**Management's

  Report to the Shareholders**

The accompanying consolidated

  financial statements, managements discussion and analysis and all information

  in the Annual Report have been prepared by management and approved by the Board

  of Directors of the Company. The consolidated financial statements were prepared

  in accordance with Canadian generally accepted accounting principles and, where

  appropriate, reflect managements best estimates and judgements. Management

  is responsible for the accuracy, integrity and objectivity of the consolidated

  financial statements and managements discussion and analysis within reasonable

  limits of materiality and for the consistency of financial data included in

  the text of the Annual Report with that contained in the consolidated financial

  system.

To assist management in

  the discharge of these responsibilities, the Company maintains a system of internal

  controls designed to provide reasonable assurance that its assets are safeguarded;

  that only valid and authorized transactions are executed; and that accurate,

  timely and comprehensive financial information is prepared.

The Companys Audit

  Committee is appointed annually by the Board of Directors and is comprised of

  Directors, all of whom are neither employees nor officers of the Company. The

  Audit Committee meets with management as well as with external auditors to satisfy

  itself that management is properly discharging its financial reporting responsibilities

  and to review the consolidated financial statements, the independent auditors

  report and the managements discussion and analysis. The Audit Committee

  reports its findings to the Board of Directors for consideration in approving

  the consolidated financial statements and managements discussion and analysis

  for presentation to the shareholders. The external auditors have direct access

  to the Audit Committee of the Board of Directors.

The consolidated financial

  statements have been independently audited by Deloitte & Touche LLP. Their

  report outlines the nature of their audits and expresses their opinion on the

  consolidated financial statements of the Company.

|/s/E. M. Siegel,

        Jr.President and 

        Chief Executive Officer | /s/ Brian R.

        Hedges 

        Executive Vice President and

        Chief Financial Officer
|---------------------------------------------------------------------------- | ----------------------------------------------------------------------------------------------------



**Auditors Report**

**To the Shareholders

  of Russel Metals Inc.**

We have audited the consolidated

  balance sheets of Russel Metals Inc. as at December 31, 2002 and 2001 and the

  consolidated statements of earnings and retained earnings and cash flows for

  each of the years in the three year period ended December 31, 2002. These financial

  statements are the responsibility of the Companys management. Our responsibility

  is to express an opinion on these financial statements based on our audits.

We conducted our audits

  in accordance with Canadian generally accepted auditing standards. Those standards

  require that we plan and perform an audit to obtain reasonable assurance whether

  the financial statements are free of material misstatement. An audit includes

  examining, on a test basis, evidence supporting the amounts and disclosures

  in the financial statements. An audit also includes assessing the accounting

  principles used and significant estimates made by management, as well as evaluating

  the overall financial statement presentation.

In our opinion, these consolidated

  financial statements present fairly, in all material respects, the financial

  position of the Company as at December 31, 2002 and 2001 and the results of

  its operations and its cash flows for each of the years in the three year period

  ended December 31, 2002 in accordance with Canadian generally accepted accounting

  principles.

/s/ Deloitte Touche LLP

  Chartered Accountants

Toronto, Ontario 

  January 31, 2003

**Comments by Auditors

  on Canada  U.S. Reporting Differences**

In the United States of

  America, reporting standards for auditors require the addition of an explanatory

  paragraph (following the opinion paragraph) when there is a change in accounting

  principles that have a material effect on the comparability of the Companys

  financial statements, such as the changes described in Note 2 (a) to the financial

  statements. Our report to the Shareholders, dated January 31, 2003, is expressed

  in accordance with Canadian reporting standards, which does not require a reference

  to such a change in accounting principles in the auditors report when

  the change is properly accounted for and adequately disclosed in the financial

  statements.

/s/ Deloitte Touche LLP

  Chartered Accountants

Toronto, Ontario 

  January 31, 2003



**Consolidated

  Balance Sheets**



On Behalf of the Board,

|/s/ A.C. Thorsteinson | /s/ C.R. Fiora
|--------------------- | --------------
|Director              | Director      



**Consolidated

  Statements of Earnings and Retained Earnings**





**Consolidated

  Cash Flow Statements**





**Notes to the Consolidated Financial Statements**

**1. Summary

  of Significant Accounting Policies**

a) Principles of consolidationThe consolidated financial statements include the accounts of Russel Metals

  Inc. and its subsidiary companies herein referred to as the Company. The reporting

  currency is Canadian dollars unless otherwise noted. All material inter-company

  balances, transactions and profits have been eliminated.

These consolidated financial

  statements have been prepared in accordance with Canadian generally accepted

  accounting principles. Material differences from accounting principles generally

  accepted in the U.S. are disclosed in Note 16.

b) InventoriesInventories

  are recorded at the lower of cost and net realizable value. Cost is determined

  on either an average cost basis or an actual cost basis depending on the business

  unit.

c) Property, plant,

  equipment and depreciationProperty, plant, equipment and leasehold improvements

  are recorded at cost. Depreciation is provided on a straight-line basis at rates

  that charge the original cost of such assets to operations over their estimated

  useful lives. The rates used are 20 years for buildings, 10 years for machinery

  and equipment, 2 to 5 years for computer equipment and over the lease term for

  leasehold improvements. Depreciation expense was $13,973,000 in 2002 (2001:

  $12,993,000; 2000: $11,863,000).

d) Deferred financing

  charges and amortizationCosts incurred that relate to financing are deferred

  and amortized over the period of the related financing. Deferred financing charges

  are recorded at cost less accumulated amortization. Amortization of deferred

  financing charges was $1,219,000 in 2002 (2001: $1,243,000; 2000: $1,314,000).

e) Goodwill and amortizationGoodwill represents the excess purchase price paid on acquisitions over

  the value assigned to identifiable net assets acquired. Goodwill on acquisitions

  subsequent to July 1, 2001 is not amortized but is subject to an annual permanent

  impairment test (see Note 2). Goodwill on acquisitions prior to July 1, 2001

  was amortized on a straight-line basis over a period not exceeding 40 years

  or written down when there has been a permanent impairment in value. Effective

  January 1, 2002 all goodwill ceased to be amortized and is subject to an annual

  permanent impairment test. Amortization recorded in 2001 was $427,000 and in

  2000 was $1,068,000. For 2000 goodwill was amortized over a period not exceeding

  20 years.

f) PensionsThe

  cost of pension benefits earned by employees covered under defined benefit plans

  is determined using the projected benefit method prorated on service and is

  charged to expense as services are rendered. Aggregate gains and losses are

  amortized on a straight-line basis over the estimated average remaining service

  lives of the employee groups, using the corridor approach. The cost of post-retirement

  benefits other than pensions is recognized on an accrual basis over the working

  lives of employees.

g) Income taxesThe

  Company uses the liability method of income tax allocation. Under this method,

  future tax assets and liabilities are determined based on differences between

  the financial accounting and tax bases of assets and liabilities and are measured

  using the substantively enacted tax rates and laws that will be in effect when

  the differences are expected to reverse. The Company adopted the new Canadian

  accounting standards for income taxes effective January 1, 2000 (see Note 2).

h) Foreign currency

  translationThe accounts of foreign subsidiaries are translated into Canadian

  dollars at the noon spot rates in effect at the balance sheet date. For 2002,

  the U.S. dollar published exchange rate was 1.5796 (2001: 1.5926). Revenues

  and expenses are translated at the average rate of exchange for the year. For

  2002, the U.S. dollar published average exchange rate was 1.5703 (2001: 1.5489).

  The resulting gains or losses are accumulated as a separate component of shareholders

  equity.

Effective January 1, 2001,

  the Company adopted the new Canadian accounting standards on foreign currency

  translation and accordingly, exchange gains or losses on long-term debt denominated

  in foreign currencies not designated as a hedge are expensed as incurred (see

  Note 2). Exchange gains or losses on the translation of long-term debt denominated

  in a foreign currency designated as a hedge of the Companys net investment

  in foreign subsidiaries are included in the separate component of shareholders

  equity.

i) Earnings per shareBasic earnings per common share are calculated using the weighted daily

  average number of common shares outstanding. The weighted average number of

  common shares for 2002 was 38,024,034 (2001: 37,981,501; 2000: 41,068,870).

  After the effect of an adjustment for stock options, the diluted weighted average

  number of common shares for 2002 was 39,972,976 (2001: 38,443,168; 2000: 41,068,870).

j) Stock-based compensationIn 2001, the Company adopted the new accounting standards for stock-based

  compensation and other stock-based payments. The Company has chosen to account

  for the employee stock-based compensation plans using the intrinsic value-based

  method as allowed by the new standard. As required by the standard, pro forma

  net income and earnings per share have been provided as if the fair value-based

  accounting method had been used (see Note 11).

k) Revenue recognitionRevenue is recognized when the goods are shipped to the customer. Revenue

  on certain sales in the energy segment, where the Company acts as an agent,

  is presented on a net basis.

l) Derivative financial

  instrumentsThe Company uses foreign exchange contracts to manage foreign

  exchange risk on certain committed cash outflows. Realized and unrealized foreign

  exchange gains and losses not designated as a hedge are included in income.

  Derivatives are not entered into for speculative purposes and the use of derivative

  contracts is governed by documented risk management policies.

m) Use of estimatesThe preparation of consolidated financial statements in conformity with

  Canadian generally accepted accounting principles requires management to make

  estimates and assumptions that affect the reported assets and liabilities and

  disclosure of contingent assets and liabilities at the date of the financial

  statements and the reported amounts of revenue and expenses during the reporting

  periods. In particular, provisions for environmental cleanup costs of previously

  discontinued operations, inventories, accounts receivable and other contingencies

  represent managements best estimates. Actual results could differ from

  these estimates.

**2. Change

  in Accounting Policies**

a)Effective January

  1, 2002, the Company adopted the entire provisions of the new Canadian accounting

  standard for goodwill and other intangibles. Under this standard, goodwill is

  no longer amortized but is subject to an impairment test at least annually.

  As required by the standard, the Company has performed a transitional goodwill

  impairment evaluation based on discounted cash flows in each reporting unit

  as at January 1, 2002. The transitional impairment loss of $15,123,000 as a

  result of this evaluation has been charged to retained earnings at January 1,

  2002.

The following table presents

  the impact on comparative net earnings and earnings per share had the new standard

  been in effect January 1, 2000.



b)Effective July

  1, 2001, the Company adopted the new accounting standard for business combinations.

  The Company has applied this new standard in its acquisitions subsequent to

  July 1, 2001 (see Note 3) and the goodwill generated from these acquisitions

  was not amortized as required by the transitional provisions of the goodwill

  standard.

c)Effective January

  1, 2001, the Company adopted the new Canadian accounting standards for earnings

  per share, foreign currency translation and stock-based payments. Under the

  new earnings per share standard, the treasury stock method is used for determining

  the dilutive effect of stock options issued. Under the new accounting standard

  for foreign currency translation, foreign exchange gains and losses on long-term

  debt are no longer deferred and amortized. The new accounting standard on stock-based

  compensation permits the intrinsic value-based method of accounting for stock-based

  compensation. The implementation of these standards does not have a material

  effect on the Companys results of operations, financial position or cash

  flows.

d)Effective January

  1, 2000, the Company adopted the liability method of tax allocation for accounting

  for income taxes as provided under the new Canadian accounting standards. Under

  the liability method, future tax assets and liabilities are determined based

  on differences between the financial accounting and tax bases of assets and

  liabilities and are measured using the substantively enacted tax rates and laws

  that will be in effect when the differences are expected to reverse.

The Company elected to

  adopt these standards retroactively without restatement. The cumulative effect

  of adopting the standard was an increase in net tax assets of $17,767,000, cumulative

  translation adjustment of $898,000 and retained earnings of $18,665,000 as of

  January 1, 2000.

**3. Business

  Acquisitions**

a)Effective September

  9, 2002, the Company purchased substantially all of the assets of the Milwaukee,

  Wisconsin service center operation formerly known as Williams Steel for $17.0

  million in cash. This acquisition is intended to strengthen the existing Bahcall

  operations in Wisconsin and has led to the restructuring of these operations.

  Costs associated with the restructuring of the Williams Steel location of $0.2

  million were included in goodwill.

Effective March 1, 2002,

  the Company purchased the operations and the fixed assets of Arrow Steel Processors,

  a coil processor of customer owned material located in Texas for $4.4 million

  cash.

Effective October 15, 2001,

  the Company purchased 100% of the shares of A. J. Forsyth and Company Limited,

  a Canadian service center operation located in British Columbia, for cash consideration

  of $22.0 million and assumed bank debt of $13.9 million. The acquisition was

  made to strengthen the B.C. Region and led to the restructuring of the B.C.

  service center operations. Costs of $1.2 million associated with the restructuring

  of the A. J. Forsyth locations were included in goodwill on acquisition, which

  totaled $7.6 million.

Effective August 16, 2001,

  the Company purchased 100% of the shares of Spartan Steel Products, Inc., a

  U.S. distributor of energy sector pipe, for cash consideration of $3.0 million

  and assumed bank debt of $3.3 million.

Effective October 9, 2001,

  the Company purchased 100% of the shares of 1377804 Ontario Inc., a Canadian

  service center operation located in Ontario, for cash consideration of $255,000.

Effective September 1,

  2000, the Company purchased Triumph Tubular & Supply Ltd., a Calgary, Alberta

  distributor of oil country tubular goods, for $4.5 million cash and assumed

  bank debt of $5.3 million. Additional amounts under an earnout based on results

  may be paid over five years and will be incremental to goodwill. The additional

  amount related to 2002 is $nil (2001: $102,000; 2000: $509,000).

These acquisitions have

  been accounted for using the purchase method and their results of operations

  have been consolidated since their respective acquisition dates.

Net assets acquired, at

  assigned values at acquisition dates:



The tax deductible portion

  of goodwill is $2.7 million (2001: $0.8 million; 2000: $nil).

In May 2001, the Company

  announced that it had been unsuccessful in finalizing an agreement for the acquisition

  of a U.S. service center operation. The due diligence process and legal expenses

  resulted in a write-off of costs of $1.7 million.

b)In 2002, costs

  of restructuring the Bahcall locations, including the closure of the Waukeshau

  location and employee terminations, of $3.1 million have been charged to income.

In 2001, the costs of restructuring

  the Russel Metals B.C. locations of $2.4 million have been charged to income.

  During 2002, $0.4 million of this provision, not required for restructuring,

  was included in income.



Divestitures include the

  sale of the inventory and fixed assets of Total Distributors, the Companys

  Tulsa-based energy sector operation for cash of $9.6 million on June 15, 2001.

  This sale resulted in a loss on sale of business of $6.0 million.

**5. Property, Plant

  and Equipment**



**6. Other Assets**

Other assets includes a

  demand loan to an officer at interest rates prescribed by tax authorities for

  the purchase of Company shares in the amount of $710,820 (2001: $741,670). Repayment

  of these loans is not tied to the value of the underlying stock and qualifies

  for asset treatment.

**7. Revolving

  Credit Facilities**

The Company has a credit

  facility with a syndicate of banks which provides a line of credit to a maximum

  of $253.8 million, including letters of credit. The Company has extended the

  facility to June 19, 2005. Borrowings under this facility are restricted by

  certain financial covenants with which the Company was in compliance at December

  31, 2002. The obligations of the Company under this Agreement are secured by

  a pledge of trade accounts receivable and inventories of a significant portion

  of the Companys operations. At December 31, 2002 and 2001, the Company

  had borrowings of $5.8 million (2001: $nil) and letters of credit of $8.0 million

  (2001: $10.5 million) under this facility.

In addition, certain U.S.

  subsidiaries of the Company have their own credit facility. The maximum borrowing

  under this facility is US $35.0 million. At December 31, 2002, these subsidiaries

  had borrowings of US $11.8 million (2001: US $0.5 million) and letters of credit

  of US $5.6 million (2001: US $1.8 million).

**8. Long-Term Debt**



a) 10% Senior NotesDuring the year ended December 31, 2001, the Company repurchased US $9.4

  million of the 10% Senior Notes for US $9.4 million in cash.

During 2002 and 2001, US

  $69.4 million of these are notes of Russel Metals Inc., legal entity, and have

  been designated as a hedge of the Companys net investment in foreign subsidiaries.

  The remaining US $46.2 million are notes of RMI USA LLC, a U.S. subsidiary of

  Russel Metals Inc.

The notes are redeemable,

  as units, in whole or in part, at the joint option of the Company and the U.S.

  Subsidiary, on or after June 1, 2004 at 105% of the principal amount, declining

  rateably to 100% of the principal amount on or after June 1, 2007. In addition,

  the notes are also redeemable, in whole, at the option of the Company at any

  time at 100% of the principal amount in the event of certain changes affecting

  Canadian withholding taxes. The notes contain certain restrictions on the payment

  of common share dividends.

b) 8% Subordinated DebenturesThe 8% Subordinated Debentures, which are unsecured and mature in June 2006,

  are redeemable at face value subject to certain conditions being met.

**9. Interest expense**



Total interest paid by the

  Company in 2002 was $20,298,000 (2001: $23,272,000; 2000: $23,654,000).

**10. Income taxes**

a)The non-current

  future income tax balances consist of:



b)The Companys

  effective income tax rate is derived as follows:



c)The details of

  the income tax provision are as follows:



d)Income taxes

  paid in 2002 were $5,942,000 (2001: $2,058,000; 2000: $3,838,000).

e)The Company has

  Canadian net operating losses carried forward for tax purposes for which a valuation

  allowance has been recorded that expire as follows:



In addition, the Company

  has recorded a valuation allowance for timing differences of approximately $7.7

  million (2001: $3.7 million).

**11. Shareholders

  Equity**

a)The components

  of shareholders equity are as follows:



b)At December 31,

  2002, the authorized share capital of the Company consists of:

|(i)   | an unlimited

      number of common shares without nominal or par value;                                          
|----- | -------------------------------------------------------------------------------------------------------------------
|(ii)  | an unlimited

      number of Class I preferred shares without nominal or par value, issuable

      in series; and
|(iii) | an unlimited

      number of Class II preferred shares without nominal or par value, issuable

      in series.   

The Company has 1,200,000

  cumulative, redeemable Class II preferred shares, Series C with annual cash

  dividends of $1.875 per share payable in quarterly instalments authorized, issued

  and outstanding as of December 31, 2002 and 2001. This series of Class II preferred

  shares is non-voting and is redeemable at a price of $25 per share without condition.

The Directors have the

  authority to issue the Class I and Class II preferred shares in series and fix

  the designation, rights, privileges and conditions to be attached to each series,

  except the Class I shares shall be entitled to preference over the Class II

  shares with respect to the payment of dividends and the distribution of assets

  in the event of liquidation, dissolution or winding-up of the Company.

c)The number of

  common shares issued and outstanding at December 31 was as follows:



During 2000, the Company

  purchased 7,143,935 shares pursuant to a substantial issuer bid and 2,384,000

  shares pursuant to a normal course issuer bid. The stated capital has been removed

  from the common share account and the remainder charged to retained earnings.

The common shares purchased

  were cancelled.

d)The Company has

  a shareholder approved share option plan, the purpose of which is to provide

  the Directors and employees of the Company and its subsidiaries with the opportunity

  to participate in the growth and development of the Company. The number of common

  shares that may be issued under the share option plan is 4,500,000. The options

  are exercisable on a cumulative basis to the extent of either 331/3% or 20% per year of total options granted, except that under certain

  specified conditions the options become exercisable immediately. The consideration

  paid by employees for purchase of common shares is added to share capital.

The following is a continuity

  schedule of options outstanding:



The outstanding options

  at December 31, 2002 have exercise prices ranging from $3.00 to $6.375. These

  options expire in the years 2005 to 2012 and have a weighted average remaining

  contractual life of 7.7 years.

At January 1, 2001, the

  Company adopted the new accounting standard for stock-based compensation. As

  permitted by the standard, the Company has elected to account for stock options

  using the intrinsic value-based method.

Pro forma net earnings

  and earnings per share, as calculated under the fair value-based method are

  as follows:



The Black Scholes option-pricing

  model assumptions used to compute compensation expense under the fair value-based

  method are as follows:



**12. Financial Instruments**

a) Fair valueThe

  estimated fair value of long-term debt as at December 31, 2002 and 2001 is estimated

  based on the last quoted trade price, where they exist, or on the current rates

  available to the Company for similar debt of the same remaining maturities.



As at December 31, 2002

  and 2001, the estimated fair value of financial assets, liabilities and off

  balance sheet instruments approximates their carrying values.

b) Credit riskThe

  Company, in the normal course of business, is exposed to credit risk from its

  customers. This risk is mitigated by the fact that its customer base is geographically

  diverse and in different industries. The Company is also exposed to credit risk

  from the potential default by any of its counterparties on its foreign exchange

  forward contracts. The Company mitigates this risk by entering into forward

  contracts with Canadian chartered banks only.

c) Interest rate riskThe Company is not exposed to significant interest rate risk. The Companys

  long-term debt is at fixed rates. The Companys bank debt that is used

  to finance working capital, which is short-term in nature, is at floating interest

  rates.

d) Foreign exchange

  riskThe Company uses foreign exchange contracts to manage foreign exchange

  risk on certain future committed cash outflows. As at December 31, 2002, the

  Company had outstanding forward foreign exchange contracts in the amounts of

  US $3.0 million (2001: US $6.0 million) and € nil (2001: € 0.4 million).

The Company has designated

  US $69.4 million of the Senior Notes and other U.S. borrowings as a hedge of

  its net investment in foreign subsidiaries. The exchange gains and losses on

  U.S. borrowing not designated as a hedge of its net investment are charged to

  income as incurred. This resulted in a foreign exchange gain of $261,000 (2001

  loss: $1.4 million).

**13. Segmented Information**

The Company conducts business

  primarily in three metals business segments.

i) Service center distributionThe Companys network of service centers carries a full line of metal

  products in a wide range of sizes, shapes and specifications, including carbon

  hot rolled and cold finished steel, pipe and tubular products, stainless steel

  and aluminum. The Company services all major geographic regions of Canada and

  selected regions in the United States.

ii) Energy sector distributionThe Companys energy sector distribution operations carry a more specialized

  and limited product line than the service centers. These operations distribute

  pipe, tube, valves and fittings, primarily to the energy sector in Western Canada

  and the Western United States.

iii) Steel import/exportThe Companys steel import/export business primarily imports foreign

  steel products into Canada and the United States for sale to third party steel

  service centers and other customers.

The Company has segmented

  its operations on the basis of management reporting and geographic segments

  in which it operates.

a) Results by business

  segment:





b) Results by geographic

  segment:



**14. Pensions and

  Benefits**

The Company maintains defined

  benefit pension plans, post retirement benefit plans and defined contribution

  pension plans in Canada and 401(k) defined contribution pension plans in the

  United States.

The components for the

  Companys pension and benefit expense include the following:



The actuarial determinations

  were based on the following assumptions in each year:



The health care cost trend

  rates used were 5% for dental and 9% (2001: 8%; 2000: 9%) graded out for medical,

  which is reduced 1% per year until 5% and 5% thereafter. A 1% change in trend

  rates would result in an increase in the accrued benefit obligation for post

  retirement benefits of $762,000 or a decrease of $661,000 and an increase in

  net periodic cost of $65,000 or a decrease of $55,000.

The following information

  pertains to the Companys defined benefit pension and other benefit plans,

  excluding those which are in the process of being wound up.



As at December 31, 2002,

  five (2001: five) of the Companys pension plans, included in the previous

  table, had a projected benefit obligation of $42,814,000 (2001: $43,247,000),

  a fair value of plan assets of $37,186,000 (2001: $38,460,000) and an unfunded

  obligation of $5,628,000 (2001: $4,787,000).

Also at December 31, 2002,

  the Company has certain unfunded executive arrangements with an accrued benefit

  obligation of $4,524,000 (2001: $4,954,000).

The other benefit plans

  primarily represent obligations to retired employees of sold or closed businesses.

  Approximately 4.5% of all active employees are entitled to retirement benefits.



The plans in the process

  of being wound up relate to previously discontinued operations. The resolution

  of the surplus may result in sharing arrangements with employees of those operations.

  During 2002, the surplus in one of these plans was distributed to the employees

  and the Company.

As at December 31, 2002,

  approximately 37% of all pension plan assets were invested in equities, 37%

  in fixed income securities, and 26% in cash.

**15. Contingencies

  and Commitments**

a)The Company and

  certain of its subsidiaries have been named defendants in a number of legal

  actions. Although the outcome of these claims cannot be determined, management

  intends to defend all claims and has recorded provisions based on its best estimate

  of the potential losses. In the opinion of management the resolution of these

  matters is not expected to have a materially adverse effect on the Companys

  financial position, cash flows or operations.

b)The Company and

  its subsidiary companies have operating lease commitments, with varying terms,

  requiring approximate annual payments as follows: 2003: $10,108,000; 2004: $10,029,000;

  2005: $7,415,000; 2006: $5,658,000; 2007: $4,224,000; 2008 and beyond: $11,091,000.

  Rental expense on operating leases were as follows: 2002: $9,753,000; 2001:

  $10,645,000; 2000: $12,741,000.

c)The Company is

  incurring site cleanup and restoration costs related to properties held for

  resale. Remedial actions are currently underway at several sites. The estimated

  costs of these cleanups have been provided for based on managements best

  estimates. Additional costs may be incurred at these or other sites, as site

  cleanup and restoration progress, but the amounts cannot be quantified at this

  time.

**16. United States

  Generally Accepted Accounting Principles**

The following table represents

  the material differences between Canadian and U.S. Generally Accepted Accounting

  Principles (GAAP):



a)Effective January

  1, 2000, the Company adopted the new Canadian accounting standards for accounting

  for income taxes. Canadian standards require an adjustment to income when changes

  in income tax rates have been substantively enacted. A proposed change in income

  tax rates resulted in a charge to income of $360,000 for the year ended December

  31, 2000. As at December 31, 2000, this tax rate change had not been enacted

  as required by the U.S. standards. In 2001, this proposed change was enacted.

b)Statement of

  Financial Accounting Standards No. 87, Employers Accounting for Pensions,

  requires that the transitional obligation be amortized over the expected average

  service lives of the employee group rather than charged to retained earnings

  immediately as allowed under the Canadian standards. In addition, the U.S. standard

  requires the recognition of an additional minimum pension liability. Four of

  the Companys plans have a minimum liability, which has been charged to

  other comprehensive income under U.S. GAAP.

c)In June 2001,

  the Financial Accounting Standards Board (FASB) issued Statement

  of Financial Accounting Standards (SFAS) No. 141, Business Combinations

  and SFAS 142, Goodwill and Other Intangible Assets. The effect of adopting these

  standards is not materially different from the adoption of the Canadian standards

  (see Note 2) except that the transitional impairment loss is charged to earnings

  as a cumulative effect of a change in accounting principle under U.S. GAAP.

d)Other cumulative

  comprehensive income also includes changes in the cumulative translation account

  and the taxes thereon. This account represents a reduction in the Companys

  shareholders equity and represents unrealized translation adjustments,

  which arise on the translation to Canadian dollars of foreign denominated assets

  and liabilities.

e)During 2002,

  FASB issued SFAS 145, Rescission of FASB statements No. 4, 44 and 64 and FASB

  Interpretation No. 45, Guarantors Accounting and Disclosure Requirements

  for Guarantees, Including Indirect Guarantees of Indebtedness of Others, which

  are not expected to have a material impact on the Companys consolidated

  results of operations, financial position or cash flows. Also, during 2002,

  FASB issued SFAS 146, Accounting for Costs Associated with Exit or Disposal

  Activities. The Company plans to implement this standard for transactions entered

  into subsequent to December 31, 2002, and accordingly this new standard has

  not been used for recording the costs associated with restructuring the Williams

  Bahcall operations.

f)On January 1,

  2001, the Company adopted SFAS 133, Accounting for Derivative Instruments and

  Hedging Activities and the corresponding amendments under SFAS 138. SFAS 133,

  as amended by SFAS 138, did not have a material impact on the Companys

  consolidated results of operations, financial position or cash flows. During

  2001, FASB issued SFAS 143, Accounting for Asset Retirement Obligations and

  SFAS 144, Accounting for the Impairment or Disposal of Long-Lived Assets, which

  did not have a material impact on the Companys consolidated results of

  operations, financial position or cash flows.

**17. Subsequent

  Event**

In December 2003, the Company

  plans to relocate its flat rolled operation in Hamilton, Ontario to a new facility.

  The projected cost of the land, building and machinery is expected to be $29

  million. The move to the new facility is not expected to disrupt the Companys

  operations.



**Summarized

  Quarterly Financial Information**