Russel Metals Annual Report 2010

← All annual reports

FY2010 Annual Report · Russel Metals

Loading PDF…

Russel 1491 AR10 cover.qxd:Layout 2 3/22/11 2:52 PM Page 1

2010 ANNUAL REPORT

THE STRENGTH OF RUSSEL METALS

R
U
S
S
E

M
E

T
A

L
S

N
C

A
N
N
U
A

R
E

P
O
R
T

1900 Minnesota Court, Suite 210

Mississauga, Ontario Canada L5N 3C9

T: 905.819.7777 F: 905.819.7409

info@russelmetals.com www.russelmetals.com

Russel 1491 AR10 cover.qxd:Layout 2 3/22/11 2:53 PM Page 2

REPORT TO SHAREHOLDERS CONTINUED

RUSSEL METALS INC. DIRECTORY

CORPORATE PROFILE

RUSSEL METALS IS ONE OF THE LARGEST METALS DISTRIBUTION COMPANIES

IN NORTH AMERICA. WE CONDUCT BUSINESS PRIMARILY IN THREE METALS

DISTRIBUTION SEGMENTS: METALS SERVICE CENTERS, ENERGY TUBULAR

PRODUCTS AND STEEL DISTRIBUTORS.

METALS SERVICE CENTERS

ENERGY TUBULAR PRODUCTS

STEEL DISTRIBUTORS

These operations distribute oil
country tubular goods (OCTG), line
pipe, tubes, valves and ﬁttings from
ﬁve Canadian and two U.S. locations.
We purchase these products either
from the pipe processing arms of
North American steel mills or from
independent manufacturers of pipe
and pipe accessories.

Our steel distributors act as master
distributors, selling steel in large
volumes to other steel service
centers and large equipment
manufacturers mainly on an “as is”
basis. The main steel products
sourced by this segment are
carbon steel plate, beams, channel,
ﬂat rolled products, rails and
pipe products.

Our network of metals service
centers carries a broad 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. We
purchase these products primarily
from North American steel producers
and package and sell them to end
users in accordance with their
speciﬁc needs. We service all major
geographical regions of Canada and
the Southeastern and Midwestern
regions of the United States.

HEAD OFFICE

1900 Minnesota Court, Suite 210, Mississauga, Ontario, Canada, L5N 3C9
Tel: (905) 819-7777 Fax: (905) 819-7409
E-mail: info@russelmetals.com Internet: www.russelmetals.com

BOARD OF DIRECTORS

Alain Benedetti
Corporate Director

James F. Dinning
Chair of the Board
Western Financial Group

Carl R. Fiora
Corporate Director
Steel industry executive

Anthony F. Griffiths
Corporate Director,
Chair of the Board
Russel Metals Inc.

Brian R. Hedges
President and Chief Executive
Officer, Russel Metals Inc.

William M. O’Reilly
Partner, Davies Ward Phillips &
Vineberg LLP

Alice D. Laberge
Corporate Director

Lise Lachapelle
Corporate Director

John W. Robinson
Corporate Director
Steel industry executive

CORPORATE GOVERNANCE

Detailed disclosure concerning the Company’s governance practices may be found in the Information Circular.

OFFICERS

Anthony F. Griffiths
Chair of the Board
Toronto

Brian R. Hedges
President and
Chief Executive Officer
Mississauga

Marion E. Britton
Vice President,
Chief Financial Officer
and Secretary
Mississauga

Lesley M. S. Coleman
Vice President, Controller and
Assistant Secretary
Mississauga

Sherri Mooser
Assistant Secretary
Mississauga

SHAREHOLDER INFORMATION

Stock Symbol: The Toronto Stock Exchange – RUS

TRANSFER AGENT AND REGISTRAR

CIBC Mellon Trust Company
P.O. Box 7010, Adelaide Street Postal Stn.,
Toronto, Ontario, Canada M5C 2W9
Answer line: Toronto (416) 643-5500
Toll Free: 1-800-387-0825
E-mail: inquiries@cibcmellon.ca
Internet: www.cibcmellon.ca

GLOSSARY

Adjusted EBIT
Earnings before deduction of interest and income taxes excluding
inventory write-downs and asset impairments.

Earnings Multiple
Period ending common share price divided by basic earnings per
common share.

Adjusted EBITDA
Earnings before deduction of interest, income taxes, depreciation and
amortization, inventory write-downs and asset impairments.

Book Value Per Share
Equity value divided by ending common shares outstanding.

Debt as % of Capitalization
Total net interest bearing debt excluding cash on hand divided by common
shareholders’ equity plus interest bearing debt excluding cash on hand.

Dividend Per Share
The current quarterly dividend annualized.

EBIT
Earnings before deduction of interest and income taxes.

Free Cash Flow
Cash from operating activities before change in working capital less
capital expenditures.

Interest Bearing Debt to EBITDA
Total interest bearing debt excluding cash on hand divided by EBITDA.

Market Capitalization
Outstanding common shares times market price of a common share at
December 31.

Dividend Yield
The dividend per share divided by the year end common share price.

Return on Capital Employed
Adjusted EBIT for period annualized over net assets employed.

OUR STRENGTHS!
1

DIVIDEND We operate as a distributor in a mature, industrial commodity – steel. Our earnings
over the steel cycle are aligned with our cash ﬂows. These characteristics support our dividend
policy of a high payout ratio over the cycle. Management is focused on sustaining our dividend.

CLEAN, STRONG BALANCE SHEET Our already pristine balance sheet was
further enhanced in 2010 with the removal of two of our remaining complex
ﬁnancial instruments. Cash, accounts receivable, inventory and property,
plant and equipment make up 96% of our total assets of $1.4 billion. In
this era of an increasingly complex
ﬁnancial world, shareholders can read
and understand our balance sheet and
our business.

WELL POSITIONED TO GROW We have
a conservative capital structure with
$798 million in equity and $324 million
in cash, compared with long-term debt
of $325 million. This structure provides
a foundation that will allow us to pursue
acquisition opportunities, make capital
investments and grow working capital as
the economy recovers.

EXPERIENCED MANAGEMENT TEAM Our senior executives and other
key members of our management team have an average of 30 years of
experience in the metals distribution business. To facilitate an
entrepreneurial culture, our compensation policies, at both senior and
local management levels, are based on the proﬁtability and asset
utilization of our business units. In a mature, commodity-based industry,
the people can make the difference between an average organization
and an excellent organization. We have been able to attract and
maintain some of the best people in the industry.

INDUSTRY LEADER We are one of the largest metals service
centers in North America. Our processing capabilities include
sawing to length, shearing to size, ﬂame cutting, plasma cutting,
hi-deﬁnition cutting, laser cutting, rolling, hole punching, drilling,
grinding, ﬂattening, slitting, cut-to-length, edging, press forming,
and threading. Metal products include plate, sheet, structurals,
bars, tubing, grating, pipe, casing, oil country tubular products,
ﬂanges, ﬁttings, valves, and non-ferrous specialty metals. With this
vast array of products and services, our investors can be assured
that we have the capabilities to service our customer needs.

RUSSEL METALS I 2010 ANNUAL REPORT

RUSSEL METALS INC. FIVE-YEAR FINANCIAL HIGHLIGHTS

For the years ended December 31

OPERATING RESULTS (millions)
Revenues
Net (loss) earnings
EBIT
Adjusted EBIT
EBIT as a % of revenue
Adjusted EBITDA
EBITDA as a % of revenue
Basic (loss) earnings per common share ($)

BALANCE SHEET INFORMATION (millions)
Metals

Accounts receivable
Inventories
Prepaid expenses and other assets
Accounts payable and accruals

Net working capital – Metals
Fixed assets
Goodwill and intangibles

Net assets employed in metals operations
Other operating assets
Net income tax assets (liabilities)
Pension and benefit assets (liabilities)
Other corporate assets and liabilities

Total net assets employed

CAPITALIZATION (millions)
Bank indebtedness, net of (cash)
Long-term debt (incl. current portion)

Total interest bearing debt, net of (cash)
Market capitalization

Total firm value

OTHER INFORMATION
Common shareholders’ equity (millions)
Book value per share ($)
Free cash flow (millions)
Capital expenditures (millions)
Depreciation and amortization (millions)
Earnings multiple
Firm value as a multiple of EBIT
Firm value as a multiple of EBITDA
Interest bearing debt/EBITDA
Debt as a % of capitalization
Market capitalization as a % of book value
Return on equity
Return on capital employed

COMMON SHARE INFORMATION
Ending outstanding common shares
Average outstanding common shares
Dividend yield
Dividend per share
Share price – High
Share price – Low
Share price – Ending

$
$
$
$
$

$
$
$
$

2010

2,175.4
69.7
122.6
123.3(1)
5.7%
148.3(1)
6.8%

1.17

300.5
544.1
2.9
(259.8)

587.7
197.6
26.9

812.2
17.6
(16.5)
4.1
(16.3)

801.1

(323.7) $
326.7

$
$
$
$
$

3.0
1,373.5

1,376.5

798.1
13.31
86.0
11.8
25.0
19.6
11.2(1)
9.3(1)
2.2(1)
29%
172%
9%
15%(1)

2009

2008

2007

2006

$
$
$
$
$

1,971.8
(92.0)
(130.2)
63.9(1)
3.2%
89.6(1)
4.5%
(1.54)

214.2
517.9
4.6
(231.2)

505.5
213.1
28.4

747.0
18.9
47.7
2.1
(39.9)

775.8

(359.6)
342.1

(17.5)
1,058.5

1,041.0

793.3
13.29
95.7
18.6
25.7
—
16.3(1)
11.6(1)
3.8(1)
30%
133%
(12%)
8%(1)

$
$
$
$
$

3,366.2
228.5
355.2
392.9

11.7%

416.3

12.4%
3.67

425.9
925.1
7.6
(393.7)

964.9
230.4
71.8

1,267.1
19.4
(30.2)
0.7
(38.0)

1,219.0

20.0
218.9

238.9
1,134.2

1,373.1

980.1
16.42
235.9
22.2
23.4
5.2
3.9
3.3
0.5
18%
116%
23%
29%

2,559.2
111.2
176.8
176.8

6.9%

197.2

7.7%

1.77

2,692.1
158.7
250.2
250.2

9.3%

270.2

10.0%
2.65

$
$
$
$
$

337.2
572.6
4.7
(272.3)

642.2
210.4
53.4

906.0
20.4
(3.7)
(1.4)
(43.5)

877.8

(181.8)
175.8

(6.0)
1,605.0

1,599.0

883.8
14.01
123.7
16.6
20.4
14.4
9.0
8.1
0.9
17%
182%
13%
20%

324.7
664.0
3.8
(262.8)

729.7
170.9
9.2

909.8
21.5
(19.3)
(2.6)
(20.8)

888.6

(209.9)
203.9

(6.0)
1,665.2

1,659.2

894.6
14.34
152.4
27.6
20.0
10.1
6.6
6.1
0.8
19%
186%
18%
28%

59,978,173
59,717,629

59,698,690
59,696,743

59,695,290
62,329,483

63,066,092
62,835,303

62,366,842
59,887,382

4.8%

1.10
23.94
16.25
22.90

$
$
$
$

5.6%

1.00
22.00
9.25
17.73

$
$
$
$

5.3%

1.00
31.36
15.01
19.00

$
$
$
$

7.1%

1.80
34.47
22.75
25.45

$
$
$
$

6.0%

1.60
29.38
21.61
26.70

(1)

Adjusted EBIT excludes inventory write-downs in the amount of $37.7 million in 2008 and $158.7 million in 2009 and $35.4 million for asset impairment in the Q4 2009. It excludes the
inventory reversal of $1.9 million in Q2 2010 and plant closure costs of $2.6 million in Q3 2010.

RUSSEL METALS I 201 0 ANNUAL REPORT

MESSAGE FROM THE PRESIDENT AND CEO

IN 2010, THE NORTH AMERICAN ECONOMY SLOWLY RECOVERED. OUR SALES VOLUMES INCREASED THROUGHOUT

THE YEAR AND STEEL PRICES JUMPED LATE IN THE YEAR. OUR COMPANY RETURNED TO PROFITABILITY IN 2010 WITH

REPORTED EARNINGS PER SHARE OF $1.17 AND EARNINGS EXCEEDED OUR DIVIDEND PAYOUT.

Over the last two years, the efforts and sacrifices of our
employees have been central in our dramatic recovery, and
we are positioned to take advantage of emerging business
opportunities by capitalizing on the vast experience of
our staff.

The volatility in steel pricing has increased on two fronts.
The large dollar movement in steel prices was made even
more dramatic by the speed at which prices changed as the
pricing cycle compressed. We can now see two distinct
pricing cycles in a twelve-month period. We continue to
invest in systems that allow as much flexibility in the day-
to-day decision processes as possible to ensure that we
remain one of the most responsive metals distributors in
North America. This allows the Company to remain one of
the industry leaders measured by return on net assets and
return on equity, supporting our industry-leading dividend.

METALS SERVICE CENTERS
While the economy recovered, 2010 was a year in which
we emphasized a return to normality for our metals service
centers segment and addressed areas where we needed
additional capital or expertise. We became fully operational
at our new Saskatoon facility that was opened in late 2009.
We added a tube laser to our Winnipeg South operation in
order to expand their processing presence further. We
made the difficult decision to close our Port Robinson
structural facility and relocate that operation to our existing
Cambridge facility, which will be expanded. The move will
occur in 2011. We continued to upgrade our use of
technology by utilizing bar-coding capabilities at several
operations and automating our time capture process for our
Canadian hourly employees. On the management side, we
appointed John Reid as Vice President Operations, Service
Centers to allow our service center operations to benefit
from his operating expertise.

ENERGY TUBULAR PRODUCTS
Our energy tubular products operations benefited from
stronger oil prices, which resulted in a higher drilling rig
count. In addition, advances in horizontal drilling technology
resulted in increased horizontal drilling activity. Both of
these factors increased the consumption of oil country
tubular products in 2010. The inventory overhang
moderated and offshore supply of products declined due to
trade actions in both Canada and the United States, which
helped margins increase.

Oil sands projects deferred over the last two years are now
back in the active planning stages and contracts should be
awarded in 2011, resulting in higher revenues in late 2011
and into 2012.

We recently announced that we hired Dean Rougas, an
experienced industry executive, as the President of Spartan
and we are expanding our Spartan energy tubular products
operation in Houston, Texas.

BRIAN HEDGES

PRESIDENT AND
CHIEF EXECUTIVE OFFICER

RUSSEL METALS I 2010 ANNUAL REPORT

MESSAGE FROM THE PRESIDENT AND CEO (CONTINUED)

STEEL DISTRIBUTORS
Service centers and large OEM customers remain cautious
about their inventory positions, and therefore demand levels
have not returned to the pre-recession levels for our steel
distributor operations. We also continue to be cautious and
opportunistic in our steel purchasing. The demand and
pricing volatility in the market, coupled with a weak U.S.
dollar, reduced the number and price advantage of offshore
product offerings. Consequently inventory levels and
revenues remained at levels significantly lower than historical
norms for this segment. Recent price increases should
provide opportunities for increased revenues.

Starting in 2011 we are required to adopt International
Financial Reporting Standards, which, with one exception,
would have only minimal impact on our financial statements.
This one exception, which would have resulted in earnings
volatility, was eliminated when we amended the terms of our
convertible debentures.

With our operations returning to profitability, our balance
sheet free of non-operating assets and liabilities, our high
dividend yield and our more than $300 million in cash, we
are well positioned to grow the business in 2011 by seeking
out and reacting to opportunities that present themselves.

BRIAN HEDGES

PRESIDENT AND
CHIEF EXECUTIVE OFFICER

ACQUISITIONS
The volatility of the operating earnings of acquisition targets
over the last two years has made pricing of acquisitions
difficult. As earnings return to more stable patterns, we
expect that more acquisitions will be completed in the
industry in 2011 than in the previous two years.

Over the past decade, we have strengthened our Canadian
franchise through acquisitions, which we have rationalized
and integrated with our existing operations. In 2007 and
2008 we strengthened our U.S. franchise through the
acquisitions of JMS Metal Services and Norton Metal
Products. We intend to continue to investigate acquisition
opportunities that will be immediately accretive to earnings
and that will enable us to build on our Canadian service
center presence or grow our U.S. operations, particularly in
the region surrounding our JMS operations. In our energy
tubular products and steel distributors operations, we will
continue to look for strong product niche players or strong
regional operations.

OTHER BUSINESS
Along with the return to profitability, we took significant
steps to position the Company for the future and to further
strengthen our balance sheet. Two financial instruments on
our balance sheet, our cross currency swaps and our
investment in non-bank asset-backed commercial paper,
were not easily understood. The mark to market of these
instruments at the end of each reporting period resulted in
earnings volatility. During 2010 the swaps were terminated
and the commercial paper was sold, resulting in their
removal from our balance sheet.

RUSSEL METALS I 201 0 ANNUAL REPORT

MESSAGE FROM THE CHAIR

DEAR FELLOW SHAREHOLDERS, AS 2011 COMMENCES, WE REFLECT ON THE POSITIVE MOMENTUM BROUGHT ON BY

THE NASCENT RECOVERY IN 2010. IT IS A TESTAMENT TO THE STRENGTH OF OUR BALANCE SHEET AND OUR

MANAGEMENT THAT WE RECOVERED SO STRONGLY. I WOULD LIKE TO THANK BRIAN HEDGES AND ALL THE RUSSEL

EMPLOYEES FOR NAVIGATING US THROUGH THE DIFFICULT TIMES IN 2009 TO A RECOVERY IN 2010.

ENVIRONMENTAL
Environmental issues have also gained increasing
prominence both in the world in general and in corporate
governance in particular. We have had an Environmental
Management and Health & Safety Board Committee for
many years. We have been actively participating in the
Carbon Disclosure Project since 2008. In recognition of our
efforts, the Company was awarded a Carbon Disclosure
Leader certificate in 2010 for excellence in climate
reporting by the Conference Board of Canada. Fortunately,
as a metals distributor we do not have significant
environmental exposures, and we closely monitor those
we do have.

2011 AND BEYOND
We will continue to emphasize strong corporate governance
and look forward to continuing the current positive trends in
2011 and beyond in all areas.

ANTHONY GRIFFITHS

CHAIR OF THE BOARD

The last decade has seen the emergence of several issues
relating to public companies targeted at ensuring that
shareholder interests are protected. These include: corporate
governance, say on pay, and environmental issues.

CORPORATE GOVERNANCE
Over the last several years, corporate governance has
gained increasing prominence with a focus on improving
governance practices. Many of the areas stressed already
existed at Russel Metals prior to this trend. We continue to
have excellent results in the financial press surveys on
corporate governance, ranking in the top quartile of
surveyed companies. We regularly review and implement
changes in our governance practices to remain in the
forefront of what is prudent in this area.

Our Board is a skilled and diverse group whose attendance
is strong and whose commitment to our Company is second
to none. We have a strong mix of members with operating,
financial, and legal expertise along with many years of
business experience. I would like to thank my fellow
Board members for their dedication and support of me
and Russel Metals.

SAY ON PAY
In May, we had our first shareholder advisory vote and our
shareholders voted overwhelmingly in favour of our current
executive compensation plans.

Our variable compensation plans are aligned with our
shareholder returns, and 2009 reinforced this fact. Due to
the financial results, no corporate bonuses were awarded,
while those operating units that exceeded their profitability
targets were appropriately awarded. In 2010, corporate
bonuses will be paid in addition to operating unit bonuses
as the minimum earnings targets in most plans were
achieved. The bonuses paid are at a level consistent with
the improved earnings levels of the Company.

RUSSEL METALS I 2010 ANNUAL REPORT

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

FOR THE YEAR ENDED DECEMBER 31, 2010

The Management’s Discussion and Analysis of Financial Condition and Results of Operations of Russel Metals Inc. and its

subsidiaries provides information to assist the reader of, and should be read in conjunction with, the audited consolidated

financial statements for the year ended December 31, 2010, including the notes thereto. Our annual financial statements

have been prepared in accordance with Canadian generally accepted accounting principles (GAAP) and are reported in

Canadian dollars. All dollar references in this report are in Canadian dollars unless otherwise stated.

Additional information related to Russel Metals Inc., including our Annual Information Form, may
be obtained from SEDAR at www.sedar.com or on our website at www.russelmetals.com.

Unless otherwise stated, the discussion and analysis contained herein are as of February 17, 2011.

FORWARD-LOOKING STATEMENTS

Certain statements contained in this document constitute forward-looking statements or
information within the meaning of applicable securities laws. These statements relate to future
events or our future performance. All statements other than statements of historical fact may be
forward-looking statements. Forward-looking statements are often, but not always, identified by
the use of words such as “seek”, “anticipate”, “plan”, “continue”, “estimate”, “expect”, “may”,
“will”, “project”, “predict”, “potential”, “targeting”, “intend”, “could”, “might”, “should”,
“believe” and similar expressions. These statements involve known and unknown risks,
uncertainties and other factors that may cause actual results or events to differ materially from
those anticipated in such forward-looking statements. These risks and uncertainties include,
among other things: no assurance that future financing will be available; dilution; change of
control; interest rate risk; foreign exchange risk; volatile metal prices; cyclicality of the metals
industry and the industries that purchase our products; significant competition; interruption in
sources of metals supply; integrating future acquisitions; collective agreements and work
stoppages; environmental liabilities; changes in government regulations; failure of key computer-
based systems; loss of key individuals; and the current economic climate. While we believe that
the expectations reflected in the forward-looking statements contained herein are reasonable,
no assurance can be given that these expectations will prove to be correct, and such forward-
looking statements included herein should not be unduly relied upon. These statements speak
only as of the date hereof. Except as required by law, we do not assume any obligation to
update the aforementioned forward-looking statements. Our actual results could differ materially
from those anticipated in the aforementioned forward-looking statements, as applicable,
including as a result of the risk factors set forth elsewhere herein and in our filings with the
securities regulatory authorities which are available on SEDAR at www.sedar.com.

NON-GAAP MEASURES

This Management’s Discussion and Analysis of Financial Condition and Results of Operations
includes a number of measures that are not prescribed by GAAP and as such may not be
comparable to similar measures presented by other companies. We believe these measures
are commonly employed to measure performance in our industry and are used by analysts,
investors, lenders and other interested parties to evaluate financial performance and our ability
to incur and service debt to support our business activities. The measures we use are
specifically defined where they are first used in this report.

RUSSEL METALS I 201 0 ANNUAL REPORT

TOTAL REVENUES
$ billions

3.4

2.7

2.6

2.0

2.2

ADJUSTED
EARNINGS PER SHARE
$ per share

4.06

2.65

1.77

1.17

0.49

While we believe that non-GAAP measures are helpful supplemental information, they should not
be considered in isolation as an alternative to net income, cash flows generated by operating,
investing or financing activities, or other financial statement data presented in accordance
with GAAP.

OVERVIEW

We are one of the largest metals distribution companies in North America. We conduct business
primarily in three metals distribution segments: metals service centers; energy tubular products;
and steel distributors.

Our 2010 results reflect an increase in volumes and gross margins compared to 2009. Our
earnings for 2010 were $70 million compared to a loss of $92 million in 2009. Earnings per
share were $1.17 for 2010 compared to a loss per share of $1.54 for 2009. Our return on
equity was 9%.

Our metals service center segment had a volume increase of approximately 17% for 2010
compared to 2009. This increase is consistent with statistics reported for the North American
industry by the Metals Service Center Institute. After this sizable increase, our tons shipped in
2010 represent 80% of our tons shipped in 2008 when we achieved record earnings.

Our energy tubular products segment volumes increased in 2010 from 2009 due to more drilling
activity mainly related to oil. Oil prices have increased compared to 2009 while natural gas
pricing is flat.

Our steel distributors segment has seen lower volume increases as uncertainty in steel pricing
impacted this segment.

Our earnings have been impacted by the items noted in the following table. We have adjusted
our earnings by these items to help the reader of this report better understand our operating
results excluding specific items.

Earnings (loss) per common share

Net earnings (loss)

Inventory write-downs (reversals)

Asset impairment

Plant closure reserves (gain on sale of property)

Adjusted earnings

2010

1.17

(0.02)

–

0.03

1.18

2009

(1.54)

1.69

0.41

(0.07)

0.49

We recorded $159 million of net inventory write-downs in 2009 to reflect net realizable value.
Net realizable value is an estimate of future selling price less costs to sell, which is higher than
current replacement cost. A majority of the inventory associated with the 2009 write-downs was
sold in either 2009 or 2010 and the corresponding reserves for write-down reversed in the
period of sale. In 2010, we reversed $1.9 million of these reserves related to inventory in our
energy tubular product segment due to pricing increases.

RUSSEL METAL S I 2010 ANNUAL REPORT

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

FOR THE YEAR ENDED DECEMBER 31, 2010

SUMMARIZED FINANCIAL INFORMATION

The table discloses selected information related to revenues, earnings and common share information over the last eight quarters.

2010

Quarters Ended

Year Ended

(in millions, except per share data and volumes)

Mar. 31

June 30

Sept. 30

Dec. 31

Revenues

Earnings from operations

Net earnings

Basic earnings per common share

Diluted earnings

per common share

Market price of common shares

High

Low

Shares outstanding end of quarter

Number of common shares traded

2009

(in millions, except per share data and volumes)

Revenues

Earnings (loss) from operations

Net earnings (loss)

Basic earnings (loss) per common share

Diluted earnings (loss)

per common share

Market price of common shares

High

Low

525.9

506.1

581.9

561.5

2,175.4

26.3

16.5

0.28

20.40

16.59

34.8

18.7

0.31

22.25

16.25

30.5

16.6

0.28

21.31

17.67

31.9

17.9

0.30

0.29

23.94

19.75

123.5

69.7

1.17

1.16

23.94

16.25

59,698,690

59,698,840

59,705,240

59,978,173

12,412,200

15,424,843

9,071,721

9,272,683

46,181,447

Quarters Ended

Year Ended

Mar. 31

June 30

Sept. 30

Dec. 31

642.3

462.5

434.3

432.7

1,971.8

(80.9)

(55.0)

(0.92)

22.00

9.25

(44.2)

(24.6)

(0.41)

16.50

9.90

22.6

12.8

0.21

18.52

12.87

2.4

(25.2)

(0.42)

18.51

15.30

(100.1)

(92.0)

(1.54)

22.00

9.25

Shares outstanding end of quarter

59,695,290

59,697,290

59,698,690

Number of common shares traded

25,032,976

24,680,061

19,127,659

11,331,917

80,172,613

RESULTS OF OPERATIONS

The following table provides operating profits (loss) before interest, taxes and other income or expense. The corporate expenses
included are not allocated to specific operating segments. Gross margins (revenues minus cost of sales) and operating profits as
a percentage of revenues for the operating segments are each shown below. The table shows the segments as they are reported
to management, and they are consistent with the segment reporting in the consolidated financial statements.

RUSSEL METALS I 201 0 ANNUAL REPORT

(in millions, except percentages)

Segment Revenues

Metals service centers

Energy tubular products

Steel distributors

Other

Segment Operating Profits Excluding

Inventory and Plant Closure Reserves

Metals service centers

Energy tubular products

Steel distributors

Corporate expenses

Other

Operating profits

Inventory and Plant Closure Reserves

Metals service centers

Energy tubular products

Steel distributors

Segment Operating Profits (Loss)

Metals service centers

Energy tubular products

Steel distributors

Corporate expenses

Other

2010

2009

2008

1,212.2

1,094.7

704.3

247.8

11.1

624.1

244.5

8.5

1,833.0

1,070.8

450.7

11.7

2,175.4

1,971.8

3,366.2

63.5

51.1

20.9

(15.6)

4.3

124.2

2.6

(1.9)

–

0.7

60.9

53.0

20.9

(15.6)

4.3

17.3

34.8

18.0

(13.2)

1.7

58.6

30.4

81.9

46.4

158.7

(13.1)

(47.1)

(28.4)

(13.2)

1.7

192.8

145.6

77.6

(21.2)

3.3

398.1

6.8

9.1

21.8

37.7

186.0

136.5

55.8

(21.2)

3.3

2010
Change
as a %
of 2009

2009
Change
as a %
of 2008

11%

13%

10%

267%

47%

16%

(18%)

(40%)

(42%)

(46%)

(41%)

(91%)

(76%)

(77%)

38%

112%

(85%)

565%

213%

174%

(18%)

(107%)

(135%)

(151%)

38%

Operating profits (loss)

123.5

(100.1)

360.4

223%

(128%)

Segment Gross Margin as a % of Revenues

Excluding Inventory Write-down (Reversal)

Metals service centers

Energy tubular products

Steel distributors

Total operations

Segment Operating Profit as a % of Revenues Excluding

Inventory and Plant Closure Reserves

Metals service centers

Energy tubular products

Steel distributors

Total operations

21.5%

14.1%

15.2%

18.8%

5.2%

7.3%

8.4%

5.7%

18.4%

12.7%

13.7%

16.4%

1.6%

5.6%

7.4%

3.0%

23.9%

22.4%

22.3%

23.4%

10.5%

13.6%

17.2%

11.8%

RUSSEL METALS I 2010 ANNUAL REPORT

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

FOR THE YEAR ENDED DECEMBER 31, 2010

METALS SERVICE CENTERS

a) Description of operations

We provide processing and distribution services to a broad base of approximately 28,000 end users through a network of
50 Canadian locations and 12 U.S. locations. Our metals service centers carry a broad line of 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. We purchase these products primarily from steel producers in North America and process and package them in
accordance with end user specifications. We service all major geographic regions of Canada and the Southeastern and
Midwestern regions in the United States. Within Canada, our service centers operate under the names Russel Metals, Métaux
Russel, A.J. Forsyth, Acier Leroux, Acier Loubier, Acier Richler, B&T Steel, Leroux Steel, Mégantic Métal, Russel Metals Specialty
Products, Métaux Russel Produits Spécialisés, McCabe Steel and York-Ennis. Our U.S. service center operations are conducted
under the names Russel Metals Williams Bahcall, JMS Russel Metals, Norton Metals and Baldwin International.

b) Factors affecting results

The following is a general discussion of the significant factors affecting our metals service centers results. More specific
information on how these factors impacted 2010, 2009 and 2008 is found in the sections that follow.

Steel pricing fluctuates significantly throughout the steel cycle with the last peak being in mid-2008 followed by a significant
decline, resulting in prices in mid-2009 that were less than 50% of the 2008 peak. This steel price decline as well as a decline
in demand for steel caused by the financial and economic crisis negatively impacted our results in 2009. Steel prices increased
during the first half of 2010; however, due to low demand levels, prices declined slightly during the last half of 2010. Steel mills
raised prices late in 2010 and price increases have continued in the first quarter of 2011.

Steel prices are influenced by overall demand, trade sanctions, iron ore pricing, scrap steel pricing and product availability. Supply
side management, practiced by steel producers in North America, and international supply and demand, which impacts steel
imports, affects product availability. Trade sanctions are initiated either by steel mills or government agencies in North America
and, less directly, worldwide.

Demand is significantly affected by economic cycles, with revenues and operating profit fluctuating with the level of general
business activity in the markets served. We are most impacted by the manufacturing, resource and construction segments of the
Canadian economy. Tons shipped in 2010 were approximately 17% more than those shipped in 2009, but were approximately
20% less than for 2008. Based on data from the Metals Service Center Institute, the Canadian service center industry increase
in shipments for 2010 compared to 2009 was 15%, and for the U.S. was 21%.

Canadian service centers, which represent the majority of our metals service centers operations, have operations in all regions
of Canada and are affected by general regional economic conditions. Our large market share and our diverse customer base of
approximately 18,000 customers suggest that our results should mirror the performance of the regional economies of Canada.
Our U.S. operations, which have approximately 10,000 customers, are impacted by the local economic conditions in the regions
they serve.

The change in the Canadian dollar in 2010 versus 2009 decreased revenues and profits for our U.S. operations translated to
Canadian dollars. Revenues and profits or losses of our U.S. operations reported for 2010 were converted at $1.0301 per
US$1 compared to $1.1415 per US$1 for 2009. The exchange rate at December 31, 2010, used to translate the balance
sheet was $0.9946 per US$1.

RUSSEL METALS I 201 0 ANNUAL REPORT

Our Canadian operations source some products outside of Canada and these products are priced
in U.S. dollars. Movement in the Canadian dollar has a short-term impact on inventory pricing.

c) Metals service centers segment results – 2010 compared to 2009

Revenues for 2010 increased 11% compared to 2009. Overall tons shipped in metals service
centers were approximately 17% higher than those shipped in 2009. Average selling price
increased during 2010; however, the average selling price of metal in 2010 was approximately
6% lower than the average in 2009 due to high prices early in 2009.

Gross margin, as a percentage of revenues, was 21.5% for 2010 compared to 18.4% for 2009.
The improvement relates to improved selling prices and the elimination of inventory holding losses.

Our average revenue per invoice for 2010 was approximately $1,453 compared to $1,409 for
2009, reflecting larger average orders in tons. In 2010, we handled approximately 3,337
transactions per day compared to 3,102 per day for 2009, an increase of 8%.

Operating expenses in 2010 were approximately $15 million, or 8%, higher than those in 2009
mainly related to higher variable compensation and freight costs due to increased volumes. In
addition, we provided $3 million for the closure of our Port Robinson facility. In August 2010, we
announced that in 2011 our structural steel business would be relocated to our Cambridge facility.

Metals service centers operating profits for 2010 increased to $64 million from $17 million in
2009. The significant increase was due to the rise in volumes and gross margins when
compared to 2009.

d) Metals service centers segment results – 2009 compared to 2008

Revenues in 2009 declined 40% compared to 2008. Overall tons shipped in metals service
centers were approximately 32% lower than those shipped in 2008. The average selling price of
metal in 2009 was approximately 16% lower than 2008. Average selling price declined every
quarter from December 2008, with the largest decline occurring during the first half of 2009.
Prices in most products stabilized in the third quarter of 2009. Average selling prices at the end
of 2009 were similar to those at the end of 2007 prior to the price increases in 2008.

Gross margin as a percentage of revenues, excluding inventory write-downs, was 18.4% for
2009 compared to 23.9% for 2008. Pricing pressure as a result of weak demand from our
customers, selling price declines led by price reductions from the mills and higher priced
inventory on hand were all factors contributing to lower margins in 2009. The average cost of
inventory declined each month in 2009 as our purchases continued to be at levels below our
average cost of inventory. Gross margins for 2008 were elevated due to inventory holding gains.

Our average revenue per invoice for 2009 was approximately $1,409 compared to $2,133 for
2008, reflecting smaller orders in tons and lower selling prices. In 2009, we handled
approximately 3,102 transactions per day compared to 3,437 per day for 2008, a drop of 10%.

REVENUES
$ billions

1.8

1.5

1.4

1.2

1.1

ADJUSTED
OPERATING PROFITS
$ millions

193

126

102

ADJUSTED
OPERATING PROFITS
AS A % OF REVENUE

10.5

8.4

7.1

5.2

1.6

RUSSEL METALS I 2010 ANNUAL REPORT

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

FOR THE YEAR ENDED DECEMBER 31, 2010

REVENUES
$ millions

1,071

677

614

704

624

ADJUSTED
OPERATING PROFITS
$ millions

146

ADJUSTED
OPERATING PROFITS
AS A % OF REVENUE

13.6

10.1

8.0

7.3

5.6

Operating expenses in 2009 were approximately $70 million, or 28% lower than those in 2008
after adjusting for the expenses of Norton Metals and the impact of the U.S. dollar exchange
rate on our operations located in the U.S. Staff reductions and pay cuts implemented in the first
quarter of 2009 as well as a significant reduction in bonuses and commissions based on 2009
weak results reduced expenses for 2009. In addition, freight costs declined with demand, and
other volume-sensitive plant expenses were reduced.

Metals service centers operating profits for 2009 of $17 million, excluding inventory write-
downs of $30 million, were $176 million lower than 2008. The decrease was due to the
dramatic decline in volumes and selling prices when compared to 2008, which had record
selling prices and inventory holding gains.

ENERGY TUBULAR PRODUCTS

a) Description of operations

These operations distribute oil country tubular goods (OCTG), line pipe, tubes, valves and
fittings, primarily to the energy industry in Western Canada and the United States. Our business
units are clustered in Alberta, Canada and Colorado in the U.S. A large portion of our inventories
are located in third party warehouses, ready for distribution to customers in any region of North
America. In addition, we operate from five Canadian and two U.S. facilities. We purchase our
products from the pipe processing arms of North American steel mills, independent
manufacturers of pipe and pipe accessories or international steel mills. Our energy tubular
products segment operates under the names Comco Pipe and Supply Company, Fedmet
Tubulars, Triumph Tubular & Supply, Pioneer Pipe and Spartan Steel.

b) Factors affecting results

The following is a general discussion of the factors affecting our energy tubular products
segment results. More specific information on how these factors impacted 2010, 2009 and
2008 is found in the sections that follow.

Pricing for natural gas and oil are factors that can impact rig count and drilling activities,
particularly in Western Canada. Rig activity affects demand for our products. The price of oil
increased during 2010, resulting in improved rig activity in the fall of 2010. Natural gas prices
are at low levels and thus drilling activity related to gas remains below historical levels,
particularly in Canada.

Pricing of metal is influenced by overall demand, trade sanctions and product availability. Trade
sanctions are initiated either by steel mills or by government agencies in North America. Both
Canadian and U.S. governments have imposed duties on certain Chinese pipe, which remain in
effect. These trade actions tend to reduce imports of these products as higher prices are paid
at the time of import.

Our Canadian operations were affected by the U.S. dollar exchange rate since some products
are sourced outside of Canada and are priced in U.S. dollars. Movement in the Canadian dollar
impacts the cost of inventory and cost of sales.

Drilling related to oil and natural gas in Western Canada usually peaks during the period from
October to March.

RUSSEL METALS I 201 0 ANNUAL REPORT

c) Energy tubular products segment results – 2010 compared to 2009

Revenues increased 13% for 2010 compared to 2009. Our operations that service line pipe and drilling customers had a revenue
increase of 47% in 2010 compared to 2009 due to volume increases partially offset by lower selling prices and lower foreign
exchange rates applicable to the revenue of our U.S. operations. Our operations servicing the oil sands had a revenue decline of
36% in 2010 compared to 2009 due to capital projects which were completed in 2009 and new projects being delayed through
2010 due to economic uncertainty.

Gross margin as a percentage of revenue for 2010 was 14.1% compared to 12.7% for 2009. Increased volumes as well as
reduced inventory costs in 2010 improved gross margins.

Operating expenses were $4 million higher in 2010 compared to 2009, mainly due to higher variable compensation and freight
costs due to increased volumes.

This segment generated operating profits of $51 million for 2010 compared to $35 million for 2009. Operating profits in 2010
were up significantly due to higher volumes and gross margins.

d) Energy tubular products segment results – 2009 compared to 2008

Revenues decreased 42% for 2009 compared to 2008. The decline was driven by lower demand, due to low natural gas pricing
impacting drilling activities, and lower steel prices in 2009. Capital spending related to the oil sands was also reduced due to
lower oil pricing.

Gross margin as a percentage of revenue for 2009, excluding inventory write-downs, was 12.7% compared to 22.4% for 2008.
The average cost of our inventory, excess pipe inventory in the industry and weak demand made the markets we service very
competitive, resulting in lower margins in 2009. Gross margins in 2008 were high due to demand and rising steel prices.

The variable cost structure in these operations resulted in a 53% reduction in operating expenses for 2009 compared to 2008.
Bonuses, commissions and delivery costs were all significantly reduced.

This segment had operating profits of $35 million for 2009, excluding inventory write-downs of $82 million. Operating profits were
down significantly due to lower volumes and selling prices. Volumes were impacted by lower drilling activity.

STEEL DISTRIBUTORS

a) Description of operations

Our steel distributors act as master distributors selling steel in large volumes to other steel service centers and equipment
manufacturers mainly on an “as is” basis. Our U.S. operation has a cut-to-length facility in Houston, Texas where it processes coil
for its customers. Our steel distributors source steel both domestically and offshore. The international sourcing provides our other
business segments with valuable insight regarding international pricing trends and their potential impact on steel markets in
North America.

The main steel products sourced by this segment are structural beam, plate, coils, pipe and tubing; however, product volumes
vary based on the economy and trade actions in North America. Our operations in this sector are Wirth Steel and Sunbelt Group.
Arrow Steel, a division of Sunbelt Group, processes coil.

b) Factors affecting results

The following is a general discussion of the factors affecting our steel distributors. More specific information on how these factors
impacted 2010, 2009 and 2008 is found in the sections that follow.

Steel pricing is influenced by overall demand, trade sanctions and product availability both domestically and worldwide. Trade
sanctions are initiated either by steel mills or government agencies in North America. Trade actions currently exist on plate and
pipe from specified countries. Mill capacity by product line in North America and international supply and demand impact steel
imports and significantly affect product availability.

RUSSEL METALS I 2010 ANNUAL REPORT

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

FOR THE YEAR ENDED DECEMBER 31, 2010

REVENUES
$ millions

559

451

436

Our Canadian operations source product outside of Canada that is priced in U.S. dollars. Movements
in the Canadian dollar can result in some products that we have purchased being subsequently
available at a lower cost. In addition, the change in the Canadian dollar in 2010 versus 2009
decreased revenues and profits for our U.S. operations translated to Canadian dollars.

245

248

Demand for steel that is sourced offshore fluctuates significantly and is mainly driven by price
and product availability in North America. Our steel distributors have a significant number of
customers who buy from them on a periodic basis, which can result in large fluctuations in
revenues reported from period to period.

c) Steel distributors segment results – 2010 compared to 2009

Revenues for 2010 were higher by 1% and, after adjusting for exchange rate changes, were 8%
higher than for 2009. Activity increased in mid-year 2010; however, it was still impacted by
uncertainty of steel prices and short lead times from North American mills, which tend to result
in our customers sourcing supply in North America only.

Gross margin as a percentage of revenues was 15.2% for 2010. Gross margin percentages are
similar to historical levels.

Operating expenses were $1 million higher for 2010 compared to 2009, mainly related to higher
variable compensation.

Operating profit for 2010 was $21 million, $3 million higher than 2009. The increase over
2009, excluding inventory write-downs, mainly related to higher volumes.

d) Steel distributors segment results – 2009 compared to 2008

Revenues decreased 46% in 2009 compared to 2008 mainly due to lower volumes and prices.
Our steel distributors were impacted by lower demand from their customers due to inventory
destocking. The products carried by this segment were impacted by significant price declines
resulting in inventory write-downs of $49 million in the first quarter of 2009. By the fourth quarter
of 2009 pricing had improved such that $3 million of the previous write-down was reversed.

Gross margin as a percentage of revenues, excluding inventory write-downs, was 13.7% for
2009, similar to levels experienced prior to 2008.

Operating expenses were 32% lower for 2009 compared to 2008, mainly related to lower
variable compensation.

Operating profit for 2009 was $18 million, excluding inventory write-downs, compared to operating
profit of $78 million for 2008. The decline mainly related to lower volumes and steel prices.

ADJUSTED
OPERATING PROFITS
$ millions

ADJUSTED
OPERATING PROFITS
AS A % OF REVENUE

17.2

13.7

9.0

8.4

7.4

RUSSEL METALS I 201 0 ANNUAL REPORT

CORPORATE EXPENSES – 2010 COMPARED TO 2009 AND 2008

Corporate expenses increased $2 million for 2010 compared to 2009. The increase mainly
related to accruals for increases in the value of deferred and restricted stock units,
compensation and higher fees related to our credit facility.

Corporate expenses decreased $8 million for 2009 compared to 2008. The decrease in
expenses was mainly related to lower bonus expense and decreased stock compensation.
This was offset by higher bank standby fees due to an increase in the bank facility in 2009.

OTHER – 2010 COMPARED TO 2009 AND 2008

Other revenues and income represents the results of our bulk commodities handling terminal in
Thunder Bay, Ontario. Revenues have increased due to higher volumes of metallurgical coal and
potash handled in 2010. Operating profits for 2009 were weaker than those recorded in 2008
due to lower volumes.

CONSOLIDATED RESULTS – 2010 COMPARED TO 2009 AND 2008

Operating profits from operations were $124 million for 2010, compared to $59 million in 2009
and $398 million in 2008. Our operating profits for 2010 reflect improved demand and rising
prices during the first half, which increased gross margins. Lower volumes and pricing in all
three segments reduced operating profits significantly for 2009 compared to 2008.

OTHER INCOME AND EXPENSE

During the first quarter of 2010, a more active market developed for the non-bank Canadian
asset-backed commercial paper we had held since August 2007. We sold our notes for
$6 million in April 2010 and recovered $1.5 million previously written off.

In November 2010, we gave notice of withdrawal from a multi-employer pension plan, which
our Russel Metals Williams Bahcall union employees had been members of for a number of
years. We have estimated our withdrawal liability to be $1 million.

During the second quarter of 2009, we sold a property in Saskatchewan for a gain of $4 million.
This branch built a larger facility in 2009.

IMPAIRMENT OF ASSETS

Due to significant volume and price declines in the U.S. service center industry in 2009 and
limited improvement in demand levels forecasted at the time of our review in the fourth quarter
of 2009, we recorded an impairment of asset values within the JMS Russel Metals group. The
impairment loss of $35 million was allocated between goodwill, intangibles and buildings.

TOTAL REVENUES
$ billions

3.4

2.7

2.6

2.2

2.0

ADJUSTED TOTAL
OPERATING PROFIT
$ millions

398

249

179

124

INTEREST EXPENSE
$ millions

RUSSEL METALS I 2010 ANNUAL REPORT

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

FOR THE YEAR ENDED DECEMBER 31, 2010

DIVIDENDS PER
COMMON SHARE
$ per share

1.80

1.60

1.00

1.10

INTEREST EXPENSE

Consolidated interest expense for 2010 increased by $7 million to $27 million compared to
2009. The increase in interest expense mainly related to interest on the convertible debentures
that we issued in October 2009, partially offset by decreased interest on our U.S. Senior Notes
due to lower foreign exchange and a higher return on cash deposits. The debt issue costs and
the accretion of equity related to the convertible debentures are recorded as part of interest
expense. See Cash, Debt and Credit Facilities.

INCOME TAXES

In 2010, we recorded a provision for income taxes of $26 million. Our income tax rate of 27% is
lower than our normalized effective income tax rate mainly due to the recognition of previously
unrecorded tax benefits. We estimate our normalized effective income tax rate to be 30% for 2011.

NET EARNINGS (LOSS)

Net earnings for 2010 were $70 million compared to a loss of $92 million for 2009. Basic
earnings per common share for 2010 were $1.17 compared to a loss of $1.54 per common
share in 2009.

SHARES OUTSTANDING AND DIVIDENDS

The weighted average number of common shares outstanding for 2010 was 59,717,629
compared to 59,696,743 for 2009. As at December 31, 2010 and February 17, 2011, we had
59,978,173 common shares outstanding.

We paid common share dividends of $60 million or $1.00 per share in 2010 and 2009.

Our U.S. Senior Notes indenture provides that any dividend payment in excess of $0.08 per
common share per quarter is considered a restricted payment. We currently have a basket of
approximately $248 million available for restricted payments. The basket is adjusted for 50% of
net earnings or losses on a quarterly basis unless accumulated losses since March 2004
exceed earnings, in which case 100% of losses are deducted. Share buybacks deplete the
basket and proceeds from shares issued increase the basket.

In June 2010, we extended our syndicated bank facility to mature in June 2012. The
amendment reduced fees and modified the fixed charge coverage ratio to exclude dividends
from the calculation. Our ability to pay dividends is subject to excess borrowing base availability
of not less than four times the declared dividend. We do not believe this requirement will restrict
our ability to pay a dividend as our borrowing base, which is based on percentages of accounts
receivable and inventories, has traditionally been in excess of borrowings plus four times the
current dividend.

COMMON SHARE PRICE
$ per share

26.70

25.45

22.90

19.00

17.73

DIVIDEND YIELD
%

7.1

6.0

5.6

5.3

4.8

RUSSEL METALS I 201 0 ANNUAL REPORT

EBITDA

The following table shows the reconciliation of net earnings (loss) to EBITDA and adjusted EBITDA:

(millions)

Net earnings (loss)

Provision for (recovery of) income taxes

Interest expense, net

Earnings (loss) before interest and income taxes (EBIT)

Inventory and plant closure reserves

Asset impairment

Adjusted EBIT

Depreciation and amortization

Earnings (loss) before interest, income taxes,

depreciation and amortization (EBITDA)

Adjusted EBITDA

2010

69.7

26.2

26.7

122.6

0.7

–

123.3

25.0

147.6

148.3

2009

(92.0)

(58.4)

20.2

(130.2)

158.7

35.4

63.9

25.7

(104.5)

89.6

We believe that EBITDA may be useful in assessing our operating performance and as an
indicator of our ability to service or incur indebtedness, make capital expenditures and finance
working capital requirements. The items excluded in determining EBITDA are significant in
assessing our operating results and liquidity. Therefore, EBITDA should not be considered in
isolation or as an alternative to cash from operating activities or other combined income or cash
flow data prepared in accordance with GAAP.

COMMON SHARES
OUTSTANDING
millions

ADJUSTED EBITDA
$ millions

416

270

197

148

RUSSEL METALS I 2010 ANNUAL REPORT

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

FOR THE YEAR ENDED DECEMBER 31, 2010

CAPITAL EXPENDITURES

Capital expenditures were $12 million for 2010 compared to $19 million for 2009. In 2009, we
spent $6 million to replace our Saskatoon facility with a larger facility. Depreciation expense was
$23 million in 2010 and $24 million in 2009.

Capital expenditures mainly relate to the replacement of capital items, the purchase of
additional processing equipment across a broad base of our operations and upgrades to our
existing facilities and computer systems. Our expectation is for capital expenditures to
approximate depreciation expense over the long-term.

LIQUIDITY

At December 31, 2010, we had cash of $324 million compared to $360 million at December 31,
2009. Our cash position decreased $36 million in the year. Dividend payments, termination of
our swaps and working capital increases were offset by cash generated from operations.

Our business experiences significant swings in working capital which impact cash flow. Inventory
and accounts receivable represent a large percentage of our total assets employed and vary
throughout each cycle. Accounts receivable and inventory comprise our largest liquidity risks.
Increased business activity in 2010 resulted in cash utilization of $86 million for increases in
accounts receivable and $35 million for increases in inventory. Total assets were $1.4 billion at
December 31, 2010 and 2009. Total assets excluding cash were $1.1 billion at December 31,
2010 and 2009. At December 31, 2010, current assets excluding cash represented 77% of our
total assets excluding cash, versus 74% at December 31, 2009.

Cash generated from operating activities was $81 million for 2010 compared to $291 million in
2009 as the balance sheet contracted in 2009 due to the decrease in activity. During 2010, we
had an $18 million decrease in cash for working capital requirements compared to a $336 million
increase in 2009. Use of cash for working capital needs as earnings recover is consistent with
our business model.

Cash consumed for inventory was $35 million in 2010, mainly related to an increase in average
price. Inventories represented 38% of our total assets at December 31, 2010 and 36% at
December 31, 2009.

INVENTORIES
$ millions

925

664

573

518

544

NET ASSETS EMPLOYED
$ millions

1,219

889

878

776

801

FREE CASH FLOW
$ millions

236

152

124

RUSSEL METALS I 201 0 ANNUAL REPORT

Inventory by Segment

(millions)

Metals service centers

Energy tubular products

Steel distributors

Total operations

Quarters Ended

Dec. 31
2010

Sept. 30
2010

June 30
2010

Mar. 31
2010

Dec. 31
2009

202

290

202

293

206

257

191

234

544

546

538

467

170

286

518

Inventory turns are calculated using our cost of sales dollars, for the quarter annualized, divided by our inventory dollars at the
end of the quarter.

Inventory Turns

Metals service centers

Energy tubular products

Steel distributors

Total operations

Quarters Ended

Dec. 31
2010

Sept. 30
2010

June 30
2010

Mar. 31
2010

Dec. 31
2009

4.8

2.3

4.0

3.4

4.9

2.2

5.2

3.5

4.7

1.7

2.7

3.0

4.5

2.9

4.1

3.7

4.4

1.9

2.6

2.8

Our metals service centers strive to turn their inventory at rates better than the industry. Based on information published by the
Metals Service Center Institute in its monthly Metals Activity Report, average inventory turns based on tons for the three months
ended December 31, 2010 for Canadian service centers were 4.5 turns and for U.S. service centers were 4.8.

Inventory turns for all segments have improved at the end of 2010 compared to the end of 2009, mainly related to increased
sales volumes.

As a result of higher revenues, accounts receivable consumed cash of $86 million during 2010. Accounts receivable represented
21% of our total assets at December 31, 2010 and 15% at December 31, 2009.

During 2010, we received income tax refunds, net of payments, of $37 million compared to payments of $35 million in 2009.

During 2010, we utilized cash of $12 million for capital expenditures, $60 million for common share dividends, $35 million to
terminate our fixed interest cross currency swaps and $9 million for repayment of long-term debt. During 2009, we utilized cash
of $19 million for capital expenditures and $60 million for common share dividends. In 2010, we received proceeds from the sale
of property, plant and equipment of $1.5 million and $6 million from the sale of our asset-backed commercial paper. In 2009, we
issued convertible debentures for net proceeds of $167 million and sold property, plant and equipment for proceeds of $6 million.

RUSSEL METALS I 2010 ANNUAL REPORT

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

FOR THE YEAR ENDED DECEMBER 31, 2010

INTEREST BEARING
DEBT
$ millions

342

327

219

204

176

SHAREHOLDERS’
EQUITY
$ millions

980

895

884

793

798

The balances disclosed in our consolidated cash flow statements are adjusted to remove the
non-cash component related to foreign exchange rate fluctuations impacting inventory, accounts
receivable, accounts payable and income tax balances of our U.S. operations.

FREE CASH FLOW

(millions)

2010

Cash from (used in) operating activities before working capital

98.7

Purchase of fixed assets

Non-cash inventory write-down (reversal)

(11.8)

86.9

(1.9)

85.0

2009

(44.4)

(18.6)

(63.0)

158.7

95.7

Free cash flow may be useful in assessing our ability to pay dividends, reduce outstanding debt
and fund working capital growth. Free cash flow has been adjusted to remove non-cash inventory
write-downs from operating activities. Free cash flow is a non-GAAP measure regularly used by
investors and analysts to evaluate companies.

CASH, DEBT AND CREDIT FACILITIES
Debt

(millions)

Long-term debt

Dec. 31, 2010

Dec. 31, 2009

6.375% US$167 million Senior Notes due March 1, 2014

(2009: US$175 million)

164

7.75% $175 million convertible debentures

due September 30, 2016

Capital leases

Arkansas development bonds, maturing 2014 to 2017

Current portion

158

327

(1)

326

180

156

342

(1)

341

We repurchased US$8 million of our Senior Notes in 2010.

Our $175 million convertible debentures consist of a debt and equity component. The equity
portion of $12 million represents the valuation at time of issue of the holders’ option to convert
the convertible debentures into common shares. The equity portion and debt issue costs are
amortized to income and included in interest expense.

DEBT TO
CAPITALIZATION
%

RUSSEL METALS I 201 0 ANNUAL REPORT

Cash and Bank Credit Facilities

As at December 31, 2010 (millions)

Bank loans

Cash net of outstanding cheques

Net cash

Letters of credit

Facilities

Borrowings and letters of credit

Letters of credit

Facilities availability

Available line based on borrowing base

Russel Metals U.S. Subsidiary
Facility

Facility

–

295

(14)

281

202

252

–

(13)

Total

–

324

(27)

297

222

297

As at December 31, 2010, we had a facility with a syndicate of Canadian and U.S. banks
totaling $252 million. The facility consists of availability of $202 million to be utilized for
borrowings and letters of credit and $50 million to be utilized only for letters of credit. Letters
of credit are issued under the $50 million line first and additional needs are issued under the
$202 million line. On June 24, 2010, the facility was amended to reduce interest and standby
charges, to remove the inclusion of dividends in the fixed charge coverage ratio and to extend
the facility to June 24, 2012. We may extend this facility an additional year annually with the
consent of the syndicate. The borrowings and letters of credit are available on a revolving basis,
up to an amount equal to the sum of specified percentages of our eligible accounts receivable
and inventories, to a maximum of $252 million. As of December 31, 2010, we were entitled to
borrow or issue letters of credit totaling $252 million under this facility. At December 31, 2010
and 2009, we had no borrowings. At December 31, 2010, we had letters of credit of $14 million
compared to $3 million at December 31, 2009.

In addition, a U.S. subsidiary has its own one-year bank credit facility which was renewed for
one year in July 2010. The maximum borrowings including letters of credit under this facility are
US$45 million. At December 31, 2010, this subsidiary had no borrowings and had letters of
credit of US$13 million. At December 31, 2009, this subsidiary had no borrowings and had
letters of credit of US$5 million.

Based on cash, cash equivalents and our bank facilities, we have access to approximately
$546 million of cash availability based on our December 31, 2010 balances. The use of our
bank facilities has been predominantly to fund working capital requirements; however, they are
available to make acquisitions. These lines will be used to support increases in working
capital when volumes and steel prices increase.

CONTRACTUAL OBLIGATIONS

As at December 31, 2010, we were contractually obligated to make payments under our
long-term debt agreements and capital and operating leases that come due in the future.
See Note 15 to the financial statements for future obligations by year.

We have disclosed our obligations related to environmental litigations, regulatory actions and
remediation in our Annual Information Form. The obligations are not material and relate to
previously divested or discontinued non-metals operations.

BOOK VALUE
PER COMMON SHARE
$ per share

16.42

14.34

14.01

13.29

13.31

MARKET CAPITALIZATION
$ millions

1.7

1.6

1.4

1.1

MARKET CAPITALIZATION
TO BOOK VALUE
times

1.86

1.82

1.72

1.33

1.16

RUSSEL METALS I 2010 ANNUAL REPORT

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

FOR THE YEAR ENDED DECEMBER 31, 2010

OFF-BALANCE SHEET ARRANGEMENTS

Our off-balance sheet arrangements consist of the letters of credit disclosed in the bank credit facilities table and operating lease
obligations disclosed in the financial instruments note to the financial statements.

We have multiple defined benefit pension plans in Canada, as disclosed in Note 17 of our 2010 annual consolidated financial
statements. During 2010, we contributed $4 million to these plans. We expect to contribute approximately $4 million to these
plans during 2011.

ACCOUNTING AND REPORTING CHANGES

We adopted the International Financial Reporting Standards (IFRS) effective January 1, 2011, which required us to restate our
January 1, 2010 IFRS balance sheet and include 2010 comparative IFRS financial statements with our 2011 financial statements.
We established a team of our unit controllers who assessed the changes required and the effect of high impact standards on their
units. Our team of financial analysts assessed the impact of those standards on a consolidated basis and assessed standards
related to corporate and finance matters. We have completed our review of differences between Canadian GAAP and IFRS that
affect our financial statements and have prepared quantitative analysis and disclosures subject to the completion of certain
outstanding items. We have summarized the differences below.

We believe that the impact of IFRS changes on our 2011 results of operations or financial position will not be material. The fair
value accounting relating to our convertible debentures would have been material; however, on December 14, 2010, we obtained
approval to amend the terms of our Trust Indenture governing our convertible debentures. This amendment removes the
requirement to mark to market an embedded derivative in the convertible debentures for 2011 (see item g).

IFRS 1, First Time Adoption – All policy decisions with respect to applicable IFRS 1 choices were reviewed, documented and
approved by senior management. Transition to IFRS disclosure, including quantitative analysis, has been prepared subject to
the completion of certain outstanding items. Applicable IFRS 1 exemptions are listed below:

IFRS exemption options

ii)

Business Combinations – IFRS 1 provides the option to apply IFRS 3, Business Combinations, retrospectively or
prospectively from the Transition Date. The Company elected to prospectively apply IFRS 3 to business combinations
and as such, business combinations have not been restated. Any goodwill arising on such business combinations before
the Transition Date has not been adjusted from the carrying value previously determined under Canadian GAAP.

Employee Benefits – IFRS 1 provides the option to retrospectively apply the provisions of IAS 19, Employee Benefits, for
the recognition of actuarial gains and losses, or to recognize all cumulative actuarial gains and losses deferred under
Canadian GAAP in opening retained earnings at the Transition Date. The Company elected to recognize all cumulative
actuarial gains and losses that existed at its Transition Date in opening retained earnings.

iii) Currency Translation Differences – The cumulative translation adjustment is a component of accumulated other

comprehensive income. Retrospective application of IFRS would require the Company to determine cumulative currency
translation differences in accordance with IAS 21, The Effects of Changes in Foreign Exchange Rates, from the date a
subsidiary was acquired. IFRS 1 permits cumulative translation gains and losses to be reset to zero at Transition Date.
The Company elected to reset all cumulative translation gains and losses to zero and charge $24 million to opening
retained earnings.

iv) Revaluation of Property, Plant and Equipment – IFRS 1 provides an option to revalue individual items of property, plant

and equipment to fair value at the Transition Date. Fair value would then become the deemed cost for the purpose of
depreciation and amortization. The Company elected not to apply this exemption and continues to measure property,
plant and equipment at historical cost.

Borrowing Costs – IAS 23, Borrowing Costs, requires an entity to capitalize borrowing costs that are directly attributable
to the acquisition, construction, or production of certain assets as part of the cost of that asset. The Company utilized
the IFRS 1 exemption and elected not to apply this policy to pre-transition borrowing costs and, therefore, borrowing
costs prior to January 1, 2010 have been expensed.

RUSSEL METALS I 201 0 ANNUAL REPORT

IAS 1, Presentation of Financial Statements – IAS 1 presentation requirements have been reviewed and conversion items
identified. Disclosures have been prepared and reviewed by management.

IFRS 2, Share Based Payments – The graded vesting provisions of IFRS 2 result in a charge to opening retained earnings of
approximately $2 million upon transition to IFRS and a reduction in stock-based compensation expense for 2010 to 2013 for
those awards issued prior to transition. In addition, cash-settled share-based awards such as restricted share units will be
measured using a fair value model and will be subject to the graded vesting recognition.

IAS 12, Income Taxes – A review of IAS 12 has been completed and a gap analysis documented and approved by senior
management. Transitional entries have been prepared and reviewed.

IAS 16, Fixed Assets – Under IFRS, where part of an item of property, plant and equipment is considered a component, it
must be depreciated separately if it has a cost that is significant to the item as a whole and a significantly different useful
life. We have completed the componentization of property, plant and equipment as required by the standard and created
separate sub-ledgers for the dual reporting of 2010. The transitional adjustments to IFRS have been quantified and result
in a pre-tax charge to opening retained earnings of approximately $5 million.

IAS 19, Employee Benefits – We have elected to recognize unamortized actuarial gains and losses of approximately
$22 million as a pre-tax charge to retained earnings on transition. In addition, we have determined that we have a
constructive obligation of approximately $2 million relating to one of our pension plans. Subsequent to transition,
actuarial gains and losses will be recognized directly to other comprehensive income.

IAS 32, IAS 39, IFRS 7, Financial Instruments – The conversion feature in our convertible debentures that allowed us to
settle the conversion of the debenture in cash or in a combination of cash and common shares in lieu of common shares
prior to maturity was a derivative. This derivative was classified as a financial liability and was recorded at fair value on
transition to IFRS resulting in a pre-tax charge to opening retained earnings of approximately $3 million. On December 14,
2010, we amended the terms of our convertible debentures to eliminate this cash conversion option prior to maturity. This
amendment removed the volatility due to this item for 2011. Our 2010 IFRS comparative financial pre-tax income in our 2010
quarterly financial statements would be a decrease of $6.9 million in the first quarter, an increase of $5.8 million in the
second quarter, a decrease of $8.2 million in the third quarter and a decrease of $1.8 million in the fourth quarter.

IAS 36, Impairment of Assets – Under IFRS the assessment for impairment is performed at the cash generating unit level.
We have identified our cash generating units under IFRS and have finalized our evaluation of impairment upon transition,
subject to management review and audit.

IAS 37, Provisions, Contingent Liabilities and Contingent Assets – IFRS requires an evaluation of legal and constructive
obligations arising out of liabilities. Under IFRS we have a constructive obligation related to a historical environmental
cleanup which results in a pre-tax charge to retained earnings of approximately $3 million.

RUSSEL METALS I 2010 ANNUAL REPORT

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

FOR THE YEAR ENDED DECEMBER 31, 2010

The following tables summarize our progress to date against the key elements of our transition plan:

a) Financial Statement Presentation

Key Activity

Progress to Date

Assessment of Canadian GAAP to IFRS
differences applicable to us.

All applicable significant differences have been assessed
and a qualitative analysis has been performed.

Selection of accounting policy choices under
IFRS 1: First Time Adoption and the entity’s
continuing IFRS accounting policies.

All IFRS 1 accounting policy decisions have been made
and documented. Draft accounting policy notes have been
prepared for our 2011 reporting.

Financial statement format.

Decisions with respect to financial statement
presentation have been made and draft financial
statements prepared.

Timetable

Completed

Changes to note disclosures.

Draft notes to our 2011 financial statements have been
prepared and will be revised as required.

Continuing ongoing
process

Preparation of opening balance sheet.

We have drafted our January 1, 2010 balance sheet;
however, certain quantitative analysis requires additional
input and review and has not been finalized; therefore,
our opening balance sheet will be finalized with our 2011
first quarter statements.

Continuing ongoing
process

b) Training and Communication

Key Activity

Progress to Date

Key finance staff are provided with
adequate training and are knowledgeable
of applicable IFRS standards.

Education of senior management team
and Board of Directors.

Our conversion team leaders continue to attend various
IFRS update and training courses. IFRS standard
requirements have been communicated to other
finance staff.

Training on IFRS and Canadian GAAP differences was
provided to our Board of Directors and our operating unit
management by our IFRS conversion team. Quarterly
updates on the conversion process were provided to our
Audit Committee and senior management.

Timetable

Continuing ongoing
process

c) Information Technology

Key Activity

Progress to Date

Identify and assess IFRS differences that
impact IT systems.

IT implications were assessed with respect to additional
information required under IFRS.

Creation of additional ledgers in IT system
for dual reporting requirements for 2010.

Multiple year sub-ledgers were created, populated and
balanced.

d) Internal Controls Over Financial Reporting and Disclosure Controls & Procedures

Key Activity

Progress to Date

Assess changes required to internal
controls as a result of IFRS requirements.

As the processes have not changed significantly, no
significant changes to internal controls have been
identified except for an additional level of review by IFRS
team leaders.

Timetable

Completed

Timetable

Completed

RUSSEL METALS I 201 0 ANNUAL REPORT

ACCOUNTING ESTIMATES

The preparation of our financial statements requires management to make estimates and judgements that affect the reported
amounts. On an ongoing basis, we evaluate our estimates, including those related to bad debts, inventory net realizable value and
obsolescence, useful lives of fixed assets, asset retirement obligations, fair values, income taxes, pension and benefit
obligations, component allocation of convertible debentures, guarantees, environmental obligations, contingencies, litigation and
assigned values on net assets acquired. We base our estimates on historical experience and on various other assumptions that
we believe are reasonable under the circumstances, the results of which form the basis for making judgements about the carrying
values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates.

Our most significant assets are accounts receivable and inventories.

Accounts Receivable

We maintain an allowance for doubtful accounts for estimated losses resulting from the inability of our customers to make
required payments. Assessments are based on aging of receivables, legal issues (bankruptcy status), past collection experience,
current financials or credit agency reports and the experience of our credit personnel. Accounts receivable which we determine to
be uncollectible are reserved in the period in which the determination is made. If the financial condition of our customers was to
deteriorate, resulting in an impairment of their ability to make payments, additional allowances may be required. Our reserve for
bad debts at December 31, 2010 approximates our reserve at December 31, 2009; however, our accounts receivable balance is
significantly higher. Bad debt expense for 2010 as a percentage of revenue approximates that of 2009.

Inventories

We review our inventory to ensure that the cost of inventory is not in excess of its estimated net realizable value and for obsolete
and slow moving product. Inventory reserves or write-downs are recorded when cost exceeds the estimated selling price less cost
to sell and when product is determined to be slow moving or obsolete. The inventory reserve level at December 31, 2010
decreased compared to the level at December 31, 2009 mainly due to the sale of inventory that was written down. During 2010,
we decreased cost of sales by $1.9 million related to inventory write-down reversals.

Other areas involving significant estimates and judgements include:

Income Taxes

We believe that we have adequately provided for income taxes based on all of the information that is currently available. The
calculation of income taxes in many cases requires significant judgement in interpreting tax rules and regulations, which are
constantly changing. Our tax filings are also subject to audits, which could materially change the amount of current and future
income tax assets and liabilities. Any change would be recorded as a charge or reduction in income tax expense.

Employee Benefit Plans

We perform a valuation, at least every three years, for each defined benefit pension plan to determine the actuarial present value
of the accrued pension benefits. The valuation uses management’s assumptions for the discount rate, expected long-term rate of
return on plan assets, rate of compensation increase, health care cost trend and expected average remaining years of service
of employees.

While we believe that these assumptions are reasonable, differences in actual results or changes in assumptions could materially
affect employee benefit obligations and future net benefit plan costs. We account for differences between actual and assumed
results by recognizing differences in benefit obligations and plan performance over the working lives of the employees who benefit
from the plans.

We had approximately $87 million in plan assets at December 31, 2010, which is an increase of approximately $7 million from
December 31, 2009. Accrued benefit obligations were $97 million at December 31, 2010 and $98 million at December 31, 2009.

RUSSEL METAL S I 2010 ANNUAL REPORT

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

FOR THE YEAR ENDED DECEMBER 31, 2010

CONTROLS AND PROCEDURES

Disclosure controls and procedures are designed to provide reasonable assurance that all relevant information is gathered and
reported to senior management on a timely basis so that appropriate decisions can be made regarding public disclosure.

The purpose of internal controls over financial reporting as defined by the Canadian Securities Administrators is to provide
reasonable assurance that:

ii)

iii)

financial statements prepared for external purposes are in accordance with the Company’s generally accepted accounting
principles,

transactions are recorded as necessary to permit the preparation of financial statements, and records are maintained in
reasonable detail,

receipts and expenditures of the Company are made only in accordance with authorizations of the Company’s management
and directors, and

iv) unauthorized acquisitions, uses or dispositions of the Company’s assets that could have a material effect on the financial

statements will be prevented or detected in order to prevent material error in financial statements.

The President and Chief Executive Officer, and the Vice President and Chief Financial Officer have caused management and other
employees to design, document and evaluate our disclosure controls and procedures and our internal controls over financial
reporting. An evaluation of the design and operating effectiveness of the disclosure controls and internal controls over financial
reporting was conducted as at December 31, 2010. The design and evaluation of internal controls was completed using the
framework and criteria established in “Internal Control – Integrated Framework” issued by the Committee of Sponsoring
Organizations of the Treadway Commission. Based on the evaluation, we have concluded that our disclosure controls and
procedures and our internal controls over financial reporting were effective to provide reasonable assurance that information
related to our consolidated results and decisions to be made based on those results were appropriate.

VISION AND STRATEGY

The metals distribution business is a segment of a mature, cyclical industry. The use of service centers and steel distributors by
both manufacturers and end users of steel continues to grow. This is evidenced by the growth in the percentage of total steel
shipments from steel producers to service centers. As the distribution segment’s share of steel industry shipments continues to
grow, service centers such as ours can grow their business over the course of a cycle.

We strive to deal with the cyclical nature of the business by operating with the lowest possible net assets throughout the course
of a cycle. In order to achieve this, management emphasizes profitability rather than revenue growth. This intensive asset
management reduces borrowings and therefore interest expense in declining periods in the economic cycle. This in turn creates
higher, more stable returns on net assets over the course of the cycle. Our conservative management approach creates relatively
stronger trough earnings but could cause potential peak earnings to be somewhat muted. Management strongly believes that it is
more prudent to be profitable throughout a cycle, without the spikes in earnings caused by less emphasis on asset management,
and have average earnings over the full range of the cycle in the top deciles of the industry.

Growth from selective acquisitions is also a core strategy. We focus on investment opportunities in businesses that have strong
market niches or provide mass to our existing operations. We believe that our acquisition of Norton Metal Products, Inc. in
November 2008 added to our platform for growth in the Southeastern and Midwestern regions of the United States. We believe
2011 should provide opportunities for acquisitions.

In both the energy tubular products and steel distributors segments, all of the business units have significant operations in the
market niche that they service. Consistent with our acquisition philosophy, any new acquisitions in these areas would likely be
either major stand-alone operations or those that complement our existing operations.

RUSSEL METALS I 201 0 ANNUAL REPORT

In the future, we believe that the length of the steel-based economic cycle will continue to shorten, and a management structure
and philosophy that allows the fastest reaction to changes that affect the industry will be the most successful. We will continue to
invest in business systems to enable faster reaction times to changing business conditions. In addition, management believes
that the high level of service and flexibility provided by service centers will enable this distribution channel to capture an
increasing percentage of total steel revenues to end users, allowing for increased growth within the sector.

RISK

The timing and extent of future price changes from steel producers and their impact on us cannot be predicted with any certainty
due to the inherent cyclical nature of the steel industry. Demand for our products is at approximately 80% of pre-2009 levels and
we cannot predict when or if it will return to pre-2009 levels. Our Annual Information Form includes a summary of risks.

FOURTH QUARTER RESULTS

The following table provides operating profit before interest, taxes, and other income or expense. The corporate expenses included
are not allocated to specific operating segments. Gross margins (revenue minus cost of sales) as a percentage of revenues for
the operating segments are also shown below. The table shows the segments as they are reported to management, and they are
consistent with the segment reporting in the consolidated financial statements.

(millions, except percentages)

Segment Revenues

Metals service centers

Energy tubular products

Steel distributors

Other

Segment Operating Profits Excluding Inventory Write-down

Metals service centers

Energy tubular products

Steel distributors

Corporate expenses

Other

Operating profits

Segment Gross Margin as a % of Revenues Excluding Inventory Write-down

Metals service centers

Energy tubular products

Steel distributors

Total operations

Segment Operating Profits as a % of Revenues Excluding Inventory Write-down

Metals service centers

Energy tubular products

Steel distributors

Total operations

Quarters Ended December 31,

2010 Change
2009 as a % of 2009

29%

31%

30%

93%

1,086%

100%

(8%)

309%

235.9

147.3

46.7

2.8

432.7

6.7

1.4

2.4

(3.8)

1.1

7.8

21.0%

7.1%

13.3%

15.9%

2.8%

1.0%

5.1%

1.8%

2010

304.3

193.1

61.1

3.0

561.5

12.9

16.6

4.8

(4.1)

1.7

31.9

20.0%

15.3%

14.9%

18.3%

4.2%

8.6%

7.9%

5.7%

RUSSEL METALS I 2010 ANNUAL REPORT

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

FOR THE YEAR ENDED DECEMBER 31, 2010

Fourth quarter results for 2010 were strong compared to third quarter 2010. Our earnings per share for the fourth quarter of
2010 were $0.30. The seasonal pickup in our energy tubular products segment, resulted in higher volumes and gross margins,
contributed to our strong results. Tons shipped in the fourth quarter of 2010 for metals service centers were approximately 1%
higher than for the third quarter of 2010, although gross margins were 1% lower due to softening of prices early in the quarter.
Earnings in the fourth quarter of 2010 were negatively impacted by a $1 million charge related to our withdrawal from a multi-
employer pension plan and were favourably impacted by the recognition of previously unrecorded capital losses.

OUTLOOK

The first quarter of 2011 has continued the positive momentum we exited 2010 with, and we see improved results for the first
half of 2011. It is too early to tell whether demand improvements will continue or level off, which will impact steel pricing, thus we
remain cautious beyond the first half of 2011.

February 17, 2011

RUSSEL METALS I 201 0 ANNUAL REPORT

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 Audit Committee and the Board of Directors of the Company.

These 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 statements.

To assist management in the discharge of these responsibilities, the Company has developed, documented and maintained
a system of internal controls in order 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 in
accordance with Canadian generally accepted accounting principles. In addition, the Company has developed and maintained
a system of disclosure controls in order to provide reasonable assurance that the financial information is relevant, reliable and
accurate. The Company has evaluated its internal and disclosure controls for the year ended December 31, 2010, and has
concluded that they are effective.

The Company’s Audit Committee is appointed annually by the Board of Directors. The Audit Committee, which is composed
entirely of outside directors, meets with management to satisfy itself that management is properly discharging its financial
reporting responsibilities and to review the consolidated financial statements, the management’s discussion and analysis and
the report to shareholders. The Audit Committee reports its findings to the Board of Directors for consideration in approving
the consolidated financial statements and the management’s discussion and analysis for presentation to the shareholders.

The consolidated financial statements have been audited on behalf of the shareholders by the external auditors, Deloitte &
Touche LLP, in accordance with Canadian generally accepted auditing standards. Deloitte & Touche LLP has full and free access
to the Audit Committee.

February 17, 2011

B. R. Hedges
President and
Chief Executive Officer

M. E. Britton
Vice President and
Chief Financial Officer

RUSSEL METALS I 2010 ANNUAL REPORT

INDEPENDENT AUDITOR’S REPORT

To the Shareholders of Russel Metals Inc.

We have audited the accompanying consolidated financial statements of Russel Metals Inc., which comprise the consolidated
balance sheets as at December 31, 2010 and December 31, 2009, and the consolidated statements of earnings (loss), retained
earnings, comprehensive income (loss), accumulated other comprehensive income (loss) and cash flows for the years then ended,
and a summary of significant accounting policies and other explanatory information.

MANAGEMENT’S RESPONSIBILITY FOR THE CONSOLIDATED FINANCIAL STATEMENTS

Management is responsible for the preparation and fair presentation of these consolidated financial statements in accordance with
Canadian generally accepted accounting principles, and for such internal control as management determines is necessary to enable
the preparation of consolidated financial statements that are free from material misstatement, whether due to fraud or error.

AUDITOR’S RESPONSIBILITY

Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our
audits in accordance with Canadian generally accepted auditing standards. Those standards require that we comply with ethical
requirements and plan and perform the audit to obtain reasonable assurance about whether the consolidated financial
statements are free from material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated financial
statements. The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material
misstatement of the consolidated financial statements, whether due to fraud or error. In making those risk assessments, the
auditor considers internal control relevant to the entity’s preparation and fair presentation of the consolidated financial
statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing
an opinion on the effectiveness of the entity’s internal control. An audit also includes evaluating the appropriateness of
accounting policies used and the reasonableness of accounting estimates made by management, as well as evaluating the overall
presentation of the consolidated financial statements.

We believe that the audit evidence we have obtained in our audits is sufficient and appropriate to provide a basis for our audit opinion.

OPINION

In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of Russel Metals
Inc. as at December 31, 2010 and December 31, 2009, and the results of its operations and its cash flows for the years then
ended in accordance with Canadian generally accepted accounting principles.

Deloitte & Touche LLP
Chartered Accountants
Licensed Public Accountants

February 17, 2011
Toronto, Ontario

RUSSEL METALS I 201 0 ANNUAL REPORT

CONSOLIDATED BALANCE SHEETS

At December 31 (millions)

ASSETS

Current

Cash and cash equivalents

Accounts receivable

Inventories (Note 5)

Prepaid expenses and other assets

Income taxes

Property, Plant and Equipment (Note 6)

Future Income Tax Assets (Note 12)

Pensions and Benefits (Note 17)

Other Assets (Note 7)

Goodwill and Intangibles (Note 4)

LIABILITIES AND SHAREHOLDERS’ EQUITY

Current

Accounts payable and accrued liabilities

Income taxes payable

Current portion long-term debt (Note 9)

Derivatives (Note 9)

Long-Term Debt (Note 9)

Pensions and Benefits (Note 17)

Future Income Tax Liabilities (Note 12)

Shareholders’ Equity (Note 13)

Common shares

Retained earnings

Contributed surplus

Accumulated other comprehensive income (loss)

Equity component of convertible debenture (Note 9)

On behalf of the Board,

2010

2009

323.7

301.4

544.1

3.0

4.8

1,177.0

215.7

3.8

9.9

3.8

26.9

359.6

217.8

517.9

4.9

53.0

1,153.2

231.9

5.9

8.0

8.3

28.4

1,437.1

1,435.7

281.3

252.3

15.4

1.2

297.9

–

325.5

5.9

9.7

639.0

483.7

325.3

12.5

(35.0)

11.6

798.1

1.4

1.3

255.0

30.9

340.8

5.9

9.9

642.5

478.9

315.3

11.4

(24.0)

11.6

793.2

1,437.1

1,435.7

A. Benedetti
Director

L. Lachapelle
Director

The accompanying notes are an integral part of these consolidated financial statements.

RUSSEL METALS I 2010 ANNUAL REPORT

CONSOLIDATED STATEMENTS OF EARNINGS (LOSS)

For the years ended December 31 (millions, except per share data)

Revenues

Cost of sales

Gross margin

Operating expenses

Earnings (loss) before the following

Other income (expense) (Note 10)

Impairment of goodwill and intangibles (Note 4)

Impairment of property, plant and equipment (Note 6)

Interest expense, net (Note 11)

Earnings (loss) before income taxes

(Provision for) recovery of income taxes (Note 12)

Net earnings (loss)

Basic earnings (loss) per common share

Diluted earnings (loss) per common share

CONSOLIDATED STATEMENTS OF RETAINED EARNINGS

For the years ended December 31 (millions)

Retained earnings, beginning of the year

Net earnings (loss) for the year

Dividends on common shares

Retained earnings, end of the year

The accompanying notes are an integral part of these consolidated financial statements.

RUSSEL METALS I 201 0 ANNUAL REPORT

2010

2,175.4

1,764.9

2009

1,971.8

1,807.6

410.5

287.0

123.5

(0.9)

–

(26.7)

95.9

(26.2)

69.7

1.17

1.16

164.2

264.3

(100.1)

5.3

(33.8)

(1.6)

(20.2)

(150.4)

58.4

(92.0)

(1.54)

2010

315.3

69.7

(59.7)

2009

467.0

(92.0)

(59.7)

325.3

315.3

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

For the years ended December 31 (millions)

Net earnings (loss)

Other comprehensive income (loss) (Note 14)

Unrealized foreign exchange gains (losses) on translation of self-sustaining U.S. operations

Reclassification adjustment for realized foreign exchange gain included in net income

Unrealized gains (losses) on items designated as net investment hedges

Unrealized gains (losses) on items designated as cash flow hedges

Gains (losses) on derivatives designated as cash flow hedges

transferred to net income in the current period

Other comprehensive income (loss)

Comprehensive income (loss)

2010

69.7

(17.5)

0.1

8.8

(2.5)

0.1

(11.0)

2009

(92.0)

(67.4)

0.5

9.5

(12.1)

15.2

(54.3)

58.7

(146.3)

CONSOLIDATED STATEMENTS OF ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)

For the years ended December 31 (millions)

Accumulated net unrealized foreign currency translation gains and losses

2010

2009

Balance, beginning of year

(30.0) $

Unrealized foreign exchange gains (losses) on translation of self-sustaining U.S. operations

Reclassification adjustment for realized foreign exchange gain included in net income

Balance, end of the year

Accumulated net unrealized gain (loss) on cash flow and net investment hedges

Balance, beginning of year

Transitional adjustment (net of income tax of $2.0) (Note 2)

Unrealized gains (losses) on items designated as net investment hedges

Unrealized gains (losses) on items designated as cash flow hedges

Gains (losses) on derivatives designated as cash flow hedges

transferred to net income in the current period

Balance, end of the year

(17.5)

0.1

(47.4)

6.0

–

8.8

(2.5)

0.1

12.4

36.9

(67.4)

0.5

(30.0)

(12.0)

5.4

9.5

(12.1)

15.2

6.0

Accumulated other comprehensive income (loss)

(35.0) $

(24.0)

The accompanying notes are an integral part of these consolidated financial statements.

RUSSEL METALS I 2010 ANNUAL REPORT

CONSOLIDATED STATEMENTS OF CASH FLOW

For the years ended December 31 (millions)

Operating activities

Net earnings (loss) for the year

Depreciation and amortization

Future income taxes

Loss (gain) on sale of property, plant and equipment

Stock-based compensation

Difference between pension expense and amount funded

Asset impairment

Debt accretion, amortization and other

Cash from (used in) operating activities before non-cash working capital

Changes in non-cash working capital items

Accounts receivable

Inventories

Accounts payable and accrued liabilities

Current income taxes

Other

Change in non-cash working capital

Cash from operating activities

Financing activities

Decrease in bank borrowing

Issue of common shares (Note 13)

Swap termination

Issuance of long-term debt

Dividends on common shares

Repayment of long-term debt

Deferred financing

Cash (used in) from financing activities

Investing activities

Purchase of property, plant and equipment

Proceeds on sale of property, plant and equipment

Proceeds on sale of investment

Other

Cash used in investing activities

Effect of exchange rate changes on cash and cash equivalents

(Decrease) increase in cash and cash equivalents

Cash and cash equivalents, beginning of the year

Cash and cash equivalents, end of the year

The accompanying notes are an integral part of these consolidated financial statements.

RUSSEL METALS I 201 0 ANNUAL REPORT

2010

2009

69.7

25.0

0.6

0.7

1.9

(1.9)

–

2.7

98.7

(86.3)

(34.8)

31.8

69.2

2.1

(18.0)

80.7

–

4.0

(35.2)

–

(59.7)

(9.2)

(0.7)

(100.8)

(11.8)

1.5

6.0

(0.5)

(4.8)

(11.0)

(35.9)

359.6

323.7

(92.0)

25.7

(10.1)

(4.3)

2.1

(1.4)

35.4

0.2

(44.4)

200.1

356.5

(156.7)

(67.6)

3.2

335.5

291.1

(64.9)

–

167.1

(59.7)

(1.5)

(2.5)

38.5

(18.6)

5.6

–

(13.0)

(1.9)

314.7

44.9

359.6

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

a) Basis of presentation

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

These consolidated financial statements have been prepared in accordance with Canadian generally accepted accounting
principles.

b) Cash and cash equivalents

Cash and cash equivalents includes demand deposits, bank term deposits, and investment grade short-term investments with
a maturity of less than three months at time of purchase. At December 31, 2010, short-term investments were $149.8 million
(2009: $110.0 million) and cash on deposit in bank accounts including demand deposits, net of outstanding cheques, was
$173.9 million (2009: $249.6 million). Cash and cash equivalents are designated as held-for-trading and are carried at fair value.

c) Inventories

Inventories are recorded at the lower of cost and net realizable value. Cost is determined on an average cost basis. Net realizable
value is the estimated selling price in the ordinary course of business less the estimated costs necessary to make the sale.
Inventories are written down to net realizable value when the cost of inventories is estimated to be not recoverable due to
declining selling prices. When circumstances that previously caused inventories to be written down below cost no longer exist,
the amount of the write-down previously recorded is reversed.

d) Property, plant, equipment and depreciation

Property, plant, equipment and leasehold improvements are recorded at cost. Depreciation is provided on a straight-line basis
at rates that charge the original cost of such assets to operations over their estimated useful lives. These are 20 to 40 years
for buildings, primarily 10 to 25 years for machinery and equipment and over the lease term for leasehold improvements.
Depreciation expense was $23.1 million in 2010 (2009: $24.1 million).

e) Deferred financing charges and amortization

Eligible costs incurred relating to bank financing are deferred and amortized on a straight-line basis over the period of the related
financing. Deferred financing charges are recorded at cost less accumulated amortization. Amortization of deferred financing
charges was $1.3 million in 2010 (2009: $0.8 million). Eligible costs related to long-term debt financing and costs related to
issuance of convertible debentures are capitalized to the carrying amount of the associated debt and amortized using the
effective interest method.

f) Goodwill and intangibles

Goodwill represents the excess purchase price paid on acquisitions over the value assigned to identifiable net assets acquired.
The Company reviews goodwill for impairment annually and whenever facts and circumstances indicate that carrying amounts may
not be recoverable. As part of the evaluation, when the carrying value of the goodwill exceeds its fair value, an impairment loss is
recognized in an amount equal to the excess. A discounted cash flow valuation technique is used to determine the fair value of
goodwill (Note 4).

Intangible assets are recorded at cost, which for business acquisitions represents the fair value at the date of acquisition, and
are comprised of customer lists. Customer lists are amortized on a straight-line basis over their estimated useful life, fifteen
years. Amortization of customer lists was $0.6 million for the year ended December 31, 2010 (2009: $0.8 million).

RUSSEL METALS I 2010 ANNUAL REPORT

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

g) Impairment of long-lived assets

Long-lived assets, which include property, plant and equipment and intangibles, are reviewed for impairment upon the occurrence of
events or changes in circumstances indicating that the carrying value of the asset may not be recoverable, as measured by comparing
their net book value to the estimated undiscounted future cash flows generated by their use. An impairment loss is recognized when
the carrying value of an asset exceeds the total undiscounted cash flows expected from its use and eventual disposal.

h) Pensions and other benefit plans

The 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. Actuarial gains and losses and past service
costs are amortized on a straight-line basis over the estimated average remaining service lives of the employee groups, utilizing
the corridor approach. The corridor approach amortizes the excess of the net accumulated actuarial gain (loss) over 10% of the
greater of the benefit obligation and the fair value of plan assets. The cost of post-retirement benefits other than pensions is
recognized on an accrual basis.

Income taxes

The Company uses the liability method of income tax allocation. Under this method, future tax assets and liabilities are determined
based on differences between the financial accounting and tax bases of assets 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. Future income tax
assets are recognized to the extent that their realization is more likely than not.

j) Foreign currency translation

The accounts of self-sustaining foreign subsidiaries are translated from U.S. dollars to Canadian dollars at the noon spot rate
in effect at the balance sheet date, which was 0.9946 at December 31, 2010 (2009: 1.0466). Revenues and expenses are
translated at the average rate of exchange during the year. For 2010, the U.S. dollar published average exchange rate was
1.0301 (2009: 1.1415). The resulting gains or losses are included in other comprehensive income (loss).

Exchange gains or losses on long-term debt denominated in foreign currencies not designated as a hedge are expensed as
incurred. Exchange gains or losses on the translation of long-term debt (Note 9) denominated in a foreign currency designated
as a hedge of the Company’s net investment in foreign subsidiaries are included in other comprehensive income (loss).

k) Revenue recognition

Revenue is recognized when persuasive evidence of an arrangement exists, delivery has occurred, selling price is fixed and
collection is reasonably assured. Revenue on certain sales within the energy tubular products segment, where the Company acts
as an agent, is presented on a net basis. Freight and shipping billed to customers are included in revenue.

l) Stock-based compensation

The Company uses the fair value-based approach to account for stock-based compensation granted to employees.

Compensation expense is recognized for stock options over their vesting period based on their estimated fair values on the date
of grant with the related credit charged to contributed surplus, except for employees who are eligible to retire during the vesting
period, whose options are expensed immediately. Fair value is determined by the Black-Scholes option-pricing model.

Compensation expense is recognized for deferred share units when issued, with changes in the quoted market price from the
issue date to the reporting date being charged to compensation expense until the units are exercised.

Compensation expense for restricted share units is recognized over the vesting period with changes in the quoted market price
from the issue date to the reporting period date being charged to compensation expense until the units mature.

RUSSEL METALS I 201 0 ANNUAL REPORT

m) Earnings per share

Basic earnings per common share is calculated using the weighted daily average number of common shares outstanding. The
weighted average number of common shares for 2010 was 59,717,629 (2009: 59,696,743). Diluted earnings per share is
calculated using the treasury stock method.

n) Derivative financial instruments

The Company uses foreign exchange contracts to manage foreign exchange risk on certain committed cash outflows, primarily
inventory purchases. When the derivative instruments have been designated and are highly effective at offsetting risks, hedge
accounting is applied. Hedge accounting requires that gains and losses on the hedge instrument are recognized through income
in the same period or manner as the item being hedged. 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.

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

o) Use of estimates

The 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, inventories, accounts receivable, estimated useful lives, asset retirement obligations,
fair values, pension and benefit obligations, components of convertible debentures, other contingencies, income taxes and
assigned values on net assets acquired represent management’s best estimates. Actual results could differ from these
estimates.

p) Leases

Leases are classified as capital or operating depending on the terms and conditions of the contracts. The costs of assets
acquired under capital leases are amortized on a straight-line basis over their estimated useful lives. Obligations recorded under
capital leases are reduced by lease payments, net of imputed interest. Operating leases are expensed on a straight-line basis.

2. CHANGES IN ACCOUNTING POLICIES

On January 1, 2009, the Company adopted the new accounting standard CICA Handbook section 3064, Goodwill and Intangible
Assets. This standard is effective for fiscal years beginning on or after October 1, 2008 and establishes standards for the
recognition, measurement and disclosure of goodwill and intangible assets. The adoption of this standard did not have a material
effect on the Company’s results of operation.

On January 1, 2009, the Company adopted EIC Abstract No. 173, Credit Risk and the Fair Value of Financial Assets and
Liabilities. This standard requires that the Company consider credit risk and counterparty risk when determining the fair value
of financial assets and liabilities. The Company adopted this standard retrospectively without restatement. The effect of the
standard was to decrease derivatives by $7.4 million, increase future income tax liabilities by $2.0 million and increase
accumulated other comprehensive income (loss) by $5.4 million on the balance sheet as of January 1, 2009.

RUSSEL METALS I 2010 ANNUAL REPORT

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

During June 2009, the CICA issued an amendment to Handbook section 3862, Financial Instruments – Disclosures, to provide
improvements to fair value and liquidity risk disclosures. The amendment applies to the Company’s fiscal year ending December 31,
2009. The standard requires the Company to categorize its financial assets and liabilities measured at fair value into one of three
different levels depending on the observability of the inputs used in the measurement. Level one includes unadjusted quoted
prices in active markets for identical assets and liabilities. Level two includes inputs that are observable other than quoted prices
included in level one. Level three includes inputs that are not based on observable market data.

FUTURE ACCOUNTING CHANGES

The CICA has announced that Canadian generally accepted accounting principles for profit-oriented publicly accountable
enterprises will be replaced with International Financial Reporting Standards (IFRS). The Company will begin reporting its
financial statements in accordance with IFRS commencing January 1, 2011.

During 2009, the CICA issued Handbook section 1582, Business Combinations, and section 1601, Consolidated Financial
Statements. These sections replaced section 1581, Business Combinations, and section 1600, Consolidated Financial
Statements. The objective of section 1582 is to improve the relevance, reliability and comparability of the information that a
reporting entity provides in its financial statements about a business combination and its effects. Section 1601 revises and
enhances the standards for the preparation of consolidated financial statements subsequent to a business combination. Both
sections come into effect for financial periods beginning January 1, 2011, which coincides with the conversion to IFRS.

4. GOODWILL AND INTANGIBLES

a) Components of goodwill and intangibles are as follows:

(millions)

Customer lists – metals service centers

Goodwill – metals service centers

Goodwill – energy tubular products

The continuity of goodwill is as follows:

(millions)

Balance – January 1

Foreign exchange

Impairment charge

Balance – December 31

The continuity of intangibles is as follows:

(millions)

Balance – January 1

Amortization

Foreign exchange

Impairment – customer lists

Balance – December 31

RUSSEL METALS I 201 0 ANNUAL REPORT

2010

7.3

18.2

1.4

26.9

2010

20.1

(0.5)

–

19.6

2009

8.3

18.7

1.4

28.4

2009

60.5

(7.3)

(33.1)

20.1

2010

2009

8.3

(0.6)

(0.4)

–

7.3

9.2

(0.6)

0.4

(0.7)

8.3

b) Impairment of goodwill and intangibles

The Company completed its goodwill and long-lived assets impairment tests during the fourth quarter of 2010 and 2009. No
impairment was required for 2010. For the year ended December 31, 2009, the Company concluded that $33.1 million of its
goodwill and $0.7 million of its intangibles in the metals service centers segment relating to its acquisitions of JMS Metals
Services, Inc. and Norton Metal Products, Inc. were impaired, and an impairment of $33.8 million was recorded in 2009.

INVENTORIES

Inventories are recorded at the lower of cost and net realizable value. Cost is determined on an average cost basis. During the
year ended December 31, 2010, inventories of $1.8 billion (2009: $1.8 billion) were expensed through cost of sales and $1.9 million
(2009: $3.0 million) of previous write-downs were reversed due to price increases on certain products. In 2009, inventory write-
downs to net realizable value of $161.7 million were recorded.

6. PROPERTY, PLANT AND EQUIPMENT

(millions)

Land and buildings

Machinery and equipment

Leasehold improvements

Accumulated
Depreciation

2010

Net

(62.1) $

121.9

(173.5)

(18.8)

85.7

8.1

Cost

184.0

259.2

26.9

Cost

186.7

261.0

26.9

Accumulated
Depreciation

(57.5)

(167.1)

(18.1)

2009

Net

129.2

93.9

8.8

470.1

(254.4) $

215.7

474.6

(242.7)

231.9

Land included in land and buildings was $24.1 million (2009: $23.4 million).

On August 23, 2010, the Company announced the closure of one of its Ontario operations. Plant closure costs of $2.6 million,
including $1.3 million related to asset impairment, have been recorded in operating expenses. During 2010, no other impairment
loss was recorded. During 2009, an impairment loss of $1.6 million was recorded for buildings at one operation within the metals
service centers segment.

The Company has asset retirement obligations relating to the land lease for its Thunder Bay Terminal operations whose lease
term expires in 2017. The landlord has the option to retain the equipment or to require the Company to remove it. In addition,
the Company has end-of-lease obligations in certain service center operations.

During the year ended December 31, 2010, the Company did not increase its probability-weighted undiscounted expected cash
flow relating to its asset retirement obligations and the probability-weighted discounted expected cash flow. The probability of
removal ranged from 0.1% to 50% and the discount rate used was 9% (2009: 9%). The asset retirement obligation, including
applicable accretion at December 31, 2010, was $0.7 million (2009: $0.6 million) and the undiscounted expected cash flow
relating to its asset retirement obligation was $1.6 million (2009: $1.6 million).

7. OTHER ASSETS

(millions)

Investment in asset-backed commercial paper

Deferred charges on short-term revolving credit facility

Other

2010

2009

–

1.0

2.8

3.8

4.5

1.8

2.0

8.3

The Company held an investment in non-bank Canadian asset-backed commercial paper which was included in other assets at
December 31, 2009. On April 5, 2010, the Company completed the sale of this investment for net proceeds of $6.0 million and a
gain on the investment of $1.5 million (Note 10).

RUSSEL METALS I 2010 ANNUAL REPORT

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

8. REVOLVING CREDIT FACILITIES

On June 24, 2010, the Company extended its credit agreement with a syndicate of banks. The renewed agreement provides
a credit facility of $202.5 million available for borrowings and letters of credit, an additional $50 million for letters of credit,
decreased interest and standby fees and adjustment to the fixed charge coverage ratio covenant to exclude dividends from the
calculation. The Company incurred costs of $0.7 million to renew the facility, which have been included as deferred charges in
other assets (Note 7). The facility expires on June 2012. Interest and standby fees are at rates which vary based on the
Company’s credit rating.

The Company was in compliance with the financial covenants at December 31, 2010. 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, 2010, the Company had no borrowings (2009: $nil) and letters of credit of $14.5 million (2009:
$3.0 million).

On July 28, 2010, the Company renewed its U.S. subsidiary credit facility and increased the maximum available under this facility
to US$45 million. At December 31, 2010, this subsidiary had no borrowings (2009: $nil) and letters of credit of US$12.9 million
(2009: US$5.3 million).

LONG-TERM DEBT

(millions)

6.375% US$167.2 million Senior Notes due March 1, 2014

7.75% $175 million convertible debentures due September 30, 2016

Capital lease obligations

Less: current portion

2010

163.7

158.1

4.9

(1.2)

2009

179.7

156.2

6.2

(1.3)

325.5

340.8

In October 2009, the Company issued $175 million of 7.75% convertible unsecured subordinated debentures for net

a)
proceeds of $167.1 million. The convertible debentures mature on September 30, 2016, and interest is payable semi-annually on
March 31 and September 30 in each year commencing March 31, 2010. Each convertible debenture is convertible into common
shares of the Company at the option of the holder at any time on or prior to the business day immediately preceding (i) the
maturity date or (ii) the date specified for redemption of the convertible debentures, at a conversion price of $25.75 being a
conversion rate of 38.8350 common shares per $1,000 principal amount of convertible debentures.

The Company recorded the convertible debentures by valuing the debt portion using a discounted cash flow valuation technique.
The remaining value of the convertible debenture, which represents the holders’ option to convert the debentures into common
shares, is classified as equity.

On issuance, the Company recorded a liability of $155.6 million, net of issue costs of $7.4 million, and equity of $11.6 million,
net of issue costs of $0.5 million.

Interest expense on the convertible debentures is composed of the interest calculated on the face value of $175 million, issue
costs and an annual notional interest representing the accretion of the carrying value of the convertible debentures. Interest
expense is charged to income using the effective interest method. During the year ended December 31, 2010, interest expense
and notional interest recorded were $13.6 million and $2.1 million, respectively (2009: $3.3 million and $0.4 million respectively).

b) On February 20, 2004, the Company issued US$175 million Senior Notes due March 1, 2014, bearing interest at 6.375%.
During 2010, the Company repurchased US$7.8 million Senior Notes and the Company designated the remaining US$167.2 million
Senior Notes as a hedge of its net investment in foreign subsidiaries.

RUSSEL METALS I 201 0 ANNUAL REPORT

Concurrent with the issue of the U.S. Senior Notes, the Company entered into fixed for fixed cross currency swaps with major
banks to manage the foreign currency exposure on US$100 million of the 6.375% Senior Notes. On January 22, 2010, the
Company terminated these swaps and paid $35.2 million to its swap counterparties to terminate the swaps, which represented
the fair value of the swaps. Concurrent with the termination of the swaps, the Company designated its entire Senior Notes as a
hedge of its net investment in foreign subsidiaries. During the year ended December 31, 2010, $1.6 million related to the swap
was reclassified from accumulated other comprehensive income (loss) to net earnings before income taxes.

The US$167.2 million Senior Notes are redeemable, in whole or in part, at the option of the Company on or after March 1, 2010
at 102.125%, on or after March 1, 2011 at 101.063% and on or after March 1, 2012 at 100.000%. In addition, the Senior 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 Senior Notes contain certain restrictions on the payment of common share
dividends in excess of $0.08 per share per quarter. Fees associated with the issue of the debt are included in the carrying
amount of the debt and amortized using the effective interest method. The Company was in compliance with all debt covenants at
December 31, 2010.

10. OTHER INCOME (EXPENSE)

(millions)

Gain on sale of property, plant and equipment

Gain on investment (Note 7)

Multi-employer pension liability

Other

2010

2009

–

1.5

(1.1)

(1.3)

(0.9) $

4.3

0.6

–

0.4

5.3

On May 8, 2009, the Company completed the sale of its Saskatoon, Saskatchewan facility. The property was sold as a larger
facility was constructed in Saskatoon.

On November 19, 2010, the Company provided to the trustee a Notice of Withdrawal from its multi-employer pension plan relating
to its Russel Metals Williams Bahcall operation. The Company’s estimated withdrawal liability from this multi-employer pension
plan is included in other expense.

11. INTEREST EXPENSE, NET

(millions)

Interest on long-term debt

Other interest (income) expense, net

Total interest paid in 2010 was $26.2 million (2009: $16.4 million).

2010

28.0

(1.3)

26.7

2009

19.6

0.6

20.2

RUSSEL METALS I 2010 ANNUAL REPORT

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

12. INCOME TAXES

The non-current future income tax balances consisted of:

(millions)

Future income tax assets

Tax benefit of loss carry forward

Property, plant and equipment

Pensions and benefits

Goodwill and intangibles

Other timing

Total future income tax assets

Future income tax liabilities

Property, plant and equipment

Pensions and benefits

Goodwill and intangibles

Items charged or credited to equity

Other timing

Total future income tax liabilities

Net future income taxes

The Company’s effective income tax rate was derived as follows:

Average combined statutory rate

Rate difference of U.S. companies

Recognition of previously unrecorded tax benefits

Statutory tax rate changes

Stock compensation and non deductible items

Other

Average effective tax rate

The details of the income tax provision (recovery) are as follows:

(millions)

Current provision

Future provision

Statutory rate adjustments

2010

2009

0.1

(4.0)

0.7

6.9

0.1

3.8

(8.5)

(0.6)

0.3

(1.7)

0.8

(9.7)

(5.9) $

2010

29.4%

0.2%

(3.4%)

–

1.2%

–

27.4%

2010

25.6

0.6

–

26.2

0.9

(3.6)

0.7

7.8

0.1

5.9

(9.2)

(0.6)

–

(1.1)

1.0

(9.9)

(4.0)

2009

31.2%

6.3%

1.6%

0.3%

(0.7%)

0.1%

38.8%

2009

(47.8)

(10.1)

(0.5)

(58.4)

Income taxes refunded, net of payments, in 2010 were $36.8 million (2009 payments of: $27.3 million).

At December 31, 2010, the Company had unrecognized capital losses available of $20.4 million (2009: $39.6 million) which

e)
do not expire. A valuation allowance has been recorded as the realization of these losses is not more likely than not.

RUSSEL METALS I 201 0 ANNUAL REPORT

13. SHAREHOLDERS’ EQUITY

At December 31, 2010 and 2009, the authorized share capital of the Company consisted of:

ii)

an unlimited number of common shares without nominal or par value;

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 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 that 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.

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

Balance, December 31, 2008

Stock options exercised

Balance, December 31, 2009

Stock options exercised

Balance, December 31, 2010

The continuity of contributed surplus is as follows:

(millions)

Balance, January 1

Stock-based compensation expense

Exercise of options

Balance, December 31

Number of
Shares

Amount
(millions)

59,695,290

3,400

59,698,690

279,483

59,978,173

2010

11.4

1.9

(0.8)

12.5

478.8

0.1

478.9

4.8

483.7

2009

9.4

2.1

(0.1)

11.4

c)
The Company has a shareholder-approved share option plan, the purpose of which is to provide the 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 5% of the current issued and outstanding common shares.
The options are exercisable on a cumulative basis to the extent of 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 of options outstanding:

Balance, January 1

Granted

Exercised

Expired or forfeited

Balance, December 31

Exercisable

Number of Options

2010

2009

2,702,084

2,745,926

289,411

(279,483)

(27,350)

292,558

(3,400)

(333,000)

2,684,662

2,702,084

1,813,063

1,577,833

Weighted Average
Exercise Price

2010

24.52

19.84

14.19

25.52

25.08

25.64

2009

26.46

16.58

11.99

33.70

24.52

23.55

RUSSEL METALS I 2010 ANNUAL REPORT

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

The outstanding options had an exercise price range as follows:

(number of options)

$ 25.75 – $ 33.81

$ 15.86 – $ 25.74

$ 9.16 – $ 15.85

$ 3.00 – $ 9.15

Options outstanding

2010

2009

1,922,826

1,943,826

542,336

154,700

64,800

292,158

328,300

137,800

2,684,662

2,702,084

The options expire in the years 2011 to 2020 and have a weighted average remaining contractual life of 5.8 years (2009: 6.2 years).

The Black-Scholes option-pricing model assumptions used to compute compensation expense under the fair value-based method
are as follows:

Dividend yield

Expected volatility

Expected life

Risk free rate of return

2010

42%

5 yrs

2009

42%

5 yrs

Weighted average fair value of options granted

5.31

4.48

For the year ended December 31, 2010, compensation expense for stock options was $1.9 million (2009: $2.1 million).

d)
The Company has established a Deferred Share Unit (DSU) plan for its non-executive directors. A DSU entitles the holder to
receive, upon redemption, a cash payment equivalent to the market value of a common share at the redemption date. DSUs are
credited to the director accounts on a quarterly basis and vest immediately. At December 31, 2010, there were 65,827 DSUs
outstanding (2009: 49,447). Compensation expense relating to DSUs for the year ended December 31, 2010 was $0.6 million
(2009: $0.3 million).

The Company has established a Restricted Share Unit (RSU) plan for certain senior executives. An RSU entitles the holder

e)
to receive a cash payment equivalent to the market value of a common share at the maturity date. RSUs were issued in the
first quarter of 2009 and vest over three years. At December 31, 2010, there were 216,629 RSUs issued and outstanding
(2009: 206,037) under the plan. Compensation expense relating to RSUs for the year ended December 31, 2010 was
$1.7 million (2009: $1.2 million).

The DSU and RSU plans accrue dividend equivalents payable in additional units in an amount equal to dividends paid on common
shares.

Diluted share amounts were computed as follows:

(number of shares)

Weighted average shares outstanding

Dilution impact of stock options

Dilution impact of convertible debentures

Diluted weighted average shares outstanding

2010

2009

59,717,629

59,696,743

124,395

38,195

–

59,842,024

59,734,938

As at December 31, 2010 and 2009, the effect of the conversion of the convertible debentures under the “if converted” method
would be 6,796,117 shares (2009: 1,582,657) but the effect is anti-dilutive and has therefore been excluded from the
computation of diluted earnings per share.

RUSSEL METALS I 201 0 ANNUAL REPORT

g)
The Company manages capital in order to safeguard its ability to continue as a going concern, provide returns to
shareholders through a strong dividend policy and provide the ability to finance future growth. Capital includes shareholders’
equity, bank indebtedness and long-term debt, net of cash. The Company manages its capital structure and may make
adjustments to the amount of dividends paid to shareholders, purchase shares for cancellation pursuant to issuer bids, issue
new shares, issue new debt, repurchase existing debt and extend or amend its syndicated credit facility. During the year ended
December 31, 2010, the Company repurchased US$7.8 million of its Senior Notes. During the year ended December 31, 2009,
the Company reduced its common share dividend to $0.25 per common share per quarter and increased its long-term debt by
issuing $175 million 7.75% convertible debentures.

14. OTHER COMPREHENSIVE INCOME (LOSS)

Unrealized gains (losses) on items designated as net investment hedges are net of income taxes of $(1.3) million (2009:
$(1.1) million). Unrealized gains (losses) on items designated as cash flow hedges are net of income taxes of $1.1 million
(2009: $5.2 million). Gains and losses on derivatives designated as cash flow hedges transferred to net income in the current
period are net of income taxes of $0.1 million (2009: $(4.1) million).

15. FINANCIAL INSTRUMENTS

The Company classifies its financial assets, financial liabilities and non-financial derivatives as held-for-trading, available-for-sale,
held-to-maturity, loans and receivables, or other financial liabilities. The Company’s held-for-trading assets include investments,
bank accounts, forward exchange contracts and embedded derivatives in inventory purchases. The Company currently does not
have any assets classified as available-for-sale or held-to-maturity. Accounts receivable are classified under loans and receivables,
and accounts payable and long-term debt are classified as other financial liabilities.

a) Fair value

The Company records its debt at amortized cost using the effective interest method. The fair value of long-term debt as at
December 31, 2010 and 2009 is estimated based on the last quoted trade price, where it exists, or on the current rates available
to the Company for similar debt of the same remaining maturities. The fair value of the Company’s $175 million 7.75% convertible
debentures at December 31, 2010 was $199.5 million (2009: $184.7 million). The fair value of the Company’s US$167.2 million
(2009: US$175 million) 6.375% Senior Notes at December 31, 2010 was US$168.5 million (2009: US$164.5 million).

As at December 31, 2010 and 2009, the estimated fair value of other financial assets and liabilities approximates their carrying
values.

As at December 31, 2010, the Company was contractually obligated to make payments under its long-term debt agreements and
operating lease obligations that come due during the following periods:

(millions)

2011

2012

2013

2014

2015

2016 and beyond

Total

Long-Term
Debt Maturities
and Derivatives

Long-Term
Debt Interest

Operating
Lease
Obligations

–

166.3

–

175.0

24.5

24.4

24.3

18.1

13.6

10.2

12.7

10.4

7.5

5.1

2.5

4.0

341.3

115.1

42.2

Total

37.2

34.8

31.8

189.5

16.1

189.2

498.6

RUSSEL METALS I 2010 ANNUAL REPORT

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

As at December 31, 2010 the Company was contractually obligated to make payments under capital leases as follows:

(millions)

2011

2012

2013

2014

2015

Total minimum lease payments

Interest at rates varying between 1.2% and 14.9%

Net minimum lease payments

Less: current portion

Long-term portion

1.6

1.5

0.7

0.3

5.6

(0.7)

4.9

(1.2)

3.7

The following table presents the fair value hierarchy of financial instruments by level as at December 31, 2010:

(millions)

Financial assets and liabilities

Level
One

December 31, 2010

Level
Two

Level
Three

December 31, 2009

Level
One

Level
Two

Cash and cash equivalents

323.7

Asset-backed commercial paper

Swaps

Total

b) Credit risk

–

323.7

–

359.6

–

(34.7)

359.6

(34.7)

Level
Three

–

4.5

–

4.5

The Company, in the normal course of business, is exposed to credit risk relating to accounts receivable from its customers.
This risk is mitigated by the fact that its customer base is geographically diverse and in different industries. During 2010, no
one customer accounted for more than 3% of our total revenues. At December 31, 2010, trade accounts receivable greater than
90 days represented less than 3% of total trade accounts receivable. The Company is also exposed to credit risk from the
potential default by any of its counterparties on its foreign exchange forward contracts and short-term investments. The Company
mitigates this risk by entering into forward contracts with members of its banking syndicate.

c) Interest rate risk

The Company is not exposed to significant interest rate risk. The Company’s long-term debt is at fixed rates. The Company’s
bank borrowings, net of cash and cash equivalents is used to finance working capital, which is short term in nature, at floating
interest rates.

d) Foreign exchange risk

The Company uses foreign exchange contracts with maturities of less than one year to manage foreign exchange risk on certain
future committed cash outflows. As at December 31, 2010, the Company had outstanding forward foreign exchange contracts in
the amount of US$22.5 million, maturing in the first half of 2011 (2009: US$4.4 million), and the fair value of forward contracts
was a loss of $0.3 million (2009: $nil). The foreign exchange gain on U.S. dollar-denominated financial assets and liabilities was
$1.1 million (2009: $3.3 million).

In order to mitigate its foreign exchange exposure, the Company has designated its US$167.2 million Senior Notes as a hedge
of its net investment in foreign subsidiaries.

RUSSEL METALS I 201 0 ANNUAL REPORT

16. SEGMENTED INFORMATION

The Company conducts business primarily in three metals business segments.

i) Metals service centers

The Company’s network of metals service centers provides processing and distribution services on a broad 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 certain
regions in the Southeastern and Midwestern United States.

ii)

Energy tubular products

The Company’s energy tubular products operations distribute oil country tubular products, line pipe, tubes, valves and
fittings, primarily to the energy industry in Western Canada and the United States.

iii) Steel distributors

The Company’s steel distributors act as master distributors selling steel to customers in large volumes, mainly on an “as is”
basis. Steel distributors source their steel domestically and offshore.

The Company has segmented its operations on the basis of type of customer, management reporting and geographic segments
in which it operates. During 2010, the inter-segment sales from steel distributors to metals service centers were $26.4 million
(2009: $37.6 million) and there were no inter-segment sales from steel distributors to energy tubular division (2009: $45.0 million).
These sales, which are at market rates, are eliminated in the table following.

RUSSEL METALS I 2010 ANNUAL REPORT

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

a) Results by business segment:

(millions)

Segment revenues

Metals service centers

Energy tubular products

Steel distributors

Other

Segment operating profits (losses)

Metals service centers

Energy tubular products

Steel distributors

Corporate expenses

Other income

Capital expenditures

Metals service centers

Energy tubular products

Steel distributors

Other

Depreciation expense

Metals service centers

Energy tubular products

Steel distributors

Other

Identifiable assets

Metals service centers

Energy tubular products

Steel distributors

Identifiable assets by segment

Assets not included in segments

Cash

Income tax assets

Deferred financing charges

Other assets

Corporate and other operating assets

Total assets

RUSSEL METALS I 201 0 ANNUAL REPORT

2010

2009

1,212.2

1,094.7

704.3

247.8

2,164.3

11.1

2,175.4

60.9

53.0

20.9

134.8

(15.6)

4.3

123.5

11.0

0.6

0.1

11.8

20.0

1.7

0.4

1.0

23.1

572.9

417.2

82.2

1,072.3

323.7

8.6

1.0

2.8

28.7

624.1

244.5

1,963.3

8.5

1,971.8

(13.1)

(47.1)

(28.4)

(88.6)

(13.2)

1.7

(100.1)

17.3

1.0

0.1

0.2

18.6

20.8

1.8

0.5

1.0

24.1

515.7

375.0

87.7

978.4

359.6

58.9

1.8

14.5

22.5

1,437.1

1,435.7

b) Results by geographic segment:

(millions)

Segment revenues

Canada

United States

Segment operating profits (losses)

Canada

United States

Identifiable assets

Canada

United States

2010

2009

1,541.9

622.4

2,164.3

94.6

40.2

134.8

796.9

275.4

1,072.3

1,422.0

541.3

1,963.3

22.9

(111.5)

(88.6)

670.3

308.1

978.4

17. PENSIONS AND BENEFITS

The Company maintains defined benefit pension plans, executive plans, post-retirement benefit plans and defined

a)
contribution pension plans in Canada and 401(k) defined contribution pension plans in the United States. Actuarial valuations are
performed on defined benefit plans every three years or earlier if required. The most recent valuations for the Company’s defined
benefit pension plans are as follows:

Number of Plans

1
7

Valuation Date

December 31, 2009
January 1, 2010

All of the Company’s pension plans had a measurement date of December 31, 2010.

The components of the Company’s pension and benefit expense included the following:

(millions)

Defined benefit pension plans

Benefits earned during the year

Interest cost on benefit obligation

Expected return on plan assets

Valuation allowance adjustment

Other

Post-retirement benefits

Defined contribution plans – contributions

Pension and benefit expense

2010

2009

2.4

4.8

(5.1)

–

1.0

3.1

0.3

1.7

5.1

1.8

5.2

(5.0)

(0.5)

0.4

1.9

0.4

1.4

3.7

RUSSEL METALS I 2010 ANNUAL REPORT

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

The actuarial determinations were based on the following assumptions in each year:

Assumed discount rate – year end

Discount rate

Expected long-term rate of return on plan assets

Rate of increase in future compensation

Rate of increase in future government benefits

2010

5.25 %

6.00 %

3.75 %

3.25 %

2009

5.25 %

7.00 %

6.50 %

3.75 %

3.25 %

The health care cost trend rates used were 5% for dental and 9.5% graded out for medical, which is reduced 0.5% per year until
5% and 5% thereafter. A 1% change in trend rates would not result in a significant increase or decrease in either the accrued
benefit obligation or the net periodic cost.

The following information pertains to the Company’s defined benefit pension, executive plans and other benefit plans,

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

(millions)

Reconciliation of accrued benefit obligation

Balance, January 1

Current service cost

Participant contribution

Interest cost

Benefits paid

Plan amendments

Actuarial (gain) loss

Balance, December 31

Reconciliation of fair value of plan assets

Balance, January 1

Actual return on plan assets

Employer contributions

Employee contributions

Benefits paid

Balance, December 31

Unamortized amounts

Funded status – (deficit)

Unrecognized prior service cost

Unamortized net actuarial loss

Accrued benefit asset (liability)

2010

Pension Plans
2009

Other Benefit Plans
2009

2010

97.7

74.2

7.6

2.4

0.2

4.8

(4.1)

0.1

(4.0)

97.1

80.1

5.8

5.0

0.2

(4.1)

1.8

0.3

5.2

(3.8)

–

20.0

97.7

71.9

8.4

3.3

0.3

(3.8)

–

0.3

(0.2)

–

(2.2)

5.5

–

0.2

–

(0.2)

87.0

80.1

–

(10.1) $

(17.6)

(5.5) $

1.6

18.4

1.7

23.9

–

(0.4)

9.9

8.0

(5.9) $

5.8

–

0.4

(0.3)

–

1.7

7.6

–

0.3

–

(0.3)

–

(7.6)

–

1.7

(5.9)

As at December 31, 2010, five of the defined benefit pension plans in the above table had unfunded obligations and all executive
pension plans had unfunded obligations. As at December 31, 2009, seven of the plans in the above table had unfunded
obligations and all executive plans had unfunded obligations.

RUSSEL METALS I 201 0 ANNUAL REPORT

The other benefit plans represent other post-retirement benefit obligations to retired employees of sold or closed businesses. No
active employees are entitled to post-retirement benefits.

(millions)

Defined contribution plans

Fair value of plan assets

Canadian plans

401(k) U.S. plans

2010

2009

5.7

26.8

32.5

5.7

24.9

30.6

c)
As at December 31, 2010, approximately 50% of all pension plan assets were invested in equities, 21% in fixed income
securities, and 29% in cash and cash equivalents. The expected return on plan assets is based on the fair value of plan assets.
In the defined benefit plans, management endeavours to have an asset mix of approximately 55% in equities, 40% in fixed income
securities and 5% in cash and cash equivalents. The investment policy allows up to 30% in cash and cash equivalents. The
volatility of the markets has caused management to invest a correspondingly greater percentage of the pension plan assets in
cash and cash equivalents. The plan assets are not invested in either derivatives or real estate assets.

The expected annual benefits to be paid from the plans are as follows:

(millions)

2011

2012

2013

2014

2015

2016–2020

The elements of defined benefit costs recognized in the year are as follows:

(millions)

Current service costs

Interest on accrued benefit obligation

Actual return on assets

Actuarial loss (gain) on accrued benefit obligation

Prior service costs

Elements of future benefit costs

Adjustments to recognize the long-term nature of employee benefit costs:

Difference between expected and actual return on assets

Difference between actuarial losses recognized and actuarial losses incurred

Difference between prior service costs recognized and prior service costs incurred

Defined benefit cost recognized

Pension
Plans

Other
Benefit Plans

4.5

4.6

4.8

5.1

5.3

32.0

0.4

2.2

2010

2.4

4.8

(5.8)

(0.5)

0.1

1.0

0.8

1.2

0.1

3.1

Total

4.9

5.0

5.2

5.5

5.7

34.2

2009

1.8

5.2

(8.4)

20.0

–

18.6

4.9

(21.3)

(0.3)

1.9

RUSSEL METALS I 2010 ANNUAL REPORT

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

18. CONTINGENCIES AND COMMITMENTS

The Company and certain of its subsidiaries have been named defendants in a number of legal actions. Although the

a)
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 is incurring site cleanup and restoration costs related to properties not utilized in current operations.
Remedial actions are currently under way at three 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.

The Company has also entered into other agreements that provide indemnifications to counterparties in certain transactions

c)
including underwriting agreements. These indemnifications generally require the Company to indemnify the counterparties for
costs incurred as a result of losses from litigation that may be suffered by counterparties arising from those transactions. The
Company does not expect to make any payments on these indemnifications and, accordingly, no liability has been accrued.

d) On November 28, 2008, the Company purchased Norton Metal Products, Inc., which is part of the metals service centers
segment, for $36.6 million. The Company has contingent consideration of up to US$5 million which may be paid based on Norton
Metals achieving certain performance targets during the first five years to December 31, 2013.

RUSSEL METALS I 201 0 ANNUAL REPORT

OPERATIONS

CANADIAN METALS SERVICE CENTERS (Operating under the name Russel Metals, unless otherwise noted)

BRITISH COLUMBIA

Operating under the name
A.J. Forsyth throughout BC
Delta (Vancouver) –
Regional Office
830 Carlisle Road,
Annacis Business Park,
V3M 5P4
Tel: (604) 525-0544
Campbell River
2710 Vigar Road,
V9W 6A3
Tel: (250) 287-8841
Fort St. John
10019 Finning Frt.
Mile 49 ½ Alaska Highway,
V1J 4M6
Tel: (250) 785-5641
Fort Nelson
4850 44th Avenue,
V0C 1R0
Tel: (250) 774-7553
Kelowna
8955 Grigg Road, V4V 2N5
Tel: (250) 766-6050
Kitimat
815 Enterprise Avenue,
V8C 2P1
Tel: (250) 632-4702
Nanaimo
1950 East Wellington Road,
V9S 5V2
Tel: (250) 753-1555
Prince George
990 Industrial Way,
V2N 5S1
Tel: (250) 563-1274
Prince Rupert
298 Boundary Road,
Port Edward, V0V 1R0
Tel: (250) 628-3303
Langley
27353 58th Crescent,
Unit 114, 115 & 116,
V4W 3W7
Tel: (604) 626-0121

ALBERTA

Calgary
Russel Metals and
Russel Metals Specialty Products
5724 40th Street SE,
T2C 2A1
Tel: (403) 279-6600
Edmonton
7016 99th Street NW,
T6E 3R3
Tel: (780) 439-2051
5730 72A Avenue NW,
T6B 3L1
(Specializing in plate processing)
Tel: (780) 439-2051
Russel Metals Specialty Products
2471 76th Avenue NW,
T6P 1P6
Tel: (780) 440-0779

Grande Prairie
11035 89th Avenue,
T8V 5B9
Tel: (780) 539-3193
Red Deer
6724 Golden West Avenue,
T4P 1A8
Tel: (403) 346-2096
SASKATCHEWAN

Regina
445 1st Avenue E,
S4N 4Z3
Tel: (306) 721-6411
Russel Metals Specialty Products
475 1st Avenue E,
S4N 4Z3
Tel: (306) 721-9355
Saskatoon
4015 Wanuskewin Rd.,
S7P 0B4
Tel: (306) 931-3338
Russel Metals Specialty Products
806 59th Street East,
S7K 5Z6
Tel: (306) 931-2257

MANITOBA

Winnipeg
1359 St. James Street,
R3H 0K9
Tel: (204) 772-0321
1510 Clarence Avenue,
R3T 1T6
Tel: (204) 475-8584
Russel Metals Specialty Products
1725 Inkster Blvd., Unit D,
R2X 1R3
Tel: (204) 772-0321

ONTARIO

Mississauga (Toronto) –
Regional Office
1900 Minnesota Court,
Suite 210, L5N 3C9
(Ontario General Line Sales)
Tel: (905) 819-7777
Aberfoyle (Guelph)
24 Nicholas Beaver Road,
R.R. #3, N1H 6H9
(Specializing in plate processing)
Tel: (519) 767-3800
Burlington
Milspec
5155 Harvester Road, Unit 2,
L7L 6V2
(Specializing in strapping)
Tel: (905) 333-0646
Russel Metals Specialty Products
5155 Harvester Road, Unit 2,
L7L 6V2
Tel:
Chain
5155 Harvester Road, Unit 2,
L7L 6V2
Tel:

(905) 681-2933

Rimouski
Acier Leroux
221, rue des Négociants,
G5M 1B7
Tel: (418) 724-4937
Saint-Augustin-de-Desmaures
Acier Leroux
167, rue de Rotterdam,
G3A 2K2
Tel: (418) 878-5737
Sept-Iles
Acier Leroux
533, boulevard Laure Est,
G4R 4K2
Tel: (418) 962-6374
Terrebonne
Acier Leroux
1025, boul. des Entreprises,
J6Y 1V2
(Specializing in structurals)
Tel: (514) 333-5380
Acier Loubier Nord
2425 Édouard-Michelin,
J6Y 4P2
(450) 477-4040
Thetford Mines
Mégantic Métal
1400, boulevard Frontenac Est,
G6G 5R9
Tel: (418) 338-3188

NEW BRUNSWICK

Edmundston
25, rue Richards,
Parc Industriel Nord,
E3V 4H4
Tel: (506) 739-9561
Sackville
141 Crescent Street,
E4L 3V2
Tel: (506) 364-1234
Saint John
37 McIlveen Drive
McAllister Industrial Park,
E2L 4B3
Tel: (506) 635-0005

NOVA SCOTIA

Halifax – Regional Office
28 Lakeside Park Drive,
B3T 1A3
Tel: (902) 876-7861
NEWFOUNDLAND

St. John’s (Mount Pearl)
11 Panther Place,
Donovans Industrial Estates,
A1N 5B7
Tel: (709) 364-3300

Cambridge
(Specializing in long products
and structurals)
15 Cherry Blossom Road,
N3H 4R7
Tel: (519) 650-1666
Kingston
191 Dalton Avenue, Unit 2,
K7K 6C2
Tel: (613) 546-1281
London
685 Hale Street,
N5W 1J1
Tel: (519) 451-1140
Ottawa
2420 Stevenage Drive,
K1G 3W3
Tel: (613) 738-2961
Stoney Creek (Hamilton)
B&T Steel
1052 South Service Road,
L8E 6G3
(Specializing in flat rolled)
Tel: (905) 643-3008
McCabe Steel
687 Arvin Avenue,
L8E 5R2
Tel: (905) 643-4271
185 Barton Street East,
L8E 2K3
Tel: (905) 662-6401
Thunder Bay
620 Norah Crescent,
P7C 5V8
Tel: (807) 622-8898

QUEBEC

Boucherville – Regional Office
Acier Leroux
1331, rue Graham-Bell,
J4B 6A1
Tel: (450) 641-2280
Métaux Russel Produits
Spécialisés
1331, rue Graham-Bell,
J4B 6A1
Tel: (450) 641-1130
Amos
Acier Leroux
1675, route de l’Aéroport,
J9T 3A8
Tel: (819) 732-8381
Baie-Comeau
Acier Leroux
55, avenue William-Dobell,
G4Z 1T8
Tel: (418) 296-8626
Chicoutimi
Acier Leroux
2149, rue de la Fonderie,
G7H 8C1
Tel: (418) 545-8881
Quebec
Acier Loubier
5225, rue John Molson,
G1X 3X4
Tel: (418) 656-9911

RUSSEL METALS I 2010 ANNUAL REPORT

OPERATIONS

UNITED STATES METALS SERVICE CENTERS

WISCONSIN

OHIO

Operating under the name
Russel Metals Williams Bahcall
throughout Wisconsin

Appleton
975 North Meade Street,
54912-1054
Tel: (920) 734-9271
Green Bay
895 Hinkle Street,
54303
Tel: (920) 497-1020
Milwaukee
999 West Armour Avenue,
53221
Tel: (414) 481-7100

Solon (Cleveland)
Baldwin International
30403 Bruce Industrial Pkwy,
44139
Tel: (440) 248-9500

ARKANSAS

Operating under the name
JMS Russel Metals
throughout Arkansas

Blytheville
5027 N. County Road 1015,
72315
(Specializing in processing)
Tel: (870) 762-9956
Hope
3716 Highway 32 North,
71801
Tel: (870) 972-5802

ENERGY TUBULAR PRODUCTS

CANADA

Comco Pipe and Supply Company
Edmonton, Alberta
5910 17th Street NW,
T6P 1S5
Tel: (780) 440-2000
Calgary, Alberta
9307 48th Street SE,
T2C 2R1
Tel: (403) 203-0766
Fort McMurray, Alberta
300 MacDonald Crescent,
T9H 4B6
Tel: (780) 743-3404
Stonewall, Manitoba
116 4th Street E, R0C 2Z0
Tel: (204) 467-8797
Guelph, Ontario
R.R. #3
Kerr Industrial Park (Aberfoyle),
N1H 6H9
Tel: (519) 763-1114

Sarnia, Ontario
1018 Prescott Drive, N7T 7H3
Tel: (519) 332-6666
Dollard des Ormeaux, Quebec
65 Boulevard Brunswick,
Suite 106, H9B 2N4
Tel: (514) 421-2455
Fedmet Tubulars
Calgary, Alberta
700 9th Avenue SW,
Suite 2200, T2P 3V4
Tel: (403) 237-0955
Triumph Tubular & Supply
Calgary, Alberta
441 5th Avenue SW,
Suite 875, T2P 2V1
Tel: (403) 262-3777

STEEL DISTRIBUTORS

CANADA

Wirth Steel
Burnaby, British Columbia
4603 Kingsway, Suite 308,
V5H 4M4
Tel: (604) 436-1741
Toronto, Ontario
2 Bloor Street W,
Suite 700, M4W 3R1
Tel: (416) 961-7311
Montreal, Quebec
1 Westmount Square,
Suite 200, H3Z 2P9
Tel: (514) 939-5555

UNITED STATES

Sunbelt Group
Houston, Texas
1990 Post Oak Boulevard,
Suite 950, 77056-3817
Tel: (713) 840-0550
Overland Park, Kansas
9300 W. 110th Street,
Suite 330, 66210
Tel: (913) 491-6660
Arrow Steel Processors
Houston, Texas
8710 Clinton Drive, 77029
Tel: (713) 673-0666

RUSSEL METALS I 201 0 ANNUAL REPORT

Jonesboro
2801 Commerce Drive,
72402
Tel: (870) 972-5802

KENTUCKY

Paducah
JMS Russel Metals
1455 Bloom Avenue,
42001
Tel: (270) 575-0308

TENNESSEE

Operating under the name
JMS Russel Metals
throughout Tennessee

Jackson – Head Office
620 Old Hickory Blvd.,
Suite 400, 38305
Tel: (731) 984-8122
1320 E. Chester, 38301
(Specializing in plate processing)
Tel: (731) 423-3297

ALABAMA

Decatur
JMS Russel Metals
1312 Commerce Drive NW,
35601
Tel: (256) 308-0580

GEORGIA

Trenton
JMS Russel Metals
199 South Industrial Blvd.,
30752
Tel: (706) 657-5484

TEXAS

Fort Worth
Norton Metals
1350 Lawson Road,
76131-2723
Tel: (817) 232-0404

Houston, Texas
2002 Timberloch Place,
The Woodlands,
Suite 200, 77380
Tel: (281) 292-2875
Clayton, Missouri
225 Meramec Avenue
Suite 1028T, 63105
Tel: (314) 721-1177
Spartan Steel Products
Evergreen, Colorado
2942 Evergreen Pkwy,
Suite 300, 80439
Tel: (303) 670-9048
Houston, Texas
2002 Timberloch Place,
The Woodlands,
Suite 200, 77380
Tel: (281) 210-3344
San Diego, California
5299 Olive Hill Road,
Fallbrook, 92028
Tel: (760) 639-3632

UNITED STATES

Pioneer Pipe
Woodland, Washington
1780 Down River Drive,
98674
Tel: (360) 225-3101
Orange, California
2430-A N. Glassell Street,
92865
Tel: (714) 998-9938
Lindon, Utah (Provo)
1610 West 200 South,
84042
Tel: (801) 224-8739
Aurora, Colorado
2401 Picadilly Road,
80019
Tel: (303) 307-9021
Denver, Colorado
1660 Lincoln Street,
Suite 2300, 80264
Tel: (303) 289-3201

OTHER

CANADA

Thunder Bay Terminals
Thunder Bay, Ontario
P. O. Box 1800, Station F,
McKellar Island, P7C 5J7
Tel: (807) 625-7800