8-K/A

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 8-K/A

CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

Date of Report (Date of earliest event reported):

July 1, 2005

RELIANCE STEEL & ALUMINUM CO.

(Exact name of registrant as specified in its charter)

California	001-13122	95-1142616
(State or other jurisdiction of incorporation)	(Commission File Number)	(I.R.S. Employer Identification Number)

350 S. Grand Ave., Suite 5100
Los Angeles, CA 90071

(Address of principal executive offices)

(213) 687-7700
(Registrant’s telephone number, including area code)

Not applicable.
(Former name or former address, if changed since last report)

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:

o Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

o Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

o Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

o Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

TABLE OF CONTENTS

Exhibit 23.1

Exhibit 99.2

Exhibit 99.3

Item 2.01 Completion of Acquisition or Disposition of Assets.

     On July 8, 2005, the Registrant filed a Current Report on Form 8-K with the Securities and Exchange Commission to report the acquisition of all of the outstanding securities of Chapel Steel Corp., a Pennsylvania corporation (“Chapel Steel”), as described below. At the time of the filing certain financial statements were not available and, accordingly, were not filed with the Current Report. The Registrant is filing this Amendment to include in the Current Report those financial statements and the pro forma financial information required to be filed under Item 9.01.

     Effective July 1, 2005, the Registrant, through its wholly-owned subsidiary RSAC Management Corp., a California corporation (“RSAC”), acquired all of the outstanding securities of Chapel Steel. Chapel Steel will be operated as a wholly-owned subsidiary of RSAC. RSAC paid an aggregate purchase price of $94.2 million in cash to James R. Sutow, Jerry Sutow, as Trustee under the Revocable Agreement of Trust of Jerry Sutow dated July 18, 2002, and Rita Sutow, as Trustee under the Revocable Agreement of Trust of Rita Sutow dated July 18, 2002 (collectively, “Sellers”), and assumed Chapel Steel’s debt of approximately $16.8 million. A portion of the purchase price will be retained in escrow for a certain period of time in connection with the indemnification provisions in the Stock Purchase Agreement dated as of May 31, 2005 by and among the Registrant, RSAC, Sellers, and Chapel Steel.

     Chapel Steel is headquartered in Springhouse (Philadelphia), Pennsylvania. Chapel Steel processes and distributes carbon and alloy steel plate products from five (5) facilities in Pottstown (Philadelphia), Pennsylvania; Bourbonnais (Chicago), Illinois; Houston, Texas; Birmingham, Alabama; and Portland, Oregon. Chapel Steel also warehouses and distributes its products in Cincinnati, Ohio and Hamilton, Ontario, Canada. Chapel Steel’s net sales for the fiscal year ended December 31, 2004 were approximately $273 million. Chapel Steel will continue to engage in the same business at the same locations as prior to the acquisition.

     Prior to the closing of the acquisition, neither Sellers nor the officers or directors of Chapel Steel were affiliated with or related to Registrant or RSAC in any way. The purchase price was determined by negotiations between Registrant and RSAC, on the one hand, and Sellers and Chapel Steel, on the other. To fund the purchase price and the repayment of debt, the Registrant and RSAC drew on their syndicated bank revolving line of credit established June 22, 2005 with Bank of America, N.A. as administrative agent, and 15 banks as lenders under this syndicated credit facility. Sellers and/or the officers or directors of Chapel Steel, through various entities, own a portion of the real property on which Chapel Steel’s facilities are located.

Item 9.01 Financial Statements and Exhibits.

(a) Financial Statements of Businesses Acquired.

(1)	Chapel Steel Corp. and Affiliate’s audited consolidated balance sheet at December 31, 2004 and audited consolidated statements of income and retained earnings, and cash flows for the year then ended and notes thereto and Report of Independent Auditors attached as Exhibit 99.2 and incorporated herein by reference.
(2)	Chapel Steel Corp. and Affiliates’ audited consolidated balance sheet at June 30, 2005 and audited consolidated statements of operations, changes in shareholders’ equity, members’ equity and partners’ capital (deficit), and cash flows for the six months ended June 30, 2005 and notes thereto and Report of Independent Auditors attached as Exhibit 99.3 and incorporated herein by reference.

(b) Pro Forma Financial Information.

     The following unaudited pro forma combined financial statements and related notes have been prepared to illustrate the effect of the acquisition of Chapel Steel on the Registrant’s financial statements.

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     The unaudited pro forma combined balance sheet assumes that the acquisition was completed as of June 30, 2005 and the unaudited pro forma combined statements of income as of June 30, 2005 and December 31, 2004 assume that the acquisition was completed at the beginning of each respective period. The pro forma information is based upon the historical consolidated financial statements of the Registrant and the historical consolidated financial statements of Chapel Steel, giving effect to the acquisition under the purchase method of accounting and the assumptions, estimates and adjustments described in the notes to the unaudited pro forma combined financial statements. The assumptions, estimates and adjustments are preliminary and have been made solely for the purposes of developing such pro forma information.

     The unaudited pro forma financial statements are presented for illustrative purposes only and are not necessarily indicative of the consolidated financial position or consolidated results of operations of the Registrant that would have been reported had the acquisition occurred on the date indicated, nor do they represent a forecast of the consolidated financial position of the Registrant at any future date or the consolidated results of operations of the Registrant for any future period. Furthermore, no effect has been given in the unaudited pro forma combined statements of income for operating benefits that may be realized through the combination of the entities. Amounts allocated to the assets and liabilities of Chapel Steel are based on their estimated fair market values as of the acquisition closing date. The purchase price allocation for this acquisition has not been finalized, pending completion of valuations of real and personal property and intangibles. The unaudited pro forma combined financial statements, including the notes thereto, should be read in conjunction with the historical consolidated financial statements, including the notes thereto, and management’s discussion and analysis of financial condition and results of operations of the Registrant included in the Registrant’s Annual Report on Form 10-K for the year ended December 31, 2004 and in the Registrant’s Form 10-Q for the three and six months ended March 31, 2005 and June 30, 2005, respectively, all filed with the Securities and Exchange Commission, and the historical financial statements, including the notes thereto, of Chapel Steel Corp. and Affiliates, included herein as Exhibits 99.2 and 99.3. In addition, consideration should be given to those risk factors discussed in the Registrant’s Annual Report on Form 10-K which could affect the Registrant’s results and over which the Registrant has no control.

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Reliance Steel & Aluminum Co.

Unaudited Pro Forma Combined Balance Sheet
As of June 30, 2005
(In thousands)

							Pro Forma Adjustments
	Reliance Steel &			Chapel Steel Corp.			Net Assets not			Pro Forma			Total			Pro Forma
	Aluminum Co.			& Affiliates			Purchased			Adjustments			Adjustments			Combined
							A			B
Assets
Cash and cash equivalents	$	16,210		$	589		$	(588	)(1)	$	—		$	(588	)	$	16,211
Accounts receivable, net		362,030			24,550			—			—			—			386,580
Inventories		369,665			26,261			—			—			—			395,926
Prepaids and other current assets		15,183			605			(35	)(1)		—			(35	)		15,753
Deferred income taxes		24,592			—			—			—			—			24,592
Total current assets		787,680			52,005			(623	)		—			(623	)		839,062
Property, plant and equipment
Land		58,887			1,400			(1,400	)(1)		—			(1,400	)		58,887
Buildings		262,917			9,171			(2,296	)(1)		(1,714	)(1)		(4,010	)		268,078
Machinery & equipment		383,521			5,682			(559	)(1)		(1,214	)(1)		(1,773	)		387,430
Accumulated depreciation		(247,383	)		(4,767	)		656	(1)		4,111	(1)		4,767			(247,383	)
		457,942			11,486			(3,599	)		1,183			(2,416	)		467,012
Goodwill		341,780			—			—			73,301	(2)		73,301			415,081
Other assets		29,670			302			(124	)(1)		1,100	(3)		976			30,948
Total assets	$	1,617,072		$	63,793		$	(4,346	)	$	75,584		$	71,238		$	1,752,103
Liabilities & Shareholders’ Equity
Accounts payable	$	157,446		$	15,622		$	—		$	—		$	—		$	173,068
Accrued expenses		19,066			2,122			(30	)(1)		—			(30	)		21,158
Accrued compensation and retirement costs		36,922			—			—			—			—			36,922
Accrued insurance costs		24,502			—			—			—			—			24,502
Deferred income taxes		138			—			—			—			—			138
Current maturities of long-term debt		48,525			17,745			(975	)(1)		(16,770	)(4)		(17,745	)		48,525
Total current liabilities		286,599			35,489			(1,005	)		(16,770	)		(17,775	)		304,313
Long-term debt		325,475			7,582			(7,582	)(1)		110,970	(4)		103,388			436,445
Capital lease obligations		—			—			6,347	(1)		—			6,347			6,347
Other long-term liabilities		15,435			—			—			—			—			15,435
Deferred income taxes		55,613			—			—			—			—			55,613
Minority interest		13,882			—			—			—			—			13,882
Commitments and contingencies
Common stock		320,402			1			—			(1	)(5)		(1	)		320,402
Additional paid-in capital		—			207			—			(207	)(5)		(207	)		—
Treasury stock, at cost		—			(121	)		—			121	(5)		121			—
Members’ equity		—			802			(802	)(1)		—			(802	)		—
Partners’ capital		—			562			(562	)(1)		—			(562	)		—
Retained earnings		599,145			19,271			(742	)(1)		(18,529	)(5)		(19,271	)		599,145
Accumulated other comprehensive income		521			—			—			—			—			521
Total shareholders’ equity		920,068			20,722			(2,106	)		(18,616	)		(20,722	)		920,068
Total liabilities and shareholders’ equity	$	1,617,072		$	63,793		$	(4,346	)	$	75,584		$	71,238		$	1,752,103

4

Reliance Steel & Aluminum Co.
Unaudited Pro Forma Combined Statement of Income
For the Six Months Ended June 30, 2005
(In thousands except share and per share amounts)

							Pro Forma Adjustments
	Reliance Steel			Chapel Steel
	& Aluminum			Corp. &			Net Assets not			Pro Forma			Total			Pro Forma
	Co.			Affiliates			Purchased			Adjustments			Adjustments			Combined
							A			B
Net sales	$	1,628,249		$	136,953		$	(245	) (1)	$	—		$	(245	)	$	1,764,957
Other income, net		1,364			—			—			—			—			1,364
		1,629,613			136,953			(245	)		—			(245	)		1,766,321
Costs and expenses:
Cost of sales (exclusive of depreciation and amortization shown below)		1,190,078			110,198			—			—			—			1,300,276
Warehouse, delivery, selling, general and administrative		245,353			11,453			535	(1)		—			535			257,341
Compensation programs related to sale		—			20,887			—			(20,887	) (6)		(20,887	)		—
Depreciation and amortization		23,269			433			3	(1)		157	(7)&(8)		160			23,862
Interest expense		12,507			330			14	(1)		2,031	(9)		2,045			14,882
Gain on sale of property		—			(320	)		320	(1)		—			320			—
		1,471,207			142,981			872			(18,699	)		(17,827	)		1,596,361
Income before minority interest and income taxes		158,406			(6,028	)		(1,117	)		18,699			17,582			169,960
Minority interest		(4,516	)		—			—			—			—			(4,516	)
Income from continuing operations before income taxes		153,890			(6,028	)		(1,117	)		18,699			17,582			165,444
Provision for income taxes		58,478			—			—			4,391	(10)		4,391			62,869
Net income	$	95,412		$	(6,028	)	$	(1,117	)	$	14,308		$	13,191		$	102,575
Income from continuing operations — diluted	$	2.89														$	3.11	(11)
Weighted average shares outstanding — diluted		33,023,552															33,023,552	(11)
Income from continuing operations — basic	$	2.90														$	3.12	(11)
Weighted average shares outstanding — basic		32,848,990															32,848,990	(11)

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Reliance Steel & Aluminum Co.
Unaudited Pro Forma Combined Statement of Income
For the Year Ended December 31, 2004
(In thousands except share and per share amounts)

	Reliance Steel &			Chapel Steel		Pro Forma			Pro Forma
	Aluminum Co.			Corp. & Affiliate		Adjustments			Combined
Net sales	$	2,943,034		$	273,469	$	—		$	3,216,503
Other income, net		4,168			—		—			4,168
		2,947,202			273,469		—			3,220,671
Operating expenses:
Cost of sales (exclusive of depreciation and amortization shown below)		2,110,848			177,041		—			2,287,889
Warehouse, delivery, selling, general and administrative		483,887			36,530		—			520,417
Depreciation and amortization		44,627			969		315	(7)&(8)		45,911
Interest expense		28,690			681		3,429	(9)		32,800
		2,668,052			215,221		3,744			2,887,017
Income before minority interest and income taxes		279,150			58,248		(3,744	)		333,654
Minority interest		(9,182	)		—		—			(9,182	)
Income from continuing operations before income taxes		269,968			58,248		(3,744	)		324,472
Provision for income taxes		100,240			—		20,221	(10)		120,461
Net income	$	169,728		$	58,248	$	(23,965	)	$	204,011
Income from continuing operations — diluted	$	5.19							$	6.24	(11)
Weighted average shares outstanding — diluted		32,675,379								32,675,379	(11)
Income from continuing operations — basic	$	5.23							$	6.28	(11)
Weighted average shares outstanding — basic		32,480,101								32,480,101	(11)

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Reliance Steel & Aluminum Co.
Notes to Unaudited Pro Forma Combined Financial Statements

A. To adjust the Chapel Steel consolidated financial statements for partnerships not purchased by the Registrant:

(1) Prior to the Registrant’s acquisition of Chapel Steel, four partnership entities were consolidated in Chapel Steel’s financial statements in accordance with the provisions of Financial Accounting Standards Board Interpretation No. 46R, Consolidation of Variable Interest Entities (FIN 46R). These partnerships were controlled by the majority shareholder of Chapel Steel and certain of its employees. The partnerships own real property that is leased to Chapel Steel and other third parties. The partnerships were not part of the net assets acquired. However, the capital leases related to these partnerships were acquired. The Registrant does not expect to consolidate the partnerships going forward and therefore, has eliminated the partnership assets, liabilities and the results of their operations and included the related capital lease assets and obligations along with the income statement effects of these capital leases in the pro forma financial statements.

The Statement of Income of Chapel Steel for the year ended December 31, 2004 consolidated only one of these four entities. Because the impact of this consolidation was immaterial to the Chapel Steel Statement of Income for the year ended December 31, 2004, no adjusting entries were made to the Pro Forma Combined Statement of Income for this period.

B. To reflect all other pro forma adjustments for the acquisition of Chapel Steel:

(1) To record the estimated fair values of real and personal property based upon preliminary estimates. The values of these assets are subject to adjustments upon completion of third party valuations. The Registrant does not expect the impact of such valuation adjustments to be significant. Any change in values of these assets will offset the estimated goodwill amount in Note 2 and will impact the estimated pro forma depreciation expense in Note 7.

(2) To record the estimated excess purchase price over the fair value of assets acquired and liabilities assumed as goodwill. Goodwill is not amortized but is tested for impairment at least annually. The goodwill amount will be adjusted for any changes in asset or liability fair values or other adjustments from purchase accounting.

(3) To record the estimated fair values of identifiable intangible assets relating to certain customer relationships or other intangible assets from the acquisition based upon preliminary estimates. The values of these assets are subject to adjustments upon completion of a third party valuation. The Registrant does not expect the impact of such valuation adjustments to be significant. Any change in values of these assets will offset the estimated goodwill amount in Note 2 and will impact the estimated pro forma amortization expense in Note 8.

(4) To reflect the borrowings under the Registrant’s Credit Agreement to fund the purchase price of $94.2 million and the payoff of Chapel Steel’s revolving credit facility balance of $16.8 million on July 1, 2005. The Credit Agreement matures June 22, 2010.

(5) To eliminate the equity of the business acquired as of the date of acquisition.

(6) To adjust for the pro forma effect of bonuses paid to key executives of Chapel Steel resulting from its acquisition by Reliance. The purchase of 100% of Chapel Steel’s stock triggered a change of ownership control provision as defined in the executive compensation plan adopted by Chapel Steel on May 25, 2005.

(7) To reflect the pro forma effect on depreciation expense of the write-up of plant and equipment to their estimated fair market value at the date of the acquisition. The amount of this adjustment may change as the values of the underlying third-party asset valuations are finalized. The Registrant does not expect the impact of such adjustments to be significant.

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(8) To reflect the pro forma amortization of identifiable intangible assets related to certain customer relationships or intangible assets over the life of the asset. The estimated life is five years. The amount of this adjustment may change as the values of the underlying asset valuations are finalized. The Registrant does not expect the impact of such adjustments to be significant.

(9) To reflect the pro forma effect on interest expense of the financing required to fund the acquisition. The weighted average interest rate under the Registrant’s revolving line of credit in effect during the respective periods was applied to the total borrowings of $111 million.

(10) To reflect the pro forma effect on consolidated income tax expense. The Registrant’s effective income tax rates in effect during the respective periods were applied to the Pro Forma Combined pretax income. Please note that Chapel Steel was historically taxed as an S–Corp.

(11) The pro forma combined income from operations per share information is based on the weighted average number of common and common equivalent shares of the Registrant, as appropriate.

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(c) Exhibits.

Exhibit No.	Description
2.1*	Stock Purchase Agreement dated as of May 31, 2005 by and among the Registrant, RSAC Management Corp., Chapel Steel Corp., James R. Sutow, Jerry Sutow as Trustee under the Revocable Agreement of Trust for Jerry Sutow dated July 18, 2002 and Rita Sutow, as Trustee under the Revocable Agreement of Trust for Rita Sutow dated July 18, 2002.
23.1	Consent of Kreischer Miller.
99.1*	Press Release dated July 5, 2005.
99.2	Chapel Steel Corp. and Affiliate’s audited consolidated balance sheet at December 31, 2004 and audited consolidated statements of income and retained earnings, and cash flows for the year then ended and notes thereto and Report of Independent Auditors.
99.3	Chapel Steel Corp. and Affiliates’ audited consolidated balance sheet at June 30, 2005 and audited consolidated statements of operations, changes in shareholders’ equity, members’ equity and partners’ capital (deficit), and cash flows for the six months ended June 30, 2005 and notes thereto and Report of Independent Auditors.

* Filed on July 8, 2005 with initial Form 8-K.

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SIGNATURES

     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.

	RELIANCE STEEL & ALUMINUM CO.
Dated: September 16, 2005	By	/s/ Karla Lewis
		Karla Lewis
		Executive Vice President and Chief Financial Officer

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RELIANCE STEEL & ALUMINUM CO.

FORM 8–K/A

INDEX TO EXHIBITS

Exhibit No.	Description
2.1*	Stock Purchase Agreement dated as of May 31, 2005 by and among the Registrant, RSAC Management Corp., Chapel Steel Corp., James R. Sutow, Jerry Sutow as Trustee under the Revocable Agreement of Trust for Jerry Sutow dated July 18, 2002 and Rita Sutow, as Trustee under the Revocable Agreement of Trust for Rita Sutow dated July 18, 2002.
23.1	Consent of Kreischer Miller.
99.1*	Press Release dated July 5, 2005.
99.2	Chapel Steel Corp. and Affiliate’s audited consolidated balance sheet at December 31, 2004 and audited consolidated statements of income and retained earnings, and cash flows for the year then ended and notes thereto and Report of Independent Auditors.
99.3	Chapel Steel Corp. and Affiliates’ audited consolidated balance sheet at June 30, 2005 and audited consolidated statements of operations, changes in shareholders’ equity, members’ equity and partners’ capital (deficit), and cash flows for the six months ended June 30, 2005 and notes thereto and Report of Independent Auditors.

* Filed on July 8, 2005 with initial Form 8-K.

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EX-23.1

Exhibit 23.1

Consent of Independent Public Accounting Firm

We consent to the use in this Filing of Reliance Steel & Aluminum Co. on Form 8-K/A of our report dated August 5, 2005 on the consolidated balance sheet of Chapel Steel Corp. and Affiliates as of June 30, 2005, and the related consolidated statements of operations, changes in shareholders’ equity, members’ equity, and partners’ capital (deficit), and cash flows for the six months ended June 30, 2005 (which includes an explanatory paragraph relating to the adoption of Interpretation No. 46R, Consolidation of Variable Interest Entities, issued by the Financial Accounting Standards Board and a separate explanatory paragraph relating to the sale of all of the outstanding common stock of Chapel Steel Corp. on July 1,2005), and our report dual-dated March 4, 2005 and July 1, 2005 on the consolidated balance sheet of Chapel Steel Corp. and Affiliate as of December 31, 2004, and the related consolidated statements of income and retained earnings, and cash flows for the year then ended (which includes an explanatory paragraph relating to the sale of all of the outstanding common stock of Chapel Steel Corp. on July 1, 2005).

/s/ Kreischer Miller

Horsham, Pennsylvania
September 14,2005

EX-99.2

Exhibit 99.2

CHAPEL STEEL CORP. AND AFFILIATE
December 31, 2004

CONTENTS

INDEPENDENT AUDITORS’ REPORT	1
FINANCIAL STATEMENTS
Consolidated Balance Sheet	2
Consolidated Statement of Income and Retained Earnings	3
Consolidated Statement of Cash Flows	4
Notes to Consolidated Financial Statements	5-11

Independent Auditors’ Report

The Board of Directors
Chapel Steel Corp. and
Affiliate Fort Washington, Pennsylvania

We have audited the accompanying consolidated balance sheet of Chapel Steel Corp. and Affiliate as of December 31, 2004, and the related consolidated statements of income and retained earnings, and cash flows for the year then ended. These financial statements are the responsibility of Chapel Steel Corp. and Affiliate’s management. Our responsibility is to express an opinion on these financial statements based on our audit.

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

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Chapel Steel Corp. and Affiliate as of December 31, 2004, and the results of their operations and their cash flows for the year then ended in conformity with accounting principles generally accepted in the United States of America.

As described in Note 9 to the consolidated financial statements, all of the outstanding common stock of Chapel Steel Corp. was sold to an unrelated company on July 1, 2005.

/s/ Kreischer Miller

Horsham, Pennsylvania
March 4, 2005, except for Note 9 as to which the date
   is July 1, 2005

CHAPEL STEEL CORP. AND AFFILIATE

Consolidated Balance Sheet
December 31, 2004

ASSETS
Current assets:
Cash and cash equivalents	$	7,281,082
Accounts receivable, trade, net of allowance for doubtful accounts of $505,500		25,495,068
Inventories, net of reserves of $1,651,895		27,214,909
Accounts receivable, related party		61,184
Prepaid expenses and other current assets		2,025,448
Total current assets		62,077,691
Property, plant and equipment, net		7,872,914
Other assets, net		381,075
	$	70,331,680
LIABILITIES AND SHAREHOLDERS’ EQUITY/PARTNERS’ CAPITAL
Current liabilities:
Obligations under capital leases	$	232,235
Accounts payable		4,863,474
Accrued expenses		7,254,455
Customer deposits		678,427
Accrued distributions to shareholders		20,599,140
Loans payable to shareholders		997,875
Total current liabilities		34,625,606
Obligations under capital leases, less current portion		4,364,472
Loans payable to shareholders, less current portion		1,788,626
		40,778,704
Shareholders’ equity/partners’ capital:
Common stock, par value $1 per share; 100,000 shares authorized, 1,097 shares issued and 597 shares outstanding		597
Additional paid-in capital		207,247
Treasury stock, 500 shares, at cost		(120,900	)
Retained earnings		29,466,032
		29,552,976
	$	70,331,680

See accompanying notes to consolidated financial statements.

-2-

CHAPEL STEEL CORP. AND AFFILIATE

Consolidated Statement of Income and Retained Earnings
Year Ended December 31, 2004

Net sales	$	273,469,410		100.0	%
Cost of goods sold		177,041,670		64.7
Gross margin		96,427,740		35.3
Operating expenses:
Selling, general and administrative		32,550,608		11.9
Warehousing		4,947,905		1.8
Interest		680,070		0.2
		38,178,583		13.9
Net income		58,249,157		21.4	%
Retained earnings, beginning of year		17,339,478
Distributions to shareholders		(46,122,603	)
Retained earnings, end of year	$	29,466,032

See accompanying notes to consolidated financial statements.

-3-

CHAPEL STEEL CORP. AND AFFILIATE

Consolidated Statement of Cash Flows
Year Ended December 31, 2004

Cash flows from operating activities:
Net income	$	58,249,157
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation		968,861
Allowance for doubtful accounts		63,728
Reserves for inventories		1,568,070
Gain on disposal of property and equipment		(142,680	)
Increase in:
Accounts receivable, trade		(5,694,918	)
Inventories		(7,791,506	)
Prepaid expenses and other current assets		(1,545,498	)
Other assets, net		(62,066	)
Decrease in:
Accounts payable		(5,680,393	)
Accrued expenses		(977,962	)
Customer deposits		(2,194,167	)
Net cash provided by operating activities		36,760,626
Cash flows from investing activities:
Purchase of property, plant and equipment		(670,311	)
Proceeds from disposal of property, plant and equipment		20,260
Net cash used in investing activities		(650,051	)
Cash flows from financing activities:
Net repayments of line of credit		(3,018,550	)
Distributions paid to shareholders		(25,523,463	)
Payments to related parties		(288,480	)
Net cash used in financing activities		(28,830,493	)
Net increase in cash and cash equivalents		7,280,082
Cash and cash equivalents, beginning of year		1,000
Cash and cash equivalents, end of year	$	7,281,082
Supplemental disclosure of cash flow information:
Cash paid during the year for interest	$	680,070
Supplemental disclosure of noncash investing and financing activities:
During 2004, the Company financed the purchase of a building with a shareholder note payable, aggregating $1,935,000. The Company also terminated a capital lease with a net book value of $708,165, and a lease obligation of $920,515. The Company also capitalized a lease in the amount of $1,335,399.

See accompanying notes to consolidated financial statements.

-4-

CHAPEL STEEL CORP. AND AFFILIATE

Notes to Consolidated Financial Statements
December 31, 2004

(1)	Nature of Business
	Chapel Steel Corp. is a distributor and fabricator of steel plates. Chapel Steel Corp.’s headquarters are located in Pennsylvania with warehousing and fabrication facilities in Pennsylvania, Illinois, Alabama, Oregon and Texas. Chapel Steel Corp. sells its products predominantly throughout the United States.
(2)	Summary of Significant Accounting Policies
	Principles of Consolidation
	The accompanying consolidated financial statements include the accounts of Chapel Steel Corp. and Matrix 2004 Associates, LP (collectively, the Company).
	Matrix 2004 Associates, LP (Matrix) was formed during the year ended December 31, 2004 by the majority shareholder of Chapel Steel Corp., along with certain employees of Chapel Steel Corp. During the year ended December 31, 2004, Matrix purchased a building that it leases to Chapel Steel Corp. (see Note 8). Matrix has been consolidated in the accompanying financial statements as of and for the year ended December 31, 2004 in accordance with the provisions of Interpretation No. 46R, Consolidation of Variable Interest Entities, issued by the Financial Accounting Standards Board.
	Cash and Cash Equivalents
	The Company considers all highly liquid instruments purchased with an original maturity of three months or less to be cash equivalents.
	Inventories
	Inventories, which consist of finished goods, are stated at the lower of average cost or market. Chapel Steel Corp. records a reserve against inventory to reduce the carrying value to market.
	Property, Plant and Equipment
	Property, plant and equipment is recorded at cost and is depreciated over the estimated useful lives of the related assets. Leasehold improvements are amortized over the lesser of the term of the related lease or the estimated useful lives of the assets. Depreciation and amortization are computed using the straight-line method.
	Maintenance and repairs are charged to operations as incurred. Betterments and renewals are capitalized. Gains or losses resulting from the sale or disposal of property, plant and equipment are included in the consolidated statements of income and retained earnings.

Continued...

-5-

CHAPEL STEEL CORP. AND AFFILIATE

Notes to Consolidated Financial Statements
December 31, 2004

(2)	Summary of Significant Accounting Policies, Continued
	Treasury Stock
	Chapel Steel Corp. classifies repurchased shares of its common stock as treasury stock under the cost method.
	Revenue Recognition
	Chapel Steel Corp. recognizes revenue on product sales upon transfer of ownership.
	Freight-Out
	Chapel Steel Corp. records freight-out expenses as a component of cost of products sold. Total freight-out expenses were approximately $7,704,000 for the year ended December 31, 2004.
	Advertising
	Advertising costs are expensed as incurred. Total advertising expense for the year ended December 31, 2004 was $9,430.
	Income Taxes
	The shareholders of Chapel Steel Corp. have elected to be taxed under the provisions of Subchapter S of the Internal Revenue Code and under similar provisions of state law. Accordingly, the results of operations of Chapel Steel Corp. will be reflected in the individual income tax returns of the shareholders based upon their proportionate ownership interests.
	Matrix is a partnership. Accordingly, the results of operations of Matrix will be reflected in the individual income tax returns of the partners based on their proportionate ownership interests.
	Therefore, there is no provision for income taxes recorded in the accompanying consolidated financial statements.
	Concentrations of Risk
	Financial instruments that potentially subject Chapel Steel Corp. to concentrations of risk consist principally of cash and cash equivalents and accounts receivable. Chapel Steel Corp. places its cash with a national financial institution. At times, such balances may exceed the FDIC insurance limits. Chapel Steel Corp. performs ongoing credit evaluations of its customers and does not generally require collateral. An allowance for doubtful accounts is established based on managements’ review of individual account balances. Historically, bad debt expense has been within management’s estimates.
	Approximately 56% of purchases in 2004 were from one vendor.

Continued...

-6-

CHAPEL STEEL CORP. AND AFFILIATE

Notes to Consolidated Financial Statements
December 31, 2004

(2)	Summary of Significant Accounting Policies, Continued
	Use of Estimates
	The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
	Recent Accounting Pronouncement
	In January 2003, the Financial Accounting Standards Board issued Interpretation No. 46, Consolidation of Variable Interest Entities (FIN 46) with the objective of improving financial reporting by companies involved with variable interest entities. FIN 46 clarifies the application of Accounting Research Bulletin No. 51 to certain entities, defined as variable interest entities, in which equity investors do not have characteristics of a controlling financial interest or do not have sufficient equity at risk for the entity to finance its activities without additional subordinated support from other parties. In December 2003, the FASB issued a revision to FIN 46 (FIN 46R) to clarify some of the provisions of FIN 46.
	During 2004, Chapel Steel Corp. adopted the provisions of FIN 46R related to Matrix. On January 1, 2005, Chapel Steel Corp. adopted the provisions of FIN 46R related to entities that existed prior to December 31, 2003, as FIN 46R became effective for these entities for the fiscal year beginning January 1, 2005.
(3)	Property, Plant and Equipment
	Property, plant and equipment consist of the following at December 31, 2004:

				Estimated
				Useful Lives
				(Years)
Buildings	$	7,106,061			10-21
Machinery and equipment		2,899,231			5-7
Office equipment		887,448			5-7
Leasehold improvements		558,278			4-17
		11,451,018
Accumulated depreciation		(3,578,104	)
	$	7,872,914

Depreciation and amortization expense related to property, plant and equipment for the year ended December 31, 2004 was $968,861.

-7-

CHAPEL STEEL CORP. AND AFFILIATE

Notes to Consolidated Financial Statements
December 31, 2004

(4)	Line of Credit
	Chapel Steel Corp. has available a $15,000,000 line of credit which requires monthly interest payments on outstanding balances. Chapel Steel Corp. may select either the prime rate minus applicable margin (ranging from zero to 1.25%) or the LIBOR rate plus applicable margin, (ranging from 1.50% to 2.75%) at the time of each borrowing. The applicable margin for both the prime and LIBOR rates vary based on Chapel Steel Corp.’s funded debt to earnings before interest, income taxes, depreciation, and amortization, plus rental payments on capital leases (EBITDAR). The line of credit expires on November 30, 2005. Amounts available under the line of credit are reduced by any outstanding letters of credit. There were no outstanding letters of credit at December 31, 2004.
	Advances under the line are required to be the lesser of $15,000,000 or the sum of 80% of qualified accounts receivable and 50% of qualified inventory. The qualified inventory borrowing base may not exceed $7,500,000. The line of credit is collateralized by substantially all of the assets of Chapel Steel Corp. There are certain financial covenants that Chapel Steel Corp. is required to maintain in connection with the line of credit. There are no outstanding borrowings on the line of credit as of December 31, 2004. Interest expense on the line of credit for the year ended December 31, 2004 was $12,891.
(5)	Capital Leases and Lease Commitments
	Chapel Steel Corp.’s warehouse buildings are recorded as capital leases and are leased from related parties (see Note 8). Subsequent to 2004, Chapel Steel Corp. terminated its capital lease in Birmingham, Alabama and was relieved of the related capital lease obligation by the lessor. Therefore, as of December 31, 2004, Chapel Steel Corp. recognized a gain on disposal of property and equipment of $212,350, which is included in the accompanying consolidated statement of income and retained earnings. Chapel Steel Corp. capitalized another lease for a warehouse in Birmingham during 2004.
	Chapel Steel Corp.’s Birmingham warehouse is leased through August 2014; Chapel Steel Corp.’s Houston, Texas warehouse is leased through January 2016; and Chapel Steel Corp.’s Chicago, Illinois warehouse is leased through November 2018. Chapel Steel Corp. pays all executory costs of the properties in addition to the monthly lease payments.
	Interest on the 2004 Birmingham lease has been imputed at a rate of 10.08%, and the net book value of the related property is $1,214,000 at December 31, 2004. Interest on the Houston lease has been imputed at a rate of 8.75%, and the net book value of the related property is $1,930,338 at December 31, 2004. Interest on the Chicago lease has been imputed at a rate of 14.17%, and the net book value of the related property is $815,097 at December 31, 2004. Depreciation of assets recorded under capital leases is included with depreciation expense.

Continued...

-8-

CHAPEL STEEL CORP. AND AFFILIATE

Notes to Consolidated Financial Statements
December 31, 2004

(5)	Capital Leases and Lease Commitments, Continued
	Interest expense on capital leases amounted to $599,021 for the year ended December 31, 2004.
	In addition, Chapel Steel Corp. leases certain equipment under noncancelable operating leases.
	At December 31, 2004, the future minimum rental payments under the leases are as follows:

Year Ending
December 31,	Capital			Operating
2005	$	702,000		$	490,590
2006		702,000			487,844
2007		702,000			294,625
2008		702,000			65,715
2009		702,000			18,168
Thereafter		4,535,500			984
Total minimum lease payment		8,045,500		$	1,357,926
Amount representing interest		(3,448,793	)
Present value of net minimum payments		4,596,707
Current portion		(232,235	)
	$	4,364,472

	Rental expense related to the operating leases amounted to $645,082 in 2004.
(6)	401(k) Plan
	Chapel Steel Corp. maintains a 401(k) plan for its employees. Under this plan, employer contributions for eligible employees are discretionary. Chapel Steel Corp.’s contribution to this plan was $316,592 in 2004.
(7)	Commitments and Contingencies
	In accordance with the Shareholders’ Agreement, Chapel Steel Corp. is required to declare and pay mandatory dividends throughout the year based upon its estimated taxable income.

Continued...

-9-

CHAPEL STEEL CORP. AND AFFILIATE

Notes to Consolidated Financial Statements
December 31, 2004

(7)	Commitments and Contingencies, Continued
	The Company is involved in legal actions of a routine nature incidental to its normal course of business. While legal counsel is unable to determine the ultimate outcome of these matters, based upon information available at this time to the Company, management believes that these matters will not result in any material adverse effect on the Company’s financial position or results of operations.
	A portion of Chapel Steel Corp.’s common stock is pledged as collateral under a promissory note between Chapel Steel Corp.’s shareholders.
(8)	Related Party Transactions
	Receivables due from related party at December 31, 2004 are $61,184. These amounts relate to certain payments made in advance to the related party and closing costs of certain properties paid by Chapel Steel Corp. on behalf of the related party.
	Chapel Steel Corp. has two outstanding loans payable to shareholders. The balance on the first loan at December 31, 2004 is $851,501. Interest on the loan is charged at 7%. The principal balance on the loan is to be repaid at a rate of $100,000 per year through December 31, 2011, with a payment of the remaining balance at December 31, 2012. The terms of the loan require that the outstanding balance and accrued interest shall be accelerated and due immediately upon an initial public offering of Chapel Steel Corp.’s common stock, the occurrence of other changes in control as defined in the related promissory note, or the sale of all or substantially all of Chapel Steel Corp.’s assets.
	The second loan originated during the year ended December 31, 2004, and the proceeds were used for the purchase of Chapel Steel Corp.’s Pennsylvania corporate offices. The balance on the loan at December 31, 2004 is $1,935,000. Interest on the loan is charged at 6%. The principal balance on the loan is to be repaid at a rate of $21,482 per month through October 1, 2014, with a payment of the remaining balance at November 1, 2014.
	Interest expense on related party loans during 2004 was $58,158.
	Chapel Steel Corp. leases its Birmingham, Houston, and Chicago facilities from entities in which certain shareholders have ownership interests. Total expense for these facilities was $877,000 for 2004.
	Chapel Steel Corp. signed a consulting agreement effective January 1, 2002 with a shareholder of Chapel Steel Corp. The term of this agreement is through January 1, 2011. The total annual consulting fee payable under the agreement is $52,000, which is payable in equal weekly installments of $1,000.

-10-

CHAPEL STEEL CORP. AND AFFILIATE

Notes to Consolidated Financial Statements
December 31, 2004

(9)	Subsequent Events
	On May 31, 2005, Chapel Steel Corp. entered into an agreement (the Agreement) to sell all of the issued and outstanding stock of Chapel Steel Corp. to an unrelated company. Chapel Steel Corp. converted to a C corporation for income tax purposes effective July 1, 2005, the date of the sale. The shareholders of Chapel Steel Corp. also entered into non-compete agreements with the buyer. The Agreement also provides the buyer with the option to purchase the real property leased to Chapel Steel Corp. by the related entities as described in Notes 2 and 8 to the consolidated financial statements, for fair market value as determined in accordance with the Agreement.
	In connection with the Agreement, the loan payable to shareholder in the amount of $851,501 as described in Note 8 was fully repaid prior to the date of sale.
	In connection with the Agreement, the shareholders agreement and pledge of common stock of Chapel Steel Corp. as described in Note 7 as well as the consulting agreement described in Note 8 were terminated.
	On June 24, 2005, the line of credit as described in Note 4 was temporarily increased to $30,000,000 and availability limitations based on accounts receivable and inventory were removed. On July 1, 2005, the line of credit was fully repaid and cancelled.
	On May 25, 2005, Chapel Steel Corp. adopted an executive compensation plan (the Plan) covering certain key executives of Chapel Steel Corp. Amounts awarded under the Plan were at the discretion of the President of Chapel Steel Corp., and were payable upon a change in ownership control of Chapel Steel Corp. as defined in the Plan. The sale of Chapel Steel Corp., as further described above, triggered payment of all awards under the Plan. The total amount paid under the Plan and other bonuses related to the sale was $20,887,000. The Plan was terminated subsequent to the sale of Chapel Steel Corp. in accordance with the Plan document.

-11-

EX-99.3

Exhibit 99.3

CHAPEL STEEL CORP. AND AFFILIATES

June 30, 2005

CONTENTS

INDEPENDENT AUDITORS’ REPORT	1-2
FINANCIAL STATEMENTS
Consolidated Balance Sheet	3
Consolidated Statement of Operations	4
Consolidated Statement of Changes in Shareholders’ Equity, Members’ Equity and Partners’ Capital (Deficit)	5-6
Consolidated Statement of Cash Flows	7
Notes to Consolidated Financial Statements	8-17
SUPPLEMENTARY INFORMATION
Schedule I — Consolidating Balance Sheet	18-19
Schedule II — Consolidating Schedule of Operations	20-21

Independent Auditors’ Report

The Board of Directors
Chapel Steel Corp. and Affiliates
Spring House, Pennsylvania

We have audited the accompanying consolidated balance sheet of Chapel Steel Corp. and Affiliates as of June 30, 2005, and the related consolidated statements of operations, changes in shareholders’ equity, members’ equity and partners’ capital (deficit), and cash flows for the six months ended June 30, 2005. These financial statements are the responsibility of Chapel Steel Corp. and Affiliates’ management. Our responsibility is to express an opinion on these financial statements based on our audit.

We conducted our audit in accordance with auditing standards generally accepted in the United States of America. 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 our audit provides a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Chapel Steel Corp. and Affiliates as of June 30, 2005, and the results of their operations and their cash flows for the six months then ended in conformity with accounting principles generally accepted in the United States of America.

As described in Note 2 to the consolidated financial statements, Chapel Steel Corp. leases certain warehousing and fabrication facilities from entities that are subject to the provisions of Interpretation No. 46R (FIN 46R), Consolidation of Variable Interest Entities, issued by the Financial Accounting Standards Board. Chapel Steel Corp. adopted the provisions of FIN 46R for these variable interest entities on January 1, 2005, the effect of which is shown as a cumulative effect of a change in accounting principle in the accompanying consolidated financial statements. Chapel Steel Corp. also leases its corporate offices from an entity that is subject to the provisions of FIN 46R. Chapel Steel Corp. adopted FIN 46R related to this entity during 2004, the year in which the entity was formed.

In addition, as described in Note 11 to the consolidated financial statements, all of the outstanding common stock of Chapel Steel Corp. was sold to an unrelated company on July 1, 2005.

Our audit was made for the purpose of forming an opinion on the basic consolidated financial statements taken as a whole. The consolidating information is presented for purposes of additional analysis of the basic consolidated financial statements rather than to present the financial position and results of operations of the individual companies. The consolidating information has been subjected to the auditing procedures applied in the audit of the basic consolidated financial statements and, in our opinion, is fairly stated in all material respects in relation to the basic consolidated financial statements taken as a whole.

/s/ Kreischer Miller

Horsham, Pennsylvania
August 5, 2005

-2-

CHAPEL STEEL CORP. AND AFFILIATES

Consolidated Balance Sheet
June 30, 2005

ASSETS
Current assets:
Cash and cash equivalents	$	588,719
Accounts receivable, trade, net of allowance for doubtful accounts of $557,000		24,549,529
Inventories, net of reserves of $2,220,000		26,261,258
Prepaid expenses and other current assets		605,370
Total current assets		52,004,876
Property, plant and equipment, net		11,485,708
Other assets, net		302,345
	$	63,792,929
LIABILITIES AND SHAREHOLDERS’ EQUITY, MEMBERS’ EQUITY AND PARTNERS’ CAPITAL
Current liabilities:
Line of credit	$	16,770,156
Mortgages payable		224,052
Bonds payable		600,000
Loan from partner		150,818
Accounts payable		15,622,118
Accrued expenses		1,528,313
Customer deposits		593,804
Total current liabilities		35,489,261
Mortgages payable, net of current portion		3,051,900
Bonds payable, net of current portion		2,830,000
Loan from partner, net of current portion		1,700,280
		43,071,441
Shareholders’ equity, Members’ equity and Partners’ capital:
Common stock, par value $1 per share; 100,000 shares authorized, 1,097 shares issued and 597 shares outstanding		597
Additional paid-in capital		207,247
Treasury stock, 500 shares, at cost		(120,900	)
Retained earnings		19,270,710
Members’ equity		802,143
Partners’ capital		561,691
		20,721,488
	$	63,792,929

See accompanying notes to consolidated financial statements.

-3-

CHAPEL STEEL CORP. AND AFFILIATES

Consolidated Statement of Operations
Six Months Ended June 30, 2005

Revenues, net	$	136,952,745		100.0	%
Cost of goods sold		110,197,436		80.5
Gross margin		26,755,309		19.5
Operating expenses (gains):
Selling, general and administrative		9,498,468		6.9
Warehousing		2,387,432		1.7
Compensation programs related to sale		20,887,000		15.3
Interest		330,261		0.2
Gain on sale of property		(320,000	)	(0.2	)
		32,783,161		23.9
Net loss	$	(6,027,852	)	(4.4)	%

See accompanying notes to consolidated financial statements.

-4-

CHAPEL STEEL CORP. AND AFFILIATES

Consolidated Statement of Changes in Shareholders’ Equity, Members’ Equity and Partners’ Capital (Deficit)
Six Months Ended June 30, 2005

			Additional
	Common		Paid-In		Treasury
	Stock		Capital		Stock
Balance, December 31, 2004	$	597	$	207,247	$	(120,900	)
Cumulative effect of change in accounting principle due to application of FIN 46R		—		—		—
Balance, December 31, 2004, as adjusted		597		207,247		(120,900	)
Net income (loss)		—		—		—
Distributions		—		—		—
Balance, June 30, 2005	$	597	$	207,247	$	(120,900	)

See accompanying notes to consolidated financial statements.

-5-

						Partners’
Retained			Members’			Capital
Earnings			Equity			(Deficit)			Total
$	29,482,157		$	—		$	(16,125	)	$	29,552,976
	637,271			629,910			214,946			1,482,127
	30,119,428			629,910			198,821			31,035,103
	(6,576,935	)		185,013			364,070			(6,027,852	)
	(4,271,783	)		(12,780	)		(1,200	)		(4,285,763	)
$	19,270,710		$	802,143		$	561,691		$	20,721,488

CHAPEL STEEL CORP. AND AFFILIATES

Consolidated Statement of Cash Flows
Six Months Ended June 30, 2005

Cash flows from operating activities:
Net loss	$	(6,027,852	)
Adjustments to reconcile net loss to net cash
provided by operating activities:
Depreciation and amortization		433,089
Allowance for doubtful accounts		51,100
Reserves for inventories		568,007
Gain on sale of property, plant and equipment		(320,000	)
Decrease in:
Accounts receivable, trade		894,439
Inventories		385,644
Prepaid expenses and other current assets		1,659,269
Other assets, net		201,587
Increase (decrease) in:
Accounts payable		10,758,644
Accrued expenses		(5,767,967	)
Customer deposits		(84,623	)
Net cash provided by operating activities		2,751,337
Cash flows from investing activities:
Purchase of property, plant and equipment		(547,958	)
Proceeds from disposal of property, plant and equipment		1,000,000
Net cash provided by investing activities		452,042
Cash flows from financing activities:
Net borrowings on line of credit		16,770,156
Repayments of mortgages		(835,660	)
Repayments of bonds		(400,000	)
Payments to shareholders and partner		(935,403	)
Distributions paid to shareholders, partners and members		(24,884,903	)
Net cash used in financing activities		(10,285,810	)
Net decrease in cash and cash equivalents		(7,082,431	)
Cash and cash equivalents, beginning of period		7,671,150
Cash and cash equivalents, end of period	$	588,719
Supplemental disclosure of cash flow information:
Cash paid during the period for interest	$	334,281

See accompanying notes to consolidated financial statements.

-7-

CHAPEL STEEL CORP. AND AFFILIATES

Notes to Consolidated Financial Statements
June 30, 2005

(1) Nature of Business

Chapel Steel Corp. is a distributor and fabricator of steel plates. The Company’s headquarters are located in Pennsylvania with warehousing and fabrication facilities in Pennsylvania, Illinois, Alabama, Oregon, Texas, Ohio and Ontario. The Company sells its products predominantly throughout the United States and Canada.

(2) Summary of Significant Accounting Policies

Principles of Consolidation

The accompanying consolidated financial statements include the accounts of Chapel Steel Corp., JRS Realty Associates, LLC, Triple J Realty Co., Ltd., Four J Realty Associates, Ltd., and Matrix 2004 Associates, LP (collectively, the Company).

JRS Realty Associates, LLC, Triple J Realty Co., Ltd., Four J Realty Associates, Ltd., and Matrix 2004 Associates, LP (collectively, the Real Estate Entities) lease to Chapel Steel Corp. its warehousing facilities, fabrication facilities, and its corporate offices. JRS Realty Associates, LLC, Triple J Realty Co., Ltd., and Four J Realty Associates, Ltd., are owned by the majority shareholder of Chapel Steel Corp. Matrix 2004 Associates, LP is owned by the majority shareholder and certain employees of Chapel Steel Corp. The Real Estate Entities have been consolidated in the accompanying financial statements in accordance with the provisions of Interpretation No. 46R, Consolidation of Variable Interest Entities, issued by the Financial Accounting Standards Board.

Cash and Cash Equivalents

The Company considers all highly liquid instruments purchased with an original maturity of three months or less to be cash equivalents.

Inventories

Inventories, which consist of finished goods, are stated at the lower of average cost or market. Chapel Steel Corp. records a reserve against inventory to reduce the carrying value to market.

Escrow Deposits

Escrow deposits include amounts held by the trustee under the indenture agreement related to the 1998 Series A Industrial Revenue Bonds on behalf of JRS Realty Associates, LLC. Escrow deposits are included in prepaid expense and other current assets in the accompanying consolidated balance sheet.

Continued...

-8-

CHAPEL STEEL CORP. AND AFFILIATES

Notes to Consolidated Financial Statements
June 30, 2005

(2) Summary of Significant Accounting Policies, Continued

Property, Plant and Equipment

Property, plant and equipment are recorded at cost and are depreciated over the estimated useful lives of the related assets. Leasehold improvements are amortized over the lesser of the term of the related lease or the estimated useful lives of the assets. Depreciation and amortization are computed using the straight-line method.

Maintenance and repairs are charged to operations as incurred. Betterments and renewals are capitalized. Gains or losses resulting from the sale or disposal of property, plant and equipment are included in the consolidated statement of operations.

Treasury Stock

Chapel Steel Corp. classifies repurchased shares of its common stock as treasury stock and accounts for treasury stock under the cost method.

Revenue Recognition

Chapel Steel Corp. recognizes revenue on product sales upon transfer of ownership. The Real Estate Entities recognize rental income ratably over the term of the lease.

Freight-Out

Chapel Steel Corp. records freight-out expenses as a component of cost of goods sold. Total freight-out expenses were approximately $4,011,000 for the six months ended June 30, 2005.

Advertising

Advertising costs are expensed as incurred. Total advertising expense for the six months ended June 30, 2005 was $3,330.

Continued...

-9-

CHAPEL STEEL CORP. AND AFFILIATES

Notes to Consolidated Financial Statements
June 30, 2005

(2) Summary of Significant Accounting Policies, Continued

Income Taxes

The shareholders of Chapel Steel Corp. have elected to be taxed under the provisions of Subchapter S of the Internal Revenue Code and under similar provisions of state tax law. Accordingly, the results of operations of Chapel Steel Corp. will be reflected in the individual income tax returns of the shareholders based upon their proportionate ownership interests.

Triple J Realty Co., Ltd., Four J Realty Associates, Ltd., and Matrix 2004 Associates, LP are partnerships. Additionally, JRS Realty Associates, LLC’s activity is reported under the partnership provisions of the Internal Revenue Code. Accordingly, the results of operations of these entities will be reflected in the individual income tax returns of the partners and members based on their proportionate ownership interests.

Therefore, there is no provision for income taxes recorded in the accompanying consolidated financial statements.

Concentrations of Risk

Financial instruments that potentially subject the Company to concentrations of credit risk consist principally of cash and cash equivalents and accounts receivable. The Company places its cash with a national financial institution. At times, such balances may exceed the FDIC insurance limits. The Company performs ongoing credit evaluations of its customers and generally does not require collateral. An allowance for doubtful accounts is established based on managements’ review of individual account balances. Historically, bad debt expense has been within management’s estimates.

Approximately 45% of purchases in 2005 were from one vendor.

Use of Estimates

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

Continued...

-10-

CHAPEL STEEL CORP. AND AFFILIATES

Notes to Consolidated Financial Statements
June 30, 2005

(2) Summary of Significant Accounting Policies, Continued

Recent Accounting Pronouncement

In January 2003, the Financial Accounting Standards Board issued Interpretation No. 46, Consolidation of Variable Interest Entities (FIN 46) with the objective of improving financial reporting by companies involved with variable interest entities. FIN 46 clarifies the application of Accounting Research Bulletin No. 51 to certain entities, defined as variable interest entities, in which equity investors do not have characteristics of a controlling financial interest or do not have sufficient equity at risk for the entity to finance its activities without additional subordinated support from other parties. In December 2003, the FASB issued a revision to FIN 46 (FIN 46R) to clarify some of the provisions of FIN 46.

Matrix 2004 Associates, LP was formed during 2004, and as such, Chapel Steel Corp. adopted FIN 46R related to Matrix 2004 Associates, LP during 2004.

On January 1, 2005, Chapel Steel Corp. adopted FIN 46R related to JRS Realty Associates, LLC, Triple J Realty Co., Ltd., and Four J Realty Associates, Ltd., which resulted in the consolidation of these entities with Chapel Steel Corp. for financial reporting purposes. The effect of Chapel Steel Corp. adopting FIN 46R related to JRS Realty Associates, LLC, Triple J Realty Co., Ltd., and Four J Realty Associates, Ltd. as of January 1, 2005, is recorded as a cumulative effect of a change in accounting principle of $1,482,127 in the accompanying consolidated statement of changes in shareholders’ equity, members’ equity and partners’ capital (deficit) as of December 31, 2004.

(3) Property, Plant and Equipment

Property, plant and equipment consist of the following:

				Estimated
	June 30,			Useful Lives
	2005			(Years)
Land	$	1,400,000
Buildings and improvements		8,503,571			10-21
Machinery and equipment		4,757,193			5-7
Office equipment		924,888			5-7
Leasehold improvements		666,663			4-17
		16,252,315
Accumulated depreciation and amortization		(4,766,607	)
	$	11,485,708

Depreciation and amortization expense related to property, plant and equipment for the six months ended June 30, 2005 was $428,689.

-11-

CHAPEL STEEL CORP. AND AFFILIATES

Notes to Consolidated Financial Statements
June 30, 2005

(4) Line of Credit

Chapel Steel Corp. has available a $30,000,000 line of credit which requires monthly interest payments on outstanding balances. Chapel Steel Corp. may select either the prime rate minus applicable margin (ranging from zero to 1.25%) or the LIBOR rate plus applicable margin, (ranging from 1.50% to 2.75%) at the time of each borrowing. The applicable margin for both the prime and LIBOR rates varies based on Chapel Steel Corp.’s funded debt to earnings before interest, income taxes, depreciation, and amortization, plus rental payments on capital leases (EBITDAR). The interest rate on outstanding borrowings as of June 30, 2005 was 4.84%. Amounts available under the line of credit are reduced by any outstanding letters of credit. There were no outstanding letters of credit at June 30, 2005. The line of credit is collateralized by substantially all of the assets of Chapel Steel Corp. There are certain financial covenants that Chapel Steel Corp. is required to maintain in connection with the line of credit. Outstanding borrowings on the line of credit as of June 30, 2005 were $16,770,156. In connection with the sale of the common stock of Chapel Steel Corp. as described in Note 11, the line of credit was repaid and cancelled on July 1, 2005.

Interest expense on the line of credit for the six months ended June 30, 2005 was $20,519.

(5) Long-Term Debt

Mortgages Payable

Triple J Realty Co., Ltd. has two mortgages outstanding on the warehousing and fabrication facilities in Alabama that it leases to Chapel Steel Corp.

The first mortgage with an original amount of $1,000,000 bears interest at 6.65%, and is collateralized by underlying real property as well as an assignment of the proceeds from the lease between Triple J Realty Co., Ltd. and Chapel Steel Corp. The mortgage is payable in monthly principal and interest installments of $10,098 through November 1, 2014. The balance outstanding on the mortgage as of June 30, 2005 was $846,352.

The second mortgage with an original amount of $670,000 bears interest at the average weekly yield of 30-day commercial paper plus 2.35% (5.56% at June 30, 2005), and is collateralized by the underlying real property as well as an assignment of the proceeds from the lease between Triple J Realty Co., Ltd. and Chapel Steel Corp. The mortgage is payable in monthly installments with a balloon payment on November 1, 2007. The balance outstanding on the mortgage as of June 30, 2005 was $551,567.

Continued...

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CHAPEL STEEL CORP. AND AFFILIATES

Notes to Consolidated Financial Statements
June 30, 2005

(5) Long-Term Debt, Continued

Mortgages Payable, Continued

Four J Realty Associates, Ltd. has a mortgage on the warehousing and fabrication facilities in Texas that it leases to Chapel Steel Corp. The mortgage with an original amount of $2,252,500 bears interest at 8.75%, and is collateralized by underlying real property as well as an assignment of the proceeds from the lease between Four J Realty Associates, Ltd. and Chapel Steel Corp. The mortgage is payable in monthly principal and interest installments of $22,513 through March 1, 2016. The balance outstanding on the mortgage as of June 30, 2005 was $1,878,033.

Bonds Payable

On December 1, 1998, the Will-Kankakee Regional Development Authority (the Authority) issued $6,000,000 in 1998 Series A Industrial Development Revenue Bonds (the Bonds) pursuant to a trust indenture dated December 1, 1998 between the Authority and Chase Manhattan Trust Company, National Association, as trustee and paying agent. The Bonds mature on December 1, 2018, and bear interest as determined by the terms of the indenture. The rate of interest is determined by the Bonds Remarketing Agent, and is calculated to be the lowest rate of interest that would cause the Bonds to have a market value equal to the principal amount plus accrued interest. The Bonds include a call provision that varies from the date of issuance and provides that the bonds be called at par value, plus accrued interest, and a premium as defined in the bond indenture. The total amount outstanding as of June 30, 2005 was $3,430,000.

JRS Realty Associates, Ltd., used the proceeds from these Bonds to acquire and modify warehousing and fabrication facilities in Chicago, Illinois. As a condition of the issuance of the bonds, a financial institution issued a letter of credit, which was delivered to JRS Realty Associates, Ltd., to collateralize the timely payment of principal and interest on the Bonds. The letter of credit expires on December 15, 2007, and the total outstanding on the letter of credit as of June 30, 2005 was approximately $3,486,000.

In connection with the Bonds, JRS Realty Associates, Ltd. has recorded loan commitment fees and bond issuance costs totaling $173,537 and related accumulated amortization of $58,684 at June 30, 2005. These costs are being amortized over the term of the Bonds, and are included in other assets, net in the accompanying consolidated balance sheet. Total amortization for the six months end June 30, 2005 was approximately $4,400.

Continued...

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CHAPEL STEEL CORP. AND AFFILIATES

Notes to Consolidated Financial Statements
June 30, 2005

(5) Long-Term Debt, Continued

Loan from Partner

In 2004, Matrix 2004 Associates, LP received a loan from one of its partners in the amount of $1,935,000 for the purchase of the Company’s Pennsylvania corporate offices. The balance on the loan at June 30, 2005 was $1,851,098. The loan bears interest at 6%. The loan is payable in monthly principal and interest installments of $21,482 through October 1, 2014, with a payment of the remaining balance due November 1, 2014. Interest expense on the loan from partner was $86,602 for the six months ended June 30, 2005.

Loan Payable to Shareholder

Chapel Steel Corp. had a loan payable to shareholder. Interest on the loan was charged at 7% and was approximately $86,000 for the six months ended June 30, 2005. The terms of the loan required that the outstanding balance and accrued interest be accelerated and due immediately upon the occurrence of changes in control as defined in the related promissory note, or the sale of all or substantially all of the Chapel Steel Corp.’s assets. As a result of the sale of the common stock of Chapel Steel Corp. as described in Note 11, the loan was fully repaid during the six months ended June 30, 2005.

Annual Principal Payments

The aggregate future annual principal payments on long-term debt consist of the following:

Year Ending
June 30,	Amount
2006	$	974,870
2007	$	995,766
2008	$	1,444,814
2009	$	1,005,682
2010	$	1,035,479
Thereafter	$	3,100,439

-14-

CHAPEL STEEL CORP. AND AFFILIATES

Notes to Consolidated Financial Statements
June 30, 2005

(6) Operating Leases

The Company leases warehouse and certain equipment under noncancelable operating leases that expire at various dates through 2010. As of June 30, 2005, future annual minimum lease payments required under these leases are:

Year Ending
June 30,	Amount
2006	$	489,881
2007		393,472
2008		178,484
2009		12,799
2010		1,968
	$	1,076,604

Rental expense related to the operating leases amounted to approximately $317,000 for the six months ended June 30, 2005.

(7) Executive Compensation Plan

On May 25, 2005, Chapel Steel Corp. adopted an executive compensation plan (the Plan) covering certain key executives of Chapel Steel Corp. Amounts awarded under the Plan were at the discretion of the President of Chapel Steel Corp., and were payable upon a change in ownership control of Chapel Steel Corp. as defined in the Plan. The sale of Chapel Steel Corp., as further described in Note 11 to the consolidated financial statements, triggered payment of all awards under the Plan. The total amount paid under the Plan for the six months ended June 30, 2005 was $20,290,000 and additional bonuses related to the sale totaled $597,000. The Plan was terminated subsequent to the sale of Chapel Steel Corp. in accordance with the Plan document.

(8) 401(k) Plan

Chapel Steel Corp. maintains a 401(k) plan for its employees. Under this plan, employer contributions for eligible employees are discretionary. The Company has accrued $120,000 for the six months ended June 30,2005, for estimated discretionary contributions.

-15-

CHAPEL STEEL CORP. AND AFFILIATES

Notes to Consolidated Financial Statements
June 30, 2005

(9) Rental Income

JRS Realty Associates leases a portion of its Chicago warehouse and fabricating facilities to an unrelated company under an operating lease. The lease expires in 2018, with one 20 year renewal option, and includes an option for the lessee to purchase its portion of the warehouse and fabricating facilities for the fair market value as determined in accordance with the agreement. Total annual rental income is $490,000, and rental income for the six months ended June 30, 2005 of $245,000 is included in the accompanying consolidated statement of operations. The total cost and carrying value of the facilities in Chicago are approximately $5,024,000 and $3,728,000, respectively.

Future minimum rental income, should the option noted above not be exercised, is as follows:

Year Ending
June 30,	Amount
2006	$	490,000
2007	$	490,000
2008	$	490,000
2009	$	490,000
2010	$	490,000
Thereafter	$	3,920,000

(10) Commitments and Contingencies

The Company is involved in legal actions that are routine in nature and incidental to its normal course of business. While legal counsel is unable to determine the ultimate outcome of these matters, based upon information available at this time to the Company, management believes that these matters will not result in any material adverse effect on the Company’s consolidated financial position or results of operations.

A portion of Chapel Steel Corp’s common stock is pledged as collateral under a promissory note between Chapel Steel Corp’s shareholders. This note was subsequently paid in full in connection with the sale of Chapel Steel Corp. as described in Note 11.

Chapel Steel Corp. has employment agreements with certain employees. Obligations under these agreements are payable in 2007, and have been accrued as of June 30, 2005.

-16-

CHAPEL STEEL CORP. AND AFFILIATES

Notes to Consolidated Financial Statements
June 30, 2005

(11) Sale of Chapel Steel Corp.

On May 31, 2005, Chapel Steel Corp. entered into an agreement (the Agreement) to sell all of the issued and outstanding stock of Chapel Steel Corp. to an unrelated company. Chapel Steel Corp. converted to a C corporation for income tax purposes effective July 1, 2005, the date of the sale. The shareholders of Chapel Steel Corp. also entered into non-compete agreements with the buyer. The Agreement also provides the buyer with the option to purchase the real property leased to Chapel Steel Corp. by the Real Estate Entities as described in Note 2, for fair market value as determined in accordance with the agreement.

-17-

SUPPLEMENTARY INFORMATION

CHAPEL STEEL CORP. AND AFFILIATES

Consolidating Balance Sheet
June 30, 2005

	Chapel Steel			JRS Realty		Triple J
	Corp.			Associates, LLC		Realty Co., Ltd.
ASSETS
Current assets:
Cash and cash equivalents	$	1,000		$	165,593	$	192,675
Accounts receivable, trade, net of allowance for doubtful accounts of $557,000		24,549,529			—		—
Inventories, net of reserves of $2,220,000		26,261,258			—		—
Investments in related parties		—			148,475		—
Prepaid expenses and other current assets		569,938			97,932		—
Total current assets		51,381,725			412,000		192,675
Property, plant and equipment, net		2,281,726			3,727,560		1,499,771
Other assets, net		179,488			114,853		8,004
	$	53,842,939		$	4,254,413	$	1,700,450
LIABILITIES AND SHAREHOLDERS’ EQUITY, MEMBERS’ EQUITY AND PARTNERS’ CAPITAL
Current liabilities:
Line of credit	$	16,770,156		$	—	$	—
Mortgages payable		—			—		113,880
Bonds payable		—			600,000		—
Loan from partner		—			—		—
Accounts payable		15,622,118			—		—
Accrued expenses		1,499,207			22,270		8,142
Customer deposits		593,804			—		—
Total current liabilities		34,485,285			622,270		122,022
Mortgages payable, net of current portion		—			—		1,284,039
Bonds payable, net of current portion		—			2,830,000		—
Loan from partner, less current portion		—			—		—
		34,485,285			3,452,270		1,406,061
Shareholders’ equity, Members’ equity and Partners’ capital:
Common stock, par value $1 per share; 100,000 shares authorized, 1,097 shares issued and 597 shares outstanding		597			—		—
Additional paid-in capital		207,247			—		—
Treasury stock, 500 shares, at cost		(120,900	)		—		—
Retained earnings		19,270,710			—		—
Members’ equity		—			802,143		—
Partners’ capital		—			—		294,389
		19,357,654			802,143		294,389
	$	53,842,939		$	4,254,413	$	1,700,450

See accompanying notes to consolidated financial statements.

-18-

Schedule I

	Four J Realty		Matrix 2004					Consolidated
	Associates, Ltd.		Associates, LP		Eliminations			Total
$		183,301	$	46,150	$	—		$	588,719
		—		—		—			24,549,529
		—		—		—			26,261,258
		—		—		(148,475	)		—
		—		—		(62,500	)		605,370
		183,301		46,150		(210,975	)		52,004,876
		2,106,982		1,869,669		—			11,485,708
		—		—		—			302,345
$		2,290,283	$	1,915,819	$	(210,975	)	$	63,792,929
$		—	$	—	$	—		$	16,770,156
		110,172		—		—			224,052
		—		—		—			600,000
		—		150,818		—			150,818
		—		—		—			15,622,118
		39,694		21,500		(62,500	)		1,528,313
		—		—		—			593,804
		149,866		172,318		(62,500	)		35,489,261
		1,767,861		—		—			3,051,900
		—		—		—			2,830,000
		—		1,700,280		—			1,700,280
		1,917,727		1,872,598		(62,500	)		43,071,441
		—		—		—			597
		—		—		—			207,247
		—		—		—			(120,900	)
		—		—		—			19,270,710
		—		—		—			802,143
		372,556		43,221		(148,475	)		561,691
		372,556		43,221		(148,475	)		20,721,488
$		2,290,283	$	1,915,819	$	(210,975	)	$	63,792,929

-19-

CHAPEL STEEL CORP. AND AFFILIATES

Consolidating Schedule of Operations
Six Months Ended June 30, 2005

				JRS Realty		Triple J
	Chapel Steel			Associates, LLC		Realty Co., Ltd.
Revenues, net	$	136,707,745		$	335,000	$	160,000
Cost of goods sold
		110,197,436			—		—
Gross margin		26,510,309			335,000		160,000
Operating expenses (gains):
Selling, general and administrative		9,356,130			109,125		110,285
Warehousing		2,793,432			—		—
Compensation programs related to sale		20,887,000			—		—
Interest		50,682			40,862		98,805
Gain on sale of property		—			—		(320,000	)
		33,087,244			149,987		(110,910	)
Net income (loss)	$	(6,576,935	)	$	185,013	$	270,910

See accompanying notes to consolidated financial statements.

-20-

Schedule II

Four J Realty		Matrix 2004 Associates,					Consolidated
Associates, Ltd.		LP		Eliminations			Total
$	156,000	$	129,000	$	(535,000	)	$	136,952,745
	—		—		—			110,197,436
	156,000		129,000		(535,000	)		26,755,309
	39,074		12,854		(129,000	)		9,498,468
	—		—		(406,000	)		2,387,432
	—		—		—			20,887,000
	83,112		56,800		—			330,261
	—		—		—			(320,000	)
	122,186		69,654		(535,000	)		32,783,161
$	33,814	$	59,346	$	—		$	(6,027,852	)

-21-