METALS USA INC - 10-Q Quarterly Report

Back to GetFilings.com

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

FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

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

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

For the quarterly period ended June 30, 2002

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

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

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 / /

Number of shares of common stock outstanding at August 14, 2002: 36,509,972

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

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

INDEX

1

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

UNAUDITED CONSOLIDATED BALANCE SHEETS
(IN MILLIONS, EXCEPT SHARE AMOUNTS)

2

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

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

UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS
(IN MILLIONS, EXCEPT PER SHARE AMOUNTS)

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

3

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

UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN MILLIONS)

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

4

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

CONDENSED NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(IN MILLIONS, EXCEPT PER SHARE AMOUNTS)

1. ORGANIZATION, BASIS OF PRESENTATION AND CHAPTER 11 PROCEEDINGS

ORGANIZATION

Metals USA, Inc., a Delaware corporation, together with its subsidiaries
("the Company") is a provider of value-added processed steel, aluminum and
specialty metals, as well as manufactured metal components. On November 14,
2001, the Company and all of its subsidiaries voluntarily filed for relief under
Chapter 11 of the U. S. Bankruptcy Code ("Chapter 11 Filing"), in the U. S.
Bankruptcy Court, Southern District of Texas, Houston Division ("Bankruptcy
Court").

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 2000 and 2001, the steel industry
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. On June 21, 2002, the Company announced that it had reached an agreement
with the Official Committee of Unsecured Creditors ("Creditors Committee") on
the terms of a Plan of Reorganization ("Reorganization Plan") and expects to
file the Reorganization Plan with the Bankruptcy Court in August 2002. The
Reorganization Plan and other matters related to the bankruptcy proceedings in
general are discussed below under the caption "Chapter 11 Proceedings" and
Note 7.

BASIS OF PRESENTATION

The information contained in the following notes to the accompanying
consolidated financial statements is condensed from that which would appear in
the annual audited financial statements. Accordingly, the financial statements
included herein should be reviewed in conjunction with the Company's audited
consolidated financial statements and related notes thereto contained in the
Annual Report on Form 10-K ("Form 10-K") for the year ended December 31, 2001.
Any capitalized terms used but not specifically defined herein have the same
meaning given to them in the Form 10-K.

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. 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,
(2) identify pre-petition liabilities subject to compromise from those that are
not subject to compromise or are post petition liabilities (see Notes 4 and 5)
and (3) apply "Fresh-Start Reporting" rules upon emerging from Bankruptcy. As of
June 30, 2002, a total of $21.6 of secured borrowings and related

5

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

interest outstanding under the Industrial Revenue Bonds 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. In January 2002, the Company obtained debtor-in-possession
financing ("DIP Financing") and retired its pre-petition secured credit
facilities with borrowings from the DIP Financing. The DIP Financing is a
secured post-petition liability and, therefore, not subject to compromise.

INTERIM FINANCIAL INFORMATION -- The interim consolidated financial
statements included herein are unaudited; however, they include all adjustments
of a normal recurring nature which, in the opinion of management, are necessary
to present fairly the interim consolidated financial information as of and for
the periods indicated. All intercompany transactions and balances have been
eliminated. Accounting measurements at interim dates inherently involve greater
reliance on estimates than at year-end. The results of operations for the
interim periods presented are not necessarily indicative of the results to be
expected for the entire year.

USE OF ESTIMATES AND ASSUMPTIONS -- The preparation of financial statements
in conformity with accounting principles generally accepted in the 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 net sales 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.

EXTRAORDINARY ITEM -- During the first quarter of 2001, the Company
refinanced its credit facilities. In connection with this 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 former credit facility.

NEW ACCOUNTING PRONOUNCEMENTS -- In July 2001, the Financial Accounting
Standards Board issued Statement of Financial Accounting Standards No. 142
("SFAS 142"), Accounting for Goodwill and Other Intangible Assets. SFAS 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 previous rules. SFAS 142 discontinues the
regular charge, or amortization, of goodwill assets against income. SFAS 142 was
adopted by the Company on January 1, 2002. Due to the write-off of all goodwill
as of December 31, 2001, the adoption of SFAS 142 did not have any impact on the
Company's financial statements during 2002. SFAS 142 requires proforma
presentation. However, due to the write-off of all goodwill as of December 31,
2001, no proforma information has been presented. The goodwill amortization for
the six months ended June 30, 2001 was $4.1.

6

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

In August 2001, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 144 ("SFAS 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. Beginning in the second quarter of 2002, the
Company reported the divestitures announced on April 5, 2002 as discontinued
operations (see Note 8). As a result of receiving bids on these divestitures,
the Company recorded asset impairments of $3.5 as of June 30, 2002, such amount
representing the difference between the anticipated sales price and the carrying
value of the divested assets.

In April 2002, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 145 ("SFAS 145"), Rescission of FASB
Statements 4, 44 and 64, Amendment of FASB No. 13, and Technical Corrections.
SFAS 145, among other things, amends SFAS 4 and SFAS 44, to require that gains
and losses from the extinguishments of debt generally be classified within
continuing operations. The provisions for SFAS 145 are effective for the fiscal
years beginning after May 15, 2002 and early application is encouraged. The
Company does not believe that the adoption of SFAS 145 will have a significant
impact on its financial statements.

In June 2002, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 146 ("SFAS 146"), Accounting for Costs
Associated with Exit or Disposal Activities. SFAS 146 replaces Emerging Issues
Task Force Issue 94-3, Liability Recognition of Certain Employee Termination
Benefits and Other Costs to Exit an Activity. This standard requires companies
to recognize costs associated with exit or disposal activities when they are
incurred rather than at the date of a commitment to an exit or disposal plan.
This statement is effective for exit or disposal activities that are initiated
after December 31, 2002. The Company does not believe that the adoption of SFAS
146 will have a significant impact on its financial statements.

CHAPTER 11 PROCEEDINGS

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.

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 set July 8, 2002 as
the "Bar Date", the date by which creditors that disagree

7

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

with the scheduled information must file proofs of claims that arose prior to
the Chapter 11 Filing. The Company is currently in the process of reconciling
such claims and expects to finalize all claims and file such data with the
Reorganization Plan discussed below.

On June 21, 2002, the Company announced that it had reached an agreement
with the Creditors Committee on the terms of the Reorganization Plan, subject to
definitive documentation and obtaining the required approvals and exit
financing. Under the agreed terms, the Reorganization Plan would provide that
the Company's existing equity be extinguished and the unsecured creditors would
receive 100% of the New Common Stock in the reorganized Company to discharge
approximately $380.0 of unsecured debt. Holders of the existing equity will
receive five-year warrants to purchase an aggregate of up to fifteen percent
(15%) of the New Common Stock of the reorganized Company. The warrants will have
an exercise price calculated at full recovery for all unsecured creditors, such
price to be set forth in the disclosure statement. The New Common Stock and the
New Common Stock underlying the warrants will be registered as soon as possible
after the effective date of the Reorganization Plan. In addition, the Company
will seek listing of the New Common Stock on a nationally recognized market or
exchange. The Company cannot provide any assurance as to whether a market will
develop for the warrants. All currently outstanding options and warrants of the
Company will be cancelled on the effective date of the Reorganization Plan. The
Reorganization Plan will provide for the establishment of a new equity incentive
plan for employees to be administered by the Board of Directors of the newly
reorganized Company. Additionally, the Board of Directors of the newly
reorganized Company will consist of five or seven members at the discretion of
the Creditors Committee and will include at least one executive officer from the
reorganized Company. The Company expects to file this Reorganization Plan with
the Bankruptcy Court in August 2002 and to ask the Bankruptcy Court to hold a
hearing in September 2002 to determine the adequacy of the disclosure statements
to be used for distribution and voter solicitation. Once the Bankruptcy Court
approves the disclosure statement as having adequate information to permit an
informed vote to accept or reject the Reorganization Plan, the Company will mail
copies of the disclosure statement for a vote. At the Reorganization Plan
confirmation hearing which is approximately 30 days following the disclosure
statement hearing, the Bankruptcy Court will determine whether the voting
classes have accepted the Reorganization Plan or rule that it is otherwise
confirmable under applicable bankruptcy law. If the Reorganization Plan is
confirmed, the Company will then be permitted to consummate the transactions
described in the plan to emerge from bankruptcy. This is generally done within
ten to fifteen days following the confirmation of the plan. Assuming the
Reorganization Plan is accepted by the claim holders and the Bankruptcy Court
grants the confirmation order within the time table set forth above, it is
possible that the Company could emerge from bankruptcy in November 2002.
Furthermore, if confirmed, the Reorganization Plan will require the Company to
adopt Fresh-Start Reporting as specified by SOP-90-7. Fresh-Start Reporting is
required upon a substantive change in control and requires upon the date of
confirmation, that the reporting entity record its assets and liabilities at
their fair values. Accordingly, the future carrying values of the Company's
assets and liabilities may differ from the amounts shown at June 30, 2002. The
Company expects the principal difference will relate to a further reduction in
the carrying value of long-term assets. See Note 7.

The Company incurred $9.1 of reorganization expenses associated with the
Chapter 11 Proceedings during the six months ended June 30, 2002. These expenses
consisted of professional and trustee fees and costs associated with the
retention of employees.

8

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

2. EARNINGS PER SHARE

The Company computes earnings (loss) per share in accordance with Statement
of Financial Accounting Standards No. 128 ("SFAS 128"), EARNINGS PER SHARE. SFAS
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 shares were exercised or converted into
common shares. Because these securities were antidilutive, they were not
included in the net loss calculation for the three and six months ended June 30,
2002 and 2001, respectively. The number of shares used in the per share
calculations were 36.5 for all periods presented.

3. INVENTORIES

Inventories consist of the following:

Inventories of the operations held for sale, in the amount of $63.3 and
$27.9, respectively, have been excluded from the inventory balances presented
above.

4. LIABILITIES SUBJECT TO COMPROMISE

The principal categories of claims classified as liabilities subject to
compromise under bankruptcy proceedings are identified below. All amounts below
may be subject to future adjustment depending on Bankruptcy Court action and
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 claimed amounts.

9

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

These liabilities are classified as noncurrent because under the Reorganization
Plan, such liabilities are being converted to equity as of the effective date of
such plan.

On a consolidated basis, recorded pre-petition liabilities subject to
compromise under Chapter 11 Proceedings, consisted of the following:

As a result of the Chapter 11 Filing, principal and interest payments may
not be made on pre-petition unsecured debt without Bankruptcy Court approval or
until the Reorganization Plan 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 15, 2001 to June 30, 2002, was
$10.8 ($8.6 year to date June 30, 2002). 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.

5. DEBT

Debt consists of the following:

During the second quarter of 2002, one Industrial Revenue Bond in the
amount of $7.5 had its letter of credit called by the lenders. Such amount has
been reclassified to other obligations.

During the course of the claims reconciliation and verification process,
certain obligations previously classified as pre-petition secured debt not
subject to compromise were determined not to be secured obligations as such
security interest had not been perfected. Accordingly, such obligations have
been reclassified to other liabilities subject to compromise as of June 30,
2002. See Note 4.

10

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

The weighted average interest rates under the Company's credit facilities
for the six months ended June 30, 2002 and 2001 were 7.37% and 7.94%,
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. On July 22, 2002, the Company
amended its DIP Financing agreement reducing the maximum permitted borrowings to
$275.0. Additional modifications to the agreement are discussed in the following
paragraphs. Initial borrowings of $278.2 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.
Once retired, the Company may not borrow against these lines of credit. The
$31.0 equipment loan is amortized at $0.5 per month with additional amounts paid
with proceeds from asset divestitures. Proceeds from a federal income tax refund
in the amount of $23.7 and net proceeds from asset sales were used to reduce the
equipment sublimit to $2.7 as of June 30, 2002. 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 August 12, 2002, the
balance outstanding under the DIP Financing was $205.5. Liquidity, defined as
cash on hand of $24.2 plus availability under the DIP Financing of $28.1 was
$52.3 as of August 12, 2002.

Key financial covenants of the DIP Financing include maintenance of a fixed
charge coverage ratio of 1.0 to 1.0 at June 30, 2002 and thereafter, and the
maintenance of minimum average availability of $10.0 at June 30, 2002. The fixed
charge coverage ratio as of June 30, 2002 was 1.3 to 1.0. On July 22, 2002, the
Company and Bank of America, as agent for the lenders, reached an agreement (the
"Amendment") to amend the DIP Financing. The Amendment replaces the fixed
coverage ratio test for the period from March 31, 2002 to December 31, 2002 with
a two-tiered test of operating cash flow. Under the new test, operating cash
flow is calculated as the sum of: (i) operating losses less depreciation and
amortization charges, (ii) capital expenditures and (iii) mandatory debt
amortization attributable to the machinery and equipment or real estate sub
limit loans of $.5 per month (as applicable) may not exceed $2.5 in any one
month. Additionally, such operating losses together with cash interest expense
may not exceed $6.0 in any consecutive two month period. Further the Amendment
calls for all tax refunds to be applied to the machinery and equipment or the
real estate sub limit loans in inverse order of maturity when received. The
Amendment also revises the minimum average availability requirement to $10.0
through October 2002 and $15.0 through February 2003. The Company paid a fee of
$.4 to the lenders as additional consideration. The Company is in compliance
with all terms of the DIP Financing, as amended as of June 30, 2002.

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 in the
future. Should the Company fail to meet the required covenants at some future
date, and be unable to successfully negotiate an amendment among all the
parties, it

11

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

may be forced to petition the Bankruptcy Court for relief. Furthermore, the DIP
facility contains the usual and customary subjective acceleration covenants
common to bank led financing agreements regarding the incurrence of a "material
adverse change." Were the Company's lenders to deem any event a "material
adverse change," the Company would be required to seek the Bankruptcy Courts'
determination as to the merits of the lenders decision. Were the lenders to
prevail in Bankruptcy Court with their claim as to the merits of any such
"material adverse change," the lenders could cease to make any future advances
under the DIP facility. The Company would then be compelled to petition the
Bankruptcy Court for the right to; (i) use the lenders "cash collateral," (which
is to solely rely upon collections of receivables to sustain operations), (ii)
seek financing from alternative lenders or (iii) sell additional assets. Were
the Company to be unsuccessful to obtain relief from the Bankruptcy Court with
respect to its liquidity requirements in any form, the Company would not have
sufficient liquidity to continue its operations as a going concern.

SUBORDINATED NOTES

The Subordinated Notes are unconditionally and fully guaranteed, such
guarantee being joint and several, by substantially all of the Company's current
and future subsidiaries. Metals USA, Inc., the parent company, does not have
sufficient independent assets, apart from its investment in its wholly owned
subsidiaries to satisfy the financial requirements of the Subordinated Notes,
accordingly the Company is exempt from presenting subsidiary guarantor financial
information.

6. COMMITMENTS AND 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.

7. STOCKHOLDERS' EQUITY

The last dividend paid by the Company was declared on March 28, 2001. It
was paid on April 17, 2001 to Stockholders' of record on April 6, 2001. There
have been no subsequent dividends declared.

Under the Reorganization Plan subject to confirmation, all outstanding
shares of Common Stock, warrants and options will be extinguished and replaced
with Warrants to purchase New Common Stock and New Common Stock will be issued
to the unsecured creditors. New Common Stock will be issued for all of the
outstanding unsecured claims, such amount estimated to be $380.0. The aggregate
number of shares of New Common Stock issuable upon exercise of the five-year
warrants will be equal to 15% of the outstanding shares. The warrants will have
an exercise price calculated at full recovery for all unsecured creditors, such
price to be set forth in the disclosure statement.

12

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

8. OPERATIONS HELD FOR SALE

During the third quarter of 2001, the Company decided to sell certain
assets of its Plates and Shapes business unit. Because the operations held for
sale as of December 31, 2001 were initiated prior to the Company's adoption of
SFAS 144 on January 1, 2002, the accounting for the disposal of these assets is
governed by the provisions of SFAS 121, "Accounting for the Impairment of
Long-lived Assets and for Long-lived Assets to be Disposed of." This
pronouncement requires that the operational results of the operations held for
sale be reported as continuing operations on the statement of operations with
supplemental footnote disclosure of the assets, liabilities and results of
operations.

Operational information included in the consolidated statements of
operations regarding the businesses classified as operations held for sale under
SFAS 121 as of June 30, 2002 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.

On April 5, 2002, the Company announced planned divestitures of eleven
additional business units that will result in a significant downsizing of the
Company. These divestitures are a part of the Reorganization Plan that was
approved by the Creditors Committee in June 2002. These divestitures, along with
previously announced divestitures, had a carrying value at June 30, 2002 of
approximately $142.8 and are expected to generate proceeds of approximately
$139.3. As a result, an additional impairment of $3.5 was recorded at June 30,
2002. The proceeds from the sale of these assets will be used to reduce amounts
outstanding under the DIP Financing. Currently, the Company has entered into
contracts for the sale of approximately $77.5 of the estimated net proceeds
contemplated for these assets. Additionally, the Company is currently in active
negotiations for contracts on approximately $22.6 of these assets, which are
expected to be finalized in August 2002. Further the Company expects that the
remaining $39.2 of assets will be under contract or sold prior to October 31,
2002. Generally, these contracts are closed within forty (40) days following
approval by the Bankruptcy Court.

The accounting for the disposal of the operations placed into the held for
sale category during the second quarter of 2002 is governed by the provisions of
SFAS 144. This pronouncement requires that the operational results of the
operations held for sale be recorded as discontinued operations on the statement
of operations with separate earnings per share disclosure and supplemental
footnote disclosure of the assets and liabilities.

Operational information included in the consolidated statements of
operations for the six months ended June 30, 2002 and 2001, with respect to the
businesses classified as discontinued operations and held for sale under SFAS
144 are as follows:

13

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

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 discontinued operations held for sale under SFAS 144 have
been combined with the asset and liability amounts for operations held for sale
under SFAS 121 and have been classified as current assets and liabilities in the
consolidating balance sheet as follows:

Amounts above include the assets and liabilities of the operations held for
sale under both SFAS 121 and SFAS 144 at June 30, 2002. The amounts as of
December 31, 2001, include only operations held for sale under SFAS 121, as
operations held for sale under SFAS 144 were not identified until the second
quarter of 2002.

14

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

9. SUPPLEMENTAL CASH FLOW INFORMATION

10. SEGMENT AND RELATED INFORMATION

The following table shows summarized financial information for the
continuing operations of the Company's reportable segments. Operating income
(loss) by business segment excludes interest expense and reorganization
expenses. Corporate expenses are allocated to the Company's operating
segments. The negative sales amount under Corporate and Other represents the
elimination of intercompany sales.

15

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

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS

The following discussion should be read in conjunction with the unaudited
consolidated financial statements of Metals USA, Inc. and related notes thereto
included in Part I, Item 1 of this Report and the Company's audited consolidated
financial statements contained in the Annual Report on Form 10-K for the fiscal
year ended December 31, 2001. Unless otherwise indicated, all references to the
"Company," "we," "us," "our" or other similar terms herein are intended to refer
to Metals USA, Inc. This section contains statements that constitute
"forward-looking statements" within the meaning of the Private Securities
Litigation Reform Act of 1995. Readers should refer to "Factors Which May Affect
Future Operating Results" discussed below and included in the Annual Report on
Form 10-K for the fiscal year ended December 31, 2001.

OVERVIEW

We are a provider of value-added processed steel, aluminum and specialty
metals, as well as manufactured metal components. We sell to businesses such as
the machining, furniture, transportation equipment, power and process equipment,
industrial/commercial construction, consumer durables and electrical equipment,
and machinery and equipment manufacturers. During 2000 and 2001, the steel
industry 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 us to seek protection under U.S. bankruptcy laws in November
2001.

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 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 2002.

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

16

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

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.

On June 21, 2002, we announced that we have reached an agreement with the
Creditors Committee on the terms of the Reorganization Plan, subject to
definitive documentation and obtaining the required approvals and exit
financing. Under the agreed terms, the Reorganization Plan would provide that
our existing equity be extinguished and the unsecured creditors would receive
100% of the New Common Stock in the reorganized Company to discharge
approximately $380.0 million of unsecured debt. Holders of the existing equity
will receive five-year warrants to purchase an aggregate of up to fifteen
percent (15%) of the New Common Stock of the reorganized Company. The warrants
will have an exercise price calculated at full recovery for all unsecured
creditors, such price to be set forth in the disclosure statement. The New
Common Stock and the New Common Stock underlying the warrants will be registered
as soon as possible after the effective date of the Reorganization Plan. In
addition, we will seek listing of the New Common Stock on a nationally
recognized market or exchange. We cannot provide any assurance as to whether a
market will develop for the warrants. All currently outstanding options and
warrants of the Company will be cancelled on the effective date of the
Reorganization Plan. The Reorganization Plan will provide for the establishment
of a new equity incentive plan for employees to be administered by the Board of
Directors of the newly reorganized Company. Additionally, the Board of Directors
of the newly reorganized Company will consist of five or seven members at the
discretion of the Creditors Committee and will include at least one executive
officer from the reorganized Company. We expect to file this Reorganization Plan
with the Bankruptcy Court in August 2002 and to ask the Bankruptcy Court to hold
a hearing in September 2002 to determine the adequacy of the disclosure
statements to be used for distribution and voter solicitation. Once the
Bankruptcy Court approves the disclosure statement as having adequate
information to permit an informed vote to accept or reject the Reorganization
Plan, we will mail copies of the disclosure statement for a vote. At the
Reorganization Plan confirmation hearing which is approximately 30 days
following the disclosure statement hearing, the Bankruptcy Court will determine
whether the voting classes have accepted the Reorganization Plan or rule that is
it is otherwise confirmable under applicable bankruptcy law. If the
Reorganization Plan is confirmed, we will then be permitted to consummate the
transactions described in the plan to emerge from bankruptcy. This is generally
done within ten to fifteen days following the confirmation of the plan. Assuming
the Reorganization Plan we are proposing is accepted by the claim holders and
the Bankruptcy Court grants the confirmation order within the time table set
forth above, it is possible that we could emerge from bankruptcy in November
2002. Furthermore, if confirmed, the Reorganization Plan will require us to
adopt "Fresh-Start Reporting" as specified by SOP-90-7. Fresh-Start Reporting is
required upon a substantive change in control and requires upon the date of
confirmation, that the reporting entity record its assets and liabilities at
their fair values. Accordingly, the future carrying values of our assets and
liabilities may differ from the amounts shown at June 30, 2002. We expect the
principal difference will relate to a further reduction in the carrying value of
long-term assets.

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, (2) identify pre

17

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

petition liabilities subject to compromise from those that are not subject to
compromise or are post petition liabilities and (3) apply "Fresh-Start
Reporting" rules upon emerging from Bankruptcy. As of June 30, 2002, a total of
$21.6 million of secured borrowings and related interest outstanding under the
Industrial Revenue Bonds and accrued liabilities approved 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, we discontinued accruing interest on the Subordinated
Notes as of the Chapter 11 Filing date as this debt is subject to compromise. In
January 2002, we obtained $350.0 million in DIP Financing and retired our
pre-petition secured credit facilities. On July 22, 2002, we amended our DIP
Financing agreement reducing the maximum permitted borrowings to $275.0 million.
The DIP Financing is a secured post-petition liability and is not subject to
compromise.

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, (2) identify pre-petition
liabilities subject to compromise from those that are not subject to compromise
or are post petition liabilities and (3) apply Fresh-Start Reporting rules upon
emerging from Bankruptcy.

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.

18

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

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.

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

IMPAIRMENT OF LONG-LIVED ASSETS -- Long-lived assets are comprised
principally of property and equipment. 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.

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

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.

19

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

RESULTS OF CONTINUING OPERATIONS - CONSOLIDATED

CONSOLIDATED RESULTS -- THREE MONTHS ENDED JUNE 30, 2002 COMPARED TO JUNE 30,
2001

NET SALES. Net sales decreased $70.7 million, or 22.5%, from $314.8 million
for the three months ended June 30, 2001 to $244.1 million for the three months
ended June 30, 2002. The decrease in net sales was principally due to decreased
shipments in substantially all product lines (except Building Products), which
overall declined by 17.5%. In addition to the volume decline, the average sales
price per ton decreased by nearly 6.0%.

COST OF SALES. Cost of sales decreased $54.9 million, or 23.0%, from $238.6
million for the three months ended June 30, 2001, to $183.7 million for the
three months ended June 30, 2002. The decrease in cost of sales was principally
due to the decreased shipments described above. As a percentage of net sales,
cost of sales for the three months ended June 30, 2002 declined to 75.3% versus
75.8% for the three months ended June 30, 2001. This decline was the result of a
6.6% decrease in the average cost per ton versus a 5.9% decrease in the average
sales price per ton.

OPERATING AND DELIVERY. Operating and delivery expenses decreased $7.2
million, or 19.7%, from $36.6 million for the three months ended June 30, 2001
to $29.4 million for the three months ended June 30, 2002. The decrease in
operating and delivery expenses was principally due to the decreased shipments
described above. As a percentage of net sales, operating and delivery expenses
increased from 11.6% for the three months ended June 30, 2001 to 12.0% for the
three months ended June 30, 2002. This percentage increase was primarily due to
the decrease in sales and the inherent fixed costs included in operating and
delivery expenses.

SELLING, GENERAL AND ADMINISTRATIVE. Selling, general and administrative
expenses decreased $5.3 million, or 19.1%, from $27.7 million for the three
months ended June 30, 2001 to $22.4 million for the three months ended June 30,
2002. This decrease in selling, general and administrative expenses was
primarily attributable

20

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

to the decreased sales activity. As a percentage of net sales, selling, general
and administrative expenses increased from 8.8% for the three months ended June
30, 2001 to 9.2% for the three months ended June 30, 2002. This percentage
increase was primarily due to the decrease in sales, an increase in the cost of
self insured medical and workers compensation insurance and the inherent fixed
costs included in selling, general and administrative expenses.

DEPRECIATION AND AMORTIZATION. Depreciation and amortization expense
decreased $3.1 million or 57.4%, from $5.4 million for the three months ended
June 30, 2001 to $2.3 million for the three months ended June 30, 2002. This
decrease was due to the asset impairments that were recorded for property and
equipment and goodwill as of December 31, 2001. The goodwill amortization for
the three months ended June 30, 2001 was $2.0.

ASSET IMPAIRMENTS. Asset impairment charges of $3.5 million were recorded
in the second quarter of 2002, such amount representing the difference between
the estimated sales price and the carrying value of the divested assets. There
were no asset impairment charges during the six months ended June 30, 2001.

OPERATING INCOME. Operating income decreased $3.7 million, or 56.9%, from
$6.5 million for the three months ended June 30, 2001 to $2.8 million for the
three months ended June 30, 2002. The decrease in operating income was primarily
attributable to the asset impairment charge in the amount of $3.5 million as
well as the decreased shipments and the increase in certain self insured
insurance programs, partially offset by the reduced depreciation and
amortization expenses, all as further discussed above. As a percentage of net
sales, operating income decreased from 2.1% for the three months ended June 30,
2001 to 1.2% for the three months ended June 30, 2002.

INTEREST EXPENSE. Interest expense decreased $7.0 million, or 57.9%, from
$12.1 million for the three months ended June 30, 2001 to $5.1 million for the
three months ended June 30, 2002. The decrease in interest expense was primarily
due to decreased debt levels, lower interest rates and the discontinuance of
accruing interest on the Subordinated Notes of $4.3 million as this liability is
subject to compromise in the Chapter 11 proceedings.

OTHER (INCOME) EXPENSE, NET. Other (income) expense, net decreased $0.4
million, from income of $0.2 million for the three months ended June 30, 2001 to
an expense of $0.2 million for the three months ended June 30, 2002.

REORGANIZATION EXPENSES. Reorganization expenses in the amount of $6.1
million for the three months ended June 30, 2002 consist of approximately $4.0
million of professional and trustee fees associated with the Chapter 11
Proceedings and $2.1 million related to employee retention. We are required to
pay all costs and expenses associated with the Chapter 11 Proceedings that are
approved by the Bankruptcy Court, including the professional fees of the secured
lenders providing the DIP Financing, the unsecured creditors and those incurred
by the Company. We expect reorganization expenses to approximate $1.5 to $2.0
million per month until we exit bankruptcy.

21

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

CONSOLIDATED RESULTS -- SIX MONTHS ENDED JUNE 30, 2002 COMPARED TO JUNE 30,
2001

NET SALES. Net sales decreased $156.0 million, or 24.4%, from $640.3
million for the six months ended June 30, 2001 to $484.3 million for the six
months ended June 30, 2002. The decrease in net sales was principally due to
decreased shipments in substantially all product lines (except Building
Products) which overall declined by 20.6%. In addition to the volume decline,
the average sales price per ton decreased by over 4.7%.

COST OF SALES. Cost of sales decreased $123.5 million, or 25.2%, from
$489.2 million for the six months ended June 30, 2001, to $365.7 million for the
six months ended June 30, 2002. The decrease in cost of sales was principally
due to the decreased shipments described above. As a percentage of net sales,
cost of sales for the six months ended June 30, 2002 declined to 75.5% versus
76.4% for the six months ended June 30, 2001. This improvement was the result of
a 5.8% decrease in the average cost per ton versus a 4.7% decrease in the
average sales price per ton.

OPERATING AND DELIVERY. Operating and delivery expenses decreased $13.7
million, or 18.1%, from $75.6 million for the six months ended June 30, 2001 to
$61.9 million for the six months ended June 30, 2002. The decrease in operating
and delivery expenses was principally due to the decreased shipments described
above. As a percentage of net sales, operating and delivery expenses increased
from 11.8% for the six months ended June 30, 2001 to 12.8% for the six months
ended June 30, 2002. This percentage increase was primarily due to the decrease
in sales and the inherent fixed costs included in operating and delivery
expenses.

SELLING, GENERAL AND ADMINISTRATIVE. Selling, general and administrative
expenses decreased $9.4 million, or 16.4%, from $57.4 million for the six months
ended June 30, 2001 to $48.0 million for the six months ended June 30, 2002.
This decrease in selling, general and administrative expenses was primarily
attributable to the decreased sales activity. As a percentage of net sales,
selling, general and administrative expenses increased from 9.0% for the six
months ended June 30, 2001 to 9.9% for the six months ended June 30, 2002. This
percentage increase was primarily due to the decrease in sales, an increase in
the cost of self insured medical and workers compensation insurance and the
inherent fixed costs included in selling, general and administrative expenses.

DEPRECIATION AND AMORTIZATION. Depreciation and amortization decreased $6.5
million or 60.7%, from $10.7 million for the six months ended June 30, 2001 to
$4.2 million for the six months ended June 30, 2002. This decrease was due to
the asset impairments that were recorded for property and equipment and goodwill
as of December 31, 2001. The goodwill amortization for the six months ended June
30, 2001 was $4.1.

ASSET IMPAIRMENTS. Asset impairment charges of $3.5 million were recorded
in the second quarter of 2002, such amount representing the difference between
the estimated sales price and the carrying value of the divested assets. There
were no asset impairment charges during the six months ended June 30, 2001.

OPERATING INCOME. Operating income decreased $6.4 million, or 86.5%, from
$7.4 million for the six months ended June 30, 2001 to $1.0 million for the six
months ended June 30, 2002. The decrease in operating income was primarily
attributable to the decreased shipments, the asset impairments and the increase
in certain self insured insurance programs, partially offset by the reduced
depreciation and

22

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

amortization expenses, all as further discussed above. As a percentage of net
sales, operating income decreased from 1.1% for the six months ended June 30,
2001 to 0.2% for the six months ended June 30, 2002.

INTEREST AND SECURITIZATION EXPENSE. Interest and securitization expense
decreased $16.9 million, or 61.9%, from $27.3 million for the six months ended
June 30, 2001 to $10.4 million for the six months ended June 30, 2002. The
decrease in interest expense was primarily due to decreased debt levels, lower
interest rates and the discontinuance of accruing interest on the Subordinated
Notes of $8.6 million as this liability is subject to compromise in the Chapter
11 proceedings.

REORGANIZATION EXPENSES. Reorganization expenses in the amount of $9.1
million for the six months ended June 30, 2002 consist of approximately $7.0
million of professional and trustee fees associated with Chapter 11 Proceedings
and $2.1 million related to employee retention. We are required to pay all costs
and expenses associated with the Chapter 11 Proceedings that are approved by the
Bankruptcy Court, including the professional fees of the secured lenders
providing the DIP Financing, the unsecured creditors and those incurred by the
Company. We expect reorganization expenses to approximate $1.5 to $2.0 million
per month until we exit bankruptcy.

SEGMENT RESULTS -- THREE MONTHS ENDED JUNE 30, 2002 COMPARED TO JUNE 30, 2001

PLATES AND SHAPES. Net sales decreased $52.6 million, or 38.4%, from $136.8
million for the three months ended June 30, 2001 to $84.2 million for the three
months ended June 30, 2002. Product shipments declined 25.5% and average sales
prices decreased 17.3% for the three months ended June 30, 2002 compared to the
three months ended June 30, 2001. A significant component of the variance from
the second quarter of 2001 to the second quarter of 2002 relates to the sale of
the majority of the specialty division of the Plates and Shapes group in the
first quarter of 2002. Excluding the effect of these operations on the change,
sales decreased $32 million or 27.9%, tons decreased 22.8% and the average sales
price decreased by 6.6%. Operating costs and expenses decreased $52.9 million,
or 39.2%, from $134.9 million for the three months ended June 30, 2001 to $82.0
million for the three months ended June 30, 2002. Operating costs and

23

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

expenses as a percentage of net sales decreased from 98.6% for the three months
ended June 30, 2001 to 97.4% for the three months ended June 30, 2002, primarily
due to a reduction in expenses and a decrease in the cost of raw materials. The
change in operating expenses excluding the effect of the specialty operations
was a reduction of $33.3 million or 29.7% and as a percentage of sales,
operating expenses decreased from 97.9% to 95.5%. Operating income increased by
$0.3 million, or 15.8%, from $1.9 million for the three months ended June 30,
2001 to $2.2 million for the three months ended June 30, 2002. This increase is
primarily due to lower depreciation expenses as a result of the impairment of
assets at year-end 2001. Operating income as a percentage of net sales increased
from 1.4% for the three months ended June 30, 2001 to 2.6% for the three months
ended June 30, 2002. Excluding the specialty division, operating income would
have been $3.7 million in the quarter ended June 30, 2002 versus $2.4 million in
the prior year, an increase of $1.3 million or 54.2%.

FLAT ROLLED. Net sales decreased $21.0 million, or 14.6%, from $143.4
million for the three months ended June 30, 2001 to $122.4 million for the
three months ended June 30, 2002. This decrease is primarily due to a 12.2%
decline in shipments for the three months ended June 30, 2002 compared to the
three months ended June 30, 2001 and a decrease in the sales price per ton of
2.7%. Operating costs and expenses decreased $18.5 million, or 13.4%, from
$137.7 million for the three months ended June 30, 2001 to $119.2 million for
the three months ended June 30, 2002. This decrease was primarily
attributable to lower shipments as the average cost per ton was flat during
the comparable periods. Operating costs and expenses as a percentage of net
sales, increased from 96.0% for the three months ended June 30, 2001 to 97.4%
for the three months ended June 30, 2002, primarily due to the lower
shipments. Operating income decreased by $2.5 million, or 43.9%, from $5.7
million for the three months ended June 30, 2001 to $3.2 million for the
three months ended June 30, 2002. This decrease was attributable to the
decreased shipments and increased expenses as a percentage of sales.
Operating income as a percentage of net sales decreased from 4.0% for the
three months ended June 30, 2001 to 2.6% for the three months ended June 30,
2002.

BUILDING PRODUCTS. Net sales increased $1.5 million, or 3.4%, from $43.5
million for the three months ended June 30, 2001 to $45.0 million for the three
months ended June 30, 2002. The increase in net sales is principally due to
increased demand for these products. Operating costs and expenses decreased $1.7
million, or 4.2%, from $40.2 million for the three months ended June 30, 2001 to
$38.5 million for the three months ended June 30, 2002. This was due to improved
efficiencies and reduced cost of sales. Gross margin increased by $3.0 million
from 31.2% of sales in 2001 to 36.8% in 2002. Operating costs and expenses as a
percentage of net sales decreased from 92.4% for the three months ended June 30,
2001 to 85.6% for the three months ended June 30, 2002. Operating income
increased by $3.2 million, or 97.0%, from $3.3 million for the three months
ended June 30, 2001 to $6.5 million for the three months ended June 30, 2002,
Operating income as a percentage of net sales increased from 7.6% for the three
months ended June 30, 2001 to 14.4% for the three months ended June 30, 2002.

CORPORATE AND OTHER. This category reflects certain administrative costs
and expenses management has not allocated to its industry segments as well as
the asset impairment charges. The negative net sales amount represents the
elimination of intercompany sales. The operating loss increased $4.7 million,
from $(4.4) million for the three months ended June 30, 2001 to $(9.1) million
for the three months ended June 30, 2002. This increase was primarily
attributable to asset impairments in the amount of $3.5 million recorded in the
second quarter of 2002 and the increased cost of employee health and workers
compensation insurance.

24

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

SEGMENT RESULTS -- SIX MONTHS ENDED JUNE 30, 2002 COMPARED TO JUNE 30, 2001

PLATES AND SHAPES. Net sales decreased $110.4 million, or 38.1%, from
$290.0 million for the six months ended June 30, 2001 to $179.6 million for the
six months ended June 30, 2002. Product shipments declined 26.8% and average
sales prices decreased 15.4% for the six months ended June 30, 2002 compared to
the six months ended June 30, 2001. A significant component of the variance from
the first half of 2001 to the first half of 2002 relates to the sale of the
majority of the specialty component of the Plates and Shapes group in the first
quarter of 2002. Excluding the effect of these operations on the change, sales
decreased $71.9 million or 30.1%, tons decreased 24.6% and the average sales
price decreased by 7.1%. Operating costs and expenses decreased $107.6 million,
or 37.7%, from $285.3 million for the six months ended June 30, 2001 to $177.7
million for the six months ended June 30, 2002. Operating costs and expenses as
a percentage of net sales increased from 98.4% for the six months ended June 30,
2001 to 98.9% for the six months ended June 30, 2002, primarily due to lower
shipments and sales prices, partially offset by a 16.5% decrease in the cost of
raw materials. The change in operating expenses excluding the effect of the
specialty operations was a reduction of $71.0 million or 30.4% and as a
percentage of sales, operating expenses decreased from 97.7% to 97.2%. Operating
income decreased by $2.8 million, or 60.0%, from $4.7 million for the six months
ended June 30, 2001 to $1.9 million for the six months ended June 30, 2002. This
decrease is primarily due to the decreased shipments as well as the decrease in
average sales prices, partially offset by the lower cost of raw materials.
Operating income as a percentage of net sales decreased from 1.6% for the six
months ended June 30, 2001 to 1.1% for the six months ended June 30, 2002.
Excluding the specialty division, operating income would have been $4.7 million
in the quarter ended June 30, 2002 versus $5.6 million in the prior year, a
decrease of $0.9 million or 16.1%.

FLAT ROLLED. Net sales decreased $52.8 million, or 18.0%, from $294.0
million for the six months ended June 30, 2001 to $241.2 million for the six
months ended June 30, 2002. This decrease is primarily due to a 16.7% decline in
shipments for the six months ended June 30, 2002 compared to the six months
ended June 30, 2001. Operating costs and expenses decreased $49.5 million, or
17.4%, from $284.4 million for the six

25

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

months ended June 30, 2001 to $234.9 million for the six months ended June 30,
2002. This decrease was primarily attributable to lower shipments. Operating
costs and expenses as a percentage of net sales, increased from 96.7% for the
six months ended June 30, 2001 to 97.4% for the six months ended June 30, 2002,
primarily due to the lower shipments. Operating income decreased by $3.3
million, or 34.4%, from $9.6 million for the six months ended June 30, 2001 to
$6.3 million for the six months ended June 30, 2002. This decrease was
attributable to the decreased shipments. Operating income as a percentage of net
sales decreased from 3.3% for the six months ended June 30, 2001 to 2.6% for the
six months ended June 30, 2002.

BUILDING PRODUCTS. Net sales increased $3.1 million, or 4.2%, from $74.4
million for the six months ended June 30, 2001 to $77.5 million for the six
months ended June 30, 2002. The increase in net sales was principally due to
increased demand for these products. Operating costs and expenses decreased $2.1
million, or 2.9%, from $72.8 million for the six months ended June 30, 2001 to
$70.7 million for the six months ended June 30, 2002. This was due to improved
efficiencies and lower cost of products sold. Gross margin dollars increased
$4.4 million or 20.2% as the gross margin percentage increased from 29.2% in
2001 to 33.7% in 2002. Operating costs and expenses as a percentage of net sales
decreased from 97.8% for the six months ended June 30, 2001 to 91.2% for the six
months ended June 30, 2002. Operating income increased by $5.2 million, or
331.3%, from $1.6 million for the six months ended June 30, 2001 to $6.8 million
for the six months ended June 30, 2002. Operating income as a percentage of net
sales increased from 2.2% for the six months ended June 30, 2001 to 8.8% for the
six months ended June 30, 2002.

CORPORATE AND OTHER. This category reflects certain administrative costs
and expenses management has not allocated to its industry segments as well as
asset impairment charges. The negative net sales amount represents the
elimination of intercompany sales. The operating loss increased $5.5 million,
from $(8.5) million for the six months ended June 30, 2001 to $(14.0) million
for the six months ended June 30, 2002. This increase was primarily attributable
to the asset impairments in the amount of $3.5 million recorded during the
second quarter and increased cost of employee health and workers compensation
insurance.

LIQUIDITY AND CAPITAL RESOURCES

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 six months ended June 30, 2002 we had free cash flow of $20.8
million, an increase of $65.8 million as compared to negative free cash flow of
$45.0 million for the six months ended June 30, 2001. Free cash flow from
continuing operations in 2002 consisted primarily of negative cash flow from
continuing operations of $4.5 million, offset by a $7.8 million net increase in
non-cash working capital and $12.1 million of net proceeds from sales of
property, equipment and other assets. Discontinued operations generated negative
cash flow of $3.3 million during 2002.

Net cash used in financing activities was $66.2 million for 2002 and
consisted primarily of repayments of borrowings on credit facilities and payment
of financing costs incurred on the credit facilities. Net cash provided by
financing activities was $52.5 million for 2001 and consisted primarily of
borrowings from credit

26

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

facilities of $65.0 million, partially offset by $7.4 million of debt issuance
costs incurred with respect to such credit facilities. As of August 12, 2002, we
had outstanding borrowings under the DIP Financing of $205.5 million.

At June 30, 2002, we had cash of $29.8 million and working capital of
$210.1 million, excluding $29.8 million of pre-petition liabilities that are
subject to compromise related to the operations held for sale. At December 31,
2001, we had cash of $75.2 million and working capital of $189.9 million,
excluding $14.4 million of pre-petition liabilities that were subject to
compromise related to the operations held for sale. The lower cash balance at
June 30, 2002 compared to December 31, 2001 was primarily due to net repayments
on the DIP Financing and other secured debt of $63.6 million. For further
discussion of disposal of the pre-petition liabilities, see Chapter 11
Proceedings above.

On January 2, 2002, we executed our DIP Financing with Bank of America and
PNC Bank in the amount of $350.0 million. On July 22, 2002, we amended our DIP
Financing agreement reducing the maximum permitted borrowings to $275.0 million.
Additional modifications to the agreement are discussed in the following
paragraphs. 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 million on equipment and
$30.0 million on real estate. Once retired, the Company may not borrow against
these lines of credit. The $31.0 million equipment loan is amortized at $0.5
million per month with additional amounts paid with proceeds from asset
divestitures. Proceeds from a federal income tax refund in the amount of $23.7
million and net proceeds from asset sales were used to reduce the equipment
sublimit to $2.7 million as of June 30, 2002. 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 August 12, 2002, the
balance outstanding under the DIP Financing was $205.5 million. Liquidity,
defined as cash on hand of $24.2 million plus availability under the DIP
Financing of $28.1 million was $52.3 million as of August 12, 2002.

Key financial covenants of the DIP Financing include maintenance of a fixed
charge coverage ratio of 1.0 to 1.0 at June 30, 2002 and thereafter, and the
maintenance of minimum average availability of $10.0 million at June 30, 2002.
The fixed charge coverage ratio as of June 30, 2002 was 1.3 to 1.0. On July 22,
2002, the Company and Bank of America, as agent for the lenders, reached an
agreement (the "Amendment") to amend the DIP Financing. The Amendment replaces
the fixed coverage ratio test for the period from March 31, 2002 to December 31,
2002 with a two-tiered test of operating cash flow. Under the new test,
operating cash flow is calculated as the sum of: (i) operating losses less
depreciation and amortization charges, (ii) capital expenditures and (iii)
mandatory debt amortization attributable to the machinery and equipment or real
estate sub limit loans of $.5 million per month (as applicable) may not exceed
$2.5 million in any one month. Additionally, such operating losses together with
cash interest expense may not exceed $6.0 million in any consecutive two-month
period. Further the Amendment calls for all tax refunds to be applied to the
machinery and equipment or the real estate sub limit loans in inverse order of
maturity when received. The

27

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

Amendment also revises the minimum average availability requirement to $10.0
million through October 2002 and $15.0 million through February 2003. We paid a
fee of $.4 million to the lenders as additional consideration. We are in
compliance with all terms of the DIP Financing, as amended as of June 30,
2002.

Continued weakness in the U.S. economy may cause our financial performance
to fail to meet the covenants required by the DIP Financing in the future.
Should the Company fail to meet the required covenants at some future date, and
be unable to successfully negotiate an amendment among all the parties, it may
be forced to petition the Bankruptcy Court for relief. Furthermore, the DIP
facility contains the usual and customary subjective acceleration covenants
common to bank led financing agreements regarding the incurrence of a "material
adverse change." Were the Company's lenders to deem any event a "material
adverse change," the Company would be required to seek the Bankruptcy Courts'
determination as to the merits of the lenders decision. Were the lenders to
prevail in Bankruptcy Court with their claim as to the merits of any such
"material adverse change," the lenders could cease to make any future advances
under the DIP facility. The Company would then be compelled to petition the
Bankruptcy Court for the right to; (i) use the lenders "cash collateral," (which
is to solely rely upon collections of receivables to sustain operations), (ii)
seek financing from alternative lenders or (iii) sell additional assets. Were
the Company to be unsuccessful to obtain relief from the Bankruptcy Court with
respect to its liquidity requirements in any form, the Company would not have
sufficient liquidity to continue its operations as a going concern.

On April 5, 2002, we announced planned divestitures of eleven additional
business units that will result in a significant downsizing of the Company.
These divestitures are a part of our Reorganization Plan that was approved by
the Creditors Committee in June 2002. These divestitures, along with previously
announced divestitures, had a carrying value at June 30, 2002 of approximately
$142.8 million and are expected to generate proceeds of approximately $139.3
million, which resulted in an additional impairment of $3.5 million. The
proceeds from the sale of these assets will be used to reduce amounts
outstanding under the DIP Financing. Currently, we have entered into contracts
for the sale of approximately $77.5 million of the estimated net proceeds
contemplated for these assets. Additionally, we are currently in active
negotiations for contracts on approximately $22.6 million of these assets, which
are expected to be finalized in August 2002. Further, we expect that the
remaining $39.2 million of assets will be under contract or sold prior to
October 31, 2002. Generally, these contracts are closed within forty (40) days
following approval by the Bankruptcy Court. These divestitures represented
$158.4 million of our revenues and $0.2 million of net income for the six months
ended June 30, 2002.

COMMITMENTS AND CONTINGENCIES

We have experienced no material change in our future contractual
obligations since December 31, 2001. During the pendency of the Chapter 11
Filing, with approval of the Bankruptcy Court, we may assume favorable
pre-petition contracts and leases and reject unfavorable leases and contracts.

28

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

INDUSTRY TRENDS

The steel industry has declined substantially over the last four years.
Steel prices in the U.S. reached a twenty (20) year low and several steel
producers have filed for bankruptcy protection. Effective March 20, 2002,
increased tariffs of between 8% and 30% were imposed on most imported steel. The
purpose of these increases was to assist the financially troubled U.S. steel
industry. These tariffs are primarily for the benefit of steel producers.
Subsequent to implementation of the tariffs, steel prices have increased. 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.

Recently and due to the tariffs, procuring steel products for our Flat
Rolled Group continues to be difficult. The delay in obtaining these products
may result in delay in meeting current customer demands. In addition, our Plates
and Shapes Group has experienced weak demand for its products due to a slowdown
in the construction industry. These delays and weak demand could adversely
affect our revenues.

UNCERTAINTIES

The proceeds from the announced divestitures will be used to reduce our
indebtedness and improve our liquidity. These divestitures are an important part
of the Reorganization Plan that we have obtained approval of by the Creditors
Committee. We intend to file the Reorganization Plan with the Bankruptcy Court
in late August 2002, hold a hearing by late September 2002, subsequently solicit
voter approval of the plan and possibly exit from Bankruptcy by November 2002.
The inability to conclude the sale of these assets could have a material adverse
effect on our Reorganization Plan. In addition, our Reorganization Plan will
contain several strategies for consolidating operations, reducing cost
structures and retaining key employees. There can be no assurance we can execute
the Reorganization Plan that is ultimately accepted by the Bankruptcy Court.

NEW ACCOUNTING PRONOUNCEMENTS

In July 2001, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 142 ("SFAS No. 142"), Accounting for Goodwill
and Other Intangible Assets. 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 142 was adopted by the Company on January
1, 2002. Due to the write-off of all goodwill as of December 31, 2001, SFAS 142
will not have any impact on the Company's financial statements during 2002. SFAS
142 requires proforma presentation. However, due to the write-off of all
goodwill as of December 31, 2001, no proforma information has been presented.
The goodwill amortization for the six months ended June 30, 2001 was $4.1
million.

29

METALS USA, INC. AND SUBSIDIARIES
(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. Beginning in the second quarter of 2002, the
Company reported the divestitures announced on April 5, 2002 as discontinued
operations (see Note 8). As a result of receiving bids on these divestitures,
the Company recorded asset impairments of $3.5 million as of June 30, 2002, such
amount representing the approximate difference between the anticipated sales
price and the carrying value of the divested assets.

In April 2002, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 145 ("SFAS 145"), Rescission of FASB
Statements 4, 44 and 64, Amendment of FASB No. 13, and Technical Corrections.
SFAS 145, among other things, amends SFAS 4 and SFAS 44, to require that gains
and losses from the extinguishments of debt generally be classified within
continuing operations. The provisions for SFAS 145 are effective for the fiscal
years beginning after May 15, 2002 and early application is encouraged. We do
not believe that the adoption of SFAS 145 will have a significant impact on our
financial statements.

In June 2002, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 146 ("SFAS 146"), Accounting for Costs
Associated with Exit or Disposal Activities. SFAS 146 replaces Emerging Issues
Task Force Issue 94-3, Liability Recognition of Certain Employee Termination
Benefits and Other Costs to Exit an Activity. This standard requires companies
to recognize costs associated with exit or disposal activities when they are
incurred rather than at the date of a commitment to an exit or disposal plan.
This statement is effective for exit or disposal activities that are initiated
after December 31, 2002. We do not believe that the adoption of SFAS 146 will
have a significant impact on our financial statements.

FACTORS WHICH MAY AFFECT FUTURE OPERATING RESULTS

This report on Form 10-Q contains statements which constitute
"forward-looking statements" within the meaning of the Private Securities
Litigation Reform Act of 1995. 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 any number of factors, most of which
are beyond the control of management. These factors include general economic and
business conditions, new or modified statutory or regulatory requirements,
changing prices and market conditions, and the effectiveness of management's
strategies and decisions. 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.

30

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

Readers should refer to "Factors Which May Affect Future Operating Results"
included in the Annual Report on Form 10-K ("Annual Report") for the fiscal year
ended December 31, 2001 for risk factors that may affect future performance. In
addition to the risk factors disclosed in the Annual Report, there are other
potential risks or uncertainties that may exist as of the date of this report.
Consequently, the reader should not consider any such list to be a complete
statement of all potential risks or uncertainties.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Our exposure to market risk for changes in interest rates relate primarily
to our DIP Financing. The outstanding balance of $205.5 million as of August 12,
2002 is subject to interest rate risks. A hypothetical 1% increase in interest
rates would increase our interest expense by $2.0 million per annum.

31

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

PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

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. Under the provisions of the U.S. Bankruptcy
Code, all secured and unsecured creditors are required to submit proofs of
claim. All proofs of claim were required to be filed by July 8, 2002. We are
currently reconciling such claims and intend to provide such data with the
Reorganization Plan to be filed in late August 2002.

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.

ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS

Under the Reorganization Plan subject to confirmation, all outstanding
shares of Common Stock, warrants and options will be extinguished and replaced
with Warrants to purchase New Common Stock and New Common Stock will be issued
to the unsecured creditors. New Common Stock will be issued for all of the
outstanding unsecured claims, such amount estimated to be $380.0 million. The
aggregate number of shares of New Common Stock issuable upon exercise of the
five-year warrants will be equal to 15% of the outstanding shares. The warrants
will have an exercise price calculated at full recovery for all unsecured
creditors, such price to be set forth in the disclosure statement.

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

At the Annual Meeting of Stockholders held May 22, 2002, one matter was
sumitted to a vote: the election of two Class II Directors for a term ending in
2005. The results of voting on this matter was as follows:

Election of Directors:

32

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

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

a. EXHIBITS:
10.10 Amendment No. 1 to the Post-Petition Loan Agreement dated July 22,
2002, 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 $275.0 million revolving credit facilities.

21 List of Subsidiaries of the Company

b. REPORTS ON FORM 8-K:
June 21, 2002 - Announcing Change in Certifying Accountant

June 24, 2002 - Announcing Agreement with Creditors Regarding Plan of
Reorganization

33

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

SIGNATURE

Pursuant to the requirements 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, who has signed this report on behalf of
the Registrant and as the principal accounting officer of the Registrant.

METALS USA, INC.

Date: August 14, 2002 By: /s/ Terry L. Freeman
---------------------------------------
Terry L. Freeman
Senior Vice President, Treasurer
and Chief Accounting Officer

34

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

================================================================================
INFORMATIONAL ADDENDUM TO REPORT ON FORM 10-Q
PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

NOT FILED PURSUANT TO THE SECURITIES EXCHANGE ACT OF 1934

The undersigned Chief Executive Officer and Principal Financial Officer of
Metals USA, Inc. do hereby certify as follows:

Solely for the purpose of meeting the apparent requirements of Section 906
of the Sarbanes-Oxley Act of 2002, and solely to the extent this
certification may be applicable to this Report on Form 10-Q, the
undersigned hereby certify that this Report on Form 10-Q fully complies
with the requirements of section 13(a) or 15(d) of the Securities Exchange
Act of 1934 and the information contained in this Report on Form 10-Q
fairly presents, in all material respects, the financial condition and
results of operations of Metals USA, Inc.

/s/ J. MICHAEL KIRKSEY
---------------------------------------
Name: J. Michael Kirksey
Title: Chairman, Chief Executive Officer
and President

/s/ TERRY L. FREEMAN
---------------------------------------
Name: Terry L. Freeman
Title: Senior Vice President, Treasurer
and Chief Accounting Officer
(Principal Financial Officer)

35