News Release

Schnitzer Steel Reports First Quarter Results

PORTLAND, Ore.--(BUSINESS WIRE)--Jan. 8, 2009--Schnitzer Steel Industries, Inc. (Nasdaq:SCHN) today reported a net loss of $34 million, or $1.21 per diluted share, for the fiscal 2009 first quarter ended November 30, 2008. The pre-tax operating loss of $50 million included non-cash inventory write downs of $52 million for the quarter. During the quarter the Company used cash from operations to reduce debt, net of cash, by $48 million, further strengthening its balance sheet.

(in millions, except per-share     First Quarter  First Quarter  Fourth Quarter
                                   2009           2008           2008

Revenues                           $  499         $ 604          $ 1,314

Operating Income (Loss)            ($ 50   )      $ 41           $ 200

Net Income (Loss)                  ($ 34   )      $ 25           $ 126

Diluted Earnings (Loss) Per Share  ($ 1.21 )      $ 0.85         $ 4.38

"During the first quarter we faced difficult market conditions, including an unprecedented drop in demand for recycled metals and finished steel products," said Tamara Lundgren, President and Chief Executive Officer. "The weak economic environment and the worldwide financial crisis resulted in a rapid and precipitous drop in both sales volumes and sales prices from those experienced in the previous quarter in all of our businesses.

"In the face of this environment, we undertook a series of actions to adjust our costs and production levels to meet the lower demand. We have implemented a cost containment program which includes reducing full time headcount by more than 10%, reducing production output, on average, by approximately 40%, and lowering our SG&A costs, all compared to levels at the end of the last fiscal year. These initiatives were put in place mid-quarter, and we expect to realize the full benefit going forward. We also reacted quickly to reduce our purchase costs for raw materials, allowing us to maintain positive cash metal spreads. Our lower production output will allow us to match our inventory with levels appropriate for the current market conditions.

"As a result of these actions, we believe we have appropriately adjusted the Company's cost base to reflect the current market environment, while preserving our ability to take advantage of stronger and sustainable future demand. In addition, through our continuous improvement program and other initiatives, we expect to achieve further cost reductions and efficiencies. During the quarter, we generated $70 million in cash from operations and further reduced our leverage. We continue to believe our strong balance sheet will allow us to pursue future opportunities which may arise," added Lundgren.

Metals Recycling Business

($ in millions, except selling
prices; ferrous volume in         First Quarter   First Quarter   Fourth Quarter
thousand long tons,
nonferrous volumes in million     2009            2008            2008

Total Revenues                    $  401          $ 481           $ 1,174

Ferrous Revenues                  $  313          $ 388           $ 1,038

Ferrous Volumes                      779/0          1,001/135       1,489/8

Avg. Net Ferrous Sales Price      $  359          $ 284           $ 623
($/LT) (1)

Nonferrous Volumes                   107            89              126

Avg. Net Nonferrous Sales Prices  $  0.78         $ 1.00          $ 1.05

Operating Income (Loss)(2)        ($ 19    )      $ 30            $ 182

(1) Price information is shown after netting the cost of freight incurred to deliver the product to the customer

(2) Includes operating income from joint ventures

Revenues for the Metals Recycling Business declined 66% from the record revenues posted in the fourth quarter of fiscal 2008. The decline reflected the collapse in demand for recycled metals related to the worldwide economic and financial crisis which occurred during the quarter.

Average net ferrous sales prices fell 42% and ferrous volumes fell 48%, both on a quarter over quarter basis. Nonferrous volumes and prices were also lower. Compared to the first quarter of fiscal 2008, revenues declined 17% as lower ferrous sales volumes and nonferrous sales prices more than offset higher average net ferrous sales prices and higher nonferrous volumes.

Net sales prices declined throughout the first quarter, with average net ferrous prices during November at levels approximately 40% less than the quarterly average. Average price levels during the quarter were impacted by a number of shipments scheduled for November which were cancelled by customers and resold at lower prices than originally contracted.

Lower ferrous sales volumes on a year over year and quarter over quarter basis were driven by lower demand for the raw materials used in the production of steel products. In addition, quarterly sales volumes were also impacted by deferrals and cancellations of customer contracts.

The operating loss for the quarter of $19 million included the impact of contract cancellations that occurred in November, as well as a non-cash inventory write down of $29 million. During the quarter, the Metals Recycling Business was able to rapidly adjust purchase costs for raw materials and maintain positive cash spreads on its raw material purchases.

Auto Parts Business

                                   First Quarter  First Quarter  Fourth Quarter
($ in millions, except locations)
                                   2009           2008           2008

Revenues                           $  67          $ 72           $ 103

Operating Income (Loss)            ($ 9  )        $ 7            $ 16

Locations (end of quarter)            56            53             56

Revenues for the Auto Parts Business declined 35% compared to the record revenues reported in the fourth quarter of fiscal 2008, reflecting the significant decline in demand and pricing for recycled metals. All categories of revenue were lower. Compared to the first quarter of fiscal 2008, revenues declined 7%, as lower prices for cores and scrapped vehicles, lower sales volumes and lower full-service parts sales more than offset a slight increase in self-service parts sales.

The operating loss of $9 million was primarily attributable to the weak revenue environment and inventory costs which declined more slowly than prices for recycled metals. During the quarter the Auto Parts Business was able to maintain positive cash spreads on its purchases of scrapped vehicles, although that spread was lower than normal due to tight supply conditions which caused buy prices to lag the drop in the market for other recycled metals.

Steel Manufacturing Business

($ in millions, except selling    First Quarter  First Quarter  Fourth Quarter
prices; volume in thousand tons)
                                  2009           2008           2008

Revenues                          $  99          $ 110          $ 182

Avg. Net Sales Prices ($/T)       $  864         $ 601          $ 958

Sales Volume                         98            174            182

Operating Income (Loss)           ($ 31  )       $ 14           $ 22

Revenues for the Steel Manufacturing Business declined 46% compared to the fourth quarter of 2008 as demand for finished steel products weakened considerably. Sales volumes dropped 46% to 98 thousand tons and sales prices fell 10% to $864/ton, although current market prices are significantly lower. Compared to the first quarter of fiscal 2008, revenues declined 10%, as a 44% drop in sales volumes more than offset a 44% increase in average sales prices.

The operating loss of $31 million included a non-cash inventory write down of $32 million. The lower operating income compared to the first quarter of fiscal 2008 reflected the impact of lower sales volumes caused by weaker economic conditions, a decline in inventory costs which lagged the reduction in selling prices during the quarter and lower anticipated future selling prices that resulted in the Steel Manufacturing Business recording the non-cash inventory write-down. In addition, the decrease in operating income reflected a $6 million charge for production and maintenance shutdown costs that could not be capitalized in inventory. The Company's strategy has been to reduce finished goods production to levels reflective of current market conditions and to reduce inventory levels.

Share Repurchase Program

The Company announced today that its Board of Directors has approved an increase in the shares authorized for repurchase by 3.0 million, bringing the total number of shares available for repurchase to 4.5 million. The Company repurchased no shares during the first fiscal quarter of 2009.


While market visibility has improved since the time of the Company's fourth quarter earnings release on October 28, 2008, there still remains uncertainty regarding near-term demand for steel and recycled metal. Based on continued limited visibility, the Company said the factors that will affect its results in the second quarter of 2009 include:

Metals Recycling Business:

Pricing. Pricing levels for ferrous metal appear to have strengthened slightly from the levels seen in the last month of the fiscal first quarter, although remaining at levels lower than the average for the first quarter as a whole. Nonferrous prices also appear to have stabilized at lower levels, and the average for the quarter is expected to be less than the average for the second quarter of fiscal 2008.

Sales volumes. Due to shipments delayed from the first quarter, second quarter 2009 ferrous volumes are expected to approximate the volumes shipped in the second quarter of 2008. Nonferrous volumes are expected to be 10% to 20% less than volumes shipped in the second quarter of last year.

Margins. The Metals Recycling Business expects to produce positive operating margins during the quarter. The continuing impact of ferrous selling prices which have fallen faster than inventory costs and significantly lower prices for nonferrous metals extracted from the shredding process are expected to result in lower margins than those achieved during the second quarter of 2008. However, cost containment efforts should enable the Metals Recycling Business to attain an operating margin per ton in future quarters that is generally consistent with margins achieved in fiscal 2006 and 2007.

Auto Parts Business:

Revenue. Lower volumes of scrapped vehicles and lower prices for ferrous and nonferrous metals are expected to offset higher self-service parts sales and result in revenues which decline 20-25% compared to the second quarter of fiscal 2008.

Margins. The combined impact of selling prices for cores and scrap which have fallen faster than inventory costs and lower full-service parts sales is expected to more than offset the benefits from the cost containment program. As a result, margins in the Auto Parts Business during the second quarter of fiscal 2009 are expected to be negative, although improved from the first quarter. Cash metal spreads are expected to remain positive.

Steel Manufacturing Business:

Pricing. Continued weak demand for finished steel products is expected to result in average net sales prices lower than levels realized in the second quarter of fiscal 2008.

Volumes. The continued weak demand is expected to result in sales volumes approximately 20% less than the recently completed first quarter and 60% less than the record second quarter sales volumes in fiscal 2008.

Margins. Expenses related to planned downtime and low production volumes, are expected to result in negative margins in the Steel Manufacturing Business in the second fiscal quarter as output has been temporarily cut more than the drop in sales volumes in order to reduce inventories. Cost containment efforts are expected to result in positive margins after production is restored to levels consistent with expected customer demand.

First Quarter 2009 Conference Call

A conference call to discuss results will be held today, January 8, 2009, at 11:30 a.m. EDT, hosted by Tamara Lundgren, President and Chief Executive Officer, and Richard Peach, Chief Financial Officer. The call will be webcast and is accessible on Schnitzer Steel's web site at

Schnitzer Steel Industries, Inc. is one of the largest manufacturers and exporters of recycled ferrous metal products in the United States with 39 operating facilities located in 12 states throughout the country, including six export facilities located on both the East and West Coasts and in Hawaii. The Company's vertically integrated operating platform also includes its auto parts and steel manufacturing businesses. The Company's auto parts business sells used auto parts through its 38 self-service facilities and 18 full-service facilities located in 16 states and in western Canada. With an annual production capacity of nearly 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 103rd year of operations in fiscal 2009.

This news release contains forward-looking statements, within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended, (the "Exchange Act") 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 expected net loss, the expect amount of the write down of its inventory values, the Company's outlook for the business and statements as to expected pricing, sales volume, operating margins and operating losses. Such statements can generally be identified 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 the raw materials it purchases; world economic conditions; world political conditions; unsettled credit markets; the Company's ability to match output with demand; changes in federal and state income tax laws; government regulations and environmental matters; 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 and availability of transportation; loss of key personnel; expectations regarding the Company's compliance program; the inability to obtain sufficient quantities of scrap metal to support current orders; purchase price estimates made during acquisitions; business integration issues relating to acquisitions of businesses; new accounting pronouncements; availability of capital resources; creditworthiness of and availability of credit to suppliers and customers; business disruptions resulting from installation or replacement of major capital assets; and the adverse impact of climate changes, as discussed in more detail in "Management's Discussion and Analysis of Financial Condition and Results of Operations" 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



(in thousands, except per share amounts)


                                               For the Three Months Ended

                                               November 30,  November 30,

                                               2008          2007

Revenues                                       $ 498,565     $ 603,897

Cost of goods sold                               513,760       519,378

Selling, general and administrative              43,082        44,891

Environmental matters                            (5,613  )     -

(Income) from joint ventures                     (2,256  )     (1,741  )

Operating income (loss)                          (50,408 )     41,369

Other income (expense):

 Interest expense                                (1,354  )     (2,348  )

 Other income (expense), net                     279           614

                                                 (1,075  )     (1,734  )

Income (loss) before income taxes and minority   (51,483 )     39,635

Income tax expense                               17,234        (14,225 )

Income (loss) before minority interests and      (34,249 )     25,410
pre-acquisition interests

Minority interests, net of tax                   247           (698    )

Net income (loss)                              $ (34,002 )   $ 24,712

Basic earnings (loss) per share                $ (1.21   )   $ 0.87

Diluted earnings (loss) per share              $ (1.21   )   $ 0.85



(in thousands, except per share amounts)


                                  For the Three Months Ended

                                  November 30,  November 30,

                                  2008          2007


Metals Recycling Business:

 Ferrous sales                    $ 312,755       388,282

 Nonferrous sales                   86,517        89,606

 Other sales                        1,912         3,583

  Total sales                       401,184       481,471

Auto Parts Business                 67,304        72,163

Steel Manufacturing Business        98,632        109,689

Intercompany sales eliminations     (68,555 )     (59,426 )

  Total                           $ 498,565     $ 603,897


Metals Recycling Business         $ (19,249 )   $ 29,637

Auto Parts Business                 (8,948  )     7,214

Steel Manufacturing Business        (31,286 )     14,344

Corporate expense                   (5,583  )     (9,512  )

Intercompany eliminations           14,658        (314    )

  Total                           $ (50,408 )   $ 41,369

NET INCOME (LOSS)                 $ (34,002 )   $ 24,712

BASIC EARNINGS (LOSS) PER SHARE   $ (1.21   )   $ 0.87

DILUTED EARNINGS (LOSS) PER SHARE $ (1.21   )   $ 0.85


 Basic shares outstanding           28,016        28,529

 Diluted shares outstanding         28,016        29,055


Schnitzer Steel Industries, Inc.

Selected Operating Statistics


                         Total                                                           Total

              Q1 FY09    FY09        Q1 FY08      Q2 FY08      Q3 FY08      Q4 FY08      FY08


 Metal Sales

  Domestic    $ 371      $ 371       $ 279        $ 321        $ 464        $ 583        $ 416

  Export        353        353         286          331          459          636          444

  Average       359        359         284          328          460          622          436

 Sales Volume

  Cascade       145,493    145,493     179,686      170,221      186,696      200,523      737,126

  Domestic      129,620    129,620     178,833      210,824      226,961      188,801      805,419

  Export        503,635    503,635     642,142      746,736      722,973      1,099,203    3,211,054

  Total         778,748    778,748     1,000,661    1,127,781    1,136,630    1,488,527    4,753,599

 Sales Volume

  Trading       -          -           134,957      148,899      151,324      8,407        443,587

 Ferrous        778,748    778,748     1,135,618    1,276,680    1,287,954    1,496,934    5,197,186
 Sales Volume

 Average      $ 0.784    $ 0.784     $ 1.000      $ 0.980      $ 1.069      $ 1.053      $ 1.030

 Sales Volume   107,359    107,359     88,808       96,278       128,858      125,525      439,469
 (pounds, in


 Sales Prices

  Average     $ 864      $ 864       $ 601        $ 616        $ 744        $ 958        $ 728

 Sales Volume

  Rebar         46,917     46,917      108,856      127,732      128,597      104,926      470,111

  Coiled        45,051     45,051      49,343       57,096       74,270       65,397       246,106

  Bar and       6,235      6,235       16,031       17,332       15,033       11,576       59,972

  Total         98,203     98,203      174,230      202,160      217,900      181,899      776,189

Auto Parts

 Number of
 locations at   38         38          35           35           35           38           38
 end of

 Number of
 full-service   18         18          17           17           17           18           18
 sites at end
 of quarter

(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

(3) Excludes billet sales.



(Unaudited, in thousands, except per share amounts)

                                        November 30, 2008    August 31, 2008


Current assets:

 Cash and cash equivalents            $ 10,039             $ 15,039

 Accounts receivable, net               109,097              314,993

 Inventories                            328,929              429,061

 Other current assets                   44,630               20,433

 Total current assets                   492,695              779,526

Property, plant and equipment, net      439,280              431,898

Goodwill and other assets               341,932              343,429

 Total assets                         $ 1,273,907          $ 1,554,853

Liabilities and Shareholders' Equity

Current liabilities:

 Short-term borrowings                $ 25,537             $ 25,490

 Other current liabilities              128,688              319,432

 Total current liabilities              154,225              344,922

Long-term debt                          106,107              158,933

Other long-term liabilities             65,729               68,447

Minority interests                      4,010                4,399

Shareholders' equity                    943,836              978,152

 Total liabilities and shareholders'  $ 1,273,907          $ 1,554,853

Schnitzer Steel Industries, Inc.
Investor Relations:
Rob Stone, 503-224-9900
Press Relations:
Tom Zelenka, 503-323-2821
Email: [email protected]

Source: Schnitzer Steel Industries, Inc.

Data provided by Thomson Reuters