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SECURITIES AND EXCHANGE COMMISSIONWashington, D.C. 20549

FORM 10-K/A(Amendment No. 1)

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

FOR THE FISCAL YEAR ENDED DECEMBER 31, 2002

COMMISSION FILE NUMBER 1-12881

LONE STAR TECHNOLOGIES, INC.(A DELAWARE CORPORATION)

15660 N. DALLAS PARKWAY, SUITE 500
DALLAS, TEXAS 75248
(972) 770-6401

I.R.S. EMPLOYER IDENTIFICATION NUMBER: 75-2085454

SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:

|Title of each class           |  |  |  | Name of each exchange
on which registered
|----------------------------- |  |  |  | -----------------------------------------
|Common Stock, par value $1.00 |  |  |  | New York Stock Exchange                  

SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT: NONE

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

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

Indicate
by check mark whether the registrant is an accelerated filer (as defined in Exchange Act
Rule 12b-2). Yes ý    No o

The
aggregate market value of common stock on June 28, 2002 held by nonaffiliates of the registrant was approximately $653.3 million, based on the closing price of the
common stock on the New York Stock Exchange.

As
of February 14, 2003, the number of shares of common stock outstanding was 28,376,628.

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TABLE OF CONTENTS



|         |                                                                  |  | Page
|-------- | ---------------------------------------------------------------- |  | ----
|PART II 
|Item 8.  | Consolidated Financial Statements And Supplementary Data         |  | 3   
|PART IV 
|Item 15. | Exhibits, Financial Statement Schedules, and Reports on Form 8-K |  | 39  
|Item 16. | Signatures                                                       |  | 44  

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EXPLANATORY NOTE

The Annual Report on Form 10-K of Lone Star Technologies, Inc. ("Lone Star") for the year ended December 31, 2002 is hereby amended to effect
two changes in the report dated March 13, 2003 (the "Report") of Deloitte & Touche LLP. Although Item 8 of Form 10-K is restated in its entirety, the only changes in
Item 8 are:



Except
for the two above-described changes in the Report, no other changes were made in Item 8 or in the financial statements and accompanying notes included therein. The two changes in the
Report resulted from comments Lone Star received from the staff of the Securities and Exchange Commission in connection with the staff's review of a universal shelf registration statement previously
filed by Lone Star.

In
accordance with Rule 12b-15 under the Securities Exchange Act of 1934, as amended, the complete text of Item 8, as so amended, is set forth below. In addition, in
connection with the filing of this Amendment No. 1 and pursuant to Rule 12b-15, Lone Star is including certain currently dated certifications and updated consents of independent
accountants. The remainder of Lone Star's Annual Report on Form 10-K remains unchanged and is not reproduced in this Amendment No. 1.

PART II

ITEM 8. CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS



|                                                                                                      |  | Page
|----------------------------------------------------------------------------------------------------- |  | ----
|Independent Auditors' ReportDeloitte & Touche LLP                                                    |  | 4   
|Report of Independent Public AccountantsBDO Hernandez Marron y Cia., S.C                             |  | 6   
|Report of Independent Public AccountantsArthur Andersen LLP                                          |  | 7   
|Consolidated Statements of Income for the years ended December 31, 2002, 2001, and 2000               |  | 8   
|Consolidated Balance Sheets at December 31, 2002 and 2001                                             |  | 9   
|Consolidated Statements of Cash Flows, for the years ended December 31, 2002, 2001, and 2000          |  | 10  
|Consolidated Statements of Shareholders' Equity for the years ended December 31, 2002, 2001, and 2000 |  | 11  
|Notes to Consolidated Financial Statements                                                            |  | 12  
|Schedule IIValuation and Qualifying Accounts                                                         |  | 38  

3

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INDEPENDENT AUDITORS' REPORT

To
the Shareholders and Board of Directors of Lone Star Technologies, Inc. and subsidiaries (the "Company"):

We
have audited the accompanying consolidated balance sheet of Lone Star Technologies, Inc. and its subsidiaries as of December 31, 2002, and the related consolidated
statements of income, shareholders' equity, and cash flows for the year then ended. The financial statements of Lone Star Technologies, Inc. as of December 31, 2001, and for the years
ended December 31, 2001 and 2000 were audited by other auditors who have ceased operations. Those auditors expressed an unqualified opinion on those financial statements in their report dated
January 22, 2002. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audit.

We
conducted our audit in accordance with 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, such 2002 financial statements present fairly, in all material respects, the financial position of the Company and its subsidiaries at December 31, 2002, and the
results of its operations and its cash flows for the year then ended in conformity with accounting principles generally accepted in the United States of America.

As
discussed in Note C to the financial statements, in 2002 the Company changed its method of accounting for goodwill and other intangible assets to conform to Statement of
Financial Accounting Standards No. 142.

As
discussed above, the financial statements of Lone Star Technologies, Inc. as of December 31, 2001, and for the years ended December 31, 2001 and 2000 were audited
by other auditors who have ceased operations. As described in Note C, these financial statements have been revised to include the transitional disclosures required by Statement of Financial
Accounting Standard No. 142, "Goodwill and Other Intangible Assets", which was adopted by the Company as of January 1, 2002. Our audit procedures with respect to the disclosures in
Note C with respect to 2001 and 2000 included (a) agreeing the previously reported net income to the previously issued financial statements and the adjustments to reported net income
representing amortization expense recognized in those periods related to goodwill, and intangible assets that are no longer being amortized as a result of initially applying Statement No. 142
(including any related tax effects) to the Company's underlying records obtained from management, and (b) testing the mathematical accuracy of the reconciliation of adjusted net income to
reported net income, and the related earnings-per-share amounts.

As
presented in Note L, the Company changed the disclosure of its condensed consolidating financial information relating to guarantor and nonguarantor subsidiaries for 2001 and
2000 to present a separate column for the nonguarantor subsidiary. In the previously issued financial statements the nonguarantor and guarantor subsidiaries were included in a single column titled
"subsidiaries". Our audit procedures with respect to the disclosures for guarantor and nonguarantor subsidiaries for 2001 and 2000 included (i) agreeing the newly presented column for the
nonguarantor subsidiary to audited stand-alone financial statements of the subsidiary and (ii) testing the mathematical accuracy of the adjusted guarantor subsidiaries column by subtracting the
amounts determined in (i) from the amounts included in the subsidiaries column in the previously issued financial statements. The financial statements of the nonguarantor subsidiary for the
years ended December 31, 2001 and 2000 were

4

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audited by other auditors who expressed an unqualified opinion on those financial statements in their report dated January 17, 2002.

In
our opinion, the disclosures and adjustments for 2001 and 2000 in Notes C and L are appropriate and have been properly applied. However, we were not engaged to audit, review, or apply
any procedures to the 2001 and 2000 financial statements of the Company other than with respect to such disclosures and adjustments and, accordingly, we do not express an opinion or any other form of
assurance on the 2001 and 2000 financial statements taken as a whole.

DELOITTE &
TOUCHE LLP

Dallas,
Texas
March 13, 2003

5

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REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To
the Shareholder of Aletas y Birlos Mexicana, S.A. de C.V. and Subsidiary:

We
have audited the consolidated balance sheet of Aletas y Birlos Mexicana, S.A. de C.V. and subsidiary as of December 31, 2001 and the related statements of income, shareholders'
equity, and cash flows for the years ended December 31, 2001 and 2000. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion
on these financial statements based on our audits.

We
conducted our audits in accordance with generally accepted auditing standards 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 audits provide a reasonable basis for our opinion.

In
our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Aletas y Birlos Mexicana, S.A. de C.V., and
subsidiary at December 31, 2001, and the consolidated results of their operations and their cash flows for the years ended December 31, 2001 and 2000 in conformity with generally
accepted accounting principles in the United States of America.

BDO-HERNANDEZ
MARRON Y CIA., S.C.

Veracruz,
Veracruz, Mexico
January 17, 2002

6

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THIS REPORT IS A COPY OF A REPORT PREVIOUSLY ISSUED BY ARTHUR ANDERSEN LLP. THE REPORT HAS NOT BEEN REISSUED BY ARTHUR ANDERSEN LLP NOR HAS ARTHUR ANDERSEN LLP PROVIDED A
CONSENT TO THE INCLUSION OF ITS REPORT IN THIS FORM 10-K.

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To
the Shareholders and Board of Directors of Lone Star Technologies, Inc. (Lone Star):

We
have audited the accompanying consolidated balance sheets of Lone Star (a Delaware corporation) and subsidiaries as of December 31, 2001 and 2000, and the related consolidated
statements of income, shareholders' equity, and cash flows for each of the three years in the period ended December 31, 2001. These financial statements and the schedules referred to below are
the responsibility of Lone Star's management. Our responsibility is to express an opinion on these financial statements and schedules based on our audits.

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

In
our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of Lone Star and subsidiaries as of
December 31, 2001 and 2000, and the results of their operations and their cash flows for the three years ended December 31, 2001, in conformity with accounting principles generally
accepted in the United States.

Our
audits were made for the purpose of forming an opinion on the basic consolidated financial statements taken as a whole. The schedules listed in the index to consolidated financial
statements are presented for the purpose of complying with the Securities and Exchange Commission's rules and are not a part of the basic consolidated financial statements. These schedules have been
subjected to the auditing procedures applied in our audits of the basic consolidated financial statements and, in our opinion, fairly state in all material respects the financial data required to be
set forth therein in relation to the basic consolidated financial statements taken as a whole.

ARTHUR
ANDERSEN LLP

Dallas,
Texas,
January 22, 2002

7

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LONE STAR TECHNOLOGIES, INC.        CONSOLIDATED STATEMENTS OF INCOME($ and shares in millions, except per share data)

|                                             |                                                        | For the Years Ended December 31, |      
|-------------------------------------------- | ------------------------------------------------------ | -------------------------------- | -----
|
|Net revenues                                 |                                                        | $                                | 523.7
|Cost of goods sold                           |                                                        |                                  | 516.3
|                                             |                                                        |                                  |      
|                                             | Gross profit                                           |                                  |      
|Selling, general and administrative expenses |                                                        |                                  | 69.2 
|                                             |                                                        |                                  |      
|                                             | Operating income (loss)                                |                                  |      
|Interest income                              |                                                        |                                  | 2.5  
|Interest expense                             |                                                        |                                  | (12.7
|Other income (expense), net                  |                                                        |                                  | 2.1  
|                                             |                                                        |                                  |      
|                                             | Income (loss) before income tax and extraordinary item |                                  |      
|Income tax benefit (expense)                 |                                                        |                                  | 0.7  
|                                             |                                                        |                                  |      
|                                             | Income (loss) before extraordinary item                |                                  |      
|Extraordinary loss, net of tax               |                                                        |                                  |     
|                                             |                                                        |                                  |      
|                                             | Net income (loss)                                      |                                  | $    
|                                             |                                                        |                                  |      
|Per common sharebasic:                      |                                                        |                                  |      
|                                             | Income (loss) before extraordinary item                |                                  | $    
|                                             | Extraordinary item                                     |                                  |      
|                                             |                                                        |                                  |      
|                                             | Net income (loss) available to common shareholders     |                                  | $    
|                                             |                                                        |                                  |      
|Per common sharediluted:                    |                                                        |                                  |      
|                                             | Income (loss) before extraordinary item                |                                  | $    
|                                             | Extraordinary item                                     |                                  |      
|                                             |                                                        |                                  |      
|                                             | Net income (loss) available to common shareholders     |                                  | $    
|                                             |                                                        |                                  |      
|Weighted average shares outstanding          |                                                        |                                  |      
|                                             | Basic                                                  |                                  |      
|                                             | Diluted                                                |                                  |      

See
Notes to Consolidated Financial Statements.

8

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LONE STAR TECHNOLOGIES, INC.        CONSOLIDATED BALANCE SHEETS($ in millions, except share data)

|                                           |                                                                                                             | December 31,                               |      
|------------------------------------------ | ----------------------------------------------------------------------------------------------------------- | ------------------------------------------ | -----
|
|ASSETS                                     |                                                                                                            
|Current Assets:                            |                                                                                                             |                                            |      
|                                           | Cash and cash equivalents                                                                                   |                                            | $    
|                                           | Accounts receivable, less allowances of $1.6 and $1.8, respectively                                         |                                            |      
|                                           | Inventories                                                                                                 |                                            |      
|                                           | Other current assets                                                                                        |                                            |      
|                                           |                                                                                                             |                                            |      
|                                           |                                                                                                             | Total current assets                       |      
|Property, plant, and equipment, net        |                                                                                                             |                                            | 204.4
|Goodwill, net                              |                                                                                                             |                                            | 55.1 
|Other noncurrent assets                    |                                                                                                             |                                            | 11.6 
|                                           |                                                                                                             |                                            |      
|                                           |                                                                                                             | Total assets                               |      
|                                           |                                                                                                             |                                            |      
|LIABILITIES AND SHAREHOLDERS' EQUITY       |                                                                                                            
|Current Liabilities:                       |                                                                                                             |                                            |      
|                                           | Accounts payable                                                                                            |                                            | $    
|                                           | Accrued liabilities                                                                                         |                                            |      
|                                           |                                                                                                             |                                            |      
|                                           |                                                                                                             | Total current liabilities                  |      
|Senior subordinated debt                   |                                                                                                             |                                            | 150.0
|Postretirement benefit obligations         |                                                                                                             |                                            | 45.6 
|Other noncurrent liabilities               |                                                                                                             |                                            | 44.8 
|                                           |                                                                                                             |                                            |      
|                                           |                                                                                                             | Total liabilities                          |      
|Commitments and Contingencies (See Note J) |                                                                                                             |                                            |      
|Shareholders' Equity:                      |                                                                                                             |                                            |      
|                                           | Preferred stock, $1 par value (authorized: 10,000,000 shares, issued: none)                                 |                                            |      
|                                           | Common stock, $1 par value (authorized: 80,000,000 shares, issued: 28,539,014 and 25,201,595, respectively) |                                            |      
|                                           | Capital surplus                                                                                             |                                            |      
|                                           | Accumulated other comprehensive loss                                                                        |                                            |      
|                                           | Accumulated earnings (deficit)                                                                              |                                            |      
|                                           | Treasury stock, at cost (105,844 and 313 shares, respectively)                                              |                                            |      
|                                           |                                                                                                             |                                            |      
|                                           |                                                                                                             | Total shareholders' equity                 |      
|                                           |                                                                                                             |                                            |      
|                                           |                                                                                                             | Total liabilities and shareholders' equity |      
|                                           |                                                                                                             |                                            |      

See
Notes to Consolidated Financial Statements.

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LONE STAR TECHNOLOGIES, INC.        CONSOLIDATED STATEMENTS OF CASH FLOWS($ in millions)

|                                      |                                                                                                    | For the Years Ended December 31,         |                                                    
|------------------------------------- | -------------------------------------------------------------------------------------------------- | ---------------------------------------- | ---------------------------------------------------
|
|Cash flows from operating activities: |                                                                                                    |                                          |                                                    
|                                      | Net income (loss)                                                                                  |                                          | $                                                  
|                                      | Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: |                                          |                                                    
|                                      | Depreciation and amortization                                                                      |                                          |                                                    
|                                      | Extraordinary loss                                                                                 |                                          |                                                    
|                                      | Non-cash charge for stock compensation                                                             |                                          |                                                    
|                                      | Gain on sale of property, plant and equipment                                                      |                                          |                                                    
|                                      | Accounts receivable                                                                                |                                          |                                                    
|                                      | Inventories                                                                                        |                                          |                                                    
|                                      | Accounts payable and accrued liabilities                                                           |                                          |                                                    
|                                      | Litigation reserves                                                                                |                                          |                                                    
|                                      | Other                                                                                              |                                          |                                                    
|                                      |                                                                                                    |                                          |                                                    
|                                      |                                                                                                    |                                          | Net cash provided by (used in) operating activities
|Cash flows from investing activities: |                                                                                                    |                                          |                                                    
|                                      | Capital expenditures                                                                               |                                          |                                                    
|                                      | Sale of short-term investments                                                                     |                                          |                                                    
|                                      | Sale of marketable securities                                                                      |                                          |                                                    
|                                      | Proceeds from sale of property, plant and equipment                                                |                                          |                                                    
|                                      | Cash paid for acquisitions, net of cash received                                                   |                                          |                                                    
|                                      |                                                                                                    |                                          |                                                    
|                                      |                                                                                                    |                                          | Net cash used in investing activities              
|Cash flows from financing activities: |                                                                                                    |                                          |                                                    
|                                      | Net proceeds from issuance of senior subordinated debt                                             |                                          |                                                    
|                                      | Debt issuance costs                                                                                |                                          |                                                    
|                                      | Net (payments) borrowings under revolving credit facilities                                        |                                          |                                                    
|                                      | Issuance of term note                                                                              |                                          |                                                    
|                                      | Principal payments on term notes                                                                   |                                          |                                                    
|                                      | Proceeds from exercise of options                                                                  |                                          |                                                    
|                                      | Net proceeds from stock offering                                                                   |                                          |                                                    
|                                      | Purchase of treasury stock                                                                         |                                          |                                                    
|                                      |                                                                                                    |                                          |                                                    
|                                      |                                                                                                    |                                          | Net cash provided by financing activities          
|                                      | Effect of foreign exchange rate changes on cash                                                    |                                          |                                                    
|                                      |                                                                                                    |                                          |                                                    
|                                      | Net change in cash and cash equivalents                                                            |                                          |                                                    
|                                      | Cash and cash equivalents, beginning of year                                                       |                                          |                                                    
|                                      |                                                                                                    |                                          |                                                    
|                                      | Cash and cash equivalents, end of year                                                             |                                          | $                                                  
|                                      |                                                                                                    |                                          |                                                    
|                                      | Supplemental disclosure of noncash transactions:                                                   |                                          |                                                    
|                                      |                                                                                                    | Issuance of common stock for acquisition |                                                    
|                                      | Supplemental cash flow disclosure:                                                                 |                                          |                                                    
|                                      |                                                                                                    | Interest paid                            |                                                    
|                                      |                                                                                                    | Income taxes paid (refunded), net        |                                                    

See Notes to Consolidated Financial Statements.

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LONE STAR TECHNOLOGIES, INC.        CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY($ in millions)

|                                     |                                         | Common
Stock         |      | Capital
Surplus |   | Accumulated
Other
Comprehensive
Income (Loss) |   | Accumulated
Earnings
(Deficit) |       | Treasury
Stock |   | Total |  
|------------------------------------ | --------------------------------------- | -------------------- | ---- | --------------- | - | --------------------------------------------- | - | ------------------------------ | ----- | -------------- | - | ----- | -
|Balance, January 1, 2000             |                                         | $                    | 23.1 |                 | $ | 206.6                                         |   | $                              | (1.4  | )              | $ | (21.0 | )
|Net income                           |                                         |                      |     |                 |   |                                              |   |                                |      |                |   | 38.6  |  
|Other comprehensive income:          |                                         |                      |      |                 |   |                                               |   |                                |       |                |   |       |  
|                                     | Minimum pension liability adjustment    |                      |      |                |   |                                               |  |                                |       | (2.2           | ) |       | 
|                                     |                                         |                      |      |                 |   |                                               |   |                                |       |                |   |       |  
|                                     |                                         | Comprehensive income |      |                 |   |                                               |   |                                |       |                |   |       |  
|Stock issuance for acquisition       |                                         |                      | 0.7  |                 |   | 19.3                                          |   |                                |      |                |   |      |  
|Employee benefit plan stock issuance |                                         |                      |     |                 |   | (4.4                                          | ) |                                |      |                |   |      |  
|                                     |                                         |                      |      |                 |   |                                               |   |                                |       |                |   |       |  
|Balance, December 31, 2000           |                                         |                      | 23.8 |                 |   | 221.5                                         |   |                                | (3.6  | )              |   | 17.6  |  
|Net income                           |                                         |                      |     |                 |   |                                              |   |                                |      |                |   | 16.4  |  
|Other comprehensive income:          |                                         |                      |      |                 |   |                                               |   |                                |       |                |   |       |  
|                                     | Minimum pension liability adjustment    |                      |      |                |   |                                               |  |                                |       | (12.2          | ) |       | 
|                                     | Foreign currency translation adjustment |                      |      |                |   |                                               |  |                                |       | (0.1           | ) |       | 
|                                     |                                         |                      |      |                 |   |                                               |   |                                |       |                |   |       |  
|                                     |                                         | Comprehensive income |      |                 |   |                                               |   |                                |       |                |   |       |  
|Stock offering                       |                                         |                      | 1.1  |                 |   | 49.0                                          |   |                                |      |                |   |      |  
|Employee benefit plan stock issuance |                                         |                      | 0.3  |                 |   | 1.5                                           |   |                                |      |                |   |      |  
|                                     |                                         |                      |      |                 |   |                                               |   |                                |       |                |   |       |  
|Balance, December 31, 2001           |                                         |                      | 25.2 |                 |   | 272.0                                         |   |                                | (15.9 | )              |   | 34.0  |  
|Net loss                             |                                         |                      |     |                 |   |                                              |   |                                |      |                |   | (69.2 | )
|Other comprehensive loss:            |                                         |                      |      |                 |   |                                               |   |                                |       |                |   |       |  
|                                     | Minimum pension liability adjustment    |                      |      |                |   |                                               |  |                                |       | (14.9          | ) |       | 
|                                     | Foreign currency translation adjustment |                      |      |                |   |                                               |  |                                |       | (1.3           | ) |       | 
|                                     |                                         |                      |      |                 |   |                                               |   |                                |       |                |   |       |  
|                                     |                                         | Comprehensive loss   |      |                 |   |                                               |   |                                |       |                |   |       |  
|Stock offering                       |                                         |                      | 3.3  |                 |   | 79.5                                          |   |                                |      |                |   |      |  
|Employee benefit plan stock issuance |                                         |                      |     |                 |   | 1.2                                           |   |                                |      |                |   |      |  
|Acquisition of treasury stock        |                                         |                      |     |                 |   |                                              |   |                                |      |                |   |      |  
|                                     |                                         |                      |      |                 |   |                                               |   |                                |       |                |   |       |  
|Balance, December 31, 2002           |                                         | $                    | 28.5 |                 | $ | 352.7                                         |   | $                              | (32.1 | )              | $ | (35.2 | )
|                                     |                                         |                      |      |                 |   |                                               |   |                                |       |                |   |       |  

See Notes to Consolidated Financial Statements.

11

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LONE STAR TECHNOLOGIES, INC.        NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Lone Star Technologies, Inc. ("Lone Star", or the "Company"), a Delaware corporation, is a management and holding company with four principal operating
subsidiaries, Lone Star Steel Company ("Steel"), Fintube Technologies, Inc. ("Fintube"), acquired January 3, 2000, Bellville Tube Company, L.P. ("Bellville"), acquired April 1,
2000, and Wheeling Machine Products, Inc. ("Wheeling"), acquired October 1, 2002. Steel manufactures and globally markets oilfield tubular products to the oil and gas drilling industry,
mechanical tubing products to automotive, fluid power, and other markets for various mechanical applications, and flat rolled steel and other tubular products to domestic industrial markets. Fintube
manufactures specialty finned tubular products used in a variety of heat recovery applications including combined-cycle electrical power generation. Bellville manufactures oilfield tubular products.
Wheeling manufactures couplings used to connect individual sections of oilfield casing and tubing.

Lone
Star's consolidated revenues are not seasonal. However, demand for oilfield products is subject to significant fluctuations due to the volatility of oil and gas prices and domestic
drilling activity as well as other factors including competition from imports. Demand for mechanical tubing and finned tubular products are primarily subject to fluctuations in general economic
conditions.

ACCOUNTING POLICIESNOTE A

Principles of consolidation.The consolidated financial statements include the accounts of Lone Star
and its wholly-owned subsidiaries. All significant intercompany accounts and transactions have been eliminated in consolidation. In the Notes to Consolidated Financial Statements, all dollar and share
amounts in tabulation are in millions of dollars and shares, respectively, unless otherwise noted.

Cash and cash equivalents.Lone Star's cash and cash equivalents include commercial bank accounts and
highly liquid investments in a fund consisting of U. S. government and related agencies obligations with original maturities of less than three months.

Inventoriesare stated at the lower of cost or market value. Cost is determined using the last-in, first-out
("LIFO") method for approximately 84% and 91% of the Company's total inventories after LIFO reserve at December 31, 2002 and 2001, respectively. The cost of remaining inventories is determined
using the first-in, first-out ("FIFO") method. Inventories include raw materials, labor, overhead and certain supplies.

Property, plant, and equipmentare stated at cost. Significant betterments and improvements are capitalized if they extend the useful life
of the asset, while maintenance and repairs are expensed when incurred. Depreciation is provided on the straight-line method over the estimated useful lives of depreciable assets as
follows:

Land improvements

3 - 39 YearsBuildings, structures and improvements

4 - 25 YearsMachinery and equipment

3 - 30 Years


Impairment of long-lived assets.In accordance with SFAS No. 144, "Accounting for
the Impairment or Disposal of Long-Lived Assets," Lone Star periodically evaluates the recoverability of long-lived assets whenever events and changes in circumstances indicate
that the carrying amount of an asset may not be fully recoverable. At December 31, 2002, the Company believes that its long-lived assets have not been impaired.

Income taxes.Lone Star applies the provisions of SFAS No. 109, "Accounting for Income Taxes,"
which utilizes an asset and liability approach for financial accounting and income tax reporting.

12

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Deferred tax liabilities or assets are recognized for the estimated future tax effects attributable to temporary differences and carryforwards and are adjusted whenever tax rates or other provisions
of income tax statutes change. Deferred tax assets are reduced, if deemed necessary, by a valuation allowance for any tax benefits that are not expected to be realized.

Revenue recognition.Product revenues are recognized as sales when revenue is earned and is realized
or realizable. This includes satisfying the following criteria: the arrangement with the customer is evident, usually through the receipt of a purchase order; the sales price is fixed or determinable;
delivery has occurred, which may include delivery to the customer storage warehouse location at one of the Company's subsidiaries in which instance, the risk of loss has been passed to the customer;
and collectibility is reasonably assured. Freight and shipping that is billed to customers is included in net sales, and the cost of shipping is included in cost of sales. The Company has marketing
agreements to sell steel oilfield tubular products manufactured by other companies. Revenue is recorded on a gross basis for certain transactions with alliance mills when the Company is the primary
obligor, and has general inventory and credit risk, and certain other transactions are recorded net.

Stock-Based Employee Compensation.The Company accounts for stock-based compensation utilizing the
intrinsic value method in accordance with the provisions of Accounting Principles Board Opinion No. 25 (APB 25), "Accounting for Stock Issued to Employees" and related Interpretations.
Accordingly, no compensation expense is recognized for fixed option plans because the exercise prices of employee stock options equal or exceed the market prices of the underlying stock on the dates
of grant. As permitted, the Company has elected to adopt the disclosure only provisions of SFAS No. 123, "Accounting for Stock-Based Compensation." Refer to Note I for further
information.

Foreign currency translation.Assets and liabilities of subsidiaries outside the United States are
translated into U.S. dollars using current exchange rates. Revenue and expense accounts are translated at the average rates in effect during the year. The effects of foreign currency translation
adjustments are included in accumulated other comprehensive income (loss) as a component of shareholders' equity. Transaction gains/losses were not material.

Business and Credit Risk.Lone Star sells products to numerous customers primarily in the oil and gas
drilling industry. Although this concentration could affect the Company's overall exposure to credit risk, management believes that the Company is exposed to minimal risk since the majority of its
business is conducted with major companies within the industry. The Company performs on-going credit evaluations of its customers and generally does not require collateral when extending
credit. The Company maintains a reserve for potential credit losses. Such losses have historically been within management's expectations. The Company does not have financial instruments with
off-balance sheet risk.

Lone
Star maintains cash and cash equivalents with various financial institutions. As part of its cash and risk management processes, the Company performs periodic evaluations of the
relative credit standing of the financial institutions. Lone Star has not sustained credit losses from instruments held at financial institutions.

As
of December 31, 2002, Lone Star had 1,900 employees. The employees at two of the Company's subsidiaries, an aggregate of 929 employees, are covered by five collective
bargaining agreements that are due to expire in July 2003, September 2003 and May 2005.

13

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Fair Value of Financial Instruments.The carrying amount of cash and cash equivalents, trade
receivables and payables approximates fair value because of the short maturity of those instruments. The fair value of Lone Star's senior subordinated debt based on quoted market prices was
$137.4 million and $126.0 million at December 31, 2002 and 2001, respectively.

As
of December 31, 2002 and 2001, the Company had outstanding letters of credit of $2.1 million and $0.3 million, respectively, which approximates fair value.

Use of Estimates.Preparation of the consolidated financial statements in conformity with generally
accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosures of contingent assets and liabilities, and
the reported amounts of revenues and expenses. The Company's estimates are primarily based on historical experience and business knowledge and are revised as circumstances change. However, actual
results could differ from those estimates. Significant estimates have been made to reserve for warranty claims and environmental obligations as follows:

Lone
Star's products are used in applications which are subject to inherent risks including well failures, performance deficiencies, line pipe leaks, personal injury, property damage,
environmental contamination or loss of production. The Company warrants its products to meet certain specifications. Actual or claimed deficiencies from these specifications may give rise to claims
and the Company maintains a reserve for asserted and unasserted warranty claims. The warranty claim exposure is evaluated using historical claim trends and information available on specifically known
claims. The Company also maintains product and excess liability insurance subject to certain deductibles that limit the exposure to these claims. The Company considers the extent of insurance coverage
in its estimate of the reserve. Typically, this reserve is not subject to significant fluctuations from period-to-period. However, the incurrence of an unusual amount of claims
could alter the Company's exposure and the related reserve. The following table identifies changes in warranty reserves from December 31, 2001 to December 31, 2002:

Balance at December 31, 2001

$
3.0Add: accruals for warranties during the period


2.9Accruals related to pre-existing warranties and changes in estimates


(0.1
)Deduct: settlements made during the period


(3.7
)Balance at December 31, 2002

$
2.1


Lone
Star is subject to numerous environmental regulations and is actively remediating a few known exposures and conducting post-closure monitoring activities. The Company
maintains an environmental reserve to cover the costs of expected remediation and post-closure monitoring and estimates the range of cost for the remediation and post-closure
based on historical experience, results of monitoring and the known extent of exposure. The Company evaluates the range of exposure and records the reserve at the most probable amount within that
range. Typically, this reserve is not subject to significant fluctuations from period-to-period. However, given the nature of environmental exposures, significant changes in
the reserve are possible.

14

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New Accounting Pronouncements.In June 2001, the FASB issued Statement of Financial Accounting
Standards No. 143, "Accounting for Asset Retirement Obligations," ("SFAS No. 143"). SFAS No. 143 addresses financial accounting and reporting for obligations associated with the
retirement of tangible long-lived assets and the associated asset retirement costs. It applies to all entities and legal obligations associated with the retirement of
long-lived assets that result from the acquisition, construction, development and/or the normal operation of a long-lived asset. SFAS No. 143 requires that the fair
value of a liability for an asset retirement obligation be recognized in the period in which it is incurred if a reasonable estimate of fair value can be made. The associated asset retirement costs
are capitalized as part of the carrying amount of the long-lived asset and are subsequently allocated to expense over the asset's useful life. This Statement is effective for financial
statements issued for fiscal years beginning after June 15, 2002. The provisions of SFAS No. 143 are not expected to have a material impact on the Company's consolidated financial
statements.

In
August 2001, the FASB issued Statement of Financial Accounting Standards No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets," ("SFAS
No. 144"). SFAS No. 144 addresses financial accounting and reporting for the impairment of long-lived assets and for long-lived assets to be disposed of. This
statement supersedes SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of," however, this statement retains the
fundamental provisions of SFAS No. 121 for (a) recognition and measurement of the impairment of long-lived assets to be held
and used and (b) measurement of long-lived assets to be disposed of by sale. This Statement also supersedes the accounting and reporting provisions of APB 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" for
segments of a business to be disposed. SFAS No. 144 is effective for fiscal years beginning after December 15, 2001. The provisions of SFAS No. 144, which the Company adopted in
2002, did not have a material impact on the Company's consolidated financial statements.

The
FASB issued Statement of Financial Accounting Standards No. 145, "Rescission of FASB Statements No. 4, 44, and 64, Amendment of FASB Statement No. 13, and
Technical Corrections," ("SFAS No. 145") in April 2002 and is effective for fiscal years beginning after May 15, 2002. SFAS No. 145 amends existing authoritative
pronouncements to make various technical corrections, clarify meanings, or describe their applicability under changed conditions. Upon adoption of SFAS No. 145 in 2003, the extraordinary loss
recorded in 2001 will be reclassified as other expense.

The
FASB issued Statement of Financial Accounting Standards No. 146, "Accounting for Costs Associated with Exit or Disposal Activities," ("SFAS No. 146") in
June 2002. SFAS No. 146 replaces current accounting literature and requires the recognition of 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. SFAS No. 146 is to be applied prospectively to exit or disposal activities initiated after December 31, 2002, with earlier application
encouraged. The provisions of SFAS No. 146 are not expected to have a material impact on the Company's consolidated financial statements.

In
November 2002, the FASB issued FASB Interpretation No. 45, "Guarantor's Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of
Indebtedness of Others." This interpretation elaborates on the disclosures to be made by a guarantor in its interim and annual financial statements about its obligations under certain guarantees that
it has issued. It also clarifies that a guarantor is required to recognize, at the inception of a guarantee, a liability for the fair value of

15

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the obligation undertaken in issuing the guarantee. The disclosure requirements of this interpretation are effective for interim and annual periods after December 15, 2002. The initial
recognition and initial measurement requirements of this interpretation are effective prospectively for guarantees issued or modified after December 31, 2002. The interpretation's expanded
disclosures will not have a material impact on the Company's financial position or results of operations. The Company is assessing, but at this point does not believe the adoption of the recognition
and initial measurement requirements of this interpretation will have a material impact on the financial position or results of operations.

In
December 2002, the FASB issued Statement of Financial Accounting Standards No. 148, "Accounting for Stock-Based CompensationTransition and
Disclosurean amendment of FASB Statement No. 123," ("SFAS No. 148"). SFAS No. 148 amends SFAS No. 123, "Accounting for Stock-Based Compensation," to provide
alternative methods of transition for a voluntary change to the fair value based method of accounting for stock-based employee compensation. In addition, SFAS No. 148 amends the disclosure
requirements of SFAS No. 123 to require prominent disclosures in both annual and interim financial statements about the method of accounting for stock-based employee compensation and the effect
of
the method used on reported results. The transition guidance and annual disclosure provisions of SFAS No. 148 are effective for financial statements issued for fiscal years ending after
December 15, 2002. The Company has adopted the disclosure provisions of SFAS No. 148. (See Note I.) The Company has not elected to make a voluntary change to the fair value based
method of accounting for stock-based compensation.

In
January 2003, the FASB issued FASB Interpretation No. 46, "Consolidation of Variable Interest Entities." This interpretation of Accounting Research Bulletin
No. 51, "Consolidated Financial Statements," addresses consolidation by business enterprises of variable interest entities. Under current practice, two enterprises generally have been included
in consolidated financial statements because one enterprise controls the other through voting interests. This interpretation defines the concept of "variable interests" and requires existing
unconsolidated variable interest entities to be consolidated by their primary beneficiaries if the entities do not effectively disperse the risks among the parties involved. This interpretation
applies immediately to variable interest entities created after January 31, 2003, and to variable interest entities in which an enterprise obtains an interest after that date. It applies in the
first fiscal year or interim period beginning after June 15, 2003, to variable interest entities in which an enterprise holds a variable interest that it acquired before February 1,
2003. The Company does not believe the adoption of this interpretation will have a material impact on its financial position or results of operations.

BUSINESS SEGMENTSNOTE B

Lone Star currently has four operating subsidiaries that have separate management teams and infrastructures that offer different products and services. The
subsidiaries have been aggregated under three reportable segments: oilfield, specialty tubing, and flat rolled steel and other tubular goods. Management evaluates segment performance based primarily
on revenue and earnings from operations and are organized around the products and services provided to the customers each segment serves. No single customer comprised more than 10% of total net
revenues in 2002, 2001 or 2000. Direct foreign revenues as a percent of total revenues were approximately 5% in 2002, 8% in 2001 and 8% in 2000.

The
accounting policies of each segment are the same as those described in Note A of Notes to Consolidated Financial Statements. Intersegment sales and transfers are not
significant. Interest

16

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expense, interest income, other income and expense, and income taxes have not been allocated to the segments.

Oilfield.Oilfield products are comprised of casing, tubing, line pipe and couplings that are
manufactured and marketed globally to the oil and gas drilling industry. The oilfield segment includes premium alloy and carbon welded oil country tubular goods, including casing, which acts as a
structural retainer wall in oil and natural gas wellbores, and production tubing, which transmits hydrocarbons to the surface. Line pipe is used to gather and transmit oil and natural gas. Couplings
are used to connect individual sections of oilfield casing and tubing.

Specialty tubing.Lone Star's specialty tubing business includes the manufacture, marketing and sale
of a variety of tubular products, often custom-engineered products involving exacting applications, including the manufacture of hydraulic cylinders for construction and farm equipment, automotive
applications, such as stabilizers and intrusion tubes; and other uses, including machine parts, bearing races, down-hole pump barrels, heavy lift crane boom chords, drill rods and liner
hangers. Finned tubulars are used in fuel economizers, industrial processing, petrochemical plants, refineries and power technology applications.

Flat rolled steel and other tubular goods.Flat rolled steel is manufactured principally for use by
the Company in the manufacture of tubular products. The Company also sells flat rolled steel to fabricators of large diameter pipe, storage tanks, rail cars and a variety of other construction and
industrial products. Lone Star also provides transportation, storage and other services to a variety of industries.

17

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The
following tables present information on the segments. The "Corporate / Other" column includes corporate related items and other insignificant nonsegments.

|     |                                 | Oilfield |   | Specialty
Tubing |   | Flat Rolled
Steel and
Other
Tubular
Goods |       | Corporate/
Other |   | Total |  
|---- | ------------------------------- | -------- | - | ---------------- | - | ----------------------------------------- | ----- | ---------------- | - | ----- | -
|2002 |                                 |          |   |                  |   |                                           |       |                  |   |       |  
|     | Revenues                        |          | $ | 304.2            |   | $                                         | 157.8 |                  | $ | 61.7  |  
|     | Segment operating income (loss) |          |   | (8.6             | ) |                                           | (15.1 | )                |   | (0.8  | )
|     | Depreciation and amortization   |          |   | 11.2             |   |                                           | 9.1   |                  |   | 1.5   |  
|     | Total assets                    |          |   | 256.4            |   |                                           | 200.5 |                  |   | 26.3  |  
|     | Capital expenditures            |          |   | 9.1              |   |                                           | 6.6   |                  |   | 0.2   |  
|2001 |                                 |          |   |                  |   |                                           |       |                  |   |       |  
|     | Revenues                        |          | $ | 401.9            |   | $                                         | 187.7 |                  | $ | 60.6  |  
|     | Segment operating income (loss) |          |   | 35.7             |   |                                           | 8.0   |                  |   | (5.8  | )
|     | Depreciation and amortization   |          |   | 11.8             |   |                                           | 9.7   |                  |   | 1.2   |  
|     | Total assets                    |          |   | 243.0            |   |                                           | 197.2 |                  |   | 24.5  |  
|     | Capital expenditures            |          |   | 12.3             |   |                                           | 11.8  |                  |   | 0.9   |  
|2000 |                                 |          |   |                  |   |                                           |       |                  |   |       |  
|     | Revenues                        |          | $ | 362.0            |   | $                                         | 220.9 |                  | $ | 62.4  |  
|     | Segment operating income (loss) |          |   | 35.2             |   |                                           | 22.0  |                  |   | (1.1  | )
|     | Depreciation and amortization   |          |   | 10.8             |   |                                           | 9.6   |                  |   | 1.0   |  
|     | Total assets                    |          |   | 238.1            |   |                                           | 216.6 |                  |   | 21.2  |  
|     | Capital expenditures            |          |   | 10.0             |   |                                           | 11.6  |                  |   | 1.7   |  

GOODWILL AND OTHER INTANGIBLE ASSETSNOTE C

The Fintube, Bellville and Wheeling acquisitions have been accounted for under the purchase method of accounting, and accordingly, the purchase price has been
allocated to the assets acquired and the liabilities assumed based upon fair values at the date of the acquisition. The excess purchase price over the fair value of the tangible and intangible net
assets acquired has been recorded as goodwill with the exception of the Wheeling acquisition, whereby no goodwill was acquired.

In
June 2001, SFAS No. 142, "Goodwill and Other Intangible Assets", was issued, addressing financial accounting and reporting for acquired goodwill and other intangible
assets. SFAS No. 142 eliminates amortization of goodwill and other intangible assets that are determined to have an indefinite useful life and, instead, requires goodwill to be tested for
impairment, at least annually, and more frequently if an event occurs which indicates the goodwill may be impaired. The Company adopted SFAS No. 142 on January 1, 2002 and subsequently
ceased goodwill amortization. The Company completed the first step of the transitional goodwill impairment test at the beginning of 2002, and completed the annual goodwill impairment test during the
fourth quarter of 2002, which did not indicate impairment. Other intangible assets that are subject to amortization are amortized on a

18

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straight-line basis over their respective estimated useful lives of four to six years. The components of intangible assets were as follows:

|                               |                           | 2002 |      | 2001 |  
|------------------------------ | ------------------------- | ---- | ---- | ---- | -
|
|Amortized intangible assets:   |                           |      |      |      |  
|                               | Non-compete agreements    |      | $    | 0.9  |  
|                               | License agreements        |      |      | 0.6  |  
|                               | Other                     |      |      | 0.3  |  
|                               |                           |      |      |      |  
|                               |                           | $    | 1.8  |      | $
|                               |                           |      |      |      |  
|Unamortized intangible assets: |                           |      |      |      |  
|                               | Goodwilloilfield         |      | $    | 10.4 |  
|                               | Goodwillspecialty tubing |      |      | 49.5 |  
|                               |                           |      |      |      |  
|                               |                           | $    | 59.9 |      | $
|                               |                           |      |      |      |  

Aggregate
amortization expense related to intangible assets, other than goodwill, was $0.3 million, $0.5 million and $0.4 million for the years ended
December 31, 2002, 2001 and 2000, respectively. The non-compete agreements and license and other agreements are amortized over six years and five years, respectively. The estimated
amortization expense for each of the years ending December 31, 2003 and 2004 will be $0.3 million and zero thereafter.

In
accordance with SFAS No. 142, the financial statements for the prior years have not been restated. A pro forma reconciliation of net income as if SFAS No. 142 had been
adopted for the years ended December 31, 2002, 2001 and 2000 is presented below:

|                                     |                                 | 2002 |       | 2001  |   | 2000
|------------------------------------ | ------------------------------- | ---- | ----- | ----- | - | ----
|Reported net income (loss)           |                                 | $    | (69.2 | )     | $ | 16.4
|Add back: goodwill amortization      |                                 |      |      |       |   | 2.1 
|                                     |                                 |      |       |       |   |     
|Adjusted net income (loss)           |                                 | $    | (69.2 | )     | $ | 18.5
|                                     |                                 |      |       |       |   |     
|Basic net income (loss) per share:   |                                 |      |       |       |   |     
|                                     | Reported net income (loss)      |      | $     | (2.52 | ) | $   
|                                     | Add back: goodwill amortization |      |       |      |   |     
|                                     |                                 |      |       |       |   |     
|                                     | Adjusted net income (loss)      |      | $     | (2.52 | ) | $   
|                                     |                                 |      |       |       |   |     
|Diluted net income (loss) per share: |                                 |      |       |       |   |     
|                                     | Reported net income (loss)      |      | $     | (2.52 | ) | $   
|                                     | Add back: goodwill amortization |      |       |      |   |     
|                                     |                                 |      |       |       |   |     
|                                     | Adjusted net income (loss)      |      | $     | (2.52 | ) | $   
|                                     |                                 |      |       |       |   |     

19

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ADDITIONAL BALANCE SHEET INFORMATIONNOTE D

|                               |                                                 | At December 31,                     |  
|------------------------------ | ----------------------------------------------- | ----------------------------------- | -
|
|Inventories                    |                                                 |                                     |  
|                               | Finished goods                                  |                                     | $
|                               | Work in process                                 |                                     |  
|                               | Raw materials                                   |                                     |  
|                               | Materials, supplies, and other                  |                                     |  
|                               |                                                 |                                     |  
|                               | Total inventories before LIFO valuation reserve |                                     |  
|                               | Reserve to reduce inventories to LIFO value     |                                     |  
|                               |                                                 |                                     |  
|                               | Total inventories                               |                                     |  
|                               | Amount included in other noncurrent assets      |                                     |  
|                               |                                                 |                                     |  
|                               |                                                 | Inventories, current                |  
|                               |                                                 |                                     |  
|Property, plant, and equipment |                                                 |                                     |  
|                               | Land and land improvements                      |                                     | $
|                               | Buildings, structures, and improvements         |                                     |  
|                               | Machinery and equipment                         |                                     |  
|                               | Construction in progress                        |                                     |  
|                               |                                                 |                                     |  
|                               | Total property, plant, and equipment            |                                     |  
|                               | Less accumulated depreciation and amortization  |                                     |  
|                               |                                                 |                                     |  
|                               |                                                 | Property, plant, and equipment, net |  
|                               |                                                 |                                     |  
|Other noncurrent assets        |                                                 |                                     |  
|                               | Inventory (supplies and spare parts)            |                                     | $
|                               | Other                                           |                                     |  
|                               |                                                 |                                     |  
|                               |                                                 | Total other noncurrent assets       |  
|                               |                                                 |                                     |  
|Accrued liabilities            |                                                 |                                     |  
|                               | Accrued compensation                            |                                     | $
|                               | Warranty reserves                               |                                     |  
|                               | Environmental reserves                          |                                     |  
|                               | Pension obligations                             |                                     |  
|                               | Other                                           |                                     |  
|                               |                                                 |                                     |  
|                               |                                                 | Total accrued liabilities           |  
|                               |                                                 |                                     |  
|Other noncurrent liabilities   |                                                 |                                     |  
|                               | Environmental reserves                          |                                     | $
|                               | Litigation reserves                             |                                     |  
|                               | Other                                           |                                     |  
|                               |                                                 |                                     |  
|                               |                                                 | Total other noncurrent liabilities  |  
|                               |                                                 |                                     |  

20

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Total inventory before LIFO valuation reserve approximates replacement cost. During 2002, the Company experienced reductions of inventory that resulted in the liquidation of previous
inventory LIFO layers, the effect of which was not significant to the results of operations.

DEBTNOTE E

In October 2001, Lone Star entered into a three-year $100 million senior secured credit facility (the "Credit Facility") for use by Lone
Star and its domestic subsidiaries. Borrowings under the Credit Facility can be used for general corporate purposes. Under the agreement, the Company can borrow an amount based on a percentage of
eligible accounts receivable and inventories reduced by outstanding letters of credit. The availability under this facility was $97.9 million at December 31, 2002. Borrowings under the
Credit Facility are collateralized by substantially all of the Company's assets, other than real estate. At the Company's option, the interest rate is the prime lending rate or the LIBOR plus the
applicable additional interest. At December 31, 2002 and 2001, no amount was outstanding under the Credit Facility.

In
2000, Fintube had a senior credit facility providing a $20 million revolving line of credit and a $39 million term loan used to finance a portion of the purchase price
in the Fintube acquisition. In August 2001, the Fintube credit facility was paid in full early and terminated, resulting in the write off of $0.6 million in deferred financing costs as
an extraordinary item. In addition, the Company terminated an interest rate swap agreement related to the Fintube credit facility. The settlement of the interest rate swap resulted in a
$0.8 million charge included in other expenses for the year ended December 31, 2001.

Steel
engages in slab consignment and sales agreements with third parties. Under these agreements, Steel arranges for third parties to purchase slabs from vendors that manufacture the
slabs and the third party consigns the slab inventory to Steel. Steel is then required to repurchase the slab inventory based on usage within specified time periods. These inventory financing
transactions have been accounted for as product financing arrangements. Inventory financed under these arrangements is recorded as inventory by Steel. At December 31, 2002, there was
$11.7 million included in accounts payable under these financing arrangements.

On
May 29, 2001, Lone Star issued $150.0 million 9% senior subordinated notes due June 1, 2011 to qualified institutional buyers (the "Senior Notes"). Interest on
the outstanding Senior Notes accrues at
a rate of 9% per year, payable semi-annually in arrears on each June 1 and December 1. Lone Star used the proceeds received from the Senior Notes to pay down the revolving
lines of credit, term loans, slab consignment obligations, and for general corporate purposes.

The
Senior Notes are fully and unconditionally (as well as jointly and severally) guaranteed on an unsecured, senior subordinated basis by each subsidiary of the Company (the "Guarantor
Subsidiaries") other than Aletas y Birlos S.A., de C.V. (the "Non-Guarantor Subsidiary") (see Note L). Each of the Guarantor Subsidiaries and the Non-Guarantor
Subsidiary is wholly owned by the Company.

Total
interest incurred by the Company was $12.7 million, $12.8 million and $14.4 million for the years ended December 31, 2002, 2001 and 2000, respectively.
Total interest capitalized for the years ended December 31, 2002, 2001 and 2000 was $1.0 million, $0.7 million and $0.2 million, respectively.

SHAREHOLDERS' EQUITYNOTE F

On April 23, 2002, Lone Star sold 3.3 million shares of common stock under a previously filed universal shelf registration statement. Net proceeds
to Lone Star were $82.8 million and were used to acquire Wheeling. Lone Star intends to use the remaining net proceeds from this sale to acquire complementary businesses or to make compatible
asset investments and provide funds for working capital and other general corporate purposes.

21

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On
May 2, 2001, Lone Star sold 1.2 million shares of its common stock under a previously filed universal shelf registration statement. The proceeds to Lone Star were
$50.8 million. Proceeds of the sale were used to extinguish debt associated with credit facilities at Steel and Fintube and for general corporate purposes.

The
following table (in whole shares) identifies changes in common stock issued and treasury stock from December 31, 1999 to December 31, 2002.

|                           |                         | Issued     |           | Treasury Stock |          | Outstanding |          
|-------------------------- | ----------------------- | ---------- | --------- | -------------- | -------- | ----------- | ---------
|Balance, December 31, 1999 |                         | 23,061,864 |           | (462,991       | )        | 22,598,873  |          
|                           | Stock offering          |            | 760,237   |                |         |             | 760,237  
|                           | Employee benefit plans  |            |          |                | 294,669  |             | 294,669  
|                           |                         |            |           |                |          |             |          
|Balance, December 31, 2000 |                         | 23,822,101 |           | (168,322       | )        | 23,653,779  |          
|                           | Stock offering          |            | 1,150,000 |                |         |             | 1,150,000
|                           | Employee benefit plans  |            | 229,494   |                | 168,009  |             | 397,503  
|                           |                         |            |           |                |          |             |          
|Balance, December 31, 2001 |                         | 25,201,595 |           | (313           | )        | 25,201,282  |          
|                           | Stock offering          |            | 3,250,000 |                |         |             | 3,250,000
|                           | Employee benefit plans  |            | 87,419    |                | (4,931   | )           | 82,488   
|                           | Treasury stock purchase |            |          |                | (100,600 | )           | (100,600 
|                           |                         |            |           |                |          |             |          
|Balance, December 31, 2002 |                         | 28,539,014 |           | (105,844       | )        | 28,433,170  |          
|                           |                         |            |           |                |          |             |          

EARNINGS PER SHARENOTE G

Basic earnings per share is computed by dividing net income by the weighted average number of shares of common stock. Diluted earnings per share is computed by
dividing net income by the weighted average number of shares of common stock and other dilutive securities.

|             |                                                     | 2002          |   | 2001  |   | 2000
|------------ | --------------------------------------------------- | ------------- | - | ----- | - | ----
|Numerator:   |                                                     |               |   |       |   |     
|             | Net income (loss) before extraordinary item         |               | $ | (69.2 | ) | $   
|             | Extraordinary item                                  |               |   |      |   |     
|             |                                                     |               |   |       |   |     
|             | Net income (loss)                                   |               | $ | (69.2 | ) | $   
|             |                                                     |               |   |       |   |     
|Denominator: |                                                     |               |   |       |   |     
|             | Weighted-average shares used to compute basic EPS   |               |   | 27.5  |   |     
|             | Effect of dilutive securities:                      |               |   |       |   |     
|             |                                                     | Stock options |   |       |  |     
|             |                                                     |               |   |       |   |     
|             | Weighted-average shares used to compute diluted EPS |               |   | 27.5  |   |     
|             |                                                     |               |   |       |   |     

As
a result of the loss incurred in 2002, no equivalent shares attributable to options were considered in computing diluted EPS as such options would be anti-dilutive. In
2001 and 2000, options to purchase 0.2 million shares of Lone Star stock were excluded from the calculation of diluted earnings per share because the exercise price of these options was greater
than the average market price of the common shares for the respective years, and therefore the effect would have been anti-dilutive.

22

---

INCOME TAXESNOTE H

Income tax benefit was $0.7 million in 2002; and, for 2001 and 2000, income tax expense was $0.8 million and $1.8 million, respectively,
including federal alternative minimum tax and state and foreign income taxes. There was no deferred income tax expense or benefit for 2002, 2001 or 2000.

A
reconciliation of the U.S. federal statutory rate to actual income tax expense (benefit) is as follows:

2002

2001

2000Benefit (expense) at U.S. statutory rate

$
24.5

$
(6.2
)
$
(14.1
)State and other income taxes, net of federal benefit


0.7


(0.3
)

(1.0
)Change in valuation allowance


(23.7
)

5.7


13.3Other


(0.8
)




Total income tax benefit (expense)

$
0.7

$
(0.8
)
$
(1.8
)


The
following table discloses the components of the deferred tax amounts at December 31, 2002 and 2001:

2002

2001Deferred tax assets:Postretirement benefit accruals

$
16.4

$
13.0Environmental reserves


3.3


3.5Other expense accruals and reserves


5.3


5.0Inventories


5.6


5.7Other


0.8


0.9Net operating loss carryforwards


101.8


80.9Alternative minimum tax credit carryforward


1.6


2.0Total deferred tax assets


134.8


111.0Deferred tax liabilities:Property, plant and equipment


(41.7
)

(41.6
)Net deferred tax assets


93.1


69.4Less valuation allowance


(93.1
)

(69.4
)Net deferred tax amount

$






At
December 31, 2002, Lone Star had federal tax net operating loss carryforwards (NOL's) of approximately $294.9 million available to offset future payments
of federal income taxes, a portion of which may be related to American Federal Bank, a former subsidiary of Lone Star and subject to an agreement with the Federal Deposit Insurance Corporation (FDIC)
whereby Lone Star may be required to pay the FDIC for certain tax benefits. The NOL's are available for utilization by Lone Star, Steel, Fintube, Bellville, Wheeling and the other
subsidiaries. If not utilized, the NOL's will expire in varying amounts between years 2003 and 2022, and their future availability may be limited if Lone Star or a member of the
consolidated group experiences an ownership change of more than 50 percentage points, as defined by IRS regulations. Lone Star's common stock is publicly traded, and management cannot assure
that future trading will not result in an ownership change, as defined by IRS regulations, which would limit the availability of the NOL's. The Company has an AMT credit carryforward
totaling $1.6 million that may be carried forward indefinitely under U.S. Law.

The
ultimate realization of the deferred tax asset depends on the Company's ability to generate sufficient taxable income in the future. Management believes it is more likely than not
that the net

23

---

deferred tax asset will not be realized by future operating results. Because of the uncertainty regarding possible utilization of NOL's and the sensitivity of earnings to the level of
domestic drilling activity. As a result, valuation allowances were recorded to fully reserve the computed net deferred tax assets.

EMPLOYEE BENEFIT PLANSNOTE I

Defined contribution plans.Defined contribution plans are available to substantially all
full-time employees under which participants can make voluntary pretax contributions. For nonbargaining unit employees, matching contributions are provided within specified limits. Steel
makes contributions at rates specified under collective bargaining agreements for its bargaining unit employees. Contributions totaled $2.9 million, $3.0 million and $2.7 million
for the years ended December 31, 2002, 2001, and 2000, respectively.

Nonqualified deferred compensation plan.The Company has a nonqualified compensation plan for certain
management personnel and highly compensated employees of Lone Star and its participating affiliates that provides eligible employees the opportunity to defer a specified percentage of their cash
compensation. Participants may elect to defer up to 25% of total compensation and Lone Star will match 50% of the amount deferred by each employee with the matching not to exceed $25,000. The total
liability included in other noncurrent liabilities was $1.6 million and $1.1 million at December 31, 2002 and 2001, respectively.

Employee stock purchase plan.The Company has an employee stock purchase plan for all eligible
employees. Eligible employees include all regular full-time employees of Lone Star and its subsidiaries
who have been employed for at least 12 months. Eligible employees may defer up to 5% of their compensation for each quarter for the purchase of Lone Star common stock. Shares are purchased at
the end of each quarter at a price equal to the lower of: (a) 90% of the market price of Lone Star's common stock on the first day of the quarter, or (b) 90% of the market price of Lone
Star's common stock on the last day of the quarter. The maximum number of Lone Star shares that may be purchased for all participants under the plan is 200,000 shares, of which 177,851 shares were
available to be issued at December 31, 2002.

Long-term incentive plan.Lone Star has a long-term incentive plan which
provides for the issuance of up to 2,700,000 shares of common stock to key employees and outside directors through the granting of incentive and nonqualified stock options, stock appreciation rights,
restricted stock grants, and performance unit grants. The option price is the average of the high and low market price on the date of the grant. Options are generally exercisable for ten years with
one-fourth of the shares becoming exercisable on the one-year anniversary of the grant date and an additional one-fourth becoming exercisable on the same
anniversary date over the next three years. If the optionee's employment is terminated under certain circumstances after a change of control of Lone Star occurs before an option's fourth anniversary,
the option may be exercised in full earlier. Also, accelerated vesting of options can occur upon death or retirement from employment of an option holder.

On
the acquisition date of Fintube, Lone Star granted certain employees of Fintube options that vested only upon the achievement of certain operating performance criteria in 2000 and
2001. Fintube had recorded approximately $0.5 million in compensation expense related to the performance options granted to the employees of Fintube in 2000. All Fintube options that were
outstanding at December 31, 2001 were cancelled in 2002 as a result of not achieving the targeted operating performance in 2001.

24

---

Following
is a summary of all stock option activity for the years shown:

Shares Under
Option

Weighted
Average
Exercise
PriceOutstanding, December 31, 1999

1,308,125

$
15.98Granted

650,000


33.79Exercised

(282,400
)

12.49Cancelled/forfeited

(22,000
)

27.19Outstanding, December 31, 2000

1,653,725


23.43Granted

484,375


38.27Exercised

(265,375
)

16.46Cancelled/forfeited

(12,250
)

34.22Outstanding, December 31, 2001

1,860,475


28.66Granted

555,000


16.90Exercised

(1,500
)

27.19Cancelled/forfeited

(65,250
)

29.82Outstanding, December 31, 2002

2,348,725

$
25.85


At
December 31, 2002, 1,474,789 shares were available for grant and options for 1,100,351 shares were exercisable. The following table summarizes information with respect to
options outstanding and exercisable at December 31, 2002:

|             |  | Options Outstanding |  | Options Exercisable
|------------ |  | ------------------- |  | -------------------
|
|$6.88-$10.32 |  | 83,600              |  | $                  
|11.06-16.59  |  | 824,375             |  |                    
|16.75-25.13  |  | 221,875             |  |                    
|27.19-40.79  |  | 1,079,500           |  |                    
|41.11-61.67  |  | 139,375             |  |                    
|             |  |                     |  |                    
|$6.88-$61.67 |  | 2,348,725           |  | $                  

The
weighted average fair value per option granted in 2002, 2001, and 2000 was $9.65, $20.78 and $17.45, respectively. The fair value of each option grant is estimated on the date of
grant using the Black-Scholes option pricing model with the following weighted average assumptions for grants in 2002, 2001 and 2000, respectively: risk-free interest rates of 4.79%, 4.77%
and 6.69%; volatility of 62.25%, 54.10% and 49.37%; and, expected lives of five years for all option grants without payment of dividends. Lone Star accounts for this plan pursuant to APB Opinion
No. 25, under which compensation cost has not been recognized with the exception of the performance options granted to certain Fintube employees described above. Because the SFAS No. 123
method of accounting has not been applied to options granted prior to January 1, 1995, the pro forma compensation cost may not be representative of that expected in future years. Had
compensation cost for this plan been determined

25

---

consistent with SFAS No. 123, net income and earnings per share would have been reduced to the following pro forma amounts:

2002

2001

2000Net income (loss) as reported

$
(69.2
)
$
16.4

$
38.6Deduct: Total stock-based employee compensation expense determined under fair value based method for all awards, net of related tax effects


(6.6
)

(6.3
)

(5.0
)Pro forma net income (loss)

$
(75.8
)
$
10.1

$
33.6Basic earnings (loss) per shareas reported

$
(2.52
)
$
0.67

$
1.64pro forma

$
(2.76
)
$
0.41

$
1.43Diluted earnings (loss) per shareas reported

$
(2.52
)
$
0.66

$
1.59pro forma

$
(2.76
)
$
0.40

$
1.39


Lone
Star also issued 72,750, 125,500 and 11,250 shares of restricted stock grants to certain employees, with a value of $1.1 million, $5.5 million and $0.4 million
during 2002, 2001 and 2000, respectively. For restricted stock grants issued prior to 2002, the shares vest ratably over a four-year period. For restricted stock grants issued in 2002, the
shares vest ratably over a five-year period. The Company recognized compensation expense related to these awards of $0.9 million, $0.7 million and $0.1 million in
2002, 2001 and 2000, respectively.

Defined Benefit Pension and Postretirement Benefit Plans.Steel has three defined benefit pension
plans covering a substantial portion of its bargaining unit employees. Retirement benefits are based on years of service at progressively increasing flat-rate amounts. A special initial
lump-sum pension payment equal to 13 weeks of vacation pay is also paid following retirement. It is generally the Company's policy to fund the minimum required contributions each year as
required by applicable regulations.

During
1996 and 1998, the three pension plans were amended so that new employees do not participate in the defined benefit plan. New employees are eligible to participate in one of the
defined contribution retirement plans, as are substantially all other employees.

Steel
also sponsors an unfunded defined benefit postretirement health care plan for eligible bargaining unit employees and a limited number of other retirees eligible under special early
retirement programs. These health care plan benefits are limited to eligible retirees and their spouses until age 65, at which time coverage terminates. Certain other postretirement benefits,
primarily life insurance, are also provided. The anticipated costs of these postretirement benefits are accrued over the employees' years of service.

26

---

The
following represents the amounts recognized in the consolidated balance sheets at December 31, 2002 and 2001:

Pension Benefits

Other Benefits2002

2001

2002

2001Postretirement benefit obligationscurrent

$
1.2

$
2.1

$
1.3

$
0.9Postretirement benefit obligationsnoncurrent


31.8


20.8


13.8


14.7Other noncurrent assetsintangible asset


(1.1
)

(1.3
)




Accumulated other comprehensive loss


(30.8
)

(15.9
)




Net amount recognized

$
1.1

$
5.7

$
15.1

$
15.6


The
following table sets forth the changes in the plans' benefit obligations, assets and funded status at December 31, 2002 and 2001:

|                                |                                                | Pension Benefits             |   | Other Benefits |     
|------------------------------- | ---------------------------------------------- | ---------------------------- | - | -------------- | ----
|
|Change in Benefit Obligation    |                                                |                              |   |                |     
|                                | Benefit obligation at beginning of year        |                              | $ | 80.6           |     
|                                |                                                | Service cost                 |   |                | 0.9 
|                                |                                                | Interest cost                |   |                | 5.2 
|                                |                                                | Actuarial loss               |   |                | 6.5 
|                                |                                                | Benefits paid                |   |                | (6.3
|                                |                                                |                              |   |                |     
|                                | Benefit obligation at end of year              |                              | $ | 86.9           |     
|                                |                                                |                              |   |                |     
|Change in Plan Assets           |                                                |                              |   |                |     
|                                | Fair value of plan assets at beginning of year |                              | $ | 57.1           |     
|                                |                                                | Actual return on plan assets |   |                | (4.1
|                                |                                                | Employer contributions       |   |                | 6.7 
|                                |                                                | Benefits paid                |   |                | (6.3
|                                |                                                |                              |   |                |     
|                                | Fair value of plan assets at end of year       |                              | $ | 53.4           |     
|                                |                                                |                              |   |                |     
|Reconciliation of Funded Status |                                                |                              |   |                |     
|                                | Unfunded statusobligation in excess of assets |                              | $ | 33.5           |     
|                                | Unrecognized actuarial gain (loss)             |                              |   | (31.3          | )   
|                                | Unrecognized prior service cost                |                              |   | (1.1           | )   
|                                |                                                |                              |   |                |     
|                                |                                                | Net amount recognized        |   | $              | 1.1 
|                                |                                                |                              |   |                |     

In
determining the benefit obligation, weighted average discount rates of 6.75%, 6.75% and 7.5% and an annual increase in the compensation rate of 4% were used in 2002, 2001 and 2000,
respectively. The expected long-term rate of return on plan assets was 8% for 2002 and 9% for 2001 and 2000. The Company uses an annual measurement date of
November 30th.

27

---



Assumed health care cost trend rates have a significant effect on the amounts reported for the health care plans. The annual rate of increase in the per capita costs of covered health
care benefits is assumed to decrease gradually from 14% to an ultimate trend rate of 7% by the year 2010. Increasing the assumed medical cost trend rates by one percentage point in each year would
have resulted in a $1.3 million increase in the benefit obligation as of December 31, 2002, and a $0.2 million increase in the aggregate of the service cost and interest cost
components of net periodic benefit expense for 2002. A 1% decrease in the assumed trend rates would have resulted in a $1.2 million decrease in the benefit obligation and a $0.1 million
decrease in expense.

The
pension plans' assets consist primarily of short-term money market investments, government and corporate obligations, real estate, and public market equity securities.

Net
periodic benefit expense for 2002, 2001 and 2000, included the following components:

|                                                  |                              | Pension Benefits |      | Other Benefits
|------------------------------------------------- | ---------------------------- | ---------------- | ---- | --------------
|
|Service cost                                      |                              | $                | 0.9  |               
|Interest cost                                     |                              |                  | 5.2  |               
|Expected return on plan asset                     |                              |                  | (5.0 | )             
|Amortization of net obligation at January 1, 1986 |                              |                  |     |               
|Amortization of prior service cost                |                              |                  | 0.2  |               
|Recognized net actuarial loss                     |                              |                  | 0.8  |               
|                                                  |                              |                  |      |               
|                                                  | Net periodic benefit expense |                  | $    | 2.1           
|                                                  |                              |                  |      |               

Profit sharing plans.Lone Star and its subsidiaries have profit sharing plans for substantially all
employees that provide for payment of a specified percentage of quarterly operating earnings. Total payments to employees were $0.4 million, $3.2 million and $3.6 million for
2002, 2001 and 2000, respectively.

COMMITMENTS AND CONTINGENCIESNOTE J

As of December 31, 2002, the Company has a long-term purchase commitment totaling $10.4 million to acquire natural gas at specified
minimum volumes and at a fixed price through September 2004.

Equipment
is leased under various operating leases. Rental expense totaled $5.0 million, $5.0 million and $3.8 million in 2002, 2001 and 2000, respectively. Future
minimum lease payments under noncancelable operating leases with initial or remaining terms in excess of one year are as follows: 2003, $1.3 million; 2004, $1.0 million; 2005,
$0.8 million; 2006, $0.6 million; 2007, $0.3 million; and thereafter, $0.1 million.

Lone
Star's operations are subject to numerous environmental laws. The three major areas of regulation are air quality, water quality, and solid and hazardous waste management. The
primary governmental oversight agencies include the Texas Commission on Environmental Quality and the Environmental Protection Agency. The Company is engaged in various ongoing environmental
monitoring and compliance programs, voluntary remediation activities, and capital improvement projects. Various environmental studies, monitoring programs, and capital projects are ongoing. Estimated
expenditures for certain remediation programs are included in accrued liabilities and other noncurrent liabilities as shown in Note D and are computed on a non-discounted basis.
Included in other noncurrent liabilities are environmental reserves of $8.9 million and $9.5 million at December 31, 2002 and 2001, respectively. Current reserves of
$0.8 million and $0.5 million are included in accrued liabilities at December 31, 2002 and 2001, respectively. The Company believes that adequate accruals have been made related
to all known environmental matters.

28

---

On
August 16, 2001, Lone Star entered into an agreement to purchase the assets of North Star Steel Company's Tubular Steel Division. Consummation of the acquisition was subject to
completion of financing arrangements. Due to lack of common stock financing which, along with certain debt financing, was required by the acquisition agreement to close the acquisition, Lone Star
notified Cargill, Incorporated, the parent company of North Star Steel Company, on December 14, 2001, that it was not able to complete the acquisition. Later that day, Cargill, Incorporated
notified Lone Star that it was filing a lawsuit against Lone Star seeking unspecified damages and alleging that Lone Star had breached the agreement. On March 13, 2003, the jury in Minnesota
returned a verdict of $32 million in damages against Lone Star. The Company believes it has fully performed all of its obligations under the acquisition agreement and will vigorously contest
the verdict. Lone Star has set up a reserve of $32 million which is included in non-current liabilities at December 31, 2002 with a corresponding charge to selling, general
and administrative expenses for the year ended December 31, 2002.

During
the last four years, our subsidiary, Lone Star Steel Company (Steel), has been named as one of a number of defendants in 30 lawsuits alleging that certain individuals were exposed
to asbestos on the defendants' premises. The plaintiffs are seeking unspecified damages. To date several of these lawsuits have been settled for approximately $30,000 in the aggregate. Of the 30
lawsuits, eight have been settled or are pending settlement and eight have been dismissed or are pending dismissal. We did not manufacture or distribute any products containing asbestos. Some or all
of these claims may not be covered by our insurance. We have accrued for our estimated exposure to known claims, but do not know the extent to which future claims may be filed. Therefore, we cannot
estimate our exposure, if any, to unasserted claims.

Lone
Star and its subsidiaries are parties to a number of other lawsuits and controversies which are not discussed herein. Management of Lone Star and its operating companies, based upon
their analysis of known facts and circumstances and reports from legal counsel, does not believe that any such matter will have a material adverse effect on the results of operations, financial
condition or cash flows of Lone Star and its subsidiaries, taken as a whole.

ACQUISITIONSNOTE K

Wheeling.On October 1, 2002, Lone Star purchased the majority of the assets of Wheeling
Machine Products, Inc. and Wheeling Machine Products of Texas, Inc. (collectively, "Wheeling"), in cash for a base purchase price of $21.2 million plus a $16.7 million
adjustment for working capital and approximately $0.4 million in acquisition related expenses (the "Wheeling Acquisition"). The Wheeling Acquisition was effective October 1, 2002. The
results of Wheeling's operations have been included in the consolidated financial statements since that date. The acquired business is a leading domestic supplier of couplings used to connect
individual sections of oilfield casing and tubing.

The
Wheeling Acquisition has been accounted for under the purchase method of accounting in accordance with SFAS No. 141, and accordingly, the purchase price has been allocated to
the assets acquired and the liabilities assumed based upon fair value at the date of the acquisition. No goodwill was recognized in the acquisition. The preliminary net purchase price was allocated as
follows:

Current assets

$
17.3Net property and equipment


21.4Other assets


0.2Liabilities assumed


(0.6
)Net purchase price

$
38.3


29

---

Fintube and Bellville.On January 3, 2000, Lone Star through Fintube, a wholly owned
subsidiary of Lone Star, purchased substantially all of the assets of Fintube Limited Partnership ("FLP") for a base purchase price of $82 million plus a $2.5 million adjustment for
working capital and approximately $1.2 million in acquisition related expenses (the "Fintube Acquisition"). The Fintube Acquisition was effective as of January 1, 2000. The working
capital adjustment was estimated at the closing and was reduced on an actual, post-closing basis by $0.7 million in July 2000. The consideration for the Fintube Acquisition
was determined following a competitive bidding process and arm's-length negotiations
between Lone Star and FLP. The acquired business involves the design and production of finned tubes and other products used in a variety of heat recovery applications. Lone Star is operating and using
the assets acquired in the Fintube Acquisition in substantially the same manner as they were used by FLP prior to the Fintube Acquisition. Lone Star and Fintube utilized three different sources of
financing to pay the purchase price. Lone Star used $20 million of cash that it received from Steel in connection with Steel's repayment of a $20 million subordinated loan from Lone
Star. Steel borrowed the $20 million that it repaid to Lone Star under Steel's revolving line of credit. Additionally, Lone Star issued approximately $20 million of Lone Star common
stock directly to the limited partners or other beneficial owners of FLP. Fintube entered into a new credit agreement that provided (i) approximately $7 million under a revolving credit
facility and (ii) $39 million under a term loan facility, which was subsequently paid in full. See Note E.

The
Fintube Acquisition has been accounted for under the purchase method of accounting, and accordingly, the purchase price has been allocated to the assets acquired and the liabilities
assumed based upon fair value at the date of the acquisition. The excess purchase price over the estimated fair values of the net assets acquired was recorded as goodwill of $47.3 million and
amortized on a straight-line basis over 30 years. Amortizable intangible assets acquired totaled $2.2 million and are amortized on a straight-line basis over
5-6 years. Beginning January 1, 2002, goodwill was no longer amortized in accordance with SFAS No. 142.

On
April 1, 2000, Lone Star through Bellville Acquisition, Inc., a wholly owned subsidiary of Lone Star, purchased substantially all of the assets of Bellville for a base
purchase price of $14.8 million less a $0.2 million adjustment for working capital (the "Bellville Acquisition"). The working capital adjustment was estimated at the closing and was
further adjusted by an additional $0.1 million on an actual, post-closing basis in July 2000. The consideration for the Bellville Acquisition was determined through
arm's-length negotiations between Lone Star and Bellville. Lone Star financed the Bellville Acquisition through cash held by Lone Star and $5.0 million of borrowings. In connection with these
borrowings, Steel borrowed $5.0 million under its present credit facility to repay the remaining $5.0 million of its subordinated loan to Lone Star. Lone Star guaranteed an additional
$5.0 million of Steel's credit facility and pledged the stock of Bellville as collateral for such guaranty. The cash paid for the Bellville Acquisition was wired to Bellville on
March 31, 2000; however, the purchase was not effective until April 1, 2000.

The
Bellville Acquisition by Lone Star has been accounted for under the purchase method of accounting, and accordingly, the purchase price has been allocated to the assets acquired and
the liabilities assumed based upon fair value at the date of the Bellville Acquisition. The excess purchase price over the estimated fair values of the net assets acquired was approximately
$7.2 million, has been recorded as goodwill and amortized on a straight-line basis over 30 years. Beginning January 1, 2002, goodwill was no longer amortized in
accordance with SFAS No. 142.

30

---

The
operating results of the Wheeling, Fintube and Bellville acquisitions have been included in the Consolidated Statements of Income from the effective dates of acquisition. The
unaudited pro forma results below assume the acquisitions occurred at the beginning of the period presented:

December 31,2002

2001

2000Net sales

$
537.3

$
674.8

$
669.4Net income (loss)


(67.4
)

21.1


41.9Basic income (loss) per share

$
(2.45
)
$
0.85

$
1.78Diluted income (loss) per share


(2.45
)

0.84


1.72


The
above pro forma results include adjustments to eliminate intercompany sales and give effect to amortization of goodwill, interest expense and other purchase price adjustments. The
pro forma results are not necessarily indicative of the operating results that would have occurred had the acquisitions been consummated as of the beginning of the periods presented, nor are they
necessarily indicative of future operating results.

GUARANTOR SUBSIDIARIESNOTE L

The following condensed, consolidating financial statements of the Company include the accounts of the Company, the combined accounts of the Guarantor
Subsidiaries and the accounts of the Non-Guarantor Subsidiary. Each of the Guarantor Subsidiaries and Non-Guarantor Subsidiary is wholly-owned by the Company. Given the size of
the Non-Guarantor Subsidiary relative to the Company on a consolidated basis, separate financial statements of the respective Guarantor Subsidiaries are not presented because management
has determined that such information is not material in assessing the Guarantor Subsidiaries.

31

---

CONDENSED CONSOLIDATING BALANCE SHEET  AT DECEMBER 31, 2002

|                                   |                            | Company |       | Guarantor
Subsidiaries |   | Non-Guarantor
Subsidiary |       | Eliminations |     | Consolidated
|---------------------------------- | -------------------------- | ------- | ----- | ---------------------- | - | ------------------------ | ----- | ------------ | --- | ------------
|Assets                             |                            |         |       |                        |   |                          |       |              |     |             
|Cash and cash equivalents          |                            | $       | 119.3 |                        | $ | 1.0                      |       | $            | 0.2 |             
|Accounts receivable, net           |                            |         | 3.9   |                        |   | 57.5                     |       |              | 2.7 |             
|Inventories                        |                            |         |      |                        |   | 148.4                    |       |              | 0.4 |             
|Other current assets               |                            |         | 1.4   |                        |   | 11.0                     |       |              | 0.2 |             
|                                   |                            |         |       |                        |   |                          |       |              |     |             
|                                   | Total current assets       |         |       | 124.6                  |   |                          | 217.9 |              |     | 3.5         
|Investment in subsidiary           |                            |         | 174.4 |                        |   |                         |       |              |    |             
|Property, plant and equipment, net |                            |         | 0.2   |                        |   | 202.1                    |       |              | 2.1 |             
|Goodwill, net                      |                            |         | 3.5   |                        |   | 51.6                     |       |              |    |             
|Other noncurrent assets            |                            |         | 198.2 |                        |   | 6.3                      |       |              |    |             
|                                   |                            |         |       |                        |   |                          |       |              |     |             
|                                   | Total assets               |         | $     | 500.9                  |   | $                        | 477.9 |              | $   | 5.6         
|                                   |                            |         |       |                        |   |                          |       |              |     |             
|Liabilities & Shareholders' Equity |                            |         |       |                        |   |                          |       |              |     |             
|Accounts payable                   |                            | $       | 2.6   |                        | $ | 28.1                     |       | $            | 7.6 |             
|Accrued liabilities                |                            |         | 1.8   |                        |   | 20.0                     |       |              | 0.6 |             
|                                   |                            |         |       |                        |   |                          |       |              |     |             
|                                   | Total current liabilities  |         |       | 4.4                    |   |                          | 48.1  |              |     | 8.2         
|Senior subordinated debt           |                            |         | 150.0 |                        |   |                         |       |              |    |             
|Other noncurrent liabilities       |                            |         | 33.9  |                        |   | 249.4                    |       |              |    |             
|                                   |                            |         |       |                        |   |                          |       |              |     |             
|                                   | Total liabilities          |         |       | 188.3                  |   |                          | 297.5 |              |     | 8.2         
|                                   | Total shareholders' equity |         |       | 312.6                  |   |                          | 180.4 |              |     | (2.6        
|                                   |                            |         |       |                        |   |                          |       |              |     |             
|                                   | Total liabilities & equity |         | $     | 500.9                  |   | $                        | 477.9 |              | $   | 5.6         
|                                   |                            |         |       |                        |   |                          |       |              |     |             

CONDENSED CONSOLIDATING INCOME STATEMENT  FOR THE YEAR ENDED DECEMBER 31, 2002

|                                      |                                   | Company |       | Guarantor
Subsidiaries |   | Non-Guarantor
Subsidiary |       | Eliminations |     | Consolidated |  
|------------------------------------- | --------------------------------- | ------- | ----- | ---------------------- | - | ------------------------ | ----- | ------------ | --- | ------------ | -
|Net Revenues                          |                                   | $       |      |                        | $ | 528.6                    |       | $            | 8.3 |              | $
|Cost of Goods Sold                    |                                   |         |      |                        |   | 520.7                    |       |              | 8.5 |              |  
|                                      |                                   |         |       |                        |   |                          |       |              |     |              |  
|                                      | Gross profit                      |         |       |                       |   |                          | 7.9   |              |     | (0.2         | )
|Selling, general and administrative   |                                   |         | 37.2  |                        |   | 30.9                     |       |              | 1.1 |              |  
|                                      |                                   |         |       |                        |   |                          |       |              |     |              |  
|                                      | Operating income (loss)           |         |       | (37.2                  | ) |                          | (23.0 | )            |     | (1.3         | )
|Equity in subsidiaries' income (loss) |                                   |         | (22.6 | )                      |   |                         |       |              |    |              |  
|Interest expense                      |                                   |         | (12.7 | )                      |   |                         |       |              |    |              |  
|Interest income                       |                                   |         | 2.5   |                        |   |                         |       |              |    |              |  
|Other income (expense), net           |                                   |         | 0.1   |                        |   | 1.7                      |       |              |    |              |  
|                                      |                                   |         |       |                        |   |                          |       |              |     |              |  
|                                      | Income (loss) before income taxes |         |       | (69.9                  | ) |                          | (21.3 | )            |     | (1.3         | )
|Income tax (expense) benefit          |                                   |         | 0.7   |                        |   |                         |       |              |    |              |  
|                                      |                                   |         |       |                        |   |                          |       |              |     |              |  
|                                      | Net income (loss)                 |         | $     | (69.2                  | ) | $                        | (21.3 | )            | $   | (1.3         | )
|                                      |                                   |         |       |                        |   |                          |       |              |     |              |  

32

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CONDENSED CONSOLIDATING CASH FLOW STATEMENT  FOR THE YEAR ENDED DECEMBER 31, 2002

|                                                    |                                    | Company                                             |     | Guarantor
Subsidiaries |       | Non-Guarantor
Subsidiary |       | Eliminations |      | Consolidated |     
|--------------------------------------------------- | ---------------------------------- | --------------------------------------------------- | --- | ---------------------- | ----- | ------------------------ | ----- | ------------ | ---- | ------------ | ----
|Net cash provided by (used in) operating activities |                                    | $                                                   | 2.9 |                        | $     | (14.9                    | )     | $            | (0.4 | )            | $   
|Cash flows from investing activities:               |                                    |                                                     |     |                        |       |                          |       |              |      |              |     
|                                                    | Capital expenditures               |                                                     |     |                       |       |                          | (15.6 | )            |      | (0.3         | )   
|                                                    | Proceeds from sale of PP&E         |                                                     |     |                       |       |                          | 0.2   |              |      |             |     
|                                                    | Acquisitions, net of cash acquired |                                                     |     | (38.3                  | )     |                          |      |              |      |             |     
|                                                    |                                    |                                                     |     |                        |       |                          |       |              |      |              |     
|                                                    |                                    | Net cash provided by (used in) investing activities |     |                        | (38.3 | )                        |       | (15.4        | )    |              | (0.3
|Cash flows from financing activities:               |                                    |                                                     |     |                        |       |                          |       |              |      |              |     
|                                                    | Advances from parent               |                                                     |     | (32.5                  | )     |                          | 32.0  |              |      | 0.5          |     
|                                                    | Proceeds from issuance of stock    |                                                     |     | 82.8                   |       |                          |      |              |      |             |     
|                                                    | Purchase of treasury stock         |                                                     |     | (1.3                   | )     |                          |      |              |      |             |     
|                                                    |                                    |                                                     |     |                        |       |                          |       |              |      |              |     
|                                                    |                                    | Net cash provided by financing activities           |     |                        | 49.0  |                          |       | 32.0         |      |              | 0.5 
|                                                    | Effect of exchange rate changes    |                                                     |     |                       |       |                          | (1.1  | )            |      |             |     
|                                                    |                                    |                                                     |     |                        |       |                          |       |              |      |              |     
|                                                    | Net change in cash                 |                                                     |     | 13.6                   |       |                          | 0.6   |              |      | (0.2         | )   
|                                                    | Cash beginning balance             |                                                     |     | 105.6                  |       |                          | 0.5   |              |      | 0.4          |     
|                                                    |                                    |                                                     |     |                        |       |                          |       |              |      |              |     
|                                                    | Cash ending balance                |                                                     | $   | 119.2                  |       | $                        | 1.1   |              | $    | 0.2          |     
|                                                    |                                    |                                                     |     |                        |       |                          |       |              |      |              |     

33

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CONDENSED CONSOLIDATING BALANCE SHEET  AT DECEMBER 31, 2001

|                                   |                            | Company |       | Guarantor
Subsidiaries |   | Non-Guarantor
Subsidiary |       | Eliminations |     | Consolidated
|---------------------------------- | -------------------------- | ------- | ----- | ---------------------- | - | ------------------------ | ----- | ------------ | --- | ------------
|Assets                            
|Cash and cash equivalents          |                            | $       | 105.6 |                        | $ | 0.5                      |       | $            | 0.4 |             
|Accounts receivable, net           |                            |         | 4.6   |                        |   | 68.2                     |       |              | 2.1 |             
|Current inventories, net           |                            |         |      |                        |   | 138.5                    |       |              | 0.9 |             
|Other current assets               |                            |         | 0.7   |                        |   | 7.4                      |       |              | 0.8 |             
|                                   |                            |         |       |                        |   |                          |       |              |     |             
|                                   | Total current assets       |         |       | 110.9                  |   |                          | 214.6 |              |     | 4.2         
|Investment in subsidiaries         |                            |         | 189.7 |                        |   |                         |       |              |    |             
|Property, plant and equipment, net |                            |         | 0.2   |                        |   | 185.4                    |       |              | 1.5 |             
|Goodwill, net                      |                            |         | 3.5   |                        |   | 51.6                     |       |              |    |             
|Other noncurrent assets            |                            |         | 166.2 |                        |   | 5.9                      |       |              | 1.5 |             
|                                   |                            |         |       |                        |   |                          |       |              |     |             
|                                   | Total assets               |         | $     | 470.5                  |   | $                        | 457.5 |              | $   | 7.2         
|                                   |                            |         |       |                        |   |                          |       |              |     |             
|Liabilities & Shareholders' Equity
|Accounts payable                   |                            | $       | 1.2   |                        | $ | 39.8                     |       | $            | 6.1 |             
|Accrued liabilities                |                            |         | 1.5   |                        |   | 21.5                     |       |              | 0.6 |             
|                                   |                            |         |       |                        |   |                          |       |              |     |             
|                                   | Total current liabilities  |         |       | 2.7                    |   |                          | 61.3  |              |     | 6.7         
|Senior subordinated debt           |                            |         | 150.0 |                        |   |                         |       |              |    |             
|Other noncurrent liabilities       |                            |         | 2.5   |                        |   | 206.6                    |       |              | 0.4 |             
|                                   |                            |         |       |                        |   |                          |       |              |     |             
|                                   | Total liabilities          |         |       | 155.2                  |   |                          | 267.9 |              |     | 7.1         
|                                   | Total shareholders' equity |         |       | 315.3                  |   |                          | 189.6 |              |     | 0.1         
|                                   |                            |         |       |                        |   |                          |       |              |     |             
|                                   | Total liabilities & equity |         | $     | 470.5                  |   | $                        | 457.5 |              | $   | 7.2         
|                                   |                            |         |       |                        |   |                          |       |              |     |             

34

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CONDENSED CONSOLIDATING INCOME STATEMENT  FOR THE YEAR ENDED DECEMBER 31, 2001

|                                    |                                                        | Company |      | Guarantor
Subsidiaries |   | Non-Guarantor
Subsidiary |      | Eliminations |      | Consolidated |  
|----------------------------------- | ------------------------------------------------------ | ------- | ---- | ---------------------- | - | ------------------------ | ---- | ------------ | ---- | ------------ | -
|Net Revenues                        |                                                        | $       |     |                        | $ | 653.5                    |      | $            | 9.7  |              | $
|Cost of Goods Sold                  |                                                        |         |     |                        |   | 583.7                    |      |              | 10.2 |              |  
|                                    |                                                        |         |      |                        |   |                          |      |              |      |              |  
|                                    | Gross profit                                           |         |      |                       |   |                          | 69.8 |              |      | (0.5         | )
|Selling, general and administrative |                                                        |         | (0.4 | )                      |   | 35.7                     |      |              | 0.8  |              |  
|                                    |                                                        |         |      |                        |   |                          |      |              |      |              |  
|                                    | Operating income (loss)                                |         |      | 0.4                    |   |                          | 34.1 |              |      | (1.3         | )
|Equity in subsidiaries' income      |                                                        |         | 19.7 |                        |   |                         |      |              |     |              |  
|Interest income (expense), net      |                                                        |         | 1.2  |                        |   | (11.1                    | )    |              |     |              |  
|Other income (expense), net         |                                                        |         | (4.9 | )                      |   | (0.5                     | )    |              | (0.1 | )            |  
|                                    |                                                        |         |      |                        |   |                          |      |              |      |              |  
|                                    | Income (loss) before income tax and extraordinary loss |         |      | 16.4                   |   |                          | 22.5 |              |      | (1.4         | )
|Income tax (expense) benefit        |                                                        |         |     |                        |   | (0.8                     | )    |              |     |              |  
|                                    |                                                        |         |      |                        |   |                          |      |              |      |              |  
|                                    | Income (loss) before extraordinary loss                |         |      | 16.4                   |   |                          | 21.7 |              |      | (1.4         | )
|Extraordinary loss                  |                                                        |         |     |                        |   | (0.6                     | )    |              |     |              |  
|                                    |                                                        |         |      |                        |   |                          |      |              |      |              |  
|                                    | Net income (loss)                                      |         | $    | 16.4                   |   | $                        | 21.1 |              | $    | (1.4         | )
|                                    |                                                        |         |      |                        |   |                          |      |              |      |              |  

CONDENSED CONSOLIDATING CASH FLOW STATEMENT  FOR THE YEAR ENDED DECEMBER 31, 2001

|                                                    |                        | Company |      | Guarantor
Subsidiaries |   | Non-Guarantor
Subsidiary |     | Eliminations |      | Consolidated |  
|--------------------------------------------------- | ---------------------- | ------- | ---- | ---------------------- | - | ------------------------ | --- | ------------ | ---- | ------------ | -
|Net cash provided by (used in) operating activities |                        | $       | (6.3 | )                      | $ | 41.0                     |     | $            | (3.4 | )            | $
|Net cash provided by (used in) investing activities |                        |         | 10.3 |                        |   | (23.9                    | )   |              | (1.0 | )            |  
|Net cash provided by (used in) financing activities |                        |         | 76.3 |                        |   | (17.0                    | )   |              | 4.3  |              |  
|                                                    |                        |         |      |                        |   |                          |     |              |      |              |  
|                                                    | Net change in cash     |         |      | 80.3                   |   |                          | 0.1 |              |      | (0.1         | )
|                                                    | Cash beginning balance |         |      | 25.3                   |   |                          | 0.4 |              |      | 0.5          |  
|                                                    |                        |         |      |                        |   |                          |     |              |      |              |  
|                                                    | Cash ending balance    |         | $    | 105.6                  |   | $                        | 0.5 |              | $    | 0.4          |  
|                                                    |                        |         |      |                        |   |                          |     |              |      |              |  

35

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CONDENSED CONSOLIDATING INCOME STATEMENT  FOR THE YEAR ENDED DECEMBER 31, 2000

|                                    |                                 | Company |      | Guarantor
Subsidiaries |   | Non-Guarantor
Subsidiary |      | Eliminations |      | Consolidated |  
|----------------------------------- | ------------------------------- | ------- | ---- | ---------------------- | - | ------------------------ | ---- | ------------ | ---- | ------------ | -
|Net Revenues                        |                                 | $       |     |                        | $ | 651.7                    |      | $            | 3.3  |              | $
|Cost of Goods Sold                  |                                 |         |     |                        |   | 566.3                    |      |              | 2.8  |              |  
|                                    |                                 |         |      |                        |   |                          |      |              |      |              |  
|                                    | Gross profit                    |         |      |                       |   |                          | 85.4 |              |      | 0.5          |  
|Selling, general and administrative |                                 |         | (0.8 | )                      |   | 34.0                     |      |              | 0.5  |              |  
|                                    |                                 |         |      |                        |   |                          |      |              |      |              |  
|                                    | Operating income                |         |      | 0.8                    |   |                          | 51.4 |              |      |             |  
|Equity in subsidiaries' income      |                                 |         | 35.5 |                        |   |                         |      |              |     |              |  
|Interest income (expense), net      |                                 |         | 1.9  |                        |   | (14.4                    | )    |              |     |              |  
|Other income (expense), net         |                                 |         | 0.4  |                        |   | 0.4                      |      |              | (0.1 | )            |  
|                                    |                                 |         |      |                        |   |                          |      |              |      |              |  
|                                    | Income (loss) before income tax |         |      | 38.6                   |   |                          | 37.4 |              |      | (0.1         | )
|                                    | Income tax (expense) benefit    |         |      |                       |   |                          | (1.7 | )            |      | (0.1         | )
|                                    |                                 |         |      |                        |   |                          |      |              |      |              |  
|                                    | Net income (loss)               |         | $    | 38.6                   |   | $                        | 35.7 |              | $    | (0.2         | )
|                                    |                                 |         |      |                        |   |                          |      |              |      |              |  

FOR THE YEAR ENDED DECEMBER 31, 2000

|                                                    |                            | Company |     | Guarantor
Subsidiaries |   | Non-Guarantor
Subsidiary |       | Eliminations |      | Consolidated |  
|--------------------------------------------------- | -------------------------- | ------- | --- | ---------------------- | - | ------------------------ | ----- | ------------ | ---- | ------------ | -
|Net cash provided by (used in) operating activities |                            | $       | 4.3 |                        | $ | (12.4                    | )     | $            | (0.5 | )            | $
|Net cash flows used in investing activities         |                            |         | 6.1 |                        |   | (102.3                   | )     |              | (2.0 | )            |  
|Net cash flows provided by financing activities     |                            |         | 3.5 |                        |   | 104.5                    |       |              | 2.8  |              |  
|                                                    |                            |         |     |                        |   |                          |       |              |      |              |  
|                                                    | Net change in cash         |         |     | 13.9                   |   |                          | (10.2 | )            |      | 0.3          |  
|                                                    | Net cash beginning balance |         |     | 11.4                   |   |                          | 10.6  |              |      | 0.2          |  
|                                                    |                            |         |     |                        |   |                          |       |              |      |              |  
|                                                    | Net cash ending balance    |         | $   | 25.3                   |   | $                        | 0.4   |              | $    | 0.5          |  
|                                                    |                            |         |     |                        |   |                          |       |              |      |              |  

36

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QUARTERLY FINANCIAL SUMMARY (UNAUDITED)NOTE M

|                         |                                           | 2002-Quarter Ended |      
|------------------------ | ----------------------------------------- | ------------------ | -----
|
|Net revenues             |                                           | $                  | 123.2
|Gross profit             |                                           |                    | 5.0  
|Net loss                 |                                           |                    | (5.9 
|Per common sharebasic   |                                           |                    |      
|                         | Net loss available to common shareholders |                    | $    
|Per common sharediluted |                                           |                    |      
|                         | Net loss available to common shareholders |                    | $    

|                                        |                                         | 2001-Quarter Ended
|--------------------------------------- | --------------------------------------- | ------------------
|
|Net revenues                            |                                         | $                 
|Gross profit                            |                                         |                   
|Income (loss) before extraordinary item |                                         |                   
|Net income (loss)                       |                                         |                   
|Per common sharebasic                  |                                         |                   
|                                        | Income (loss) before extraordinary item |                   
|                                        | Net income (loss)                       |                   
|Per common sharediluted                |                                         |                   
|                                        | Income (loss) before extraordinary item |                   
|                                        | Net income (loss)                       |                   

37

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LONE STAR TECHNOLOGIES, INC.  Schedule IIValuation and Qualifying Accounts  December 31, 2000, 2001 and 2002($ in millions)

|                             |                                                | Balance at
Beginning
of Period |   | Charged to
Costs and
Expenses |  | Charged
to Other
Accounts |     | Deductions |   | Balance
at End
of Period
|---------------------------- | ---------------------------------------------- | ------------------------------ | - | ----------------------------- |  | ------------------------- | --- | ---------- | - | ------------------------
|Year ended December 31, 2000 |                                                |                                |   |                               |  |                           |     |            |   |                         
|                             | Allowance for doubtful accounts                |                                | $ | 1.3                           |  | $                         | 0.6 |            | $ | 0.1                     
|                             | Valuation allowance on net deferred tax assets |                                |   | 83.7                          |  |                           |    |            |   |                        
|Year ended December 31, 2001 |                                                |                                |   |                               |  |                           |     |            |   |                         
|                             | Allowance for doubtful accounts                |                                |   | 2.0                           |  |                           | 0.7 |            |   |                        
|                             | Valuation allowance on net deferred tax assets |                                |   | 74.5                          |  |                           |    |            |   |                        
|Year ended December 31, 2002 |                                                |                                |   |                               |  |                           |     |            |   |                         
|                             | Allowance for doubtful accounts                |                                |   | 1.8                           |  |                           | 0.1 |            |   |                        
|                             | Valuation allowance on net deferred tax assets |                                |   | 69.4                          |  |                           |    |            |   | 23.7                    

38

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PART IV

ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K

|(a)1. |  | Financial StatementsThe following Consolidated Financial Statements are filed as part of this report:                                                                                                                                           
|----- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|      |  |                                                                                                                                                                                                                                                 
|      |  |                                                                                                                                                                                                                                                 
|      |  |                                                                                                                                                                                                                                                 
|      |  |                                                                                                                                                                                                                                                 
|      |  |                                                                                                                                                                                                                                                 
|      |  |                                                                                                                                                                                                                                                 
|2.    |  | Schedule IIValuation and Qualifying Accounts                                                                                                                                                                                                    
|Note: |  | All schedules not filed herein for which provision is made under rules of Regulation S-X have been omitted as not applicable or not required or the information required has been included in the notes to the consolidated financial
statements.
|3.    |  | Index to Exhibits (except where indicated, all exhibits were previously filed).                                                                                                                                                                  

Description

|2.1 |  | Asset Purchase Agreement dated as of November 16, 1999 by and among Lone Star, Fintube Technologies, Inc. and Fintube Limited Partnership (incorporated by reference to the same numbered Exhibit to Form 8-K of Lone
Star as filed on January 18, 2000.)                                                                              
|--- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|2.2 |  | First Amendment to Asset Purchase Agreement dated as of January 1, 2000 by and among Lone Star, Fintube Technologies, Inc. and Fintube Limited Partnership (incorporated by reference to the same numbered Exhibit to Form
8-K of Lone Star as filed on January 18, 2000.)                                                             
|2.3 |  | Asset Purchase Agreement dated as of March 7, 2000 by and among Lone Star, Bellville Acquisition, Inc. and Bellville Tube Corporation (incorporated by reference to Exhibit 2.1 to Form 8-K of Lone Star as filed on April 14,
 2000.)                                                                                                 
|2.4 |  | First Amendment to Asset Purchase Agreement dated as of March 31, 2000 by and among Lone Star, Bellville Acquisition, Inc. and Bellville Tube Corporation (incorporated by reference to Exhibit 2.2 to Form 8-K of Lone
Star as filed on April 14, 2000.)                                                                              
|2.5 |  | Purchase and Sale Agreement among North Star Steel Company, Universal Tubular Services, Inc., Cargill, Incorporated, Lone Star Technologies, Inc., and Star Seamless, Inc., dated as of August 16, 2001 (incorporated by
reference to Exhibit 2.1 to Form 8-K of Lone Star as filed on August 17, 2001).                               
|2.6 |  | Asset Purchase Agreement, dated September 9, 2002, among Lone Star, Wheeling Acquisition Corporation (a wholly-owned subsidiary of Lone Star), Wheeling and Nassau Holding Corporation, as Owner of Wheeling (incorporated by
reference to Exhibit 2.1 to Form 8-K of Lone Star dated September 30, 2002 and filed on October 7, 2002).
|2.7 |  | Amendment to Asset Purchase Agreement, dated September 30, 2002, among Lone Star, Wheeling Acquisition Corporation (a wholly-owned subsidiary of Lone Star), Wheeling and Nassau Holding Corporation (incorporated by
reference to Exhibit 2.2 to Form 8-K of Lone Star dated September 30, 2002 and filed on October 7, 2002).        
|3.1 |  | Certificate of Incorporation of Registrant (incorporated by reference to Exhibit 3(a) to Form S-4 Registration Statement of Lone Star as filed on April 4, 1986, File No. 33-4581).                                                                                                                                                    

39

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|3.2     |  | Certificate of Amendment to Certificate of Incorporation dated September 30, 1986 (incorporated by reference to Exhibit 3.2 to Form S-3 Registration Statement of Lone Star as filed on February 4, 2000, File No.
333-96207).                                                                                                                                                                                                                                                                                                                                                                                  
|------- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|3.3     |  | Agreement and Plan of Merger dated March 6, 1986, among Steel, a Texas corporation, Lone Star, a Delaware corporation, and Lone Star Steel Company Merging Corporation, a Delaware corporation (incorporated by reference to
Exhibit II to Form S-4 Registration Statement of Lone Star as filed on April 4, 1986, File No. 33-4581).                                                                                                                                                                                                                                                                           
|3.4     |  | By-Laws as adopted March 6, 1986, as amended effective September 30, 1986 and March 15, 1990 (incorporated by reference to Exhibit 3.5 to Form S-3 Registration Statement of Lone Star as filed on February 4, 2000, file No.
333-96207).                                                                                                                                                                                                                                                                                                                                                                       
|3.5     |  | Certificate of Amendment to Certificate of Incorporation dated May 20, 1998 (incorporated by reference to Exhibit 3.4 to Form 10-Q for the quarter ended June 30, 1998).                                                                                                                                                                                                                                                                                                                                                                                                                                        
|4.1     |  | Statement of Resolution establishing Cumulative Preferred Stock, Series A (par value $1 per share), dated September 9, 1988 (incorporated by reference to Exhibit 3(c) of Form 10-K of Lone Star filed April 7,
1989).                                                                                                                                                                                                                                                                                                                                                                                          
|4.2     |  | Lone Star Indenture with Bankers Trust Company, Trustee, with respect to $50,000,000 8% Convertible Subordinated Debentures Due 2002 (Eurobonds), dated August 26, 1987 (incorporated by reference to Exhibit 4(c) of Form
10-K of Lone Star as filed on April 7, 1989).                                                                                                                                                                                                                                                                                                                                        
|4.3     |  | Stock Registration Agreement dated January 1, 2000 among Lone Star Technologies, Inc., Fintube Limited Partnership, Yorktown Energy Partners, Brown University Third Century Fund, Warburg, Dillon, Reed, L.L.C. and
Ticonderoga Partners and the stockholders named therein (incorporated by reference to Exhibit 4.1 to Form S-3 Registration Agreement of Lone Star as filed on February 4, 2000, File No. 333-96207).                                                                                                                                                                                       
|4.4     |  | Letter Agreement dated October 19, 2000 by Alpine Capital, L.P., Keystone, Inc. and The Anne T. and Robert M. Bass Foundation to Lone Star (incorporated by reference to Exhibit 4.6 to Amendment No. 2 to Form S-3
Registration Statement of Lone Star as filed on October 30, 2000, File No. 333-41130).                                                                                                                                                                                                                                                                                                      
|4.5     |  | Indenture dated as of May 29, 2001 among Lone Star, Environmental Holdings, Inc., Zinklahoma, Inc., Lone Star Steel Company, Lone Star Logistics, Inc., Lone Star Steel International, Inc., Lone Star Steel Sales Company,
Rotac, Inc., T&N Lone Star Warehouse Co., Texas & Northern Railway Company, Lone Star STHoldings, Inc., Fintube Technologies, Inc., Fintube Canada, Inc., Bellville Tube Corporation, and Wells Fargo Bank Minnesota, National Association
(incorporated by reference to Exhibit 4.3 to Form S-4 Registration Statement of Lone Star as filed on June 27, 2001, File No. 333-63944).
|4.6     |  | Exchange and Registration Rights Agreement dated May 29, 2001, among Lone Star, Goldman, Sachs & Co., Salomon Smith Barney Inc., Banc of America Securities LLC, CIBC World Markets Corp., Dresdner Kleinwort Wasserstein
Securities LLC, RBC Dominion Securities Corporation, and The Robinson-Humphrey Company, LLC (incorporated by reference to Exhibit 4.4 to Form S-4 Registration Statement of Lone Star as filed on June 27, 2001, File No. 333-63944).                                                                                                                                                 
|10.1    |  | Amended 1985 Long-Term Incentive Plan (incorporated by reference to Exhibit A of Proxy Statement of Lone Star as filed on October 22, 1993).*                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|10.1(a) |  | Amendments to the Amended 1985 Long-Term Incentive Plan adopted on May 8, 1997 (incorporated by reference to Exhibit 10.1(a) to Form 10-Q of LoneStar for the quarter ended June 30, 1997). *                                                                                                                                                                                                                                                                                                                                                                                                                   
|10.1(b) |  | Amendments to the Amended 1985 Long-Term Incentive Plan adopted on May 14, 1998 (incorporated by reference to same numbered Exhibit to Form 10-Q for the quarter ended June 30, 1998). *                                                                                                                                                                                                                                                                                                                                                                                                                        

40

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|10.1(c)  |  | Amendments to the Amended 1985 Long-Term Incentive Plan adopted on May 11, 1999 (incorporated by reference to same numbered Exhibit to Form 10-Q for the quarter ended June 30, 1999). *                                                                                                                                                                                                        
|-------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|10.1(d)  |  | Amendment to the Amended 1985 Long-Term Incentive Plan adopted on May 9, 2000 (incorporated by reference to same numbered Exhibit to Form 10-Q for the quarter ended June 30, 2000.) *                                                                                                                                                                                                          
|10.1(e)  |  | Amendments to the Amended 1985 Long-Term Incentive Plan adopted on May 8, 2001 (incorporated by reference to same numbered exhibit to Form 10-Q for the quarter ended June 30, 2001). *                                                                                                                                                                                                         
|10.1(f)  |  | Amendment to the 1985 Long-Term Incentive Plan adopted on May 9, 2002 (incorporated by reference to same numbered exhibit to Form 10-Q for the quarter ended June 30, 2002). *                                                                                                                                                                                                                  
|10.2     |  | Employment Retention Policy adopted May 8, 1997, letter agreements dated May 22, 1997 between Lone Star and John P. Harbin, Charles J. Keszler and Robert F. Spears and between Steel and W. Byron Dunn and letter agreement
dated September 25, 1997 between Lone Star and Rhys J. Best (incorporated by referenceto same numbered Exhibit to Form 10-K for the year ended December 31, 1997).*
|10.3     |  | Contract for Electric Service dated September 30, 1996 between Southwestern Electric Power Company and Steel (incorporated by reference to Exhibit 10.21 to Form 10-K for the year ended December 31, 1996).                                                                                                                                                                                    
|10.4     |  | Credit Agreement dated as of October 2, 1997 by and among Steel and the banks named therein (incorporated by reference to Exhibit 10.23 to Form 10-K for the year ended December 31, 1997).                                                                                                                                                                                                     
|10.5     |  | Cost Sharing Agreement dated as of July 1, 1997 between Lone Star and Steel (incorporated by reference to Exhibit 10.24 to Form 10-K for the year ended December 31, 1997).                                                                                                                                                                                                                     
|10.6     |  | Compromise and Settlement Agreement and Release dated July 31, 1997 between Lone Star and Guaranty Federal Bank, F.S.B. (incorporated by reference to Exhibit 10.26 to Form 10-K for the year ended December 31,
1997).                                                                                                                                                                         
|10.7     |  | Consulting Agreement dated as of July 23, 1998 between Lone Star and John P. Harbin (incorporated by reference to Exhibit 10.27 to Form 10-Q for the quarter ended September 30, 1998).*                                                                                                                                                                                                        
|10.8     |  | Phantom Stock Deferred Compensation Plan adopted on September 22, 1998 (incorporated by reference to Exhibit 10.28 to Form 10-Q for the quarter ended September 30, 1998).*                                                                                                                                                                                                                     
|10.9     |  | Financing Agreement dated March 12, 1999 between Steel and The CIT Group/Business Credit, Inc. (incorporated by reference to Exhibit 10.30 to Form 10-Q for the quarter ended March 31, 1999).                                                                                                                                                                                                  
|10.10    |  | Subordination Agreement dated March 12, 1999 between Lone Star and The CIT Group/Business Credit, Inc. (incorporated by reference to Exhibit 10.31 to Form 10-Q for the quarter ended March 31, 1999).                                                                                                                                                                                          
|10.11    |  | Intercreditor Agreement dated March 12, 1999 among Lone Star, Steel and The CIT Group/Business Credit, Inc. (incorporated by reference to Exhibit 10.32 to Form 10-Q for the quarter ended March 31, 1999).                                                                                                                                                                                     
|10.12    |  | Amendment agreement dated December 28, 1999 to Financing Agreement dated March 12, 1999 between Steel and The CIT Group/Business Credit, Inc. (incorporated by reference to Exhibit 10.33 to Form 10-K for the year ended
December 31, 1999).                                                                                                                                                   
|10.13(a) |  | Limited Guaranty dated December 28, 1999 of Lone Star in favor of The CIT Group/Business Credit, Inc., as Agent (incorporated by reference to Exhibit 10.34 to Form 10-K for the year ended December 31, 1999).                                                                                                                                                                                 

41

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|10.14(b) |  | Limited Guaranty dated as of March 31, 2000 by and between the CIT Group/Business Credit, Inc., as agent, and Lone Star (incorporated by reference to Exhibit 2.3 to Form 8-K of Lone Star as filed on April 14,
2000).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|-------- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|10.15(c) |  | Stock Pledge Agreement dated as of March 31, 2000 by and between the CIT Group/Business Credit, Inc., as agent, and Lone Star (incorporated by reference to Exhibit 2.4 to Form 8-K of Lone Star as filed on April 14,
2000).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|10.16    |  | Credit Agreement dated as of January 3, 2000 among Fintube Technologies, Inc. ("Fintube"), the financial institutions named in the Agreement ("Lenders") and Bank of America, N.A., as Agent for the Lenders (incorporated by
reference to Exhibit 10.35 to Form 10-Q for the quarter ended June 30, 2000).                                                                                                                                                                                                                                                                                                                                                                                                                 
|10.17    |  | Employee Stock Purchase Plan adopted on May 9, 2000 (incorporated by reference to Exhibit 10.36 to Form 10-Q for the quarter ended June 30, 2000).*                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|10.18    |  | Deferred Compensation Plan adopted by Lone Star's Board of Directors on May 9, 2000 and as amended by Lone Star's Board of Directors on December 3, 2002. *                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|10.19    |  | Amendment agreement dated September 29, 2000 to Financing Agreement dated March 12, 1999 between Steel and The CIT Group/Business Credit, Inc. (incorporated by reference to Exhibit 10.38 to Form 10-Q for the quarter ended
September 30, 2000).                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|10.20    |  | Amendment agreement dated October 25, 2000 to Financing Agreement dated March 12, 1999 between Steel and The CIT Group/Business Credit, Inc. (incorporated by reference to Exhibit 10.39 to Form 10-K for the year ended
December 31, 2000).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|10.21    |  | Modification Agreement dated September    , 2000 to Credit Agreement dated as of January 3, 2000 among Fintube, the Lenders and Bank of America, N.A.,as Agent for the Lenders (incorporated by reference
to Exhibit 10.40 to Form 10-K for the year ended December 31, 2000).                                                                                                                                                                                                                                                                                                                                                                                                                                              
|10.22    |  | Second Modification Agreement dated February 20, 2001 to Credit Agreement dated as of January 3, 2000 among Fintube, the Lenders and Bank of America, N.A., as Agent for the Lenders (incorporated by reference to Exhibit
10.41 to Form 10-K for the year ended December 31, 2000).                                                                                                                                                                                                                                                                                                                                                                                                                                        
|10.23    |  | Employment Agreement dated May 7, 2001 between Lone Star and Rhys J. Best (incorporated by reference to Exhibit 99.1 to Form 8-K of Lone Star as filed on May 9, 2001).*                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|10.24    |  | Purchase Agreement dated May 23, 2001 among Lone Star, Goldman, Sachs & Co., Salomon Smith Barney Inc., Banc of America Securities LLC, RBC Dominion Securities Corporation, and The Robinson-Humphrey Company, LLC
(incorporated by reference to Exhibit 10.10 to Form S-4 Registration Statement of Lone Star as filed on June 27, 2001, File No. 333-63944).                                                                                                                                                                                                                                                                                                                                                             
|10.25    |  | Consulting Employment Agreement dated January 1, 2000, among Fintube Technologies, Inc., Jerry E. Ryan, and Lone Star (incorporated by reference to Exhibit 10.42 to Form 10-Q for the quarter ended March 31,
2001).*                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|10.26    |  | Employment Agreement dated January 1, 2000 between Fintube Technologies, Inc. and Larry Sims (incorporated by reference to Exhibit 10.43 to Form 10-Q for the quarter ended March 31, 2001).*                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|10.27    |  | Amended and Restated Financing Agreement dated October 8, 2001 among The CIT Group/Business Credit, Inc. (as Agent and Lender), the Lenders party thereto, and Lone Star, Lone Star Steel Company, Fintube Technologies, Inc.,
 Lone Star Logistics, Inc., T&N Lone Star Warehouse Co., Texas & Northern Railway Company, Fintube Canada, Inc. and Bellville Tube Corporation (as Borrowers), and Environmental Holdings, Inc., Zinklahoma, Inc., Lone Star Steel International,
Inc., Lone Star Steel Sales Company, Rotac, Inc., and Lone Star ST Holdings, Inc. (as Guarantors) (incorporated by reference to Exhibit 10.13 to Amendment No. 2 to Form S-4 of Lone Star as filed on October 9, 2001, File No. 333-63944).

42

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|10.28 |  | First Amendment, dated as of December 31, 2001, to Amended and Restated Financing Agreement dated October 8, 2001 (incorporated by reference to Exhibit 10.31 to Form 10-Q for the quarter ended March 31,
2002).      
|----- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|10.29 |  | Second Amendment, dated March 13, 2002, to Amended and Restated Financing Agreement dated October 8, 2001 (incorporated by reference to Exhibit 10.32 to Form 10-Q for the quarter ended March 31, 2002).              
|10.30 |  | Third Amendment, dated as of September 30, 2002, to Amended and Restated Financing Agreement dated October 8, 2001 (incorporated by reference to Exhibit 10.33 to Form 10-Q for the quarter ended September 30,
2002). 
|10.31 |  | Fourth Amendment, dated as of September 30, 2002, to Amended and Restated Financing Agreement dated October 8, 2001 (incorporated by reference to Exhibit 10.34 to Form 10-Q for the quarter ended September 30,
2002).
|21    |  | List of Subsidiaries.                                                                                                                                                                                                  
|23.1  |  | Consent of Deloitte & Touche LLP.**                                                                                                                                                                                    
|23.2  |  | Consent of BDO-Hernandez Marron y Cia., S.C.**                                                                                                                                                                         
|24    |  | Powers of Attorney.                                                                                                                                                                                                    
|99.1  |  | Code of Ethics for Senior Financial Officers adopted by Lone Star's Board of Directors on March 20, 2003.                                                                                                              

---

Date of Report

Date Filed

DescriptionSeptember 30, 2002

October 1, 2002

Disclosing press release regarding Lone Star's acquisition of Wheeling.October 2, 2002

October 2, 2002

Regulation FD disclosure furnishing information regarding planned presentation to investors.September 30, 2002

October 7, 2002

Disclosing Lone Star's acquisition of Wheeling.November 11, 2002

November 8, 2002

Regulation FD disclosure furnishing information regarding planned presentation to investors.September 30, 2002

November 14, 2002

Form 8-K/A (Amendment No. 1) amending Form 8-K filed on October 7, 2002 regarding Lone Star's acquisition of Wheeling and providing financial statements of Wheeling and pro forma financial information.September 30, 2002

November 27, 2002

Form 8-K/A (Amendment No. 2) amending Form 8-K filed on October 7, 2002 regarding Lone Star's acquisition of Wheeling and restating and supplementing financial statements of Wheeling and pro forma financial
information.


43

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ITEM 16. SIGNATURES

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

|                     |  | LONE STAR TECHNOLOGIES, INC.
|-------------------- |  | ----------------------------
|Date: April 17, 2003 |  | By:                         

44

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CERTIFICATION PURSUANT TO RULE 13A-14 OF THE SECURITIES EXCHANGE ACT OF 1934 AS  ADOPTED PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I,
Rhys J. Best, Chief Executive Officer of the Company, certify that:



|                     |  | /s/RHYS J. BESTRhys J. Best
Chief Executive Officer
|-------------------- |  | ---------------------------------------------------
|Date: April 17, 2003 |  |                                                    

45

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CERTIFICATION PURSUANT TO RULE 13A-14 OF THE SECURITIES EXCHANGE ACT OF 1934 AS  ADOPTED PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I,
Charles J. Keszler, Chief Financial Officer of the Company, certify that:



|                     |  | /s/CHARLES J. KESZLERCharles J. Keszler
Chief Financial Officer
|-------------------- |  | ---------------------------------------------------------------
|Date: April 17, 2003 |  |                                                                

46

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CERTIFICATION FILED PURSUANT TO  18 U.S.C. SECTION 1350,  AS ADOPTED BY  SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In
connection with the Annual Report of Lone Star Technologies, Inc. (the "Company") on Form 10-K for the period ending December 31, 2002 as filed with the Securities
and Exchange Commission (the "Report"), each of the undersigned hereby certifies in his capacity as an officer of the Company, pursuant to 18 U.S.C. § 1350, as adopted by § 906
of the Sarbanes-Oxley Act of 2002, that to his knowledge:



|/s/RHYS J. BESTRhys J. Best
Chief Executive Officer |  | /s/CHARLES J. KESZLERCharles J. Keszler
Chief Financial Officer
|--------------------------------------------------- |  | ---------------------------------------------------------------

Date:
April 17, 2003

47

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