

     Affiliated Metals Company
     Federal Bronze Alloys Inc.
     Harvey Titanium, Ltd.
     Independent Metals Co., Inc.
     Interstate Steel Supply Company
     Interstate Steel Supply Company of Pittsburg
     Interstate Steel Supply Company of Maryland
     Interstate Steel Processing Company
     Jeffreys Steel Company, Inc.
     Jeffreys Real Estate Corp.
     The Levinson Steel Company
     Mark Metals, Inc.
     Meier Metal Servicenters, Inc.
     Metalmart, Inc.
     Metals USA Management Co., L.P.
     MUSA GP, Inc.
     MUSA LP, Inc.
     Metals USA Services Corporation
     Metals USA Finance Corporation
     National Manufacturing, Inc.
     Pacific Metal Company
     Queensboro Steel Corporation
     Royal Aluminum, Inc.
     R.J. Fabricating, Inc.
     Southern Alloy of America, Inc.
     Steel Service Systems, Inc.
     Texas Aluminum Industries, Inc.
     Cornerstone Metals Corporation
     Cornerstone Building Products, Inc.
     Cornerstone Aluminum Company, Inc.
     Cornerstone Patio Concepts, L.L.C.
     Uni-Steel, Inc.
     Wayne Steel, Inc.
     Western Awning Company, Inc.
     Williams Steel & Supply Co., Inc.
       WSS Transportation, Inc.
<PAGE>
                                                                    EXHIBIT 23.1

                   CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS

     As independent public accountants, we hereby consent to the incorporation
of our reports included in this Annual Report on Form 10-K, into the Company's
previously filed registration statement on Form S-8 (File No. 333-32363).

ARTHUR ANDERSEN LLP

Houston, Texas
February 12, 1998