|  |
|--|

****

              

              

             

            

            

            

              

              

             

            

             

            

**         **

**ANNUAL**

**        **

      

**INFORMATION**

**       **

       

**FORM**

**        **

       

**         **

       

**APRIL 14, 2004**

        

                

              

              

              

             

            

            

            

            

            

            

            

            

            

            

            

            

            

            

RUSSEL METALS INC., SUITE 210, 1900 MINNESOTA COURT, MISSISSAUGA,ONTARIO

CANADA L5N 3C9

**TABLE OF CONTENTS**

    

Page

    

Page

    

    

Russel Metals Inc.

3

    

Employees

13

History of the Company

3

    

Legal Proceedings

13

Business

3

    

Environmental Regulation

13

     Overview

3

    

     Present Actions

14

Description of the Business

4

    

Risks Related to our Business and the Metals Distribution Industry

15

     Industry Overview

4

    

General Development of the Business

21

     Competitive Strengths

5

    

Selected Consolidated Financial Information

 22

     Business Strategy

6

    

Summarized Quarterly Consolidated Financial Information

 24

     Acier Leroux Acquisition

7

    

Selected Consolidated Financial Information

 25

     Products, Services and Customers

8

    

Market for the Securities of Russel Metals Inc.

 26

     Revenue by Product

10

    

Dividend Records

26

     Metal Suppliers

10

    

Major Subsidiaries

26

     Competition

11

    

Management's Discussion and Analysis

27

Properties

11

    

Directors and Executive Officers

27

     Non-Metal Operations

13

    

Additional Information

31

****
****
****

**RUSSEL METALS INC.**

            

             RusselMetals Inc. (Russel Metals or the Company) is one of the largest metals distribution and processing companies in North Americabased on revenues.  The Company primarily distributes steel products and conducts its distribution business in three principalbusiness segments:  service centers; energy sector pipe, tube, valves and fittings; and import/export.  For the yearended December 31, 2003, Russel Metals had consolidated revenues of $1.5 billion.

              

             The addressof Russel Metals' head office is Suite 210, 1900 Minnesota Court, Mississauga, Ontario L5N 3C9, tel. no. (905) 819-7777, fax no.(905) 819-7409.  Unless the context otherwise requires, references to "Company", "we", "us" or "our" as used herein refers toRussel Metals Inc. and its subsidiaries.  All dollar references are in Canadian dollars unless otherwise stated.

            

**HISTORY OF THE COMPANY**

            

             RusselMetals Inc. (the legal entity) is the successor corporation to Federal Grain Limited, which was incorporated under the laws ofCanada in 1929 and subsequently amalgamated with Searle Grain Company Limited on August 1, 1967 to continue under the name FederalGrain Limited. The name was changed to Federal Industries Ltd. on April 16, 1973 and the Company was continued under the *CanadaBusiness Corporations Act* on May 5, 1980.  On June 1, 1995, the name was changed to Russel Metals Inc.  On January 1,2002, Russel Metals Inc. was formed upon the amalgamation of its predecessor of the same name with A. J. Forsyth and CompanyLimited, a subsidiary with Canadian service center operations, and three non-operating subsidiaries.

            

**BUSINESS**

            

**Overview**

             

                Webelieve we operate the largest service center operation in Canada based on revenues. During 2003, we processed and distributedproducts to a broad base of approximately 18,000 customers through a network of 58 locations across Canada. In addition, we havefour U.S. locations. Our network of service centers carries 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 aluminum. Wepurchase these products primarily from North American steel producers, and package and sell them to end users in accordance withtheir specific needs. Our service center operations accounted for $922.8 million, or 60.8%, of our total revenues in2003.

             

                Ourenergy sector distribution operations carry a specialized product line focused on the needs of energy sector customers. Theseoperations distribute pipe, tube, valves and fittings, from five Canadian and two U.S. locations. We purchase these products eitherfrom the pipe processing arms of North American steel mills or from independent manufacturers of pipe and pipe accessories. Ourenergy sector distribution operations accounted for $297.5 million, or 19.6%, of our total revenues in 2003.

             

                Ourimport/export business principally imports steel products into Canada and the United States, such as carbon steel plate, beams,channel, flat rolled products, rails and pipe products. Our import/export operations accounted for $283.6 million, or 18.7%, of ourtotal revenues in 2003.

             

**DESCRIPTION OF THE BUSINESS**

             

**Industry Overview**

             

 

              Metal servicecenters bridge the gap between the capabilities of large metal producers, who manufacture large volumes of steel, aluminum andspecialty metals in standard sizes and configurations and require long lead times, and the specific needs of end users by acquiringlarge volumes of metal from producers and packaging and processing the metal in accordance with end user specifications. Many endusers purchase metal products from service centers because their requirements are smaller than the minimum order quantitiesavailable from the producers or because such end users require specialized metal processing services, a commitment to reliablejust-in-time delivery and flexibility to meet their changing product and manufacturing requirements that large producers are eitherunwilling or unable to provide. Service centers also allow end users to reduce their total production cost by shifting theresponsibility for pre-production processing to service centers which, through economies of scale, can achieve greater operationalefficiency from the processing equipment.

             

                Weestimate that in 2003, the service center industry in Canada had total sales of approximately $4.0 billion. According to industrysources, comparable statistics for the U.S. industry for 2003 indicate sales of approximately US$36.0 billion.

             

            Service centers are the largest category of customers of domestic steel producers in Canada. The following table showsCanadian shipments (net of returned shipments) by Canadian steel mills to Canadian service centers and all other net domesticshipments by Canadian steel mills for the years indicated. These figures do not include metal products other than steel, such asaluminum, that we also distribute.

             

**Net Domestic Shipments of Steel Mill Products by Canadian SteelMills**

**(millions of metric tons)**

**1994**

**1995**

**1996**

**1997**

**1998**

**1999**

**2000**

**2001**

**2002**

**2003**

** **

 

Shipments to Cdn. Service Centers

 3.26

 3.28

 3.57

 3.81

 3.48

 3.85

 3.80

 4.02

 4.06

 3.65

 

All Other Shipments

7.40

7.03

7.57

7.92

7.87

8.22

8.20

7.53

7.59

7.69

 

 

Total Shipments

10.66

10.31

11.14

11.73

11.35

12.07

12.00

11.55

11.65

11.33

 

 

% to Service Centers

30.6%

31.8%

32.0%

32.5%

30.7%

31.9%

31.7%

34.8%

34.8%

32.2%

 

 

(Source:  Statistics Canada)

           

             The metals service center industry is intensely competitive. Generally, the metals service center industry competeson price and the ability to provide customers with value-added services such as product selection, timely delivery, reliability,quality and processing capability. There has been significant consolidation in the industry in both the United States and Canadaover the past decade. Many of our competitors are small companies, often owner-operated, with limited product lines, inventory andgeographic customer bases. Many of these small, owner-operated businesses have limited access to capital for modernization andexpansion, have not had a viable exit strategy, and have been left with limited liquidity options.

              

**Competitive Strengths**

              

             We believe that the following strengths have enabled us to achieve net earnings in 27 of the last 28 quarters andgive us a competitive advantage in the metals distribution industry:

             

             *Leading Market Position.  *We believe we are the largest service centeroperator in Canada based on revenues and that we represent over 24% of the total service center market in Canada. We also believewe are the largest service center operator in each of the regions of Canada except for Ontario where we are the second largest. Our58 Canadian service centers service a broad base of approximately 18,000 customers across all regions of Canada. Our geographicpresence, large volume and leading market position enable us to successfully source steel at competitive prices.

             

             *Strong Supplier Relationships and Unique Market Insight.  *We are among thelargest purchasers of steel in North America and have well established relationships with North America's largest steel producers,which enable us to ensure multiple sources for steel products and services. We believe that our steel import/export operation isone of the largest independent steel importers in North America. Our import operation enables us to augment our product lines atour service centers when product is not available or when we can obtain steel competitively by purchasing abroad. Through our steelimport/export operations, we regularly purchase from multiple suppliers in 13 countries around the world. This enables us tomonitor global steel supply and assess its impact on North American steel demand and pricing trends. This timely access to marketinformation and global outlook allows us to proactively manage inventory levels and prices in our service center operations andmake low cost purchases of steel imports when available.

             

             *Successful Acquisition Track Record.  *Over the last five years, we havesuccessfully integrated a number of acquisitions. For example, in October 2001, we acquired A.J. Forsyth and Company Limited, theleading service center operation in British Columbia, and in July 2003, we acquired Acier Leroux inc., the leading service centeroperation in Quebec. These acquisitions strengthened our Canadian service center market presence and were immediately accretive toRussel. Once we have completed an acquisition, we rationalize the operations and balance sheet and reinforce the best practicesfound in our combined operations.

            

             *Multiple Business Segments and Diversified Service Center Customer Base.  *Weoperate in three segments of the metals distribution business, each with a distinct customer base and business cycle: servicecenters, energy sector and steel import/export. Our largest segment, service centers, has a diversified customer base across a widevariety of industries, including machinery and equipment manufacturing, construction, shipbuilding and natural resources, such asmining and petroleum. Our focused segments, energy sector and steel import/export, are not significantly dependent on any onecustomer. In 2003, our service center average order size was $989. In addition, in 2003, none of our approximately 18,000 servicecenter customers accounted for more than 2% of our total revenues.

              

             *Superior Service and Product Selection.  *We believe that we have areputation for superior and timely service, and diverse product selection. Each of our service centers has the ability to offer onestop shopping to our customers. We also provide customized processing services and offer just-in-time delivery to quickly satisfyend user specifications. We have developed strong relationships with our customers and are able to identify their needs early so wecan respond to short lead times or just-in-time delivery requirements common in the industry. Because local managers havesignificant operational control, our service centers can react quickly to changes in local markets and customer demands.

             

             *Prudent Inventory Management.  *We manage our inventory to avoid unnecessarycommitments of working capital while maintaining sufficient supply to respond quickly to customer orders. We tailor our inventoryand processing services at each service center location to the needs of that particular market. The negotiation of purchaseagreements with suppliers is centralized to leverage our buying power and global market insights; however, actual supply ofinventory to each of our locations is determined by the branch management team. Local monitoring allows us to more accuratelyassess inventory requirements at each service center. We believe our decentralized inventory management, combined with our globalmarket insights, has allowed us to react more quickly than many of our competitors to changing metals prices and customer needs,and to optimize our use of working capital. As a result of our prudent inventory management, our service centers turn theirinventory 4 to 5 times per year while the industry average is lower. Given the particular importance of inventory management in theprice-sensitive service center business, we believe that this gives us a significant competitive advantage.

             

             *Experienced Management Team.  *Our senior executives and other key members ofour management team have an average of 29 years of experience in the metals distribution business. To facilitate an entrepreneurialculture, our compensation policies, at both senior and local management levels, are based on the profitability and assetutilization of our business units.

              

**Business Strategy**

               

             Our primary goals are to continue to be a leading metals distribution company, increase our market share, expandservices to customers and improve operating profits and cash flows. Our business strategies, aimed at achieving our goals, consistof the following:

             

             *Managing Capital Utilization.  *We will continue to aggressively manage ourbalance sheet to reduce debt and to enable us to fund acquisitions, capital expenditures and working capital requirements fromexisting bank lines. We intend to continue to manage inventory based on our expected customer demands rather than speculate onmarket pricing which will enable us to maximize our inventory turns. We strive to maintain capital expenditures below ourdepreciation expense. Over the last 4 years, the ratio of our capital expenditure to depreciation was 85%, excluding expendituresof $22.7 million on a cut-to-length line and new facility for our B&T Steel division, which was substantially completed in2003.

              

             *Expanding through Select Acquisitions.  *Over the past few years, we havestrengthened our Canadian franchise through acquisitions which we have rationalized and integrated with our existing operations. Wenow have a major presence in all of the Canadian regions. Management believes that maintaining and growing that strong positionshould be the primary strategic goal of our acquisition policy. We intend to continue to investigate acquisition opportunities thatwill be immediately accretive to earnings and that will enable us to build on our Canadian service center presence or extend ourproduct offerings in Canada, such as increasing our share in flat rolled products and processing. In our energy and import/exportoperations, as well as our United States service center operations, we will continue to look for strong product niche players orstrong regional operations. No significant acquisitions are currently contemplated.

            

             *Decentralizing Operating Management Combined with Economies of Scale.*  Wecontinue to manage our businesses on a decentralized basis, with local management accountable for day-to-day operations,profitability and growth of the business, which we believe fosters an entrepreneurial culture across our operations. Our localizedoperating management allows us to capitalize on name recognition, end user relationships of our businesses, and the local andregional market knowledge of the operations' staff. In addition, management oversight through centralized purchasing, managementinformation systems and cash management enables us to benefit from economies of scale and lower purchasing costs.

            

**Acier Leroux Acquisition**

             

             On July 3, 2003, we purchased Acier Leroux, a company specialized in the processing and distribution of varioussteel products from service center locations mainly in Ontario, Quebec and the Maritimes. We acquired Acier Leroux for $197.6million which we funded with $20.0 million in new equity and borrowings of $177.6 million from our credit facility. For the 12months ended July 3, 2003, Acier Leroux had revenues of approximately $401 million from its Canadian operations and approximately$70 million from its U.S. operations, which we have discontinued. The Acier Leroux acquisition has been accretive to our netearnings and to cash flow from the first month of the acquisition and has also helped strengthen our market positions in Ontario,Quebec and the Maritimes. When combined with our existing operations, we have been able to significantly reduce Acier Leroux'sworking capital and increase cash flows principally as a result of operational synergies, rationalization of duplicate inventoryand the sale of redundant assets. In 2003, we incurred restructuring charges of $3.6 million related to the acquisition and expectto incur additional charges in 2004.

             

             One of our business strategies is to combine new acquisitions with our existing operations and then rationalize anyduplication. Immediately after the Acier Leroux acquisition, the combined Russel and Acier Leroux regional teams evaluated ourexisting operations along with the new Acier Leroux operations and developed restructuring plans in order to provide us with thestrongest organization upon completion of the integration of Acier Leroux.

             

             In Quebec, the restructuring team has determined that all of the Acier Leroux facilities should remain open. Inaddition, we have changed the utilization of one of the two Acier Leroux facilities in Boucherville by transferring to it ournon-ferrous business. We have distributed the balance of our ferrous inventory in Lachine, Quebec to existing Acier Lerouxfacilities in Quebec to enable the sale of the 212,000 square foot facility in Lachine in 2004. The rationalization of staff levelsin the region has been completed.

             

             In the Maritimes, we have realigned our distribution network with the addition of Acier Leroux's Sackville facility,which has enabled us to allow our Halifax operation to focus more on its immediate territory. Furthermore, we closed the AcierLeroux Dartmouth location and expect to sell it in 2004.

             

             In Ontario, we have begun the consolidation of our operations with those of Acier Leroux. Our Vantage Laser andBurlington plate operations, which were previously in leased facilities, are being reconfigured and combined in the vacant 124,000square foot Acier Leroux Guelph facility. The refurbished Guelph facility will house all of our plate processing operations andplate inventory. Further consolidation is currently under review.

             

             The proceeds from the sale of the facilities in Dartmouth, Lachine and Cambridge will be used to further reduce thedebt related to the Acier Leroux acquisition. In 2003, we disposed of two U.S. facilities generating $4.4 million.

             

             Each regional team determined that converting the Acier Leroux operations to our management information systemswould be of significant benefit to the regional operations. The conversion to our management information systems for mostoperations in each of Quebec, the Maritimes and Ontario was completed in 2003.

             

**Products, Services and Customers**

              

             **Service Centers**

              

             Our service centers sell plate, flat rolled carbon and other general line carbon steel products, as well as somestainless steel, aluminum and other non-ferrous specialty metal products in a wide range of sizes, shapes and specifications.General line steel products consisting of plate, structurals, bars, sheet, pipe, tubing and hollow structural steel tubing, areused by end users in a wide variety of industries. Within Canada, our steel service centers operate under the names Russel Metals,Métaux Russel, Drummond McCall, A. J. Forsyth, Acier Leroux, Acier Dollard, Acier Loubier, Ennisteel, Leroux Steel, RusselLeroux, Poutrelles Delta and Vantage Laser. Heavy gauge flat rolled operations are conducted by B&T Steel and McCabe, bothlocated in Hamilton, Ontario. Our U.S. service center operations are conducted under the names Russel Metals Williams Bahcall andBaldwin International. The Williams Bahcall operation focuses primarily on the distribution of general line carbon products throughthree facilities in Wisconsin. Baldwin International distributes specialty alloy products through its facility in Ohio.

            

             Our service center operations also provide customized processing services to satisfy specifications established byend users. By providing these services, as well as by offering inventory management and just-in-time delivery, we enable end usersto reduce their overall production costs and decrease capital required for raw materials and metals processing equipment. Our valueadded processes include, but are not limited to:

       

             ·** **

shearing, slitting and cutting to length: the cutting of metal into smaller pieces or intonarrower coils;

       

             ·**  **

laser, flame and plasma cutting: the cutting of metal to produce various shapes or partsaccording to end user supplied drawings;

       

             ·**  **

leveling: the flattening of metal to uniform tolerances for proper machining;

       

             ·**  **

tee-splitting: the splitting of metal beams;

       

             ·**  **

edge trimming: removing a portion of the edges of coiled metal to produce uniform widthand round or smooth edges; and

       

             ·**  **

cambering: the bending of structural steel to improve load-bearingcapabilities.

       

             In 2003, our service center segment handled an average of approximately 3,733 transactions per day with an averagerevenue of approximately $989 per transaction. Typically, our service center sales are made on an individual purchase orderbasis.

          

             Our service center operations provide products and services to end users in a wide variety of industries, includingmachinery and equipment manufacturing, construction, shipbuilding and natural resources, such as mining and petroleum. During 2003,no individual service center customer accounted for more than 2% of our total revenue.

             

             **Energy Sector Distribution**

            

             Our energy sector distributes pipe, tube, valves and fittings primarily to the energy sector. Our energy sectorconsists of four businesses, each of which sells a distinct line of products. These businesses include:

            

*Fedmet Tubulars*-- a distributor of oil country tubular goods(which includes casing and tubing) and line pipe and related products. Fedmet Tubulars' sales office is located in Calgary,Alberta.

            

*Triumph Tubular & Supply*-- a distributor of oil countrytubular goods. Triumph’s sales office is located in Calgary, Alberta.

            

*Comco Pipe and Supply Company*-- a distributor of pipe, valveand fitting products. Comco Pipe and Supply specializes in the supply and distribution of pipe and fluid handling products to theenergy, construction, manufacturing, pulp and paper and mining industries. These products are distributed through facilities inCalgary and Edmonton, Alberta; Stonewall, Manitoba; and Guelph and Sarnia, Ontario.

            

*Pioneer Pipe --*a distributor and processor of steel pipeproducts to the construction, oil and gas and ski industries in the western United States. Pioneer Pipe has facilities in Aurora,Colorado and Lindon, Utah. These operations include Spartan Steel, headquartered in Evergreen, Colorado.

            

             The energy sector businesses sell a range of products to end users located primarily in western Canada and thewestern United States. During 2003, no individual energy sector customer accounted for more than 3% of our totalrevenue.

            

 

             **Steel Import/Export**

 

            

 

             Our import/export operations primarily import foreign steel products into Canada and the United States and, to alesser extent, export North American steel products to international end users. Revenues from these operations may varysubstantially from year to year, depending primarily on general economic conditions in North America and in the export marketsserved by these operations. The import/export operations take title of the steel they acquire.

 

            

 

             We specialize in the import into North America of carbon steel, plate, beams, channel, flat rolled products, railand pipe products. Sales commitments for a significant portion of these products are obtained prior to their purchase or while theproduct is in production and transit. Products for which sales commitments have not been obtained are held in public warehouses forresale to North American service centers and other customers.

 

            

 

             Our import/export segment is conducted through Wirth Steel located in Canada and the Sunbelt Group located in theUnited States.

 

            

 

             In 2003, no individual steel import/export customer accounted for more than 1% of our total revenue.

 

**Revenue by Product**

 

            

 

             The following table sets out the revenues by product based on dollar revenues for the fiscal years ended December31, 2003, 2002 and 2001.

 

 

            

 

**Sales by Product Group**

 

 

**Years Ended December 31,**

 

 

****

******(in thousands of dollars except percentages)**

****

**   2003**

****

** % of Total**

****

**   2002**

****

** % of Total**

****

**   2001**

****

** % of Total**

 

 

**Carbon:**

 

    Plate (Discreet & Plate in Coil)

$  350,082

23.1%

$  342,666

24.4%

$  304,112

21.7%

 

    General Line:

 

       Structurals (WF & I Beam, Angles,

 

           Channels,HollowTubes)

358,082

23.6%

256,721

18.3%

278,462

19.9%

 

       Bars (Hot Rolled and Cold Finished)

135,057

8.9%

120,945

8.6%

94,441

6.7%

 

       Tubing/Pipe (Standard, Oil Country

 

            TubularGoods)

335,534

22.1%

346,892

24.7%

388,729

27.7%

 

       Grating/Expanded

15,708

1.0%

11,488

0.8%

11,215

0.8%

 

    Flat Rolled:

 

       Sheet, strip & coil

124,623

8.2%

118,392

8.5%

105,540

7.5%

 

       Wire Rods / Wire Products

2,404

0.2%

-

-

6,160

0.4%

 

       Flanges, Fittings & Valves

39,967

2.6%

49,866

3.6%

44,403

3.2%

 

 

**Total Carbon**

1,361,457

89.7%

1,246,970

88.9%

1,233,062

87.9%

 

**Total Non-Ferrous (Sheet, Extrusion,**

 

**  Tubular Goods, Etc.)**

81,648

5.4%

95,512

6.8%

114,398

8.2%

 

**Other**

73,985

4.9%

60,793

4.3%

55,049

3.9%

 

 

**Total**

$1,517,090

100.0%

$1,403,275

100.0%

$1,402,509

100.0%

 

**Metal Suppliers**

            

             North American steel mills are the primary source of supply for our service centers. In addition, we purchase steelfrom international sources when steel is either not available or is not priced on a competitive basis in North America. Thisincludes circumstances where the particular product is in short supply or where North American mills do not produce the particularproduct. We have developed an effective coordinated purchasing program that allows us to derive economies of scale through volumepurchases, and also allows us to access metal supplies globally. Substantially all of our purchases are made under existingpurchase orders and we have no material long-term metal supply contracts. We believe that alternate suppliers are available withrespect to all of our product lines and our service center operations generally maintain multiple suppliers for all productlines.

          

             Our Canadian service center operations have over 200 suppliers. Purchases from our four largest suppliersrepresented approximately 39% of the requirements of the Canadian service center operations in 2003. We believe that we are one ofthe largest purchasers from most Canadian and many U.S. steel mills. Our U.S. service center operations have more than 50 supplierswith no significant exposure to any one supplier or mill.

             

             The primary sources of supply for the energy sector are the pipe processing arms of North American steel mills andindependent manufacturers of pipe and accessories. During 2003, the largest single supplier of the energy sector representedapproximately 20% of energy sector purchases.

              

             The steel import/export sector deals on a regular basis with multiple suppliers in 13 countries around the world. In2003, the largest single supplier represented approximately 10% of the purchases by the steel import/export segment.

              

**Competition**

           

             Our Canadian service centers compete with other service centers that are regional and local in geographic coverageand our U.S. service centers compete with other service centers that are national, regional and local in geographic coverage. Theservice center industry is highly competitive with competition focused on price, product availability and quality, processingcapability and on-time delivery.

              

             We believe that our service center operations are favourably positioned with respect to our competitors for severalreasons. First, the geographic scope and diversity of our Canadian operations and the breadth of our product line allow us toservice national and regional end users throughout Canada. We believe that we provide our Canadian end users with a wider range ofproducts and more value-added services than many of our regional or local competitors. Second, we believe that our access to andcontact with international markets through our steel import/export business not only provides us with certain purchasing anddistribution advantages over many of our competitors, but also enables us to better anticipate trends and opportunities in thedomestic and international steel markets, allowing us to more proactively manage our inventory.

           

             The energy sector distribution industry is very diverse and is made up of many small private companies each having aunique product offering. Generally, companies in this industry are regional in geographic coverage and focus on specific marketniches. These companies typically carry a broad product line and competition is focused on price, product availability and qualityand on-time delivery.

           

             Our steel import/export operations compete with other international steel importers and exporters, as well as steelproducers in the destination market. Competition focuses on price, product quality and availability, and terms of shipment(including freight costs, which vary and can be as much as 15% of the landed cost of a product). The business is highly dependenton global economic conditions and on the relationships we have with our international network of suppliers andcustomers.

           

**PROPERTIES**

           

             We have 70 warehouse facilities, 63 in Canada and 7 in the United States. Our import/export operations and two ofour energy sector operations distribute goods that are held in public warehouses or yards until sold.

            

             Set forth below is certain information, as of December 31, 2003, with respect to our principal operatingfacilities.

            

 

**Number of Facilities**

**Approximate Square Feet**

 

 

 

 

**Owned**

**Leased**

**Owned**

**Leased**

**Total**

 

 

 

 

**Service Center Distribution**

 

 

 

 

**Canada**

 

 

       British Columbia

8

-

257,130

-

257,130

 

 

       Alberta

4

4

123,723

46,934

170,657

 

 

       Saskatchewan

3

-

52,260

-

52,260

 

 

       Manitoba

2

3

199,296

79,500

278,796

 

 

       Ontario

7

7

611,237

215,399

826,636

 

 

       Quebec

14

1

927,980

7,600

935,580

 

 

       New Brunswick

3

-

74,400

-

74,400

 

 

       Nova Scotia

1

-

50,880

-

50,880

 

 

       Newfoundland

1

-

19,200

-

19,200

 

 

 

 

**Total**

43

15

2,316,106

349,433

2,665,539

 

 

 

 

**United States**

 

 

       Wisconsin

1

2

30,016

183,977

213,993

 

 

       Ohio

1

-

41,040

-

41,040

 

 

 

 

**Total**

2

2

71,056

183,977

255,033

 

 

 

 

          

 

 

**Energy**** Sector Distribution**

 

 

 

 

**Canada**

 

 

        Alberta

1

1

45,000

8,100

53,100

 

 

        Manitoba

-

1

-

28,000

28,000

 

 

        Ontario

-

2

-

32,200

32,200

 

 

 

 

**Total**

1

4

45,000

68,300

113,300

 

 

 

 

**United States**

 

 

        Utah

-

1

-

14,400

14,400

 

 

        Colorado

-

1

-

800

800

 

 

 

 

**Total**

-

2

-

15,200

15,200

 

 

 

 

          

 

 

**Steel Import/Export**

 

 

 

 

**United States**

 

 

        Texas

1

-

69,440

-

69,440

 

 

 

 

            

 

**Non-Metal Operations**

            

             The remaining non-metals operation, Thunder Bay Terminals, covers an area of approximately 290 acres. Most of theproperty is under long-term leases. A coal handling system is located at the site and comprises a number of structures, includingstructures which trains enter to be unloaded, and ship docking facilities. Coal storage structures and equipment are also locatedat the site. All the structures and most of the equipment are owned by Thunder Bay Terminals.

            

**EMPLOYEES**

            

             As at February 4, 2004, we had approximately 2,500 full-time and full-time equivalent employees. Approximately 250of these employees are located in the United States. We have 37 collective bargaining agreements covering approximately 1,050employees at 40 of our locations, three of which have expired and are currently being negotiated. Through to the end of 2004, thereare 14 other collective bargaining agreements covering approximately 360 employees which we intend to renegotiate prior to theirexpiration. We have maintained generally favourable relations with our employees. Since 2001, we have experienced no work stoppagesat any of our locations and have successfully renegotiated 41 collective agreements in that period. In October 2002, Acier Lerouxexperienced a labour dispute that occurred at its Ennisteel facility where work stopped for a period of two weeks.

            

**LEGAL PROCEEDINGS**

            

             From time to time, we are involved in legal proceedings relating to claims arising out of our operations in theordinary course of business. We do not believe that there are any material proceedings, pending or threatened against us or any ofour properties other than those discussed in this document under "Environmental regulation."

            

**ENVIRONMENTAL REGULATION**

            

             We are subject to a variety of federal, provincial, territorial, state and local environmental laws and regulationsin Canada and the United States. Such laws and regulations relate to, among other things, the discharge of contaminants into waterand air and into and onto land, the disposal of waste, the handling, storage and transportation of hazardous materials and thestorage of materials in underground tanks. In particular, operations divested between 1991 and 1997 included chrome platingfacilities and the transportation and storage of petroleum products. We could be responsible for clean up of or damages fromreleases of hazardous materials on or emanating from the properties where these operations were conducted.

            

             In Canada, while there are federal environmental statutes such as the *Canadian Environmental Protection Act,1999*, the *Fisheries Act,* and the *Transportation of Dangerous Goods Act, 1992* which apply to us, each Canadianprovince and territory and most municipalities in which we operate also enact and enforce their own environmental laws. In theUnited States, the primary federal regulatory laws to which we are subject include the *Resource Conservation and RecoveryAct,* the *Comprehensive Environmental Response, Compensation and Liability Act* and the *Clean Water Act*. We arealso subject to environmental regulation at the state and local levels in the United States.

            

             We believe that our current operating facilities are in material compliance with applicable environmental laws andregulations.

            

**Present Actions**

            

             The following paragraphs summarize significant environmental litigation, regulatory action and remediation in whichwe are presently involved. The anticipated expenditures on these sites all relate to previously divested or discontinuedoperations.

            

***Denton, Maryland***

            

             Pursuant to a Consent Order issued by the Maryland Department of the Environment in 1987 and subsequently amended inApril 1993, one of our non-operating subsidiaries is treating groundwater contaminated with volatile organic compounds from aformer manufacturing facility on its property in Denton, Maryland. The 1993 amendment to the Consent Order allows the subsidiary tofocus the remediation project on localized areas of contamination. To date, approximately US$2.3 million has been expended inconnection with the investigation and remediation of groundwater on this site. The recurring annual cost to operate and maintainthe treatment system is approximately US$40,000. In addition, we are incurring an expense of approximately US$60,000 before the endof 2004 to restore the system to optimum operating efficiency.

            

***Gary, Indiana***

            

             In 1992, a subsidiary of ours entered into an Agreed Order with the Indiana Department of Environmental Management("IDEM") requiring a limited assessment of soil and groundwater at its previously leased property in Gary, Indiana where thesubsidiary, prior to the divestiture of the business, operated a chrome plating facility. The subsidiary has signed a furtherModified Agreed Order that commits it to perform a Groundwater Evaluation Study Plan (the "GESP") and, if required by IDEM, aGroundwater Remediation Project. The GESP has been completed in stages, with interaction with IDEM at each stage. The final stagehas been submitted to IDEM for its review and comment. IDEM has required certain remediation and monitoring measures, which havebeen partially implemented. Discussions with IDEM continue to determine the degree of remediation that is necessary. ApproximatelyUS$2.8 million has been expended to date in connection with the investigation, assessment and remediation of the soil andgroundwater at the site. Until the discussions with IDEM are completed, additional costs to complete the investigation andremediation of the site cannot be estimated with any certainty; however, we believe that such additional costs will continue for anindefinite period and will not likely exceed US$1.0 million.

            

***Hamilton, Ontario***

            

             Contamination was discovered in 1991 by a subsidiary of ours on its property in Hamilton, Ontario, resulting fromits historic, on-site chrome plating operations. The contamination, which consists primarily of chromium, was reported to theOntario Ministry of Environment (the "MOE") and the local municipality. The subsidiary retained environmental consultants todetermine the extent of contamination on the site and on neighboring properties and has developed a plan to deal with thecontamination, which has been reviewed by the MOE. This plan involves the use of a groundwater extraction and treatment systemwhich has been installed and is presently remediating both contamination on site and that caused by the subsidiary on neighboringproperties. The subsidiary has proposed, and the MOE has accepted, certain actions to improve and accelerate the remediation whichcommenced during 2002. To date, approximately $2.9 million has been expended and we expect that the groundwater extraction andtreatment will continue indefinitely at an annual cost including operating and maintenance expenses of approximately$150,000.

            

            

            

***Whitehorse, Yukon and Skagway, Alaska***

            

             Certain of our subsidiaries operated a petroleum distribution business in Alaska, Yukon and northern BritishColumbia including a petroleum pipeline between Whitehorse, Yukon and Skagway, Alaska. This business was sold as of June 1, 1995.We continue to own properties in Skagway and in Whitehorse formerly used in connection with that business including petroleum tankfarms. The petroleum tanks and pipelines have been removed from these properties. The surface clean-up of the former Skagway tankfarm was started in 1999 and is now substantially completed. Remedial work for the property in Whitehorse known as the upper tankfarm has also been substantially completed and the results are before the Canadian National Energy Board and the Yukon Territorialgovernment for approval. We do not anticipate any further material costs with respect to either the former Skagway tank farm or theupper tank farm at Whitehorse.

            

             In addition, the purchasers of the petroleum distribution business have filed a complaint in Alaska and a writ inthe Yukon Territory against us relating to environmental contamination at the Whitehorse lower tank farm and a historical barrelwashing pit sold with the petroleum distribution business. The actions relate to petroleum hydrocarbons and also lead, zinc andother contaminants. On October 5, 2000, Orders were issued by the Yukon Territorial government pursuant to the *Environment Act(Yukon)* against us and other responsible parties to investigate, establish a plan of restoration and restore this site. As ofMarch 20, 2002, the Yukon Territorial government vacated these Orders; however, it has advised that it remains of the view thatinvestigation and restoration remain necessary. Consequently, we and some others are continuing the investigation of the propertyand development of an acceptable restoration plan. A proposed risk-based remedial approach for the site is being considered by theYukon Territorial government. Our final costs with respect to these issues cannot be determined until a remedial approach has beendecided, a restoration plan has been approved, and third party liability, if any, has been taken into account. We cannot assure youthat costs with respect to this matter will not be material.

**RISKS RELATED TO OUR BUSINESS AND THE METALS DISTRIBUTION INDUSTRY**

            

***Volatile metal prices can cause significant fluctuations in our operatingresults.***

            

             The price we pay for, and availability of, steel and various specialty metals (such as aluminum), and the prices wecan charge for such products, fluctuate due to numerous factors beyond our control, including Canadian, American and internationaleconomic conditions, currency exchange rates, global demand for steel and other metal products, including demand in high-growthmarkets such as China, trade sanctions, tariffs, labor costs, competition and over capacity of steel producers, including pricesurcharges. Substantially all of our revenues are derived from the sale of steel and specialty metals. As a result, fluctuations inavailability and cost of steel and specialty metals and the prices we can charge for our products may materially adversely affectour business, financial condition, results of operations and cash flows. We have no material long-term, fixed-price purchasecontracts. Our commitments for metal purchases are generally at prevailing market prices in effect at the time that we place ourorders. During periods of rising raw materials pricing, we may be unable to pass such increases, which may include surcharges byour suppliers, on to end users. To the extent we are not able to pass on to our customers any increases, our business, financialcondition, results of operations and cash flows will be materially adversely affected. When metal prices decline, end user demandsfor lower prices and competitors' responses to those demands could result in lower sale prices and, consequently, lower margins aswe use existing inventory.

            

***Our business may be affected by the cyclicality of the metals industry and theindustries that purchase our products.***

            

             We operate businesses that are substantially affected by changes in economic cycles and whose revenues and earningsvary with the level of general economic activity in the markets they serve. Periods of economic slowdown or recession in the UnitedStates or other countries, or the perception that one may occur, could decrease the demand for our products, affect theavailability and cost of our products and adversely affect our net sales, operating margin and net earnings.

            

             Some of our customers operate in industries that experience significant fluctuations in demand based on economicconditions, oil and gas prices and other factors, including exchange rate fluctuations, that are beyond our control. Many of ourcustomers generate a significant portion of their revenues through exporting goods to the United States. Thus, a strengthening inthe Canadian dollar relative to the U.S. dollar can adversely affect the competitiveness of these customers. In 2003, the Canadiandollar rose approximately 22.2% relative to the U.S. dollar. If the ability of our customers to export their products to the UnitedStates is reduced, the demand for our products could decline, which could have a material adverse effect on our business, financialconditions, results of operations and cash flows.

            

***Significant competition could reduce our market share and harm our financialperformance.***

            

             We face significant competition in our service center and energy sector distribution operations. In Canada, ourprimary competitors are other service centers and energy sector distributors which are regional and local in geographic coverage.In the United States, we compete with other service centers and energy sector distributors which are national, regional and localin geographic coverage. We also compete with steel producers which are larger than we are, that typically sell to very large endusers requiring regular shipments of large volumes of metals. Competition is based on price, product availability and quality,processing capability and on-time delivery. Some of our competitors may have lower steel costs and fewer environmental andgovernment regulations, as well as lower public company regulatory compliance obligations and related costs, than we do. Inaddition, some of our competitors may be less leveraged than we are and therefore may have greater financial resources andflexibility than we have. Increased competition could reduce our profitability by forcing us to lower our prices or to offerincreased services at a higher cost to us.

            

             Our steel import/export operations compete with other international steel importers and exporters as well asinternational steel producers in the destination market. Competition is principally based on price, product quality andavailability, and terms of shipment (including freight costs, which vary and can be as much as 15% of the landed cost of aproduct). The imposition of trade sanctions by governments on the import of steel products into such government's jurisdiction mayplace us at a competitive disadvantage as compared to domestic steel producers in such jurisdiction.

            

 

***An interruption in sources of metals supply could have a material adverse effect onour results of operations.***

 

 

            

 

 

             We purchase our principal inventory, including carbon steel, stainless steel, alloy steel, aluminum and a variety ofother metals on a frequent basis from a number of producers, primarily in North America to keep our inventory levels to a minimum.We have no long-term contracts to purchase metal. If, in the future, we are unable to obtain sufficient amounts of steel and othermetal products at competitive prices or on a timely basis from our traditional suppliers, we may not be able to obtain suchproducts from alternative sources at competitive prices to meet our delivery schedules, which could materially adversely affect ourbusiness, financial condition, results of operations and cash flows. Production time and the cost of our products could increase ifwe were to lose one of our primary suppliers. Any interruption or reduction in the supply of any of these products may make itdifficult or impossible to satisfy customers' just-in-time delivery requirements, which could materially adversely affect ourbusiness, financial condition, results of operations and cash flows.

 

 

            

 

 

***Our recent and any future acquisitions could be difficult to integrate and couldadversely affect our operating results.***

 

 

            

 

 

             A substantial part of our growth in profitability has come from acquisitions. For example, in July 2003, we acquiredAcier Leroux. In September 2002, we acquired the operating assets of Williams Steel, a service center in Wisconsin, and in October2001, we purchased A.J. Forsyth, a Canadian service center operation located in British Columbia.

 

 

            

 

 

             As part of our strategy, we expect to continue to pursue complementary acquisitions and investments. Acquisitionsmay involve debt incurrence, operating losses, dilutive issuances of equity securities and significant cash expenditures that couldhave a material adverse effect on our business, financial condition, results of operations and cash flows. For example, we had towrite-down $2.4 million of goodwill in connection with our acquisition of Williams Steel in September of 2002.

 

 

            

 

 

             Our recent and any future acquisitions involve a number of risks, including:

 

       

 

             ·**  **

our inability to integrate the acquired business;

 

 

        

 

 

             ·**  **

diversion of management attention;

 

 

        

 

 

             ·**  **

impairment of goodwill adversely affecting our reported net income;

 

 

        

 

 

             ·**  **

our inability to retain the management or other key employees of the acquiredbusiness;

 

 

        

 

 

             ·**  **

our inability to establish uniform standards, controls, procedures andpolicies;

 

 

        

 

 

             ·**  **

our inability to retain customers of our acquired companies;

 

 

        

 

 

             ·**  **

exposure to legal claims for activities of the acquired business prior to theacquisition;

 

 

        

 

 

             ·**  **

damage to our reputation as a result of performance or customer satisfaction problemsrelating to an acquired business; and

 

 

        

 

 

             ·**  **

the performance of any acquired business could be lower than we anticipated.

 

 

            

 

 

***If we fail to renegotiate any of our collective agreements or if we or our principalcustomers or suppliers experience work stoppages, our financial condition may be harmed.***

 

 

            

 

 

             As of February 4, 2004, we had 37 collective bargaining agreements covering approximately 1,050 employees belongingto a variety of unions at 40 of our locations, three of which have expired and are currently being negotiated. Through to the endof 2004, 14 other collective bargaining agreements covering approximately 360 employees will expire. If we fail to renegotiatethese contracts, we may face work stoppages. Even if we do renegotiate these contracts, any renewal of collective bargainingagreements could result in higher wages or benefits to union members. We cannot assure you that there will not be any labourdisruptions, or higher ongoing labour costs, either of which could materially adversely affect our business, financial condition,results of operations and cash flows. In addition, many of our customers and suppliers have unionized work forces. If one or moreof our customers or suppliers experience a material work stoppage or slow down, it could materially adversely affect our business,financial condition, results of operations and cash flows.

 

 

            

 

 

***Environmental liabilities could have a material adverse effect on our results ofoperations and financial position.***

 

 

            

 

 

             We are subject to a variety of federal, provincial, territorial, state and local environmental laws and regulationsin Canada and the United States. Such laws and regulations relate to, among other things, the discharge of contaminants into waterand air and into and onto land, the disposal of waste, the handling, storage and transportation of hazardous materials, and thestorage of materials in underground tanks. In particular, our divested non-metal operations included chrome plating facilities andthe transportation and storage of petroleum products and hazardous materials. We could be responsible for clean up of, or damagesfrom, releases of hazardous materials on or emanating from the properties where these operations were conducted. We are required byenvironmental laws and regulations to conduct our operations in compliance with permits issued by governmental authorities. Thefailure to have such permits or to comply with their terms could result in fines or penalties.

 

 

            

 

 

             In Canada, there are federal environmental statutes such as the *Canadian Environmental Protection Act, 1999*,the *Fisheries Act,* and the *Transportation of Dangerous Goods Act, 1992*, which apply to us. In addition, each Canadianprovince and territory and most municipalities in which we operate also enact and enforce their own environmental laws. In theUnited States, the primary federal regulatory laws to which we are subject include the *Resource Conservation and RecoveryAct,* the *Comprehensive Environmental Response, Compensation and Liability Act* and the *Clean Water Act*. We arealso subject to environmental regulation at the state and local levels in the United States.

 

 

            

 

 

             There are currently remediation and/or investigation activities at several former facilities where soil and/orgroundwater contamination is present. Financial costs with respect to those activities cannot be predicted at this time. See"Business -- Environmental Regulation" for more details about our environmental proceedings. In addition, some of our currentproperties are located in industrial areas with histories of heavy industrial use, which may require us to incur expenditures andto become subject to environmental liabilities for contamination that arises from our current or former operations or from causesother than our operations. Such environmental costs could materially adversely affect our business, financial condition, results ofoperations and cash flows. We do not carry environmental insurance coverage to offset the effects of such potential losses. We maybe required as a matter of law to satisfy, with respect to the government or third parties, the environmental liabilities relatedto divested businesses should the acquirers of our divested businesses fail to fulfill any environmental obligations for eventsprior to divestiture. Because of the potential existence of currently unknown environmental issues and frequent changes toenvironmental laws and regulations and the interpretation and enforcement of these laws and regulations, there can be no assurancethat compliance with environmental laws, or remediation obligations under such laws, will not have a material adverse effect on usin the future.

 

 

            

 

 

***Changes in government regulations could have an adverse effect on ourbusiness.***

 

 

            

 

 

             Our operations are subject to laws and regulations relating to workplace safety and worker health and relatedregulations, which, among other requirements, establish noise, dust and safety standards. While we believe that we are in materialcompliance with currently applicable laws and regulations, future events such as any changes in laws and regulations, may give riseto additional expenditures or liabilities. We cannot assure you that compliance with such government regulations will notmaterially adversely affect our business, financial condition, results of operations and cash flows.

 

 

            

 

 

***We are exposed to currency exchange risk which could have a material adverse effecton our operating results.***

 

 

            

 

 

             Although our financial results are reported in Canadian dollars, a portion of our sales and operating costs aredenominated in U.S. dollars. In addition, we are exposed to currency exchange risk on our debt, including the notes and interestthereon, and assets denominated in U.S. dollars. Since we present our financial statements in Canadian dollars, any change in thevalue of the Canadian dollar relative to the U.S. dollar during a given financial reporting period would result in a foreigncurrency loss or gain on the translation of our U.S. dollar denominated debt and assets into Canadian dollars. Consequently, ourreported earnings could fluctuate materially as a result of foreign exchange translation gains or losses. While it is not ournormal practice to enter into significant hedging arrangements other than in relation to our long-term debt, we may use futures andforward contracts to partially hedge against short-term fluctuations in currency; however, such activities provide only short-termprotection against a limited portion of our currency exposure. We may, from time to time, hedge a portion of our net exchange rateexposure under the U.S. dollar denominated debt with respect to either or both of principal and interest by way of one or more swaptransactions to Canadian dollars, to the extent our management considers it reasonable to do so having regard to the thenprevailing levels of our net assets located in the United States and our U.S. dollar revenues, and to the extent available onreasonable terms; however, such activities provide only short-term protection and there can be no assurance that they will beeffective in insulating us against exchange rate fluctuations.

 

 

            

 

***The failure of our key computer-based systems could have a material adverse effecton our business.***

            

             We depend to a significant degree on our computer based-systems in the operation of our business, particularly inour inventory management. The destruction or the failure of any such computer-based systems for any significant period of timewould materially adversely affect our business, financial condition, results of operations and cash flows.

            

***The loss of key individuals could adversely affect our ability to implement ourbusiness strategy.***

            

             Our success is dependent in large part on the management and leadership skills of our senior management team,including Edward M. Siegel, Jr., our President and Chief Executive Officer; and Brian R. Hedges, our Chief Financial Officer. If welose either of these individuals or fail to attract and retain equally qualified personnel, we may not be able to implement ourbusiness strategy.

            

             In addition, because of our decentralized operating structure, the loss of any senior managers or key employees atregional centers could materially adversely affect our business, financial condition, results of operations and cash flows. Wecannot assure you that we will be able to attract and retain equally qualified personnel when needed.

            

**GENERAL DEVELOPMENT OF THE BUSINESS**

            

             EffectiveOctober 15, 2001, the Company purchased 100% of the shares of A. J. Forsyth and Company Limited, a Canadian service centeroperation located in British Columbia, for cash consideration of $22.0 million and assumed bank debt of $13.9 million.

              

             EffectiveAugust 16, 2001, the Company purchased 100% of the shares of Spartan Steel Products, Inc., a U.S. distributor of energy sectorpipe, for cash consideration of $3.0 million and assumed bank debt of $3.3 million.

            

             EffectiveOctober 9, 2001, the Company purchased 100% of the shares of 1377804 Ontario Inc., a Canadian service center operation located inOntario, for cash consideration of $255,000.

            

             On June 15,2001, the Company divested the inventory and fixed assets of Total Distributors, which serviced the petrochemical and heatexchanger industries from Tulsa, Oklahoma.

            

             EffectiveMarch 1, 2002, the Company purchased the operations of Arrow Steel Processors, a coil processor of customer owned material, locatedat the port in Houston, Texas, for cash consideration of $4.4 million.

            

             EffectiveSeptember 9, 2002, the Company purchased substantially all of the assets of the Milwaukee, Wisconsin service center operationformerly known as Williams Steel for $17.0 million in cash.

            

            On July 3, 2003,the Company purchased 99.52% of the issued and outstanding Class A shares and 97.53% of the issued and outstanding Class B sharesof Acier Leroux inc. for cash of $48.9 million and 3,546,874 common shares of the Company.  On August 19, 2003, the Company,under the provisions of the Companies Act (Quebec), acquired the remaining shares of Acier Leroux for $1.2 million incash.

            

            On February 12,2004, the Company issued 5,750,000 common shares at $9.00 per share for net proceeds of $49.2 million.

            

            On February 20,2004, the Company issued US $175 million 6.375% Senior Notes due March 1, 2014.

            

            On February 23,2004, the Company repurchased US $95.5 million of its 10% Senior Notes at a premium of $72.50 per US $1,000 of notes.  TheCompany intends to redeem the remaining US $20.1 million on June 1, 2004 at a premium of $50.00 per US $1,000 of note.

            

            On February 20,2004, the Company issued a redemption notice for its $30 million 8% Debentures for redemption on March 26, 2004 and for its $30million Class II Preferred Shares for redemption on March 22, 2004.
********
**SELECTED CONSOLIDATED FINANCIAL INFORMATION**

        

The selected consolidated financial information set forth below is extracted from andshould be read in conjunction with the audited consolidated financial statements of Russel Metals filed with Canadian securitiesregulators.

        

For the years ended December 31

**2003**

2002

2001

**INCOME STATEMENT INFORMATION ($000)**

Revenues

**  $1,517,090**

  $1,403,275

  $1,402,509

EBIT

**55,386**

67,923

38,759

Adjusted EBIT (Note)

**61,031**

70,411

50,621

Adjusted EBITDA (Note)

**77,533**

85,603

65,284

Adjusted EBITDA to sales %

**5.1%**

6.1%

4.7%

Basic earnings per common share ($)

**  $        0.41**

  $        0.71

  $        0.17

**BALANCE SHEET INFORMATION ($000)**

Metals

        Accounts receivable

**$  247,513**

$  197,653

$  192,244

        Inventories

**303,048**

329,415

265,417

        Prepaid expenses and otherassets

**2,005**

2,770

2,053

        Accounts payable and accruedliabilities

**(207,886)**

(178,623)

(157,300)

        Net working capital –Metals

**344,680**

351,215

302,414

        Fixed assets

**165,112**

88,898

85,825

        Goodwill

**4,216**

2,709

15,123

Net assets employed in metals operations

**514,008**

442,822

403,362

Other operating assets

**23,257**

24,750

26,434

Non-core and discontinued assets and liabilities

**2,647**

4,046

4,874

Net income tax assets and liabilities

**(1,468)**

768

13,326

Deferred financing charges

**3,547**

4,962

6,177

Pension and benefit liabilities

**(11,542)**

(9,590)

(9,242)

Other corporate assets and liabilities

**(8,120)**

(6,643)

(1,259)

Total net assets employed

**$  522,329**

$  461,115

$  443,672

**CAPITALIZATION ($000)**

Bank indebtedness, net of cash

**$   59,085**

$   (3,927)

$   (17,151)

Long-term debt

**179,402**

212,602

214,105

Total interest bearing debt

**238,487**

208,675

196,954

Preferred shares

**30,000**

30,000

30,000

Market capitalization (Note)

**378,175**

194,091

136,733

Total firm value

**$  646,662**

$  432,766

$  363,687

**OTHER INFORMATION**

Common shareholders' equity ($000)

**$  253,842**

$  222,440

$  216,718

Free cash flow ($000) (Note)

**$  117,399**

$    13,753

$    84,977

Capital expenditures ($000)

**$    34,879**

$    12,768

$      8,152

Depreciation and amortization ($000)

**$    16,502**

$    15,192

$    14,663

Interest ($000)

**$    22,800**

$    20,324

$    23,017

Earnings multiple

**17.24**

6.80

10.40

Firm value as a multiple of Adjusted EBIT

**10.60**

6.15

7.18

Firm value as a multiple of Adjusted EBITDA

**8.34**

5.06

5.57

Interest bearing debt / Adjusted EBITDA

**3.08**

2.44

3.02

Adjusted EBITDA / Interest

**3.40**

4.21

2.84

Market capitalization as a % of book value

**149%**

87%

63%

Interest bearing debt as % of net metals working capital

**69%**

59%

65%

Return on capital employed (Adjusted EBIT/net assets employed) (Note)

**11.7%**

15.3%

11.4%

**COMMON SHARE INFORMATION**

Ending outstanding common shares

**43,023,342**

38,057,001

37,981,501

Average outstanding common shares

**40,021,479**

38,024,034

37,981,501

Common share dividends paid ($000)

**$     11,605**

$       6,466

$       7,596

Common share dividends ($)

**$         0.29**

$         0.17

$         0.20

Book value per share ($)

**$         5.90**

$         5.84

$         5.71

Price range of stock ($)

        Market price of common shares at December31

**$         8.79**

$         5.10

$         3.60

        High

**$         8.90**

$         5.49

$         3.90

        Low

**$         4.65**

$         3.46

$         2.70

See Note on next page.

**          **

**NOTE:**

In this document the Company uses certain financial measures that do not comply withCanadian generally accepted accounting principles (GAAP) or have standardized meanings and thus may not be comparable to similarmeasures presented by other issuers, for example Adjusted EBITDA and other information in the above table.  Managementbelieves that Adjusted EBITDA may be useful in assessing our operating performance and as an indicator of our ability to service orincur indebtedness, make capital expenditures and finance working capital requirements.  The items excluded in determiningAdjusted EBITDA are significant in assessing our operating results and liquidity.  Therefore, Adjusted EBITDA should not beconsidered in isolation or as an alternative to cash from operating activities or other combined income or cash flow data preparedin accordance with Canadian GAAP.  Adjusted EBITDA and a number of the ratios provided under Other Information are used bydebt and equity analysts to compare our performance against other public companies.

The definitions are set out below:

**Adjusted EBIT**-- Earnings from continuing operations beforededuction of interest, income taxes, restructuring costs, goodwill impairment, foreign exchange gain (loss), debt repurchase costs,loss on sales of business and acquisition costs.

**Adjusted EBITDA**-- Earnings from continuing operations beforeinterest, income taxes, depreciation, amortization, restructuring costs, goodwill impairment, foreign exchange gain (loss), debtrepurchase costs, loss on sales of business and acquisition costs.

**Free cash flow**-- Cash from operating activities less capitalexpenditures.

**Market capitalization**-- Outstanding common shares timesmarket price of a common share at December 31.

**Return on capital employed**-- Adjusted EBIT over net assetsemployed.
****
**SUMMARIZED QUARTERLY CONSOLIDATED FINANCIAL INFORMATION**

            

The consolidated financial information set forth below is extracted from and should beread in conjunction with the audited and unaudited consolidated financial statements of Russel Metals filed with Canadiansecurities regulators.

            

2003

Three Months Ended

Year Ended

*(Unaudited)*

Mar. 31

June 30

Sept. 30

Dec. 31

Dec. 31

Revenues ($000)

$   367,021

$   339,756

$   392,490

$   417,823

$1,517,090

Earnings from operations ($000)

10,609

10,601

17,245

22,576

61,031

Earnings before taxes ($000)

5,853

5,730

7,185

13,818

32,586

Net earnings

       - continuing operations ($000)

3,587

3,575

4,314

7,811

19,287

           

Basic earnings per common share

       - continuing operations

$        0.08

$      0.08

$        0.09

$        0.17

$        0.43

       

Basic earnings per common share

$        0.08

$        0.08

$        0.07

$        0.17

$        0.41

       

Market price of common shares

     High

$        5.65

$        6.00

$        6.39

$        8.90

$        8.90

     Low

$        4.85

$        4.65

$        5.20

$        6.18

$        4.65

Number of common shares traded

1,841,038

3,918,050

6,237,389

5,016,721

17,013,198

2002

Three Months Ended

Year Ended

*(Unaudited)*

Mar. 31

June 30

Sept. 30

Dec. 31

Dec. 31

Revenues ($000)

$   325,863

$   351,523

$   374,079

$   351,810

$1,403,275

Earnings from operations ($000)

11,024

19,020

21,848

18,519

70,411

Earnings before taxes ($000)

5,884

14,829

16,108

10,778

47,599

Net earnings

       - continuing operations ($000)

3,514

9,102

9,980

6,640

29,236

        

Basic earnings per common share

       - continuing operations

$        0.08

$      0.22

$        0.25

$        0.16

$        0.71

       

Basic earnings per common share

$        0.08

$        0.22

$        0.25

$        0.16

$        0.71

      

Market price of common shares

     High

$        4.28

$        5.49

$        5.25

$        5.20

$        5.49

     Low

$        3.46

$        4.29

$        4.10

$        4.22

$        3.46

Number of common shares traded

4,294,572

2,354,671

3,208,781

2,149,368

12,007,392

**SELECTED CONSOLIDATED FINANCIAL INFORMATION**

          

             The selectedfinancial information for the years ended December 31, 2003, 2002 and 2001 was prepared from the annual consolidated financialstatements for those years.

       

             Theconsolidated financial statements have been prepared in accordance with Canadian generally accepted accounting principles. Material differences from accounting principles, generally accepted in the United States are disclosed in Note 16 to theConsolidated Financial Statements.

       

             Thecomparability of this information is affected by changes in accounting policies (see Note 2 to the Consolidated FinancialStatements for 2003).

       

a)          In the fourth quarter of2003, the Company prospectively adopted effective January 1, 2003 the fair value method of accounting for employee stock-basedpayments issued after that date.  The impact of the adoption of this standard for the year ended December 31, 2003 resulted inadditional compensation expense of $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.

       

b)          The Company adopted the newaccounting standard for Long-Lived Assets and Discontinued Operations effective May 1, 2003.  This standard, along withemerging issues abstracts EIC-134 *Accounting for Severance and Termination Benefits* and EIC-135 *Accounting for CostsAssociated with Exit and Disposal Activities (Including Costs Incurred in a Restructuring)* have been applied to therestructuring as a result of the Acier Leroux inc. acquisition.

       

c)          In 2003, the Company alsoadopted the new standard on financial statement presentation and new accounting guideline on disclosure of guarantees.  Theimplementation of these standards did not have a material effect on the Company's results of operations, financial position or cashflow.

       

d)          The Company adopted the newaccounting standard for goodwill and other intangibles effective January 1, 2002.  As required by the standard, the Companyperformed a transitional goodwill impairment evaluation, which resulted in a transitional impairment loss charged to retainedearnings of $15.1 million at January 1, 2002.

       

e)          The Company adopted the newaccounting standard for business combinations effective July 1, 2001.  The Company has applied this new standard in itsacquisitions subsequent to July 1, 2001 and as required by the transitional provisions of the goodwill standard the goodwillgenerated from these acquisitions is not amortized.

       

f)          The Company adopted the newCanadian accounting standards for earnings per share, foreign currency translation and stock-based payments effective January 1,2001.  The implementation of these standards did not have a material effect on the Company' results of operations, financialposition or cash flows.

       

             Foradditional information on the selected financial information see the Management's Discussion and Analysis in the 2003 Annual Reportto Shareholders.

            

**MARKET FOR THE SECURITIES OF RUSSEL METALS**

            

             TheCompany's common shares are listed and posted for trading on The Toronto Stock Exchange.

**DIVIDEND RECORD**

             

             Thefollowing table shows dividends paid on as per share basis on outstanding shares for the periods indicated.

               

      

**Years Ended December 31,**

**2003**

  

**2002**

  

**2001**

  

  

Class II preferred shares, Series C

$1.875

  

$1.875

  

$1.875

       

  

  

Common shares

$0.29

  

$0.17

  

$0.20

             

             Dividends on preferred shares are paid quarterly in equal instalments.  In April 2000, the directors adopted adividend policy with $0.20 per share as the targeted annual level of dividend on common shares and authorized the payment of thefirst quarterly dividend of $0.05 per common share, payable June 15, 2000. Subsequent quarterly dividends were paid at that rateeach quarter up to and including December 15, 2001.  The Company did not pay a common share dividend during the first quarterof 2002, due to restrictions associated with the Senior Notes.  The Company resumed payment of its quarterly dividend in thesecond quarter of 2002.  The Company increased its quarterly dividend by $0.01 to $0.06 per common share during the thirdquarter of 2002.  In the first quarter of 2003, the Company further increased the dividend to $0.07 per common share and inthe fourth quarter of 2003 it was again increased $0.01 to $0.08 per share.  For more details on this restriction, seeDividends and Share Capital section of the Management' Discussion and Analysis included in the 2003 Annual Report toShareholders.

**MAJOR SUBSIDIARIES**

            

             Thefollowing is a list of the major subsidiaries of Russel Metals at December 31, 2003, all of which are wholly owned.

           

Jurisdiction of incorporation

         Fedmet Corp.

State of Delaware

         Fedmet InternationalCorporation

State of Delaware

         FIL(US) Inc.

State of Alaska

         Pioneer Steel & TubeCorp.

State of Delaware

         RMI USA LLC

State of Delaware

         Russel Metals Corp.

State of Delaware

         Russel Metals Williams BahcallInc.

State of Delaware

         Sunbelt Group, Inc.

State of Texas

         Sunbelt Trading Co., Inc.

State of Delaware

         Thunder Bay Terminals Ltd

Ontario

         Triumph Tubular & SupplyLtd.

Alberta

          

          

**MANAGEMENT'S DISCUSSION AND ANALYSIS**

          

             Reference ismade to the management's discussion and analysis of financial condition and results of operations of Russel Metals and itssubsidiaries on pages 13 to 25 of the 2003 Annual Report to shareholders, which pages are incorporated herein byreference.

          

**DIRECTORS AND EXECUTIVE OFFICERS**

       

              Thefollowing table sets out certain information with respect to the directors and executive officers of Russel Metals as of the datehereof.

 

            

 

 

**Name and municipality**

      

**Director**

  

       

 

 

**of residence**

**Office**

**Since**

  

**Principal Occupation**

 

 

 

 

JAMES F. DINNING Calgary, Alberta

Director

February 17, 2003

  

Executive Vice President of TransAlta Corporation (electric generation and marketing company)

 

       

 

CARL R. FIORA Middletown, Ohio

Director

May 11, 1994

  

Corporate Director

 

       

 

ANTHONY F. GRIFFITHS Toronto, Ontario

Director and Chairman of the Board

May 14, 1997

  

Corporate Director

 

       

 

ROBBERT HARTOG Perkinsfield, Ontario

Director

May 14, 1997

  

President, Robhar Investments Ltd. (private investment company)

 

       

 

LISE LACHAPELLE Ile-des-soeurs, Quebec

Director

May 15, 1996

  

Corporate Director

 

       

 

JOHN W. ROBINSON Greensboro, North Carolina

Director

May 11, 1995

  

Corporate Director

 

       

 

EDWARD M. SIEGEL, JR. Westport, Connecticut

Director, President and Chief Executive Officer

May 6, 1998

  

President and Chief Executive Officer of the Company

 

       

 

ARNI C. THORSTEINSON Winnipeg, Manitoba

Director

May 10, 1985

  

President of Shelter Canadian Properties Limited (real estate development and managementcompany)

 

       

 

       

 

 

**Name and municipality**

      

**Director**

  

       

 

**of residence**

**Office**

**Since**

  

**Principal Occupation**

 

 

BRIAN R. HEDGES Toronto, Ontario

Executive Vice President and Chief Financial Officer

-----

   

Executive Vice President and Chief Financial Officer of the Company

 

       

MARION E. BRITTON Mississauga, Ontario

Vice President, Controller and Assistant Secretary

-----

   

Vice President, Controller and Assistant Secretary of the Company

 

             *Edward M. Siegel, Jr.*has served as the Company's President and Chief Executive Officersince August 1997 and as a Director since May 1998. From March 1997 to August 1997, Mr. Siegel served as Executive Vice-Presidentand Chief Operating Officer. Prior to March 1997, Mr. Siegel served for five years as the Chief Operating Officer of our energy andimport/export segment.

       

             *Anthony F. Griffiths*has served as the Company's Chairman of the Board and as a Directorsince May 1997. From 1985 to 1993 Mr. Griffiths served in several capacities at Mitel Corporation, including Chief ExecutiveOfficer and Chairman. From 1993 to present, Mr. Griffiths has been associated with various companies acting as an independentconsultant. Mr. Griffiths is a director and Chairman of Slater Steel Inc., Brazilian Resources, Inc. and Novadaq Technologies Inc.and a Director of ShawCor Ltd., Vitran Corporation, Calian Technology Ltd., Fairfax Financial Holdings Limited and LeitchTechnology Corp. Fairfax Financial Holdings Limited is the controlling shareholder of Hamblin Watsa Investment Counsel Ltd., whichis a major shareholder of the Company.

       

             *Brian R. Hedges*has served as the Company's Executive Vice-President and Chief FinancialOfficer since June 1994. Prior to this, Mr. Hedges was President and CEO of Gandalf Technologies Inc., a telecommunicationscompany.

       

             *Marion E. Britton*was appointed Vice President and Controller in May 1996 and AssistantSecretary in May 1995. Prior to that she held various finance positions with us. Prior to joining the Company, Ms. Britton was asenior manager with a major chartered accounting firm.

       

             *James F. Dinning*was appointed a Director in February 2003. He is currently theExecutive Vice President of TransAlta Corporation, an electric generation and marketing company. Prior to joining TransAlta in1997, Mr. Dinning held several key positions during his 11 years as a member of the legislative assembly in Alberta. He wasprovincial treasurer from 1992 to 1997. Mr. Dinning is a director on the boards of Finning International Inc., Shaw CommunicationsInc. and Western Financial Group Inc.

       

             *Carl R. Fiora*was appointed a Director in May 1994. Prior to his retirement in 1990, hewas the President and Chief Executive Officer of Armco Steel Company, L.P. Mr. Fiora is a director of First FinancialBancorp.

       

             *Robbert Hartog*was appointed a Director in May 1997. Mr. Hartog is President of RobharInvestment Company, a private investment company. Mr. Hartog is a director of Fairfax Financial Holdings Limited. Fairfax FinancialHoldings Limited is the controlling shareholder of Hamblin Watsa Investment Counsel Ltd., which is a major shareholder ofours.

       

             *Lise Lachapelle*was appointed a Director in May 1996. She was the President and ChiefExecutive Officer of The Forest Products Association of Canada (formerly known as The Canadian Pulp and Paper Association) fromSeptember 1994 to 2001. Prior to September 1994, she was President of Strategico Inc. for one year and a consultant with Strategicofor three years. Ms. Lachapelle is a director of Abitibi-Consolidated Inc., Industrielle-Alliance, BNP-Paribas (Canada), INNERGEXEnergy Income Fund and Mirabaud Canada Inc.

       

             *John W. Robinson*was appointed a Director in May 1995. He was the President and ChiefExecutive Officer of SMP Steel Corp., a metals processing company, from December 1989 to December 1998.

       

             *Arni C. Thorsteinson*was appointed a Director in May 1985. He has been the President ofShelter Canadian Properties Limited, a real estate development and management company, since 1971. He is also a director of BirdConstruction Company Limited, Consolidated Properties Ltd., Onex Corporation, Tri-White Corporation and Lanesborough Real EstateInvestment Trust.

       

             During thelast five years, all of the directors and officers have had the principal occupations indicated opposite their respective names,with the exception of L. Lachapelle whose occupational history is described above.

       

             A. F.Griffiths and R. Hartog are directors of Fairfax Financial Holdings Limited ("Fairfax").  Fairfax is the controllingshareholder of Hamblin Watsa Investment Counsel Ltd., which in turn holds approximately 19% of the outstanding common shares of theCompany.

        

             E. M.Siegel, Jr., the Company's President and Chief Executive Officer, is the only related(1)director.  He was elected a director on May 6, 1998.  None of the other directors has any material business orprofessional relationship with the Company.

        

             Alldirectors serve one-year terms and are elected at the annual meeting of shareholders of the Company.  The term of office ofeach of the current directors of the Company will expire at the annual meeting of shareholders of Russel Metals to be held in April2004.  The Board of Directors has fixed at seven the number of directors to be elected at such upcoming annual meeting ofshareholders of the Company.  Each of the current directors other than Mr. Thorsteinson will stand for re-election as adirector at such meetings.

       

             The Board ofDirectors delegates certain of its functions to four committees of the Board to facilitate more detailed consideration of certainissues.  These committees bring recommendations to the Board for consideration and approval as appropriate.  Eachcommittee is comprised entirely of unrelated directors.

       

             The AuditCommittee meets quarterly to review the Company's financial statements, management's discussion and analysis and pressreleases.  The Audit Committee monitors the integrity of internal control and management information through discussions withmanagement and regular meetings with the external auditors. In addition, the Committee reviews other public disclosure documents,including the annual information forms, registrations and prospectuses.  The members are:  J. F. Dinning, C. R. Fiora, R.Hartog (chair), and A. C. Thorsteinson.

       

(1)The Toronto Stock Exchange Guidelines provide that:  "Anunrelated director is a director who is independent of management and is free from any interest and any business or otherrelationship which could, or could reasonably be perceived to, materially interfere with the director's ability to act with a viewto the best interests of the corporation, other than interests and relationships arising from shareholding.  A relateddirector is a director who is not an unrelated director".

       

             TheCorporate Governance Committee develops comprehensive written mandates for each of the Board committees, monitors and evaluates thecorporate governance system, recommends candidates for election to the Board and serves as a forum for concerns of directors whichmay not be appropriate for discussion in full Board meetings.  The members are:  J. F. Dinning, C. R. Fiora, and A. F.Griffiths (chair).

          

             TheManagement Resources and Compensation Committee reviews compensation policies for the Company's executive officers and isresponsible for succession planning for the most senior members of management.  The members are:  A. F. Griffiths, R.Hartog, L. Lachapelle (chair), and J. W. Robinson.

          

             The Companyhas established an Environmental Management and Health & Safety Committee for the purpose of reviewing compliance policies andprocedures in accordance with legislative and regulatory requirements with regard to environmental and health and safetyissues.  The members are:  L. Lachapelle, J. W. Robinson (chair), and A. C. Thorsteinson.

              

             As at thedate hereof, the directors and executive officers of Russel Metals as a group beneficially own, directly or indirectly, or exercisecontrol or direction over 2% of the outstanding common shares.

        

             If anydirector of the Company is, or within ten  years before the date of this annual information form has been, a director orofficer of any other issuer that, while such director was acting in that capacity, (a) was the subject of a cease trade or similarorder, or an order that denied the other issuer access to any exemptions under Canadian securities legislation, for a period ofmore than 30 consecutive days, the Company is required to state that fact and describe the basis on which the order was made andwhether the order is still in effect; or (b) became bankrupt, made a proposal under any legislation relating to bankruptcy orinsolvency or was subject to or instituted any proceedings, arrangement or compromise with creditors or had a receiver, receivermanager or trustee appointed to hold its assets, the Company is required to state that fact.  To the knowledge of the Company,the only director of the Company in respect of whom any such disclosure is required to be made is Mr. A. F. Griffiths.  Inrelation to part (a), Mr. Griffiths is a director of Brazilian Resources, Inc., which in a press release dated May 22, 2001announced it would be late filing its audited financial statements for the year ended December 31, 2000 and its unaudited interimfinancial statements for the quarter ended March 31, 2001.  The Ontario Securities Commission ("OSC") issued an insider ceasetrade order effective May 30, 2001 and a general cease trade order dated July 23, 2001.  All required documents were filed bythe Company on July 25, 2001 and the OSC rescinded the trade orders.  Trading of the Company's common stock resumed on theCanadian Venture Exchange on August 2, 2001.  In relation to part (b), Mr. Griffiths currently acts as a director of each ofConsumers Packaging Inc. and Slater Steel Inc. and has previously acted as a director of each of Confederation Life InsuranceCompany and Peoples Jewellers Ltd.

        

             If anydirector of the Company has, within ten years before the date of this annual information form, made a proposal under anylegislation relating to bankruptcy or insolvency, or was subject to or instituted any proceedings, arrangement or compromise withcreditors, or had a receiver, receiver manager or trustee appointed to hold the assets of the director, the Company is required tostate that fact.  To the knowledge of the Company, the only director of the Company in respect of whom any such disclosure isrequired to be made is Mr. A.C. Thorsteinson who, in 1996, made a proposal, which was fully performed, under applicable bankruptcylegislation.

**ADDITIONAL INFORMATION**

       

             Additionalinformation, including directors' and officers' remuneration, principal holders of Russel Metals' securities, options to purchasesecurities and interest of insiders in material transactions, is contained in the Management Proxy Circular dated March 5, 2004 forRussel Metals' 2004 annual meeting of shareholders.

          

             Additionalfinancial information is provided in Russel Metals' comparative financial statements for the year ended December 31, 2003,contained in the 2003 Annual Report of Russel Metals.

          

             A copy ofthe foregoing documents together with a copy of this annual information form and any interim financial statements issued by RusselMetals subsequent to December 31, 2003 may be obtained on request to the Assistant Secretary, Russel Metals Inc., Suite 210, 1900Minnesota Court, Mississauga, Ontario L5N 3C9.  These documents are also posted regularly to the Company's investor relationsweb site located at www.russelmetals.com.

           

             When thesecurities of Russel Metals are in the course of a distribution pursuant to a short-form prospectus or when a preliminaryshort-form prospectus has been filed in respect of a distribution of Russel Metals' securities, Russel Metals will provide to anyperson, upon request to the Assistant Secretary of Russel Metals at the address noted above, one copy of this annual informationform, the 2003 Annual Report of Russel Metals, any interim financial statements of Russel Metals issued subsequent to December 31,2003, the Management Proxy Circular dated March 5, 2004 and any other document that is incorporated by reference into thepreliminary short form prospectus or the short form prospectus.