EXHIBIT 99.1
Schnitzer Steel Reports Record Quarterly Earnings
PORTLAND, Ore.--(BUSINESS WIRE)--April 1, 2004--Schnitzer Steel
Industries, Inc. (Nasdaq:SCHN) today reported net income of $18.5
million or $0.89 per diluted share on revenues of $161.6 million for
the second fiscal quarter ended February 29, 2004. In comparison, the
Company reported net income of $8.4 million or $0.44 per diluted share
on revenues of $124.7 million for the quarter ended February 28, 2003.
For the first six months of fiscal 2004, Schnitzer Steel reported
net earnings of $30.7 million or $1.48 per diluted share on revenues
of $290.0 million. These amounts compare to net income of $11.3
million or $0.60 per diluted share on revenues of $215.3 million
during the first six months of fiscal 2003.
"The second quarter of fiscal 2004 was a strong quarter for
Schnitzer Steel," said Robert W. Philip, Chairman and Chief Executive
Officer. "In fact, our quarterly net income achieved record levels and
our income from operations exceeded the forecasted range we provided
in our last earnings release. The quarter's results were led by the
exceptional performance of our wholly owned Metals Recycling Business.
Overall, markets for recycled ferrous metal were strong and rising
throughout the second quarter. Demand continued to remain good in
Asia, but the domestic market seemed to show the greatest improvement
as demand and prices for finished steel products rose. Partially
offsetting the higher ferrous metal selling prices were sharp rises in
the amounts paid for both unprocessed metal and export shipping costs.
The second quarter of fiscal 2004 was also highlighted by the return
to profitability of our Steel Manufacturing Business and the announced
expansion of our Pick-N-Pull Auto Parts Business."
Metals Recycling Business
The Company's wholly owned Metals Recycling Business reported
operating income of $13.2 million in the second quarter of fiscal
2004, an improvement of $4.7 million or 55% over the same quarter last
year. Operating income divided by ferrous tons sold averaged $26 per
ton in the second quarter of fiscal 2004, which compares to $15 per
ton and $24 per ton in the second quarter of fiscal 2003 and the first
quarter of fiscal 2004, respectively. The improved operating margins
were primarily driven by higher average selling prices, which rose by
42% and 13%, over the second quarter of fiscal 2003 and the first
quarter of 2004, respectively. Overall, market selling prices rose
rapidly in the second fiscal quarter due primarily to the strength in
demand from domestic steel manufacturers who saw their finished
product order backlog and prices grow. Fiscal 2004 second quarter
average domestic selling prices actually increased at a greater rate
than our average export selling prices, which was primarily caused by
the timing of when orders are received and shipped. Export orders are
typically received 60-90 days ahead of shipment, whereas domestic
sales are typically shipped within 30 days of order.
Partially offsetting the higher selling prices were lower sales
volumes and increases in amounts paid for unprocessed metal and ocean
charters. Ferrous sales volumes amounted to 501,000 tons in the second
quarter of fiscal 2004, which compares to 555,000 tons in last year's
second quarter. Second quarter 2003 sales volume was a record
quarterly high caused by export customers delaying orders in the first
quarter of fiscal 2003. This year's second quarter sales volumes were
more typical of the quarterly shipment rate. Export sales shipping
costs continued to climb in the second quarter of fiscal 2004 and were
72% and 30% above the second quarter of fiscal 2003 and first quarter
of fiscal 2004, respectively. Ocean freight rates have been rising due
primarily to increasing demand from Asia for various bulk commodities.
Joint Venture Businesses
Income from Joint Ventures amounted to $8.7 million for the second
quarter of fiscal 2004 compared to $6.2 million in last year's second
quarter. The increase in the joint ventures' quarterly income came
primarily from a significant margin improvement in our global trading
joint venture that has been growing its market share and is now
serving additional markets and customers.
The joint venture processors of recycled metal reported relatively
flat operating income in the fiscal 2004 second quarter as compared to
the prior year period and did not experience the same rise in
profitability as the Company's wholly owned Metals Recycling Business.
The processing joint ventures, which are mainly based in the
northeastern U.S. and southern California, experienced similar gross
selling prices (before freight and ship loading costs) as the
Company's west coast based wholly owned Metals Recycling Business;
however, our east coast based joint ventures' export shipping costs
were significantly higher than was experienced by the west coast
businesses, which constrained profits. In addition, sales volumes from
the joint venture processors of recycled metal declined 12% from the
prior year quarter due primarily to the fact that last year's second
quarter volume was near record levels and was the result of customer
order delays from the first quarter of fiscal 2003.
Auto Parts Business
The Auto Parts Business reported operating income of $5.1 million
in the second quarter of fiscal 2004, which compares to $5.0 million
in the 2003 second quarter. Second quarter 2004 retail revenues were
relatively unchanged from the prior year quarter; however, wholesale
revenues increased due to generally higher selling prices and slightly
higher sales volumes. The higher revenues were offset by increases in
inventory and labor costs as well as from additional amortization of
intangibles from the 2003 acquisition of a former partner's interest
in the business.
As previously announced, on March 8, 2004 a newly formed Canadian
subsidiary of the Company acquired three stores in Calgary, Edmonton
and Kelowna, Canada, which increased the number of Pick-N-Pull stores
to 26.
Steel Manufacturing Business
The Steel Manufacturing Business reported an operating profit of
$2.7 million in the second quarter of fiscal 2004, which compares to
an operating loss of $1.4 million in the 2003 period. As expected, the
quarter's results included $1.8 million from the final payment of an
electrode price fixing settlement that was settled in favor of a
number of steel mills, including the Company's mill in McMinnville,
Oregon. Selling prices averaged $351 per ton in the second quarter of
fiscal 2004, which was $68 and $41 per ton higher than the amounts
reported in the second quarter of fiscal 2003 and the first quarter of
fiscal 2004, respectively. The rise in selling prices was primarily
caused by the combination of increasing end user demand as well as
domestic mills increasing prices to offset rising raw material and
energy costs.
Second quarter 2004 sales volumes rose 18% from the 2003 second
quarter not only due to the increases in steel consumption, but also
seemed to be caused by customers' efforts to buy ahead of announced
price increases. Partially offsetting the higher prices and sales
volume was an increase in the cost of raw materials resulting from
increases in world wide demand for recycled ferrous metal.
Income Taxes
As part of the 1996 Proler International, Inc. acquisition, the
Company acquired federal income tax net operating loss carryforwards
("NOLs"). As of February 29, 2004, the NOLs totaled $15.3 million and
if not used will expire in 2015 and 2016. In addition to the
expiration dates, the NOLs are subject to annual limitations of $2.4
million that can be utilized to offset taxable income.
In accordance with generally accepted accounting principles
("GAAP"), the Company established valuation reserves for the acquired
NOLs. The valuation reserves were required to the extent management
believed that it was uncertain whether the Company's future taxable
income, over the life of the NOLs, would be available to utilize the
NOLs. Historically, management reviewed the need for valuation
reserves on a quarterly basis and released the reserves only to the
extent they felt the uncertainty was mitigated.
During the second quarter of fiscal 2004, management made a
determination that it was more likely than not that the Company's
future taxable income would be available to fully utilize the NOLs.
Management's determination was based upon a number of factors
including profitability trends, industry fundamentals, and recent
profitable acquisitions. The reversal of the NOL reserves, offset in
part by other factors, reduced the Company's second quarter tax rate
from approximately 29% to 19%. The change in the Company's GAAP tax
rate associated with the reversal of the valuation reserves has no
impact on the Company's cash flow; however, the cash taxes paid by the
Company are anticipated to continue to benefit from the NOLs through
the year 2016.
Outlook
As mentioned earlier, the ferrous recycled metal market continued
to strengthen throughout the second quarter of fiscal 2004. However,
the market for recycled metal continues to remain volatile and
difficult to predict. The Metals Recycling Business normally accepts
orders 60 to 90 days before shipment. Based upon the Metals Recycling
Businesses' third quarter 2004 order backlog, contracted selling
prices are, on average, significantly higher than the amounts realized
in the second quarter of fiscal 2004 and the third quarter of fiscal
2003. Third quarter 2004 sales volumes are anticipated to be in the
general range of last year's third quarter level. Ocean freight rates
continue to remain high from a historical context, however, it appears
freight rates are beginning to stabilize and may begin to show a
modest decline in the coming months. The cost of unprocessed ferrous
metal remains very competitive and volatile. We anticipate the cost of
unprocessed metal to generally follow the trend of market selling
prices.
The joint venture processors in the metals recycling business are
anticipated to experience similar market trends as the Company's
wholly owned Metals Recycling Business; however, their financial
results may vary depending on geographical locations, competition and
other factors.
The domestic economy appears to be improving, which has spurred an
increase in demand for finished steel and has benefited the Company's
Steel Manufacturing Business. Over the last few months, finished steel
selling prices steadily rose across all product lines. Finished steel
sales volumes traditionally increase in the third fiscal quarter due
to seasonal improvements in demand. However, management believes that
certain customers appear to have built inventories during the second
quarter, which is expected to modestly reduce third quarter sales
volumes. It's anticipated that third quarter sales volumes will be in
excess of 150,000 tons. Market prices are expected to continue to rise
throughout the third quarter. The higher selling prices are
anticipated to be partially offset by higher raw material costs.
Overall, it is estimated that the Steel Manufacturing Business will
continue to be profitable in the third quarter of fiscal 2004.
The Auto Parts Business typically experiences increased retail
demand in the third quarter of each year as customer admissions
increase in concert with improving weather conditions. Wholesale
revenues should remain strong and may improve modestly over the second
quarter of this fiscal year. The anticipated increase in revenues is
expected to be offset in part by higher inventory costs. The Auto
Parts Business's operating profits are also anticipated to benefit
from the addition of the three new Canadian stores.
Overall, the Company estimates its third quarter 2004 income from
operations to be in the $38 million to $43 million range. This amount
compares to income from operations of $22.0 million reported for the
third quarter of fiscal 2003.
The Company's effective tax rate should continue to benefit from
Extraterritorial Income Exclusion benefits associated with certain
export sales. These, as well as other factors, including increased
profitability, should result in an effective fiscal 2004 annual tax
rate in the 29% to 30% range.
Second Quarter 2004 Conference Call
In conjunction with this release, Schnitzer Steel invites you to
listen to its conference call that will be broadcast over the Internet
today at 5 PM EST with Robert W. Philip, Chairman and Chief Executive
Officer and Barry A. Rosen, Vice President -- Finance and Chief
Financial Officer. The call is being webcast by CCBN and can be
accessed on Schnitzer Steel's web site at www.schnitzersteel.com.
Schnitzer Steel Industries, Inc. is one of the nation's largest
recyclers of ferrous metals, a manufacturer of finished steel products
and a leading self-service used auto parts retailer. The Company, with
its joint venture partners, processes approximately 4.9 million tons
of recycled ferrous metals per year. In addition, the Company's steel
mill has an annual production capacity of approximately 700,000 tons
of finished steel products. The Company and its joint venture partners
operate primarily along the West Coast and Northeastern seaboard of
the United States.
This news release, particularly the "Outlook" section, contains
forward-looking statements, within the meaning of Section 21E of the
Securities Exchange Act of 1934, which are made pursuant to the safe
harbor provisions of the Private Securities Litigation Reform Act of
1995. One can generally identify these forward-looking statements
because they contain "expect", "believe", "anticipate", "estimate" and
other words that convey a similar meaning. One can also identify these
statements, as they do not relate strictly to historical or current
facts. Examples of factors affecting both Schnitzer Steel Industries,
Inc.'s consolidated operations and its joint ventures (the Company)
that could cause actual results to differ materially from current
expectations are the following: volatile supply and demand conditions
affecting prices and volumes in the markets for both the Company's
products and raw materials it purchases; world economic conditions;
world political conditions; changes in federal and state income tax
laws; foreign currency fluctuations; competition; seasonality,
including weather; energy supplies; freight rates; the predictability
of joint venture operating results; and the inability to complete
expected large scrap export shipments in the current quarter, all as
discussed in more detail under the heading "Factors That Could Affect
Future Results" in the Company's most recent quarterly report on Form
10-Q. One should understand that it is not possible to predict or
identify all factors that could cause actual results to differ from
the Company's forward-looking statements. Consequently, the reader
should not consider any such list to be a complete statement of all
potential risks or uncertainties. The Company does not assume any
obligation to update any forward-looking statement.
For more information about Schnitzer Steel Industries, Inc. go to
www.schnitzersteel.com.
SCHNITZER STEEL INDUSTRIES, INC.
FINANCIAL HIGHLIGHTS
(in thousands, except per share amounts)
(Unaudited)
For the Three Months Ended For the Six Months Ended
--------------------------- ----------------------------
February 29, February 28, February 29, February 28,
2004 2003 2004 2003
------------- ------------- ------------- --------------
REVENUES:
Metals Recycling
Business:
Ferrous sales $ 95,545 $ 72,630 $161,439 $ 106,561
Nonferrous sales 12,078 11,669 24,487 21,784
Other sales 1,704 1,417 3,003 2,945
------------- ------------- ------------- --------------
Total sales 109,327 85,716 188,929 131,290
Auto Parts
Business 17,245 14,755 34,905 30,894
Steel Manufacturing
Business 59,861 41,271 113,080 84,101
Intercompany sales
eliminations (24,830) (17,083) (46,935) (30,959)
------------- ------------- ------------- --------------
Total $161,603 $124,659 $289,979 $ 215,326
============= ============= ============= ==============
INCOME (LOSS) FROM OPERATIONS:
Metals Recycling
Business $ 13,162 $ 8,482 $ 23,085 $ 11,565
Auto Parts
Business 5,094 5,021 10,983 10,231
Steel Manufacturing
Business 2,691 (1,358) 2,549 (2,615)
Joint ventures 8,684 6,194 14,621 9,369
Corporate expense (3,018) (2,529) (5,664) (4,553)
Intercompany
eliminations (2,396) (413) (3,252) 160
Impairment and
other nonrecurring
charges - (2,100) - (2,100)
------------- ------------- ------------- --------------
Total $ 24,217 $ 13,297 $ 42,322 $ 22,057
============= ============= ============= ==============
NET INCOME $ 18,549 $ 8,409 $ 30,726 $ 11,303
============= ============= ============= ==============
BASIC EARNINGS
PER SHARE $ 0.93 $ 0.46 $ 1.55 $ 0.61
============= ============= ============= ==============
DILUTED
EARNINGS PER
SHARE $ 0.89 $ 0.44 $ 1.48 $ 0.60
============= ============= ============= ==============
SHARE
INFORMATION
(THOUSANDS):
Basic shares
outstanding 20,014 18,412 19,867 18,410
============= ============= ============= ==============
Diluted shares
outstanding 20,736 18,906 20,697 18,806
============= ============= ============= ==============
Note: Effective March 25, 2004, the Company completed a previously
announced 3-for- 2 stock split. The per share information that is
contained above was prepared using the number of shares outstanding
before the stock split. The following table was prepared to assist the
reader in understanding the per share information assuming the 3-for-2
stock split had occurred as of February 29, 2004:
NET INCOME $ 18,549 $ 8,409 $ 30,726 $ 11,303
============= ============= ============= ==============
PRO FORMA
BASIC EARNINGS
PER SHARE $ 0.62 $ 0.30 $ 1.03 $ 0.41
============= ============= ============= ==============
PRO FORMA
DILUTED EARNINGS
PER SHARE $ 0.60 $ 0.30 $ 0.99 $ 0.40
============= ============= ============= ==============
PRO FORMA SHARE
INFORMATION
(THOUSANDS):
Basic shares
outstanding 30,021 27,618 29,800 27,615
============= ============= ============= ==============
Diluted shares
outstanding 31,104 28,359 31,045 28,209
============= ============= ============= ==============
SCHNITZER STEEL INDUSTRIES, INC.
CONSOLIDATED STATEMENT OF INCOME
(in thousands, except per share amounts)
(Unaudited)
For the Three Months For the Six Months Ended
Ended
------------------------- -------------------------
February 29, February 28, February 29, February 28,
2004 2003 2004 2003
------------ ------------ ------------ ------------
Revenues $ 161,603 $ 124,659 $ 289,979 $ 215,326
------------ ------------ ------------ ------------
Costs and expenses:
Cost of goods
sold and other
operating
expenses 135,631 106,156 242,329 182,949
Impairment and
other
nonrecurring
charges - 2,100 - 2,100
Selling and
commission
expenses 1,106 1,257 2,384 2,442
General and
administrative
expenses 9,333 8,043 17,565 15,147
------------ ------------ ------------ ------------
Income from
consolidated
operations 15,533 7,103 27,701 12,688
Income from joint
ventures 8,684 6,194 14,621 9,369
------------ ------------ ------------ ------------
Income from
operations 24,217 13,297 42,322 22,057
Other income (expense):
Interest expense (486) (310) (926) (690)
Other income
(expense), net (50) (27) 154 (216)
------------ ------------ ------------ ------------
(536) (337) (772) (906)
------------ ------------ ------------ ------------
Income before
cumulative effect
of change in
accounting
principle,income
taxes, minority
interests and
pre-acquisition
interests 23,681 12,960 41,550 21,151
Income tax
provision (4,582) (3,502) (9,764) (5,517)
------------ ------------ ------------ ------------
Income before
cumulative effect
of change in
accounting
principle, minority
interests, and
pre-acquisition
interests 19,099 9,458 31,786 15,634
Minority interests,
net of tax (550) (354) (1,060) (801)
Pre-acquisition
interests, net of
tax - (695) - (2,547)
------------ ------------ ------------ ------------
Income before
cumulative effect
of change in
accounting
principle 18,549 8,409 30,726 12,286
Cumulative effect
of change in
accounting
principle - - - (983)
------------ ------------ ------------ ------------
Net income $ 18,549 $ 8,409 $ 30,726 $ 11,303
============ ============ ============ ============
Basic earnings per
share $ 0.93 $ 0.46 $ 1.55 $ 0.61
============ ============ ============ ============
Diluted earnings
per share $ 0.89 $ 0.44 $ 1.48 $ 0.60
============ ============ ============ ============
Note: Effective March 25, 2004, the Company completed a previously
announced 3-for-2 stock split. The per share information that is
contained above was prepared using the number of shares outstanding
before the stock split. The following table was prepared to assist the
reader in understanding the per share information assuming the 3-for-2
stock split had occurred as of February 29, 2004:
NET INCOME $ 18,549 $ 8,409 $ 30,726 $ 11,303
============ ============ ============ ============
PRO FORMA BASIC
EARNINGS PER SHARE $ 0.62 $ 0.30 $ 1.03 $ 0.41
============ ============ ============ ============
PRO FORMA DILUTED
EARNINGS PER SHARE $ 0.60 $ 0.30 $ 0.99 $ 0.40
============ ============ ============ ============
PRO FORMA SHARE
INFORMATION
(THOUSANDS):
Basic shares
outstanding 30,021 27,618 29,800 27,615
============ ============ ============ ============
Diluted shares
outstanding 31,104 28,359 31,045 28,209
============ ============ ============ ============
Schnitzer Steel Industries, Inc.
Selected Operating Statistics
(Unaudited)
Q1 FY04 Q2 FY04 FY04
-------------------------------------
Metals Recycling Business
Ferrous Recycled Metal Sales
Prices ($/LT)
Domestic $ 135 $ 168 $ 150
Export $ 144 $ 154 $ 150
Average $ 140 $ 158 $ 150
Ferrous Sales Volume (LT)
Domestic Processed(a) 99,781 105,371 205,152
Domestic Brokered(a) 73,366 40,658 114,024
Export 235,481 355,304 590,785
---------- ---------- ----------
Total (a) 408,628 501,333 909,961
========== ========== ==========
(a) Includes sales to the
Steel Manufacturing
Business 157,989 131,837 289,826
========== ========== ==========
Steel Manufacturing Business
Sales Prices ($/NT)
Rebar $ 308 $ 354 $ 331
Other $ 313 $ 347 $ 330
Average $ 310 $ 351 $ 331
Sales Volume (NT)
Rebar 91,204 89,699 180,903
Wire Rod 43,020 43,358 86,378
Other 28,370 29,252 57,622
---------- ---------- ----------
Total 162,594 162,309 324,903
========== ========== ==========
Joint Ventures Ferrous Recycled
Metal Sales Volume
Processed (LT) 674,622 827,787 1,502,409
Brokered (LT) 677,395 623,066 1,300,461
---------- ---------- ----------
1,352,017 1,450,853 2,802,870
========== ========== ==========
Q1 FY03 Q2 FY03 Q3 FY03 Q4 FY03 FY03
-----------------------------------------------------
Metals Recycling
Business
Ferrous
Recycled Metal
Sales Prices
($/LT)
Domestic $ 100 $ 108 $ 125 $ 119 $ 114
Export $ 104 $ 113 $ 140 $ 144 $ 127
Average $ 102 $ 111 $ 133 $ 137 $ 122
Ferrous Sales
Volume (LT)
Domestic
Processed(a) 113,439 95,277 132,217 82,087 423,020
Domestic
Brokered(a) 38,890 57,462 60,322 75,376 232,050
Export 142,199 402,437 239,801 372,658 1,157,095
---------- ---------- ---------- ---------- ----------
Total (a) 294,528 555,176 432,340 530,121 1,812,165
========== ========== ========== ========== ==========
(a) Includes
sales to the
Steel
Manufacturing
Business 114,988 140,823 144,274 134,787 534,872
========== ========== ========== ========== ==========
Steel Manufacturing
Business Sales
Prices ($/NT)
Rebar $ 273 $ 269 $ 282 $ 298 $ 282
Other $ 293 $ 299 $ 305 $ 303 $ 300
Average $ 284 $ 283 $ 293 $ 300 $ 291
Sales Volume
(NT)
Rebar 64,652 74,160 88,323 99,829 326,964
Wire Rod 50,216 37,790 47,469 51,016 186,491
Other 27,470 25,099 28,418 27,170 108,157
---------- ---------- ---------- ---------- ----------
Total 142,338 137,049 164,210 178,015 621,612
========== ========== ========== ========== ==========
Joint Ventures
Ferrous Recycled
Metal Sales Volume
Processed (LT) 635,899 941,220 880,173 865,255 3,322,547
Brokered (LT) 470,304 304,068 387,336 674,753 1,836,461
---------- ---------- ---------- ---------- ----------
1,106,203 1,245,288 1,267,509 1,540,008 5,159,008
========== ========== ========== ========== ==========
Note: Price information is shown after a reduction for the cost of
freight incurred to deliver the product to the customer
CONTACT: Schnitzer Steel Industries, Inc.
Barry Rosen, 503-323-2720 (Financial Contact)
or
Tom Zelenka, 503-323-2821 (Press Contact)
www.schnitzersteel.com