Schnitzer Reports Second Quarter 2013 Financial Results Sequential Improvement in Revenues and Earnings Continued Momentum on Growth Strategy in Auto Parts and Metals Recycling Businesses Business Wire PORTLAND, Ore. -- April 03, 2013 Schnitzer Steel Industries, Inc. (Nasdaq:SCHN) today reported adjusted earnings per share of $0.36 and earnings per share of $0.32 for its fiscal 2013 second quarter ended February 28, 2013. Adjusted results for the quarter exclude a $2 million pre-tax restructuring charge associated with cost reduction initiatives announced in August 2012. Performance exceeded our second quarter market outlook issued in February due to better than anticipated operational performance in our Metals Recycling and Auto Parts Businesses, lower corporate expenses and additional tax benefits. In the first quarter of 2013, the Company reported an adjusted loss per share of $0.02 and a loss per share of $0.06. During the second quarter, ferrous export selling prices strengthened with average prices for February shipments approximately $40 per ton higher than average prices for shipments at the end of the first quarter. Higher commodity prices, together with significant improvements in sales volumes in our Metals Recycling Business and car purchase volumes in our Auto Parts Business, drove improved performance sequentially in the second quarter. Summary Results ($ in millions, except per share amounts) Quarter 2Q13 1Q13 Change 2Q12 Change Revenues $ 662 $ 593 12 % $ 887 (25 )% Operating $ 11 $ 1 NM $ 18 (37 )% Income Restructuring 2 2 (3 )% — NM Charges Adjusted Operating $ 13 $ 3 361 % $ 18 (28 )% Income^(1) Net Income (Loss) $ 9 $ (2 ) NM $ 10 (10 )% attributable to SSI Restructuring Charges, net 1 1 — % — NM of tax Adjusted Net Income (Loss) $ 10 $ (1 ) NM $ 10 — % attributable to SSI^(1) Net Income (Loss) per share $ 0.32 $ (0.06 ) NM $ 0.35 (7 )% attributable to SSI Restructuring Charges, net 0.04 0.04 — % — NM of tax, per share Adjusted diluted EPS $ 0.36 $ (0.02 ) NM $ 0.35 3 % attributable to SSI^(1)(2) (1) Adjusted for restructuring charges. See Non-GAAP Financial Measures for reconciliation to U.S. GAAP. (2) Second quarter of fiscal 2013 includes 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. First quarter of fiscal 2013 includes tax expense of $2 million, or $0.06 per share, relating to recording the valuation allowance. NM = Not meaningful “Our operating performance improved significantly during our second quarter, led by rising commodity prices, improved volumes in both our Metals Recycling and Auto Parts Businesses, and the operational efficiencies we have gained through the implementation of our cost reduction program,” said Tamara Lundgren, President and Chief Executive Officer. “During the first half of fiscal 2013, our restructuring initiatives delivered an 11% reduction in SG&A year over year while we continued to advance our strategic growth initiatives. In the second quarter, our Auto Parts Business significantly improved its sequential operating margin to 11% for stores owned more than a year and added ten new sites which will provide access to additional supply in our core markets. In our Metals Recycling Business, we completed testing of our new shredder which will provide increased processing capabilities in Western Canada during the third quarter of fiscal 2013. Embedded in both growth initiatives is the opportunity to generate enhanced synergies between our Metals Recycling and Auto Parts Businesses. As 2013 progresses, we will continue to focus on delivering improved operational performance, maintaining our strong balance sheet and optimizing our cost base, while continuing to pursue our growth strategy.” Key business drivers during the second quarter of fiscal 2013: *Metals Recycling Business (MRB) generated operating income per ferrous ton of approximately $13, an increase of 117% from the first quarter of fiscal 2013, due to a combination of higher selling prices and sales volume for both ferrous and nonferrous products. *Auto Parts Business (APB) improved its operating income margin from the first quarter, excluding the adverse impact related to the new sites added during the quarter which include transaction, integration and startup costs. In addition, APB increased its car purchase volume to 88 thousand cars, reflecting an 11% sequential increase which includes a partial quarter contribution from new sites. *Steel Manufacturing Business (SMB) generated $1 million in operating income on sequentially lower selling volumes, primarily due to the typical seasonal slowdown in demand during the second quarter. Metals Recycling Business Summary of Metals Recycling Business Results ($ in millions, except selling prices; Fe volumes 000s long tons; NFe volumes M lbs) Quarter 2Q13 1Q13 Change 2Q12 Change Total Revenues $ 576 $ 494 17 % $ 782 (26 )% Ferrous Revenues $ 443 $ 370 20 % $ 613 (28 )% Ferrous Volumes 1,103 955 16 % 1,353 (18 )% Avg. Net Ferrous Sales Prices $ 372 $ 358 4 % $ 421 (12 )% ($/LT)^(1) Nonferrous Revenues $ 125 $ 117 7 % $ 159 (21 )% Nonferrous Volumes 126 119 6 % 169 (26 )% Avg. Net Nonferrous Sales Prices $ 0.97 $ 0.95 2 % $ 0.91 7 % ($/lb)^(1) Operating $ 14 $ 6 150 % $ 20 (29 )% Income^(2) (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 1.1 million tons in the second quarter increased 16% from first quarter levels, primarily due to higher demand in the export markets and the timing of sales. Nonferrous sales volumes of 126 million pounds increased 6% sequentially, primarily due to the impact of higher production levels and the timing of sales. Export customers accounted for 76% of total ferrous sales volumes in the second quarter. Our ferrous and nonferrous products were shipped to 14 countries, with Turkey, China and South Korea being the top ferrous export destinations. Pricing: Demand strengthened in the export markets for February shipments, resulting in a 4% increase in average net ferrous selling prices from first quarter levels. Nonferrous prices were in line with the prior quarter. Margins: Operating income per ferrous ton was $13, a sequential increase of $7 per ton, or 117%, due to a combination of higher ferrous export selling prices and sales volumes and the timing of sales. The supply of scrap continued to be constrained by low US GDP growth which moderated the overall improvement to margins. Auto Parts Business Summary of Auto Parts Business Results ($ in millions) Quarter 2Q13 1Q13 Change 2Q12 Change Revenues $ 78 $ 70 12 % $ 78 — % Operating $ 7 $ 6 5 % $ 9 (23 )% Income^(1) Car Purchases 88 79 11 % 84 5 % Volumes (000s) Locations (end of 59 51 16 % 51 16 % quarter) (1) Operating income does not include the impact of restructuring charges Revenues: Revenues in the second quarter increased 12% sequentially due to higher commodity prices and higher sales volumes. Margins: During the second quarter, operating margins, excluding the impact of new sites, increased sequentially to 11% primarily due to the impact of higher commodity prices on scrap sales, higher car purchase volumes and lower SG&A costs. During the second quarter, APB incurred $2 million of operating losses, including transaction, integration and startup costs, related to the new sites added during the quarter which lowered APB's reported operating margin to 9%. See Non-GAAP Financial Measures for reconciliation to U.S. GAAP. New Sites: During the second quarter, APB invested in ten new sites through a combination of acquisitions and greenfield developments which, in the aggregate, will increase the number of our total stores by 20% and are expected to increase annualized car purchase volumes by approximately 15%. These new sites will expand APB's position in our core markets and further enhance operational synergies with our Metals Recycling Business. Steel Manufacturing Business Summary of Steel Manufacturing Business Results ($ in millions, except selling prices; volume in thousands of short tons) Quarter 2Q13 1Q13 Change 2Q12 Change Revenues $ 71 $ 92 (23) % $ 85 (16) % Operating $ Income $ 1 $ 3 (69) % (1) NM (Loss) Avg. Net Sales $ $ 1 % $ (5) % Prices 690 680 725 ($/ST) Finished Goods 96 130 (26) % 112 (15) % Sales Volumes NM = Not meaningful Sales Volumes: Finished steel sales volumes of 96 thousand tons decreased 26% from the first quarter of fiscal 2013. Pricing: Average net sales prices for finished steel products of $690 per short ton approximated the first quarter. Margins: Compared to the first quarter, higher costs for raw materials, a lower utilization rate resulting from planned maintenance and a typical seasonal slowdown in demand during the quarter resulted in operating income of $1million. Cost Reductions During the first half of fiscal 2013, SG&A was 11% lower as compared to the prior year. In August we announced cost reduction initiatives which are expected to lower annual pre-tax operating costs by $25 million and are anticipated to be substantially implemented by the end of fiscal 2013. Total pre-tax restructuring charges are expected to be approximately $13 million. During the second quarter, we incurred a $2 million expense related to the restructuring charge. In aggregate, we have incurred $8 million of the total $13 million anticipated restructuring charge, and we expect to recognize the balance during the remainder of fiscal 2013. Corporate Items Corporate expense in the second quarter was $2 million lower sequentially due to cost reduction initiatives and lower professional fees. Operating results in the second quarter include a $2 million pre-tax restructuring charge associated with cost reduction initiatives announced in August 2012 which equates to $0.04 per share. Income tax expense in the second quarter included the release of a valuation allowance on deferred tax assets of a foreign subsidiary of approximately $2 million, which had been recorded in the first quarter. In addition, we had $1 million in other discrete tax benefits. In aggregate, tax benefits in the second quarter equated to $0.10 per share. Total debt at period end increased by $66 million, compared to the fourth quarter of fiscal 2012, to $401 million, primarily reflecting the newly acquired APB sites and higher working capital. Analysts' Conference Call: Second Quarter of Fiscal 2013 A conference call and slide presentation to discuss results will be held today, April 3, 2013, at 11:30 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 Six Months Ended February November February February 28, February 29, 28, 30, 29, 2013 2012 2012 2013 2012 REVENUES: Metal Recycling Business: Ferrous $ 443,418 $ 370,476 $ 612,603 $ 813,894 $ 1,190,627 sales Nonferrous 125,255 116,601 158,997 241,856 301,287 sales Other 7,518 7,384 10,333 14,902 18,457 sales TOTAL MRB 576,191 494,461 781,933 1,070,652 1,510,371 SALES Auto Parts 78,082 69,555 78,232 147,637 162,285 Business Steel Manufacturing 71,247 92,029 84,523 163,276 164,424 Business Intercompany sales and (63,310 ) (63,225 ) (58,076 ) (126,535 ) (138,293 ) eliminations Total $ 662,210 $ 592,820 $ 886,612 $ 1,255,030 $ 1,698,787 Revenues OPERATING INCOME: Metal Recycling $ 14,158 $ 5,654 $ 19,952 $ 19,812 $ 33,051 Business Auto Parts 6,711 6,364 8,708 13,075 19,150 Business Steel Manufacturing 1,041 3,404 (868 ) 4,445 349 Business Segment operating 21,910 15,422 27,792 37,332 52,550 income^(1) Corporate (8,942 ) (11,144 ) (9,589 ) (19,935 ) (19,885 ) expense Intercompany (38 ) (1,472 ) (216 ) (1,660 ) 290 eliminations Adjusted operating 12,930 2,806 17,987 15,737 32,955 income Restructuring (1,540 ) (1,593 ) — (3,133 ) — charges Total operating $ 11,390 $ 1,213 $ 17,987 $ 12,604 $ 32,955 income (1) Segment operating income does not include the impact of restructuring charges. SCHNITZER STEEL INDUSTRIES, INC. CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (in thousands) (Unaudited) For the Three Months Ended For the Six Months Ended February November February February 28, February 29, 28, 30, 29, 2013 2012 2012 2013 2012 Revenues $ 662,210 $ 592,820 $ 886,612 $ 1,255,030 $ 1,698,787 Cost of goods 600,786 541,884 817,087 1,142,670 1,559,303 sold Selling, general and 48,760 47,995 52,370 96,754 108,362 administrative Loss (Income) from joint (266 ) 135 (832 ) (131 ) (1,833 ) ventures Restructuring 1,540 1,593 — 3,133 — charges Operating 11,390 1,213 17,987 12,604 32,955 income Interest (2,354 ) (2,017 ) (3,472 ) (4,371 ) (6,743 ) expense Other income (49 ) 321 617 271 223 (expense), net Income (loss) before income 8,987 (483 ) 15,132 8,504 26,435 taxes Income tax (244 ) (960 ) (4,767 ) (1,205 ) (8,328 ) expense Net income 8,743 (1,443 ) 10,365 7,299 18,107 (loss) Net income attributable to (100 ) (228 ) (735 ) (329 ) (1,462 ) noncontrolling interests Net income (loss) $ 8,643 $ (1,671 ) $ 9,630 $ 6,970 $ 16,645 attributable to SSI Income (loss) per share $ 0.32 $ (0.06 ) $ 0.35 $ 0.26 $ 0.61 attributable to SSI - basic Income (loss) per share attributable $ 0.32 $ (0.06 ) $ 0.35 $ 0.26 $ 0.60 to SSI - diluted Weighted average number of common shares: Basic 26,640 26,567 27,509 26,597 27,480 Diluted 26,781 26,567 27,781 26,751 27,734 Dividends declared per $ 0.188 $ 0.188 $ 0.017 $ 0.376 $ 0.034 common share SCHNITZER STEEL INDUSTRIES, INC. SELECTED OPERATING STATISTICS (Unaudited) Fiscal YTD Fiscal 1Q13 2Q13 1H13 1Q12 2Q12 3Q12 4Q12 2012 Metals Recycling Business Ferrous Selling Prices ($/LT) ^(1) Domestic $ 354 $ 363 $ 358 $ 420 $ 424 $ 414 $ 357 $ 406 Exports 360 374 368 436 420 427 384 417 Average $ 358 $ 372 $ 365 $ 432 $ 421 $ 424 $ 378 $ 415 Ferrous Sales Volume (LT) Domestic 279,450 260,509 539,959 319,451 297,142 308,521 261,747 1,186,861 Export 675,212 842,509 1,517,722 912,939 1,055,237 1,044,063 915,927 3,928,166 Total 954,662 1,103,018 2,057,681 1,232,390 1,352,379 1,352,584 1,177,674 5,115,027 Nonferrous Average Price $ 0.95 $ 0.97 $ 0.96 $ 1.00 $ 0.91 $ 0.97 $ 0.90 $ 0.94 ($/LB) ^(1) Nonferrous Sales Volume 118,931 125,500 244,432 137,243 168,545 154,071 168,794 628,652 (LB, in 000s) Steel Manufacturing Business Sales Prices ($/ST) ^(1) (2) Average $ 680 $ 690 $ 684 $ 722 $ 725 $ 734 $ 685 $ 715 Sales Volume (ST) ^(2) Rebar 78,159 58,132 136,291 62,487 51,141 55,378 74,797 243,803 Coiled 45,533 32,130 77,663 39,120 55,785 42,753 45,103 182,761 Products Merchant Bar 5,926 5,355 11,281 5,030 5,097 4,812 5,837 20,776 and Other Total 129,618 95,617 225,235 106,637 112,023 102,943 125,737 447,340 Auto Parts Business Car purchase 79 88 167 85 84 89 81 339 volumes (000) Number of self-service locations at 51 59 59 50 51 51 51 51 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) Excludes billet sales SCHNITZER STEEL INDUSTRIES, INC. CONDENSED CONSOLIDATED BALANCE SHEETS (In thousands) (Unaudited) February 28, 2013 August 31, 2012 Assets Current Assets: Cash and cash equivalents $ 34,540 $ 89,863 Accounts receivable, net 159,055 137,313 Inventories, net 305,454 246,992 Other current assets 45,948 42,651 Total current assets 544,997 516,819 Property, plant and 566,890 564,185 equipment, net Goodwill and other assets 695,543 682,569 Total assets $ 1,807,430 $ 1,763,573 Liabilities and Equity Current liabilities: Short-term borrowings $ 669 $ 683 Other current liabilities 157,506 178,159 Total current liabilities 158,175 178,842 Long-term debt 400,720 334,629 Other long-term liabilities 145,143 142,158 Redeemable noncontrolling 24,760 22,248 interest Equity: Total Schnitzer Steel Industries, Inc. ("SSI") 1,073,289 1,080,583 shareholders' equity Noncontrolling interests 5,343 5,113 Total equity 1,078,632 1,085,696 Total liabilities and equity $ 1,807,430 $ 1,763,573 Non-GAAP Financial Measures This press release contains certain non-GAAP financial measures as defined under SEC rules such as adjusted operating income, adjusted net income (loss) 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 2Q13 1Q13 2Q12 Operating Income $ 11 $ 1 $ 18 Restructuring Charges 2 2 — Adjusted Operating $ 13 $ 3 $ 18 Income Net Income (Loss) attributable to SSI ($ in millions) Quarter 2Q13 1Q13 2Q12 Net Income (Loss) $ 9 $ (2 ) $ 10 attributable to SSI Restructuring Charges, 1 1 — net of tax Adjusted Net Income (Loss) attributable to $ 10 $ (1 ) $ 10 SSI Diluted Earnings per share attributable to SSI ($ per share) Quarter 2Q13 1Q13 2Q12 Net Income (Loss) per share attributable to $ 0.32 $ (0.06 ) $ 0.35 SSI Restructuring Charges, 0.04 0.04 — net of tax, per share Adjusted Diluted EPS $ 0.36 $ (0.02 ) $ 0.35 attributable to SSI Auto Parts Business New Stores Impact ($ in millions) 2Q13 Existing Stores^(1) New Stores^(2) Reported Revenues $ 75 $ 3 $ 78 Operating Income 8 (2 ) 7 (Loss)^(3) Operating Income 11 % NM 9 % Margin Car Purchase Volumes 84 4 88 (000) (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 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 58 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 59 self-service facilities located in 16 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. 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 Section21E 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, 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 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,” “plan,” 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 firstname.lastname@example.org or Media Relations: Chip Terhune, 503-265-6370 email@example.com Company Info: www.schnitzersteel.com firstname.lastname@example.org
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Schnitzer Reports Second Quarter 2013 Financial Results
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