Exhibit 99.1
Schnitzer Steel Reports First Quarter Earnings
PORTLAND, Ore.--(BUSINESS WIRE)--Jan. 9, 2006--Schnitzer Steel
Industries, Inc. (Nasdaq:SCHN) today reported net income of $42
million, or $1.34 per diluted share, for the fiscal 2006 first quarter
ended November 30, 2005. Included in net income was a gain of $34
million (after tax) related to the disposition of joint venture assets
under the agreement between the Company and Hugo Neu for the
termination of their joint ventures. Net income was also reduced by a
charge of $11 million relating to a reserve taken by the Company for
the estimated amount to settle the ongoing SEC and Department of
Justice investigations into the Company's past payment practices in
Asia. Excluding the gain from the disposition of joint venture assets
and the charge for the investigation reserve, net income was $19
million, or $0.61 per diluted share.
(in millions, except per-share data) First First Fourth
Quarter Quarter Quarter
2006 2005 2005
------- ------- -------
Revenues $ 389 $ 199 $ 196
Net Income $ 42 $ 43 $ 34
Gain on Asset Disposition $ 34 -- --
Charge for Investigation Reserve ($ 11) -- --
Net Income excluding Gain on Asset
Disposition and Charge for Investigation
Reserve $ 19 $ 43 $ 34
Diluted EPS excluding Gain on Asset
Disposition and Charge for Investigation
Reserve $ 0.61 $1.38 $1.11
"We are moving closer to completion of the investigation of past
payment practices in Asia, and we continue to fully cooperate with the
DOJ and the SEC," said John D. Carter, President and Chief Executive
Officer. "While the DOJ and SEC investigations are not complete, we
now believe the penalties and disgorgement which will be imposed by
the DOJ and the SEC will be within a range of $11 million to $15
million. In the first fiscal quarter, the Company established a
reserve totaling $11 million in connection with the amount of
penalties and disgorgement we estimate will be imposed. We do not have
a definitive time table for closing the investigation, and will
provide an update when further information is available.
"Schnitzer Steel began its 100th year of operation with another
solid quarter. The positive long-term fundamentals supporting all our
business segments remain intact. We are currently working though a
number of short-term steps to integrate our newly acquired businesses
and build a foundation for the future, and we continue to look to that
future with great optimism.
"During the first quarter, we completed several transactions that
nearly doubled our revenues. We also continued on a major capital
spending program to upgrade and replace infrastructure and equipment
across the Company. The acquisitions and capital improvements are
expected to provide long-term benefits, although we continue to expect
they will result in some short-term disruption to our operations,"
said Carter.
Commenting on the first quarter's results, Mr. Carter said,
"Overall, the Metals Recycling Business was impacted by a number of
short term factors that reduced sales volume and margins, and as a
result, earnings did not reflect what we would consider a normalized
state of operations. On the West Coast, sales volume was down
significantly due to the timing of several shipments which slipped
into the second quarter. On the East Coast, as we stated in our prior
guidance, volume at our New England processing facilities was impacted
by the scheduled shutdown of our Rhode Island shredder and low
beginning inventory levels. Processing costs and margins in New
England were also negatively impacted by the low volume of materials.
In addition, overall selling prices for ferrous metal showed a modest
decline from the fourth quarter as Asian export markets remained
unsettled.
"Our Steel Manufacturing Business had record quarterly earnings
driven by continued strong West Coast demand for steel products. The
Auto Parts Business had a solid quarter, reporting improved earnings
over the fourth quarter, primarily due to an increase in retail and
core sales at our Pick-N-Pull self-service stores."
Metals Recycling Business
The Metals Recycling segment, which includes the operations of
businesses acquired during the first quarter, continued to benefit
from strong worldwide fundamentals for scrap metal producers.
($ in millions, except selling prices; First First Fourth
volume in thousand long tons) Quarter Quarter Quarter
2006 (1) 2005 2005
--------- ------ -------
Revenues $281 $145 $117
Ferrous Sales $234 $127 $ 97
Ferrous Volumes 969 471 418
Avg Net Ferrous Sales Prices ($/LT) $209 $236 $211
Operating Income $ 16 $ 34 $ 22
(1) Includes the results of the operations acquired through the HNC
separation and termination agreement and the acquisition of
Regional Recycling as if they were acquired at the beginning of
the fiscal year.
Revenues from the Metals Recycling Business increased 95% over the
first quarter of 2005. The increase was a result of sales volume from
Regional Recycling and the operations acquired in the Hugo Neu joint
venture separation, which added revenues of $168 million. The
increased revenue was partially offset by a $24 million decline in
revenue from the Company's previously owned West Coast processing
facilities due to the timing of export shipments and lower average net
selling prices.
Although there continues to be good worldwide demand for scrap
metal, export markets have been unsettled since the second half of
2005, and this condition continued into the first fiscal quarter of
2006.
The Metals Recycling Business reported a decline in first quarter
operating income of 55% over the prior year's first quarter as a
result of lower sales volumes on the West Coast due to the timing of
shipments, lower average net selling prices, and lower margins per ton
on the materials sold. Domestic demand for scrap metal remained high,
and as a result, purchase costs did not decline at the same rate as
export sales prices, resulting in lower margins per ton sold.
East Coast processing volumes were negatively impacted by a
two-month shutdown of the Rhode Island shredder to install a new, more
efficient, and environmentally friendly shredder motor as well as low
beginning inventories at all the New England yards. Net East Coast
sales prices, which reflected sales arranged prior to the closing of
the Hugo Neu joint venture separation agreement, were lower than
experienced in our West Coast and Southeastern metals recycling
locations. The low volumes contributed to higher incremental
processing costs, and combined with the cost of raw materials, led the
East Coast operations to record a small loss for the quarter.
In prior years, the Company's pro rata share of operating income
from various joint ventures in the metals recycling business was
reported under a Joint Ventures segment. As a result of the closing of
the Hugo Neu separation agreement, the Joint Venture segment has been
eliminated, and the results for the businesses acquired in this
transaction have been consolidated into the Metals Recycling Business
segment.
As expected, the Regional Recycling business was profitable for
the quarter.
In addition to the installation of the new shredder motor in Rhode
Island, work continued on the installation of mega-shredders at
facilities in Portland and Oakland and an overall improvement in
infrastructure at the Boston export facility.
Auto Parts Business
The Auto Parts Business continued to benefit from the additional
self-service stores acquired in January 2005 and reflected the results
of the GreenLeaf acquisition completed during the first quarter of
fiscal 2006.
($ in millions, except locations)
First First Fourth
Quarter Quarter Quarter
2006 (1) 2005 2005
-------- ------- -------
Revenues $53 $23 $29
Operating Income $ 8 $ 7 $ 7
Locations (end of quarter) 49 26 30
(1) Includes the results of GreenLeaf Auto Recyclers as if it was
acquired at the beginning of the fiscal year.
Revenues for the Auto Parts Business increased 128% over the same
period last year, primarily as a result of the four self-service
stores acquired in January 2005 and the GreenLeaf acquisition.
Operating income increased 19%, reflecting the impact of higher retail
sales from the additional self-service stores, offset by higher
purchase costs for inventory.
During the quarter, the operations acquired in the GreenLeaf
transaction recorded a slight loss as the Company began the process of
implementing its integration strategy.
Steel Manufacturing Business
The Steel Manufacturing Business had another record quarter for
operating income as it continued to benefit from a strong West Coast
market for steel products.
($ in millions, except selling prices; volume First First Fourth
in thousand tons) Quarter Quarter Quarter
2006 2005 2005
------- ------- -------
Revenues $ 89 $ 70 $ 87
Avg Net Sales Prices ($/T) $517 $534 $493
Sales Volume 166 126 170
Operating Income $ 16 $ 13 $ 11
Revenues for the Steel Manufacturing Business rose 27%. A 31%
increase in sales volumes offset a 3% decline in average price per ton
from the record levels recorded in the first quarter of last year.
Operating income was 26% higher than in the same period last year,
primarily reflecting higher volumes, lower scrap costs and improved
productivity. The steel mill continues to see the benefits from the
new furnace installed last year, production incentives recently
negotiated with the steelworkers union and other improvements in
business practices.
While average selling prices declined on a year over year basis,
prices were up from the fourth quarter, reflecting price increases
announced at the beginning of the first quarter as a result of strong
West Coast demand for steel products, particularly rebar.
Outlook
The company said the factors that will affect its results in the
second quarter of 2006 include:
Metals Recycling Business:
Pricing. The uncertainty in the Asian export markets that was
experienced beginning in the second half of last year and into the
first quarter is expected to continue through the second quarter.
Domestic markets are expected to remain stronger than export markets.
Sales orders completed in the early part of the second quarter would
indicate an average net price per ton of between $185 and $195.
Recent evidence of declines in scrap acquisition costs which are
greater than the declines in export sales prices, suggests the
potential for improved margins.
The Russian and Baltic region trading business generally purchases
inventory in advance of making sales, has a lower overall margin on
sales than the domestic metals processing business and thus can be
impacted by small changes in price between the time of purchase and
sale. During the second quarter, the trading business is expected to
sell inventory that is valued higher than current market prices. As a
result, margins related to these sales are expected to be negative,
absent strengthening of the market.
Sales volumes. Ferrous scrap volumes in the domestic processing
business are expected to rebound in the second quarter, primarily due
to the timing of export shipments. For the second quarter, volumes
shipped from our domestic yards should increase from approximately
660,000 tons in the first quarter to between 800,000 tons and 850,000
tons.
Sales volumes in the Russian and Baltic Sea region trading
business are expected to decline approximately 40% from the first
quarter, to 169,000 tons. In addition to the impact of normal seasonal
winter shipping conditions, lower market prices for scrap metal has
significantly reduced the availability of processed material available
for purchase from Russia and the Baltic Sea region.
For the year, the Company expects sales volumes to be
approximately 3.5 million tons in the domestic processing business and
1.0 million tons in the Russian and Baltic Sea region trading
business.
Auto Parts Business:
Retail demand in the self-service Auto Parts Business is affected
by seasonal changes, with inclement winter weather in the second
quarter expected to depress customer traffic and result in lower
revenues when compared with the first quarter. For the second quarter,
margins are also expected to be affected by lower selling prices for
scrapped cars and a higher cost basis of cars sold from existing
inventory compared to the second quarter of 2005.
The integration of the GreenLeaf operation is expected to result
in the conversion of one full-service location to a self-service store
toward the end of the second quarter. The GreenLeaf operation is
expected to post a modest loss during the quarter.
Steel Manufacturing Business:
Pricing. West Coast consumption of finished steel long products
continues to remain strong and the Company is seeing good demand for
rebar and merchant bar. Based on current market conditions, the
Company expects average prices for the second quarter to be slightly
higher than both the first quarter of this year and the second quarter
of last year. Higher prices on the West Coast relative to other
markets could, however, result in an increase of foreign imports,
putting downward pressure on pricing.
Volumes. The Company typically sees a reduction in second quarter
sales volumes due to the impact of winter weather on construction
projects. However, this year customer inventories remain low and the
Company expects demand to remain good through the quarter. As a
result, second quarter sales volumes should be significantly higher
than during the second quarter of 2005, but lower than the volumes in
the first quarter of this year.
Executive Appointments
The Company announced today the appointment of Gregory J.
Witherspoon as Chief Financial Officer. The appointment was the
culmination of the search begun this past summer for the CFO position.
Mr. Witherspoon became Schnitzer's Interim CFO August 23, 2005.
Prior to joining Schnitzer, Mr. Witherspoon's financial management
experience included financial management consulting services, with
assignments as President of a chain of hotels and restaurants, as
Interim President and Chief Financial Officer of an automobile lender,
as Chief Financial Officer of Aames Financial Corp. and as a Certified
Public Accountant with Deloitte & Touche.
The Company also announced the appointment of Richard C. Josephson
as General Counsel and Corporate Secretary. Mr. Josephson became
acting General Counsel on November 3, 2005 and was previously a
partner at Stoel Rives LLP.
First Quarter 2006 Conference Call
A conference call to discuss results will be held today, January
9, 2006, at 11:30 a.m. EDT, hosted by John Carter, Chief Executive
Officer and Greg Witherspoon, Chief Financial Officer. The call will
be webcast and is accessible on Schnitzer Steel's web site at
www.schnitzersteel.com.
A vertically integrated business, Schnitzer Steel Industries, Inc.
is one of the nation's largest recyclers of ferrous metals with a
significant presence on the U.S. West Coast, the Northeastern seaboard
and the Southeast as well as a trading business that sources scrap and
sells recycled metals products in foreign markets. The Company also
owns and operates at approximately 50 used auto parts locations that
participate in the self-service and full-service used auto parts
business across the U.S. and in western Canada and is a manufacturer
of finished steel with a production capacity of approximately 700,000
tons of finished steel annually. For more information about Schnitzer
Steel Industries, Inc., visit www.schnitzersteel.com.
This news release includes two non-GAAP financial measures, "net
income excluding a gain on disposition of joint venture assets and
charge for investigation reserve" and "earnings per diluted share
excluding a gain on disposition of joint venture assets and charge for
investigation reserve". Management believes that by excluding the
impact of the gain and the charge for the investigation reserve, these
measures allow for better comparisons to prior periods and provide a
better insight into the Company's operating performance.
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. These forward-looking statements include, without limitation,
statements regarding the Company's outlook for the business, and can
be identified generally 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 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
laws 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; loss of key personnel; the inability to complete expected large
scrap export shipments in the current quarter; consequences of the
pending investigation by the Company's audit committee into past
payment practices in Asia; business integration issues relating to
acquisitions of businesses and the separation of the joint venture
business described above; and business disruptions resulting from
installation or replacement of major capital assets, as discussed in
more detail under the heading "Factors That Could Affect Future
Results" in the Company's most recent annual report on Form 10-K or
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
November 30,
--------------------------
2005 (1) 2004
---------- ---------
REVENUES:
Metals Recycling Business:
Ferrous sales $233,960 $126,832
Nonferrous sales 45,759 15,654
Other sales 1,677 2,046
--------- ---------
Total Sales 281,396 144,532
Auto Parts Business 53,397 23,386
Steel Manufacturing Business 89,156 70,022
Intercompany sales eliminations (35,276) (38,979)
--------- ---------
Total $388,673 $198,961
========= =========
INCOME FROM OPERATIONS:
Metals Recycling Business $ 15,575 $ 34,288
Auto Parts Business 8,356 7,048
Steel Manufacturing Business 16,070 12,760
Joint ventures 1,752 20,464
Corporate expense (19,499) (3,591)
Intercompany eliminations (529) (3,163)
Environmental matters (2) - (500)
--------- ---------
Total Operating Income $ 21,725 $ 67,306
========= =========
NET INCOME $ 41,530 $ 42,936
========= =========
BASIC EARNINGS PER SHARE $ 1.36 $ 1.41
========= =========
DILUTED EARNINGS PER SHARE $ 1.34 $ 1.38
========= =========
SHARE INFORMATION (THOUSANDS):
Basic shares outstanding 30,477 30,350
========= =========
Diluted shares outstanding 31,037 31,143
========= =========
(1) The Company elected to consolidate results of the businesses
formed from the Hugo Neu Corporation (HNC) separation agreement as
well as the Regional and GreenLeaf acquisitions as though the
transactions had occurred at the beginning of the fiscal year. As
a result, revenues increased and income from operations increased,
which is offset by pre-acquisition interest.
(2) FY 2005 amounts relate to environmental matters primarily
associated with the Hylebos Waterway project.
SCHNITZER STEEL INDUSTRIES, INC.
CONSOLIDATED STATEMENT OF INCOME
(in thousands, except per share amounts)
For the Three Months Ended
November 30,
---------------------------
2005 (1) 2004
----------- ---------
(Unaudited)
Revenues $388,673 $198,961
----------- ---------
Cost of goods sold 326,710 139,752
Selling, general and administrative 41,990 (2) 11,867
Environmental matters - 500 (3)
----------- ---------
Income from wholly-owned operations 19,973 46,842
Operating income from joint ventures 1,752 20,464
----------- ---------
Operating income 21,725 67,306
Other income (expense):
Interest expense (981) (284)
Other income (expense) 64,441 (4)(5) (148)
----------- ---------
63,460 (432)
----------- ---------
Income before income taxes and minority
interests 85,185 66,874
Income tax provision (35,557) (23,272)
----------- ---------
Income before minority interests 49,628 43,602
Minority interests, net of tax (153) (666)
Pre-acquisition interests, net of tax (7,945) -
----------- ---------
Net Income $ 41,530 $ 42,936
=========== =========
Net income per share - basic: $ 1.36 $ 1.41
=========== =========
Net income per share - diluted: $ 1.34 $ 1.38
=========== =========
(1) The Company elected to consolidate results of the businesses
formed from the Hugo Neu Corporation (HNC) separation agreement as
well as the Regional and GreenLeaf acquisitions (see Note 1 and 3)
as though the transactions had occurred at the beginning of the
fiscal year. As a result, revenues increased and income from
operations increased, which is offset by pre-acquisition
interests.
(2) Includes a charge of $11.0 million related to reserve for
contingencies. (see Note 4)
(3) Fiscal 2005 amounts relate to environmental matters primarily
associated with the Hylebos Waterway project.
(4) Other Income includes a $9.1 million gain related to debt
extinguishment associated with the GreenLeaf acquisition which is
appropriately eliminated by pre-acquisition interests.
(5) Includes a gain on disposition of joint ventures of $54.6 million.
Schnitzer Steel Industries, Inc.
Selected Operating Statistics
(Unaudited)
Q1 FY06 Q1 FY05 Q2 FY05
--------- --------- ---------
Metals Recycling Business
Ferrous Recycled Metal Sales Prices
($/LT)(1)
Domestic $ 207 $ 221 $ 220
International $ 209 $ 245 $ 247
Average $ 209 $ 236 $ 240
Ferrous Domestic Sales Volume
(LT)(2)(3)
Processed 266,871 133,687 98,900
Brokered 31,338 42,276 20,573
-------- ------------------
Total 298,209 175,963 119,473
-------- ------------------
Ferrous International Sales Volume
(LT)(3)
Processed 363,772 294,900 356,607
Trading 306,716
-------- ------------------
Total 670,488 294,900 356,607
-------- ------------------
-------- ------------------
Total Ferrous Sales Volume
(LT)(2)(3) 968,697 470,863 476,080
======== ==================
Ferrous Volumes Sold to Steel
Manufacturing Business 154,096 159,463 110,033
======== ==================
Nonferrous Sales Volume (pounds, in
thousands)(3) 68,614 29,368 30,932
Steel Manufacturing Business
Sales Prices ($/NT)(1)(2)
Average $ 517 $ 534 $ 517
Sales Volume (NT)
Rebar 98,101 55,956 62,302
Coiled Products 48,716 56,679 50,391
Merchant Bar and Other 19,241 13,703 11,957
-------- ------------------
Total 166,058 126,338 124,650
======== ==================
Auto Parts Business
Number of self-service locations at
end of quarter 30 26 30
Number of full-service sites at end
of quarter (4) 19 - -
Q3 FY05 Q4 FY05 FY05
--------- -------- ----------
Metals Recycling Business
Ferrous Recycled Metal Sales Prices
($/LT)(1)
Domestic $ 222 $ 206 $ 217
International $ 237 $ 216 $ 238
Average $ 231 $ 211 $ 230
Ferrous Domestic Sales Volume
(LT)(2)(3)
Processed 163,254 147,291 543,132
Brokered 43,208 40,963 147,020
-----------------------------
Total 206,462 188,254 690,152
-----------------------------
Ferrous International Sales Volume
(LT)(3)
Processed 293,746 229,921 1,175,174
Trading
-----------------------------
Total 293,746 229,921 1,175,174
-----------------------------
-----------------------------
Total Ferrous Sales Volume
(LT)(2)(3) 500,208 418,175 1,865,326
=============================
Ferrous Volumes Sold to Steel
Manufacturing Business 189,559 166,268 625,323
=============================
Nonferrous Sales Volume (pounds, in
thousands)(3) 33,602 31,843 125,745
Steel Manufacturing Business
Sales Prices ($/NT)(1)(2)
Average $ 510 $ 493 $ 512
Sales Volume (NT)
Rebar 103,973 93,331 315,562
Coiled Products 51,579 57,306 215,955
Merchant Bar and Other 16,349 19,161 61,170
-----------------------------
Total 171,901 169,798 592,687
=============================
Auto Parts Business
Number of self-service locations at
end of quarter 30 30 NA
Number of full-service sites at end
of quarter (4) - - NA
(1) Price information is shown after a reduction for the cost of
freight incurred to deliver the product to the customer.
(2) Includes sales to the Steel Manufacturing Business for all
quarters.
(3) The Company elected to consolidate results of the businesses
formed from the Hugo Neu Corporation separation agreement and
Regional Recycling as though the transactions had occurred at the
beginning of the fiscal year. As a result, ferrous volume
increased on a proforma basis by 220,000 tons and nonferrous
volume increased by 24,000 pounds.
(4) Reflects the addition of GreenLeaf Auto Recyclers to the Auto
Parts Business in the first quarter of 2006.
CONTACT: Schnitzer Steel Industries, Inc.
Rob Stone, 503-224-9900 (Investor Relations)
Tom Zelenka, 503-323-2821 (Press Relations)
www.schnitzersteel.com
ir@schn.com