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Schnitzer Reports Significant Growth & Profitability in Fiscal 2011

Fourth Quarter Revenues Up 69%, Operating Income Up 131%, and Diluted EPS Up 130% to $1.33
Full Year Revenues Up 50%, Operating Income Up 48% and Diluted EPS Up 48% to $4.24

PORTLAND, Ore., Oct 20, 2011 (BUSINESS WIRE) --

Schnitzer Steel Industries, Inc. (Nasdaq: SCHN) today reported diluted earnings per share from continuing operations of $1.33 for its fiscal 2011 fourth quarter ended August 31, 2011. This compares with diluted earnings per share from continuing operations of $0.58 for the fourth quarter of fiscal 2010.

For the 2011 fiscal year, Schnitzer reported full year revenues of $3.5 billion, compared to $2.3 billion in fiscal 2010, and diluted earnings per share from continuing operations of $4.24, compared to diluted earnings per share from continuing operations of $2.86 in fiscal 2010.

Summary Results from Continuing Operations
($ in millions, except per share amounts)
Quarter Year
4Q11 3Q11 4Q10 2011 2010 % Chg
Revenues $ 1,081 $ 981 $ 639 $ 3,459 $ 2,301 50 %
Operating Income 56 55 24 186 126 48 %
Income from continuing operations attributable to SSI* 37 33 16 118 81 47 %
Income per share from continuing operations attributable to SSI $ 1.33 $ 1.17 $ 0.58 $ 4.24 $ 2.86 48 %
*Excludes income attributable to noncontrolling interests

"For our fiscal 2011, both revenues and profits grew by approximately 50% through the successful execution of our strategy to expand our platform near our seven deep water ports, increase volumes and maximize operational efficiencies," said Tamara Lundgren, President and Chief Executive Officer. "We generated strong operating cash flow of $140 million while making significant investments in technology and closing 10 acquisitions."

"Looking ahead to 2012, we expect the positive benefits of the investments and acquisitions we have made as well as the overall increasing demand for scrap metals to continue. Despite recent forecasts of lower global GDP growth, the growth rates of the developing economies, which are our primary end markets, still reflect levels which can sustain strong steel production. In addition, increased global electric arc furnace capacity and the focus of blast furnaces on energy efficiency and a reduction in greenhouse gas emissions all point towards a continued upward bias in demand for recycled metals."

Key business drivers during the fourth quarter of fiscal 2011:

  • Metals Recycling Business (MRB) shipped record ferrous and nonferrous volumes and delivered sequential improvements in operating income in each quarter of the fiscal year.
  • Auto Parts Business (APB) generated higher car volumes, scrap and core sales due to contributions from both organic and acquisition growth.
  • Steel Manufacturing Business (SMB) achieved positive fourth quarter operating income due to higher average sales prices as compared to the prior year quarter.

Fourth quarter net income included a benefit of $3 million arising from a prior period adjustment to deferred tax liabilities.

Metals Recycling Business

Our Metals Recycling Business shipped record ferrous volumes of 5.3 million tons, up 26% from the prior year, and record nonferrous volumes of 569 million pounds, up 19% from the prior year.

Summary of Metals Recycling Business Results
($ in millions, except selling prices; Fe volumes 000s long tons; NFe volumes M lbs)
Quarter Year
4Q11 3Q11 4Q10 2011 2010 % Chg
Total Revenues $ 962 $ 879 $ 556 $ 3,070 $ 1,980 55 %
Ferrous Revenues $ 740 $ 703 $ 431 $ 2,425 $ 1,559 56 %
Ferrous Volumes 1,534 1,464 1,124 5,329 4,231 26 %
Avg. Net Ferrous Sales Prices ($/LT)(1) $ 443 $ 440 $ 342 $ 416 $ 328 27 %
Nonferrous Revenues $ 213 $ 168 $ 122 $ 620 $ 413 50 %
Nonferrous Volumes 191 145 139 569 478 19 %
Avg. Net Nonferrous Sales Prices ($/lb)(1) $ 1.08 $ 1.12 $ 0.84 $ 1.06 $ 0.83 28 %
Operating Income $ 52 $ 46 $ 21 $ 165 $ 118 39 %
(1) Sales prices are shown net of freight

"MRB shipped record ferrous and nonferrous volumes during the fourth quarter and for the full year in fiscal 2011," said Lundgren. "In the fourth quarter, profit was driven by strong inflows, our larger footprint due to recently completed acquisitions, and contributions from our investments in technology which yielded higher nonferrous recovery."

Sales Volumes: Ferrous sales volumes of 1.5 million tons in the fourth quarter increased 5% sequentially from strong third quarter levels, primarily due to increased supply flows from our expanded markets and incremental volumes from recent investments. Nonferrous sales volumes of 191 million pounds increased 32% sequentially, benefiting from increased production from enhanced processing technologies, increased raw material purchases and contributions from our recent acquisitions.

Export customers accounted for 82% of total ferrous sales volumes. Our ferrous and nonferrous products were shipped to 18 countries in the fourth quarter. The top export destinations were China, Turkey, Malaysia and Egypt.

Pricing: Continued strong demand in the export markets drove average ferrous net sales prices which approximated third quarter levels while remaining significantly higher than during the fourth quarter of fiscal 2010. Nonferrous prices also improved year-over-year due to stronger demand for recycled metals, but declined slightly on a sequential basis. Average ferrous and nonferrous prices increased 30% and 29%, respectively, compared to prices in the prior year quarter.

Margins: Operating income per ferrous ton was $34 in the fourth quarter of fiscal 2011, an increase of 82% from the prior year quarter and 8% sequentially. Average operating income per ton for the full year 2011 was $31, an increase of 10% from fiscal 2010.

Metals Recycling Business: Outlook

The following summary of management's outlook for the Metals Recycling Business in the first quarter of fiscal 2012 is subject to uncertainty that may affect future results.

Sales Volumes: Ferrous sales volumes are expected to approximate 1Q11. Nonferrous volumes are expected to increase 20% from 1Q11 primarily due to incremental contributions from acquisitions and technology investments. As always, quarterly sales volumes are highly dependent upon the timing of shipments.

Pricing: Ferrous average net selling prices are expected to be significantly higher than 1Q11. Nonferrous average net selling prices are expected to be slightly higher than 1Q11.

Margins: Operating income per ferrous ton expected to approximate 1Q11 levels despite the negative impact of average inventory costs.

Auto Parts Business

Our Auto Parts Business delivered strong operating results in the fourth quarter of fiscal 2011, increasing scrap and core sales as well as inflows from car purchases.

Summary of Auto Parts Business Results
($ in millions)
Quarter Year
4Q11 3Q11 4Q10 2011 2010 % Chg
Revenues $ 94 $ 87 $ 64 $ 320 $ 241 33 %
Operating Income $ 17 $ 17 $ 10 $ 64 $ 51 25 %
Car Purchase Volumes (000s) 97 93 85 353 329 7 %
Locations (end of quarter) 50 50 45 50 45 11 %

"Throughout fiscal 2011, APB delivered strong operating margins and continued to expand its platform," said Lundgren. "APB continues to demonstrate a successful ability to efficiently source supply, drive customer admissions and maximize the value chain of parts, cores and scrap."

Revenues: Revenues increased 47% from the prior year quarter and 8% sequentially. Both comparisons reflect the impact of higher commodity prices on revenues from scrap and core sales, higher car volumes and the benefits from the acquisitions completed during fiscal 2011.

Margins: Operating margins of 18% during the fourth quarter continued the strong results achieved throughout fiscal 2011. Margins declined sequentially due to typical seasonality, but increased 260 basis points as compared to the prior year fourth quarter. For the full fiscal year, operating margins were 20%.

Auto Parts Business: Outlook

The following summary of management's outlook for the Auto Parts Business in the first quarter of fiscal 2012 is subject to uncertainty that may affect future results.

Revenues: Revenues are expected to increase 20-30% from 1Q11 levels due to higher prices and increased sales of parts, core and scrap, including incremental benefits from acquisitions.

Margins: Operating margins are expected to decline compared to 4Q11 due to the impact of lower commodity prices for scrap and core sales as well as a negative impact from average inventory costs.

Steel Manufacturing Business

Our Steel Manufacturing Business delivered $2 million in operating profit during the fourth quarter despite continued softness in the markets for long steel products on the West Coast.

Summary of Steel Manufacturing Business Results
($ in millions, except selling prices; volume in thousands of tons)
Quarter Year
4Q11 3Q11 4Q10 2011 2010 % Chg
Revenues $ 93 $ 91 $ 74 $ 317 $ 285 11 %
Avg. Net Sales Prices ($/T) $ 721 $ 734 $ 618 $ 697 $ 587 19 %
Finished Goods Sales Volumes 124 118 116 439 444 (1 )%
Operating Income (Loss) $ 2 $ 3 $ 0 $ 3 $ (6 ) NM
NM = Not meaningful

"Our Steel Manufacturing Business achieved operating profitability for the quarter and full year, primarily driven by higher sales prices and higher sales volumes," said Lundgren. "We continue to maximize value from our product diversification and operational efficiencies."

Sales Volumes: Finished steel sales volumes of 124 thousand tons increased 5% from the third quarter and 8% from the prior year quarter.

Pricing: Average net sales prices for finished steel products increased 17% compared to the prior year quarter.

Margins: Higher sales prices resulted in positive operating margins during the quarter and for the full year.

Steel Manufacturing Business: Outlook

The following summary of management's outlook for the Steel Manufacturing Business in the first quarter of fiscal 2012 is subject to uncertainty that may affect future results.

Sales Volumes: Sales volumes are expected to increase slightly from 1Q11 levels.

Pricing: Average net sales prices are expected to increase from 1Q11, approximating 4Q11 levels.

Margins: First quarter operating margins are expected to improve from 1Q11, approximating break-even due to higher production levels.

Corporate Items

The Company's effective tax rates of 26.9% and 31.6% for the fourth quarter and fiscal year 2011 included a benefit of $3 million arising from a prior period adjustment to deferred tax liabilities related to an investment in a subsidiary.

Total debt declined from the third quarter by $68 million to $404 million, reflecting the strong operating cash flow of $128 million generated during the fourth quarter and $140 million for the full year.

During the fourth quarter the Company repurchased 254 thousand shares of our Class A Common Stock at a cost of $10 million. Under authorities granted by its Board of Directors, 3.2 million shares remain available for repurchase.

Analysts' Conference Call:Fourth Quarter of Fiscal 2011

A conference call and slide presentation to discuss results will be held today, October 20, 2011, at 5:00 p.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 http://www.schnitzersteel.com.

Summary financial data 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 Year Ended
August 31, 2011 (1)

May 31, 2011 (1)

August 31, 2010 (1) August 31, 2011 (1) August 31, 2010 (1)
REVENUES:
Metals Recycling Business:
Ferrous sales $ 739,502 $ 702,829 $ 431,002 $ 2,425,488 $ 1,558,664
Nonferrous sales 213,115 167,812 121,798 619,640 412,927
Other sales 9,347 8,663 3,012 24,876 8,179
TOTAL MRB SALES 961,964 879,304 555,812 3,070,004 1,979,770
Auto Parts Business 93,770 86,850 63,589 319,833 241,233
Steel Manufacturing Business 92,886 90,894 74,454 317,483 285,085
Intercompany sales eliminations (67,434 ) (75,986 ) (54,764 ) (248,126 ) (204,848 )
TOTAL $ 1,081,186 $ 981,062 $ 639,091 $ 3,459,194 $ 2,301,240
OPERATING INCOME:
Metals Recycling Business $ 51,729 $ 45,693 $ 20,808 $ 164,646 $ 118,449
Auto Parts Business 16,703 17,328 9,635 64,027 51,096
Steel Manufacturing Business 1,823 3,485 (77 ) 2,562 (5,862 )
Corporate expense (14,146 ) (10,582 ) (6,896 ) (46,394 ) (36,223 )
Intercompany eliminations 146 (592 ) 833 1,123 (1,563 )
TOTAL $ 56,255 $ 55,332 $ 24,303 $ 185,964 $ 125,897
(1) Excludes discontinued operations
SCHNITZER STEEL INDUSTRIES, INC.
CONDENSED CONSOLIDATED STATEMENT OF INCOME
(in thousands, except per share amounts)
(Unaudited)
For the Three Months Ended For the Year Ended
August 31, 2011

May 31, 2011

August 31, 2010 August 31, 2011 August 31, 2010
Revenues $ 1,081,186 $ 981,062 $ 639,091 $ 3,459,194 $ 2,301,240
Cost of goods sold 966,233 870,530 573,523 3,072,165 2,019,764
Selling, general and administrative 59,601 56,316 41,919 205,025 158,805
Environmental matters 330 532 150 662 (91 )
Income from joint ventures (1,233 ) (1,648 ) (804 ) (4,622 ) (3,135 )
Operating income 56,255 55,332 24,303 185,964 125,897
Other income (expense):
Interest income 60 35 70 384 459
Interest expense (3,553 ) (3,127 ) (527 ) (8,436 ) (2,343 )
Other income (expense), net (57 ) (66 ) 618 2,893 1,320
Total other expense (3,550 ) (3,158 ) 161 (5,159 ) (564 )
Income from continuing operations before income taxes 52,705 52,174 24,464 180,805 125,333
Income tax expense (14,203 ) (18,056 ) (7,510 ) (57,168 ) (40,825 )
Income from continuing operations 38,502 34,118 16,954 123,637 84,508
Income (loss) from discontinued operations, net of tax (417 ) 282 1,191 (101 ) (13,832 )
Net income 38,085 34,400 18,145 123,536 70,676
Net income attributable to noncontrolling interests (1,377 ) (1,372 ) (738 ) (5,181 ) (3,926 )
Net income attributable to SSI $ 36,708 $ 33,028 $ 17,407 $ 118,355 $ 66,750
Basic: (1)
Income per share from continuing operations attributable to SSI $ 1.34 $ 1.18 $ 0.59 $ 4.28 $ 2.90
Income (loss) per share from discontinued operations (0.02 ) 0.01 0.04 -- (0.50 )
Net income per share attributable to SSI $ 1.32 $ 1.19 $ 0.63 $ 4.28 $ 2.40
Diluted: (1)
Income per share from continuing operations attributable to SSI $ 1.33 $ 1.17 $ 0.58 $ 4.24 $ 2.86
Income (loss) per share from discontinued operations (0.02 ) 0.01 0.04 (0.01 ) (0.49 )
Net income per share attributable to SSI $ 1.31 $ 1.18 $ 0.62 $ 4.23 $ 2.37
Weighted average number of common shares:
Basic 27,729 27,677 27,760 27,649 27,832
Diluted 28,007 27,998 28,082 27,959 28,147
Dividends declared per common share $ 0.017 $ 0.017 $ 0.017 $ 0.068 $ 0.068
(1) Net income used in EPS calculation:
Income from continuing operations $ 38,502 $ 34,118 $ 16,954 $ 123,637 $ 84,508
Net income attributable to noncontrolling interests (1,377 ) (1,372 ) (738 ) (5,181 ) (3,926 )
Income from continuing operations attributable to SSI 37,125 32,746 16,216 118,456 80,582
Income (loss) from discontinued operations, net of tax (417 ) 282 1,191 (101 ) (13,832 )
Net income attributable to SSI $ 36,708 $ 33,028 $ 17,407 $ 118,355 $ 66,750
SCHNITZER STEEL INDUSTRIES, INC.
SELECTED OPERATING STATISTICS
(Unaudited)
Fiscal Year Fiscal Year
1Q11 2Q11 3Q11 4Q11 2011 1Q10 2Q10 3Q10 4Q10 2010
Metals Recycling Business
Ferrous Selling Prices ($/LT) (1)
Steel Manufacturing Business $ 350 $ 408 $ 442 $ 435 $ 412 $ 292 $ 300 $ 386 $ 359 $ 339
Other domestic 315 399 422 410 389 252 292 356 324 311
Exports 359 424 443 449 421 280 298 382 343 330
Average $ 353 $ 419 $ 440 $ 443 $ 416 $ 277 $ 297 $ 378 $ 342 $ 328
Ferrous Sales Volume (LT)
SMB 90,537 95,774 122,238 95,351 403,900 122,171 80,728 139,404 115,869 458,172
Domestic 161,301 144,250 199,818 183,502 688,871 134,595 160,424 197,226 158,487 650,732
Export 979,063 860,005 1,142,156 1,254,708 4,235,932 499,899 933,123 838,766 849,863 3,121,651
Total 1,230,901 1,100,029 1,464,212 1,533,561 5,328,703 756,665 1,174,275 1,175,396 1,124,219 4,230,555
Nonferrous Average Price ($/LB) (1) $ 0.94 $ 1.04 $ 1.12 $ 1.08 $ 1.06 $ 0.73 $ 0.80 $ 0.94 $ 0.84 $ 0.83
Nonferrous Sales Volume (LB, in 000s) 111,495 121,498 144,505 191,062 568,560 110,247 104,892 124,283 139,063 478,485
Steel Manufacturing Business
Sales Prices ($/NT) (1) (2)
Average $ 634 $ 687 $ 734 $ 721 $ 697 $ 520 $ 556 $ 635 $ 618 $ 587
Sales Volume (NT) (2)
Rebar 63,668 51,569 45,494 61,411 222,142 55,875 42,588 52,792 66,047 217,302
Coiled Products 26,917 40,947 67,020 57,553 192,437 38,051 47,660 70,738 44,233 200,682
Merchant Bar and Other 7,071 6,322 5,811 5,290 24,494 6,249 6,147 7,840 5,296 25,532
Total 97,656 98,838 118,325 124,254 439,073 100,175 96,395 131,370 115,576 443,516
Auto Parts Business
Number of self-service locations at end of quarter 45 50 50 50 50 43 45 45 45 45
Car purchase volumes (000) 82 81 93 97 353 88 70 86 85 329
(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)
August 31, 2011 August 31, 2010

Assets

Current Assets:
Cash and cash equivalents $ 49,462 $ 30,342
Accounts receivable, net 229,975 126,156
Inventories, net 335,120 268,103
Other current assets 39,442 36,193
Total current assets 653,999 460,794
Property, plant and equipment, net 555,284 460,810
Goodwill and other assets 680,886 421,814
Total assets $ 1,890,169 $ 1,343,418

Liabilities and Equity

Current liabilities:
Short-term borrowings $ 643 $ 1,189
Other current liabilities 232,670 158,924
Total current liabilities 233,313 160,113
Long-term debt and capital lease obligations 403,287 99,240
Other long-term liabilities 133,280 104,433
Redeemable noncontrolling interest 19,053 --
Equity:
Total Schnitzer Steel Industries, Inc. ("SSI") shareholders' equity 1,094,712 975,326
Noncontrolling interests 6,524 4,306
Total equity 1,101,236 979,632
Total liabilities and equity $ 1,890,169 $ 1,343,418

About Schnitzer Steel Industries, Inc.

Schnitzer Steel Industries, Inc. is one of the largest manufacturers and exporters of recycled ferrous metal products in the United States with 56 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 50 self-service facilities located in 14 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 106th year of operations in fiscal 2012. Schnitzer was named Scrap Company of the Year by American Metals Market's 2011 Awards for Steel Excellence. The awards recognize advancements rooted in pioneering and implementing business improvements that have delivered real change to the steel industry.

Safe Harbor for Forward Looking Statements

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.

Forward-looking statements in this press release include statements regarding our expectations, intentions, beliefs and strategies regarding the future, including 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 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 world 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 our quarterly report on Form 10-Q. Examples of these risks include: potential environmental cleanup costs related to the Portland Harbor Superfund site; 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 inability of customers to fulfill their contractual obligations; the impact of foreign currency fluctuations; potential limitations on ability to access credit facilities; 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.

SOURCE: Schnitzer Steel Industries, Inc.

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

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