Higher Volumes in all Businesses and Continued Expansion of Auto Parts Business

PORTLAND, Ore.--(BUSINESS WIRE)--June 27, 2013--Schnitzer Steel Industries, Inc. (Nasdaq: SCHN) today reported adjusted earnings per share of $0.09 and earnings per share of $0.03 for its fiscal 2013 third quarter ended May 31, 2013. This compares to adjusted earnings per share of $0.36 and earnings per share of $0.32 in the second quarter of 2013. Adjusted results for the third quarter exclude a $2 million, or $0.06 per share, restructuring charge associated with cost reduction initiatives announced in August 2012. Third quarter results were adversely impacted by average inventory accounting which significantly reduced operating income in our Metals Recycling Business by approximately $10 million, or $9 per ton, as compared to the second quarter. The Company's results in the second quarter included $0.10 per share of discrete tax benefits. The Company generated $45 million in operating cash flow during the third quarter and our total debt to total capital ratio at the end of the third quarter approximated the second quarter.

Ferrous export selling prices declined steadily throughout the third quarter, with market prices at the end of May approximately $50 per ton lower than at the end of the second quarter of fiscal 2013 driven primarily by lower export demand. The combination of declining selling prices, constrained supply, adverse impacts of average inventory accounting and lower tax benefits resulted in sequentially lower consolidated net income.

Subsequent to the third quarter, we acquired our first Auto Parts store in Rhode Island which is located near our existing Metals Recycling facilities. This new store adds to our supply chain in the Northeast, increasing our combined regional presence to 16 facilities.

Summary Results
($ in millions, except per share amounts)

	Quarter
	3Q13		2Q13		Change		3Q12		Change
Revenues	$	710	$	662	7	%	$	880	(19	)%

Operating Income	$	7	$	11	(37	)%	$	22	(67	)%
Restructuring Charges	2		2		22	%	—		NM
Adjusted Operating Income⁽¹⁾	$	9	$	13	(30	)%	$	22	(59	)%

Net Income attributable to SSI	$	1	$	9	(91	)%	$	11	(93	)%
Restructuring Charges, net of tax	1		1		49	%	—		NM
Adjusted Net Income attributable to SSI⁽¹⁾	$	2	$	10	(76	)%	$	11	(79	)%

Net Income per share attributable to SSI	$	0.03	$	0.32	(91	)%	$	0.40	(92	)%
Restructuring Charges, net of tax, per share	0.06		0.04		50	%	—		NM
Adjusted diluted EPS attributable to SSI⁽¹⁾⁽²⁾	$	0.09	$	0.36	(75	)%	$	0.40	(78	)%

(1) Adjusted for restructuring charges. See Non-GAAP Financial Measures for reconciliation to U.S. GAAP.
(2) Second quarter of fiscal 2013 included tax benefits of $3 million, or $0.10 per share, relating to the release of a valuation allowance which had been recorded in the first quarter of fiscal 2013 and other discrete tax benefits.
NM = Not meaningful

“During the third quarter we achieved higher sales volumes in each of our businesses despite weaker market conditions. Operating income in our Metals Recycling Business was negatively impacted by the significant drop in ferrous selling prices which fell more quickly than purchase prices and offset some of the benefits from the increased volumes. Our major capital projects for fiscal 2013 in Canada and Puerto Rico continue to progress on schedule. In our Auto Parts Business, seasonal trends contributed to improved sequential results for stores owned more than one year and the integration of our 11 new sites added this fiscal year are on track. In our Steel Manufacturing Business, higher sales volumes reflected, in part, a market environment that is improving," said Tamara Lundgren, President and Chief Executive Officer. "We generated positive operating cash flow this quarter which enabled us to continue our growth investments and capital allocation priorities while maintaining a healthy balance sheet."

Summary of Metals Recycling Business Results
($ in millions, except selling prices; Fe volumes 000s long tons; NFe volumes M lbs)

	Quarter
	3Q13		2Q13		Change		3Q12		Change
Total Revenues	$	605	$	576	5	%	$	787	(23	)%

Ferrous Revenues	$	465	$	443	5	%	$	622	(25	)%
Ferrous Volumes	1,164		1,103		6	%	1,353		(14	)%
Avg. Net Ferrous Sales Prices ($/LT)⁽¹⁾	$	367	$	372	(1	)%	$	424	(13	)%

Nonferrous Revenues	$	131	$	125	4	%	$	155	(16	)%
Nonferrous Volumes	135		126		8	%	154		(12	)%
Avg. Net Nonferrous Sales Prices ($/lb)⁽¹⁾	$	0.94	$	0.97	(3	)%	$	0.97	(3	)%

Operating Income⁽²⁾	$	9	$	14	(38	)%	$	18	(51	)%

(1) Sales prices are shown net of freight
(2) Operating income does not include the impact of restructuring charges

Sales Volumes: Ferrous sales volumes of 1.2 million tons in the third quarter increased 6% sequentially due to stronger domestic volumes and the timing of shipments. Nonferrous sales volumes of 135 million pounds increased 8%, primarily due to higher production levels and inventory draw down to satisfy customer demand.

Export customers accounted for 73% of total ferrous sales volumes in the third quarter. Our ferrous and nonferrous products were shipped to 13 countries, with China, Turkey and Malaysia being the top ferrous export destinations.

Pricing: Export prices declined steadily throughout the quarter as demand moderated. Higher priced sales orders before the market dropped resulted in average net ferrous selling prices which approximated second quarter levels. Nonferrous prices averaged slightly lower than the prior quarter.

Margins: Operating income per ferrous ton was $8, which included a significant adverse impact from average inventory costs of $9 per ton as compared to the second quarter. In the declining selling price environment, average inventory costs did not decline as quickly as cash purchase costs for raw materials, resulting in margin compression. Absent the impact from average inventory accounting, operating income per ferrous ton was in line with the second quarter.

Summary of Auto Parts Business Results
($ in millions)

	Quarter
	3Q13		2Q13		Change	3Q12		Change
Revenues	$	86	$	78	11%	$	83	4%
Operating Income⁽¹⁾	$	8	$	7	23%	$	13	(34)%

Car Purchase Volumes (000s)	95		88		8%	89		7%
Locations (end of quarter)	61		59		3%	51		20%

(1) Operating income does not include the impact of restructuring charges

Revenues: Revenues in the third quarter increased 11% sequentially due to seasonally stronger admissions and part sales and the incremental contributions from acquisitions.

Margins: During the third quarter, operating margins, excluding the impact of new sites, increased sequentially to 12%, due in part to the impact of normal seasonal improvements in part sales. During the third quarter, APB incurred $1 million of operating losses related to the new sites added during fiscal 2013, including integration and startup costs, which lowered APB's reported operating margin to 10%. (See Non-GAAP Financial Measures for reconciliation to U.S. GAAP.)

New Sites: Subsequent to the third quarter, APB acquired its first store in Rhode Island. This location is near our Metals Recycling facilities and will expand APB's presence in our core Northeastern market and further enhance operational synergies with our Metals Recycling Business.

Summary of Steel Manufacturing Business Results
($ in millions, except selling prices; volume 000s of short tons)

	Quarter
	3Q13		2Q13		Change	3Q12		Change
Revenues	$	93	$	71	30%	$	79	18%
Operating Income (Loss)	$	—	$	1	NM	$	—	NM

Avg. Net Sales Prices ($/ST)	$	687	$	690	—%	$	734	(6)%
Finished Goods Sales Volumes	125		96		31%	103		21%

NM = Not meaningful

Sales Volumes: Finished steel sales volumes of 125 thousand tons increased 31% from the second quarter of fiscal 2013 due to seasonal improvements in demand.

Pricing: Average net sales prices for finished steel products of $687 per short ton approximated the second quarter.

Margins: Operating results during the quarter approximated break-even levels. The decline in margins compared to the second quarter was due primarily to the impact on costs of goods sold from lower utilization levels as customer demand was partially met with inventories produced during the second quarter.

During the first nine months of fiscal 2013, SG&A was lower by 10%, or $16 million, as compared to the prior year, excluding the $3 million impact from new APB acquisitions. Our cost reduction initiatives announced in August 2012 are on track to lower annual pre-tax operating costs by $25 million and are anticipated to be substantially implemented by the end of fiscal 2013. During the third quarter, we incurred a $2 million expense related to the restructuring charge, which equates to $0.06 per share. In aggregate, we have incurred $10 million of the total $14 million anticipated pre-tax restructuring charge in fiscal 2013. During the fourth quarter of fiscal 2013, the balance of the restructuring charges will primarily reflect costs of consolidating administrative functions in a single headquarters location.

The Company's full year tax rate for fiscal 2013 is anticipated to be approximately 35%. The tax rate in the third quarter was higher than the anticipated full year rate due to changes to projected pre-tax income from domestic and foreign operations.

The Company generated $45 million in operating cash flow during the third quarter from a combination of positive earnings and lower working capital. In the second quarter, the Company generated operating cash flow of $16 million. Total debt of $414 million at the end of the third quarter approximated the level at the end of the second quarter.

A conference call and slide presentation to discuss results will be held today, June 27, 2013, at 10:00 a.m. EDT hosted by Tamara Lundgren, President and Chief Executive Officer, and Richard Peach, Chief Financial Officer. The call and the slides will be webcast and accessible on the Company's website at www.schnitzersteel.com.

Summary financial data is provided in the following pages. The slides and related materials will be available prior to the call on the website.

SCHNITZER STEEL INDUSTRIES, INC.
FINANCIAL HIGHLIGHTS
(in thousands)
(Unaudited)

		For the Three Months Ended									For the Nine Months Ended
		May 31, 2013			February 28, 2013			May 31, 2012			May 31, 2013			May 31, 2012

REVENUES:

Metal Recycling Business:
	Ferrous sales	$	465,194		$	443,418		$	621,923		$	1,279,088		$	1,812,550
	Nonferrous sales	130,600			125,255			155,265			372,456			456,552
	Other sales	9,076			7,518			9,339			23,977			27,796
	TOTAL MRB SALES	604,870			576,191			786,527			1,675,521			2,296,898

Auto Parts Business		86,439			78,082			82,936			234,075			245,222
Steel Manufacturing Business		92,943			71,247			78,623			256,219			243,048
Intercompany sales and eliminations		(73,957		)	(63,310		)	(68,221		)	(200,490		)	(206,515		)
	Total Revenues	$	710,295		$	662,210		$	879,865		$	1,965,325		$	2,578,653


OPERATING INCOME (LOSS):
Metal Recycling Business		$	8,789		$	14,158		$	17,817		$	28,602		$	50,868
Auto Parts Business		8,273			6,711			12,543			21,348			31,693
Steel Manufacturing Business		(72		)	1,041			253			4,373			602
	Segment operating income⁽¹⁾	16,990			21,910			30,613			54,323			83,163

Corporate expense		(8,625		)	(8,942		)	(8,751		)	(28,563		)	(28,635		)
Intercompany eliminations		695			(38		)	216			(963		)	506

	Adjusted operating income⁽²⁾	9,060			12,930			22,078			24,797			55,034

Restructuring charges		(1,873		)	(1,540		)	—			(5,006		)	—
	Total operating income	$	7,187		$	11,390		$	22,078		$	19,791		$	55,034

(1) Segment operating income does not include the impact of restructuring charges.
(2) Adjusted for restructuring charges. See Non-GAAP Financial Measures for reconciliation to U.S. GAAP.

SCHNITZER STEEL INDUSTRIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(in thousands)
(Unaudited)

	For the Three Months Ended									For the Nine Months Ended
	May 31, 2013			February 28, 2013			May 31, 2012			May 31, 2013			May 31, 2012
Revenues	$	710,295		$	662,210		$	879,865		$	1,965,325		$	2,578,653
Cost of goods sold	652,263			600,786			807,980			1,794,933			2,367,283
Selling, general and administrative	49,390			48,760			50,148			146,144			158,510
Income from joint ventures	(418		)	(266		)	(341		)	(549		)	(2,174		)
Restructuring charges	1,873			1,540			—			5,006			—
Operating income	7,187			11,390			22,078			19,791			55,034
Interest expense	(2,788		)	(2,354		)	(2,729		)	(7,159		)	(9,473		)
Other income (expense), net	141			(49		)	(154		)	414			70
Income before income taxes	4,540			8,987			19,195			13,046			45,631
Income tax expense	(2,986		)	(244		)	(7,541		)	(4,191		)	(15,870		)
Net income	1,554			8,743			11,654			8,855			29,761
Net income attributable to noncontrolling interests	(734		)	(100		)	(413		)	(1,063		)	(1,875		)
Net income attributable to SSI	$	820		$	8,643		$	11,241		$	7,792		$	27,886

Income per share attributable to SSI - basic	$	0.03		$	0.32		$	0.41		$	0.29		$	1.01
Income per share attributable to SSI - diluted	$	0.03		$	0.32		$	0.40		$	0.29		$	1.00

Weighted average number of common shares:
Basic	26,671			26,640			27,531			26,629			27,499
Diluted	26,813			26,781			27,795			26,777			27,748
Dividends declared per common share	$	0.188		$	0.188		$	0.188		$	0.563		$	0.222

SCHNITZER STEEL INDUSTRIES, INC.
SELECTED OPERATING STATISTICS
(Unaudited)
							Fiscal										Fiscal
	1Q13		2Q13		3Q13		YTD		1Q12		2Q12		3Q12		4Q12		2012
Metals Recycling Business
Ferrous Selling Prices ($/LT) ⁽¹⁾
Domestic	$	354	$	363	$	367	$	362	$	420	$	424	$	414	$	357	$	406
Exports	360		374		367		368		436		420		427		384		417
Average	$	358	$	372	$	367	$	366	$	432	$	421	$	424	$	378	$	415

Ferrous Sales Volume (LT)
Domestic	279,450		260,509		314,240		854,199		319,451		297,142		308,521		261,747		1,186,861
Export	675,212		842,509		849,991		2,367,713		912,939		1,055,237		1,044,063		915,927		3,928,166
Total	954,662		1,103,018		1,164,231		3,221,912		1,232,390		1,352,379		1,352,584		1,177,674		5,115,027

Nonferrous Average Price ($/LB) ⁽¹⁾	$	0.95	$	0.97	$	0.94	$	0.95	$	1.00	$	0.91	$	0.97	$	0.90	$	0.94

Nonferrous Sales Volume (LB, in 000s)	118,931		125,500		135,256		379,688		137,243		168,545		154,071		168,794		628,652

Steel Manufacturing Business
Sales Prices ($/ST) ^{(1) (2)}
Average	$	680	$	690	$	687	$	685	$	722	$	725	$	734	$	685	$	715

Sales Volume (ST)⁽²⁾
Rebar	78,159		58,132		71,561		207,852		62,487		51,141		55,378		74,797		243,803
Coiled Products	45,533		32,130		46,088		123,751		39,120		55,785		42,753		45,103		182,761
Merchant Bar and Other	5,926		5,355		7,358		18,639		5,030		5,097		4,812		5,837		20,776
Total	129,618		95,617		125,007		350,242		106,637		112,023		102,943		125,737		447,340

Auto Parts Business
Car purchase volumes (000)	79		88		95		262		85		84		89		81		339
Number of self-service locations at end of quarter	51		59		61		61		50		51		51		51		51

(1) Price information is shown after a reduction for the cost of freight incurred to deliver the product to the customer
(2) Excludes billet sales

SCHNITZER STEEL INDUSTRIES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)
(Unaudited)

	May 31, 2013		August 31, 2012
Assets
Current Assets:
Cash and cash equivalents	$	37,078	$	89,863
Accounts receivable, net	161,808		137,313
Inventories, net	295,678		246,992
Other current assets	40,949		42,651
Total current assets	535,513		516,819

Property, plant and equipment, net	569,219		564,185

Goodwill and other assets	693,041		682,569

Total assets	$	1,797,773	$	1,763,573

Liabilities and Equity
Current liabilities:
Short-term borrowings	$	693	$	683
Other current liabilities	161,425		178,159
Total current liabilities	162,118		178,842

Long-term debt	413,401		334,629

Other long-term liabilities	146,644		142,158

Redeemable noncontrolling interest	—		22,248

Equity:
Total Schnitzer Steel Industries, Inc. ("SSI") shareholders' equity	1,070,274		1,080,583
Noncontrolling interests	5,336		5,113
Total equity	1,075,610		1,085,696
Total liabilities and equity	$	1,797,773	$	1,763,573

This press release contains certain non-GAAP financial measures as defined under SEC rules such as adjusted operating income, adjusted net income attributable to SSI, adjusted diluted earnings per share attributable to SSI and operating income margin for APB stores owned more than a year. As required by SEC rules, the Company has provided reconciliations of these measures to the most directly comparable U.S. GAAP measures. Management believes that each of the foregoing adjusted non-GAAP financial measures provides a meaningful presentation of the Company's results from its core business operations excluding adjustments for restructuring charges that are not related to the Company's ongoing core business operations and improves the period-to-period comparability of the Company's results from its core business operations. In addition, management believes that the non-GAAP financial measure relating to the Auto Parts Business new stores impact provides a meaningful presentation of the operating segment's results by excluding operating results relating to newly added stores and thus improve period-to-period comparability of the results of the segment's core business. These non-GAAP financial measures should be considered in addition to, but not as a substitute for, the most directly comparable U.S. GAAP measures.

Consolidated Operating Income
($ in millions)				Quarter
				3Q13		2Q13				3Q12
Operating Income				$	7	$	11			$	22
Restructuring Charges				2		2				—
Adjusted Operating Income				$	9	$	13			$	22

Net Income attributable to SSI
($ in millions)				Quarter
				3Q13		2Q13				3Q12
Net Income attributable to SSI				$	1	$	9			$	11
Restructuring Charges, net of tax				1		1				—
Adjusted Net Income attributable to SSI				$	2	$	10			$	11

Diluted Earnings per share attributable to SSI
($ per share)				Quarter
				3Q13		2Q13				3Q12
Net Income per share attributable to SSI				$	0.03	$	0.32			$	0.40
Restructuring Charges, net of tax, per share				0.06		0.04				—
Adjusted Diluted EPS attributable to SSI				$	0.09	$	0.36			$	0.40

Auto Parts Business New Stores Impact
($ in millions)	3Q13
	Existing Stores⁽¹⁾		New Stores⁽²⁾						Reported
Revenues⁽³⁾	80		7						86
Operating Income (Loss)⁽³⁾	10		(1					)	8
Operating Income Margin	12	%	NM						10			%
Car Purchase Volumes (000)	87		8						95

	2Q13
	Existing Stores⁽¹⁾		New Stores⁽²⁾						Reported
Revenues	75		3						78
Operating Income (Loss)⁽³⁾	8		(2					)	7
Operating Income Margin	11	%	NM						9			%
Car Purchase Volumes (000)	84		4						88

(1) Existing Stores represents APB operations for stores owned one year or more.
(2) New Stores represent new acquisitions, or greenfield development, owned less than one year.
(3) Does not foot due to rounding.
NM = Not meaningful

Schnitzer Steel Industries, Inc. is one of the largest manufacturers and exporters of recycled ferrous metal products in the United States with 59 operating facilities located in 14 states, Puerto Rico and Western Canada. The business has seven deep water export facilities located on both the East and West Coasts and in Hawaii and Puerto Rico. The Company's integrated operating platform also includes its auto parts and steel manufacturing businesses. The Company's auto parts business sells used auto parts through its 62 self-service facilities located in 17 states and Western Canada. With an effective annual production capacity of approximately 800,000 tons, the Company's steel manufacturing business produces finished steel products, including rebar, wire rod and other specialty products. The Company commenced its 107^th year of operations in 2013.

Statements and information included in this press release that are not purely historical are forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934 and are made pursuant to the “safe harbor” provisions of the Private Securities Litigation Reform Act of 1995. Except as noted herein or as the context may otherwise require, all references to “we,” “our,” “us” and “SSI” refer to the Company and its consolidated subsidiaries.

Forward-looking statements in this press release include statements regarding our expectations, intentions, beliefs and strategies regarding the future, which may include statements regarding trends, cyclicality and changes in the markets we sell into; strategic direction; changes to manufacturing and production processes; the cost of compliance with environmental and other laws; expected tax rates, deductions and credits; the realization of deferred tax assets; planned capital expenditures; liquidity positions; ability to generate cash from continuing operations; the potential impact of adopting new accounting pronouncements; expected results, including pricing, sales volumes and profitability; obligations under our retirement plans; savings or additional costs from business realignment and cost containment programs; and the adequacy of accruals.

When used in this report, the words “believes,” “expects,” “anticipates,” “intends,” “assumes,” “estimates,” “evaluates,” “may,” “could,” “opinions,” “forecasts,” “future,” “forward,” “potential,” “probable,” and similar expressions are intended to identify forward-looking statements.

We may make other forward-looking statements from time to time, including in reports filed with the Securities and Exchange Commission, press releases and public conference calls. All forward-looking statements we make are based on information available to us at the time the statements are made, and we assume no obligation to update any forward-looking statements, except as may be required by law. Our business is subject to the effects of changes in domestic and global economic conditions and a number of other risks and uncertainties that could cause actual results to differ materially from those included in, or implied by, such forward-looking statements. Some of these risks and uncertainties are discussed in “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our most recent annual report on Form 10-K and quarterly report on Form 10-Q. Examples of these risks include: potential environmental cleanup costs related to the Portland Harbor Superfund site; the impact of general economic conditions; volatile supply and demand conditions affecting prices and volumes in the markets for both our products and raw materials we purchase; difficulties associated with acquisitions and integration of acquired businesses; the impact of goodwill impairment charges; the realization of expected cost reductions related to restructuring initiatives; the inability of customers to fulfill their contractual obligations; the impact of foreign currency fluctuations; potential limitations on our ability to access capital resources and existing credit facilities; restrictions on our business and financial covenants under our bank credit agreement; the impact of the consolidation in the steel industry; the impact of imports of foreign steel into the U.S.; inability to realize expected benefits from investments in technology; freight rates and availability of transportation; product liability claims; costs associated with compliance with environmental regulations; the adverse impact of climate change; inability to obtain or renew business licenses and permits; compliance with greenhouse gas emission regulations; reliance on employees subject to collective bargaining agreements; and the impact of the underfunded status of multiemployer plans in which we participate.

CONTACT:
Schnitzer Steel Industries, Inc.
Investor Relations:
Alexandra Deignan, 646-278-9711
adeignan@schn.com
or
Media Relations:
Chip Terhune, 503-265-6370
cterhune@schn.com
or
Company Info:
www.schnitzersteel.com
ir@schn.com

	3200 N.W. Yeon Ave.
	P.O. Box 10047
	Portland, OR	97296-0047
(Address of Principal Executive Offices)		(Zip Code)

		Schnitzer Steel Industries, Inc.
		(Registrant)

Dated:	June 27, 2013	By:	/s/ Richard D. Peach
		Name:	Richard D. Peach
		Title:	Sr. V.P. and Chief Financial Officer

Exhibit No.	Description

99.1	Press Release of Schnitzer Steel Industries, Inc. issued on June 27, 2013.