SCHN - Schnitzer Reports Fourth Quarter and Fiscal 2019 Financial Results

October, 24 2019 08:00 AM Schnitzer Steel Industries Inc.

Solid Performance in Challenging Market Conditions

Fourth Quarter Sales Volumes Up Sequentially

Strong Operating Cash Flow

Schnitzer Steel Industries, Inc. (NASDAQ: SCHN) today reported results for its fourth quarter and fiscal year ended August 31, 2019.

The Company reported earnings per share from continuing operations for the quarter of $0.41 and adjusted earnings per share of $0.42, a sequential decrease from the third quarter results of $0.56 and $0.65, respectively. Comparatively, prior year fourth quarter reported and adjusted earnings per share from continuing operations were $2.08 and $2.11, respectively, which included a discrete tax benefit of $1.06 per share. The Company reported fiscal 2019 full year earnings per share of $2.01 and adjusted earnings per share of $2.16, compared to fiscal 2018 results of $5.46 and $5.64, respectively, which included discrete tax benefits of $1.58 per share.

“In challenging market conditions marked by sharp declines in both ferrous and nonferrous prices, our team delivered solid financial and operational results. Both businesses were successful in expanding sales volumes during the quarter and benefited from the productivity initiatives we implemented earlier this year,” commented Tamara Lundgren, President and Chief Executive Officer. “These results together with our focus on effective working capital management led to strong operating cash flow which allowed us to continue to invest in our strategic initiatives, reduce debt and return capital to shareholders through our dividend and share repurchases.”

Divisional Operating Performance

Auto and Metals Recycling (AMR) achieved operating income in the fourth quarter of $22 million, or $22 per ferrous ton. AMR’s ferrous and nonferrous sales volumes increased 9% and 4% sequentially, but operating income was impacted by metal spread compression resulting from a significant decrease in ferrous and nonferrous scrap prices during the latter two months of the quarter which outpaced the reduction in purchase costs for raw materials.

Cascade Steel and Scrap (CSS) achieved operating income in the fourth quarter of $6 million. CSS increased finished steel sales volumes sequentially, but operating income was impacted by margin compression as the decrease in net selling prices for finished steel products, particularly wire rod, outpaced the decrease in the purchase cost of steel-making raw materials. CSS’s fiscal 2019 performance of $32 million was its second-best since 2008, supported by finished steel prices that reached a multi-year peak in the fall of 2018, before declining by over 10% through the fourth quarter primarily as a result of lower raw material prices and extended customer destocking.

The Company continued to benefit from the $35 million productivity improvement program announced earlier in fiscal 2019. Consolidated results in the fourth quarter of fiscal 2019 reflected approximately $9 million of benefits from these measures, of which $7 million were achieved by AMR and the remainder by CSS and Corporate. In fiscal 2019, the Company achieved approximately $30 million of benefits from these initiatives and expects to achieve the full annual amount in fiscal 2020.

In the fourth quarter, the Company generated operating cash flow of $82 million resulting in a reduction in debt to $105 million, the lowest level since fiscal 2010. The Company repurchased 115 thousand shares of Class A common stock in open market transactions during the quarter and returned capital to shareholders through its 102nd consecutive quarterly dividend.

Market Conditions & Strategic Initiatives

Markets for ferrous and nonferrous metals have been pressured, with prices declining in 8 of the last 10 months. Factors contributing to this have included slower global growth, extended customer destocking and mill outages, and trade and regulatory actions by China, including tariffs, licensing, import quotas, and higher metal content requirements. Since the beginning of August, ferrous prices have decreased by almost 20% and reached three-year lows in mid-October. Nonferrous prices have continued their decline, with prices for zorba now down almost 50% since the most recent peak in the spring of 2018, reaching levels last seen in 2009. We expect these lower prices to further compress our operating margins in the first quarter, which we anticipate will also include a significant adverse impact from average inventory accounting.

“As we look forward, while near-term market conditions are challenging, we have in place strategic initiatives to deliver growth. We are expanding our productivity improvement program to deliver additional savings beginning the second quarter. In addition, we expect our advanced metal recovery investments to deliver benefits beginning in the second half of fiscal 2020 by increasing our throughput, improving our yields, lowering our costs, and creating products and furnace-ready materials that can meet global metal content and quality requirements on a cost-effective basis. Importantly, these investments will also support our Sustainability objectives to increase recycling and reduce waste,” added Tamara Lundgren, President and Chief Executive Officer. “These initiatives, together with our organic volume and sales diversification growth targets, should improve our margins and enable us to continue our track record of delivering strong operating cash flow through the cycle, providing us with additional opportunities to grow and to return more capital to our shareholders.”






















Summary Results




















($ in millions, except per share amounts)






















Quarter


Year



4Q19


3Q19


4Q18



2019



2018

Revenues

$
548


$
547


$
670


$
2,133


$
2,365

Operating income

$
18


$
24


$
38


$
84


$
149

Charge related to the settlement of a wage and hour class action lawsuit


—



2



—



2



—

Charges for legacy environmental matters, net⁽¹⁾


1



1



1



2



7

Asset impairment charges, net


—



—



1



—



(1
)
Restructuring charges and other exit-related activities


—



—



(1
)


—



(1
)
Recoveries related to the resale or modification of previously contracted shipments


—



—



—



—



—

Adjusted operating income⁽²⁾⁽³⁾

$
18


$
27


$
39


$
89


$
154

Net income attributable to SSI shareholders

$
12


$
16


$
60


$
56


$
156

Net income from continuing operations attributable to SSI shareholders

$
12


$
16


$
59


$
57


$
156

Adjusted net income from continuing operations attributable to SSI shareholders⁽²⁾

$
12


$
18


$
60


$
61


$
161

Diluted earnings per share attributable to SSI shareholders

$
0.41


$
0.56


$
2.09


$
2.00


$
5.47

Diluted earnings per share from continuing operations attributable to SSI shareholders

$
0.41


$
0.56


$
2.08


$
2.01


$
5.46

Adjusted diluted earnings per share from continuing operations attributable to SSI shareholders⁽²⁾

$
0.42


$
0.65


$
2.11


$
2.16


$
5.64

⁽¹⁾

Legal and environmental charges for legacy environmental matters, net of recoveries. The third quarter of fiscal 2019, the fourth quarter of fiscal 2018, and fiscal 2018 have been recast for comparability. Legacy environmental matters include charges (net of recoveries) related to the Portland Harbor Superfund site and to other legacy environmental loss contingencies. See Note 8 – Commitments and Contingencies, ‘Portland Harbor’ and ‘Other Legacy Environmental Loss Contingencies’ in the Notes to the Consolidated Financial Statements in the Company’s most recently filed 10-K on October 24, 2019.

⁽²⁾

See Non-GAAP Financial Measures for reconciliation to U.S. GAAP.

⁽³⁾

May not foot due to rounding.

Auto and Metals Recycling

Summary of Auto and Metals Recycling Results




















($ in millions, except selling prices and data per ton)





Quarter


Year



4Q19


3Q19


4Q18


2019


2018

Total revenues

$
433


$
429


$
532


$
1,685


$
1,909

Ferrous revenues

$
287


$
280


$
362


$
1,123


$
1,288

Ferrous volumes (LT, in thousands)


1,024



938



1,032



3,740



3,708

Avg. net ferrous sales prices ($/LT)⁽¹⁾

$
270


$
293


$
321


$
289


$
317

Nonferrous revenues

$
114


$
113


$
134


$
430


$
482

Nonferrous volumes (pounds, in millions)⁽²⁾


160



154



167



608



572

Avg. net nonferrous sales prices ($/pound)⁽¹⁾⁽²⁾

$
0.56


$
0.62


$
0.69


$
0.59


$
0.72

Cars purchased (in thousands)


101



102



105



386



424

Operating income

$
22


$
29


$
34


$
96


$
169

Operating income ($/LT)

$
22


$
31


$
33


$
26


$
46

Adjusted operating income⁽³⁾

$
22


$
29


$
34


$
96


$
169

Adjusted operating income ($/LT)

$
22


$
31


$
33


$
26


$
46

LT = Long Ton, which is equivalent to 2,240 pounds

⁽¹⁾

Price information is shown after netting the cost of freight incurred to deliver the product to the customer.

⁽²⁾

Excludes platinum group metals (PGMs) in catalytic converters.

⁽³⁾

See Non-GAAP Financial Measures for reconciliation to U.S. GAAP.

Volumes: Ferrous sales volumes in the fourth quarter increased 9% sequentially, driven by seasonally improved supply flows and the benefits from commercial initiatives, and decreased 1% compared to the prior year fourth quarter. Nonferrous sales volumes in the fourth quarter were 4% higher sequentially, due primarily to higher production volumes, and were 4% lower compared to the prior year fourth quarter.

Export customers accounted for 74% of total ferrous sales volumes for the quarter. Ferrous and nonferrous products were shipped to 25 countries in the fourth quarter, with Vietnam, Turkey and South Korea representing the top export destinations for ferrous shipments.

Pricing: Average ferrous net selling prices decreased $23 per ton, or 8%, sequentially and decreased $51 per ton, or 16%, compared to the prior year fourth quarter. Average nonferrous net selling prices decreased 10% sequentially and decreased 19% compared to the prior year fourth quarter.

Margins: Operating income was $22 million in the fourth quarter, lower sequentially by $7 million, or 24%. Operating income per ferrous ton of $22 was also lower sequentially by $10 per ton. AMR’s results primarily reflect a compression of metal spreads in the fourth quarter as the decline in net selling prices for ferrous and nonferrous scrap outpaced the reduction in purchase costs for raw materials, seasonally lower retail sales and increased selling, general and administrative expense primarily from higher environmental-related expense, partially offset by the benefits of higher ferrous and nonferrous sales volumes. Fourth quarter operating results include an adverse impact from average inventory accounting of $1 million, consistent with the impact in the third quarter of fiscal 2019 and compared to an adverse impact of $2 million in the fourth quarter of fiscal 2018.

AMR achieved operating income of $96 million in fiscal 2019 and operating income per ferrous ton of $26, compared to operating income of $169 million and operating income per ferrous ton of $46 in fiscal 2018, primarily due to compression of metal spreads. The major driver of margin compression was the significant year-over-year decline in average net selling prices for ferrous and nonferrous products which were down 9% and 18%, respectively. This was partially offset by the benefits of productivity initiatives implemented during the year and an increase in ferrous and nonferrous sales volumes which were up 1% and 6% year-over-year, respectively.

Cascade Steel and Scrap



Summary of Cascade Steel and Scrap Results

($ in millions, except selling prices)



Quarter


Year



4Q19


3Q19


4Q18


2019


2018

Steel revenues

$
96


$
97


$
102


$
368


$
368

Recycling revenues


21



25



42



91



113

Total segment revenues⁽¹⁾

$
117


$
121


$
144


$
459


$
481






















Operating income

$
6


$
8


$
14


$
32


$
38






















Finished steel average net sales price ($/ST)⁽²⁾

$
675


$
703


$
741


$
713


$
666

Finished steel sales volumes (ST, in thousands)


134



130



127



478



519






















Rolling mill utilization


90
%


98
%


83
%


88
%


88
%

ST = Short Ton, which is equivalent to 2,000 pounds

⁽¹⁾

May not foot due to rounding.

⁽²⁾

Price information is shown after netting the cost of freight incurred to deliver the product to the customer.

Volumes: Finished steel sales volumes in the fourth quarter were 4% higher sequentially and 6% higher compared to the same period of the prior year amid steady construction demand in our West Coast markets. Recycling revenues were 49% lower compared to the prior year fourth quarter from a combination of lower scrap prices and timing of shipments.

Pricing: Average net selling prices for finished steel products decreased 4% sequentially and 9% from the prior year fourth quarter driven primarily by the decline in costs of steel-making raw materials, including scrap and other consumables, and sequentially, also by the impact on demand of extended customer destocking.

Margins: Operating income for the fourth quarter was $6 million, a decrease of $2 million compared to the third quarter of fiscal 2019 due primarily to finished steel margin compression resulting from lower average net selling prices for finished steel products, particularly wire rod, which outpaced the decline in steel-making raw materials costs, partially offset by the benefits from higher finished steel sales volumes. Operating income in the fourth quarter declined by $7 million compared to the same period of the prior year primarily as a result of the impact of lower average selling prices and higher beginning inventory costs in a declining selling price environment, partially offset by benefits from productivity initiatives and higher finished steel sales volumes.

CSS achieved operating income in fiscal 2019 of $32 million, its second-best performance since 2008, compared to operating income of $38 million in the prior year. While prices decreased after reaching a multi-year peak in the fall of 2018, finished steel net selling prices were still on average 7% higher year-over-year. Finished steel sales volumes were 8% lower compared to fiscal 2018, impacted by unusually severe weather conditions in the winter followed by customer destocking in the second half of the fiscal year.

Corporate Items

In the fourth quarter of fiscal 2019, consolidated financial performance included Corporate expense of $11 million, compared to $13 million in the third quarter of fiscal 2019, which included a $2 million charge related to the settlement of a wage and hour class action lawsuit. Corporate expense was flat compared to the prior year fourth quarter. The Company’s effective tax rate for the fourth quarter of fiscal 2019 was an expense of 25% and for the fiscal year 2019 was an expense of 23%.

In the fourth quarter, the Company generated operating cash flow of $82 million, driven by profitability and effective working capital management, resulting in a $37 million sequential reduction in debt to $105 million, and reduction in debt, net of cash, to $93 million, both at the lowest level since fiscal 2010. Capital expenditures were $34 million in the fourth quarter and $95 million for fiscal 2019, including investments in maintaining the business, environmental projects and growth.

During the fourth quarter, the Company returned capital to shareholders through its 102nd consecutive quarterly dividend and the repurchase of 115 thousand shares of Class A common stock in open market transactions pursuant to the ongoing authorized share repurchase program. In fiscal 2019, the Company repurchased approximately 527 thousand shares, or almost 2% of its outstanding shares.

Analysts’ Conference Call: Fourth Quarter and Fiscal 2019

A conference call and slide presentation to discuss results will be held today, October 24, 2019, at 11:30 a.m. Eastern hosted by Tamara Lundgren, President and Chief Executive Officer, and Richard Peach, Senior Vice President, Chief Financial Officer and Chief of Corporate Operations. The call and the slides will be webcast and accessible on the Company’s website under Company > Investors > Event Calendar at www.schnitzersteel.com/events.

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

About Schnitzer Steel Industries, Inc.

Schnitzer Steel Industries, Inc. is one of the largest manufacturers and exporters of recycled metal products in North America with operating facilities located in 23 states, Puerto Rico and Western Canada. Schnitzer 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 auto parts stores with approximately 5 million annual retail visits. The Company’s steel manufacturing operations produce finished steel products, including rebar, wire rod and other specialty products. The Company began operations in 1906 in Portland, Oregon.


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



For the Three Months Ended



For the Year Ended



August 31, 2019


May 31, 2019


August 31, 2018



August 31, 2019


August 31, 2018

REVENUES:











































Auto and Metals Recycling:





















Ferrous revenues

$
286,518


$
280,362


$
362,051



$
1,123,180


$
1,288,287

Nonferrous revenues


113,911



112,785



133,758




430,361



481,777

Retail and other revenues


33,048



35,876



35,707




131,436



138,902

Total Auto and Metals Recycling revenues


433,477



429,023



531,516




1,684,977



1,908,966























Cascade Steel and Scrap:





















Steel revenues⁽¹⁾


95,968



96,626



101,846




367,956



367,560

Recycling revenues


21,233



24,805



42,021




91,460



113,081

Total Cascade Steel and Scrap revenues


117,201



121,431



143,867




459,416



480,641

Intercompany sales eliminations


(2,878
)


(3,058
)


(5,806
)



(11,612
)


(24,892
)
Total revenues

$
547,800


$
547,396


$
669,577



$
2,132,781


$
2,364,715























OPERATING INCOME:











































AMR operating income

$
22,044


$
29,189


$
33,836



$
95,991


$
169,120

CSS operating income

$
6,149


$
8,116


$
13,604



$
31,951


$
38,286

Consolidated operating income

$
17,681


$
24,459


$
37,973



$
83,865


$
148,988























Adjusted AMR operating income⁽²⁾

$
22,044


$
29,189


$
34,368



$
96,054


$
169,356

Adjusted CSS operating income⁽²⁾


6,149



8,116



13,604




31,951



38,198

Adjusted segment operating income⁽²⁾


28,193



37,305



47,972




128,005



207,554

Corporate expense, adjusted⁽³⁾


(10,435
)


(9,670
)


(9,508
)



(39,237
)


(53,107
)
Intercompany eliminations


224



(269
)


539




274



(290
)
Adjusted operating income⁽²⁾


17,982



27,366



39,003




89,042



154,157

Charge related to the settlement of a wage and hour class action lawsuit


—



(2,330
)


—




(2,330
)


—

Charges for legacy environmental matters, net⁽⁴⁾


(749
)


(502
)


(1,420
)



(2,419
)


(7,268
)
Asset impairment (charges) recoveries, net


—



—



(532
)



(63
)


1,021

Restructuring charges and other exit-related activities


448



(75
)


922




(365
)


661

Recoveries related to the resale or modification of previously contracted shipments


—



—



—




—



417

Total operating income

$
17,681


$
24,459


$
37,973



$
83,865


$
148,988

⁽¹⁾

Steel revenues include primarily sales of finished steel products, semi-finished goods (billets) and manufacturing scrap.

⁽²⁾

See Non-GAAP Financial Measures for reconciliation to U.S. GAAP.

⁽³⁾

Corporate expense has been adjusted for the three months ended May 31, 2019 and year ended August 31, 2019 to exclude a $2 million charge related to the settlement of a wage and hour class action lawsuit. Corporate expense has been adjusted for all periods presented for charges for legacy environmental matters, net of recoveries. See Non-GAAP Financial Measures for reconciliation to U.S. GAAP.

⁽⁴⁾

SCHNITZER STEEL INDUSTRIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
($ in thousands, except per share amounts)
(Unaudited)



For the Three Months Ended



For the Year Ended



August 31, 2019


May 31, 2019


August 31, 2018



August 31, 2019


August 31, 2018

Revenues

$
547,800


$
547,396


$
669,577



$
2,132,781


$
2,364,715

Cost of goods sold


479,117



474,598



582,608




1,858,535



2,010,485

Selling, general and administrative


51,922



48,575



50,011




191,405



208,877

(Income) from joint ventures


(472
)


(311
)


(625
)



(1,452
)


(1,953
)
Asset impairment charges (recoveries), net


—



—



532




63



(1,021
)
Restructuring charges and other exit-related activities


(448
)


75



(922
)



365



(661
)
Operating income


17,681



24,459



37,973




83,865



148,988

Interest expense


(1,999
)


(2,294
)


(2,160
)



(8,266
)


(8,983
)
Other income, net


268



29



495




641



1,848

Income from continuing operations before income taxes


15,950



22,194



36,308




76,240



141,853

Income tax (expense) benefit


(3,937
)


(5,762
)


23,620




(17,670
)


17,590

Income from continuing operations


12,013



16,432



59,928




58,570



159,443

(Loss) Income from discontinued operations, net of tax


(46
)


8



273




(248
)


346

Net income


11,967



16,440



60,201




58,322



159,789

Net income attributable to noncontrolling interests


(392
)


(750
)


(532
)



(1,977
)


(3,338
)
Net income attributable to SSI shareholders

$
11,575


$
15,690


$
59,669



$
56,345


$
156,451

Basic:





















Income per share from continuing operations attributable to SSI shareholders

$
0.42


$
0.57


$
2.17



$
2.06


$
5.65

Income (loss) per share from discontinued operations


—



—



0.01




(0.01
)


0.01

Net income per share attributable to SSI shareholders

$
0.42


$
0.57


$
2.18



$
2.05


$
5.66

Diluted:





















Income per share from continuing operations attributable to SSI shareholders

$
0.41


$
0.56


$
2.08



$
2.01


$
5.46

Income (loss) per share from discontinued operations


—



—



0.01




(0.01
)


0.01

Net income per share attributable to SSI shareholders

$
0.41


$
0.56


$
2.09



$
2.00


$
5.47

Weighted average number of common shares:





















Basic


27,462



27,510



27,427




27,527



27,645

Diluted


28,337



28,074



28,524




28,222



28,589

Dividends declared per common share

$
0.1875


$
0.1875


$
0.1875



$
0.750


$
0.750

SCHNITZER STEEL INDUSTRIES, INC.
SELECTED OPERATING STATISTICS
(Unaudited)


















Fiscal Year



1Q19


2Q19


3Q19


4Q19


2019

SSI Total Volumes⁽¹⁾




















Total ferrous volumes (LT, in thousands)⁽²⁾


1,080



992



1,079



1,168



4,319

Total nonferrous volumes (pounds, in thousands)


166,977



154,571



169,912



175,874



667,334

Auto and Metals Recycling




















Ferrous selling prices ($/LT)⁽³⁾




















Domestic

$
290


$
286


$
268


$
232


$
272

Export

$
314


$
288


$
303


$
281


$
295

Average

$
306


$
287


$
293


$
270


$
289

Ferrous sales volume (LT, in thousands)




















Domestic


340



343



311



271



1,265

Export


579



515



627



754



2,475

Total


919



858



938



1,024



3,740

Nonferrous average price ($/pound)⁽³⁾⁽⁴⁾

$
0.59


$
0.58


$
0.62


$
0.56


$
0.59

Nonferrous sales volume (pounds, in thousands)⁽⁴⁾


152,869



141,307



153,936



160,182



608,294

Cars purchased (in thousands)⁽⁵⁾


94



89



102



101



386

Auto stores at period end


51



51



51



51



51

Cascade Steel and Scrap




















Finished steel average sales price ($/ST)⁽³⁾

$
747


$
737


$
703


$
675


$
713

Sales volume (ST, in thousands)




















Rebar


81



59



91



100



331

Coiled products⁽⁶⁾


37



34



39



32



143

Merchant bar and other


—



—



—



3



3

Finished steel products sold⁽⁶⁾⁽⁷⁾


119



94



130



134



478

Rolling mill utilization⁽⁸⁾


87
%


76
%


98
%


90
%


88
%

Tons for recycled ferrous metal are LT (Long Ton, which is equivalent to 2,240 pounds) and for finished steel products are ST (Short Ton, which is equivalent to 2,000 pounds).

⁽¹⁾

Ferrous and nonferrous volumes sold externally by AMR and CSS and delivered to our steel mill for finished steel production.

⁽²⁾

Subsequent to the earnings release for the second quarter of fiscal 2019, total ferrous volumes for the second quarter of fiscal 2019 were revised to include an additional 35 thousand LT.

⁽³⁾

Price information is shown after netting the cost of freight incurred to deliver the product to the customer.

⁽⁴⁾

Excludes PGM metals in catalytic converters.

⁽⁵⁾

Cars purchased by auto parts stores only.

⁽⁶⁾

The sum of quarterly amounts may not agree to full year equivalent due to rounding.

⁽⁷⁾

May not foot due to rounding.

⁽⁸⁾

Rolling mill utilization is based on effective annual production capacity under current conditions of 580 thousand tons of finished steel products.

SCHNITZER STEEL INDUSTRIES, INC.
SELECTED OPERATING STATISTICS
(Unaudited)

















Fiscal Year


1Q18


2Q18


3Q18


4Q18


2018

SSI Total Volumes⁽¹⁾



















Total ferrous volumes (LT, in thousands)⁽²⁾

912



1,062



1,119



1,206



4,299

Total nonferrous volumes (pounds, in thousands)

141,046



144,024



162,667



188,359



636,096

Auto and Metals Recycling



















Ferrous selling prices ($/LT)⁽³⁾



















Domestic
$
259


$
278


$
314


$
303


$
291

Export
$
306


$
327


$
347


$
328


$
328

Average
$
292


$
314


$
337


$
321


$
317

Ferrous sales volume (LT, in thousands)



















Domestic

237



240



293



315



1,085

Export

559



657



690



717



2,623

Total

796



897



983



1,032



3,708

Nonferrous average price ($/pound)⁽³⁾⁽⁴⁾
$
0.73


$
0.72


$
0.74


$
0.69


$
0.72

Nonferrous sales volume (pounds, in thousands)⁽⁴⁾

129,137



129,549



146,043



166,976



571,705

Cars purchased (in thousands)⁽⁵⁾

108



102



109



105



424

Auto stores at period end

53



53



53



52



52

Cascade Steel and Scrap



















Finished steel average sales price ($/ST)⁽³⁾
$
599


$
619


$
703


$
741


$
666

Sales volume (ST, in thousands)



















Rebar

84



80



92



81



337

Coiled products

41



43



47



44



175

Merchant bar and other

2



2



2



2



8

Finished steel products sold⁽⁶⁾

127



125



140



127



519

Rolling mill utilization⁽⁷⁾

95
%


83
%


91
%


83
%


88
%

Tons for recycled ferrous metal are LT (Long Ton, which is equivalent to 2,240 pounds) and for finished steel products are ST (Short Ton, which is equivalent to 2,000 pounds).

⁽¹⁾

Ferrous and nonferrous volumes sold externally by AMR and CSS and delivered to our steel mill for finished steel production.

⁽²⁾

Subsequent to the earnings release for the second quarter of fiscal 2019, total ferrous volumes for the second quarter of fiscal 2019 were revised to include an additional 35 thousand LT.

⁽³⁾

Price information is shown after netting the cost of freight incurred to deliver the product to the customer.

⁽⁴⁾

Excludes PGM metals in catalytic converters.

⁽⁵⁾

Cars purchased by auto parts stores only.

⁽⁶⁾

May not foot due to rounding.

⁽⁷⁾

Rolling mill utilization is based on effective annual production capacity under current conditions of 580 thousand tons of finished steel products.

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


August 31, 2019


August 31, 2018

Assets








Current assets:








Cash and cash equivalents

$
12,377


$
4,723

Accounts receivable, net


145,617



169,418

Inventories


187,320



205,877

Other current assets


120,974



68,341

Total current assets


466,288



448,359

Property, plant and equipment, net


456,400



415,711

Goodwill and other assets


238,058



240,747

Total assets

$
1,160,746


$
1,104,817










Liabilities and Equity








Current liabilities:








Short-term borrowings

$
1,321


$
1,139

Other current liabilities


266,909



253,538

Total current liabilities


268,230



254,677

Long-term debt, net of current maturities


103,775



106,237

Other long-term liabilities


87,445



73,793

Equity:








Total Schnitzer Steel Industries, Inc. ("SSI") shareholders' equity


696,964



666,078

Noncontrolling interests


4,332



4,032

Total equity


701,296



670,110

Total liabilities and equity

$
1,160,746


$
1,104,817

Non-GAAP Financial Measures

This press release contains expected performance based on adjusted diluted earnings per share from continuing operations attributable to SSI shareholders which is a non-GAAP financial measure as defined under SEC rules. As required by SEC rules, the Company has provided a reconciliation of this measure for each period discussed to the most directly comparable U.S. GAAP measure. Management believes that presenting these non-GAAP financial measures provide a meaningful presentation of our results from business operations excluding adjustments for a charge related to the settlement of a wage and hour class action lawsuit, charges for legacy environmental matters net of recoveries, asset impairment charges net of recoveries, restructuring charges and other exit-related activities, recoveries related to the resale or modification of previously contracted shipments, and income tax expense (benefit) allocated to these adjustments, items which are not related to underlying business operational performance, and improves the period-to-period comparability of our results from business operations. Adjusted operating results in fiscal 2015 excluded the impact from the resale or modification of the terms, each at significantly lower prices due to sharp declines in selling prices, of certain previously contracted bulk shipments for delivery during fiscal 2015. Recoveries resulting from settlements with the original contract parties, which began in fiscal 2016 and concluded in fiscal 2018, are reported within SG&A expense in the Consolidated Statements of Income and are also excluded from the measures. Further, management believes that debt, net of cash is a useful measure for investors because, as cash and cash equivalents can be used, among other things, to repay indebtedness, netting this against total debt is a useful measure of our leverage. 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.



Reconciliation of adjusted consolidated operating income, adjusted AMR operating income and adjusted CSS operating income

($ in millions)

Quarter



Year



4Q19


3Q19


4Q18



2019


2018

Consolidated operating income:





















Operating income

$
18


$
24


$
38



$
84


$
149

Charge related to the settlement of a wage and hour class action lawsuit


—



2



—




2



—

Charges for legacy environmental matters, net⁽¹⁾


1



1



1




2



7

Asset impairment charges (recoveries), net


—



—



1




—



(1
)
Restructuring charges and other exit-related activities


—



—



(1
)



—



(1
)
Recoveries related to the resale or modification of previously contracted shipments


—



—



—




—



—

Adjusted consolidated operating income⁽²⁾

$
18


$
27


$
39



$
89


$
154























AMR operating income:





















Operating income

$
22


$
29


$
34



$
96


$
169

Charges for legacy environmental matters, net⁽¹⁾


—



—



—




—



2

Asset impairment charges (recoveries), net


—



—



1




—



(1
)
Recoveries related to the resale or modification of previously contracted shipments


—



—



—




—



—

Adjusted AMR operating income, net⁽²⁾

$
22


$
29


$
34



$
96


$
169























CSS operating income:





















Operating income

$
6


$
8


$
14



$
32


$
38

Asset impairment charges (recoveries), net


—



—



—




—



—

Adjusted CSS operating income

$
6


$
8


$
14



$
32


$
38

Reconciliation of adjusted net income from continuing operations attributable to SSI shareholders

($ in millions)

Quarter



Year



4Q19


3Q19


4Q18



2019


2018

Net income from continuing operations attributable to SSI shareholders

$
12


$
16


$
59



$
57


$
156

Charge related to the settlement of a wage and hour class action lawsuit


—



2



—




2



—

Charges for legacy environmental matters, net⁽¹⁾


1



1



1




2



7

Asset impairment charges (recoveries), net


—



—



1




—



(1
)
Restructuring charges and other exit-related activities


—



—



(1
)



—



(1
)
Recoveries related to the resale or modification of previously contracted shipments


—



—



—




—



—

Income tax expense (benefit) allocated to adjustments⁽³⁾


—



—



—




(1
)


—

Adjusted net income from continuing operations attributable to SSI shareholders⁽²⁾

$
12


$
18


$
60



$
61


$
161

Reconciliation of adjusted diluted earnings per share from continuing operations attributable to SSI shareholders

($ per share)

Quarter



Year



4Q19


3Q19


4Q18



2019


2018

Diluted earnings per share from continuing operations attributable to SSI shareholders

$
0.41


$
0.56


$
2.08



$
2.01


$
5.46

Charge related to the settlement of a wage and hour class action lawsuit


—



0.08



—




0.08



—

Charges for legacy environmental matters, net⁽¹⁾


0.03



0.02



0.05




0.09



0.25

Asset impairment charges (recoveries), net


—



—



0.02




—



(0.04
)
Restructuring charges and other exit-related activities


(0.02
)


—



(0.03
)



0.01



(0.02
)
Recoveries related to the resale or modification of previously contracted shipments


—



—



—




—



(0.01
)
Income tax expense (benefit) allocated to adjustments⁽³⁾


—



(0.01
)


—




(0.03
)


—

Adjusted diluted earnings per share from continuing operations attributable to SSI shareholders⁽²⁾

$
0.42


$
0.65


$
2.11



$
2.16


$
5.64

⁽¹⁾

Legal and environmental charges for legacy environmental matters, net of recoveries. Prior quarters and fiscal 2018 have been recast for comparability. Legacy environmental matters include charges (net of recoveries) related to the Portland Harbor Superfund site and to other legacy environmental loss contingencies. See Note 8 – Commitments and Contingencies, ‘Portland Harbor’ and ‘Other Legacy Environmental Loss Contingencies’ in the Notes to the Consolidated Financial Statements in the Company’s most recently filed 10-K on October 24, 2019.

⁽²⁾

May not foot due to rounding.

⁽³⁾

Income tax allocated to the aggregate adjustments reconciling reported and adjusted net income from continuing operations attributable to SSI shareholders is determined based on a tax provision calculated with and without the adjustments.



Reconciliation of debt, net of cash

($ in thousands)














August 31, 2019


May 31, 2019


August 31, 2018

Short-term borrowings

$
1,321


$
1,234


$
1,139

Long-term debt, net of current maturities


103,775



140,895



106,237

Total debt


105,096



142,129



107,376

Less: cash and cash equivalents


12,377



8,119



4,723

Total debt, net of cash

$
92,719


$
134,010


$
102,653

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. Except as noted herein or as the context may otherwise require, all references in this press release to “we,” “our,” “us,” “the Company” and “SSI” refer to Schnitzer Steel Industries, Inc. and its consolidated subsidiaries.

Forward-looking statements in this press release include statements regarding future events or our expectations, intentions, beliefs and strategies regarding the future, which may include statements regarding trends, cyclicality and changes in the markets we sell into; the Company’s outlook, growth initiatives or expected results or objectives, including pricing, margins, sales volumes and profitability; strategic direction or goals; targets; changes to manufacturing and production processes; the cost of and the status of any agreements or actions related to our compliance with environmental and other laws; expected tax rates, deductions and credits and the impact of federal tax reform; the impact of sanctions and tariffs, quotas and other trade actions and import restrictions; the realization of deferred tax assets; planned capital expenditures; liquidity positions; our ability to generate cash from continuing operations; the potential impact of adopting new accounting pronouncements; obligations under our retirement plans; benefits, savings or additional costs from business realignment, cost containment and productivity improvement programs; and the adequacy of accruals.

Forward-looking statements by their nature address matters that are, to different degrees, uncertain, and often contain words such as “outlook,” “target,” “aim,” “believes,” “expects,” “anticipates,” “intends,” “assumes,” “estimates,” “evaluates,” “may,” “will,” “should,” “could,” “opinions,” “forecasts,” “projects,” “plans,” “future,” “forward,” “potential,” “probable,” and similar expressions. However, the absence of these words or similar expressions does not mean that a statement is not forward-looking.

We may make other forward-looking statements from time to time, including in reports filed with the Securities and Exchange Commission, press releases, presentations and on 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 “Item 1A. Risk Factors” in Part I of our most recent Annual Report on Form 10-K. Examples of these risks include: potential environmental cleanup costs related to the Portland Harbor Superfund site or other locations; the cyclicality and impact of general economic conditions; changing conditions in global markets including the impact of sanctions and tariffs, quotas and other trade actions and import restrictions; volatile supply and demand conditions affecting prices and volumes in the markets for both our products and raw materials we purchase; imbalances in supply and demand conditions in the global steel industry; the impact of goodwill impairment charges; the impact of long-lived asset and equity investment impairment charges; inability to achieve or sustain the benefits from productivity, cost savings and restructuring initiatives; inability to realize or delays in realizing expected benefits from investments in technology; inability to renew facility leases; difficulties associated with acquisitions and integration of acquired businesses; customer fulfillment of their contractual obligations; increases in the relative value of the U.S. dollar; 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 consolidation in the steel industry; freight rates and the availability of transportation; the impact of equipment upgrades, equipment failures and facility damage on production; product liability claims; the impact of legal proceedings and legal compliance; the adverse impact of climate change; the impact of not realizing deferred tax assets; the impact of tax increases and changes in tax rules; the impact of one or more cybersecurity incidents; environmental compliance costs and potential environmental liabilities; inability to obtain or renew business licenses and permits; compliance with climate change and greenhouse gas emission laws and regulations; reliance on employees subject to collective bargaining agreements; and the impact of the underfunded status of multiemployer plans in which we participate.

View source version on businesswire.com: https://www.businesswire.com/news/home/20191024005323/en/

Investor Relations:
Michael Bennett
(503) 323-2811
mcbennett@schn.com

Company Info:
www.schnitzersteel.com
ir@schn.com

Company Name:	Schnitzer Steel Industries Inc.
Stock Symbol:	SCHN
Market:	NASDAQ

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