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Third Quarter – 2004

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

For the period ended September 30, 2004

or

For the transition period from              to             

Commission file number 1-9117

I.R.S. Employer Identification Number 36-3425828

RYERSON TULL, INC.

(a Delaware Corporation)

2621 West 15th Place

Chicago, Illinois 60608

Telephone: (773) 762-2121

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

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

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date: 25,017,045 shares of the Company’s Common Stock ($1.00 par value per share) were outstanding as of November 3, 2004.

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

RYERSON TULL, INC.

AND SUBSIDIARY COMPANIES

Consolidated Statement of Operations (Unaudited)

See notes to consolidated financial statements

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RYERSON TULL, INC.

AND SUBSIDIARY COMPANIES

Consolidated Statement of Operations (Unaudited)

See notes to consolidated financial statements

2

RYERSON TULL, INC.

AND SUBSIDIARY COMPANIES

Consolidated Statement of Cash Flows (Unaudited)

See notes to consolidated financial statements

3

RYERSON TULL, INC.

AND SUBSIDIARY COMPANIES

Consolidated Balance Sheet (Unaudited)

See notes to consolidated financial statements

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RYERSON TULL, INC.

AND SUBSIDIARY COMPANIES

Notes to Consolidated Financial Statements (Unaudited)

NOTE 1 / FINANCIAL STATEMENTS

Results of operations for any interim period are not necessarily indicative of results of any other periods or for the year. The financial statements as of September 30, 2004 and for the three-month and nine-month periods ended September 30, 2004 and September 30, 2003 are unaudited, but in the opinion of management include all adjustments, consisting of normal recurring adjustments, necessary for a fair presentation of results for such periods. These financial statements should be read in conjunction with the financial statements and related notes contained in the Annual Report on Form 10-K for the year ended December 31, 2003.

NOTE 2 / INVENTORIES

Inventories were classified as follows:

Replacement costs for the LIFO inventories exceeded LIFO values by approximately $293 million and $61 million on September 30, 2004 and December 31, 2003, respectively.

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NOTE 3 / EARNINGS PER SHARE

Options to purchase 1,564,890 shares of common stock at prices ranging from $16.03 per share to $38.35 per share were outstanding during the third quarter and first nine months of 2004, but were not included in the computation of diluted EPS because the options’ exercise price was greater than the average market price of the common shares. In the third quarter and the first nine months of 2003, options to purchase 3,983,676 shares of common stock at prices ranging from $6.43 per share to $48.44 per share were outstanding, but were not included in the computation of diluted EPS because to do so would be antidilutive.

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NOTE 4 / STOCK OPTION PLANS

The Company has adopted the disclosure-only provisions of FASB Statement No. 123, “Accounting for Stock-Based Compensation” (“SFAS 123”). Accordingly, no compensation cost has been recognized for the stock option plans. The following table illustrates the effect on net income and earnings per share if the Company had applied the fair value recognition provisions of SFAS 123 to stock-based employee compensation for the three month and nine month periods ended September 30, 2004 and 2003, respectively (in millions, except per share data):

NOTE 5 / RESTRUCTURING CHARGES

2004

In the third quarter of 2004, the Company recorded a charge of $3.0 million as a result of consolidating two locations into one facility in the Northeast region of the United States. The charge consists of employee-related costs, including severance for 30 employees. The restructuring actions associated with the charge will be completed by year-end 2004. $0.2 million of the $3.0 million charge will be used for future cash outlays. During the third quarter of 2004, the Company utilized $2.8 million of the $3.0 million accrual.

In the second quarter of 2004, the Company recorded a charge of $0.6 million as a result of workforce reductions. The charge consists of employee-related costs, including severance for 3 employees. The restructuring actions associated with the charge will be completed by year-end 2004. $0.1 million of the $0.6 million charge will be used for future cash outlays. During the third quarter of 2004, the Company utilized the remaining accrual balance.

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2003

In the fourth quarter of 2003, the Company recorded a charge of $3.8 million as a result of consolidating plants in the Midwest and South regions of the United States. Included in the charge was severance for 58 employees. Also included was $0.9 million for additional rent at a facility that was closed in the 2000 restructuring. The restructuring actions associated with the $3.8 million charge have been completed. In the third quarter of 2003, the Company recorded a charge of $0.9 million as a result of consolidating plants in the East and Central Mountain regions and consolidating sales and administrative services in the Pacific Northwest. Included in the charge was severance for 53 employees. The restructuring actions associated with the $0.9 million charge have been completed. In the second quarter of 2003, the Company recorded a charge of $1.5 million as a result of workforce reductions. The charge consisted of employee-related costs, including severance for 17 employees. The restructuring actions associated with the $1.5 million charge have been completed.

Excluding the $0.9 million adjustment to the 2000 restructuring, 2003 restructuring and plant closure costs totaled $5.3 million. This charge consisted of employee-related and tenancy costs and will be used for future cash outlays. During the third quarter and first nine months of 2004, the Company utilized $0.2 million and $1.4 million, respectively, of the $5.3 million charge. The September 30, 2004 accrual balance of $0.5 million is related primarily to employee costs and will be paid through 2005.

2002

In the second quarter of 2002, the Company recorded a charge of $2.0 million for costs associated with the closure of a facility in the southern United States. The charge consisted primarily of employee-related cash costs. Included in the charge was severance for 40 employees. The restructuring actions have been completed. During the first quarter of 2003, the Company utilized the remaining year-end 2002 accrual balance of $0.3 million.

2001

In the fourth quarter of 2001, the Company recorded a restructuring charge of $19.4 million as a result of workforce reductions and plant consolidation. In the third quarter of 2002, the Company recorded a charge of $0.7 million as an adjustment to the $19.4 million recorded in 2001 resulting in a total restructuring charge of $20.1 million. The $20.1 million charge consisted of $10.3 million of non-cash asset write-offs and $9.8 million of future cash outlays for employee-related costs and tenancy costs. The additional $0.7 million charge recorded in 2002 was due to a reduction in the market value of assets in a multi-employer pension plan from the initial estimate in 2001 to the final calculation of the withdrawal liability in 2002. The remaining multi-employer pension plan withdrawal liability of $0.6 million will be funded through 2005. As part of the restructuring, certain facilities in Michigan were closed and the Company consolidated two facilities into one location in Chicago. Included in the charge was severance for 178 employees. The 2001 restructuring actions were completed by year-end 2002. During the third quarter and first nine months of 2004, the Company utilized $0.2 million and $0.6 million, respectively, of the 2001 restructuring reserve. The September 30, 2004 accrual balance of $0.9 million is related to employee and tenancy costs.

In preparation for the Company’s planned disposition of one of the properties in Chicago, the Company retained an environmental consultant to conduct Phase I and Phase II environmental studies. Based on the consultant’s reports on environmental contaminants at the site, the Company believes that the $2 million reserve established in the fourth quarter of 2001 is adequate to cover potential remediation costs for environmental issues identified in the consultant’s reports.

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2000

During 2000, the Company recorded a restructuring charge of $23.3 million, consisting of $10.7 million of asset write-offs and $12.6 million of future cash outlays for employee-related costs and tenancy costs. The charge was the result of realigning geographic divisions to improve responsiveness to local markets, exiting non-core businesses and centralizing administrative services to achieve economies of scale. Included in the charge was severance for 319 employees. The restructuring actions were completed by December 31, 2000. Based on court rulings in the fourth quarter of 2003, the Company recorded an additional $0.9 million reserve for future lease payments for a facility closed in the 2000 restructuring. During the third quarter and first nine months of 2004, the Company utilized $0.2 million and $1.1 million, respectively, of the restructuring reserve. The September 30, 2004 accrual balance of $2.3 million is related to tenancy and other costs that will be paid through 2008.

NOTE 6 / COMMITMENTS AND CONTINGENCIES

ISC/Ispat Transaction

In 1998, Ryerson Tull, Inc. (together with its subsidiaries, the “Company”) sold its steel manufacturing segment (“ISC”) to Ispat International N.V. and certain of its affiliates (“Ispat”) pursuant to an agreement of sale and merger (the “ISC/Ispat Merger Agreement”). Pursuant to that Agreement, the Company agreed to indemnify Ispat up to $90 million for losses incurred in connection with breaches of representations and warranties contained in the agreement and for expenditures and losses incurred relating to certain environmental liabilities. Ispat was required to make all such indemnification claims prior to March 31, 2000, other than claims related to tax matters, certain organizational matters and environmental matters.

As part of the sale transaction, the Inland Steel Industries Pension Plan was transferred to Ispat. As a condition to completing the ISC/Ispat transaction, Ispat and the Company entered into an agreement with the Pension Benefit Guaranty Corporation (“PBGC”) to provide certain financial commitments to reduce the underfunding of that pension plan (the “Ispat Pension Plan”) and to secure the Plan’s unfunded benefit liabilities on a termination basis. These commitments included a Company guaranty of $50 million of the obligations of Ispat to the PBGC in the event of a distress or involuntary termination of the Ispat Pension Plan.

In August 2001, the Company established a $50 million letter of credit in favor of the PBGC as security for the guaranty. Under the agreement among the PBGC, Ispat and the Company, by July 16, 2003, Ispat was required to take all necessary action to provide adequate replacement security to the PBGC, which would permit the Company to terminate the guaranty and the related letter of credit. Ispat did not provide the replacement security by such date, and the Company, in accordance with the aforementioned agreement, renewed its letter of credit on July 16, 2003 (the “PBGC Letter of Credit”), on a year-to-year basis until December 20, 2006. On September 15, 2003, the PBGC Letter of Credit and guaranty were reduced to $29 million pursuant to certain agreements signed on that date and described below.

On May 29, 2001, the Company entered into a settlement agreement with Ispat that settled certain claims, other than those related to environmental liabilities and certain property tax matters, for approximately $15 million, which applied against the $90 million indemnification cap. Ispat also notified the Company of certain environmental matters of which Ispat was aware, of certain environmental expenses that it had incurred or might incur, of certain property tax matters and of other matters arising under ISC/Ispat Merger Agreement for which Ispat believed it was entitled to indemnification under that Agreement.

On September 15, 2003, the Company and Ispat settled all environmental and other indemnification claims between them arising from the ISC/Ispat Merger Agreement, including certain matters related to the Ispat Pension Plan. The Company had previously established an accrual to cover these claims. Under this second settlement agreement:

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On September 15, 2003, the Company also entered into an agreement with Ispat and the PBGC under which the PBGC agreed that any contributions described above (the “Contributions”) made by Ispat or the Company to the Ispat Pension Plan would reduce and discharge the PBGC Letter of Credit and the Company’s guaranty on a dollar-for-dollar basis, until each was reduced to zero. The Company had a $5.5 million liability recorded related to this guaranty to the PBGC. Based on Ispat making the required monthly Contributions, the Company reduced the liability related to the PBGC guaranty to $3.5 million in the second quarter 2004 and recorded a favorable $1.2 million after-tax adjustment to the gain on the sale of ISC. During the third quarter of 2004, Ispat made the final monthly Contributions. As a result, the PBGC Letter of Credit was reduced to zero, and the Company reduced the liability related to the PBGC guaranty to zero and recorded a favorable $2.3 million after-tax adjustment to the gain on the sale of ISC. Except for claims which could be made under Employee Retirement Income Security Act of 1974, as amended, for the period in which the Company was the sponsor of the Ispat Pension Plan, the Company has no further liability with respect to the Ispat Pension Plan.

Other Matters

The Company is currently a defendant in antitrust litigation; the Company believes that this suit is without merit and has answered the complaint denying all claims and allegations. The trial court entered judgment on June 15, 2004 sustaining the Company’s summary judgment motion and those of the other defendants on all claims. On July 13, 2004, the plaintiff filed a notice of appeal. The Company cannot determine at this time whether any potential liability related to this litigation would materially affect its

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financial position, results of operations, or cash flows. There are various claims and pending actions against the Company other than those related to the ISC/Ispat transaction and the antitrust litigation. The amount of liability, if any, for these claims and actions at September 30, 2004 is not determinable but, in the opinion of management, such liability, if any, will not have a material adverse effect on the Company’s financial position, results of operations or cash flows.

NOTE 7 / RESTRICTED CASH

In the first quarter of 2002, the Company recorded a $5.1 million pretax gain for the receipt of shares as a result of the demutualization of one of its insurance carriers, Prudential. This gain represented a portion of the total of $6.3 million of shares received. The remaining shares were attributable to participants of the optional life insurance plan and therefore the liability was recorded as a benefit payable.

In the second quarter of 2002, the Company sold all of the shares received. As a result of the sale, the Company recorded in that quarter income of $0.6 million, its allocable share of the gain on sale. This item was included in “other revenue and expense, net.” The portion of the sale proceeds attributable to optional life insurance plan participants ($1.3 million) is required to be used for the benefit of plan participants and as such, was recorded as “restricted cash” in the balance sheet. The restricted cash balance has earned interest totaling $0.1 million as of September 30, 2004. In the third quarter of 2002, the Company began making payments for the benefit of optional life insurance plan participants. At September 30, 2004, these payments totaled $0.5 million.

NOTE 8/RETIREMENT BENEFITS

In December 2003, the Financial Accounting Standards Board revised Statement of Financial Accounting Standards No. 132, “Employers’ Disclosures about Pensions and Other Postretirement Benefits” (SFAS 132). Beginning with the quarter ended on March 31, 2004, SFAS 132 requires the disclosure of the following information regarding the Corporation’s pension and postretirement medical benefit plans.

For the quarter ended September 30:

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For the nine month period ended September 30:

Contributions

During the third quarter of 2004, the Company made a voluntary contribution of $21.5 million to the Pension Trust. At September 30, 2004, the Company does not have an estimate of potential contributions in the next twelve months.

NOTE 9/RECENT ACCOUNTING PRONOUNCEMENTS

In December 2003, the Medicare Prescription Drug Improvement and Modernization Act of 2003 (the “Act”) was signed into law. The Act introduces a prescription drug benefit under Medicare and also provides that a nontaxable federal subsidy will be paid to sponsors of postretirement benefit plans that provide retirees with a drug benefit that is at least “actuarially equivalent” to the Medicare benefit. The Company sponsors certain postretirement medical benefit plans which provide prescription drugs and the receipt of the federal subsidy defined by the Act would reduce the liability for such plans and the annual cost.

In January 2004, the Financial Accounting Standards Board (FASB) issued a Staff Position document which acknowledged issues associated with measuring and recognizing the effect of the Act and allowed companies to elect to defer accounting for such effects until authoritative guidance on the accounting for the federal subsidy was issued. In May 2004, the FASB issued Staff Position SFAS No. 106-2 (“FSP 106-2”), “Accounting and Disclosure Requirements Related to the Medicare Prescription Drug, Improvement and Modernization Act of 2003.” FSP 106-2 provides guidance on the accounting, disclosure, effective date and transition rules related to the Act. FSP 106-2 requires companies to account for the effect of the subsidy on benefits attributed to past service as an actuarial experience gain and as a reduction of the service cost component of net periodic health care costs for amounts attributable to current service, if the benefit provided is at least actuarially equivalent to the Medicare benefit. The Company adopted FSP 106-2 in the third quarter of 2004. However, the Company’s APBO and net periodic benefit cost do not reflect any amount associated with the subsidy because the Company is unable to conclude whether the benefits provided by the plan are actuarially equivalent to the Medicare Part D benefit under the Act.

In January 2003, the FASB issued FASB Interpretation No. 46 (“FIN 46”), “Consolidation of Variable Interest Entities.” FIN 46 clarifies the application of Accounting Research Bulletin No. 51,

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“Consolidated Financial Statements,” to certain entities in which equity investors do not have the characteristics of a controlling financial interest or in which equity investors do not bear the residual economic risks. The interpretation was immediately applicable to variable interest entities (“VIEs”) created after January 31, 2003, and to VIEs in which an enterprise obtains an interest after that date. As originally issued, it applied in the fiscal year or interim period beginning after June 15, 2003, to VIEs in which an enterprise holds a variable interest that was acquired before February 1, 2003. In October 2003, the FASB issued FASB Staff Position No. 46-6, which defers the effective date for FIN 46 to the first interim or annual period ending after March 15, 2004 for non-special-purpose entity VIEs created before February 1, 2003. The adoption of FIN 46 did not have a material effect on the Company’s financial statements.

NOTE 10/ACQUISITIONS

On July 30, 2004, the Company completed its acquisition of 100% of the equity interests in J & F Steel, LLC (“J&F”), in which the Company invested a total of approximately $59 million, by paying $37.9 million in cash, net of $4.5 million of cash acquired, and assuming $13.5 million of debt. The transaction is also subject to a post-closing adjustment, which is estimated to be $3.3 million. During the third quarter, the Company redeemed the $13.5 million of outstanding debt. The acquisition has been accounted for by the purchase method of accounting, and the purchase price has been allocated to assets acquired and liabilities assumed. The Company funded the transaction by drawing on its revolving credit facility.

The table below summarizes the pro forma results of the Company as if the acquisition of J & F had occurred at the beginning of the periods presented:

NOTE 11/LONG-TERM DEBT

The Company amended its revolving credit agreement effective on July 30, 2004 simultaneous with the close of the J&F transaction. The amendment included an increase in the size of the facility from $450 million to $525 million and an extension of the final maturity date from December 19, 2006 to July 30, 2008. The amendment increased availability blocks from $45 million to $50 million, of which $30 million will become available only upon the consent of lenders holding 85 percent of facility commitments. The remaining $20 million of availability blocks becomes available if the Company meets certain financial ratios. At September 30, 2004, as a result of meeting required financial ratios, the $20 million availability block has become available for borrowing. All other items and conditions of the revolving credit agreement remain materially the same as previously disclosed. The Company paid $1.2 million in the third quarter of 2004 for fees associated with the amended revolving credit facility, which will be amortized over the term of the amended facility.

NOTE 12/SUBSEQUENT EVENTS

On October 26, 2004, the Company announced the signing of a definitive agreement to purchase Integris Metals, Inc., a joint venture between Alcoa Inc. and BHP Billiton. Integris is one of North America’s largest metals service centers, with a strong position in aluminum and stainless steel. The Company will purchase all of the equity interest in Integris for $410 million plus assumption of Integris’ debt, which was approximately $250 million as of October 1, 2004. The transaction is expected to be completed by early 2005, subject to customary closing conditions and regulatory approval.

The Company plans to finance the acquisition with cash on hand and borrowing under new secured credit facilities, and intends to refinance a portion of these borrowings with funds raised through debt and/or equity offerings in the capital markets, as market conditions permit. The agreement provides for a breakup fee of up to $20 million to be paid by the Company if the transaction is not finalized by the end of January 2005. The Company’s preliminary estimate of goodwill associated with the acquisition is approximately $100 million.

On November 4, 2004, the Company, Inc. announced the pricing of its Rule 144A private offering of $145 million aggregate principal amount of 3.5% Convertible Senior Notes due 2024. The closing of the offering is expected to take place on November 10, 2004. The initial purchasers will have the option to purchase up to an additional aggregate principal amount of $30 million of Convertible Senior Notes. The issue price of the Notes is 100 percent of principal amount, with a discount to the initial purchasers of 3.0%.

Holders may convert the Notes into shares of the Company’s common stock on or prior to the trading day preceding the stated maturity, under the following circumstances: (1) during any calendar quarter (and only during such calendar quarter) commencing after December 31, 2004 and before January 1, 2020, if the last reported sale price of the Company’s common stock is greater than or equal to 125% of the conversion price for at least 20 trading days in the period of 30 consecutive trading days ending on the last trading day of the preceding calendar quarter; (2) at any time on or after January 1, 2020, if the last reported sale price of the Company’s common stock on any date on or after December 31, 2019 is greater than or equal to 125% of the conversion price; (3) subject to certain limitations, during the five business day period after any five consecutive trading day period in which the trading price per Note for each day of that period was less than 98% of the product of the conversion rate and the last reported sale price of the Company’s common stock; (4) if the Company calls the Notes for redemption; or (5) upon the occurrence of certain corporate transactions.

The Notes will be convertible into the Company’s common stock at an initial conversion price of approximately $21.37 per share (equal to an initial conversion rate of 46.7880 shares per $1,000 principal amount) upon the occurrence of certain events. The conversion rate is subject to customary anti-dilution adjustments. Upon conversion, the Company will deliver cash equal to the lesser of the aggregate principal amount of the Notes being converted and the Company’s total conversion obligation (the market value of the common stock into which the Notes are convertible), and common stock in respect of the remainder. Following the issuance of the Notes, the payment of dividends on the Company’s common stock in excess of $0.20 per year per share will result in an adjustment to the conversion rate of the Notes.

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Overview

The Company is a general line materials, primarily metals, distributor and processor, offering a broad line of sheet, bar, tube and plate products. It purchases large quantities of metal products from primary producers and sells these materials in smaller quantities to a wide variety of metals-consuming industries. The Company processes more than one-half of the metals products that it sells by burning, sawing, slitting, blanking, cutting to length or other techniques. Revenue is recognized upon shipment to customers, which is substantially the same as recognizing revenue upon delivery given the proximity of distribution sites to customers. The Company’s profitability is dependent upon its ability to purchase material at competitive prices, to achieve adequate sales volume and to minimize operating expenses.

The metals service center industry is generally considered cyclical with periods of strong demand and higher prices followed by periods of weaker demand and lower prices due to the cyclical nature of the industries in which the largest consumers of metals operate. During 2003, the metals service center industry continued to be adversely affected by weak economic conditions in the manufacturing sector of the United States which started in the second half of 2000. The metals service center industry has experienced a significant recovery during the first nine months of 2004.

Results of Operations - Comparison of Third Quarter 2004 to Third Quarter 2003

For the third quarter of 2004, the Company reported consolidated net income of $17.4 million, or $0.68 per diluted share, as compared with a net loss of $3.2 million, or $0.13 per diluted share, in the year-ago quarter.

Included in the third quarter 2004 results are a pretax charge of $3.0 million, $1.8 million after-tax or $0.07 per share, associated with a plant consolidation. $0.2 million of the $3.0 million accrual is for future cash outflows. The Company expects to realize future annual cost and cash flow savings of $1.5 million from this restructuring action. The third quarter of 2004 also includes a $2.3 million pretax, $1.4 million after-tax or $0.05 per share, gain on the sale of property in Oregon and Indiana and a $2.3 million, or $0.09 per share, favorable after-tax adjustment to the gain on sale of the Inland Steel Company. Included in the third quarter 2003 results is a pretax charge of $0.9 million, $0.5 million after-tax or $0.02 per share, for costs associated with plant consolidations.

Sales for the third quarter of 2004 increased 63 percent to $898.7 million from the same period a year ago. The Company benefited from higher metals prices due to tight metals supplies and from increased demand from the metals-consuming sector of the economy. The Company also benefited from two months’ sales contribution from J&F Steel which was purchased on July 30, 2004. Average selling price increased 49 percent, while volume increased 10 percent, from the third quarter of 2003. Tons shipped in the third quarter of 2004 increased to 709,700 from 648,100 in the year-ago period.

Gross profit per ton of $213 in the third quarter of 2004 increased from $159 per ton in the year-ago quarter as a result of the higher average selling prices. Gross profit as a percent of sales in the third quarter of 2004 declined to 16.8 percent from 18.7 percent a year ago, primarily as a result of increased material cost surcharges, which are passed-through without mark-up to contractual customers.

Total operating expenses increased 16 percent to $120.8 million in the third quarter of 2004 from $104.2 million a year ago. On a per ton basis, third quarter 2004 total operating expenses increased to $170 per ton from $161 per ton in the year-ago period. Warehousing and delivery expenses increased 11 percent to $63.3 million in the third quarter of 2004 from $56.8 million a year ago. The increase was due to the impact of the higher volume on variable expenses, primarily delivery expenses, to higher operating supplies and group insurance costs and to two months’ expenses from J&F Steel. Selling, general and administrative expenses increased 22 percent to $56.8 million in the third quarter of 2004 from $46.5 million a year ago. The increase was primarily due to higher bonus accruals, higher pension and group insurance costs and to two months’ expenses from J&F Steel. Third quarter 2004 operating expenses also include the $3.0 million restructuring charge and $2.3 million gain on the sale of assets discussed above. Third quarter 2003 operating expenses also include the $0.9 million restructuring charge discussed above.

For the quarter, the Company reported an operating profit of $30.5 million, or $43 per ton, compared to an operating loss of $1.2 million, or $2 per ton, in the year-ago period.

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Results of Operations - Comparison of First Nine Months 2004 to First Nine Months 2003

For the first nine months of 2004, the Company reported consolidated net income of $50.7 million, or $1.97 per diluted share, as compared with a net loss of $6.6 million, or $0.27 per diluted share, in the year-ago period.

Included in the 2004 results are a pretax charge of $3.6 million, $2.2 million after-tax or $0.08 per share, associated with plant consolidations and workforce reductions. $0.3 million of the $3.6 million restructuring accrual is for future cash outlays. 2004 results also include a $4.7 million pretax, $2.8 million after-tax or $0.11 per share, gain on the sale of property and a $3.5 million, or $0.14 per share, favorable after-tax adjustment to the gain on sale of the Inland Steel Company.

Included in the first nine months of 2003 results is a pretax charge of $2.4 million, $1.5 million after-tax or $0.06 per share, for costs associated with a workforce reduction.

Sales for the first nine months of 2004 increased 46 percent to $2,398.3 million from the same period a year ago as average selling price increased 32 percent and volume increased 11 percent. The Company benefited from higher metals prices due to tight metals supplies and from increased demand from the metals-consuming sector of the economy. Tons shipped in the first nine months of 2004 increased to 2,125,100 from 1,916,600 in the year-ago period.

Gross profit per ton of $205 in the first nine months of 2004 increased from $165 per ton in the year-ago period due to the 32 percent increase in average selling price. The gross profit as a percent of sales declined to 18.2 percent from 19.3 percent in the year-ago period, primarily as a result of increased material cost surcharges, which are passed-through without mark-up to contractual customers.

Total operating expenses increased 10 percent to $344.3 million in the first nine months of 2004 from $313.4 million a year ago. On a per ton basis, 2004 total operating expenses decreased to $162 per ton from $164 per ton in the year-ago period. Warehousing and delivery expenses increased 8 percent to $183.5 million in the first nine months of 2004 from $169.5 million a year ago. The increase was due to the impact of the higher volume on variable expenses, primarily delivery expenses, and to higher operating supplies and group insurance costs. Selling, general and administrative expenses increased 14 percent to $161.9 million in the first nine months of 2004 from $141.5 million a year ago. The increase was primarily due to higher bonus accruals and higher pension and group insurance costs. Operating expenses for the first nine months of 2004 also include the $3.6 million restructuring charge and $4.7 million gain on the sale of assets discussed above. Operating expenses in the first nine months of 2003 also include the $2.4 million restructuring charge discussed above.

For the first nine months of 2004, the Company reported an operating profit of $92.4 million, or $43 per ton, compared to an operating profit of $2.8 million, or $1 per ton, in the year-ago period.

Liquidity and Capital Resources

The Company had cash and cash equivalents at September 30, 2004 of $28.6 million, compared to $13.7 million at December 31, 2003. Net cash used for operating activities was $117.1 million in the first nine months of 2004, including a $205.0 million increase in accounts receivable due to increased sales in the first nine months of 2004 compared to the fourth quarter of 2003 and a $96.6 million increase in accounts payable due to increases in the cost of materials. During the third quarter of 2004, the Company completed its acquisition of J&F Steel, in which the Company invested a total of approximately $59 million, by paying $37.9 million in cash, net of $4.5 million of cash acquired, and assuming $13.5 million of debt. The transaction is also subject to a post-closing adjustment, which is estimated to be $3.3 million. In addition to the J&F Steel acquisition, net cash used for investing activities of $46.5 million

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included, capital expenditures of $21.4 million, a $2.0 million investment in a joint venture in Mexico, $8.0 million proceeds from the sale of a facility in Oregon, $2.7 million proceeds from the sale of a facility in Guadalajara, Mexico, and $2.4 million proceeds from the sale of property in California. Net cash provided by financing activities was $178.5 million, which included an increased in funded borrowing under the Company’s revolving credit agreement of $175.0 million and the redemption of the $13.5 million of debt assumed in the J&F Steel acquisition.

The Company amended its revolving credit agreement effective on July 30, 2004 simultaneous with the close of the J&F transaction. The amendment included an increase in the size of the facility from $450 million to $525 million and an extension of the final maturity date from December 19, 2006 to July 30, 2008. The amendment increased availability blocks from $45 million to $50 million, of which $30 million will become available only upon the consent of lenders holding 85 percent of facility commitments. The remaining $20 million of availability blocks becomes available if the Company meets certain financial ratios. All other terms and conditions of the revolving credit agreement remain materially the same as previously disclosed. The Company paid $1.2 million in the third quarter of 2004 for fees associated with the amended revolving credit facility, which will be amortized over the term of the amended facility.

At September 30, 2004, the Company had $341 million outstanding funded borrowing under its revolving credit agreement, $18 million of letters of credit issued under the credit facility and $136 million available under the $525 million revolving credit agreement, compared to $151 million available on December 31, 2003 under the then current $450 million facility. Total credit availability is limited by the amount of eligible account receivables and inventory pledged as collateral under the agreement, up to a maximum of $525 million, as well as the availability blocks discussed above. At September 30, 2004, as a result of meeting required financial ratios, the $20 million availability block has become available for borrowing. The remaining $30 million will become available only upon the consent of lenders holding 85 percent of facility commitments. In addition, the availability blocks will increase each quarter beginning in April 2005 through the maturity of the Company’s 9¹/8% Notes in July 2006. (See discussion of Notes below). These additional blocked amounts will be used to repay the Notes at maturity. The total increase in the availability block over the six quarters (second quarter of 2005 through July of 2006) will equal the outstanding principal value of the Notes, which is currently $100 million. Letters of credit issued under the facility also reduce the amount available for borrowing. Interest rates under the credit facility are at market levels and are variable. At September 30, 2004, the weighted average interest rate on borrowings under the credit facility was 4.1 percent.

Proceeds from credit facility borrowings and repayments of credit facility borrowings in the Consolidated Statement of Cash Flows represent borrowings under the Company’s revolving credit agreement with original maturities of three months or more. Net short-term proceeds/(repayments) under the credit facility represent borrowings under the Company’s revolving credit facility with original maturities less than three months. The combined effect of all of the above resulted in an increase in borrowings under the revolving credit facility of $175 million in the first nine months of 2004. As a result, long-term debt in the Consolidated Balance Sheet increased from $266.3 million at December 31, 2003 to $441.2 million at September 30, 2004. The increase in borrowings was attributable to higher working capital requirements, the acquisition of J&F Steel discussed above and a $21.5 million voluntary pension contribution.

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The following table presents contractual obligations at September 30, 2004:

The Company’s credit agreement permits stock repurchases, the payment of dividends and repurchase of the Company’s 9 ¹/8% Notes due in 2006. Stock repurchases, dividends and repurchase of the 2006 Notes are subject to annual and aggregate limits and restricted by specific liquidity tests. In the most restrictive case the Company would be prohibited from repurchasing the 2006 Notes until the maturity date and would be limited to a maximum payment of $7.5 million in dividends in any calendar year and $3 million in stock repurchases in any twelve-month period. As of September 30, 2004, the Company was not subject to the most restrictive limitations.

The revolving credit agreement also contains covenants that, among other things, restrict the creation of certain kinds of secured indebtedness and of certain kinds of subsidiary debt, take or pay contracts, transactions with affiliates, mergers and consolidations, and sales of assets. There is also a covenant that no event, circumstance or development has occurred that would have a material adverse effect on the Company. The revolving credit agreement also includes cross-default provisions to other financing arrangements. The Company was in compliance with the revolving credit facility covenants at September 30, 2004.

The Company believes that cash flow from operations and proceeds from the revolving credit facility will provide sufficient funds to meet the Company’s contractual obligations and operating requirements for the next year. The current $525 million credit facility terminates effective July 30, 2008. The Company believes that on termination of its current facility it will be able to obtain a replacement credit facility secured by the Company’s inventory and accounts receivable. Additionally, the Company believes that new public or private debt financing is a potential future source of funding. In the event the Company were to seek such debt financing, the ability to complete any future financing and the amount, terms and cost of any such future financing would be subject to debt market conditions at that time.

In August 2001, the Company established a $50 million letter of

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credit in favor of the Pension Benefit Guaranty Corporation (the “PBGC”) as discussed below under—“ISC/Ispat Transaction.”

At September 30, 2004, $100 million of the Company’s 9 ¹/8% Notes due July 15, 2006 remain outstanding. The indenture under which the Notes were issued in 1996 contains covenants limiting, among other things, the creation of certain types of secured indebtedness, sale and leaseback transactions, the repurchase of capital stock, transactions with affiliates and mergers, consolidations and certain sales of assets. In addition, the Notes restrict the payment of dividends if the Company’s consolidated net worth does not exceed a minimum level. The Company is in compliance with this net worth test. The Notes also include a cross-default provision in the event of a default in the revolving credit facility. The Company was in compliance with the indenture covenants at September 30, 2004.

At year-end 2003, pension liabilities exceeded trust assets by $102 million. The Company does not have any ERISA-required pension plan contributions for 2004 but the Company made a voluntary contribution of $21.5 million in the third quarter of 2004 to improve the plan’s funded status. The Company does not expect to have any ERISA-required pension contribution funding in 2005, but could have future sizable pension contribution requirements. Future contribution requirements depend on the investment returns on plan assets and the impact on pension liabilities due to discount rates. The Company is unable to determine the amount or timing of any such contributions required by ERISA or whether any such contributions would have a material adverse effect on the Company’s financial condition, results of operations or cash flows. The Company believes that cash flow from operations and its credit facility described above will provide sufficient funds if the Company elects to make a contribution in 2005.

Mexican Joint Venture

In the first quarter of 2004, the Company contributed $2.0 million to increase its equity investment in Collado Ryerson, a joint venture in Mexico with G. Collado S.A. de C.V. After equal contributions from both joint venture partners, the Company’s ownership interest remained at 49.99%. The Company also loaned $0.7 million to the joint venture in the first quarter of 2004, with repayment due in 2006, and loaned an additional $1.5 million in the second quarter of 2004 and an additional $1.0 million in the third quarter of 2004. In the third quarter of 2004, Collado Ryerson repaid $2.0 million of their outstanding loan due to the Company.

ISC/Ispat Transaction

In 1998, Ryerson Tull, Inc. (together with its subsidiaries, the “Company”) sold its steel manufacturing segment (“ISC”) to Ispat International N.V. and certain of its affiliates (“Ispat”) pursuant to an agreement of sale and merger (the “ISC/Ispat Merger Agreement”). Pursuant to that agreement, the Company agreed to indemnify Ispat up to $90 million for losses incurred in connection with breaches of representations and warranties contained in the agreement and for expenditures and losses incurred

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relating to certain environmental liabilities. Ispat was required to make all such indemnification claims prior to March 31, 2000, other than claims related to tax matters, certain organizational matters and environmental matters.

As part of the sale transaction, the Inland Steel Industries Pension Plan was transferred to Ispat. As a condition to completing the ISC/Ispat transaction, Ispat and the Company entered into an agreement with the Pension Benefit Guaranty Corporation (“PBGC”) to provide certain financial commitments to reduce the underfunding of that pension plan (the “Ispat Pension Plan”) and to secure the Plan’s unfunded benefit liabilities on a termination basis. These commitments included a Company guaranty of $50 million of the obligations of Ispat to the PBGC in the event of a distress or involuntary termination of the Ispat Pension Plan.

In August 2001, the Company established a $50 million letter of credit in favor of the PBGC as security for the guaranty. Under the agreement among the PBGC, Ispat and the Company, by July 16, 2003, Ispat was required to take all necessary action to provide adequate replacement security to the PBGC, which would permit the Company to terminate the guaranty and the related letter of credit. Ispat did not provide the replacement security by such date, and the Company, in accordance with the aforementioned agreement, renewed its letter of credit on July 16, 2003 (the “PBGC Letter of Credit”), on a year-to-year basis until December 20, 2006. On September 15, 2003, the PBGC Letter of Credit and guaranty were reduced to $29 million pursuant to certain agreements signed on that date and described below.