Exhibit 99.1
Schnitzer Steel Reports Second Quarter Earnings
PORTLAND, Ore.--(BUSINESS WIRE)--April 10, 2006--Schnitzer Steel
Industries, Inc. (Nasdaq:SCHN) today reported net income of $21.1
million, or $ .68 per diluted share, for the fiscal 2006 second
quarter ended February 28, 2006.
Fiscal year-to-date, the Company reported net income of $62.6
million, or $2.03 per diluted share. Included in year-to-date 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, year-to-date net income was $40 million, or
$ 1.30 per diluted share.
(in millions, except per- Second Second First Year to Year to
share data) Quarter Quarter Quarter Date Date
2006 2005 2006 2006 2005
- ----------------------------------------------------------------------
Revenues $ 403 $ 216 $ 389 $ 792 $ 415
- ----------------------------- ------ ------ ------ ------ -----
Net Income $ 21 $ 36 $ 42 $ 63 $ 79
- ----------------------------- ------ ------ ------ ------ -----
Diluted EPS $ .68 $ 1.15 $ 1.34 $ 2.03 $2.53
- ----------------------------- ------ ------ ------ ------ -----
Gain on Asset Disposition -- -- $ 34 $ 34 --
- ----------------------------- ------ ------ ------ ------ -----
Charge for Investigation
Reserve -- -- ($ 11) ($ 11) --
- ----------------------------- ------ ------ ------ ------ -----
Net Income excluding Gain on
Asset Disposition and Charge
for Investigation Reserve $ 21 $ 36 $ 19 $ 40 $ 79
- ----------------------------- ------ ------ ------ ------ -----
Diluted EPS excluding Gain on
Asset Disposition and Charge
for Investigation Reserve $ 0.68 $ 1.15 $ 0.61 $ 1.30 $2.53
- ----------------------------- ------ ------ ------ ------ -----
"Schnitzer Steel continued to take advantage of strong market
fundamentals by posting another solid quarter," said John Carter,
President and CEO. "We remain optimistic about our outlook and remain
focused on maximizing the long-term value of our businesses. During
the second quarter, we continued to make progress integrating the
businesses acquired during the first quarter and to improve our
productivity through several ongoing projects intended to upgrade and
replace infrastructure and equipment across the Company."
Commenting on the first quarter's results, Mr. Carter said,
"Overall, the performance of each of our business segments was
consistent with our expectations and market conditions. The Metals
Recycling Business had a substantial increase in volumes due to
increased output in the Northeast and the completion of several sales
on the West Coast which had been delayed from the first quarter. On
the materials acquisition side, we had expected to see the decrease in
the cost of buying our materials to be greater than the decrease in
export sales prices, resulting in an improvement in margins. However,
particularly in the Northeast and Southeast the high price for
recycled scrap metal continued to result in increased competition to
purchase materials, primarily due to the strong domestic steel
industry. Our operations in these regions actually experienced
increased costs for the acquisition of raw materials."
"Our Steel Manufacturing Business had its second consecutive
record quarter for earnings driven by continued strong West Coast
demand for steel products. As expected, earnings in the Auto Parts
Business were lower than the first quarter due to seasonal factors
impacting retail sales at our self-service Pick-N-Pull stores and
lower revenues from scrap sales which combined with a higher cost
basis for inventory sold."
Metals Recycling Business
The Metals Recycling segment, which includes the operations of
businesses acquired during the first quarter, continues to benefit
from strong worldwide fundamentals for scrap metal producers.
($ in millions, except Second Second First Year to Year to
selling prices; volume Quarter Quarter Quarter Date Date
in thousand long tons) 2006 2005 2006 (1) 2006 (1) 2005
- ----------------------------------------------------------------------
Revenues $ 295 $ 152 $ 281 $ 577 $ 297
- ----------------------- -------- ------- -------- ---------- -------
Ferrous Sales $ 239 $ 134 $ 234 $ 473 $ 260
- ----------------------- -------- ------- -------- ---------- -------
Ferrous Volumes
(Processing/Trading) 912/154 476/-- 662/307 1,574/461 947/--
- ----------------------- -------- ------- -------- ---------- -------
Avg. Net Ferrous Sales
Prices ($/LT)
(Processing/Trading) $197/178 $240/-- $205/216 $ 201/203 $238/--
- ----------------------- -------- ------- -------- ---------- -------
Operating Income $ 19 $ 39 $ 16 $ 36 $ 74
- ----------------------- -------- ------- -------- ---------- -------
(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 5% over the
first quarter of 2006. The increase was a result of higher sales
volumes from the West Coast and Northeastern operations and partially
offset by lower average sales prices.
The worldwide markets for scrap metal remain good. The unsettled
export markets that existed at the end of the first quarter continued
into the early part of the second quarter, although by the end of the
quarter the market was beginning to show signs of strength. Domestic
scrap prices continued to remain higher than export prices driven by
strong market conditions in the U.S. steel industry.
The Metals Recycling Business reported a decline in year over year
quarterly operating income of 52% as a result of higher buying prices,
significantly lower selling prices and the high cost of operating
outdated and inefficient equipment.
The Company's Southeastern operations were profitable for the
quarter.
Volumes in the Global Trading Business were significantly lower
than the first quarter due to unusually harsh winter weather and
strong Russian domestic demand. Revenues in the Global Trading
Business were lower due to the lower volumes and a focus on selling
lower grade materials.
In addition to the installation of a new mega-shredder and other
yard improvements in Boston, work continued on the installation of
mega-shredders at facilities in Portland and Oakland and the
installation of a new dock in Portland.
Auto Parts Business
The Auto Parts Business reported higher year over year revenues
due to the additional self-service stores acquired in January 2005 and
the acquisition of GreenLeaf during the first quarter of fiscal 2006.
($ in millions, except
locations) Second Second First Year to Year to
Quarter Quarter Quarter Date Date
2006 2005 2006 (1) 2006 (1) 2005
- ----------------------------------------------------------------------
Revenues $ 50 $ 24 $ 53 $ 103 $48
- -------------------------- ------ ------ ------ ----- ---
Operating Income $ 4 $ 7 $ 8 $ 12 14
- -------------------------- ------ ------ ------ ----- ---
Locations (end of quarter) 49 30 49 49 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 104% over the same
period last year, primarily as a result of the acquisitions and higher
same store retail parts and core sales. The increased revenues were
partially offset by significantly lower prices for scrapped auto
bodies.
During the quarter, year over year operating income declined 48%.
Lower prices for the sale of scrapped auto bodies combined with higher
purchase costs for inventory resulted in a reduction in operating
margins, offsetting the improved retail parts and core sales. In
addition, the full-service GreenLeaf operation posted a modest loss as
the Company continued the process of implementing its integration
strategy. Toward the end of February, the first GreenLeaf self-service
conversion was completed when a site in Fort Worth, Texas began
operating as a Pick-N-Pull store.
Steel Manufacturing Business
The Steel Manufacturing Business had its second consecutive record
quarter for operating income as it continued to benefit from a strong
West Coast market for steel products.
($ in millions, except Second Second First Year to Year to
selling prices; volume in Quarter Quarter Quarter Date Date
thousand tons) 2006 2005 2006 2006 2005
- ----------------------------------------------------------------------
Revenues $ 90 $ 67 $ 89 $ 179 $137
- --------------------------- ------ ------- ------ ------ ----
Avg. Net Sales Prices ($/T) $ 522 $ 517 $ 517 $ 519 $525
- --------------------------- ------ ------- ------ ------ ----
Sales Volume 165 125 166 331 251
- --------------------------- ------ ------- ------ ------ ----
Operating Income $ 16 $ 5 $ 16 $ 32 $ 18
- --------------------------- ------ ------- ------ ------ ----
Revenues for the Steel Manufacturing Business rose 34% compared to
the second quarter of last year. Sales volumes increased 32% and the
average price per ton increased slightly as customer demand remained
strong through the winter months and was not impacted by normal
seasonality.
Operating income was 203% higher than in the same period last
year, primarily reflecting higher volumes, lower scrap costs and
improved productivity. In addition, margins were increased by an
improvement in product mix, as the Company produced and sold a greater
proportion of higher margin rebar and a lesser proportion of lower
margin wire rod.
Outlook
The company said the factors that will affect its results in the
third quarter of 2006 include:
Metals Recycling Business:
Pricing: The export markets are expected to remain subject to
cyclical fluctuations. Based on sales booked to date, and the
Company's current view of the market, average net selling prices in
the processing operation are expected to be up slightly from the
second quarter of this year. Average sales prices in the Global
Trading business are expected to approximate prices in the processing
business as the product mix improves.
The Company continues to expect competition for the purchase of
materials due to the strong worldwide demand for recycled metal.
However, purchase prices may rise at a lower rate than sales prices,
providing an opportunity for improved margins.
Sales volumes: Ferrous scrap volumes in the domestic processing
business are expected to increase slightly in the third quarter. Sales
volumes in the Global Trading business are expected to nearly double
from the second quarter as the impact of winter weather shipping
conditions is reduced and higher market prices increase the flow of
processed material available for purchase from Russia and the Baltic
Sea region.
Auto Parts Business:
The third quarter in the self-service Auto Parts Business has
historically been one of the strongest periods for retail demand.
Customer admissions and retail parts sales are expected to increase
compared to the second quarter and be slightly improved from the third
quarter of 2005. Wholesale revenues from the sale of cores and
scrapped auto bodies are also expected to increase from the second
quarter based on higher expected scrap metal prices.
Margins in the third quarter are expected to improve compared to
the second quarter due to higher revenues from retail and core sales.
As scrap prices remain high, the Company continues to see significant
competition for the purchase of auto bodies, which results in higher
costs to purchase inventory. Higher purchase costs for inventory are
expected to result in margins which will be lower than during the
third quarter of 2005.
The integration of the GreenLeaf operation is expected to result
in the conversion of two additional full-service locations to
self-service stores toward the end of the third quarter. Due to
advertising and other start-up costs which are incurred before a store
begins retail operations, the stores going through the conversion
process will be a drag on operating earnings until such time as all
stores are converted.
The GreenLeaf full-service operation is expected to break-even or
post a small profit 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 third quarter to approximate
the second quarter of this year, and be slightly higher than the third
quarter of last year. Increased competition from imports, particularly
for wire rod, could put downward pressure on pricing.
Volumes: The Company continues to see strong demand for finished
steel products and customer inventories remain low. As a result, third
quarter sales volumes are expected to be slightly higher than the
172,000 tons shipped in the third quarter of 2005.
Second Quarter 2006 Conference Call
A conference call to discuss results will be held today, April 10,
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.
Schnitzer Steel Industries, Inc. is one of the largest
manufacturers and exporters of recycled ferrous metals products in the
United States with 28 operating facilities located in 11 states
throughout the country, including six export facilities located on
both the East and West Coasts and in Hawaii. SSI's vertically
integrated operating platform also includes its auto parts and steel
manufacturing businesses. SSI's auto parts business sells used auto
parts through its 31 Pick-n-Pull self service facilities and 18
Greenleaf full service facilities located in 14 states and western
Canada. With an annual production capacity of 700,000 tons, SSI's
steel manufacturing business produces finished steel products,
including rebar, wire rod and other specialty products. SSI commenced
its 100th year of operations in 2006.
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 For the Six Months
Months Ended Ended
------------------- -------------------
Feb. 28, Feb. 28, Feb. 28, Feb. 28,
2006 2005 2006 2005
--------- --------- --------- ---------
REVENUES:
Metals Recycling Business:
Ferrous sales:
Processing $205,579 $133,647 $360,852 $260,479
Trading 33,312 112,000
Nonferrous sales 54,301 16,943 100,061 32,597
Other sales 1,791 1,490 3,467 3,536
--------- --------- --------- ---------
Total sales 294,983 152,080 576,380 296,612
Auto Parts Business 49,982 24,448 103,379 47,834
Steel Manufacturing Business 89,535 66,820 178,691 136,842
Intercompany sales eliminations (31,215) (27,602) (66,492) (66,581)
--------- --------- --------- ---------
Total $403,285 $215,746 $791,958 $414,707
========= ========= ========= =========
INCOME (LOSS) FROM OPERATIONS:
Metals Recycling Business:
Processing $ 19,594 $ 39,481 $ 36,689 $ 73,769
Trading (727) (515)
Auto Parts Business 3,630 6,963 11,986 13,952
Steel Manufacturing Business 16,246 5,358 32,316 18,118
Joint ventures 16,205 36,669
Corporate expense (8,987) (5,008) (28,466) (8,599)
Intercompany eliminations 1,814 739 1,285 (2,424)
Environmental matter - (7,725) - (8,225)
--------- --------- --------- ---------
Total $ 31,570 $ 56,013 $ 53,295 $123,260
========= ========= ========= =========
NET INCOME $ 21,118 $ 35,981 $ 62,648 $ 78,917
========= ========= ========= =========
BASIC EARNINGS PER SHARE $ 0.69 $ 1.18 $ 2.05 $ 2.60
========= ========= ========= =========
DILUTED EARNINGS PER SHARE $ 0.68 $ 1.15 $ 2.03 $ 2.53
========= ========= ========= =========
SHARE INFORMATION (THOUSANDS):
Basic shares outstanding 30,528 30,422 30,503 30,386
========= ========= ========= =========
Diluted shares outstanding 30,857 31,195 30,854 31,170
========= ========= ========= =========
SCHNITZER STEEL INDUSTRIES, INC.
CONSOLIDATED STATEMENT OF INCOME
(in thousands, except per share amounts)
(Unaudited)
For the Three For the Six Months
Months Ended Ended
------------------- -------------------
Feb. 28, Feb. 28, Feb. 28, Feb. 28,
2006 2005 2006 2005
--------- --------- --------- ---------
Revenues $403,285 $215,746 $791,958 $414,707
--------- --------- --------- ---------
Cost of goods sold 338,561 155,041 662,174 294,481
Selling, general and
administrative 33,540 13,172 78,627 25,410
Environmental matter 7,725 8,225
--------- --------- --------- ---------
Income from wholly-owned
operations 31,184 39,808 51,157 86,591
Operating income from joint
ventures 386 16,205 2,138 36,669
--------- --------- --------- ---------
Operating income 31,570 56,013 53,295 123,260
Other income (expense):
Interest expense (401) (346) (1,382) (630)
Other income (expense), net 689 368 65,130 279
--------- --------- --------- ---------
288 22 63,748 (351)
--------- --------- --------- ---------
Income before income taxes and
minority interests 31,858 56,035 117,043 122,909
Income tax provision (10,591) (19,500) (46,148) (42,772)
--------- --------- --------- ---------
Income before minority
interests 21,267 36,535 70,895 80,137
Minority interests, net of tax (149) (554) (302) (1,220)
Pre-acquisition interests, net
of tax (7,945)
--------- --------- --------- ---------
Net income $ 21,118 $ 35,981 $ 62,648 $ 78,917
========= ========= ========= =========
Basic earnings per share $ 0.69 $ 1.18 $ 2.05 $ 2.60
========= ========= ========= =========
Diluted earnings per share $ 0.68 $ 1.15 $ 2.03 $ 2.53
========= ========= ========= =========
Schnitzer Steel Industries, Inc.
Selected Operating Statistics
(Unaudited)
Total
Q1 FY06 Q2 FY06 FY06
-----------------------------
Metals Recycling
Business
Ferrous Recycled
Metal Sales Prices
($/LT)(1)
Domestic $ 207 202 205
Exports $ 203 195 198
Total
Processing $ 205 197 201
Trading $ 216 178 203
Ferrous Processing
Sales Volume
(LT)(2)(3)
Cascade 154,096 148,036 302,132
Domestic 144,113 158,177 302,290
Export 363,772 605,386 969,158
----------------------------
Total Processed 661,981 911,599 1,573,580
----------------------------
Ferrous Trading Sales
Volume (LT)(3)
Trading 306,716 154,387 461,103
-----------------------------
Total Ferrous Sales
Volume (LT)(2)(3) 968,697 1,065,986 2,034,683
============================
Nonferrous Sales
Volume (pounds, in
thousands)(3) 68,614 71,800 140,414
Steel Manufacturing
Business
Sales Prices
($/NT)(1)(2)
Average $ 517 522 519
Sales Volume (NT)
Rebar 98,101 89,114 187,215
Coiled Products 48,716 57,061 105,777
Merchant Bar and
Other 19,241 18,540 37,781
----------------------------
Total 166,058 164,715 330,773
============================
Auto Parts Business
Number of self-
service locations at
end of quarter 30 31
Number of full-
service sites at end
of quarter (4) 19 18
Q1 FY05 Q2 FY05 Q3 FY05 Q4 FY05 FY05
-----------------------------------------------
Metals Recycling
Business
Ferrous Recycled
Metal Sales Prices
($/LT)(1)
Domestic $ 221 $ 220 $ 222 $ 206 $ 217
Exports $ 245 $ 247 $ 237 $ 216 $ 238
Total
Processing $ 236 $ 240 $ 231 $ 211 $ 230
Trading $ - $ - $ - $ - $ -
Ferrous Processing
Sales Volume
(LT)(2)(3)
Cascade 159,463 110,033 189,559 166,268 625,323
Domestic 16,500 9,440 16,903 21,986 64,829
Export 294,900 356,607 293,746 229,921 1,175,174
-------- -------- -------- -------- ---------
Total Processed 470,863 476,080 500,208 418,175 1,865,326
-------- -------- -------- -------- ---------
Ferrous Trading Sales
Volume (LT)(3)
Trading - - - - -
------------------------------------------
Total Ferrous Sales
Volume (LT)(2)(3) 470,863 476,080 500,208 418,175 1,865,326
======== ======== ======== ======== =========
Nonferrous Sales
Volume (pounds, in
thousands)(3) 29,368 30,932 33,602 31,843 125,745
Steel Manufacturing
Business
Sales Prices
($/NT)(1)(2)
Average $ 534 $ 517 $ 510 $ 493 $ 512
Sales Volume (NT)
Rebar 55,956 62,302 103,973 93,331 315,562
Coiled Products 56,679 50,391 51,579 57,306 215,955
Merchant Bar and
Other 13,703 11,957 16,349 19,161 61,170
-------- -------- -------- -------- ---------
Total 126,338 124,650 171,901 169,798 592,687
======== ======== ======== ======== =========
Auto Parts Business
Number of self-
service locations at
end of quarter 26 30 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.
(4) Reflects the addition of Greenleaf Auto Recyclers to the Auto
Parts Business in the first quarter of 2006.
CONTACT: Schnitzer Steel Industries, Inc.
Investor Relations Contact:
Rob Stone, 503-224-9900
ir@schn.com