METALS USA INC - 10-K Annual Report

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

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FORM 10-K
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ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934

FOR THE FISCAL YEAR ENDED DECEMBER 31, 2001

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

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

TITLE OF EACH CLASS
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Common Stock, $.01 par value

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

None.

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

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

Based upon the March 28, 2002 OTC Bulletin Board closing price of $.29 per
share, the aggregate market value of the Registrant's outstanding stock held by
non-affiliates was approximately $8.5 million. There were 36,509,972 shares of
outstanding common stock $.01 par value, of the Registrant as of March 28, 2002.

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 THAT CONSTITUTE
"FORWARD-LOOKING STATEMENTS" WITHIN THE MEANING OF THE PRIVATE SECURITIES
LITIGATION REFORM ACT OF 1995. THESE STATEMENTS APPEAR IN A NUMBER OF PLACES,
INCLUDING ITEM 1. "BUSINESS," ITEM 3. "LEGAL PROCEEDINGS" AND ITEM 7.
"MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS." SUCH STATEMENTS CAN BE IDENTIFIED BY THE USE OF FORWARD-LOOKING
TERMINOLOGY SUCH AS "BELIEVES," "EXPECTS," "MAY," "ESTIMATES," "WILL," "SHOULD,"
"PLANS" OR "ANTICIPATES" OR THE NEGATIVE THEREOF OR OTHER VARIATIONS THEREON OR
COMPARABLE TERMINOLOGY, OR BY DISCUSSIONS OF STRATEGY. READERS ARE CAUTIONED
THAT ANY SUCH FORWARD-LOOKING STATEMENTS ARE NOT GUARANTEES OF FUTURE
PERFORMANCE AND INVOLVE SIGNIFICANT RISKS AND UNCERTAINTIES, AND THAT ACTUAL
RESULTS MAY VARY MATERIALLY FROM THOSE IN THE FORWARD-LOOKING STATEMENTS AS A
RESULT OF VARIOUS FACTORS. THESE FACTORS INCLUDE THE EFFECTIVENESS OF
MANAGEMENT'S STRATEGIES AND DECISIONS, GENERAL ECONOMIC AND BUSINESS CONDITIONS,
DEVELOPMENTS IN TECHNOLOGY, NEW OR MODIFIED STATUTORY OR REGULATORY REQUIREMENTS
AND CHANGING PRICES AND MARKET CONDITIONS. THIS REPORT IDENTIFIES OTHER FACTORS
THAT COULD CAUSE SUCH DIFFERENCES. NO ASSURANCE CAN BE GIVEN THAT THESE ARE ALL
OF THE FACTORS THAT COULD CAUSE ACTUAL RESULTS TO VARY MATERIALLY FROM THE
FORWARD-LOOKING STATEMENTS. IN ADDITION, READERS SHOULD REFER TO ITEM 7.
"MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS - FACTORS WHICH MAY AFFECT FUTURE OPERATING RESULTS" FOR RISK FACTORS
THAT MAY AFFECT FUTURE PERFORMANCE.

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METALS USA, INC.
(DEBTORS-IN-POSSESSION)
PART I

ITEM 1. BUSINESS

UNLESS OTHERWISE INDICATED, ALL REFERENCES TO THE "COMPANY," "WE," "US,"
"OUR" OR OTHER SIMILAR TERMS HEREIN ARE INTENDED TO REFER TO METALS USA, INC.
AND ALL OF ITS SUBSIDIARIES. READERS SHOULD REFER TO ITEM 7. "MANAGEMENT'S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS -
FACTORS WHICH MAY AFFECT FUTURE OPERATING RESULTS" FOR RISK FACTORS THAT MAY
AFFECT FUTURE PERFORMANCE.

GENERAL

We are one of the leading providers of value-added processed steel,
stainless steel, aluminum and manufactured metal components. We commenced
substantial operations upon completion of an initial public offering in July
1997 and simultaneous acquisition of eight companies that had combined
historical revenues of approximately $450 million. From 1997 through early 2000,
we acquired numerous additional metal processing and distribution companies and
increased our revenues to over $2 billion in 2000. During most of 2000 and all
of 2001, the steel industry has declined substantially as a result of pricing
pressure from foreign imports and an economic recession experienced in the
United States ("U.S."). Our revenues declined to $1.6 billion in 2001. These
factors, as well as others discussed below, caused us to seek protection under
U.S. bankruptcy laws in November 2001.

We purchase metal from primary producers who generally focus on large
volume sales of unprocessed metals in standard configurations and sizes. In most
cases, we perform the customized, value-added processing services required to
meet specifications provided by end-use customers. By providing these services,
as well as offering inventory management and just-in-time delivery services, we
enable our customers to reduce material costs, decrease capital required for raw
materials inventory and processing equipment and save time, labor, warehouse
space and other expenses. In addition to our metals processing capabilities, we
also manufacture higher-value finished building products.

Our customers are 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.

RECENT DEVELOPMENTS

CHAPTER 11 PROCEEDINGS

On November 14, 2001, we voluntarily filed for relief under Chapter 11 of
the U.S. Bankruptcy Code ("Chapter 11 Filing"), in U.S Bankruptcy Court,
Southern District of Texas, Houston Division ("Bankruptcy Court") and began
operating our business as debtors-in-possession pursuant to the Bankruptcy Code.
As debtors-in-possession, we remain in possession of our properties and assets
and our management continues to operate our business. We are authorized to
operate our business, but may not engage in transactions outside of the ordinary
course of business without the approval, after notice and an opportunity for a
hearing, of the Bankruptcy Court. Pursuant to the automatic stay provisions of
the

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METALS USA, INC.
(DEBTORS-IN-POSSESSION)

Bankruptcy Code, all actions to collect our pre-petition indebtedness, as well
as other pending litigation against us, are currently stayed and other
pre-petition contractual obligations may not be enforced against us. In
addition, as debtors-in-possession, we have the right, subject to the approval
of the Bankruptcy Court and certain other conditions, to assume or reject any
pre-petition executory contracts and unexpired leases.

Our need to seek relief under the Bankruptcy Code was due primarily to (1)
a reduction in our cash flow from an industry wide recession caused by pricing
pressure from foreign imports and the recent decline in the manufacturing sector
of the U.S. economy and (2) our inability to obtain additional liquidity from
our primary lending sources. During 2000, the U.S. steel industry began
experiencing significant declines in prices for steel products resulting from an
influx of foreign imports. During 2001, the U.S economy in general and the
manufacturing sector in particular moved into a recession that was further
exacerbated by the terrorist attack on September 11, 2001. Due to these
deteriorating economic conditions, we have incurred significant operating losses
during the past several quarterly reporting periods. We expect these losses to
continue through at least the first half of 2002. These losses have called into
question the recoverability of our long-lived assets.

The goal of the Chapter 11 Filing is to maximize recovery by creditors and
shareholders by preserving the Company as a viable entity with going concern
value. The protection afforded by the Chapter 11 Filing will permit us to
preserve cash and restructure our debt. During the pendency of the Chapter 11
Filing, with approval of the Bankruptcy Court, we may assume favorable
pre-petition contracts and leases, reject unfavorable leases and contracts and
sell or otherwise dispose of assets. The confirmation of a plan of
reorganization is our primary objective. We expect to propose a plan of
reorganization to the Bankruptcy Court during 2002. When filed, a plan of
reorganization will set forth the means for treating claims, including
liabilities subject to compromise. A plan of reorganization may result in, among
other things, significant dilution of equity interests as a result of issuance
of equity securities to creditors or new investors. The confirmation of any plan
of reorganization will require creditor acceptance as required under the
Bankruptcy Code and approval of the Bankruptcy Court.

At this time, it is not possible to predict the outcome of the bankruptcy
or its effect on our business, the claims of creditors or the interests of our
stockholders. As a result of the Chapter 11 Filing, most liabilities we incurred
prior to the filing date, including certain debt, are subject to compromise.
However, the ultimate resolution of these liabilities is not presently
determinable.

On January 2, 2002, we obtained $350 million in debtor-in-possession
financing ("DIP Financing") to fund our operations while we reorganize. Initial
borrowings of $278.2 million were used to repay the outstanding balance under
the previous credit facilities. Borrowings may be used to fund post-petition
operating expenses and supplier and employee obligations throughout the
reorganization process. Borrowings under the DIP Financing are subject to
customary funding conditions and secured by all of our assets. The DIP Financing
is designed to give us the opportunity, during the reorganization process, to
develop a new capital structure that will support us over the long-term,
including during recurring cyclical downturns in the metals industry. As of
March 15, 2002, the balance outstanding under the DIP Financing was $242.2
million. See Item 3. "Legal Proceedings", Item 7. "Management's Discussion and

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METALS USA, INC.
(DEBTORS-IN-POSSESSION)

Analysis of Financial Condition and Results of Operations - Overview" and
Item 8. "Financial Statements and Supplementary Data" for additional information
regarding these proceedings.

INCREASED TARIFFS ON IMPORTS

Effective March 20, 2002, increased tariffs of between 8% and 30% were
imposed on most imported steel. The purpose of these increases is to assist the
financially troubled U.S. steel industry that has declined substantially over
the last four years. Steel prices in the U.S. are currently at a twenty (20)
year low and thirty-one (31) steel producers have filed for bankruptcy
protection. These increased tariffs will be in effect for three years and will
give the U.S. steel industry an opportunity to reorganize and become more
competitive with foreign imports. The tariff plan exempts four (4) countries
with whom the U.S. has free trade agreements (Canada, Mexico, Israel and Jordan)
and several other impoverished nations. Nations hardest hit by the tariffs
include China, Japan, South Korea, Ukraine and Russia. Tin mill steel will get a
30% tariff, flat steel products 30%, hot-rolled and cold-finished bar 30%,
carbon and alloy fittings and flanges 13%, circular welded tubular products and
stainless steel bar 8% and rebar 15%. We anticipate that these increased tariffs
will result in higher prices for steel for consumers and could result in
improved profits for our Company.

In response to the tariffs imposed in the U.S., the European Commission has
approved six-month tariff quotas effective April 3, 2002 covering fifteen (15)
steel products that comprise 40% of all steel imports to the European Union. The
purpose of these quotas is to prevent the flood of foreign imports and resulting
decrease in pricing. U.S. steel makers will not be directly affected as a
minimal amount of U.S steel products are exported to the European Union.

These tariffs are primarily for the benefit of steel producers. Our company
does not produce any steel, however, service centers generally benefit from
rising steel prices. During the initial period whereby prices are rising, we
will have to fund the purchase of higher cost material as the lower cost
material is sold. This negative impact on cash flow will continue until prices
stabilize, and will be offset by higher sales prices from sales of existing
inventory. Historically, we collect the substantial majority of our receivables
in less than sixty days. Substantially all of the sales made by our Plates and
Shapes Group are based upon a margin over current replacement cost, therefore
the impact of rising prices on our results of operations will be realized as the
market accepts the producer price increases. The recommendations for protection
of the domestic steel industry did not include any tariff protection for
wide-flange beams, which is one of the principal products sold by our Plates and
Shapes Product Group. With respect to our Flat Rolled Group, our gross margin
dollars will remain constant for our major customers, where we have agreements
with producers for the purchase price of specified volumes of material. Prices
for other customers will be increased as producer prices are announced. Our
Building Products Group uses aluminum as the principal raw material and very
little steel in their products, therefore the impact of higher steel prices is
minimal.

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METALS USA, INC.
(DEBTORS-IN-POSSESSION)

MANAGEMENT CHANGES

On February 11, 2002, we announced that Richard A. Singer, our President
and Chief Operating Officer intends to retire on September 30, 2002. Mr. Singer
was appointed to these positions in February 2001 having served as Senior Vice
President since July 1997. J. Michael Kirksey, the Chairman and Chief Executive
Officer has resumed the additional title of President. Mr. Singer will assist
Mr. Kirksey as directed until the effective date of his retirement. In addition,
we announced that Lester G. Peterson was appointed Senior Vice President of
Corporate Development. Mr. Peterson's responsibilities will include the
management of on-going asset sales, facility rationalization, product strategy
and trade relations.

DIVESTITURES

On April 5, 2002, we announced planned divestitures of eleven (11)
additional business units that will result in a significant downsizing of our
Company. We anticipate selling these assets to raise proceeds that will be
utilized to reduce our indebtedness and improve our liquidity. These
divestitures are a part of our reorganization plan that is currently being
developed for the Bankruptcy Court. These divestitures, along with previously
announced divestitures, are expected to generate proceeds of approximately $100
to $120 million. Most of the proceeds from the sale of these assets will be used
to reduce amounts outstanding under the DIP Financing. Refer to Item 2.
"Properties" for further disclosure of the properties to be disposed of and Item
7. "Management's Discussion and Analysis of Financial Condition and Results of
Operations - Liquidity and Capital Resources".

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. We believe 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 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 offer services ranging from precision, value-added pre-production
processing in accordance with

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METALS USA, INC.
(DEBTORS-IN-POSSESSION)

specific customer demands, to storage and distribution of unprocessed metal
products. These service centers function as intermediaries between primary
metals producers and end-users, such as contractors and original equipment
manufacturers ("OEMs"). End-users incorporate the processed metal into a
product, in some cases without further modification.

Historically, metals service centers provided few value-added services and
were little more than distribution centers, linking metals producers with all
but the largest end-users of metals. In the past two decades, however, the
metals service center business has evolved significantly, and the most
successful metals service centers have added processing capabilities, thereby
offering an increasingly broad range of value-added services and products both
to primary metals producers and end-users. This evolution has resulted from
changing trends in the primary metals industry as well as among end-users.

During the past two decades, the trend among primary metals producers has
been 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
metal producers' need to develop and improve efficient, volume-driven production
techniques in order to remain competitive. As a result, 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 pre-production 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.

On October 30, 2001, U.S. Steel, an integrated steel producer, announced
that it has created an internet based service center directed toward end-users.
This is a departure from the general industry trend described above. The primary
purpose of this initiative is to bypass value added metal providers such as
Metals USA, Ryerson Tull and Reliance Steel and sell its products directly to
end-users. We are unable to predict the success of this initiative or the impact
it may have on our operations.

Value-added metals processors/service centers have also benefited from
growing customer demand for inventory management and just-in-time delivery
services. These supply-chain 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 sourcing and work-order scheduling. Additionally, some value-added
metals processors/service centers have installed electronic data interchange
("EDI") between their computer systems and those of their customers to
facilitate order entry, timely delivery and billing.

These trends have resulted in value-added metals processors/service centers
playing an increasingly important role in all segments of the metals industry.
Metals processors/service centers now serve the needs of over 300,000 OEMs and
fabricators nationwide. For additional information regarding trends and industry
initiatives, see "Competition" and "Technology" below.

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METALS USA, INC.
(DEBTORS-IN-POSSESSION)

COMPANY ORGANIZATION

During 2001, we reorganized into three product groups to improve
operational efficiencies and reduce administrative costs. We moved our flat
rolled specialty metals operations into the Flat Rolled Group, our non-flat
rolled specialty metals operations into the Plates and Shapes Group and continue
to operate Building Products as a separate group. This new structure provides
opportunities for increased efficiency and cost savings as well as improved
customer service. Each group is led by an experienced entrepreneurial-focused
executive, who is supported by a professional staff in finance, purchasing and
sales and marketing. This product-oriented organizational structure facilitates
the efficient advancement of our goals and objectives to achieve operational
synergies, focused capital investment and improved working capital turnover. For
additional industry segment information, see Item 7. "Management's Discussion
and Analysis of Financial Condition and Results of Operations - Results of
Operations - Segment Results" and Note 13 of Notes to Consolidated Financial
Statements in Item 8. "Financial Statements and Supplementary Data." The
following descriptions reflect the reorganization of the product groups.

PLATES AND SHAPES

Plates and Shapes had revenues of approximately $725 million in 2001 and
currently has thirty-six (36) operating locations throughout the U.S. Excluding
the recently announced planned divestitures, the product group would have had
revenues of approximately $550 million in 2001. This operating segment sells
carbon steel products such as wide-flange beams, plate, tubular, angles and
other structural shapes as well as many specialty metals products including
stainless steel, aluminum, magnesium and titanium. These products are available
in a number of alloy grades and sizes and generally undergo additional
processing prior to customer delivery. Processing services include cutting,
sawing, cambering/leveling, punching, drilling, beveling, surface grinding,
bending, shearing, cut-to-length and T-splitting. Plates and Shapes customers
are in the fabrication, construction, machinery and equipment, transportation,
aerospace, electronics and energy industries.

FLAT ROLLED

Flat Rolled had revenues of approximately $720 million in 2001 and
currently has twenty-five (25) operating locations in the midwest, south and
northwest regions of the U.S. Excluding the recently announced planned
divestitures, the product group would have had revenues of approximately $550
million in 2001. This operating segment sells a number of products including
carbon steel, stainless, aluminum, brass and copper in a variety of alloy grades
and sizes. Steel mills generally ship carbon steel in sizes less than a quarter
of an inch in thickness in continuous coils that typically weigh forty to
sixty-thousand pounds each. Few customers can handle steel in this form.
Accordingly, substantially all of the carbon steel material as well as the
nonferrous materials sold by Flat Rolled undergo additional processing prior to
customer delivery. Processing services include slitting, precision blanking,
leveling, cut-to-length, laser cutting, punching, bending and shearing. Flat
Rolled customers are in the electrical manufacturing, fabrication, furniture,
appliance manufacturers, machinery and equipment and transportation industries.

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METALS USA, INC.
(DEBTORS-IN-POSSESSION)

BUILDING PRODUCTS

Building Products had revenues of approximately $150 million in 2001 and
currently has twenty-one (21) operating locations and forty-one (41) sales and
distribution centers throughout the southeast, southwest and western regions of
the U.S. This operating segment sells a number of finished products that are
both cost and energy efficient for use in residential applications such as
sunrooms, roofing products, awnings and solariums. Commercial uses of these
products include large area covered canopies, awnings and covered walkways.
Building Products customers are predominantly in the construction, wholesale
trade and building material industries.

INDUSTRY CONSOLIDATION

Based on industry data, we believe that the metals processor/service center
industry is highly fragmented, with as many as 3,500 participants generating
over $75 billion in annual net sales.

The necessity for value-added metals processors/service centers to add
specialized processing equipment, manage inventory on behalf of their customers
and use sophisticated computer systems is requiring industry participants to
make substantial capital investments in order to remain competitive. In
addition, many customers are seeking to reduce their operating costs by limiting
the number of suppliers with whom they do business, often eliminating those
suppliers offering limited ranges of products and services. These trends have
placed the substantial number of small, owner-operated businesses at a
competitive disadvantage because they have limited access to the capital
resources necessary to increase their capabilities, or they can not economically
justify the investment in equipment. As a result, smaller companies are finding
it increasingly difficult to compete as current industry trends continue.

STRATEGY

Since our creation in 1997, we have become one of the leading providers of
higher-value components from processed metals. We have invested substantial
capital integrating our operations to maximize operating margins and accelerate
internal sales growth. As a result of the Chapter 11 Filing, we anticipate a
major restructuring of our operations and capital structure, including the
recently announced planned divestitures. The reorganization plan that should be
submitted to the Bankruptcy Court during 2002 will incorporate the following
activities:

- Consolidate our most profitable and strategic assets.

- Sell or close less strategic and lower-margin assets and facilities.

- Review cost structures, including leases and contracts, salaries and
benefits and overhead, and identify savings or improvements to our
business model.

- Develop a retention policy to provide incentives to our employees.

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METALS USA, INC.
(DEBTORS-IN-POSSESSION)

PROCESSING SERVICES AND PRODUCTS

We engage in pre-production processing of steel, stainless steel and
aluminum and act as an intermediary between primary metals producers and
end-users. We purchase metals from primary producers, maintain an inventory of
various metals to allow rapid fulfillment of customer orders and perform
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, we enable our customers to reduce
overall production costs and decrease capital required for raw materials
inventory and metals processing equipment.

We purchase our raw materials in anticipation of projected customer
requirements based on interaction with, and feedback from customers, market
conditions, historical usage and industry research. Primary producers typically
find it more cost effective to focus on large volume production and sale of
metals in standard sizes and configurations to large volume purchasers. We
process the metals to the precise thickness, length, width, shape, temper and
surface quality specified by our customers. Value-added processes provided
include:

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

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

- PRECISION BLANKING -- the process in which flat rolled metal is cut
into precise two-dimensional shapes.

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

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

- SAWING -- the cutting to length of bars, tubular goods and beams.

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

- TEE-SPLITTIG -- the splitting of metal beams.

- PLATE FORMING AND ROLLING -- the forming and bending of plates to
cylindrical or required specifications.

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

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

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

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METALS USA, INC.
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Additional capabilities include applications engineering and a variety of
other value-added processes such as blasting, painting and custom machining.
Using these capabilities, we use processed metals to manufacture higher-value
components.

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 our computer systems,
including, in certain locations, the use of bar coding to aid in and reduce the
cost of tracking material. Our computer systems record the source of all metal
shipped to customers. This enables us to identify the source of any metal which
may later be shown to not meet industry standards or that fails during or after
manufacture. This capability is important to our customers as it allows them to
assign responsibility for non-conforming or defective metal to the mill or
foundry that produced the metal. Many of the products and services we provide
can be ordered and tracked through a web-based electronic network that directly
connects our computer system to those of our customers.

A majority of our orders are filled within 24-48 hours. This is
accomplished through our special inventory management programs, which permit us
to deliver processed metals in accordance with the just-in-time inventory
programs of our customers. We are required to carry sufficient inventory of raw
materials to meet the short lead time and just-in-time delivery requirements of
our customers.

While we ship products throughout the U.S., most of our customers are
located within a 250-mile radius of our facilities, thus enabling an efficient
delivery system capable of handling a large number of short lead-time orders. We
transport most of our products directly to our customers either with our own
trucks for short-distance and/or multi-stop deliveries or through common or
contract trucking companies.

We 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. A total of thirty-six (36) of our facilities have International
Standards Organization ("ISO") 9002 certification, while all others are actively
working on their certification.

SOURCES OF SUPPLY

In recent years, steel, aluminum, copper and other metals production in
the U.S. 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 products, as well as
fluctuations in price. Typically, metals producers announce price changes
with sufficient advance notice to allow us to order additional products prior
to the effective date of a price increase, or to defer purchases until a
price decrease becomes effective. Our purchasing decisions are based on our
forecast of the availability of metal products, ordering lead times and
pricing, as well as our prediction of customer demand for specific products.

Our domestic steel suppliers include Nucor Corp., LTV Steel Co., Bethlehem
Steel Corp., National Steel Corp., Bayou Steel, AmeriSteel, Chaparral Steel and
Ipsco Steel. 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 Freight on Board ("FOB") and
the transportation of metals is a

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METALS USA, INC.
(DEBTORS-IN-POSSESSION)

significant cost factor,we seek to purchase metals to the extent possible, from
the nearest mill, but will use a more distant mill when it offers a lower
delivered price.

Integrated metal producers are currently undergoing rapid consolidation
because of the deteriorating market conditions. U.S. Steel is in the process of
acquiring several of its domestic competitors and international integrated
producers are seeking to merge and consolidate operations. The result of this
trend will be fewer integrated producers from which we can purchase our raw
materials. We are unable to predict what impact this consolidation may have on
our operations.

Internationally, steel suppliers in the European Union have undergone
consolidation and are now represented by a handful of large conglomerates.
Arcelor, the result of a three-way merger of Arbed of Luxembourg, Usinor of
France and Aceralia of Spain, is the largest steel producer in the world
producing about forty-five (45) million tons of steel a year, or about three (3)
times that of U.S. Steel. Arcelor, ThyseenKrupp of Germany, Corus, a
British-Dutch steel producer, and two other European producers represent more
than 60% of the steel market in Europe. By contrast, the top five (5) U.S.
companies account for about a third of the American market. Most of the cheap
foreign imports that have affected the U.S. market come from Japan, China, South
Korea, Russia, Ukraine and Brazil. All of these countries will be affected by
the increased tariffs implemented by the U.S. government effective March 20,
2002.

SALES AND MARKETING; CUSTOMERS

Our 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 our inventory management, processing, just-in-time delivery and other
services. We use a variety of methods to identify potential customers, including
the use of databases, telemarketing, direct mail and participation in
manufacturers' trade shows. Customer referrals and the knowledge of our sales
force about regional end-users also result in the identification of potential
customers. Once a potential customer is identified, our "outside" salespeople
assume responsibility for visiting the appropriate contact, typically the
purchasing manager or manager of operations.

We employ 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 potential
customers. Our "outside" sales force is primarily responsible for identifying
potential customers and calling on them to explain our services. The sales force
is trained and knowledgeable about the characteristics and applications of
various metals, as well as the manufacturing methods employed by our customers.

Nearly all sales are on a negotiated price basis. In some cases, sales are
the result of a competitive bid process where a customer sends us and several
competitors a list of products required and we submit a bid on each product. We
have a diverse customer base, with no single customer accounting for more than
1% of our revenues in 2001.

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METALS USA, INC.
(DEBTORS-IN-POSSESSION)

COMPETITION

We are engaged in a highly fragmented and competitive industry. Competition
is based on price, product quality, service, and timeliness of delivery and
geographic proximity. We compete with a large number of other metals
processors/service centers on a national, regional and local basis, some of
which may have greater financial resources. Principal national competitors
include Ryerson Tull, Inc. (NYSE:RT) and Reliance Steel & Aluminum Co,
(NYSE:RS). We also compete to a lesser extent with primary metals producers, who
typically sell directly to very large customers requiring regular shipments of
large volumes of metals. Other smaller metals processors/service centers may
compete locally.

Historically, we believe that we have been able to compete effectively
because of our 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. There can be no assurance that the Chapter 11 Filing will
not have a material adverse affect on our ability to compete for new customers
as well as maintain our existing customers.

TECHNOLOGY

In March 2000, we formed i-Solutions Direct, Inc. ("i-Solutions") to
develop our integrated supply services and web-based e-commerce initiative.
Initially, i-Solutions created a web-based supply system to support a
Department of Defense contract using technology from Oracle Corp. In March
2001, we introduced Metals USA Link ("Link"), an online, web based order
entry and information system. Link provides our customers 24/7 internet
access, customer specific product catalogs, order inquiry capabilties and the
ability to monitor vendor managed inventory programs. We believe Link
provides our customers improved metal procurement capabilities and permits
them to move closer to a true "just-in-time" inventory management program. We
currently have approximately 300 customers using Link and generate monthly
sales of approximately $3.7 million.

During the past three years, we chose not to ally ourselves with any of the
commercial metal supply related e-commerce initiatives. We did not join any of
these third party initiatives, choosing to devote our efforts to developing our
own e-commerce initiative. Substantially all of the commercial web-based metal
sites are now closed.

GOVERNMENT REGULATION AND ENVIRONMENTAL MATTERS

Our 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, our 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 we use in
our operations include lubricants, cleaning solvents and sulfuric acid (used in
pickling operations at one of our facilities).

We believe that we are in substantial compliance with all such laws and do
not currently anticipate that we 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 we own
or lease are located in areas with a history of heavy industrial use, and are on
or near sites listed on the Comprehensive Environmental Response, Compensation,
and Liability Act ("CERCLA") National

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METALS USA, INC.
(DEBTORS-IN-POSSESSION)

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

Although no environmental claims have been made against the Company and we
have not been named as a potentially responsible party by the Environmental
Protection Agency or any other party, it is possible that we 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, we could incur substantial litigation costs to prove that we are
not responsible for the environmental damage. We have obtained limited
indemnities from the former stockholders of the acquired companies whose
facilities are located at or near contaminated sites. We believe that these
indemnities will be adequate to protect us from a material adverse effect on our
consolidated financial condition, results of operations or liquidity, should we
be held responsible for a share of any clean-up costs. The limited indemnities
are subject to certain deductible amounts, however, and there can be no
assurance that these limited indemnities will fully protect us.

MANAGEMENT INFORMATION SYSTEMS

The system chosen for both the Plates and Shapes and Flat Rolled service
centers was "Stelplan" which is a product marketed and distributed by Invera,
Inc. Stelplan is a completely integrated system designed specifically for the
service center industry. The majority of the Plates and Shapes and Flat Rolled
service centers are now operating on the Stelplan platform. We have also begun a
similar common platform initiative in the Building Products Group. Nine (9) of
our subsidiaries currently use EDI through which they offer customers a
paperless process with respect to order entry, shipment tracking, billing,
remittance processing and other routine activities. Additionally, several of the
subsidiaries also use computer aided drafting systems to directly interface with
computer controlled metal processing equipment, resulting in more efficient use
of material and time.

We believe the investment in uniform management information systems and
computer aided manufacturing technology will permit us to respond quickly and
proactively to our customers' needs and service expectations. These systems are
able to share data regarding inventory status, order backlog, and other critical
operational information on a real-time basis.

EMPLOYEES

We employ approximately 3,600 persons. As of December 31, 2001,
approximately 400 employees at various sites were members of unions: the United
Steelworkers of America; the Sheet Metals Workers Union; the International
Association of Bridge, Structural, and Ornamental Ironworkers of America; the
International Brotherhood of Teamsters; United Auto Workers; and the
International Brotherhood of Boilermakers, Iron Ship Builders, Blacksmiths,
Forgers and Helpers. Our relationship with these unions generally has been
satisfactory, but occasional work stoppages have occurred. Within the last five
years, one (1) work stoppage occurred at one facility, which involved
approximately twenty (20) employees and lasted approximately thirty (30) days.
We are currently a party to seventeen (17) collective bargaining agreements,
which expire at various times. Collective bargaining agreements for all of our
union

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METALS USA, INC.
(DEBTORS-IN-POSSESSION)

employees expire in each of the next four (4) years. Historically, we 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, during periods of low unemployment, turnover
among less skilled workers can be relatively high. We believe that our relations
with our employees are good.

The existing senior management at many of our subsidiary operations is
generally comprised of former owners who committed to stay with their operations
after acquisition. These former owners generally have non-competition
obligations that expire on the fifth anniversary of their date of acquisition,
and thus these obligations expire from July 2002 through 2004. There is no
assurance that we will be able to retain these individuals or find suitable
replacements if such individuals leave the Company. The failure to retain or
replace such management on a timely basis could negatively impact results from
operations at such locations.

VEHICLES

We operate a fleet of owned or leased trucks and trailers, as well as
forklifts and support vehicles. We believe these vehicles generally are well
maintained and adequate for our current operations.

RISK MANAGEMENT, INSURANCE AND LITIGATION

The primary risks in our operations are bodily injury, property damage and
injured workers' compensation. We maintain general liability insurance and
liability insurance for bodily injury and property damage and workers'
compensation coverage, which we consider sufficient to insure against these
risks.

From time to time, we are a party to litigation arising in the ordinary
course of our business, most of which involves claims for personal injury or
property damage incurred in connection with our operations. We are not currently
involved in any litigation that we believe will have a material adverse effect
on our consolidated financial condition, results of operations or liquidity. In
addition, unless modified by the Bankruptcy Court, pursuant to the automatic
stay provision of Section 362 of the Bankruptcy Code, most pre-petition
litigation against the Company is currently stayed.

SAFETY

Our goal is to provide an accident-free workplace and we are committed
to continuing and improving upon each facilities' focus and emphasis on
safety in the workplace. We currently have a number of safety programs in
place, which include regular weekly or monthly field safety meetings, bonuses
based on an employee's or a team's safety record and training sessions to
teach proper safe work procedures. We have developed a comprehensive "best
practices" safety program to be implemented throughout our operations to
ensure that all employees comply with safety standards established by the
Company, our insurance carriers and federal, state and local laws and
regulations. This program is being led by a professional safety manager at
the Corporate office, with the assistance of each of our product group
presidents, executive officers and industry consultants with expertise in
workplace safety.

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METALS USA, INC.
(DEBTORS-IN-POSSESSION)

ITEM 2. PROPERTIES

As of December 31, 2001, we operated forty-seven (47) metals processing
facilities in the Plates and Shapes Group and twenty-five (25) facilities in the
Flat Rolled Group. These facilities are used to receive, warehouse, process and
ship metals. These facilities use various metals processing and materials
handling machinery and equipment. Our Building Products Group operates
twenty-one (21) facilities where we process metals into various building
products. These service center facilities are located and described as follows:

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METALS USA, INC.
(DEBTORS-IN-POSSESSION)

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METALS USA, INC.
(DEBTORS-IN-POSSESSION)

(1) These facilities are subject to liens with respect to certain Industrial
Revenue Bonds ("IRBs"). All of the remaining owned facilities are pledged
as collateral for our DIP Financing.

(2) These facilities were held for sale as of December 31, 2001.

(3) These additional facilities were held for sale as of April 5, 2002.

In addition to the service center facilities listed above, our Building
Products Group also operates forty-one (41) sales and distribution centers
throughout the western, southwestern and southeastern U.S. These facilities,
which are all leased, generally range in size from 5,000 square feet to
20,000 square feet. Many of our facilities are capable of being used at
higher capacities, if necessary. We believe that our facilities will be
adequate for the expected needs of our existing businesses over the next
several years.

During 2001, we decided to sell certain non-core assets in an effort to
provide additional liquidity and close or consolidate certain facilities and
assets. During the year, we closed or consolidated eight (8) facilities in the
Plates and Shapes Group, three (3) facilities in the Flat Rolled Group and one
(1) facility in the Building Products Group. Since December 31, 2001, we have
sold, closed or consolidated eleven (11) facilities in the Plates and Shapes
Group. We anticipate additional facilities will be sold, closed or

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METALS USA, INC.
(DEBTORS-IN-POSSESSION)

consolidated into existing operations in the future. We plan to file our
reorganization plan outlining these activities during 2002.

ITEM 3. LEGAL PROCEEDINGS

THIS SECTION CONTAINS STATEMENTS THAT 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.

On November 14, 2001, we voluntarily filed for relief under Chapter 11 of
the U.S. Bankruptcy Code. The petitions were filed in Bankruptcy Court for the
Southern District of Texas, Case No. 01-42530-H4-11 through 01-42573-H4-11. We
continue to operate our business as debtors-in-possession under Sections 1107
and 1108 of the Bankruptcy Code. We have obtained $350 million in DIP Financing
to continue to operate our business. In this proceeding, we intend to propose
and seek confirmation of a plan of reorganization. We anticipate that we will
finalize and submit a plan of reorganization to the Bankruptcy Court during
2002.

Under the provisions of the U.S. Bankruptcy Code, all secured and unsecured
creditors are required to submit proofs of claim. The Bankruptcy Court has set
July 8, 2002 as the date for which all claims are required to be submitted. We
believe that all of these claims have been properly recorded in the Consolidated
Financial Statements included in Item 8. "Financial Statements and Supplementary
Data." However, ultimate resolution of these liabilities is not presently
determinable.

We are involved in a variety of claims, lawsuits and other disputes arising
in the ordinary course of business. We believe the resolution of these matters
and the incurrence of their related costs and expenses should not have a
material adverse effect on our consolidated financial position, results of
operations or liquidity. In addition, unless modified by the Bankruptcy Court,
pursuant to the automatic stay provision of Section 362 of the Bankruptcy Code,
most pre-petition litigation against the Company is currently stayed. For
additional information on our Bankruptcy proceedings see Item 1. "Business --
Recent Developments" and Item 7. "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Overview - Chapter 11
Proceedings".

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

None.

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METALS USA, INC.
(DEBTORS-IN-POSSESSION)
PART II

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

Our Common Stock traded under the symbol MUI on the New York Stock Exchange
from July 11, 1997 through November 14, 2001. Trading was suspended as a result
of the Chapter 11 Filing on November 14, 2001. Since November 20, 2001 our
Common Stock has traded under the symbol MUIN.OB in the Over the Counter ("OTC")
- - Bulletin Board market. The following table sets forth the high and low sale
prices for our Common Stock as reported by the New York Stock Exchange or by the
OTC - Bulletin Board, as applicable for each calendar quarter during the periods
indicated. OTC market quotations reflect inter-dealer prices without retail
mark-up, mark-down or commission and may not represent actual transactions.

We believe there are approximately 1,600 stockholders of record of our
Common Stock as of December 31, 2001.

Since we are operating under the protection of the Bankruptcy Court, there
will not be any dividends paid to holders of our Common Stock for the
foreseeable future. The last dividend of $0.03 per share was declared on March
28, 2001 and paid April 17, 2001 to stockholders of record on April 6, 2001.
During the fiscal year ended December 31, 2000, we declared four quarterly
dividends of $0.03 per share. Three of these quarterly dividends were paid
during 2000. The fourth quarterly dividend was declared on November 13, 2000 and
was paid on January 11, 2001.

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METALS USA, INC.
(DEBTORS-IN-POSSESSION)

ITEM 6. SELECTED FINANCIAL DATA

The following consolidated financial information should be read in
conjunction with Item 7. "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and our audited Consolidated Financial
Statements and the related Notes thereto included in Item 8. "Financial
Statements and Supplementary Data." The consolidated financial information for
the fiscal years ended 1997 through 2001 reflects the historical consolidated
financial statements of Metals USA, restated for the effects of the business
combinations which were accounted for as "poolings-of-interests," and the
remaining acquired companies from their respective acquisition dates. In
addition, the consolidated financial statements for 2001 are prepared in
accordance with the AICPA's Statement of Position 90-7, FINANCIAL REPORTING BY
ENTITIES IN REORGANIZATION UNDER THE BANKRUPTCY CODE.

- ----------

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METALS USA, INC.
(DEBTORS-IN-POSSESSION)

(1) Includes all pre-petition current liabilities that are not subject to
compromise. Including noncurrent pre-petition liabilities subject to
compromise of $364.0 million, our working capital would be a deficit of
$188.5 million as of December 31, 2001.
(2) Because of the Chapter 11 Filing, $301.9 million of long-term debt was
reclassified as a current pre-petition liability not subject to compromise
and $200.0 million was reclassified as a noncurrent pre-petition liability
subject to compromise.
(3) We declared four (4) quarterly dividends of $0.03 per share during the year
ended December 31, 2000 and one (1) dividend of $0.03 per share during the
first quarter of 2001. No subsequent dividends have been declared.

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

INTRODUCTION

THIS SECTION CONTAINS STATEMENTS THAT 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. READERS SHOULD REFER TO "FACTORS WHICH MAY AFFECT FUTURE OPERATING
RESULTS" FOR RISK FACTORS THAT MAY AFFECT FUTURE PERFORMANCE.

The following discussion should be read in conjunction with Item 6.
"Selected Financial Data" and our Consolidated Financial Statements and related
Notes thereto in Item 8. "Financial Statements and Supplementary Data."
Important factors that could cause actual results to differ are discussed below
under "Factors Which May Affect Future Operating Results."

CRITICAL ACCOUNTING POLICIES

In response to the Securities and Exchange Commission's Release No.33-8040,
"Cautionary Advice Regarding Disclosure About Critical Accounting Policies", we
have identified critical accounting policies based upon the significance of the
accounting policy to our overall financial statement presentation, as well as
the complexity of the accounting policy and our use of estimates and subjective
assessments. We have concluded our critical accounting policies are as follows:

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, primarily
relating to the segment disclosure.

The consolidated financial statements are prepared in accordance with the
AICPA's Statement of Position (SOP) 90-7, FINANCIAL REPORTING BY ENTITIES IN
REORGANIZATION UNDER THE BANKRUPTCY CODE. SOP 90-7 requires the Company to,
among other things, (1) identify transactions that are directly associated with
the Bankruptcy proceedings from those events that occur during the normal course
of business and (2) identify pre-petition liabilities subject to compromise from
those that are not subject to compromise or are post petition liabilities.

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METALS USA, INC.
(DEBTORS-IN-POSSESSION)

CONCENTRATION OF CREDIT RISK -- Financial instruments, which potentially
subject us 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 several industries. Generally, credit
is extended once appropriate credit history and references have been obtained.
Provisions to the allowance for doubtful accounts are made monthly and
adjustments are made periodically (as circumstances warrant) based upon the
expected collectibility of all such accounts. Additionally, we periodically
review the credit history of our customers and generally do not require
collateral for the extension of credit.

INVENTORIES -- Inventories are stated at the lower of cost or market.
Certain of our 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, 2001 and 2000, approximately
16.1% and 12.9%, respectively, of the consolidated inventories were accounted
for using the LIFO method of accounting.

PROPERTY AND EQUIPMENT -- Property and equipment are stated at cost, and
depreciation is computed using the straight-line method, net of estimated
salvage values, over the estimated useful lives of the assets. Expenditures for
repairs and maintenance are charged to expense when incurred. Expenditures for
major renewals and betterments, which extend the useful lives of existing
equipment, are capitalized and depreciated. Upon retirement or disposition of
property and equipment, the cost and related accumulated depreciation are
removed from the accounts and any resulting gain or loss is recognized in the
statement of operations. Leasehold improvements are capitalized and amortized
over the lesser of the life of the lease or the estimated useful life of the
asset.

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 was being amortized over a forty-year life using the
straight-line method.

IMPAIRMENT OF LONG-LIVED ASSETS -- Long-lived assets are comprised
principally of property and equipment and goodwill. We review long-lived assets
for impairment whenever events or changes in circumstances indicate that the
carrying amount may not be realizable. If an evaluation is required, the
estimated future undiscounted cash flows associated with the asset are compared
to the asset's carrying amount to determine if an impairment of such asset is
necessary. The effect of any impairment would be to expense the difference
between the fair value of such asset and its carrying value.

Due to the recent recession in the U.S. and the Chapter 11 Filing, the
current economic conditions indicated that a significant portion of our
long-lived assets were impaired. At December 31, 2001, we estimated the fair
value of our goodwill and property and equipment based on each operating unit's
expected undiscounted future cash flows. These estimates were calculated from
current economic and operating conditions projected throughout 2002 and future
periods. We believe these estimates are appropriate in light of the current
over-capacity of global steel production. The recently enacted tariffs are for a
limited time and, accordingly, were given minimal impact in the foregoing
projections. These projections indicated that the carrying amounts for goodwill
and property and equipment were not recoverable. Therefore, all remaining
goodwill was written off. We obtained an independent appraisal for our property
and equipment and believe this appraisal represents the fair value of these
assets as of December 31, 2001. As a result, our property and equipment balances
were written down to the appraised value if such value was lower than the net
book value of such assets as of December 31,

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METALS USA, INC.
(DEBTORS-IN-POSSESSION)

2001. Additionally, during the fourth quarter of 2001, in an attempt to avoid
the necessity of a bankruptcy filing, we engaged a broker to assist us in the
sale of a particular business unit. It became evident the expected net proceeds
from the sale of these assets would be insufficient to enable us to recover our
investment in the goodwill attributable to this business unit. As a result, we
wrote off the goodwill associated with this business unit at that time. We were
unable to complete the sale of this business unit prior to the Chapter 11 Filing
and we instructed the broker to discontinue the sales effort.

REVENUE RECOGNITION -- We recognize revenues as products are shipped.

REORGANIZATION EXPENSES. Reorganization expenses include all costs and
expenses directly attributable to the Chapter 11 Filing.

INCOME TAXES -- We account 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 basis 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. The provision
for income taxes represents the amount of taxes payable and the applicable
changes in deferred tax assets and liabilities.

OVERVIEW

Our net sales are derived from the processing and distribution of steel,
aluminum and other specialty metals and the use of processed metals to
manufacture high-value end-use products. Most of the metal we sell is processed
in some form. We process various metals to specified thickness, length, width,
shape and surface quality pursuant to specific customer orders. In addition, we
manufacture finished building products for commercial and residential
applications and machine certain specialty metals. See Item 1. "Business" for
further discussion of our organization and business plan.

CHAPTER 11 PROCEEDINGS

On November 14, 2001, we voluntarily filed for relief under Chapter 11 of
the U.S. Bankruptcy Code, in U.S Bankruptcy Court, Southern District of Texas,
Houston Division and began operating our business as debtors-in-possession
pursuant to the Bankruptcy Code. As debtors-in-possession under Section 1107 and
1108 of the Bankruptcy Code, we remain in possession of our properties and
assets, and our management continues to operate our businesses. We are
authorized to manage our properties and operate our businesses, but we may not
engage in transactions outside the ordinary course of business without the
approval of the Bankruptcy Court.

Our need to seek relief under the Bankruptcy Code was due primarily to (1)
a reduction in cash flows resulting from an industry wide recession caused by
pricing pressure from foreign imports and recent decline in the manufacturing
sector of the U.S. economy and (2) the inability to obtain additional liquidity
from our primary lending sources. During 2000, the U.S. steel industry began
experiencing significant declines in prices for steel products resulting from an
influx of cheap foreign imports. During 2001, the U.S economy in general and the
manufacturing sector in

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METALS USA, INC.
(DEBTORS-IN-POSSESSION)

particular moved into a recession that was further exacerbated by the terrorist
attack on September 11, 2001. Due to these deteriorating economic conditions, we
have incurred significant operating losses during the past several quarterly
reporting periods. We expect these losses to continue through at least the first
half of 2002. These losses have called into question the recoverability of our
long-lived assets.

The goal of the Chapter 11 Filing is to maximize recovery by creditors and
shareholders by preserving the Company as a viable entity with going concern
value. The protection afforded by the Chapter 11 Filing will permit us to
preserve cash and restructure our debt. During the pendency of the Chapter 11
Filing, with approval of the Bankruptcy Court, we may assume favorable
pre-petition contracts and leases, reject unfavorable contracts and leases and
sell or otherwise dispose of assets. The confirmation of a plan of
reorganization is our primary objective. We expect to propose a plan of
reorganization to the Bankruptcy Court during 2002. When filed, a plan of
reorganization will set forth the means for treating claims, including
liabilities subject to compromise. A plan of reorganization may result in, among
other things, significant dilution of equity interests as a result of issuance
of equity securities to creditors or new investors. The confirmation of any plan
of reorganization will require creditor acceptance as required under the
Bankruptcy Code and approval of the Bankruptcy Court.

At this time, it is not possible to predict the length of time we will
operate under the protection of Chapter 11, the outcome of the Chapter 11
proceedings in general, or the effect of the proceedings on our businesses or on
the interests of the various creditors and security holders. As a result of the
Chapter 11 Filing, most liabilities we incurred prior to the filing date,
including certain debt, are subject to compromise. However, the ultimate
resolution of these liabilities is not presently determinable.

Under the Bankruptcy Code, post-petition liabilities and pre-petition
liabilities subject to compromise must be satisfied before shareholders can
receive any distribution. The ultimate recovery to shareholders, if any, will
not be determined until the end of the case when the fair value of our assets is
compared to the liabilities and claims against us. There can be no assurance as
to what value, if any, will be ascribed to our Common Stock in the bankruptcy
proceedings.

On January 2, 2002, we obtained $350 million in DIP Financing to fund our
operations while we reorganize. Initial borrowings of $278.2 million were used
to repay the outstanding balance under the previous credit facilities.
Additional borrowings may be used to fund post-petition operating expenses and
supplier and employee obligations throughout the reorganization process.
Borrowings under the DIP Financing are subject to customary funding conditions
and secured by all of our assets. The DIP Financing is designed to give us the
opportunity, during the reorganization process, to develop a new capital
structure that will support us over the long-term, including during recurring
cyclical downturns in the metals industry.

The consolidated financial statements are prepared in accordance with
the AICPA's Statement of Position (SOP) 90-7, FINANCIAL REPORTING BY ENTITIES
IN REORGANIZATION UNDER THE BANKRUPTCY CODE. SOP 90-7 requires the Company
to, among other things, (1) identify transactions that are directly
associated with the Bankruptcy proceedings from those events that occur
during the normal course of business and (2) identify pre-petition
liabilities subject to compromise from those that are not subject to
compromise or are post petition liabilities. As of December 31, 2001, a total
of $310.3 million of secured borrowings and related interest outstanding
under the Credit Facility, IRBs and capital leases and accrued liabilities
approved by the Bankruptcy Court are not subject to compromise.

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METALS USA, INC.
(DEBTORS-IN-POSSESSION)

All remaining unsecured liabilities arising before November 14, 2001, are
subject to compromise. In addition, in accordance with the Bankruptcy Code,
we discontinued accruing interest on the 8 5/8% Senior Subordinated Notes
("Subordinated Notes") as of the Chapter 11 Filing date as this debt is
subject to compromise.

The accompanying consolidated financial statements have been prepared
assuming we will continue as a going concern. Due to the uncertainty related to
the bankruptcy proceedings, there can be no assurance that the current carrying
values of our assets will be realized or that our liabilities will be settled
for the amounts recorded. Substantially all liabilities outstanding as of the
date of the Chapter 11 Filing are subject to resolution under a plan of
reorganization to be voted upon by our creditors and shareholders and confirmed
by the Bankruptcy Court. We have filed schedules with the Bankruptcy Court
setting forth the assets and liabilities of the Company as of the date of the
Chapter 11 Filing, as shown by our accounting records. The Bankruptcy Court has
set July 8, 2002 as the date by which creditors must file proofs of claims that
arose prior to the Chapter 11 Filing. The claim amounts filed by the creditors
could be different from the amounts actually recorded as of the balance sheet
date.

RESULTS OF OPERATIONS

The following financial information reflects our historical financial
statements, and the acquired companies from their respective acquisition dates.

RESULTS FOR 2001 COMPARED TO 2000

NET SALES. Net sales decreased $459.6 million, or 22.7%, from $2,021.6
million in 2000 to $1,562.0 million in 2001. The decrease in net sales was due
to a significant decline in the manufacturing sector of the U.S. economy.
Material shipments for steel products decreased 20.2% and average realized
prices decreased by 3.2% in 2001 compared to 2000. See "--Segment Results" for
additional information.

COST OF SALES. Cost of sales decreased $345.5 million, or 22.3%, from
$1,551.2 million in 2000 to $1,205.7 million in 2001. The decrease in cost of
sales was principally due to the decrease in sales caused

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METALS USA, INC.
(DEBTORS-IN-POSSESSION)

by the decline in the U.S. economy described above. As a percentage of net
sales, cost of sales increased from 76.7% in 2000 to 77.2% in 2001.

OPERATING AND DELIVERY. Operating and delivery expenses decreased $27.0
million, or 12.2%, from $222.2 million in 2000 to $195.2 million in 2001. As a
percentage of net sales, operating and delivery expenses increased from 11.0% in
2000 to 12.5% in 2001. The increase as a percentage of net sales was due to
inherent fixed costs and the inability to reduce costs as quickly as the sales
decline.

SELLING, GENERAL AND ADMINISTRATIVE. Selling, general and administrative
expenses decreased $8.3 million, or 5.5%, from $150.8 million in 2000 to $142.5
million in 2001. This decrease in selling, general and administrative expenses
was primarily attributable to overhead reductions resulting from the declining
economy and savings realized from the integration plan. As a percentage of net
sales, selling, general and administrative expenses increased from 7.5% in 2000
to 9.1% in 2001. The increase as a percentage of net sales was due to inherent
fixed costs and the inability to reduce costs as quickly as the sales decline.

ASSET IMPAIRMENTS. Asset impairment charges of $386.2 million were recorded
in 2001 as compared to none in 2000. As a result of the decline in the U.S.
economy and subsequent bankruptcy, we determined that our ability to recover our
investment in a significant portion of our long-lived assets (goodwill, property
and equipment) was doubtful. Of the total impairment charges, $288.7 million
related to goodwill, $87.3 million related to property and equipment and $ 10.2
million related to future reserves for personnel and facility costs associated
with the disposition of certain properties.

OPERATING INCOME (LOSS). Operating income decreased $463.1 million, from
$71.4 million in income in 2000 to a $391.7 million loss in 2001. Exclusive of
the asset impairment and integration credit in 2001, operating income (loss)
decreased by $79.0 million, or 110.6%, from $71.4 million in income to a $7.6
million loss. The decrease in operating income (loss) was primarily attributable
to the declining economy discussed above. The decline in revenues resulted in
increases in all operating expenses as a percentage of net sales. Operating
income (loss) as a percentage of net sales, decreased from 3.5% in 2000 to
(25.1)% in 2001. Exclusive of the asset impairment and integration credit,
operating income (loss) as a percentage of net sales would have been (0.5)% in
2001.

INTEREST AND OTHER EXPENSES, NET. Interest and other expenses, net
decreased $0.4 million, or 0.8%, from $48.9 million in 2000 to $48.5 million in
2001. The decrease was due to lower interest rates on our Credit Facility and
decreased interest on the Senior Subordinated Notes due to discontinuance of
recording such interest as a result of the Chapter 11 Filing. The decrease in
interest costs was partially offset by an increase in the amortization of debt
issuance costs. Interest costs decreased by $3.8 million. Other expenses
increased by $3.4 million. Other expenses in 2001 primarily consisted of a $1.8
million writeoff of a note receivable versus other income of $1.6 million in
2000, which primarily consisted of a $1.2 million gain from an insurance
settlement. See "Liquidity and Capital Resources - Financing Activities."

REORGANIZATION EXPENSES. Reorganization expenses associated with the
Chapter 11 Filing in the amount of $19.4 were incurred in 2001. These expenses
included $6.2 million associated with the termination of the interest rate swap
agreements, $9.9 million associated with the write off of debt

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METALS USA, INC.
(DEBTORS-IN-POSSESSION)

issuance costs incurred on the Credit Facility and Subordinated Notes and
$3.3 million of professional fees.

PROVISION (BENEFIT) FOR INCOME TAXES. Our provision (benefit) for income
taxes decreased from an expense of $10.8 million in 2000 to a benefit of $53.4
million in 2001. This decrease is attributable to the losses incurred from
operations. We expect to file our federal tax return for 2001 in the near future
and receive approximately $18.0 million in refunds related to carryback of
current year tax losses to previous years taxable income.

RESULTS FOR 2000 COMPARED TO 1999

NET SALES. Net sales increased $276.2 million, or 15.8%, from $1,745.4
million in 1999 to $2,021.6 million in 2000. The increase in net sales was due
to the full year effect of the 1999 acquisitions in 2000, together with unit
volume growth in the other subsidiaries. Material shipments for steel products
increased 14.1% and average realized prices increased by about 1.7% in 2000
compared to 1999. The full year effect of the 1999 acquisitions accounted for
the substantial portion of the increase in material shipments. See "-- Segment
Results" for additional information.

COST OF SALES. Cost of sales increased $261.9 million, or 20.3%, from
$1,289.3 million in 1999 to $1,551.2 million in 2000. The increase in cost of
sales was principally due to the full year effect of the 1999 acquisitions
described above. As a percentage of net sales, cost of sales increased from
73.9% in 1999 to 76.7% in 2000. This percentage increase was principally due to
higher costs of raw materials.

OPERATING AND DELIVERY. Operating and delivery expenses increased $31.7
million, or 16.6%, from $190.5 million in 1999 to $222.2 million in 2000. As a
percentage of net sales, operating and delivery expenses remained fairly
constant at 10.9% in 1999 and 11.0% in 2000.

SELLING, GENERAL AND ADMINISTRATIVE. Selling, general and administrative
expenses increased $22.4 million, or 17.4%, from $128.4 million in 1999 to
$150.8 million in 2000. This increase in selling, general and administrative
expenses was primarily attributable to the full year effect of the 1999
acquisitions described above, net of the savings realized from the integration
plan. As a percentage of net sales, selling, general and administrative expenses
remained fairly constant at 7.4% in 1999 and 7.5% in 2000.

OPERATING INCOME. Operating income decreased $35.2 million, or 33.0%, from
$106.6 million in 1999 to $71.4 million in 2000. Exclusive of the integration
charge in 1999, operating income decreased by $44.6 million, or 38.4%. The
decrease in operating income was primarily attributable to higher costs of raw
materials, as other costs and expenses remained relatively constant as a
percentage of net sales. Operating income as a percentage of net sales,
decreased from 6.1% in 1999 to 3.5% in 2000. Exclusive of the integration
charge, operating income as a percentage of net sales would have been 6.6% in
1999.

INTEREST AND OTHER EXPENSES, NET. Interest and other expenses, net
increased $9.6 million, or 24.4%, from $39.3 million in 1999 to $48.9 million in
2000. The increase was due to increased levels of borrowings as well as
increased interest rates. The credit facility accounted for $7.6 million of the
increase and the accounts receivable securitization facility accounted for $2.3
million.

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METALS USA, INC.
(DEBTORS-IN-POSSESSION)

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

SEGMENT RESULTS

(1) Shipments are expressed in thousands of tons and are not an appropriate
measure of volume for the Building Products Group

SEGMENT RESULTS -- 2001 COMPARED TO 2000

PLATES AND SHAPES. Net sales decreased $242.7 million, or 25.1%, from
$965.1 million in 2000 to $722.4 million in 2001. The decrease in net sales is
due to unit volume decline. Material shipments decreased 19.3% in 2001 compared
to 2000. Average realized sales prices declined by 7.2% in 2001 as compared to
2000. Operating costs and expenses decreased $193.5 million, or 21.1%, from
$916.0 million in 2000 to $722.5 million in 2001. Operating costs and expenses
as a percentage of net sales increased from 94.9% in 2000 to 100.0% in 2001
primarily due to the decline in net sales. On a unit volume basis, operating
costs per ton declined 2.2% primarily due to closing higher cost facilities.
Operating income decreased by $49.2 million, or 100.2%, from $49.1 million in
2000 to a loss of $0.1 million in 2001. Operating income as a percentage of net
sales decreased from 5.1% in 2000 to 0.0% in 2001, primarily due to lower
shipments and lower average realized sales prices.

FLAT ROLLED. Net sales decreased $217.5 million, or 23.2%, from $937.3
million in 2000 to $719.8 million in 2001. The decrease in net sales is
principally due to unit volume decline. Material shipments decreased 21.2% in
2001 compared to 2000. Average realized sales prices declined by 2.5% in 2001 as

27

METALS USA, INC.
(DEBTORS-IN-POSSESSION)

compared to 2000. Operating costs and expenses decreased $200.8 million, or
22.1%, from $910.3 million in 2000 to $709.5 million in 2001. Operating costs
and expenses as a percentage of net sales increased from 97.1% in 2000 to 98.6%
in 2001 as a result of the decline in net sales. On a unit volume basis,
operating costs and expenses declined by 1.0% primarily due to reduced number of
personnel. Operating income decreased by $16.7 million, or 61.9%, from $27.0
million in 2000 to $10.3 million in 2001. Operating income as a percentage of
net sales decreased from 2.9% in 2000 to 1.4% in 2001, primarily due to lower
shipments and lower average realized sales prices.

BUILDING PRODUCTS. Net sales decreased $19.5 million, or 11.5%, from $170.2
million in 2000 to $150.7 million in 2001. The decrease in net sales is
attributable to the decreased demand for the Company's manufactured products.
Operating costs and expenses decreased $14.9 million, or 9.3%, from $160.2
million in 2000 to $145.3 million in 2001. Operating costs and expenses as a
percentage of net sales increased from 94.1% in 2000 to 96.4% in 2001. This
percentage increase was due to spreading fixed operating costs over a lower
volume of net sales. Operating income decreased by $4.6 million, or 46.0%, from
$10.0 million in 2000 to $5.4 million in 2001. This decrease was principally due
to the decline in net sales. Operating income as a percentage of net sales
decreased from 5.9% in 2000 to 3.6% in 2001.

CORPORATE AND OTHER. This category reflects certain administrative
costs, asset impairments and expenses management has not allocated to its
industry segments. The negative net sales amount represents the elimination
of intercompany sales. Operating loss increased by $392.6 million from $14.7
million in 2000 to $407.3 million in 2001. This increase was principally due
to asset impairments of $386.2 million, which included $288.7 million related
to goodwill, $87.3 million related to property and equipment and $10.2
million related to future reserves for personnel and facility costs
associated with the disposition of operations held for sale. The goodwill
impairment charge by segment included $176.9 million for Plates and Shapes,
$54.0 million for Flat Rolled and $57.8 million for Building Products. The
property and equipment impairment charge by segment included $34.8 million
for Plates and Shapes and $52.5 million for Flat Rolled.

SEGMENT RESULTS -- 2000 COMPARED TO 1999

PLATES AND SHAPES. Net sales increased $103.9 million, or 12.1%, from
$861.2 million in 1999 to $965.1 million in 2000. The increase in net sales is
due to unit volume growth. Material shipments increased 11.2% in 2000 compared
to 1999. Operating costs and expenses increased $113.8 million, or 14.2%, from
$802.2 million in 1999 to $916.0 million in 2000. Operating costs and expenses
as a percentage of net sales increased from 93.1% in 1999 to 94.9% in 2000
primarily due to higher costs of raw materials. Operating income decreased by
$9.9 million, or 16.8%, from $59.0 million in 1999 to $49.1 million in 2000.
Operating income as a percentage of net sales decreased from 6.9% in 1999 to
5.1% in 2000, primarily due to higher costs of raw materials.

FLAT ROLLED. Net sales increased $143.3 million, or 18.0%, from $794.0
million in 1999 to $937.3 million in 2000. The increase in net sales is
principally due to the full year effect of the 2000 acquisitions in 1999.
Material shipments increased 14.1% in 2000 compared to 1999, while average
realized prices for steel products increased approximately 3.5% during the same
period. Operating costs and expenses

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METALS USA, INC.
(DEBTORS-IN-POSSESSION)

increased $164.3 million, or 22.0%, from $746.0 million in 1999 to $910.3
million in 2000. Operating costs and expenses as a percentage of net sales
increased from 94.0% in 1999 to 97.1% in 2000 as a result of higher costs of raw
materials. Operating income decreased by $21.0 million, or 43.8%, from $48.0
million in 1999 to $27.0 million in 2000. Operating income as a percentage of
net sales decreased from 6.0% in 1999 to 2.9% in 2000, primarily due to higher
costs of raw materials.

BUILDING PRODUCTS. Net sales increased $43.5 million, or 34.3%, from $126.7
million in 1999 to $170.2 million in 2000. The increase in net sales is
attributable to the increased demand for the Company's manufactured products and
acquisitions. Operating costs and expenses increased $43.8 million, or 37.6%,
from $116.4 million in 1999 to $160.2 million in 2000. Operating costs and
expenses as a percentage of net sales increased from 91.9% in 1999 to 94.1% in
2000. This percentage increase was due to higher costs of raw materials and an
expanded number of distribution facilities. Operating income decreased by $0.3
million, or 2.9%, from $10.3 million in 1999 to $10.0 million in 2000. This
decrease was principally due higher costs of raw materials. Operating income as
a percentage of net sales decreased from 8.1% in 1999 to 5.9% in 2000.

CORPORATE AND OTHER. This category reflects certain administrative costs
and expenses management has not allocated to its industry segments. The negative
net sales amount represents the elimination of intercompany sales. Operating
loss increased by $4.0 million, or 37.4%, from $10.7 million in 1999 to $14.7
million in 2000. This increase was principally due to costs associated with the
systems integration project.

LIQUIDITY AND CAPITAL RESOURCES

The protection afforded us during the period we are in bankruptcy has a
direct impact on our cash flows. The effect of this protection has been an
improvement in our cash position subsequent to the Chapter 11 Filing. We are not
permitted to pay any pre-petition liabilities without approval of the Bankruptcy
Court, including interest on the $200.0 million of Subordinated Notes
representing pre-petition debt that is subject to compromise and approximately
$160.0 million of accounts payable and accrued liabilities. Additionally, we
have obtained $350 million in DIP Financing to fund operations while we
reorganize. Further, we have sold certain assets and recently announced
additional divestitures that are intended to improve our liquidity and reduce
bank indebtedness. The negative effect of these asset sales is the reduction in
future revenues and a corresponding reduction in future cash flows. We have
incurred significant operating losses during the past several quarterly
reporting periods and expect these losses to continue through at least the first
half of 2002. A further economic downturn would negatively affect our future
cash flows generating losses greater than those currently expected. These events
coupled with the failure to execute the asset divestitures described herein
could cause future financial performance to fall below the levels required by
the DIP Financing covenants.

Free cash flow is defined as cash provided by operating activities less
customary capital expenditures plus proceeds from asset sales. If free cash flow
is positive, funds would be available to invest in significant operating
initiatives or reduce outstanding debt. If free cash flow is negative, we will
have to raise capital from the sale of assets or incur additional debt to fund
the outflow of cash.

For the year ended December 31, 2001 we had free cash flow of $74.0
million, an increase of $108.2 million as compared to negative free cash flow of
$34.2 million in 2000. Free cash flow in 2001 consisted

29

METALS USA, INC.
(DEBTORS-IN-POSSESSION)

primarily of cash flow from 2001 operations of $45.1 million plus a $138.2
million reduction in inventories, partially offset by $9.3 million of net
purchases of property, equipment and other assets and the repurchase of
securitized receivables of $100.0 million.

Net cash used in financing activities was $2.6 million for 2001 and
consisted primarily of repayments of borrowings on credit facilities and
long-term debt, payment of dividends and financing costs incurred on the Credit
Facility. Net cash provided by financing activities was $33.3 million for 2000
and consisted primarily of additional borrowings on our credit facilities,
partially offset by the purchase of treasury stock. See "--Financing
Activities."

At December 31, 2001, we had cash of $75.2 million and working capital of
$175.5 million, excluding $364.0 million of pre-petition liabilities that are
subject to compromise. At December 31, 2000, we had cash of $3.8 million,
working capital of $344.8 million and total debt of $493.0 million. The decrease
in working capital at December 31, 2001 compared to December 31, 2000 is
primarily attributable to a decrease in our inventories. The higher cash balance
at December 31, 2001 compared to December 31, 2000 was primarily due to the lack
of bank financing during the period from November 14, 2001 to December 31, 2001
as the Company was operating under a temporary cash collateral order from the
Bankruptcy Court.

On April 5, 2002, we announced planned divestitures of eleven (11)
additional business units that will result in a significant downsizing of our
Company. We anticipate selling these assets to raise proceeds that will be
utilized to reduce our indebtedness and improve our liquidity. These
divestitures are a part of our reorganization plan that is currently being
developed for the Bankruptcy Court. These divestitures, along with previously
announced divestitures, had a carrying value at December 31, 2001 of
approximately $146.0 million and are expected to generate proceeds of
approximately $100 to $120 million, which would result in an additional
impairment in the second quarter of 2002. The proceeds from the sale of these
assets will be used to reduce amounts outstanding under the DIP Financing.
Because the decision to dispose of the additional eleven (11) business units
was made subsequent to year-end, the assets were not classified as
"assets-held-for-sale" on the December 31, 2001 balance sheet. Refer to Item
2. "Properties" for further disclosure of the properties to be disposed of as
a result of these divestitures.

INVESTING ACTIVITIES

During 2001, we repurchased $100.0 million of securitized receivables and
purchased $16.3 million of property and equipment. During 2000, we purchased
$37.3 million of property and equipment and had one acquisition, the assets of a
flat-rolled processing operation in Chattanooga, Tennessee. The aggregate
consideration paid for this acquisition was $7.8 million in cash. 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
our credit facilities or other sources of financing.

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METALS USA, INC.
(DEBTORS-IN-POSSESSION)

FINANCING ACTIVITIES

POST-PETITION FINANCING ACTIVITIES. On January 2, 2002, we executed our DIP
Financing with Bank of America N.A. ("Bank of America") and PNC Bank N.A. ("PNC
Bank") for $350 million. Initial borrowings of $278.2 million were used to repay
the outstanding balance under the previous credit facilities. The facility is
composed of a revolving line of credit consisting of revolving loans, letters of
credit and credit support. The DIP Financing bears interest at the bank's prime
rate plus an applicable margin of 2%, has an eighteen (18) month term with two
three (3) month extensions and is collateralized by all of our accounts
receivable, inventory, equipment and real estate. The lending formula is 85% of
eligible accounts receivable and up to 60% of eligible inventory. In addition,
there are two sublimit loans in the amount of $31 million on equipment and $30
million on real estate. The $31 million equipment loan is amortized at $.5
million per month with an additional $13.0 million due on June 30, 2002 and $7.0
million on December 31, 2002, such amounts coinciding with anticipated
divestitures. Once retired, we may not borrow against these lines of credit. A
commitment fee is payable on any unused portion of the DIP Financing. A letter
of credit fee is payable for each letter of credit or credit support provided by
the lenders. Borrowings may be used to fund post-petition operating expenses and
supplier and employee obligations throughout the reorganization process. As of
March 15, 2002, the balance outstanding under the DIP Financing was $242.2
million. Liquidity, defined as cash on hand of $18.5 million plus availability
under the DIP Financing of $32.3 million, was $50.8 million as of March 15,
2002.

Key covenants of the DIP Financing include maintenance of a fixed charge
coverage ratio of 0.50 to 1.0 through April 30, 2002, 0.75 to 1.0 as of May 31,
2002 and 1.0 to 1.0 at June 30, 2002 and thereafter, and the maintenance of
minimum average availability of $5.0 million through May 31, 2002, $10.0 million
at June 30, 2002, $15.0 million through February 28, 2003 and $20.0 million from
March 31, 2003 through maturity. Other covenants include limitations on capital
expenditures, lease obligations and sales of assets.

As a part of the reorganization plan, we plan to sell assets and close
certain facilities. These actions along with continued weakness in the U.S.
economy may cause our financial performance to fail to meet the covenants
required by the DIP Financing. Accordingly, we may be required to revise the
terms of the DIP Financing or obtain waivers regarding default on any
covenants or provisions of the agreement.

PRE-PETITION FINANCING ACTIVITIES. On March 12, 2001, we entered into an
asset-based credit facility (the "Credit Facility") with Bank of America and PNC
Bank. The Credit Facility was for a period of three years, representing $450
million in financing, and replaced our previous credit facilities that consisted
of a $300 million revolving credit facility and a $100 million accounts
receivable securitization facility. The Credit Facility was comprised of two
separate loans, a revolving credit facility providing up to $350 million in
borrowings and a $100 million loan to a wholly-owned and unrestricted subsidiary
secured solely by accounts receivable. The Credit Facility was secured by all of
our receivables (not otherwise pledged under the accounts receivable facility),
inventories, and property and equipment. Borrowings under the Credit Facility
were limited to the lesser of a borrowing base, comprised of eligible
receivables and inventories, or $450 million in the aggregate. The indebtedness
under the Credit Facility was repaid from borrowings under the DIP Financing.

31

METALS USA, INC.
(DEBTORS-IN-POSSESSION)

Concurrent with and subsequent to executing the Credit Facility, we entered
into four (4) interest rate swap agreements designed as a partial hedge to our
variable rate borrowings under the Credit Facility. The purpose of these swap
agreements was to fix interest rates on a portion of our borrowings under the
Credit Facility, thereby reducing exposure to interest rate fluctuations. On
November 14, 2001, the date of the Chapter 11 Filing, the swap agreements were
terminated and we recorded $6.2 million in reorganization expense associated
with termination of these agreements.

COMMITMENTS AND CONTINGENCIES

We were not engaged in off-balance sheet arrangements through
unconsolidated, limited purpose entities and no material guarantees of debt or
other commitments to third parties existed at December 31, 2001.

We enter into operating leases for many of our facility, vehicle and
equipment needs. These leases allow us to conserve cash by paying a monthly
lease rental fee for use of rather than purchasing facilities, vehicles and
equipment. At the end of the lease, we have no further obligation to the lessor.
Furthermore, under the Bankruptcy Code, all of our unsecured debt obligations
and operating lease obligations are subject to compromise and can be confirmed
or rejected during the course of the proceedings. Our future contractual
obligations include the following:

Future contractual obligations does not include the Subordinated Notes in
the amount of $200.0 million. This debt obligation is subject to compromise and
is classified as a noncurrent liability subject to compromise on our balance
sheet as of December 31, 2001.

NEW ACCOUNTING PRONOUNCEMENTS

In July 2001, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 141 ("SFAS No. 141"), ACCOUNTING FOR BUSINESS
COMBINATIONS and Statement of Financial Accounting Standards No. 142 ("SFAS No.
142"), ACCOUNTING FOR GOODWILL AND OTHER INTANGIBLE ASSETS. SFAS No. 141
requires that the purchase method of accounting be used for business
combinations initiated after June 30, 2001. SFAS No. 142 requires companies to
assess goodwill assets for impairment each year, and more frequently if
circumstances suggest an impairment may have occurred. SFAS 142 also introduces
a more stringent framework for assessing goodwill impairment than the approach
required under existing rules. SFAS 142 discontinues the regular charge, or
amortization, of goodwill assets against income. SFAS 141 was effective as of
June 30, 2001. SFAS 142 is effective beginning January 1, 2002. Due to the
impairments recorded as of December 31, 2001, we believe the adoption of SFAS
142 will not have a material impact on our financial position or results of
operations.

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METALS USA, INC.
(DEBTORS-IN-POSSESSION)

In August 2001, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 144 ("SFAS No. 144"), ACCOUNTING FOR
IMPAIRMENT OR DISPOSAL OF LONG-LIVED ASSETS. SFAS 144 supersedes Statement of
Financial Accounting Standards No. 121 ("SFAS 121"), ACCOUNTING FOR THE
IMPAIRMENT OF LONG-LIVED ASSETS AND LONG-LIVED ASSETS TO BE DISPOSED OF and the
accounting and reporting provisions of Accounting Principles Board Opinion No.
30, REPORTING THE RESULTS OF OPERATIONS REPORTING THE EFFECTS OF DISPOSAL OF A
SEGMENT OF A BUSINESS, AND EXTRAORDINARY, UNUSUAL AND INFREQUENTLY OCCURRING
EVENTS AND TRANSACTIONS. SFAS 144 addresses financial accounting and reporting
for the impairment and disposal of long-lived assets and was adopted by the
Company effective January 1, 2002. We believe the adoption of SFAS 144 will not
have a material impact on our financial position or results of operations.

FACTORS WHICH MAY AFFECT FUTURE OPERATING RESULTS

The provisions of the Private Securities Litigation Reform Act of 1995
provide companies with a "safe harbor" when making forward-looking statements.
This "safe harbor" encourages companies to provide prospective information about
their companies without fear of litigation. We wish to take advantage of the
"safe harbor" provisions of the Private Securities Litigation Reform Act of 1995
and are including this section in our Annual Report on Form 10-K in order to do
so. Factors that could cause our actual results to differ materially from
management's projections, forecasts, estimates and expectations include, but are
not limited to, the following:

UNCERTAINTIES RELATING TO OUR BANKRUPTCY PROCEEDINGS. Our future results
are dependent upon the successful confirmation and implementation of a plan of
reorganization. We have not yet submitted such a plan to the Bankruptcy Court
for approval and cannot make any assurances that we will be able to obtain any
such approval in a timely manner. Failure to obtain this approval in a timely
manner could adversely affect our operating results, as our ability to obtain
financing to fund our operations and our relations with our customers and
suppliers may be harmed by protracted bankruptcy proceedings. Furthermore, we
cannot predict the ultimate amount of all settlement terms for our liabilities
that will be subject to a plan of reorganization. Once a plan of reorganization
is approved and implemented, our operating results may be adversely affected by
the possible reluctance of prospective lenders, customers and suppliers to do
business with a company that recently emerged from bankruptcy proceedings.

Other negative consequences that could arise as a result of the bankruptcy
proceedings include:

- making us more vulnerable to a continued downturn in our industry or a
downturn in the economy in general;

- limiting our flexibility in planning for, or reacting to, changes in
our businesses and the industries in which we operate;

- the incurrence of significant costs associated with the reorganization;

- impacts on the availability of raw materials and payment terms from our
suppliers;

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METALS USA, INC.
(DEBTORS-IN-POSSESSION)

- impacts on our relationship with suppliers and customers, including
loss of confidence in our ability to fulfill contractual obligations
due to financial uncertainty;

- placing us at a competitive disadvantage compared to our competitors;

- limiting our ability to borrow additional funds; and

- employee attrition.

SUBSTANTIAL DEBT OBLIGATIONS. We are currently in default under many of our
pre-petition debt obligations. During the pendency of our bankruptcy
proceedings, we may obtain post-petition debt financing only with the approval
of the Bankruptcy Court and have already obtained approval for the DIP Financing
discussed herein under "Financing Activities". Depending on the resolution of
our bankruptcy proceedings, we could emerge from bankruptcy highly leveraged
with substantial debt service obligations. Thus we would continue to be
particularly susceptible to adverse changes in our industry, the economy and the
financial markets. In addition, our ability to obtain additional debt financing
after emergence may be limited by restrictive covenants under the terms of
credit agreements and any other debt instruments. Those limits on financing may
restrict our ability to service our debt obligations through additional debt
financing if cash flow from operations is insufficient to service such
obligations.

LIMITED LIQUIDITY. We are currently funding our liquidity needs out of
operating cash flow and from borrowings under the DIP Financing. The DIP
Financing is limited in amount and is also subject to numerous funding
conditions which are largely beyond our control. Our ability to obtain
additional financing during the reorganization process is severely limited by a
variety of factors, including the debt incurrence restrictions imposed by the
DIP Financing, numerous procedural requirements and uncertainties relating to
the bankruptcy proceedings, including any continuing challenge to the priming
order, and our current financial condition and prospects. Accordingly, no
assurances can be given that our existing sources of liquidity will be adequate
to fund our liquidity needs throughout the reorganization process or, if
additional sources of liquidity become necessary during the reorganization
process, that they would be available to us or adequate. Any liquidity shortages
during the reorganization process would likely have a material adverse effect on
our business and financial condition as well as our ability to successfully
restructure and emerge from bankruptcy.

ECONOMIC DOWNTURN. Our industry has been impacted by decreasing volumes and
declining prices starting in 2000 and continuing through early 2002, due to
softening demand from customers in the cyclical downturn in the U.S. economy. If
weakness in product demand continues and volumes and pricing remain low, reduced
sales could continue to materially adversely affect operating results.

POSSIBLE IMPACT ON VARYING METALS PRICES. The principal raw materials used
by us are steel, aluminum and various specialty metals. The metals industry as a
whole is cyclical, and at times pricing and availability of raw materials in the
metals industry can be volatile due to numerous factors beyond our control,
including general, domestic and international economic conditions, labor costs,
production levels, competition, import duties and tariffs and currency exchange
rates. This volatility can significantly affect the availability and cost of raw
materials for us, and may, therefore, adversely affect our net sales, operating
margin and net income. Our service centers maintain substantial inventories of
metal to

34

METALS USA, INC.
(DEBTORS-IN-POSSESSION)

accommodate the short lead times and just-in-time delivery requirements of our
customers. Accordingly, we purchase metal in an effort to maintain our inventory
at levels that we believe to be appropriate to satisfy the anticipated needs of
our customers based on information derived from customers, market conditions,
historic usage and industry research. Our commitments for metal purchases are
generally at prevailing market prices in effect at the time we place our orders.
We have no long-term, fixed-price purchase contracts. During periods of rising
raw materials pricing, there can be no assurance we will be able to pass any
portion of such increases on to customers. When raw material prices decline,
customer demands for lower prices could result in lower sale prices and, as we
use existing inventory, lower margins. Changing metal prices could adversely
affect our operating margin and net income.

FLUCTUATIONS IN DEMAND. Many of our products are sold to industries that
experience significant fluctuations in demand based on economic conditions,
energy prices, consumer demand and other factors beyond our control. No
assurance can be given that we will be able to increase or maintain our level of
sales in periods of economic stagnation or downturn.

COMPETITION. We are engaged in a highly-fragmented and competitive
industry. We compete with a large number of other value-added metals
processors/service centers on a regional and local basis, some of which may have
greater financial resources than us. We also compete to a lesser extent with
primary metals producers, who typically sell to very large customers requiring
regular shipments of large volumes of metals. Increased competition could have a
material adverse effect on our net sales and profitability.

ENVIRONMENTAL REGULATION. Our 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. We believe that we are in
substantial compliance with all such laws and do not currently anticipate that
we 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 we own or lease are located in
areas with a history of heavy industrial use, and are on or near sites listed on
the CERCLA National Priority List. We have a number of leased properties located
in or near industrial or light industrial use areas; and accordingly, these
properties may have been contaminated by pollutants which would have migrated
from neighboring facilities or have been deposited by prior occupants.
Furthermore, we are not aware of any notices from authoritative agencies with
respect to clean-up/remediation claims for contamination at the leased
properties. However, there can be no assurance that we will not be notified of
such claims with respect to our existing leased or owned properties in the
future.

Although no environmental claims have been made against the Company and we
have not been named as a potentially responsible party by the Environmental
Protection Agency or any other party, it is possible that we 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, we could incur substantial litigation costs to prove that we are
not responsible for the environmental damage. We have obtained limited
indemnities from the former stockholders of the acquired companies whose
facilities are located at or near contaminated sites. The limited indemnities
are subject to certain deductible amounts, however, and there can be no
assurance that these limited indemnities will fully protect us.

35

METALS USA, INC.
(DEBTORS-IN-POSSESSION)

UNCERTAINTIES RELATED TO THE INTEGRATION OF OUR ACQUISITIONS. Our success
depends in part on our ability to further integrate and consolidate the
companies we have acquired. These businesses operated as separate, independent
entities prior to their affiliation with the Company, and there can be no
assurance that we will be able to successfully institute the necessary changes
to effectively manage our business on a profitable basis. The historical results
are not necessarily indicative of future results because, among other reasons,
our subsidiary operations were not under common control or management prior to
their acquisition. There are also risks associated with unanticipated events or
liabilities resulting from the acquired businesses' operations prior to the
acquisition.

RELIANCE ON KEY PERSONNEL. The existing senior management at many of our
subsidiary operations is generally comprised of former owners who committed to
stay with their operations after acquisition. Certain of these individuals have
suffered losses in the Company stock or have lower incomes than they averaged
when they owned their former businesses. Further, former owners generally have
non-competition obligations that expire on the fifth anniversary of their date
of acquisition, and thus these obligations expire from July 2002 through 2004.
There is no assurance that we will be able to retain these individuals or find
suitable replacements if such individuals leave the Company. The failure to
retain or replace such management on a timely basis could negatively impact
results from operations at such locations.

36

METALS USA, INC.
(DEBTORS-IN-POSSESSION)

ITEM 7a. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

In the normal course of business, we are exposed to market risk, primarily
from changes in interest rates and the cost of metal we hold in inventory. We
continually monitor exposure to market risk and develop appropriate strategies
to manage this risk. With respect to interest rate risk, we may enter into
certain derivative financial instruments such as interest rate swap agreements.
We do not use derivative financial instruments for trading or to speculate on
changes in interest rates. With respect to our metal purchases, there is no
recognized market to purchase derivative financial instruments to reduce the
inventory exposure risks.

INTEREST RATE EXPOSURE

Our exposure to market risk for changes in interest rates relates primarily
to our DIP Financing. Approximately 100% ($278.2 million) and 53.3% ($263.0
million) of the credit facilities were subject to variable interest rates as of
December 31, 2001 and 2000, respectively. Concurrent with the execution of the
Credit Facility, we entered into four interest rate swap agreements. Upon filing
for Chapter 11 on November 14, 2001, these swap agreements were terminated and
reorganization expense in the amount of $6.2 million was recorded. As of
December 31, 2001, the fair value of our fixed rate debt was approximately $79.7
million, using current market prices. There were no interest rate swap
agreements in place at December 31, 2001 and 2000. Accordingly, we are subject
to interest rate risks on the DIP Financing.

37

METALS USA, INC. AND SUBSIDIARIES
(DEBTORS-IN-POSSESSION)

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

38

METALS USA, INC. AND SUBSIDIARIES
(DEBTORS-IN-POSSESSION)

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To Metals USA, Inc.:

We have audited the accompanying consolidated balance sheets of Metals USA, Inc.
(a Delaware corporation) and subsidiaries (the "Company") as of December 31,
2001 and 2000, and the related consolidated statements of operations,
stockholders' equity (deficit) and cash flows for each of the three years in the
period ended December 31, 2001. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audits.

We conducted our audits in accordance with auditing standards generally accepted
in the United States. 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, 2001 and 2000, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended December 31, 2001, in conformity with accounting
principles generally accepted in the United States.

The accompanying consolidated financial statements have been prepared assuming
the Company will continue as a going concern. As discussed in Note 1 to the
financial statements, the Company voluntarily filed for relief under Chapter 11
of the United States Bankruptcy Code on November 14, 2001, which raises
substantial doubt about the Company's ability to continue as a going concern.
Management's plan regarding these matters, including its intent to file a plan
of reorganization that will be acceptable to the Bankruptcy Court and to the
Company's creditors, is also described in Note 1 to the accompanying financial
statements. In the event a plan of reorganization is accepted, continuation of
the business thereafter is dependent upon the Company's ability to achieve
successful future operations. The accompanying consolidated financial statements
do not include any adjustments relating to the recoverability and classification
of recorded amounts or the amounts and classification of liabilities that might
be necessary should the Company be unable to continue as a going concern.

ARTHUR ANDERSEN LLP

Houston, Texas
March 15, 2002

39

METALS USA, INC. AND SUBSIDIARIES
(DEBTORS-IN-POSSESSION)
CONSOLIDATED BALANCE SHEETS
(IN MILLIONS, EXCEPT SHARE AMOUNTS)

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

40

METALS USA, INC. AND SUBSIDIARIES
(DEBTORS-IN-POSSESSION)
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN MILLIONS, EXCEPT PER SHARE AMOUNTS)

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

41

METALS USA, INC. AND SUBSIDIARIES
(DEBTORS-IN-POSSESSION)
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
(IN MILLIONS)

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

42

METALS USA, INC. AND SUBSIDIARIES
(DEBTORS-IN-POSSESSION)
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN MILLIONS)

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

43

METALS USA, INC. AND SUBSIDIARIES
(DEBTORS-IN-POSSESSION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN MILLIONS, EXCEPT SHARE AND PER SHARE AMOUNTS)

1. ORGANIZATION, BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES

ORGANIZATION

Metals USA, Inc., a Delaware corporation, ("Metals USA") is a leading
provider of value-added processed steel, aluminum and specialty metals, as well
as manufactured metal components. The Company was founded on July 3, 1996 and
commenced substantial operations on July 11, 1997 with the concurrent
consummation of its initial public offering and acquisition of eight metal
processing companies. From July 1997 through early 2000, Metals USA acquired
numerous additional metal processing companies and businesses. 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. During most of 2000 and all of 2001, the
steel industry has declined substantially as a result of pricing pressure from
foreign imports and an economic recession experienced in the U.S. These factors,
as well as others discussed below, caused the Company to seek protection under
U.S. bankruptcy laws in November 2001.

BASIS OF PRESENTATION

On November 14, 2001, the Company and all of its subsidiaries voluntarily
filed for relief under Chapter 11 of the United States Bankruptcy Code
("Chapter11 Filing"), in the United States Bankruptcy Court, Southern District
of Texas, Houston Division ("Bankruptcy Court").

The goal of the Chapter 11 Filing is to maximize recovery by creditors and
shareholders by preserving the Company as a viable entity with going concern
value. The protection afforded by the Chapter 11 Filing will permit the Company
to preserve cash and restructure its debt. During the pendency of the Chapter 11
Filing, with approval of the Bankruptcy Court, the Company may assume favorable
pre-petition contracts and leases, reject unfavorable leases and contracts and
sell or otherwise dispose of assets. The confirmation of a plan of
reorganization is the primary objective. The Company expects to propose a plan
of reorganization to the Bankruptcy Court during 2002. When filed, a plan of
reorganization will set forth the means for treating claims, including
liabilities subject to compromise. A plan of reorganization may result in, among
other things, significant dilution of equity interests as a result of issuance
of equity securities to creditors or new investors. The confirmation of any plan
of reorganization will require creditor acceptance as required under the
Bankruptcy Code and approval of the Bankruptcy Court.

The financial statements are prepared in accordance with the AICPA's
Statement of Position (SOP) 90-7, FINANCIAL REPORTING BY ENTITIES IN
REORGANIZATION UNDER THE BANKRUPTCY CODE. SOP 90-7 requires the Company to,
among other things, (1) identify transactions that are directly associated with
the bankruptcy proceedings from those events that occur during the normal course
of business and (2) identify pre-petition liabilities subject to compromise from
those that are not subject to compromise or are post petition liabilities (see
Notes 5 and 6). As of December 31, 2001, a total of $310.3 of secured borrowings
and related interest outstanding under the asset-based credit facility ("Credit
Facility"),

44

METALS USA, INC. AND SUBSIDIARIES
(DEBTORS-IN-POSSESSION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
(IN MILLIONS, EXCEPT SHARE AND PER SHARE AMOUNTS)

Industrial Revenue Bonds and capital leases and accrued liabilities approved for
payment by the Bankruptcy Court are not subject to compromise. All remaining
unsecured liabilities arising before November 14, 2001 are subject to
compromise. In addition, in accordance with the Bankruptcy Code, the Company
discontinued accruing interest on the 8 5/8% Senior Subordinated Notes
("Subordinated Notes") as of the Chapter 11 Filing date as this debt is subject
to compromise.

The accompanying consolidated financial statements have been prepared
assuming the Company will continue as a going concern. Due to the uncertainty
related to the bankruptcy proceedings, there can be no assurance that the
current carrying values of the Company's assets will be realized or that the
Company's liabilities will be settled for the amounts recorded. Certain
liabilities outstanding as of the date of the Chapter 11 Filing are subject to
resolution under a plan of reorganization to be voted upon by the Company's
creditors and shareholders and confirmed by the Bankruptcy Court. The Company
has filed schedules with the Bankruptcy Court setting forth the assets and
liabilities of the Company as of the date of the Chapter 11 Filing, as shown by
the Company's accounting records. The Bankruptcy Court has set July 8, 2002 as
the date by which creditors must file proofs of claims that arose prior to the
Chapter 11 Filing. The claim amounts filed by the creditors could be different
from the amounts actually recorded as of the balance sheet date. In addition,
there can be no assurance that the carrying value of the assets as of
December 31, 2001 will not be adversely affected by these proceedings.

USE OF ESTIMATES AND ASSUMPTIONS

The preparation of financial statements in conformity with accounting
principles generally accepted in the United States ("U.S.") 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, primarily
relating to the segment disclosure (see Note 13).

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 several industries. Generally,
credit is extended once appropriate credit history and references have been
obtained. Provisions to the

45

METALS USA, INC. AND SUBSIDIARIES
(DEBTORS-IN-POSSESSION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
(IN MILLIONS, EXCEPT SHARE AND PER SHARE AMOUNTS)

allowance for doubtful accounts are made monthly and adjustments are made
periodically (as circumstances warrant) based upon the expected collectibility
of all such accounts. Additionally, the Company periodically reviews the credit
history of its customers and generally does not require collateral for the
extension of credit.

CASH AND CASH EQUIVALENTS -- Cash and cash equivalents consist of highly
liquid investments with a maturity of less than three months when purchased. At
December 31, 2001, $3.0 of the cash and cash equivalent balance was restricted
and held as security for certain outstanding letters of credit.

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, 2001 and 2000, approximately
16.1% and 12.9%, respectively, of the consolidated inventories were accounted
for using the LIFO method of accounting.

PROPERTY AND EQUIPMENT -- Property and equipment are stated at cost, and
depreciation is computed using the straight-line method, net of estimated
salvage values, over the estimated useful lives of the assets. Expenditures for
repairs and maintenance are charged to expense when incurred. Expenditures for
major renewals and betterments, which extend the useful lives of existing
equipment, are capitalized and depreciated. Upon retirement or disposition of
property and equipment, the cost and related accumulated depreciation are
removed from the accounts and any resulting gain or loss is recognized in the
statement of operations. Leasehold improvements are capitalized and amortized
over the lesser of the life of the lease or the estimated useful life of the
asset. During 2001, the Company wrote down the carrying value of its property
and equipment from $236.2 to $148.9 ($87.3).

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 was being amortized over a forty-year life using the
straight-line method. Goodwill amortization expense for the years ended December
31, 2001, 2000 and 1999 was $7.2, $8.0, and $6.9, respectively. During 2001, the
Company wrote off the carrying value of its goodwill from $288.7 to zero
($288.7).

IMPAIRMENT OF LONG-LIVED ASSETS -- Long-lived assets are comprised
principally of property and equipment and goodwill. Management reviews
long-lived assets for impairment whenever events or changes in circumstances
indicate that the carrying amount may not be realizable. If an evaluation is
required, the estimated future undiscounted cash flows associated with the asset
are compared to the asset's carrying amount to determine if an impairment of
such asset is necessary. The effect of any impairment would be to expense the
difference between the fair value of such asset and its carrying value. Due to
the declining economic conditions, estimated future undiscounted cash flows and
estimated recoverability of assets held for sale, the Company recorded $288.7 of
impairment losses with respect to goodwill and $87.3 to property and equipment
during the year ended December 31, 2001.

46

METALS USA, INC. AND SUBSIDIARIES
(DEBTORS-IN-POSSESSION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
(IN MILLIONS, EXCEPT SHARE AND PER SHARE AMOUNTS)

Due to the recent recession in the U.S. and the Chapter 11 Filing, the
current economic conditions indicated that a significant portion of the
Company's long-lived assets were impaired. At December 31, 2001, the
estimated the fair value of goodwill and property and equipment was based on
each operating unit's expected undiscounted future cash flows. These
estimates were calculated from current economic and operating conditions
projected throughout 2002 and future periods. Management believes these
estimates are appropriate in light of the current over-capacity of global
steel production. The recently enacted tariffs are for a limited time and,
accordingly, were given minimal impact in the foregoing projections. These
projections indicated that the carrying amounts for goodwill and property and
equipment were not recoverable. Therefore, all remaining goodwill was written
off. The Company obtained an independent appraisal for its property and
equipment and management believes this appraisal represents the fair value of
these assets as of December 31, 2001. As a result, the property and equipment
balances were written down to the appraised value if such value was lower
than the net book value of such assets as of December 31, 2001. Additionally,
during the fourth quarter of 2001, in an attempt to avoid the necessity of a
bankruptcy filing, the Company engaged a broker to assist in the sale of a
particular business unit. It became evident the expected net proceeds from
the sale of these assets would be insufficient to enable the Company to
recover its investment in the goodwill attributable to this business unit. As
a result, the Company wrote off the goodwill associated with this business
unit at that time. The Company was unable to complete the sale of this
business unit prior to the Chapter 11 Filing and it instructed the broker to
discontinue the sales effort.

DEBT ISSUANCE COSTS -- The Company defers certain expenses incurred in
connection with its long-term debt and amortizes these costs to interest expense
over the term of the respective agreements. Amortization for the years ended
December 31, 2001, 2000 and 1999, totaled $2.5, $1.9 and $1.3, respectively, and
is included in interest and securitization expense on the consolidated
statements of operations. In connection with the Chapter 11 Filing, the Company
wrote off all remaining debt issuance costs associated with both the Credit
Facility and the Subordinated Notes in the aggregate amount of $9.9 as
reorganization expenses in 2001.

FAIR VALUE OF FINANCIAL INSTRUMENTS -- The carrying values of cash,
accounts receivable and accounts payable approximate fair value due to their
short-term nature. The fair value of the long-term debt is estimated based on
interest rates for the same or similar debt offered in the open market. At
December 31, 2001, the fair value of the Company's fixed rate long-term debt of
$223.7 was $79.7. Management believes the carrying amount of the indebtedness
attributable to the Credit Facility of $278.2 approximates its fair value at
December 31, 2002.

INTEREST RATE SWAP AGREEMENTS -- The Company entered into four interest
rate swap agreements in 2001 to fix interest rates on variable rate debt and
reduce exposure to interest rate fluctuations. Such agreements involve the
exchange of amounts based on fixed interest rates for amounts based on variable
interest rates over the life of the agreement without an exchange of the
notional amount upon which payments are based. As a result of the Chapter 11
Filing, the interest rate swap agreements were terminated and the Company wrote
off $6.2 as a reorganization expense in 2001 which represents the fair value of
these swap agreements as of the date of the Chapter 11 Filing.

47

METALS USA, INC. AND SUBSIDIARIES
(DEBTORS-IN-POSSESSION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
(IN MILLIONS, EXCEPT SHARE AND PER SHARE AMOUNTS)

REVENUE RECOGNITION -- The Company recognizes revenues as products are
shipped.

DELIVERY EXPENSES - Delivery expenses consist of distribution costs,
including shipping and handling. These expenses totaled $52.7, $64.7 and $56.0
in 2001, 2000 and 1999, respectively.

ASSET IMPAIRMENTS - Asset impairment charges include write down of the
carrying value of property and equipment of $87.3, the write off of the carrying
value of goodwill of $288.7 and impairment charges of $10.2 related to future
reserves for personnel and facility costs associated with the disposition of
operations held for sale.

REORGANIZATION EXPENSES - Reorganization expenses include all costs and
expenses directly attributable to the Chapter 11 Filing. For the year ended
December 31, 2001, these expenses consisted of the following:

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.
The provision for income taxes represents the amount of taxes payable and the
applicable changes in deferred tax assets and liabilities.

EXTRAORDINARY ITEM - During the first quarter of 2001, the Company
refinanced its existing credit facilities with the Credit Facility. In
connection with the refinancing, the Company recorded an extraordinary charge of
$2.9, before a tax benefit of $1.1, to write off the balance of unamortized
deferred debt issuance costs related to the previous debt facility.

EARNINGS (LOSS) PER SHARE -- The Company computes earnings (loss) per share
in accordance with Statement of Financial Accounting Standards No. 128
("SFAS No. 128"), EARNINGS PER SHARE. SFAS No. 128 requires presentation of
basic earnings per share ("Earnings per Share -- Basic") and diluted earnings
per share ("Earnings per Share -- Assuming Dilution"). Earnings per
Share -- Basic excludes dilution and is determined by dividing income (loss)
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. Because these
securities were antidilutive, they were not included in the net loss calculation
for the year ended December 31, 2001.

48

METALS USA, INC. AND SUBSIDIARIES
(DEBTORS-IN-POSSESSION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
(IN MILLIONS, EXCEPT SHARE AND PER SHARE AMOUNTS)

The number of shares used in the per share calculations consists of the
following:

NEW ACCOUNTING PRONOUNCEMENTS -- In July 2001, the Financial Accounting
Standards Board issued Statement of Financial Accounting Standards No. 141
("SFAS No. 141"), ACCOUNTING FOR BUSINESS COMBINATIONS and Statement of
Financial Accounting Standards No. 142 ("SFAS No. 142"), ACCOUNTING FOR GOODWILL
AND OTHER INTANGIBLE ASSETS. SFAS No. 141 requires that the purchase method of
accounting be used for business combinations initiated after June 30, 2001.
SFAS No. 142 requires companies to assess goodwill assets for impairment each
year, and more frequently if circumstances suggest an impairment may have
occurred. SFAS 142 also introduces a more stringent framework for assessing
goodwill impairment than the approach required under existing rules. SFAS 142
discontinues the regular charge, or amortization, of goodwill assets against
income. SFAS 141 was effective June 30, 2001. SFAS 142 is effective for the
Company beginning January 1, 2002. Due to the impairments recorded as of
December 31, 2001, management believes the adoption of SFAS 142 will not have a
material impact on its financial position or results of operations.

In August 2001, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 144 ("SFAS No. 144"), ACCOUNTING FOR
IMPAIRMENT OR DISPOSAL OF LONG-LIVED ASSETS. SFAS 144 supersedes Statement of
Financial Accounting Standards No. 121 ("SFAS 121"), ACCOUNTING FOR THE
IMPAIRMENT OF LONG-LIVED ASSETS AND LONG-LIVED ASSETS TO BE DISPOSED OF and the
accounting and reporting provisions of Accounting Principles Board Opinion
No. 30, REPORTING THE RESULTS OF OPERATIONS REPORTING THE EFFECTS OF DISPOSAL OF
A SEGMENT OF A BUSINESS, AND EXTRAORDINARY, UNUSUAL AND INFREQUENTLY OCCURRING
EVENTS AND TRANSACTIONS. SFAS 144, effective for fiscal years beginning after
December 15, 2001 with early adoption permitted, addresses financial accounting
and reporting for the impairment and disposal of long-lived assets. Management
believes the adoption of SFAS 144 will not have a material impact on its
financial position or results of operations.

2. BUSINESS COMBINATIONS

During the years ended December 31, 1999 and 2000, the Company acquired
several metal processing companies and businesses using the purchase method of
accounting. The aggregate consideration paid in connection with the 1999
acquisitions was approximately $78.0 in cash, 317,283 shares of Common Stock,
convertible notes of approximately $4.0 and the assumption of indebtedness of
approximately $12.9. The Company acquired one metal processing business in 2000.
The aggregate

49

METALS USA, INC. AND SUBSIDIARIES
(DEBTORS-IN-POSSESSION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
(IN MILLIONS, EXCEPT SHARE AND PER SHARE AMOUNTS)

consideration paid in connection with this acquisition was $7.8 in cash and the
assumption of $4.5 of liabilities. The Company recorded the excess of the
purchase price over the estimated fair value of identifiable assets acquired in
the transactions accounted for using the purchase method of accounting as
goodwill.

The following summarized unaudited pro forma financial information adjusts
the historical financial information by assuming the acquisitions completed
during 1999 occurred on January 1, 1999. The pre-acquisition results of the 2000
acquisition are immaterial and there were no acquisitions in 2001. Consequently,
pro forma results have not been presented for these periods.

Pro forma adjustments included in the amounts above primarily relate to
(a) the reduction in certain related party lease expenses and management
compensation, which has been agreed to prospectively; (b) the amortization of
goodwill recorded 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; (c) the assumed reductions in interest expense due to
the refinancing of the outstanding indebtedness in conjunction with the
acquisitions, offset by an assumed increase in interest expense incurred in
connection with financing the acquisitions; (d) 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, 1999; (e) certain other nonrecurring
expenses with respect to the acquisitions, such as expenses associated with
compensation plans which were terminated in conjunction with the respective
acquisitions; and (f) the adjustment to the provision for federal and state
income taxes for all entities being combined relating to the entries noted above
and as if all entities were C Corporations. The pro forma results presented
above are not necessarily indicative of actual results which might have occurred
had the operations and management teams of the Company and the purchased
companies been combined at the beginning of the period presented.

50

METALS USA, INC. AND SUBSIDIARIES
(DEBTORS-IN-POSSESSION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
(IN MILLIONS, EXCEPT SHARE AND PER SHARE AMOUNTS)

3. INVENTORIES

Inventories consist of the following:

The replacement cost of the Company's inventory as of December 31, 2001 and
2000 approximated the historical cost of the inventory computed using the LIFO
method of valuation. If the FIFO method had been used for all inventories, net
income (loss) would have been unchanged for the years ended December 31, 2001
and 2000, respectively. In addition, the Company reclassified $27.9 of
inventories to operations held for sale at December 31, 2001.

4. PROPERTY AND EQUIPMENT

Property and equipment consists of the following:

51

METALS USA, INC. AND SUBSIDIARIES
(DEBTORS-IN-POSSESSION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
(IN MILLIONS, EXCEPT SHARE AND PER SHARE AMOUNTS)

Depreciation expense for the years ended December 31, 2001, 2000 and 1999
was $18.5, $17.8 and $13.9, respectively. In addition, the Company recorded
$87.3 of impairments to property and equipment during 2001 and reclassified $6.1
of property and equipment to operations held for sale at December 31, 2001.

5. ACCRUED LIABILITIES

Accrued liabilities consist of the following:

The accrued liabilities as of December 31, 2001 are not comparable to
December 31, 2000 because these liabilities represent post-petition liabilities
that were incurred subsequent to the Chapter 11 Filing.

6. PRE-PETITION LIABILITIES

LIABILITIES NOT SUBJECT TO COMPROMISE

On a consolidated basis, recorded liabilities not subject to compromise
under Chapter 11 proceedings as of December 31, 2001, totaled $310.3 which is
comprised of $301.9 of secured debt and $8.4 of accrued liabilities which have
been approved by the Bankruptcy Court for payment. See Note 7 for detail of the
secured debt not subject to compromise.

The borrowings under the Credit Facility were retired on January 2, 2002,
upon execution of the debtor-in-possession financing ("DIP Financing"). The DIP
Financing is a fully secured post-petition current liability and therefore, is
not subject to compromise.

52

METALS USA, INC. AND SUBSIDIARIES
(DEBTORS-IN-POSSESSION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
(IN MILLIONS, EXCEPT SHARE AND PER SHARE AMOUNTS)

LIABILITIES SUBJECT TO COMPROMISE

The principal categories of claims classified as liabilities subject to
compromise under reorganization proceedings are identified below. All amounts
below may be subject to future adjustment depending on Bankruptcy Court action,
further developments with respect to disputed claims or other events, including
reconciliation of claims filed with the Bankruptcy Court to amounts recorded in
the accompanying consolidated financial statements. Additional pre-petition
claims may arise from rejection of additional executory contracts or unexpired
leases. Under a confirmed plan of reorganization, all pre-petition claims
subject to compromise may be paid and discharged at amounts substantially less
than their allowed amounts. These liabilities are classified as noncurrent
because settlement is not expected to occur prior to December 31, 2002.

On a consolidated basis, recorded pre-petition liabilities subject to
compromise under Chapter 11 proceedings as of December 31, 2001, consisted of
the following:

As a result of the bankruptcy filing, principal and interest payments
may not be made on pre-petition unsecured debt without Bankruptcy Court
approval or until a plan of reorganization defining the repayment terms has
been confirmed. The total interest on the pre-petition unsecured Subordinated
Notes that was not charged to earnings for the period from November 14, 2001
to December 31, 2001, was $2.2. Such interest is not being accrued as the
Bankruptcy Code generally disallows the payment of post-petition interest
that accrues with respect to unsecured or undersecured claims. See Note 7 for
further discussion of the Subordinated Notes.

53

METALS USA, INC. AND SUBSIDIARIES
(DEBTORS-IN-POSSESSION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
(IN MILLIONS, EXCEPT SHARE AND PER SHARE AMOUNTS)

7. DEBT

Debt consists of the following:

The weighted average interest rates under the Company's credit facilities
for the years ended December 31, 2001, 2000 and 1999 were 7.88%, 8.04% and
7.10%, respectively.

DEBTOR-IN-POSSESSION FINANCING

On January 2, 2002, the Company executed its DIP Financing with Bank of
America and PNC Bank in the amount of $350.0. Initial borrowings of $278.2
million were used to repay the outstanding balance under the previous credit
facilities. The facility is composed of a revolving line of credit consisting of
revolving loans, letters of credit and credit support. The DIP Financing bears
interest at the bank's prime rate plus an applicable margin of 2%, has an
eighteen month term with two three-month extensions and is collateralized by all
of the Company's accounts receivable, inventory, equipment and real estate. The
lending formula is 85% of eligible accounts receivable and up to 60% of eligible
inventory. In addition, there are two sublimit loans in the amount of $31.0 on
equipment and $30.0 on real estate. The $31.0 equipment loan is amortized at
$0.5 per month with an additional $13.0 due on June 30, 2002 and $7.0 on
December 31, 2002, such amounts coinciding with anticipated divestitures. Once
retired, the Company may not borrow against these lines of credit. A commitment
fee is payable on any unused portion of the DIP Financing. A letter of credit
fee is payable for each letter of credit or credit support provided by the
lenders. Borrowings may be used to fund post-petition operating expenses and
supplier and employee obligations throughout the reorganization process. As of
March 15, 2002, the balance outstanding under the DIP Financing was $242.2
million. Liquidity, defined as cash on hand of $18.5 plus availability under the
DIP Financing of $32.3 was $50.8 as of March 15, 2002.

Key covenants of the DIP Financing include maintenance of a fixed charge
coverage ratio of 0.50 to 1.0 through April 30, 2002, 0.75 to 1.0 as of May 31,
2002 and 1.0 to 1.0 at June 30, 2002 and thereafter, and the maintenance of
minimum average availability of $5.0 through May 31, 2002, $10.0 at June 30,

54

METALS USA, INC. AND SUBSIDIARIES
(DEBTORS-IN-POSSESSION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
(IN MILLIONS, EXCEPT SHARE AND PER SHARE AMOUNTS)

2002, $15.0 through February 28, 2003 and $20.0 from March 31, 2003 through
maturity. Other covenants include limitations on capital expenditures, lease
obligations and sales of assets.

As a part of the reorganization plan, the Company plans to sell assets and
close certain facilities (see Note 19 - Subsequent Event). These actions along
with continued weakness in the U.S. economy may cause the Company's financial
performance to fail to meet the covenants required by the DIP Financing.
Accordingly, the Company may be required to revise the terms of the DIP
Financing or obtain waivers regarding default on any covenants or provisions of
the agreement.

BORROWINGS UNDER THE CREDIT FACILITY

On March 12, 2001, the Company entered into the Credit Facility with Bank
of America and PNC Bank. The Credit Facility was for a period of three years,
represented $450.0 in financing, and replaced the former credit facility. The
Credit Facility was comprised of two loans, a revolving credit facility
providing up to $350.0 in borrowings and a $100.0 loan to a wholly-owned and
unrestricted subsidiary of the Company secured solely by accounts receivable.
The Credit Facility was secured by all of the Company's receivables (not
otherwise pledged under the accounts receivable facility), inventories, and
property and equipment. Borrowings under the Credit Facility were limited to the
lesser of a borrowing base, comprised of eligible receivables and inventories,
or $450.0 in the aggregate.

Concurrent with and subsequent to executing the Credit Facility, the
Company entered into four interest rate swap agreements designed as a partial
hedge to the Company's variable rate borrowings under the Credit Facility. The
purpose of these swap agreements was to fix interest rates on a portion of its
borrowings under the Credit Facility, thereby reducing exposure to interest rate
fluctuations. On November 14, 2001, the date of the Chapter 11 Filing, the
counterparties cancelled the swap agreements and the Company recorded a charge
of $6.2 as reorganization expense in the consolidated statement of operations
for the year ended December 31, 2001.

In connection with the establishment of the Credit Facility, the Company
incurred fees and expenses of $7.5, which were being amortized over the
three-year term of the facility. As a result of the Chapter 11 Filing, the
unamortized amount of $5.8 was written off and included in reorganization
expense in the consolidated statement of operations for the year ended December
31, 2001.

ACCOUNTS RECEIVABLE SECURITIZATION FACILITY

In January 1999, the Company entered into a three-year agreement to sell,
on a revolving basis, through its wholly-owned subsidiary, Metals Receivables
Corporation ("MRC"), an undivided interest in a designated pool of its trade
accounts receivable to a commercial bank. At December 31, 2000, the Company had
received $100.0 from this facility. At December 31, 2000, the unpurchased
portion of the MRC receivable portfolio was $48.3. Expense attributable to the
Receivable Securitization Facility for the year ended December 31, 2000 and
1999, was $7.2 and $4.9 and is included in interest and securitization expense
in the consolidated statements of operations. This agreement was terminated with
the execution of the Credit Facility.

55

METALS USA, INC. AND SUBSIDIARIES
(DEBTORS-IN-POSSESSION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
(IN MILLIONS, EXCEPT SHARE AND PER SHARE AMOUNTS)

INDUSTRIAL REVENUE BONDS (VARIOUS ISSUES)

The Industrial Revenue Bonds (the "IRBs") are payable in installments
ranging from monthly to annual with variable interest ranging from 1.70% to
3.67% per annum at December 31, 2001 and mature from July 1, 2004 to
May 1, 2023. The IRBs are secured by real estate and equipment acquired with
proceeds from these bonds with a net book value of $21.7 at December 31, 2001.
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 and
maintenance of tangible net worth and are supported by letters of credit.

8 5/8% SENIOR SUBORDINATED NOTES

The Subordinated 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 Subordinated 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. The Subordinated Notes are guaranteed by substantially all of the
Company's current and future subsidiaries. Additionally, the indenture governing
the Subordinated Notes contains customary restrictions relating to additional
indebtedness, liens, transactions with affiliates, asset sales, investments,
restricted payments and mergers and acquisitions of subsidiaries.

In connection with the sale of the Subordinated Notes, the Company incurred
debt issuance costs of $6.5, which was being amortized over the ten-year term of
the Subordinated Notes. As a result of the Chapter 11 Filing, the unamortized
amount of $4.1 was written off and included in reorganization expenses in the
consolidated statement of operations for the year ended December 31, 2001.

8. INCOME TAXES

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

56

METALS USA, INC. AND SUBSIDIARIES
(DEBTORS-IN-POSSESSION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
(IN MILLIONS, EXCEPT SHARE AND PER SHARE AMOUNTS)

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

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

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

57

METALS USA, INC. AND SUBSIDIARIES
(DEBTORS-IN-POSSESSION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(IN MILLIONS, EXCEPT SHARE AND PER SHARE AMOUNTS)

9. STOCKHOLDERS' EQUITY (DEFICIT)

COMMON STOCK

During 2001, the Company declared and paid one quarterly dividend of
$0.03 per share. During 2000, the Company declared four quarterly dividends of
$0.03 per share. Three of these quarterly dividends were paid during 2000 and
the fourth was paid in January 2001.

RESTRICTED COMMON STOCK

Notre Capital Ventures II, L.L.C. held 3,122,914 shares of restricted
voting common stock ("Restricted Common Stock") prior to the Company's initial
public offering. The holders of Restricted Common Stock were entitled to elect
one member of Metals USA's Board of Directors and to .55 of one vote for each
share held on all other matters on which they were entitled to vote.

Metals USA was permitted, by its Certificate of Incorporation, 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. In February 2001, the Company
exercised this right and all Restricted Common Stock were converted into shares
of Common Stock of the Company.

TREASURY STOCK

During the year ended December 31, 1999, the Company repurchased 461,450
shares at an average price of $9.77 per share, including fees and commissions.
During 2000, the Company repurchased 1,544,993 shares at an average price of
$7.47 per share, including fees and commissions. All shares were purchased in
open market transactions. Also in 2000, the Company retired all of its Treasury
Stock (2,006,443 shares) thereby reducing the number of outstanding shares by a
like amount. No repurchases were made in 2001.

10. STOCK BASED COMPENSATION

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, 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 shares of Common Stock outstanding.
These options vest at the rate of 20% per year and will expire ten years from
the date of grant or three months following termination of employment.

Metals USA's 1997 Non-Employee Directors' Stock Plan, which was adopted by
the Board of Directors and approved by Metals USA's stockholders in April 1997,
provides for the automatic grant of options to each non-employee director upon
such person's initial election and for each annual meeting of stockholders
thereafter at which meeting such director is re-elected or remains a director.

58

METALS USA, INC. AND SUBSIDIARIES
(DEBTORS-IN-POSSESSION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(IN MILLIONS, EXCEPT SHARE AND PER SHARE AMOUNTS)

The following is a summary of stock option activity:

At December 31, 2001, exercisable stock options for shares of Common Stock
were 2,519,019 at a weighted average price of $11.19 per share.

The Company uses 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:

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 date, 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

59

METALS USA, INC. AND SUBSIDIARIES
(DEBTORS-IN-POSSESSION)
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.

11. INTEGRATION CHARGE

In 1999, the Company announced a comprehensive plan to reduce operating
costs and improve its operational efficiency by fully integrating certain
operations within a geographic area and consolidating certain administrative and
support functions. The Company recorded a charge to operations of $9.4 with
respect to this plan (the "Integration Charge"). The principal components of the
Integration Charge were $3.3 for termination of certain employment contracts,
$2.1 for severance costs attributable to the consolidation of administrative and
support functions, and $4.0 for the costs of combining five processing
facilities into others within the same geographic region. During 2001, the
Company completed all material components of the plan. Certain modifications to
the initial plan along with lower than expected lease termination costs,
resulted in total plan expenditures being $2.1 less than the integration
accrual. Accordingly, this excess accrual was reversed and recognized as income
during 2001.

The following schedule sets forth by segment, total costs paid with respect
to the plan of integration:

12. OPERATIONS HELD FOR SALE

During most of 2000 and all of 2001, the steel industry has declined
substantially as a result of pricing pressure from foreign imports and an
economic recession experienced in the U.S. These factors, as well as others,
caused the Company to seek protection under U.S. bankruptcy laws in November
2001. Prior to the Chapter 11 Filing, management of the Company decided to sell
certain assets, including assets of a

60

METALS USA, INC. AND SUBSIDIARIES
(DEBTORS-IN-POSSESSION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
(IN MILLIONS, EXCEPT SHARE AND PER SHARE AMOUNTS)

business unit, in an effort to provide additional liquidity to avoid filing for
bankruptcy protection. The Company recorded a pretax impairment charge for the
assets to be disposed of in the amount of $78.3. Of the impairment, $53.6
related to goodwill, $14.5 related to equipment and leasehold improvements and
$10.2 related to future reserves for personnel and facility costs associated
with the dispositions. Upon filing for bankruptcy protection, the Company
decided to retain the business unit and, accordingly, such assets were not
classified as operations held for sale at December 31, 2001. The operations
being held for sale at December 31, 2001 consist primarily of the specialty
metals portion of the Plates and Shapes segment. At December 31, 2001, these
assets had a carrying value of $31.7, net of associated liabilities.

Operational information included in the consolidated statements of
operations regarding the businesses classified as operations held for sale as of
December 31, 2001 for the three years in the period ended ended December 31 are
as follows:

While there can be no assurances as to the timing of these asset sales,
management expects them to be sold within one year. Accordingly, the asset and
liability amounts for operations held for sale as of December 31, 2001 have been
classified as current assets and liabilities in the consolidating balance sheet
in the following amounts:

13. SEGMENT AND RELATED INFORMATION

During 2001, the Company reorganized into three product groups: Plates and
Shapes, Flat Rolled, and Building Products. The Flat Rolled Group was expanded
to include all flat rolled processing operations of specialty metals and carbon
steel in a single business unit and the non-flat rolled operations of specialty
metals was moved to the Plates and Shapes Group. The Company evaluates the
performance of its operating segments based on operating income. The following
descriptions reflect the reorganization of the product groups and the related
operating facilities as of December 31, 2001:

61

METALS USA, INC. AND SUBSIDIARIES
(DEBTORS-IN-POSSESSION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
(IN MILLIONS, EXCEPT SHARE AND PER SHARE AMOUNTS)

- - PLATES AND SHAPES consists of forty-seven (47) facilities that maintain an
inventory focusing on carbon products such as structural plate, beams, bars
and tubing as well as many specialty metals products including stainless
steel, ductile iron, brass, copper, aluminum, magnesium and titanium. This
segment provides processing services to their customers, such as cutting,
cambering/leveling, punching, bending, shearing, cut-to-length and
T-splitting.

- - FLAT ROLLED consists of twenty-five (25) facilities that maintain an
inventory of cold rolled and hot rolled steel products and various
nonferrous flat rolled products including aluminum, stainless steel, copper
and brass. This segment provides processing services for their customers
such as slitting, precision blanking, leveling, cut-to-length, laser
cutting, punching, bending and shearing.

- - BUILDING PRODUCTS consists of twenty-one (21) facilities that produce and
distribute aluminum and steel building products consisting of covered
canopies and walkways, awnings, sunrooms, solariums and other products
primarily for the commercial and residential building products industries.

The following table shows summarized financial information concerning the
Company's reportable segments.

62

METALS USA, INC. AND SUBSIDIARIES
(DEBTORS-IN-POSSESSION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
(IN MILLIONS, EXCEPT SHARE AND PER SHARE AMOUNTS)

The amounts shown as an operating loss under the column heading "Corporate,
Eliminations and Other" consist primarily of general and administrative costs
that are not allocated to the segments and the amortization of goodwill
associated with certain of the Company's acquisitions. Assets not specifically
associated with a specific segment consisted primarily of goodwill in 2000 and
1999. Operating income (loss) for 2001 includes asset impairments of $386.2,
which included $288.7 related to goodwill, $87.3 related to property and
equipment and $10.2 related to future reserves for personnel and facility costs
associated with the disposition of operations held for sale. The goodwill
impairment charge by segment included $176.9 for Plates and Shapes, $54.0 for
Flat Rolled and $57.8 for Building Products. The property and equipment
impairment charge by segment included $34.8 for Plates and Shapes and $52.5 for
Flat Rolled.

The Company's areas of operations are principally in the U.S. No single
foreign country or geographic area is significant to the consolidated
operations. Foreign sales represent less than 1% of consolidated sales and the
Company has no long-lived assets in any foreign country. The Company has a broad
customer base within the U.S. with no single customer being significant to
consolidated operations. Certain of these facilities have been sold or held for
sale subsequent to December 31, 2001 (see Note 19).

14. EMPLOYEE BENEFIT PLANS

The Company established the Metals USA, Inc. 401(k) Plan on June 1, 1998 to
provide a standardized defined contributions savings plan (the "Plan") for
employees. Participants are eligible for the Plan after completing six full
calendar months of service. Participants' employer contributions vest at varying
rates, ranging from full vesting upon participation to vesting that begins after
one year of service and are fully vested after four years. The Company's
contributions consist of a matching contribution of 50%, up to 6% of the
eligible employee's contribution. The Plan allows the employee to contribute up
to 15% of their eligible compensation. Effective October 1, 2001, the Company
suspended its matching contributions.

The Company established the Metals USA, Inc. Union 401(k) Plan on October
1, 1998 to provide a standard defined contributions savings plan for all
employees covered under the terms of a collective bargaining agreement (the
"Union Plan"). The employer is not obligated by the Union Plan to make
contributions, unless required by the operative collective bargaining agreement.
These contributions will generally vest from four to seven years, as specified
by the terms of the applicable collective bargaining agreement. The Union Plan
allows the employee to contribute up to 15% of their eligible compensation.

Certain subsidiaries provided various defined contribution plans for their
employees prior to being acquired by Metals USA, Inc. Contributions for the
profit-sharing portion of these plans, prior to the inception of the Plan and
the Union Plan, were at the discretion of the individual subsidiaries' board of
directors. The benefit plans of acquired companies are merged into the Plan as
soon as practicable.

The aggregate contributions to the Plans were $2.3, $3.9, and $3.4 for the
years ended December 31, 2001, 2000 and 1999, respectively.

63

METALS USA, INC. AND SUBSIDIARIES
(DEBTORS-IN-POSSESSION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
(IN MILLIONS, EXCEPT SHARE AND PER SHARE AMOUNTS)

15. COMMITMENTS AND CONTINGENCIES

OPERATING LEASE AGREEMENTS

The Company's minimum lease obligations under certain long-term
non-cancelable operating lease agreements for office space, warehouse space and
equipment are as follows: 2002 -- $21.4; 2003 -- $18.5; 2004 -- $16.5;
2005 -- $14.3; 2006 -- $11.9; thereafter -- $47.2. Under the Bankruptcy Code,
all of the Company's operating lease obligations are subject to compromise and
may be rejected.

The Company recorded approximately $20.2, $19.5, and $15.8 in rent expense
during the years ended December 31, 2001, 2000 and 1999, respectively, under
operating leases. Certain of these leases are with affiliated individuals and
companies (see Note 17).

LETTERS OF CREDIT

The Company has entered into letters of credit in the amount of $17.1 in
conjunction with the various IRBs (see Note 7). In addition, the Company has
entered into other letters of credit in the amount of $9.6 as of December 31,
2001.

CONTINGENCIES

The Company and its subsidiaries are involved in a variety of claims,
lawsuits and other disputes arising in the ordinary course of business. The
Company believes the resolution of these matters and the incurrence of their
related costs and expenses should not have a material adverse effect on the
Company's consolidated financial position, results of operations or liquidity.
In addition, unless modified by the Bankruptcy Court, pursuant to the automatic
stay provision of Section 362 of the Bankruptcy Code, most pre-petition
litigation against the Company is currently stayed.

64

METALS USA, INC. AND SUBSIDIARIES
(DEBTORS-IN-POSSESSION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
(IN MILLIONS, EXCEPT SHARE AND PER SHARE AMOUNTS)

16. SUPPLEMENTAL CASH FLOW INFORMATION

17. RELATED-PARTY TRANSACTIONS

Transactions with directors, executive officers, principal shareholders 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 certain acquisitions, subsidiaries of the Company have
entered into a number of lease arrangements for facilities and equipment with
former owners of the Company, which includes a director and certain officers of
the Company. These lease arrangements are for periods ranging from 10 to 20
years. Payments under these lease arrangements with respect to years ended
December 31, 2001, 2000 and 1999 were $1.6, $1.8, and $3.2, respectively. Future
commitments in respect of these leases are included in the schedule of minimum
lease payments in Note 15.

65

METALS USA, INC. AND SUBSIDIARIES
(DEBTORS-IN-POSSESSION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(IN MILLIONS, EXCEPT SHARE AND PER SHARE AMOUNTS)

18. QUARTERLY FINANCIAL INFORMATION (UNAUDITED)

Summarized quarterly financial information for the years ended
December 31, 2001, 2000 and 1999 is as follows:

- ---------
(1) Earnings per share are computed independently for each of the
quarters presented. Therefore, the sum of the quarterly earnings per
share may not equal the total computed for the year.

19. SUBSEQUENT EVENT (UNAUDITED)

On April 5, 2002, the Company announced planned divestitures of eleven
additional business units that will result in a significant downsizing of the
Company. The Company anticipates selling these property and equipment assets
to raise proceeds that will be utilized to reduce indebtedness and improve
liquidity. These divestitures are a part of the Company's reorganization plan
that is currently being developed for the Bankruptcy Court. These
divestitures, along with previously announced divestitures, had a carrying
value at December 31, 2001 of approximately $146.0 and are expected to
generate proceeds of approximately $100.0 to $120.0, which would result in an
additional impairment in the second quarter of 2002.The proceeds from the
sale of these assets will be used to reduce amounts outstanding under the DIP
Financing. Because the decision to dispose of the eleven additional business
units was made subsequent to year-end, the assets were not classified as
"assets-held-for-sale" on the accompanying balance sheet.

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METALS USA, INC.
(DEBTORS-IN-POSSESSION)

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 page 29 of this
report and is incorporated herein by reference.

2. FINANCIAL STATEMENT SCHEDULES:

Report of Independent Public Accountants on Supplementary Data.

Schedule II - Valuation and Qualifying Accounts.

All other schedules have been omitted since the required information is
not significant or is included in the Consolidated Financial Statements
or notes thereto or is not applicable.

(b) REPORTS ON FORM 8-K

On February 9, 2001, the Company filed a report on Form 8-K relative to a
commitment letter for the New Financing Facility and preliminary financial
results for the quarter ended December 31, 2000.

(c) EXHIBITS

Reference is made to the Index of Exhibits immediately preceding the
exhibits hereto (beginning on page 57), which index is incorporated herein
by reference.

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METALS USA, INC.
(DEBTORS-IN-POSSESSION)

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
ON SUPPLEMENTARY DATA

To Metals USA, Inc.:

We have audited, in accordance with auditing standards generally accepted in the
United States, the consolidated financial statements of Metals USA, Inc. and
subsidiaries included in this Annual Report on Form 10-K and have issued our
report thereon dated March 15, 2002, in which we expressed an unqualified
opinion. Our audits were made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The Valuation and Qualifying Accounts
Schedule (Schedule II) listed in the index at Item 14(a) is presented for
purposes of complying with the Securities and Exchange Commission's rules and is
not part of the basic financial statements. This information has been subjected
to the auditing procedures applied in our audits of the basic financial
statements and, in our opinion, is fairly stated in all material respects in
relation to the basic financial statements taken as a whole.

ARTHUR ANDERSEN LLP

Houston, Texas
March 15, 2002

SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
(IN MILLIONS)

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METALS USA, INC.
(DEBTORS-IN-POSSESSION)

(1) Represents aggregate increase in the beginning balances arising from
acquired businesses during the year.

(2) Reclassifications resulting from negotiated settlements with respect to
certain employment contracts that are to be paid over a three to five year
period. These amounts were reclassified from the Integration Charge accrual
to other accrued liabilities at December 31, 1999.

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METALS USA, INC.
(DEBTORS-IN-POSSESSION)

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 April 15, 2002.

METALS USA, INC.

By: /s/ J. MICHAEL KIRKSEY
-------------------------------------------
J. Michael Kirksey, 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 April 15, 2002.

SIGNATURE TITLE
--------- -----
/s/ J. MICHAEL KIRKSEY Chairman of the Board, Chief Executive Officer
- --------------------------
J. Michael Kirksey President and Director

/s/ TERRY L. FREEMAN Senior Vice President and Chief Accounting Officer
- -------------------------
Terry L. Freeman

STEVEN S. HARTER* Director

ARNOLD W. BRADBURD* Director

T. WILLIAM PORTER* Director

RICHARD H. KRISTINIK* Director

FRANKLIN MYERS* Director

WILLIAM L. TRANSIER* Director

*By: /s/ J. MICHAEL KIRKSEY Director
-----------------------
J. Michael Kirksey,
Attorney-in-Fact

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METALS USA, INC.
(DEBTORS-IN-POSSESSION)
INDEX OF EXHIBITS

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

3.1 -- Amended and Restated Certificate of Incorporation of Metals
USA, Inc. (the "Company"), as amended, incorporated by
reference to the Company's registration statement on Form S-1,
Registration No. 333-26601 dated June 17, 1997.
3.2 -- Bylaws of the Company, as amended, incorporated by reference
to the Company's registration statement on Form S-1,
Registration No. 333-26601 dated May 7, 1997.
4.1 -- Form of certificate evidencing ownership of Common Stock of
the Company, incorporated by reference to the Company's
registration statement on Form S-1, Registration No. 333-26601
dated July 9, 1997.
4.2 -- Indenture, dated February 11, 1998, by and among the Company
as issuer and the Guarantors named therein, and U.S. Trust
Company of California, N.A., as Trustee regarding the Company's
8 5/8% Senior Subordinated Notes due 2008, incorporated by
reference to the Company's registration statement on Form S-1,
Registration No. 333-35575 dated February 20, 1998.
10.1 -- The Company's 1997 Long-Term Incentive Plan, incorporated by
reference to the Company's registration statement on Form S-1,
Registration No. 333-26601 dated May 7, 1997.
10.2 -- The Company's 1997 Non-Employee Directors' Stock Plan,
incorporated by reference to the Company's registration
statement on Form S-1, Registration No. 333-26601 dated May 7,
1997.
10.3 -- Form of Employment Agreement between the Company and J.
Michael Kirksey, incorporated by reference to the Company's
registration statement on Form S-1, Registration No. 333-26601
dated July 9, 1997.
10.4 -- 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.
10.5 -- 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.
10.6 -- 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.
10.7 -- Form of Founders' Employment Agreement between Uni-Steel,
Inc. and Richard A. Singer, incorporated by reference to the
Company's registration statement on Form S-1, Registration No.
333-26601 dated June 17, 1997.
10.8 -- 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.

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METALS USA, INC.
(DEBTORS-IN-POSSESSION)
INDEX OF EXHIBITS

EXHIBIT
NUMBER DESCRIPTION
------- -----------
10.9+ -- Form of Post-Petition Loan Agreement by and among Bank of
America, N.A. as administrative agent and PNC Bank, N.A. as
documentation agent and Metals USA, Inc. and subsidiaries for
up to $350 million revolving credit facility.
21+ -- List of subsidiaries of the Company
23.1+ -- Consent of Arthur Andersen LLP
99.1+ -- Temporary Note

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

72