EXHIBIT 99.1
Schnitzer Steel Reports Record Annual Revenues and Earnings
PORTLAND, Ore.--(BUSINESS WIRE)--Oct. 6, 2004--Schnitzer Steel
Industries, Inc. (Nasdaq:SCHN) today reported net income of $37.9
million or $1.22 per diluted share on revenues of $204.5 million for
the fourth quarter ended August 31, 2004. In comparison, the Company
reported net income of $16.9 million or $0.56 per diluted share on
revenues of $153.6 million for the quarter ended August 31, 2003.
For the fiscal year ended August 31, 2004, Schnitzer Steel
reported record net income of $111.2 million or $3.58 per diluted
share on record revenues of $688.2 million. These amounts compare to
net income of $43.2 million or $1.47 per diluted share on revenues of
$496.9 million during the 2003 fiscal year.
"It was just a year ago when we announced that Schnitzer completed
its first decade as a publicly traded Company by reporting record
revenues and earnings," said Robert W. Philip, Chairman and Chief
Executive Officer. "Today, it's a pleasure to report that we began the
second decade by again reporting record annual revenues and net
income. Fiscal 2004's excellent performance was primarily the result
of a strong pricing environment driven by improvements in the world
economies that spurred demand for both finished steel and recycled
metal products. However, much of this year's success is attributable
to our excellent management team that helped position the Company to
leverage the strong pricing environment. The credit for our record
year goes directly to the management teams in both our wholly-owned
businesses and our joint ventures, including Hugo Neu Corporation."
Referring to the Company's recent quarterly performance Mr. Philip
added, "Our fourth quarter 2004 earnings grew 125% over the 2003
period and exceeded our earlier guidance. The earnings growth was due
primarily to continued improvement in both the steel and recycled
metal markets. The Company's earnings growth was led by our
wholly-owned and joint venture metals recycling businesses that
produced a combined operating profit of $40.7 million, which was 100%
above the fourth quarter of last year. We also saw significant profit
gains in the Steel Manufacturing Business and continued earnings
growth in the Auto Parts Business segment. Looking ahead into the
first quarter of fiscal 2005, we continue to see good market
conditions for all of our products, which are expected to result in
strong earnings growth over the prior year quarter."
Chief Financial Officer's Retirement
The Company also announced that Barry A. Rosen, Vice President -
Finance and Chief Financial Officer plans to retire in June 2005. Mr.
Rosen has been the Company's Chief Financial Officer for the past 22
years. He was directly involved in Schnitzer's 1993 initial public
stock offering and the development of the Company's strategic efforts
to grow the business. During Mr. Rosen's tenure the Company saw
significant growth both in size and geographic scope. Commenting on
Mr. Rosen's pending retirement, Mr. Philip noted, "Barry is recognized
by many for his expertise in the financial intricacies and nuances of
the metals recycling and steel manufacturing industries and has built
valuable relationships with the outside financial community. In
addition to building external relationships, Barry also developed an
excellent finance team, including very capable professionals who are
well suited to succeed him as the Company's Chief Financial Officer.
The combination of this strong team and Barry's continued active
involvement as Chief Financial Officer during the next eight months
gives us the ability to insure that the Company will undergo a smooth
and orderly transition. As mentioned earlier, Schnitzer's business
outlook remains very positive and our financial management will be
seamless as we move ahead."
Metals Recycling Business
The Metals Recycling Business' fourth quarter 2004 operating
income amounted to $21.8 million representing an improvement of 54%
over the fourth quarter of last year. The increase in profitability
was largely driven by higher selling prices, offset in part by lower
ferrous sales volumes and higher costs paid to procure unprocessed
metal. Ferrous selling prices averaged $199 per ton during the fourth
quarter of fiscal 2004, which compares to $137 per ton reported in
last year's fourth quarter and $237 per ton for the third quarter of
fiscal 2004. Prices generally increased during fiscal 2004; however,
markets experienced significant price fluctuations throughout the
year. Fourth quarter 2004 ferrous sales volumes amounted to 490,000
tons, which were 8% lower than the same quarter last year, but met the
Company's expectations. The modestly lower sales volumes were caused
by normal variations in shipments resulting from the timing of when
export orders are received and ultimately shipped.
The Company is upgrading and modernizing certain of its metals
processing facilities. These improvements include replacing equipment
and rebuilding infrastructure and resulted in a fiscal 2004 fourth
quarter charge of $3.5 million to write-down the value of obsolete
fixed assets.
Joint Venture Businesses
Fourth quarter 2004 operating income from joint ventures amounted
to $18.9 million, which included a $6.1 million charge to account for
this year's LIFO charge. In comparison, last year's fourth quarter
income from joint ventures amounted to $6.2 million and included a
$2.2 million charge for LIFO inventory valuation. The joint ventures
benefited from similar market factors and pricing as described in the
discussion above relating to the Metals Recycling Business. In
addition, sales volumes from the processing joint ventures grew 15%
from the fourth quarter of last year to 993,000 tons caused primarily
by timing variances between when export orders are received and
shipped. Brokerage sales volume increased 12% from the prior year
quarter, which came primarily from increased market share in Mexico
and Latin America coupled with product line expansion into other scrap
metal related commodities.
Auto Parts Business
Fourth quarter operating income for the Auto Parts Business grew
27% over the prior year quarter to $7.3 million. The improved
profitability was due in part to the addition of three new stores in
Canada that were purchased in March 2004 as well as from higher
wholesale revenues caused by increasing recycled metal prices. These
improvements were offset in part by higher costs to procure inventory
and increases in costs to expand the infrastructure to support the
Company's growth plans.
Steel Manufacturing Business
The Steel Manufacturing Business reported record operating profits
of $15.1 million in the fourth quarter of fiscal 2004, which compares
to $0.4 million in the same 2003 period. Selling prices averaged a
record $511 per ton in the fourth quarter of fiscal 2004, representing
a 70% and 14% increase over the fourth quarter of 2003 and the third
quarter of 2004, respectively. Selling prices have increased
dramatically over the last three fiscal quarters due to rising raw
material costs and improved demand for finished steel products.
Throughout fiscal 2004 finished steel demand was very good.
Traditionally, the mill carries higher inventories into the fourth
quarter that allow it to fulfill seasonably strong fourth quarter
demand. However, the unusually high demand in the second and third
quarters of fiscal 2004 caused the mill's finished goods inventory to
decrease. Consequently, finished goods inventories at the beginning of
the fourth quarter of 2004 were low and resulted in a fourth quarter
2004 sales volume decline of 9%.
On May 5, 2004, the Company announced that it retained Bear
Stearns to explore strategic alternatives, including the possible
sale, for the Steel Manufacturing Business. The Company is continuing
to work with Bear Stearns, but has nothing new to report on this
matter at this time.
General and Administrative Costs
The Company's general and administrative expense amounted to $12.3
million in the fourth quarter of fiscal 2004 compared to $8.6 million
in last year's fourth quarter. The higher administrative costs were
primarily driven by an increase in the Company's bonus accrual, which
is based upon an Economic Value Added (EVA(R)) model and
directly ties bonus payouts to the underlying financial performance of
the Company. The Company's recent record financial performance has
resulted in significantly higher bonus expense in the fiscal 2004
period. The EVA bonus plans cover approximately 400 of the Company's
employees.
First Quarter 2005 Outlook
During the third quarter of fiscal 2004 ferrous recycled metal
selling prices for new orders declined from the record highs that were
achieved in March 2004. However, by early June prices began to firm
and continued to rise throughout the fourth fiscal quarter. In August
2004 average market prices for ferrous metals actually exceeded the
highs achieved in March 2004. Ferrous selling prices are volatile and
have since moderated, but today remain ahead of the average prices
realized in fiscal 2004. Overall demand for recycled metal remains
good. The Metals Recycling Business normally accepts export orders 60
to 90 days before shipment. Based upon the Metals Recycling
Business' current order backlog, contracted selling prices that are
expected to be shipped in the first quarter of fiscal 2005 are, on
average, significantly above the price levels reported in the first
quarter of last year and even higher than the averages realized during
the fourth quarter of 2004. The Company's wholly-owned Metals
Recycling Business' first quarter 2005 ferrous sales volume is
anticipated to be in the 430,000 to 475,000 ton range. Ocean freight
rates eased in the fourth quarter of fiscal 2004 relative to the rates
paid in the third quarter of 2004, but are now strengthening. The cost
of unprocessed ferrous metal remains very competitive and volatile.
The Company anticipates the cost of unprocessed metal to generally
follow the trend of market selling prices.
It is anticipated that the joint venture processors in the metals
recycling business will 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 Company records its share of the
joint venture's LIFO inventory adjustment in the fourth quarter of
each year, thus no LIFO adjustment is expected in the first quarter of
2005.
Overall, it's anticipated that the Auto Parts Business' first
quarter 2005 retail demand will remain steady relative to the fourth
quarter. Comparing the first quarter of fiscal 2004 to the 2005 first
quarter, it is anticipated that both revenues and income from
operations will improve due to the addition of the three new Canadian
stores acquired in March 2004 as well as expected increases in
wholesale revenues resulting from higher pricing levels.
Throughout the 2004 fourth quarter finished steel selling prices
generally increased, which is expected to result in modestly higher
average selling prices in the first quarter of 2005. Consumption of
steel remains good, but normally declines in the first fiscal quarter
due to seasonal declines in demand. Also, we expect fabricators to
reduce their inventories during this period. In recent months, we have
seen increasing imports of certain steel products that have increased
the supply for these selected items in the market. It is estimated
that first quarter 2005 sales volumes will approximate 140,000 tons.
Raw material costs, including the costs of alloys and electrodes are
expected to rise; however, energy costs are anticipated to begin to
decline relative to the costs paid in the fourth quarter of 2004 due
to seasonal decreases in energy rates.
The Company's effective tax rate for the first quarter of fiscal
2005 should continue to benefit from Extraterritorial Income Exclusion
benefits associated with certain export sales. These benefits as well
as other factors are expected to result in a first quarter 2005
effective tax rate of approximately 35%.
The Company estimates its first quarter 2005 income from
operations to be in the $62 million to $68 million range. This amount
compares to income from operations of $18.1 million reported for the
first quarter of fiscal 2004 and $57.2 million reported in the fourth
quarter of fiscal 2004.
Fourth 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, October 6, 2004, at 11:30 a.m. 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 leading self-service used auto parts
retailer with 26 locations in the U.S. and Canada, and manufacturer of
finished steel products. The Company, with its joint venture partners,
processes approximately 5.2 million tons of recycled ferrous metals
per year as well as brokers nearly 3.0 million tons through various
brokerage arrangements. 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 statements that 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; impact of pending or new law and regulations
regarding imports and exports into the United States and other foreign
countries; 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. EVA(R) is a registered trademark of Stern
Stewart & Company.
SCHNITZER STEEL INDUSTRIES, INC.
FINANCIAL HIGHLIGHTS
(in thousands, except per share amounts)
For The Three Months
Ended For The Year Ended
August 31, August 31,
------------------- -------------------
2004 2003 2004 2003
--------- --------- --------- ---------
(Unaudited) (Unaudited)
REVENUES:
Metals Recycling Business:
Ferrous sales $110,466 $ 83,501 $392,992 $255,232
Nonferrous sales 17,293 13,240 56,954 47,788
Other sales 1,617 1,204 6,356 5,533
--------- --------- --------- ---------
Total Metals
Recycling Revenue 129,376 97,945 456,302 308,553
Auto Parts Business 23,319 17,020 81,518 65,225
Steel Manufacturing
Business 86,165 56,684 271,293 191,861
Intercompany Eliminations (34,369) (18,053) (120,893) (68,773)
--------- --------- --------- ---------
Total Revenue $204,491 $153,596 $688,220 $496,866
========= ========= ========= =========
OPERATING INCOME (LOSS):
Metals Recycling Business $ 21,772 $ 14,104 $ 77,319 $ 35,781
Auto Parts Business 7,267 5,732 26,804 21,968
Steel Manufacturing
Business 15,130 376 24,636 (2,522)
Joint ventures, including
year-end LIFO adjustments 18,937 6,212 61,571 24,421
Corporate expense (3,853) (2,968) (15,570) (9,966)
Intercompany eliminations 1,489 1,247 (4,380) 1,203
Impairment and other
nonrecurring charges (3,500) - (3,500) (2,100)
--------- --------- --------- ---------
Total Operating
Income $ 57,242 $ 24,703 $166,880 $ 68,785
========= ========= ========= =========
NET INCOME $ 37,940 $ 16,873 $111,181 $ 43,201
========= ========= ========= =========
BASIC EARNINGS PER SHARE $ 1.26 $ 0.59 $ 3.71 $ 1.55
========= ========= ========= =========
DILUTED EARNINGS PER SHARE $ 1.22 $ 0.56 $ 3.58 $ 1.47
========= ========= ========= =========
Share Information (in
thousands):
Basic shares
outstanding 30,210 28,832 29,976 27,975
Diluted shares
outstanding 31,077 30,282 31,058 29,480
SCHNITZER STEEL INDUSTRIES, INC.
CONSOLIDATED STATEMENT OF INCOME
(in thousands, except per share amounts)
For the Three Months
Ended For the Year Ended
August 31, August 31,
------------------- -------------------
2004 2003 2004 2003
--------- --------- --------- ---------
(Unaudited) (Unaudited)
Revenues $204,491 $153,596 $688,220 $496,866
--------- --------- --------- ---------
Operating expenses:
Cost of goods sold 148,612 125,041 530,279 413,043
Impairment and
nonrecurring charges 3,500 - 3,500 2,100
Selling 1,815 1,500 6,102 5,311
General and Administrative 12,259 8,564 43,030 32,048
--------- --------- --------- ---------
Income from wholly-owned
operations 38,305 18,491 105,309 44,364
Operating income from joint
ventures 18,937 6,212 61,571 24,421
--------- --------- --------- ---------
Operating income 57,242 24,703 166,880 68,785
Other income (expense):
Interest expense (560) (644) (2,048) (1,778)
Other income, net (345) (262) (506) (540)
--------- --------- --------- ---------
(905) (906) (2,554) (2,318)
--------- --------- --------- ---------
Income before income taxes 56,337 23,797 164,326 66,467
Income tax provision (17,718) (6,484) (50,669) (17,946)
--------- --------- --------- ---------
Income before minority
interests, pre-acquisition
interests and cumulative
effect of change in
accounting principle 38,619 17,313 113,657 48,521
Minority interests, net of
income taxes (679) (474) (2,476) (1,824)
Pre-acquisition interests,
net of income taxes - 34 - (2,513)
--------- -------- -------- --------
Income before cumulative
effect of change in
accounting principle 37,940 16,873 111,181 44,184
Cumulative effect of change
in accounting principle - - - (983)
--------- -------- -------- --------
Net income $ 37,940 $ 16,873 $111,181 $ 43,201
========= ========= ========= =========
Basic earnings per share $ 1.26 $ 0.59 $ 3.71 $ 1.55
========= ========= ========= =========
Diluted earnings per share $ 1.22 $ 0.56 $ 3.58 $ 1.47
========= ========= ========= =========
Share information
(thousands):
Basic shares outstanding 30,210 28,832 29,976 27,975
========= ========= ========= =========
Diluted shares
outstanding 31,077 30,282 31,058 29,480
========= ========= ========= =========
Schnitzer Steel Industries, Inc.
Selected Operating Statistics
(Unaudited)
Q1 FY04 Q2 FY04 Q3 FY04 Q4 FY04 FY04
-------- -------- -------- -------- ---------
Metals Recycling
Business
Ferrous Recycled
Metal Sales Prices
($/LT)
Domestic $135 $168 $228 $186 $184
Export $144 $154 $243 $208 $187
Average $140 $158 $237 $199 $184
Ferrous Sales
Volume (LT)
Domestic -
Processed 99,781 105,371 112,310 142,198 459,660
Domestic -
Brokered 73,366 40,658 52,627 49,333 215,984
Export 235,481 355,304 280,493 298,484 1,169,762
--------------------------------------------------
Total 408,628 501,333 445,430 490,015 1,845,406
==================================================
Includes sales to
SMB 157,989 131,837 158,314 169,459 617,599
==================================================
Steel Manufacturing
Business
Sales Prices ($/NT)
Rebar $308 $354 $460 $512 $405
Other (including
billets) $313 $347 $438 $510 $404
Average $310 $351 $448 $511 $404
Sales Volume (NT)
Rebar 91,204 89,699 71,069 88,462 340,434
Wire Rod 43,020 43,358 49,165 45,352 180,895
Other (including
billets) 28,370 29,252 34,595 28,513 120,730
--------------------------------------------------
Total 162,594 162,309 154,829 162,327 642,059
==================================================
JV Ferrous Recycled
Metal Sales Volume
(LT)
Processed LT 674,622 827,787 1,086,024 993,326 3,581,759
Brokered LT 677,395 623,077 620,640 754,981 2,676,093
--------------------------------------------------
1,352,017 1,450,864 1,706,664 1,748,307 6,257,852
==================================================
Q1 FY03 Q2 FY03 Q3 FY03 Q4 FY03 FY03
-------- -------- -------- -------- ---------
Metals Recycling
Business
Ferrous Recycled
Metal Sales Prices
($/LT)
Domestic $100 $108 $125 $119 $114
Export $104 $113 $140 $144 $127
Average $102 $111 $133 $137 $122
Ferrous Sales
Volume (LT)
Domestic -
Processed 113,439 95,277 132,217 82,087 423,020
Domestic -
Brokered 38,890 57,462 60,322 75,376 232,050
Export 142,199 402,437 239,801 372,658 1,157,095
--------------------------------------------------
Total 294,528 555,176 432,340 530,121 1,812,165
==================================================
Includes sales to
SMB 114,988 140,823 144,274 134,787 534,872
==================================================
Steel Manufacturing
Business
Sales Prices ($/NT)
Rebar $273 $269 $282 $298 $282
Other (including
billets) $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 (including
billets) 27,470 25,099 28,418 27,170 108,157
--------------------------------------------------
Total 142,338 137,049 164,210 178,015 621,612
==================================================
JV Ferrous Recycled
Metal Sales Volume
(LT)
Processed LT 635,899 941,220 880,173 865,255 3,322,547
Brokered LT 470,304 220,335 333,631 674,753 1,699,023
--------------------------------------------------
1,106,203 1,161,555 1,213,804 1,540,008 5,021,570
==================================================
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)
Tom Zelenka, 503-323-2821 (Press Contact)
www.schnitzersteel.com