**INDEX TO CONSOLIDATED FINANCIAL STATEMENTS**
| Description                                                                                                                                                                                                                                              | Page                           |
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------------------------------|
|                                                                                                                                                                                                                                                          |
| Management's Report to theShareholders..........................................................                                                          | 2                              |
| Auditors'Report........................................................................................ | 3                              |
| Consolidated BalanceSheets.........................................................................                              | 4                              |
| Consolidated Statements of Earnings and RetainedEarnings....................................                                                                                                 | 5                              |
| Consolidated Cash FlowStatements................................................................                                                | 6                              |
| Notes to the Consolidated FinancialStatements...................................................                                                                    | 7                              |
|                                                                                                                                                                                                                                 |       |
|                                                                                                                                                                                                                                                          |

**Management's Report to the Shareholders**

The accompanying consolidated financial statements, management's discussion and analysisand all information in the Annual Report have been prepared by management and approved by the Audit Committee and the Board ofDirectors of the Company.  The consolidated financial statements were prepared in accordance with Canadian generally acceptedaccounting principles and, where appropriate, reflect management's best estimates and judgements.  Management is responsiblefor the accuracy, integrity and objectivity of the consolidated financial statements and management's discussion and analysiswithin reasonable limits of materiality and for the consistency of financial data included in the text of the Annual Report withthat contained in the consolidated financial system.

To assist management in the discharge of these responsibilities, the Company maintains asystem of internal controls designed to provide reasonable assurance that its assets are safeguarded; that only valid andauthorized transactions are executed; and that accurate, timely and comprehensive financial information is prepared.

The Company's Audit Committee is appointed annually by the Board of Directors and iscomprised of Directors, all of whom are neither employees nor officers of the Company.  The Audit Committee meets withmanagement as well as with external auditors to satisfy itself that management is properly discharging its financial reportingresponsibilities and to review the consolidated financial statements, the independent auditors' report and the management'sdiscussion and analysis.  The Audit Committee reports its findings to the Board of Directors for consideration in approvingthe consolidated financial statements and management discussion and analysis for presentation to the shareholders.  Theexternal auditors have direct access to the Audit Committee of the Board of Directors.

The consolidated financial statements have been independently audited by Deloitte &Touche LLP.  Their report outlines the nature of their audits and expresses their opinion on the consolidated financialstatements of the Company.
| (signed) E. M. Siegel, Jr.            |   |   | (signed) Brian R. Hedges     |
|---------------------------------------|--------|--------|------------------------------|
|                                       |   |   |                              |
| President and Chief Executive Officer |   |   | Executive Vice President and |
|              |   |   | Chief Financial Officer      |

**Report of Independent Chartered Accountants**

To the Shareholders of Russel Metals Inc.

We have audited the consolidated balance sheets of Russel Metals Inc. as at December 31,2004 and 2003 and the consolidated statements of earnings and retained earnings and of cash flows for each of the years in thethree-year period ended December 31, 2004.  These financial statements are the responsibility of the Company'smanagement.  Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with Canadian generally accepted auditingstandards.  Those standards require that we plan and perform an audit to obtain reasonable assurance whether the financialstatements are free of material misstatement.  An audit includes examining, on a test basis, evidence supporting the amountsand disclosures in the financial statements.  An audit also includes assessing the accounting principles used and significantestimates made by management, as well as evaluating the overall financial statement presentation.

In our opinion, these consolidated financial statements present fairly, in all materialrespects, the financial position of the Company as at December 31, 2004 and 2003 and the results of its operations and its cashflows for each of the years in the three year period ended December 31, 2004 in accordance with Canadian generally acceptedaccounting principles.

The Company is not required to have, nor were we engaged to perform, an audit of itsinternal control over financial reporting.  Our audit included consideration of internal control over financial reporting as abasis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion onthe effectiveness of the Company’s internal control over financial reporting.  Accordingly we express no suchopinion.
| (signed) Deloitte & Touche LLP           |       |
|----------------------------------------------|--------------------------------|
|                                              |       |
| Independent Registered Chartered Accountants |       |

Toronto, OntarioFebruary 4, 2005

COMMENTS BY AUDITORS ON CANADA -- U.S. REPORTING DIFFERENCES

In the United States of America, reporting standards for auditors require the addition ofan explanatory paragraph (following the opinion paragraph) when there are changes in accounting principles that have a materialeffect on the comparability of the Company's financial statements, such as the changes described in Note 2 to the financialstatements.  Our report to the Shareholders, dated February 4, 2005, is expressed in accordance with Canadian reportingstandards, which do not require a reference to such a change in accounting principles in the auditors' report when the change isproperly accounted for and adequately disclosed in the financial statements.
| (signed) Deloitte & Touche LLP           |       |
|----------------------------------------------|--------------------------------|
|                                              |       |
| Independent Registered Chartered Accountants |       |

Toronto, OntarioFebruary 4, 2005

**Consolidated Balance Sheets**
| *At December 31 ($000)*                                                                                  | **2004**                                                                         | ** ** | 2003                           |
|----------------------------------------------------------------------------------------------------------|----------------------------------------------------------------------------------|------------|--------------------------------|
|                                                                                                          |
| **ASSETS**                                                                                               |                                                         | ** ** |       |
| **Current**                                                                                              |                                                         | ** ** |       |
|             Cash                             | ** $           634** | ** ** | $   19,008      |
|             Accountsreceivable               | **360,696**                                                                      | ** ** | 248,904                        |
|             Inventories                      | **553,915**                                                                      | ** ** | 303,048                        |
|             Prepaid expensesand other assets | **7,069**                                                                        | ** ** | 5,028                          |
|             Income taxesrecoverable          | **5,996**                                                                        | ** ** | 5,912                          |
|             Discontinuedoperations (Note 3d) | **9,483**                                                                        | ** ** | 1,107                          |
|                                                                                                          |
|                                                                                 | **937,793**                                                                      | ** ** | 583,007                        |
|                                                                                 |                                                         | ** ** |       |
| **Property, Plant and Equipment (Note 5)**                                                               | **180,655**                                                                      | ** ** | 184,929                        |
| **Assets Held for Sale (Note 3d)**                                                                       | **6,291**                                                                        | ** ** | 1,622                          |
| **Deferred Financing Charges (Note 7)**                                                                  | **8,357**                                                                        | ** ** | 3,547                          |
| **Goodwill (Note 3)**                                                                                    | **9,205**                                                                        | ** ** | 4,216                          |
| **Future Income Tax Assets (Note 9)**                                                                    | **1,614**                                                                        | ** ** | 10,458                         |
| **Other Assets**                                                                                         | **2,566**                                                                        | ** ** | 2,840                          |
|                                                                                                          |
|                                                                                 | ** $ 1,146,481**                                                       | ** ** | $ 790,619                 |
|                                                                                                          |
| **LIABILITIES AND SHAREHOLDERS' EQUITY**                                                                        |                              | ** ** |       |
|-----------------------------------------------------------------------------------------------------------------|-------------------------------------------------------|------------|--------------------------------|
| **Current**                                                                                                     |                              | ** ** |       |
|             Bank indebtedness(Note 6)               | ** $      33,242** | ** ** | $   78,093      |
|             Accounts payableand accrued liabilities | **348,166**                                           | ** ** | 217,173                        |
|             Income taxespayable                     | **60,049**                                            | ** ** | 11,729                         |
|             Discontinuedoperations (Note 3d)        | **9,403**                                             | ** ** | 2,729                          |
|                                                                                                                 |
|                                                                                        | **450,860**                                           | ** ** | 309,724                        |
|                                                                                        |                              | ** ** |       |
| **Other Accrued Liabilities (Note 11)**                                                                         | **11,440**                                            | ** ** | -                              |
| **Long-Term Debt (Note 7)**                                                                                     | **210,630**                                           | ** ** | 179,402                        |
| **Pensions and Benefits (Note 13)**                                                                             | **10,146**                                            | ** ** | 11,542                         |
| **Future Income Tax Liabilities (Note 9)**                                                                      | **6,831**                                             | ** ** | 6,109                          |
|                                                                                                                 |
|                                                                                        | **689,907**                                           | ** ** | 506,777                        |
|                                                                                                                 |
|                                                                                        |                              | ** ** |       |
| **Contingencies, Guarantees and Commitments (Note 14)**                                                         |                              | ** ** |       |
| **Shareholders' Equity**                                                                                        |                              | ** ** |       |
|             Preferred shares(Note 10)               | **-**                                                 | ** ** | 30,000                         |
|             Shareholders'equity (Note 10)           | **456,574**                                           | ** ** | 253,842                        |
|                                                                                                                 |
|                                                                                        | **456,574**                                           | ** ** | 283,842                        |
|                                                                                                                 |
|                                                                                        | ** $ 1,146,481**                            | ** ** | $ 790,619                 |
|                                                                                                                 |

ON BEHALF OF THE BOARD,
| (signed) C.R. Fiora |   |   |  (signed) R. Hartog |
|---------------------|--------|--------|--------------------------|
|                     |   |   |                          |
| Director            |   |   |  Director           |

****

****

**Consolidated Statements of Earnings and Retained Earnings**
| *For the Years Ended December 31*                                                                   |                                              |                                                |                                                |
|-----------------------------------------------------------------------------------------------------|-----------------------------------------------------------------------|-------------------------------------------------------------------------|-------------------------------------------------------------------------|
| *($000 except per share data)*                                                                      | **2004**                                                              | 2003                                                                    | 2002                                                                    |
|                                                                                                     |
| **Revenues**                                                                                        | ** $ 2,418,624**                                            |  $ 1,506,983                                                  |  $ 1,403,275                                                  |
| Cost of sales and operating expenses                                                                | **2,095,076**                                                         | 1,446,023                                                               | 1,332,864                                                               |
|                                                                                                     |
| **Earnings before the following**                                                                   | **323,548**                                                           | 60,960                                                                  | 70,411                                                                  |
| Restructuring costs (Note 3b)                                                                       | **3,632**                                                             | 3,583                                                                   | 2,749                                                                   |
| Debt restructuring costs (Notes 6 and 7)                                                            | **13,718**                                                            | -                                                                       | -                                                                       |
| Foreign exchange gain (Note 11d)                                                                    | **-**                                                                 | (348)                                                                   | (261)                                                                   |
| Goodwill impairment (Note 3c)                                                                       | **-**                                                                 | 2,410                                                                   | -                                                                       |
| Interest expense -- net (Note 8)                                                                    | **20,024**                                                            | 22,723                                                                  | 20,324                                                                  |
|                                                                                                     |
| **Earnings before income taxes**                                                                    | **286,174**                                                           | 32,592                                                                  | 47,599                                                                  |
| Provision for income taxes (Note 9)                                                                 | **(105,405)**                                                         | (13,333)                                                                | (18,363)                                                                |
|                                                                                                     |
| **Earnings from continuing operations**                                                             | **180,769**                                                           | 19,259                                                                  | 29,236                                                                  |
| Loss from discontinued operations (Note 3d)                                                         | **(2,923)**                                                           | (760)                                                                   | -                                                                       |
|                                                                                                     |
| **Net earnings for the year**                                                                       | **177,846**                                                           | 18,499                                                                  | 29,236                                                                  |
|                                                                            |                                              |                                                |                                                |
| **Retained Earnings ---**                                                                           |                                              |                                                |                                                |
|                                                                            |                                              |                                                |                                                |
| Dividends on preferred shares                                                                       | **(611)**                                                             | (2,250)                                                                 | (2,250)                                                                 |
|                                                                                                     |
| **Earnings available to common shareholders**                                                       | **177,235**                                                           | 16,249                                                                  | 26,986                                                                  |
|                                                                            |                                              |                                                |                                                |
| Dividends on common shares                                                                          | **(25,004)**                                                          | (11,605)                                                                | (6,466)                                                                 |
| Retained earnings, beginning of the year                                                            | **110,502**                                                           | 105,858                                                                 | 100,461                                                                 |
| Goodwill impairment (Note 2)                                                                        | **-**                                                                 | -                                                                       | (15,123)                                                                |
|                                                                                                     |
| **Retained earnings, end of the year (Note 10)**                                                    | ** $   262,733**                                  |  $    110,502                                  |  $    105,858                                  |
|                                                                                                     |
|                                                                            |                                              |                                                |                                                |
| **Basic earnings per common share**                                                                 |                                              |                                                |                                                |
| **            -- continuingoperations** | ** $         3.70** |  $          0.42 |  $          0.71 |
|                                                                                                     |
| **Basic earnings per common share**                                                                 | ** $         3.64** |  $          0.41 |  $          0.71 |
|                                                                                                     |
| **Diluted earnings per common share**                                                               |                                              |                                                |                                                |
| **            -- continuingoperations** | ** $         3.62** |  $          0.42 |  $          0.68 |
|                                                                                                     |
| **Diluted earnings per common share**                                                               | ** $         3.56** |  $          0.39 |  $          0.68 |
|                                                                                                     |

**Consolidated Cash Flow Statements**
|                                                                                                                            |
|----------------------------------------------------------------------------------------------------------------------------|
| *For the Years Ended December 31 ($000)*                                                                                   | **2004** | 2003 | 2002 |
|                                                                                                                            |
| Operating activities                                                                                                       |       |       |       |
|             Earnings from continuing operations                | ** $  180,769** |  $     19,259 |  $     29,236 |
|             Depreciation andamortization                       | **18,608** | 16,335 | 15,192 |
|             Future incometaxes                                 | **5,021** | (426) | 8,708 |
|             Loss (gain) on sale of fixed assets                | **264** | (89) | 26 |
|             Restructuring costs                                | **2,051** | 3,162 | 2,749 |
|             Debt restructuring costs                           | **3,071** | - | - |
|             Stock-based compensation                           | **924** | 217 | - |
|             Goodwill impairment                                | **-** | 2,410 | - |
|             Foreign exchange gain                              | **-** | - | (261) |
|                                                                                                                            |
| Cash from operating activities before working capital                                                                      | **210,708** | 40,868 | 55,650 |
|                                                                                                                            |
| Changes in non-cash working capital items                                                                                  |       |       |       |
|             Accountsreceivable                                 | **(122,814)** | 18,193 | (210) |
|             Inventories                                        | **(260,898)** | 91,439 | (55,841) |
|             Accounts payableand accrued liabilities            | **128,353** | (12,669) | 23,926 |
|             Current incometaxes                                | **54,711** | 11,681 | 3,919 |
|             Other                                              | **(2,075)** | 2,571 | (923) |
|                                                                                                                            |
| Change in non-cash working capital                                                                                         | **(202,723)** | 111,215 | (29,129) |
|                                                                                                                            |
| **Cash from operating activities**                                                                                         | **7,985** | 152,083 | 26,521 |
|                                                                                                                            |
| Financing activities                                                                                                       |       |       |       |
|              (Decrease)increase in bank borrowing              | **(44,851)** | 56,952 | 21,141 |
|             Repurchase oflong-term debt                        | **(184,715)** | - | - |
|             Issuance oflong-term debt                          | **235,200** | - | - |
|             Issue of commonshares (Note 10)                    | **54,439** | 5,663 | 253 |
|             Redemption ofpreferred shares                      | **(30,000)** | - | - |
|             Repayment of debtassumed                           | **-** | (99,262) | - |
|             Dividends oncommon shares                          | **(25,004)** | (11,605) | (6,466) |
|             Dividends onpreferred shares                       | **(611)** | (2,250) | (2,250) |
|             Deferred financingcosts                            | **(9,117)** | (77) | (14) |
|                                                                                                                            |
| **Cash from (used in) financing activities**                                                                               | **(4,659)** | (50,579) | 12,664 |
|                                                                                                                            |
| Investing activities                                                                                                       |       |       |       |
|             Purchase of fixed assets                           | **(25,394)** | (34,879) | (12,768) |
|             Proceeds on sale of fixed assets                   | **849** | 1,804 | 2,328 |
|             Proceeds from sale of business and assets held for |       |       |       |
|                sale (Notes3 and 4)              | **3,675** | - | - |
|             Purchase of businesses (Note 3)                    | **-** | (70,359) | (21,406) |
|             Other                                              | **305** | (4,628) | 578 |
|                                                                                                                            |
| **Cash used in investing activities**                                                                                      | **(20,565)** | (108,062) | (31,268) |
|                                                                                                                            |
| **Discontinued operations**                                                                                                |       |       |       |
|             Operating activities                               | **(1,484)** | (593) | - |
|             Investing activities                               | **349** | 1,091 | - |
|                                                                                                                            |
| **Cash from (used in) discontinued operations**                                                                            | **(1,135)** | 498 | - |
|                                                                                                                            |
| **Increase (decrease) in cash**                                                                                            | **(18,374)** | (6,060) | 7,917 |
| Cash, beginning of the year                                                                                                | **19,008** | 25,068 | 17,151 |
|                                                                                                                            |
| **Cash, end of the year**                                                                                                  | ** $          634** |  $    19,008 |  $    25,068 |
|                                                                                                                            |

**Notes to the Consolidated Financial Statements**

**1.      Summary of Significant AccountingPolicies**

*a)*       *Principles ofconsolidation*

The consolidated financial statements include the accounts of Russel Metals Inc. and itssubsidiary companies herein referred to as the Company.  The reporting currency is Canadian dollars unless otherwisenoted.  All material inter-company balances, transactions and profits have been eliminated.

These consolidated financial statements have been prepared in accordance with Canadiangenerally accepted accounting principles.  Material differences from accounting principles generally accepted in the U.S. aredisclosed in Note 15.

The revenue and results of operations of Poutrelles Delta have been reclassified toreflect the classification of this operation as discontinued (Note 3).

*b)***      ***Inventories*

Inventories are recorded at the lower of cost and net realizable value.  Cost isdetermined on either an average cost basis or an actual cost basis depending on the business unit.

*c)***      ***Property, plant, equipmentand depreciation*

Property, plant, equipment and leasehold improvements are recorded at cost. Depreciation is provided on a straight-line basis at rates that charge the original cost of such assets to operations over theirestimated useful lives.  The rates used are 20 to 40 years for buildings, 10 years for machinery and equipment, 2 to 5 yearsfor computer equipment and over the lease term for leasehold improvements.  Depreciation expense was $17,337,000 in 2004(2003: $15,145,000; 2002: $13,973,000).

*d)***      ***Deferred financing chargesand amortization*

Costs incurred that relate to financing are deferred and amortized over the period of therelated financing.  Deferred financing charges are recorded at cost less accumulated amortization.  Amortization ofdeferred financing charges was $1,271,000 in 2004 (2003: $1,190,000; 2002: $1,219,000).

*e)***      ***Goodwill andamortization*

Goodwill represents the excess purchase price paid on acquisitions over the value assignedto identifiable net assets acquired.  Goodwill is not amortized but is subject to an impairment test performed at leastannually (see Note 3).

*f)***      ***Pensions*

The cost of pension benefits earned by employees covered under defined benefit plans isdetermined using the projected benefit method prorated on service and is charged to expense as services are rendered. Aggregate gains and losses and past service costs are amortized on a straight-line basis over the estimated average remainingservice lives of the employee groups, using the corridor approach.  The cost of post-retirement benefits other than pensionsis recognized on an accrual basis over the working lives of employees.

*g)***      ***Income taxes*

The Company uses the liability method of income tax allocation.  Under this method,future tax assets and liabilities are determined based on differences between the financial accounting and tax bases of assets andliabilities and are measured using the substantively enacted tax rates and laws that will be in effect when the differences areexpected to reverse.

*h)***      ***Foreign currencytranslation*

The accounts of self-sustaining foreign subsidiaries are translated into Canadian dollarsat the noon spot rates in effect at the balance sheet date.  For 2004, the U.S. dollar published exchange rate was 1.2036(2003: 1.2924).  Revenues and expenses are translated at the average rate of exchange for the year.  For 2004, the U.S.dollar published average exchange rate was 1.3013 (2003: 1.4010; 2002: 1.5703).  The resulting gains or losses are included inthe cumulative translation adjustment line.

Exchange gains or losses on long-term debt denominated in foreign currencies notdesignated as a hedge are expensed as incurred (see Note 11).  Exchange gains or losses on the translation of long-term debtdenominated in a foreign currency designated as a hedge of the Company's net investment in foreign subsidiaries are included in thecumulative translation adjustment line of shareholders' equity.

*i)***      ***Earnings per share*

Basic earnings per common share are calculated using the weighted daily average number ofcommon shares outstanding.  The weighted average number of common shares for 2004 was 48,671,915 (2003: 40,021,479; 2002:38,024,034).

*j)***      ***Stock-basedcompensation*

Effective January 1, 2003, the Company adopted the fair value method of accounting forstock-based payments.  Prior to 2003, the Company had chosen to account for the employee stock-based compensation plans usingthe intrinsic value-based method.   Pro forma net income and earnings per share have been provided as if the fair value-basedaccounting method had been used since January 1, 2001 (Note 10).

**

*k)***      ***Revenue recognition*

Revenue is recognized when persuasive evidence of an arrangement exists, delivery hasoccurred, selling price is fixed and collection is reasonably assured.  Revenue on certain sales in the energy segment, wherethe Company acts as an agent, is presented on a net basis.

*l)***      ***Derivative financialinstruments*

The Company uses foreign exchange contracts to manage foreign exchange risk on certaincommitted cash outflows, primarily inventory purchases.  Gains and losses are recognized through income in the same period ormanner as the hedged item.  Realized and unrealized foreign exchange gains and losses not designated as a hedge are includedin income.  Derivatives are not entered into for speculative purposes and the use of derivative contracts is governed bydocumented risk management policies.

The Company formally documents all relationships between hedging instruments and hedgeditems, as well as its risk management objective and strategy for undertaking various hedge transactions.  This processincludes linking all derivatives to specific firm commitments or forecasted transactions.  The Company assesses, both at thehedge's inception and on an ongoing basis, whether the derivatives that are used in hedging transactions are highly effective inoffsetting changes in the cash flows of hedged items.

*m)***      ***Cash*

Cash includes short-term investments with a maturity of less than 30 days.

*n)***      ***Use of estimates*

The preparation of consolidated financial statements in conformity with Canadian generallyaccepted accounting principles requires management to make estimates and assumptions that affect the reported assets andliabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts ofrevenue and expenses during the reporting periods.  In particular, inventories, accounts receivable, asset retirementobligations, fair values, other contingencies, and assigned values on net assets acquired represent management's bestestimates.  Actual results could differ from these estimates.

**2.      Change in Accounting Policies**

a)     Effective January 1, 2004, the Company adopted the newaccounting guideline, AcG-13, Hedging Relationships, which establishes certain conditions for when hedge accounting may beapplied.  The guideline sets out the requirements for the identification, designation, documentation and effectiveness ofhedging relationships for the purpose of applying hedge accounting.  The Company has applied this standard to the fixed forfixed cross currency swaps entered into on February 20, 2004, in order to hedge the last US$100 million of its US$175 million U.S.Senior Note (see Note 7).  In addition, this standard has been applied to the Company’s other hedging relationships,namely foreign exchange contracts used to manage certain committed cash flows and the hedge of the net investment in U.S.subsidiaries.

b)     Effective January 1, 2004, the Company adopted the newCICA Handbook section 3110, Asset Retirement Obligations.  This standard establishes standards for the recognition,measurement and disclosure of liabilities for asset retirement obligations and the associated asset retirement costs.  TheCompany has certain significant asset retirement obligations relating to its land lease for its Thunder Bay Terminaloperations.  The landlord has the option to retain the facilities or to require the Company to remove them.  In addition,the Company has certain end of lease obligations in six of its service center operations.  The probability-weighted discountedasset retirement obligation was $106,000 and the probability-weighted undiscounted asset retirement obligation was $239,000, bothat December 31, 2004.

c)     Effective January 1, 2004, the Company prospectivelyadopted the new CICA Handbook section 1100, Generally Accepted Accounting Principles (GAAP).  This standard establishes whatconstitutes Canadian generally accepted accounting standards and provides guidance on the GAAP hierarchy.  The adoption ofthis standard did not have a material effect on the Company's results of operations, financial position or cash flows.

d)     Effective October 1, 2004, the Company prospectivelyadopted the new accounting guideline AcG-15, Variable Interest Entities.  The adoption of this standard did not have amaterial effect on the Company’s results of operations, financial position or cash flows.

e)     In the fourth quarter of 2003, the Company prospectivelyadopted, effective January 1, 2003,  the fair value method of accounting for employee stock-based payments issued after thatdate.  The impact of the adoption of this standard for the year ended December 31, 2004 resulted in additional compensationexpense of $924,000 (2003:  $217,000).  For options issued prior to January 1, 2003, the Company had chosen to accountfor the employee stock-based compensation plans using the intrinsic value-based method as allowed by the Canadian standard adoptedon January 1, 2001.  As required by the transitional provisions of the standard, pro forma net income and earnings per shareinformation has been provided as if the fair value-based accounting method had been used since January 1, 2001 for options issuedprior to January 1, 2003 (see Note 10).

f)     Effective May 1, 2003, the Company adopted the newaccounting standard for the Disposal of Long-Lived Assets and Discontinued Operations.  This standard, along with emergingissues abstracts EIC-134 *Accounting for Severance and Termination Benefits* and EIC-135 *Accounting for Costs Associatedwith Exit and Disposal Activities (Including Costs Incurred in a Restructuring)* have been applied to the restructuring as aresult of the Acier Leroux inc. acquisition (see Note 3).

g)      In 2003, the Company also adopted the new standard onfinancial statement presentation and new accounting guideline on disclosure of guarantees.  The implementation of thesestandards did not have a material effect on the Company's results of operations, financial position or cash flows.

h)      Effective January 1, 2002, the Company adopted theprovisions of the Canadian accounting standard for goodwill and other intangibles.  Under this standard, goodwill is no longeramortized but is subject to an impairment test at least annually.  As required by the standard, the Company has performed atransitional goodwill impairment evaluation based on discounted cash flows in each reporting unit as at January 1, 2002.  Thetransitional impairment loss of $15,123,000 as a result of this evaluation was charged to retained earnings at January 1,2002.

**3.**     **Business Acquisitions**

a)     Acquisitions

On July 3, 2003, the Company purchased 99.52% of the issued and outstanding Class Ashares, 97.53% of the issued and outstanding Class B shares, 86.61% of the outstanding 8% convertible unsecured subordinateddebentures and 87.2% of the outstanding 7.25% convertible unsecured subordinated debentures of Acier Leroux inc.  Acier Lerouxis a service center operation with Canadian locations in Ontario, Quebec and the Atlantic provinces.  The Company issued3,546,874 shares and paid $48,947,000 in cash in consideration for the shares and $16,684,000 in cash in consideration for thetendered debentures.  In addition the Company entered into an arrangement with the former Chairman and Chief Executive Officerof Acier Leroux requiring payments over a three-year period in the amount of $1,350,000, which was accrued as a transactioncost.

On August 19, 2003, the Company, under the provisions of the *Companies Act* (Quebec)acquired the remaining shares of Acier Leroux for $1,190,000 in cash.  On August 27, 2003, Acier Leroux redeemed thedebentures not acquired in the offer.

The final net assets acquired, at assigned values, are as follows:
| *($000)*                                                      |    |       |
|---------------------------------------------------------------|--------------|--------------------------------|
|                                                               |
| Accounts receivable                                           |    | $   74,572      |
| Inventories                                                   |    | 82,880                         |
| Fixed assets                                                  |    | 60,180                         |
| Other assets                                                  |    | 2,122                          |
| Goodwill                                                      |    | 7,815                          |
|                                                               |
| Total assets -- continuing operations                         |    | 227,569                        |
| Accounts payable and accrued liabilities                      |    | (47,127)                       |
| Accrued pension and benefit liability                         |    | (1,380)                        |
| Future income taxes                                           |    | 11,057                         |
|                                                               |
| Net identifiable assets -- continuing operations              |    | 190,119                        |
| Discontinued operations                                       |    | 7,481                          |
| Debt assumed, net of cash of $2.7 million                     |    | (123,956)                      |
|                                                               |
| Net assets acquired                                           |    | $   73,644      |
|                                                               |
| Consideration:                                                |    |       |
|      Cash                            |    | $   50,137      |
|      Russel Metals common shares     |    | 19,969                         |
|      Transaction costs, net of taxes |    | 3,538                          |
|                                                               |
|                                      |    | $   73,644      |
|                                                               |

Effective September 9, 2002, the Company purchased substantially all of the assets of theMilwaukee, Wisconsin service center operation formerly known as Williams Steel for $17.0 million in cash.  This acquisitionwas intended to strengthen the existing Bahcall operations in Wisconsin and led to the restructuring of these operations. Costs associated with the restructuring of the Williams Steel location of $0.2 million were included in goodwill.

Effective March 1, 2002, the Company purchased the operations and the fixed assets ofArrow Steel Processors, a coil processor of customer owned material located in Texas for $4.4 million cash.

Effective September 1, 2000, the Company purchased Triumph Tubular & Supply Ltd., aCalgary, Alberta, distributor of oil country tubular goods.  Additional amounts under an earnout based on results may be paidover five years and would be incremental to goodwill.  The additional amount related to 2004 is $1.4 million (2003: $nil;2002: $nil).  There are no additional amounts to be paid under the earnout arrangement.

These acquisitions have been accounted for using the purchase method and their results ofoperations have been consolidated since their respective acquisition dates.

The 2004 goodwill relating to Triumph Tubular & Supply Ltd. has been allocated to theenergy tubular products segment.  The remaining goodwill for 2004 and 2003 has been allocated to the metals service centerssegment.  The tax-deductible portion of goodwill is $nil (2003:  $nil; 2002: $2.7 million).

The continuity of the carrying value of the goodwill is as follows:
| *($000)*                                |       |
|-----------------------------------------|--------------------------------|
|                                         |
| Balance December 31, 2002               | $  2,709             |
| Foreign exchange                        | (299)                          |
| Goodwill impairment                     | (2,410)                        |
| Preliminary Acier Leroux                | 4,216                          |
|                                         |
| Balance December 31, 2003               | 4,216                          |
| Change in allocation of the purchase    |       |
|    price of Acier Leroux | 3,599                          |
| Triumph Tubular earnout                 | 1,390                          |
|                                         |
| **Balance December 31, 2004**           | **$  9,205**         |
|                                         |

The significant changes in the allocation of the purchase price of Acier Leroux were todecrease fixed assets by $0.5 million and to increase accounts payable by $2.3 million to provide for estimatedexpenditures.

b)      Restructuring

Restructuring of the Company's operations as a result of acquisitions is charged to incomeas incurred.  Restructuring relating to the acquired operation is included in the net assets acquired.

Restructuring, relating to the service center segment, is charged to income asfollows:
|       | **2004**               | 2003               | 2002                                                     |
|--------------------------------|------------------------|--------------------|----------------------------------------------------------|
|                                |
| Acier Leroux acquisition       | **$  3,695** | $  3,583 | $         - |
| Williams Steel acquisition     | **231**                | -                  | 3,141                                                    |
| A.J. Forsyth acquisition       | **(294)**              | -                  | (392)                                                    |
|                                |
| Restructuring costs            | **$  3,632** | $  3,583 | $  2,749                                       |
|                                |

In 2003, a restructuring charge of $3.6 million was recorded as a result of the severance,employee benefits and termination costs related to the closure of the Russel Metals' operations as a result of the acquisition ofAcier Leroux.  These costs primarily relate to the closure of the Russel Metals' Lachine, Quebec location.  Operationsceased at Lachine on December 31, 2003, and the vacant property along with the vacant Dartmouth property acquired in the Lerouxacquisition were classified as an Asset Held for Sale in the first quarter of 2004.  During 2004, the Company sold itsDartmouth property for the assigned value of $2.2 million.  In 2004, the Company incurred a restructuring charge of $3.7million related to the restructuring of the Russel Metals' locations as a result of the Acier Leroux acquisition.  These costsprimarily relate to the restructuring of the Ontario region and the on-going costs associated with the Lachine property.  TheLeroux restructuring is expected to be complete upon the sale of the Lachine property.

The continuity of the Leroux restructuring provision is as follows:
|          | Special                                                |   | Contractual                                        |   |                                                 |   |                           |
|-----------------------------------|--------------------------------------------------------|--------|----------------------------------------------------|--------|--------------------------------------------------------------------------|--------|----------------------------------------------------|
|          | Termination                                            |   | Termination                                        |   |                                                 |   |                           |
|          | Benefits                                               |   | Costs                                              |   | Other                                                                    |   | Total                                              |
|                                   |
| Restructuring expensed in 2003    | $     327                     |   | $     2,507               |   | $       749                           |   | $     3,583               |
| Cash payments                     | (99)                                                   |   | (105)                                              |   | (217)                                                                    |   | (421)                                              |
|                                   |
| Balance December 31, 2003         | 228                                                    |   | 2,402                                              |   | 532                                                                      |   | 3,162                                              |
| Restructuring expensed in 2004    | -                                                      |   | 783                                                |   | 2,912                                                                    |   | 3,695                                              |
| Cash payments                     | (198)                                                  |   | (1,516)                                            |   | (861)                                                                    |   | (2,575)                                            |
| Non-cash changes to the provision | (30)                                                   |   | (1,169)                                            |   | (2,583)                                                                  |   | (3,782)                                            |
|                                   |
| **Balance December 31, 2004**     | **$        -** |   | **$       500** |   | **$           -** |   | **$       500** |
|                                   |

Non-cash changes to the provision relate to the write down of fixed assets and changes inaccrued employee benefit obligations.

In 2002, costs of restructuring the Bahcall locations as a result of the Williams Steelpurchase, including the closure of the Waukeshau location and employee terminations of $3.1 million were expensed to income as aprovision for restructuring.  In addition, costs previously provided for the restructuring of A.J. Forsyth not required of$0.4 million were taken into income.  In 2004, restructuring of $0.5 million (2003:  $3.1 million) was charged to theseprovisions.  The unutilized balance of $0.3 million relating to A.J. Forsyth and additional restructuring relating to Bahcallof $0.2 million were expensed in 2004.  The restructuring of these operations as a result of acquisitions has beencompleted.

c)      Goodwill Impairment

The Company completed its annual goodwill impairment test during the fourth quarter of2004, resulting in no impairment charge.

In the fourth quarter of 2003, this evaluation concluded that the fair value associatedwith the service center segment's Williams Bahcall operation due to continuing operating losses could not support the carryingvalue of the goodwill and accordingly the Company recorded a goodwill impairment charge of $2.4 million

d)     Discontinued Operations

As part of the acquisition of Acier Leroux, the Company adopted a formal plan to disposeof their U.S. operations.  At December 31, 2004, all of these operations have been divested.   The revenue generatedby these operations prior to sale was $3.4 million (2003:  $3.3 million) and pre-tax profits were $0.3 million (2003: $0.8 million loss).

On December 23, 2004, the Company received an offer pursuant to the Shareholders Agreementwhereby the minority shareholders would purchase the Company's holdings of Poutrelles Delta Inc.  Consequently, the Companyhas classified Poutrelles Delta as discontinued and recorded a loss to fair value of $0.6 million.  The revenue and results ofoperations for Poutrelles Delta for the current and prior periods has been reclassified as discontinued.  The revenuegenerated by this operation for 2004 was $25.9 million (2003:  $10.1 million) and pre-tax profits were $0.6 million(2003:  $nil).  At December 31, 2004, Poutrelles Delta had certain forward contracts in the amount of US$2 million, whosefair value approximates the contract value.

During the year ended December 31, 2004, the Company incurred an additional charge of $3.2million, net of tax, relating to long-term lease obligations and other environmental cleanup costs for operations classified asdiscontinued in 1995.

Basic and fully diluted loss per share from discontinued operations was $0.06 (2003: $0.02).

**4.**     **Divestitures**

In 2004, the Company disposed of two operations acquired with the Acier Lerouxacquisition.

On May 14, 2004, the company sold the inventory and certain fixed assets of the DollardSteel operation for book value of $1.5 million.

On July 30, 2004, the Company sold the inventory and fixed assets of its Plattsburgh, NewYork, operation for the assigned value of US$360,000.  This operation was previously classified as discontinued.

**5.**     **Property, Plant and Equipment**
| *($000)*                       | **2004**                 |   | **     ** |   | 2003                 |   |       |
|--------------------------------|--------------------------|--------|------------------------------------|--------|----------------------|--------|--------------------------------|
|                                |
|       | **Cost**                 |   | **Net**                            |   | **Cost**             |   | Net                            |
| Land and buildings             | ** $ 134,861** |   | ** $ 101,497**           |   |  $ 139,850 |   |  $ 106,460           |
| Machinery and equipment        | **184,833**              |   | **69,668**                         |   | 179,548              |   | 68,140                         |
| Leasehold improvements         | **24,547**               |   | **9,490**                          |   | 25,454               |   | 10,329                         |
|                                |
|       | ** $ 344,241** |   | ** $ 180,655**           |   |  $ 344,852 |   |  $ 184,929           |
|                                |

**6.**     **Revolving Credit Facilities**

On October 29, 2004, the Company entered into a new credit facility with a syndicate ofbanks, which provides a line of credit to a maximum of $200 million, including letters of credit.  This three-year facilityprovides for annual extensions.  Borrowings under this facility are restricted by certain financial covenants with which theCompany was in compliance at December 31, 2004.  The obligations of the Company under this Agreement are secured by a pledgeof trade accounts receivable and inventories of a significant portion of the Company's operations.  At December 31, 2004, theCompany had borrowings of $13.0 million (2003: $79.0 million) and letters of credit of $35.1 million (2003: $25.8 million) underthis facility.  Deferred charges relating to the previous bank facility of $0.5 million were charged to income.

In addition, certain U.S. subsidiaries of the Company have their own creditfacility.  The maximum borrowing under this facility is US $45.0 million.  At December 31, 2004, these subsidiaries hadUS$nil borrowings (2003: US $nil) and letters of credit of US $14.6 million (2003: US $9.4 million) under this facility.

**7.**     **Long-Term Debt**

The components of long-term debt are as follows:
| *($000)*                                       | **2004**                       |   | 2003                                                                                   |
|------------------------------------------------|--------------------------------|--------|----------------------------------------------------------------------------------------|
|                                                |
| 6.375% US$175 million Senior Notes             |       |   |                                                               |
|    due March 1, 2014            | **$ 210,630**             |   |  $             - |
| 10% US $115.6 million Senior Notes             |       |   |                                                               |
|    due June 1, 2009             | **-**                          |   | 149,402                                                                                |
| 8.0% Subordinated Debentures due June 15, 2006 | **-**                          |   | 30,000                                                                                 |
|                                                |
|                       | **$ 210,630**                  |   |  $ 179,402                                                                   |
|                                                |

On February 20, 2004, the Company completed the issue of US$175 million of Senior Notesdue March 1, 2014, bearing interest at 6.375%.  The proceeds of this issue were used to redeem US$95.5 million of the 10%Senior Notes due June 1, 2009, including a call premium, for 1.0725, the $30 million 8% Subordinated Debentures due June 15, 2006,and the $30 million Class II preferred shares during the first quarter of 2004.  The remaining US$20.l million of 10% SeniorNotes were redeemed on June 1, 2004, including a call premium, for 1.05. The call premiums and deferred charges of $2.5 millionrelating to the redeemed debt were charged to income.

The US$175 million Senior Notes are redeemable, in whole or in part, at the option of theCompany on or after March 1, 2009 at 103.188% of the principal amount declining rateably to 100% of the principal amount on orafter March 1, 2012.  In addition, the notes are also redeemable, in whole, at the option of the Company at any time at 100%of the principal amount in the event of certain changes affecting Canadian withholding taxes.  The notes contain certainrestrictions on the payment of common share dividends in excess of $0.08 per share per quarter.

On February 20, 2004, the Company entered into fixed for fixed cross currency swaps withmajor banks to manage the foreign currency exposure on the last US$100 million of the 6.375% Senior Notes.   On theswaps, the Company receives U.S. denominated interest at 6.375% on a notional US$100 million and pays Canadian dollar interest at7.12% on a notional $131.8 million.  As part of the swaps, the Company exchanged US$100 million for $131.8 million on February20, 2004 and will receive US$100 million for $131.8 million on March 1, 2014.  Both the swap counterparties and the Companyhave the right to early terminate the swaps in the first quarter of 2009.  On a monthly basis, the Senior Notes are recordedat month-end exchange rates and the difference between the swap rate of $1.3180 and the month-end rate is recorded separately asOther Assets or Accrued Liabilities.

**8.**     **Interest expense**
| *($000)*                        | **2004**     |  2003    |  2002    |
|---------------------------------|--------------|---------------|---------------|
|                                 |
| Interest on long-term debt      | **$ 16,989** |  $18,839 |  $20,550 |
| Other interest expense (income) | **3,035**    | 3,884         | (226)         |
|                                 |
|                                 | **$ 20,024** |  $22,723 |  $20,324 |
|                                 |

Total interest paid by the Company in 2004 was $20,071,000 (2003:  $21,746,000; 2002: $20,298,000).

****

**9.**     **Income taxes**

a)      The non-current future income tax balances consistof:
| *($000)*                                                                                     | **2004**                               | 2003                           |
|----------------------------------------------------------------------------------------------|----------------------------------------|--------------------------------|
|                                                                                              |
| Future income tax assets                                                                     |               |       |
|         Tax benefits of losscarryforwards            | **$     860** |  $   8,820 |
|         Plant and equipment                          | **(649)**                              | 198                            |
|         Pensions and benefits                        | **981**                                | 974                            |
|         Other timing                                 | **2,644**                              | 3,294                          |
|                                                                                              |
|         Gross future income tax assets               | **3,836**                              | 13,286                         |
|         Valuation allowance                          | **(2,222)**                            | (2,828)                        |
|                                                                                              |
|         Total future income tax assets               | **1,614**                              | 10,458                         |
|                                                                                              |
| Future income tax liabilities                                                                |               |       |
|         Plant and equipment                          | **(5,137)**                            | (6,650)                        |
|         Pensions and benefits                        | **2,399**                              | 2,608                          |
|         Other timing                                 | **(2,250)**                            | 1,117                          |
|         Unrealized foreign exchange charged toequity | **(1,843)**                            | (3,184)                        |
|                                                                                              |
|         Total future income taxliabilities           | **(6,831)**                            | (6,109)                        |
|                                                                                              |
| Net future income taxes                                                                      | **$  (5,217)**               |  $   4,349 |
|                                                                                              |

b)     The Company's effective income tax rate is derived asfollows:
|          |   | **2004**   |   |   2003  |   |   2002   |
|-----------------------------------|--------|------------|--------|-------------------|--------|--------------------|
|                                   |
| Average combined statutory rate   |   | **36.0%**  |   |   37.0% |   |   39.0%  |
| Statutory tax rate changes        |   | **-**      |   |   2.8%  |   | **  -**  |
| Large Corporation Tax             |   | **-**      |   |   0.6%  |   |   0.5%   |
| Rate difference of U.S. companies |   | **0.9%**   |   | **  -** |   |   (1.1)% |
| Other                             |   | **(0.1)%** |   |   0.5%  |   |   0.2%   |
|                                   |
| Average effective tax rate        |   | **36.8%**  |   |   40.9% |   |   38.6%  |
|                                   |

c)     The details of the income tax provision are asfollows:
| *($000)*                       |   | **2004**           |   | 2003          |   | 2002                     |
|--------------------------------|--------|--------------------|--------|---------------|--------|--------------------------|
|                                |
| Current provision              |   | **$ 100,384** |   | $ 13,759 |   | $   9,655 |
| Future provision               |   | **5,021**          |   | (1,326)       |   | 8,708                    |
| Statutory rate adjustments     |   | **-**              |   | 900           |   | **-**                    |
|                                |
|       |   | **$ 105,405** |   | $ 13,333 |   | $ 18,363            |
|                                |

d)     Income taxes paid in 2004 were $47,311,000 (2003: $7,777,000; 2002:  $5,942,000).

e)     The Company has Canadian net operating losses carriedforward for tax purposes for which a valuation allowance has been recorded that expire as follows:
| *($000)*                       | **Year of Expiry** |   | ** Amount**             |
|--------------------------------|--------------------|--------|------------------------------|
|                                |
|       | 2006               |   |  $   651 |
|       | 2007               |   | 745                          |
|       | 2008               |   | 506                          |
|       | 2009               |   | 147                          |
|       | 2010               |   | 262                          |
|       | 2011               |   | 145                          |
|                                |

In addition, the Company has recorded a valuation allowance for timing differences ofapproximately $3.9 million (2003: $4.8 million).

**10.**     **Shareholders' Equity**

a)     The components of shareholders' equity are asfollows:
| *($000)*                                                   | **2004**           | 2003                 |
|------------------------------------------------------------|--------------------|----------------------|
|                                                            |
| Common shares                                              | **$ 203,090** |  $ 147,981 |
| Retained earnings                                          | **262,733**        | 110,502              |
| Contributed surplus (relating to stock-based compensation) | **446**            | 192                  |
| Cumulative translation adjustment                          | **(9,695)**        | (4,833)              |
|                                                            |
|                                   | **$ 456,574** |  $ 253,842 |
|                                                            |

b)     At December 31, 2004, the authorized share capital of theCompany consists of:

         (i)     anunlimited number of common shares without nominal or par value;

         (ii)    anunlimited number of Class I preferred shares without nominal or par value, issuable in                  series; and

         (iii)   an unlimitednumber of Class II preferred shares without nominal or par value, issuable in                   series.

The Directors have the authority to issue the Class I and Class II preferred shares inseries and fix the designation, rights, privileges and conditions to be attached to each series, except the Class I shares shall beentitled to preference over the Class II shares with respect to the payment of dividends and the distribution of assets in theevent of liquidation, dissolution or winding-up of the Company.

The Company's 1,200,000 cumulative, redeemable Class II preferred shares were redeemed onMarch 22, 2004 (Note 7).

c)     The number of common shares issued and outstanding atDecember 31 was as follows:
|                  | **Number of**  | **Amount**               |
|-------------------------------------------|----------------|--------------------------|
|                  | **Shares**     | **($000)**               |
|                                           |
| Balance, December 31, 2002                | 38,057,001     |  $ 122,324     |
| Shares issues -- Acier Leroux acquisition | 3,546,874      | 19,969                   |
| Stock options exercised                   | 1,419,567      | 5,688                    |
| Shares cancelled                          | (100)          | -                        |
|                                           |
| Balance December 31, 2003                 | 43,023,342     |  $ 147,981     |
| Common shares issued                      | 5,750,000      | 49,240                   |
| Stock options exercised                   | 1,114,317      | 5,869                    |
|                                           |
| **Balance, December 31, 2004**            | **49,887,659** |  **$ 203,090** |
|                                           |

d)     The Company has a shareholder-approved share option plan,the purpose of which is to provide the Directors and employees of the Company and its subsidiaries with the opportunity toparticipate in the growth and development of the Company.  The number of common shares that may be issued under the shareoption plan is 4,500,000.  The options are exercisable on a cumulative basis to the extent of either 33 1/3% or 20% per yearof total options granted, except that under certain specified conditions the options become exercisable immediately.  Theconsideration paid by employees for purchase of common shares is added to share capital.

The following is a continuity schedule of options outstanding:
|       | **     ** | ** **        | **Weighted Average** |
|--------------------------------|------------------------------------|-------------------|----------------------|
|       | **Number of Options**              |              | **Exercise Price**   |
|       | **2004**                           |              |                      | **2004** | 2003 |
|                                |
| Balance, beginning of the year | **2,031,133**                      |  2,682,100   |                 | ** $  4.40** |  $  3.94 |
| Granted                        | **888,500**                        |  795,000     |                 | **9.15** | 5.22 |
| Exercised                      | **(1,114,317)**                    |  (1,419,567) |                 | **4.76** | 3.99 |
| Expired and forfeited          | **(11,500)**                       |  (26,400)    |                 | **4.03** | 4.30 |
|                                |
| Balance, end of the year       | **1,793,816**                      |  2,031,133   |                 | ** $  6.52** |  $  4.40 |
|                                |
| Exercisable                    | **327,216**                        |  795,922     |                 | ** $  5.45** |  $  4.46 |
|                                |

The outstanding options have an exercise price range as follows:
| *(number of options)* | **2004**      |   |  2003      |
|-----------------------|---------------|--------|-----------------|
|                       |
| $9.15                 | **776,050**   |   |  -         |
| $5.50 - $9.14         | **27,000**    |   |  87,000    |
| $4.50 - $5.49         | **567,766**   |   |  952,133   |
| $3.00 - $4.49         | **423,000**   |   |  992,000   |
|                       |
| Options Outstanding   | **1,793,816** |   |  2,031,133 |
|                       |

The options expire in the years 2005 to 2014 and have a weighted average remainingcontractual life of 7.8 years (2003: 7.1 years).

On January 1, 2003, the Company adopted the fair value-based method of accounting forstock-based compensation.  Prior to January 1, 2003, the Company accounted for stock options using the intrinsic value-basedmethod.

As required by the standard, disclosure of pro forma net earnings and earnings per share,as calculated under the fair value-based method adopted since January 1, 2001 is as follows:
| *($000 except per share data)*    | **2004**                                                  |   | 2003                                      |   | 2002                                      |
|-----------------------------------|-----------------------------------------------------------|--------|-------------------------------------------|--------|-------------------------------------------|
|                                   |
| Net earnings -- as reported       | ** $ 177,846**                                  |   |  $** ** 18,499                  |   |  $** ** 29,236                  |
| Additional compensation expense   | **(340)**                                                 |   | (496)                                     |   | (764)                                     |
|                                   |
| Net earnings                      | ** $ 177,506**                                  |   |  $** ** 18,003                  |   |  $** ** 28,472                  |
|                                   |
| Basic earnings per common share   | ** $       3.63** |   |  $     0.39 |   |  $     0.69 |
| Diluted earnings per common share | ** $       3.55** |   |  $     0.38 |   |  $     0.66 |
|                                   |

The Black Scholes option-pricing model assumptions used to compute compensation expenseunder the fair value-based method are as follows:
|                       |   | **2004**                    |   | 2003                    |   | 2002                    |
|------------------------------------------------|--------|-----------------------------|--------|-------------------------|--------|-------------------------|
|                                                |
| Dividend yield                                 |   | **5.0%**                    |   | 5.0%                    |   | 5.0%                    |
| Expected volatility                            |   | **28.5%**                   |   | 34.6%                   |   | 39.6%                   |
| Expected life                                  |   | **7 yrs**                   |   | 7 yrs                   |   | 7 yrs                   |
| Risk free rate of return                       |   | **5.0%**                    |   | 5.0%                    |   | 5.0%                    |
| Weighted average fair value of options granted |   | ** $  1.89** |   |  $  1.30 |   |  $  1.09 |
|                                                |

e)     Diluted share amounts were computed as follows:
| *(number of shares)*                        | **2004**       | 2003       | 2002       |
|---------------------------------------------|----------------|------------|------------|
|                                             |
| Weighted average shares outstanding         | **48,671,915** | 40,021,479 | 38,024,034 |
| Shares assumed issued - options             | **1,114,227**  | 1,981,324  | 1,948,942  |
|                                             |
| Diluted weighted average shares outstanding | **49,786,142** | 42,002,803 | 39,972,976 |
|                                             |

**11.**     **Financial Instruments**

*a)*     *Fair value*

The fair value of long-term debt as at December 31, 2004 and 2003 is estimated based onthe last quoted trade price, where they exist, or on the current rates available to the Company for similar debt of the sameremaining maturities.
| *($000)*                                                        | **2004**                       |   | 2003                           |
|-----------------------------------------------------------------|--------------------------------|--------|--------------------------------|
|                                                                 |
| Long-term debt                                                  |       |   |       |
|         Carrying amount | ** $ 210,630**       |   |  $ 179,402           |
|         Fair value      | ** $ 212,736**       |   |  $ 187,912           |
|                                                                 |

On February 20, 2004, the Company entered into fixed for fixed cross currency swaps withmajor banks (Note 7).  At December 31, 2004, the fair value of the liability of these swaps was $19.4 million.  Theportion attributable to the change in foreign exchange of $11.4 million is recorded as an Other Accrued Liability.  AtDecember 31, 2004, the Company had forward exchange contracts outstanding whose fair value approximates their contractvalue.

As at December 31, 2004 and 2003, the estimated fair value of other financial assets,liabilities and off balance sheet instruments, such as letters of credit, approximates their carrying values.

*b)*     *Credit risk*

The Company, in the normal course of business, is exposed to credit risk relating toaccounts receivable from its customers.  This risk is mitigated by the fact that its customer base is geographically diverseand in different industries.  The Company is also exposed to credit risk from the potential default by any of itscounterparties on its foreign exchange forward contracts and the fixed for fixed cross currency swaps.  The Company mitigatesthis risk by entering into forward contracts  and swaps with members of the credit facility syndicate.

c)     *Interest rate risk*

**

The Company is not exposed to significant interest rate risk.  The Company'slong-term debt is at fixed rates.  The Company's bank debt that is used to finance working capital, which is short-term innature, is at floating interest rates.

d)     Foreign exchange risk

The Company uses foreign exchange contracts with a maturities of less than a year tomanage foreign exchange risk on certain future committed cash outflows.  As at December 31, 2004, the Company had outstandingforward foreign exchange contracts in the amounts of US $27.6 million, maturing in the first quarter of 2005 (2003: US$15.3 millionand € 1.8 million).  The foreign exchange gain on U.S. denominated financial assets and liabilities included in 2004operating earnings from continuing operations was $2.3 million (2003 gain: $881,000; 2002 loss: $560,000).

The Company has designated US$75 million of the Senior Notes as a hedge of its netinvestment in foreign subsidiaries.  In 2003, the Company designated US$69.4 million of its then senior notes and other U.S.borrowings as a hedge of its net investment in foreign subsidiaries. The exchange gains and losses on U.S. borrowings notdesignated as a hedge of its net investment or hedged by the fixed for fixed cross currency swaps are charged to income asincurred.  This resulted in no foreign exchange gain or loss recognized in income in 2004 (2003 gain: $348,000; 2002 gain:$261,000).

**12.**     **Segmented Information**

The Company conducts business primarily in three metals business segments.

         i)      Metals servicecenters

         The Company's network of metalsservice centers provides processing and distribution services         on a broad line of metal products in a wide range of sizes, shapes andspecifications, including         carbon hot rolled and cold finished steel, pipe and tubular products,stainless steel and         aluminium.  The Company services all major geographic regions of Canadaand certain regions         in the Midwestern United States.

         ii)      Energy tubularproducts

         The Company's energy tubularproducts operations distribute oil country tubular products, line         pipe, tubes, valves and fittings, primarily to the energy sector in WesternCanada and the         Western United States.

         iii)      Steel distributors

         The Company's steel distributors actas master distributors selling steel to customers in large         volumes, mainly on an 'as is' basis.  The steel distributors sourcetheir steel domestically and         off shore.

The Company has segmented its operations on the basis of management reporting andgeographic segments in which it operates.

a)     **Results by business segment:**
| *($000)*                                                                            | **2004**                                  | 2003                                        | 2002                                        |
|-------------------------------------------------------------------------------------|-------------------------------------------|---------------------------------------------|---------------------------------------------|
|                                                                                     |
| **Segment Revenues**                                                                |                  |                    |                    |
| Metals service centers                                                              | **$ 1,538,170**                      |  $    912,671      |  $    750,878      |
| Energy tubular products                                                             | **395,296**                               | 297,532                                     | 289,623                                     |
| Steel distributors                                                                  | **471,205**                               | 283,579                                     | 348,055                                     |
|                                                                                     |
|                                                            | **2,404,671**                             | 1,493,782                                   | 1,388,556                                   |
| Other                                                                               | **13,953**                                | 13,201                                      | 14,719                                      |
|                                                                                     |
|                                                            | **$ 2,418,624**                      |  $ 1,506,983                      |  $ 1,403,275                      |
|                                                                                     |
| **Segment Operating Profits**                                                       |                  |                    |                    |
| Metals service centers                                                              | **$    209,850**      |  $     37,832 |  $     31,516 |
| Energy tubular products                                                             | **47,200**                                | 13,764                                      | 13,612                                      |
| Steel distributors                                                                  | **78,189**                                | 13,380                                      | 28,090                                      |
|                                                                                     |
|                                                            | **335,239**                               | 64,976                                      | 73,218                                      |
| Other income                                                                        | **4,565**                                 | 4,002                                       | 5,732                                       |
| Corporate expenses                                                                  | **(16,256)**                              | (8,018)                                     | (8,539)                                     |
|                                                                                     |
|                                                            | **$    323,548**      |  $     60,960 |  $     70,411 |
|                                                                                     |
| **Capital Expenditures**                                                            |                  |                    |                    |
| Metals service centers                                                              | **$     24,390** |  $     33,466 |  $     11,416 |
| Energy tubular products                                                             | **758**                                   | 1,032                                       | 1,009                                       |
| Steel distributors                                                                  | **71**                                    | 77                                          | 202                                         |
| Other                                                                               | **175**                                   | 304                                         | 141                                         |
|                                                                                     |
|                                                            | **$     25,394** |  $     34,879 |  $     12,768 |
|                                                                                     |
| **Depreciation Expense**                                                            |                  |                    |                    |
| Metals service centers                                                              | **$     14,828** |  $     12,580 |  $     11,549 |
| Energy tubular products                                                             | **1,108**                                 | 1,126                                       | 1,010                                       |
| Steel distributors                                                                  | **463**                                   | 529                                         | 502                                         |
| Other                                                                               | **938**                                   | 910                                         | 912                                         |
|                                                                                     |
|                                                            | **$     17,337** |  $     15,145 |  $     13,973 |
|                                                                                     |
| **Identifiable Assets**                                                             |                  |                    |                    |
| Metals service centers                                                              | **$    662,422**      |  $    501,433      |  $    312,999      |
| Energy tubular products                                                             | **228,325**                               | 144,809                                     | 145,670                                     |
| Steel distributors                                                                  | **192,383**                               | 71,436                                      | 162,776                                     |
|                                                                                     |
| Identifiable assets by segment                                                      | **1,083,130**                             | 717,678                                     | 621,445                                     |
|                                                                                     |
| Assets not included in segments                                                     |                  |                    |                    |
|         Cash                                | **634**                                   | 19,008                                      | 25,068                                      |
|         Income tax assets                   | **7,610**                                 | 16,370                                      | 12,004                                      |
|         Deferred financing charges          | **8,357**                                 | 3,547                                       | 4,962                                       |
|         Other assets                        | **2,566**                                 | 2,840                                       | 3,172                                       |
|         Corporate and other operatingassets | **44,184**                                | 31,176                                      | 28,943                                      |
|                                                                                     |
| Total assets                                                                        | **$ 1,146,481**                      |  $    790,619      |  $    695,594      |
|                                                                                     |

b)     **Results by geographic segment:**
| *($000)*                       | **2004**                             | 2003                                        | 2002                                        |
|--------------------------------|--------------------------------------|---------------------------------------------|---------------------------------------------|
|                                |
| **Segment Revenues**           |             |                    |                    |
| Canada                         | **$ 1,776,412**                 |  $ 1,127,799                      |  $    991,821      |
| United States                  | **628,259**                          | 365,983                                     | 396,735                                     |
|                                |
|       | **$ 2,404,671**                 |  $ 1,493,782                      |  $ 1,388,556                      |
|                                |
| **Segment Operating Profits**  |             |                    |                    |
| Canada                         | **$    232,949** |  $     55,713 |  $     54,899 |
| United States                  | **102,290**                          | 9,263                                       | 18,319                                      |
|                                |
|       | **$    335,239** |  $     64,976 |  $     73,218 |
|                                |
| **Identifiable Assets**        |             |                    |                    |
| Canada                         | **$    903,019** |  $    580,955      |  $    439,910      |
| United States                  | **180,111**                          | 136,723                                     | 181,535                                     |
|                                |
|                                | **$ 1,083,130**                 |  $    717,678      |  $    621,445      |
|                                |

**13.**     **Pensions and Benefits**

The Company maintains defined benefit pension plans, post retirement benefit plans anddefined contribution pension plans in Canada and 401(k) defined contribution pension plans in the United States.

The components of the Company's pension and benefit expense include thefollowing:
| *($000)*                                                                           | **2004**                       | 2003                           | 2002                           |
|------------------------------------------------------------------------------------|--------------------------------|--------------------------------|--------------------------------|
|                                                                                    |
| Defined benefit pension plans                                                      |       |       |       |
|         Benefits earned during the year    | **$  1,505**         |  $  1,538       |  $  1,399       |
|         Interest cost on benefitobligation | **4,166**                      | 3,825                          | 3,639                          |
|         Expected return on plan assets     | **(3,952)**                    | (3,353)                        | (3,333)                        |
|         Curtailment loss                   | **81**                         | 225                            | -                              |
|         Settlement loss                    | **225**                        | 648                            | -                              |
|         Other                              | **334**                        | 170                            | 208                            |
|                                                                                    |
|                                                           | **2,359**                      | 3,053                          | 1,913                          |
| Post retirement benefits                                                           | **12**                         | 112                            | 390                            |
| Defined contribution plans                                                         |       |       |       |
|         Paid during the year               | **808**                        | 794                            | 834                            |
|                                                                                    |
|                                                           | **3,179**                      | 3,959                          | 3,137                          |
| Related to discontinued operations                                                 | **(426)**                      | (462)                          | (475)                          |
|                                                                                    |
| Pension and benefit expense                                                        | **$**   **2,753**    |  $  3,497       |  $  2,662       |
|                                                                                    |

The actuarial determinations were based on the following assumptions in eachyear:
|                         |  **2004** |   |  2003 |   |   2002 |
|--------------------------------------------------|----------------|--------|------------|--------|-------------|
|                                                  |
| Assumed discount rate -- year end                |  **6.0%** |   |  6.5% |   |  6.5%  |
| Expected long-term rate of return on plan assets |  **7.0%** |   |  7.0% |   |  7.0%  |
| Rate of increase in future compensation          |  **4.0%** |   |  4.0% |   |   4.0% |
| Rate of increase in future government benefits   |  **3.5%** |   |  3.5% |   |   3.5% |
|                                                  |

The health care cost trend rates used were 5% for dental and 8% (2003: 9%; 2002: 9%)graded out for medical, which is reduced 1% per year until 5% and 5% thereafter.  A 1% change in trend rates would result inan increase in the accrued benefit obligation for post retirement benefits of $712,000 or a decrease of $637,000 and an increase innet periodic cost of $59,000 or a decrease of $49,000.

The following information pertains to the Company's defined benefit pension and otherbenefit plans, excluding those which are in the process of being wound up.
|                         | **Pension Plans**                    | **Other Benefit Plans**              |
|--------------------------------------------------|--------------------------------------|--------------------------------------|
| *($000)*                                         | **2004**                             | 2003                                 | **2004** | 2003 |
|                                                  |
| **Reconciliation of accrued benefit obligation** |             |             |       |       |
| Balance, beginning of the year                   | **$    64,159**  |  **$   ** 54,808 |  **$   5,643** |  **$   ** 5,828 |
| Acquisition                                      | **-**                                | 5,603                                | **-** | - |
| Current service cost                             | **1,505**                            | 1,538                                | **8** | 48 |
| Participant contribution                         | **327**                              | 337                                  | **-** | - |
| Interest cost                                    | **4,166**                            | 3,825                                | **355** | 372 |
| Benefits paid                                    | **(3,347)**                          | (2,682)                              | **(377)** | (300) |
| Plan amendments                                  | **312**                              | 141                                  | **-** | - |
| Corporate restructuring giving rise to:          |                                      |                                      |  |  |
|      Curtailment        | **81**                               | 225                                  | **(348)** | (305) |
| Actuarial loss                                   | **7,053**                            | 364                                  | **1,109** | - |
|                                                  |
| Balance, end of the year                         | **$    74,256**  |  **$   ** 64,159 |  **$   6,390** |  **$   ** 5,643 |
|                                                  |
| **Reconciliation of fair value of plan assets**  |             |             |       |       |
| Balance, beginning of the year                   | **$    56,335**  |  **$   ** 45,825 |  **$           -** |  **$           ** - |
| Acquisition                                      | **-**                                | 4,223                                | **-** | - |
| Actual return of plan assets                     | **3,156**                            | 6,310                                | **-** | - |
| Employer contributions                           | **3,361**                            | 2,322                                | **377** | 300 |
| Employee contributions                           | **327**                              | 337                                  | **-** | - |
| Benefits paid                                    | **(3,347)**                          | (2,682)                              | **(377)** | (300) |
|                                                  |
| Balance, end of the year                         | **$    59,832**  |  **$   ** 56,335 |  **$           -** |  **$           ** - |
|                                                  |
| **Unamortized amounts**                          |             |             |       |       |
| Funded status -- (deficit)                       | **$  (14,424)**            |  $   (7,824)     |  **$ **   ** (6,390)** |  $  (5,643) |
| Unrecognized prior service cost                  | **589**                              | 264                                  | **-** | - |
| Unamortized net actuarial loss (gain)            | **9,439**                            | 2,134                                | **640** | (473) |
|                                                  |
| Accrued benefit liability                        | **$    (4,396)** |  $   (5,426)     |  **$ **   ** (5,750)** |  $  (6,116) |
|                                                  |

As at December 31, 2004 and 2003, one of the Company's pension plans, included in theprevious table, had a projected benefit obligation of $9.3 million (2003: $7.6 million), a fair value of plan assets of $9.5million (2003: $9.2 million) and a surplus of $0.2 million (2003: $1.6 million).  The remaining plans have an unfundedobligation.  The closure of Lachine (see Note 3) resulted in a partial settlement and curtailment of one of the Company'splans.  The 2003 comparable figures have been reclassified to reflect the fact that the curtailment is expected to be paidsubsequent to 2004.

In 2003, the Company acquired two pension plans as part of the Acier Lerouxacquisition.  These plans had assets of $4.2 million and an accrued benefit obligation of $5.6 million as of the acquisitiondate.  The deficit in the plan of $1.4 million was included in the net assets acquired in the Leroux acquisition.

The other benefit plans represent obligations to retired employees of sold or closedbusinesses.  No active employees are entitled to retirement benefits.
| *($000)*                                                          | **2004**                           |   | 2003                           |
|-------------------------------------------------------------------|------------------------------------|--------|--------------------------------|
|                                                                   |
| **Defined contribution plans**                                    |           |   |       |
| Fair value of plan assets                                         |           |   |       |
|         Canadian plans    | **$    5,598** |   | $    5,588 |
|         401(k) U.S. plans | **19,149**                         |   | 18,181                         |
|                                                                   |
|                                          | **$  24,747**            |   | $  23,769            |
|                                                                   |

The Company has a number of plans in the process of being wound up that relate topreviously discontinued operations with no further benefit obligation.  The resolution of the surplus may result in sharingarrangements with employees of those operations.  The fair value of the plan assets and surplus at December 31, 2004 is $2.7million (2003: $2.6 million).

As at December 31, 2004, approximately 45% of all pension plan assets were invested inequities, 31% in fixed income securities, and 24% in cash and cash equivalents.  The expected return on plan assets is basedon historical returns on the Company's Master Trust.  Management endeavours to have an asset mix of approximately 55% inequities, 40% in fixed income securities and 5% in cash and cash equivalents.  The investment policy allows up to 30% in cashand cash equivalents.  The volatility of the markets has caused management to invest a correspondingly greater percentage ofthe pension plan assets in cash and cash equivalents.  The plan assets are not invested in either derivatives or real estateassets.

The expected annual benefits to be paid are as follows:
|       |       |   | Other                        |   |       |
|--------------------------------|--------------------------------|--------|------------------------------|--------|--------------------------------|
|       | Pension                        |   | Benefit                      |   |       |
| *($000)*                       | Plans                          |   | Plans                        |   | Total                          |
|                                |
| 2005                           | $  5,155             |   | $    396 |   | $    5,551 |
| 2006                           | 3,268                          |   | 427                          |   | 3,695                          |
| 2007                           | 3,498                          |   | 457                          |   | 3,955                          |
| 2008                           | 3,666                          |   | 485                          |   | 4,151                          |
| 2009                           | 3,841                          |   | 509                          |   | 4,350                          |
| 2010-2014                      | 22,842                         |   | 2,954                        |   | 25,796                         |
|                                |

The elements of defined benefit costs recognized in the year are as follows:
| *($000)*                                              | **2004**                       |   | 2003                           |
|-------------------------------------------------------|--------------------------------|--------|--------------------------------|
|                                                       |
| Service costs                                         | **$  1,513**         |   | $  1,586             |
| Interest on accrued benefit obligation                | **4,521**                      |   | 4,197                          |
| Actual return on assets                               | **(3,156)**                    |   | (6,310)                        |
| Actuarial gains on accrued benefit obligation         | **5,277**                      |   | 364                            |
| Curtailment                                           | **(267)**                      |   | (80)                           |
| Settlement                                            | **225**                        |   | 648                            |
| Prior service costs                                   | **312**                        |   | 141                            |
|                                                       |
| Elements of future benefit costs                      | **8,425**                      |   | 546                            |
| Adjustments to recognize the long-term                |       |   |       |
|    nature of employee benefit costs:   |       |   |       |
| Expected -- actual return on assets                   | **(796)**                      |   | 2,957                          |
| Actuarial gains recognized -- actual                  |       |   |       |
|    accrued benefit obligation for year | **(5,206)**                    |   | (237)                          |
| Amortization of prior service cost                    | **(52)**                       |   | (101)                          |
|                                                       |
| Defined benefit cost recognized                       | **$  2,371**         |   | $  3,165             |
|                                                       |

**14.**     **Contingencies, Guarantees andCommitments**

a)     The Company and certain of its subsidiaries have beennamed defendants in a number of legal actions. Although the outcome of these claims cannot be determined, management intends todefend all claims and has recorded provisions based on its best estimate of the potential losses.  In the opinion ofmanagement the resolution of these matters is not expected to have a materially adverse effect on the Company's financial position,cash flows or operations.

b)     The Company and its subsidiary companies have operatinglease commitments, with varying terms, requiring approximate annual payments as follows:  2005: $8.9 million; 2006: $6.8million; 2007: $5.3 million; 2008: $3.3 million; 2009: $2.7 million ; 2010 and beyond: $6.1 million.  Rental expense onoperating leases were as follows:  2004:  $13.6 million;  2003: $10.1 million and 2002: $9.8 million.

c)     The Company is incurring site cleanup and restorationcosts related to properties held for resale.  Remedial actions are currently underway at several sites.  The estimatedcosts of these cleanups have been provided for based on management's best estimates.  Additional costs may be incurred atthese or other sites, as site cleanup and restoration progress, but the amounts cannot be quantified at this time.

d)     The Company has also entered into other agreements thatprovide indemnifications to counterparties in certain transactions including underwriting agreements.  These indemnificationsgenerally require the Company to indemnify the counterparties for costs incurred as a result of losses from litigation that may besuffered by counterparties arising from those transactions.  The Company does not expect to make a payment on theseindemnifications and accordingly no liability has been accrued.

**15.**     **United States Generally AcceptedAccounting Principles**

The following table represents the material differences between Canadian and U.S.Generally Accepted Accounting Principles (GAAP):
| *($000)*                                                                             | **2004**                                            | 2003                                                  | 2002                                                  |
|--------------------------------------------------------------------------------------|-----------------------------------------------------|-------------------------------------------------------|-------------------------------------------------------|
|                                                                                      |
| Net earnings for the year under Canadian GAAP                                        | **$  177,846**                            |  $   18,499                       |  $   29,236                       |
| Amortization of transitional obligation -- pensions                                  | **(561)**                                           | (561)                                                 | (561)                                                 |
| Goodwill impairment - transitional loss                                              | **-**                                               | -                                                     | (15,123)                                              |
|                                                                                      |
| Net earnings -- U.S. GAAP                                                            | **177,285**                                         | 17,938                                                | 13,552                                                |
| Other comprehensive income items:                                                    | **     **                  |                              |                              |
|      Change in currency translation adjustment              | **(6,705)**                                         | 7,074                                                 | 425                                                   |
|      Tax effect of change in currency translationadjustment | **1,843**                                           | (6,165)                                               | (353)                                                 |
|      Fair value of derivatives, net of tax                  | **(5,196)**                                         | -                                                     | -                                                     |
|      Unrealized gain in available for sale securities       | **(262)**                                           | 262                                                   | -                                                     |
|      Minimum pension liability, net of tax                  | **(599)**                                           | 1,395                                                 | 1,762                                                 |
|                                                                                      |
| Comprehensive earnings -- U.S. GAAP                                                  | **$  166,366**                            |  $   20,504                       |  $   15,386                       |
|                                                                                      |
| Opening retained earnings and comprehensive earnings                                 | **     **                  |                              |                              |
|      -- U.S. GAAP                                           | **$  108,899**                            |  $ 102,250                                  |  $   95,580                       |
| Dividends on common shares                                                           | **(25,004)**                                        | (11,605)                                              | (6,466)                                               |
| Dividends on preferred shares                                                        | **(611)**                                           | (2,250)                                               | (2,250)                                               |
| Comprehensive earnings -- U.S. GAAP                                                  | **166,366**                                         | 20,504                                                | 15,386                                                |
|                                                                                      |
| Closing retained earnings and comprehensive earnings                                 | **     **                  |                              |                              |
|      -- U.S. GAAP                                           | **$  249,650**                            |  $ 108,899                                  |  $ 102,250                                  |
|                                                                                      |
| Basic earnings per common share -- U.S. GAAP                                         | **     **                  |                              |                              |
|      -- continuing operations                               | **$       3.69** |  $       0.41 |  $       0.30 |
|                                                                                      |
| Fully diluted earnings per common share -- U.S. GAAP                                 | **     **                  |                              |                              |
|      -- continuing operations                               | **$       3.61** |  $       0.39 |  $       0.29 |
|                                                                                      |
| Basic earnings per common share -- U.S. GAAP                                         | **$       3.63** |  $       0.39 |  $       0.30 |
|                                                                                      |
| Fully diluted earnings per common share -- U.S. GAAP                                 | **$       3.55** |  $       0.37 |  $       0.29 |
|                                                                                      |

a)     Statement of Financial Accounting Standards No. 87,Employer's Accounting for Pensions, requires that the transitional obligation be amortized over the expected average service livesof the employee group rather than charged to retained earnings immediately as allowed under the Canadian standards.  Inaddition, the U.S. standard requires the recognition of an additional minimum pension liability.  Three of the Company's plansand one executive arrangement have a minimum liability, which has been charged to other comprehensive income under U.S.GAAP.

b)      In June 2001, the Financial Accounting Standards Board("FASB") issued Statement of Financial Accounting Standards ("SFAS") No. 141, Business Combinations and SFAS 142, Goodwill andOther Intangible Assets.  The effect of adopting these standards is not materially different from the adoption of the Canadianstandards (see Note 2) except that the transitional impairment loss is charged to earnings as a cumulative effect of a change inaccounting principle under U.S. GAAP.

c)     Other cumulative comprehensive income also includeschanges in the cumulative translation account which represents a reduction in the Company's shareholders' equity and representsunrealized translation adjustments, which arise on the translation to Canadian dollars of U.S. denominated assets andliabilities.  The Company has designated certain U.S. denominated debt as a hedge of its net investment in these U.S.subsidiaries (see Note 11).  The change in the cumulative exchange account relating to debt designated as a hedge of theCompany's net investment in its foreign subsidiaries is a gain of $14.1 million in 2004 (2003 gain: $25.1 million: 2002 gain: $1.1million).

In addition, the Company has entered into fixed for fixed cross currency swaps in order tohedge its foreign exchange risk on its U.S. denominated debt.  U.S. GAAP requires that the change in fair value of these swapsthat is not attributable to the change in exchange rates be recorded through other comprehensive income.  As at December 31,2004, this fair value was $8.0 million net of tax of $2.8 million.

d)      As at December 31, 2003, the Company had certainavailable-for-sale securities that are recorded at the lower of cost or market for Canadian accounting standards and marked tomarket through other comprehensive income in the amount of $262,000, net of tax of $141,000 as required by U.S. standards. These securities were sold in 2004.

e)      In January 2003, FASB issued FIN 46, Consolidation ofVariable Interest Entities.  The Company adopted this standard in fiscal 2004.  The adoption of this standard did nothave a material affect on the Company's results of operation, financial position or cash flows.

f)      During 2003, the Company adopted SFAS 143,Accounting for Asset Retirement Obligations, SFAS 144, Accounting for the Impairment or Disposal of Long-Lived Assets, SFAS 148,Accounting for Stock-based Compensation, Transition and Disclosure and EITF 02-16 Accounting by a Customer for CertainConsideration Received from a Vendor.  The implementation of these standards did not differ materially from the correspondingCanadian standards except that the Company adopted the Canadian Asset Retirement Obligation standard January 1, 2004.

g)     During 2002, FASB issued SFAS 145, Rescission of FASBstatements No. 4, 44 and 64 and FASB Interpretation No. 45, Guarantor's Accounting and Disclosure Requirements for Guarantees,including Indirect Guarantees of Indebtedness of Others, which did not have a material impact on the Company's consolidated resultsof operations, financial position or cash flows.  Also, during 2002, FASB issued SFAS 146, Accounting for Costs Associatedwith Exit or Disposal Activities.  The Company implemented this standard for transactions entered into subsequent to December31, 2002.

h)     As at December 31, 2004, shareholders' equity under U.S.GAAP was $453,186,000 (2003:  $257,072,000).