Exhibit 99.1
Schnitzer Steel Reports Improved Third Quarter Results
PORTLAND, Ore.--(BUSINESS WIRE)--July 10, 2006--Schnitzer Steel
Industries, Inc. (Nasdaq:SCHN) today reported net income for the
fiscal 2006 third quarter ended May 31, 2006 of $30 million, or $ .98
per diluted share. Net income was reduced by a charge of $4 million
relating to an additional reserve taken by the Company for its current
estimate of the monetary component of the settlement of the ongoing
SEC and Department of Justice investigations into the Company's past
payment practices in Asia. Excluding the charge, net income was $34
million, or $1.11 per diluted share, a 62% increase from the second
quarter. The increase in sequential quarter over quarter net income
resulted from margin expansion in all of the Company's business
segments and a 25% increase in consolidated revenues.
Fiscal year-to-date, the Company reported net income of $93
million, or $3.02 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 $15 million relating to a
reserve taken by the Company for the estimated monetary component of
the settlement of 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
$74 million, or $ 2.40 per diluted share.
Third Third Second Year to Year to
(in millions, except Quarter Quarter Quarter Date Date
per-share data) 2006 2005 2006 2006 2005
- ----------------------------------------------------------------------
Revenues (1) $506 $243 $403 $1,250 $657
- ----------------------------------------------------------------------
Net Income $30 $34 $21 $93 $112
- ----------------------------------------------------------------------
Diluted EPS $.98 $1.08 $0.68 $3.02 $3.61
- ----------------------------------------------------------------------
Gain on Asset
Disposition (net of
tax) -- -- -- $34 --
- ----------------------------------------------------------------------
Charge for
Investigation
Reserve ($ 4) -- -- ($ 15) --
- ----------------------------------------------------------------------
Net Income excluding
Gain on Asset
Disposition and
Charge for
Investigation
Reserve $34 $34 $21 $74 $112
- ----------------------------------------------------------------------
Diluted EPS excluding
Gain on Asset
Disposition and
Charge for
Investigation
Reserve $1.11 $1.08 $0.68 $2.40 $3.61
- ----------------------------------------------------------------------
(1) Year to date revenues reflect the restatement of financial results
to correct the accounting for acquisitions which closed in the
first quarter of Fiscal 2006.
"During the quarter we continued to focus on managing the
operating factors within our control in order to take maximum
advantage of the positive long-term markets in which we operate," said
John Carter, President and CEO. "We are pleased with our good progress
in these efforts and our outlook remains optimistic."
Commenting on the third quarter's results, Mr. Carter said,
"Overall, the performance of each of our business segments continues
to be solid. The Metals Recycling Business had a substantial quarter
over quarter increase in operating income due to significantly higher
non-ferrous revenues and lower processing costs related to an increase
in the ferrous volumes processed in our yards. Our Northeast
operation, which was a recent acquisition, also demonstrated improved
operating performance from the second quarter. While domestic scrap
purchase prices continued to rise, export market prices rose at a
similar pace, which allowed us to stem the margin squeeze that
occurred in the second quarter."
"Our Steel Manufacturing Business had its third consecutive record
quarter for operating income, driven by continued strong West Coast
demand for steel products. As expected, operating income in the Auto
Parts Business increased due to seasonal factors which improved retail
sales at our self-service Pick-N-Pull stores and the posting of
positive operating income at our recently acquired GreenLeaf
full-service operation."
Turning to the SEC and Department of Justice investigations, Mr.
Carter commented, "We have taken an additional step toward bringing
the investigations to a close as the Company has determined that the
monetary component of the settlement of the investigations, including
pre-judgment interest, will be at the high end of the range previously
disclosed by the Company. As a consequence, the Company has accrued an
additional reserve of $4 million pending finalization of the
settlement."
Metals Recycling Business
The Metals Recycling segment continues to benefit from strong
worldwide fundamentals for scrap metal producers and had a 77%
improvement in operating income from the second quarter of this fiscal
year.
($ in millions,
except selling Third Third Second Year to Year to
prices; volume in Quarter Quarter Quarter Date Date
thousand long tons) 2006 2005 2006 2006 (1) 2005
- ----------------------------------------------------------------------
Revenues $383 $167 $295 $920 $463
- ----------------------------------------------------------------------
Ferrous Sales $297 $131 $239 $744 $391
- ----------------------------------------------------------------------
Ferrous Volumes
(Processing/Trading) 886/351 500/-- 912/154 2,347/812 1,447/--
- ----------------------------------------------------------------------
Avg. Net Ferrous
Sales Prices ($/LT)
(Processing/Trading) $210/222 $231/-- $198/178 $204/211 $236/--
- ----------------------------------------------------------------------
Operating Income $33 $27 $19 $66 $93
- ----------------------------------------------------------------------
(1) Year to date numbers reflect the restatement of financial results
to correct the accounting for the Regional Recycling and Hawaii
Metals Recycling acquisitions which closed in the first quarter of
Fiscal 2006.
Revenues from the Metals Recycling Business increased 30% over the
second quarter of 2006. The increase was a result of higher sales
prices for ferrous and non-ferrous materials and a 28% increase in
non-ferrous sales volumes.
The worldwide markets for scrap metal strengthened during the
quarter, and export prices were as good as or higher than domestic
prices.
Operating income improved 77% from the second quarter even with
ferrous shipping volumes slightly lower than anticipated. The
improvement was due primarily to the impact of higher non-ferrous
prices and volumes and a reduction in processing costs related to an
increase in ferrous volumes processed.
As expected, volumes in the Global Trading business increased
significantly from the second quarter due to improved weather
conditions in the Baltic Sea region. Revenues in the Global Trading
Business were higher due to the higher volumes and higher selling
prices.
Auto Parts Business
The Auto Parts Business reported a 114% increase in operating
income from the second quarter of fiscal 2006.
Third Third Second Year to Year to
($ in millions, except Quarter Quarter Quarter Date Date
locations) 2006 2005 2006 2006 (1) 2005
- ----------------------------------------------------------------------
Revenues $58 $31 $50 $154 $79
- ----------------------------------------------------------------------
Operating Income $8 $8 $4 $19 22
- ----------------------------------------------------------------------
Locations (end of
quarter) 50 30 49 50 30
- ----------------------------------------------------------------------
(1) Year to date numbers reflect the restatement of financial results
to correct the accounting for the GreenLeaf acquisition which
closed in the first quarter of Fiscal 2006.
Revenues for the Auto Parts Business increased 17% over the second
quarter as a result of higher retail, core and scrap sales in the
self-service operation and improved full-service sales.
Third quarter operating income more than doubled from the second
quarter of this year, driven by improved results in the Pick-N-Pull
operation. Self-service retail sales increased due to normal seasonal
factors, and core and scrap sales increased due to higher market
prices for scrap metal. In addition, during the quarter the
full-service GreenLeaf operation posted modest operating income as the
Company continued the implementation of its integration strategy.
On a year-over-year basis, operating income was lower primarily
due to significantly higher prices for the purchase of auto bodies and
slightly lower same store retail sales, which was partially offset by
improved self-service core and scrap sales. Self-service operating
income was also impacted by the post-conversion start-up of two former
full-service stores in Fort Worth, Texas and Chandler, Arizona.
Steel Manufacturing Business
For the third consecutive quarter, the Steel Manufacturing
Business posted record operating income as it continued to benefit
from a strong West Coast market for steel products.
($ in millions, except Third Third Second Year to Year to
selling prices; volume Quarter Quarter Quarter Date Date
in thousand tons) 2006 2005 2006 2006 2005
- ----------------------------------------------------------------------
Revenues $104 $91 $90 $283 $228
- ----------------------------------------------------------------------
Avg. Net Sales Prices
($/T) $523 $510 $522 $521 $519
- ----------------------------------------------------------------------
Sales Volume 190 172 165 521 423
- ----------------------------------------------------------------------
Operating Income $21 $13 $16 $53 $32
- ----------------------------------------------------------------------
Revenues for the Steel Manufacturing Business rose 14% compared to
the third quarter of last year. Sales volumes increased 10% and the
average sales price per ton increased 3% as customer demand remained
strong during the peak season for West Coast construction.
Operating income was 57% higher than in the same period last year,
primarily reflecting higher volumes and selling prices and improved
productivity.
Outlook
The Company said the factors that will affect its results in the
fourth quarter of 2006 include:
Metals Recycling Business:
Pricing. The export markets are expected to improve but remain
subject to normal cyclical volatility. 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 10-15% per ton
higher than in the third quarter of this year. Average sales prices in
the Global Trading business are expected to be slightly lower than
prices in the processing business. In addition, the average prices
obtained for non-ferrous materials are expected to be slightly higher
than the prices obtained during the third quarter but remain highly
volatile.
Sales volumes. Ferrous scrap volumes in the domestic processing
business are expected to increase significantly due to the timing of
West Coast shipments originally expected to be completed during the
third quarter and an increase in volumes in the Northeast. Based on
sales booked to date, processing sales volumes are currently expected
to be between 950 thousand and one million tons in the fourth quarter.
Depending on the timing of shipments toward the end of the quarter,
this range could increase. Sales volumes in the Global Trading
business are expected to be in the 400-450 thousand ton range.
Auto Parts Business:
Revenues in the self-service business are expected to increase
from the third quarter of 2006 and the fourth quarter of 2005 due to
the impact of four self-service stores converted from full-service
operations. Revenues in the full-service business are expected to be
modestly improved from the third quarter.
Margins in the fourth quarter are expected to improve slightly
from the third quarter due to higher same store retail sales and
improved full-service results. The GreenLeaf acquisition and higher
purchase costs for inventory are expected to result in margins which
will be lower than during the fourth 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 in July. 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 income until such time as the conversions are completed and
the stores have established a foothold in their markets.
The GreenLeaf operation is expected to post its second consecutive
quarterly operating income as the Company continues its plan to
improve the financial results for the full-service business.
Steel Manufacturing Business:
Pricing. The Company continues to see good demand for all its
products, particularly rebar. In addition, import prices have risen in
response to the strong customer demand and appear to be less of a near
term risk of providing downward pressure on pricing. Based on current
market conditions, the Company expects average prices for the fourth
quarter to rise $10-$20 per ton from the third quarter of this year.
Sales Volumes. The Company continues to see strong demand for
finished steel products, and customer inventories remain low. As a
result, fourth quarter sales volumes are expected to approximate the
190,000 tons shipped during the third quarter and be 10-15% higher
than the fourth quarter of 2005.
Third Quarter 2006 Conference Call
A conference call to discuss results will be held today, July 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 33 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 four non-GAAP financial measures, net
income and net income per diluted share excluding a charge for
investigation reserve and net income and net income 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
statements as to expected pricing, sales volume, margins and operating
income, and such statements 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 Nine
Months Ended Months Ended
------------------- ----------------------
May 31, May 31, May 31, May 31,
2006 2005 2006 2005
--------- --------- ----------- ----------
REVENUES:
Metals Recycling Business:
Ferrous sales:
Processing $207,369 $130,844 $ 542,486 $ 391,322
Trading 89,600 201,599
Nonferrous sales 84,603 19,440 170,432 52,037
Other sales 1,561 16,272 5,026 19,809
--------- --------- ----------- ----------
Total sales 383,133 166,556 919,543 463,168
Auto Parts Business 58,237 30,980 154,141 78,814
Steel Manufacturing
Business 104,052 91,351 282,743 228,193
Intercompany sales
eliminations (39,849) (46,196) (106,341) (112,777)
--------- --------- ----------- ----------
Total $505,573 $242,691 $1,250,086 $ 657,398
========= ========= =========== ==========
INCOME (LOSS) FROM OPERATIONS:
Metals Recycling Business:
Processing $ 32,889 $ 27,441 $ 66,003 $ 101,210
Trading 552 37
Auto Parts Business 7,767 8,092 19,139 22,044
Steel Manufacturing
Business 21,051 13,408 53,367 31,526
Joint ventures 11,152 47,821
Corporate expense (12,808) (5,894) (41,273) (14,493)
Intercompany eliminations (141) 430 1,144 (1,994)
Environmental matter - - - (8,225)
--------- --------- ----------- ----------
Total $ 49,310 $ 54,629 $ 98,417 $ 177,889
========= ========= =========== ==========
NET INCOME $ 30,205 $ 33,508 $ 92,855 $ 112,425
========= ========= =========== ==========
BASIC EARNINGS PER SHARE $ 0.99 $ 1.10 $ 3.04 $ 3.70
========= ========= =========== ==========
DILUTED EARNINGS PER SHARE $ 0.98 $ 1.08 $ 3.02 $ 3.61
========= ========= =========== ==========
SHARE INFORMATION
(THOUSANDS):
Basic shares outstanding 30,625 30,463 30,544 30,412
========= ========= =========== ==========
Diluted shares
outstanding 30,739 31,143 30,776 31,160
========= ========= =========== ==========
SCHNITZER STEEL INDUSTRIES, INC.
CONSOLIDATED STATEMENT OF INCOME
(in thousands, except per share amounts)
(Unaudited)
For the Three For the Nine
Months Ended Months Ended
------------------- ---------------------
May 31, May 31, May 31, May 31,
2006 2005 2006 2005
--------- --------- ----------- ---------
Revenues $505,573 $242,691 $1,250,086 $657,398
--------- --------- ----------- ---------
Cost of goods sold 417,468 183,623 1,041,172 478,104
Selling, general and
administrative 39,367 15,591 113,207 41,001
Environmental matter - 8,225
--------- --------- ----------- ---------
Income from wholly-owned
operations 48,738 43,477 95,707 130,068
Operating income from joint
ventures 572 11,152 2,710 47,821
--------- --------- ----------- ---------
Operating income 49,310 54,629 98,417 177,889
Other income (expense):
Interest expense (1,027) (110) (1,863) (740)
Other income (expense),
net 1,909 261 58,131 540
--------- --------- ----------- ---------
882 151 56,268 (200)
--------- --------- ----------- ---------
Income before income taxes
and minority interests 50,192 54,780 154,685 177,689
Income tax provision (18,982) (20,485) (60,700) (63,257)
--------- --------- ----------- ---------
Income before minority
interests 31,210 34,295 93,985 114,432
Minority interests, net of
tax (1,005) (787) (1,314) (2,007)
Pre-acquisition interests,
net of tax 184
--------- --------- ----------- ---------
Net income $ 30,205 $ 33,508 $ 92,855 $112,425
========= ========= =========== =========
Basic earnings per share $ 0.99 $ 1.10 $ 3.04 $ 3.70
========= ========= =========== =========
Diluted earnings per share $ 0.98 $ 1.08 $ 3.02 $ 3.61
========= ========= =========== =========
Schnitzer Steel Industries, Inc.
Selected Operating Statistics
(Unaudited)
Total
Q1 FY06 Q2 FY06 Q3 FY06 FY06
--------------------------------------
Metals Recycling Business
Ferrous Recycled Metal
Sales Prices ($/LT)(1)
Domestic $ 207 203 215 209
Exports $ 204 196 206 201
Total Processing $ 205 198 210 204
Trading $ 216 178 222 211
Ferrous Processing Sales
Volume (LT)(2)(3)
Cascade 154,096 148,036 174,833 476,965
Domestic 58,343 158,177 176,339 392,859
Export 336,712 605,386 534,966 1,477,064
--------------------------------------
Total Processed 549,151 911,599 886,138 2,346,888
--------------------------------------
Ferrous Trading Sales
Volume (LT)(3)
Trading 306,716 154,387 351,173 812,276
--------------------------------------
Total Ferrous Sales Volume
(LT)(2)(3) 855,867 1,065,986 1,237,311 3,159,164
======================================
Nonferrous Sales Volume
(pounds, in thousands)(3) 50,035 71,800 91,610 213,445
Steel Manufacturing Business
Sales Prices ($/NT)(1)(2)
Average $ 517 522 523 521
Sales Volume (NT)
Rebar 98,101 89,114 103,623 290,838
Coiled Products 48,716 57,061 66,093 171,870
Merchant Bar and Other 19,241 18,540 20,783 58,564
--------------------------------------
Total 166,058 164,715 190,499 521,272
======================================
Auto Parts Business
Number of self-service
locations at end of
quarter 30 31 32
Number of full-service
sites at end of quarter
(4) 19 18 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 33,600 31,843 125,743
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
or
Press Relations Contact:
Tom Zelenka, 503-323-2821
www.schnitzersteel.com
ir@schn.com