EX-99.1 2 a5184203ex991.txt EXHIBIT 99.1 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