Schnitzer Steel Industries, Inc. reported net income of $42.5 million on revenues of $193.8 million for the third quarter ended May 31, 2004. For the first nine months of fiscal 2004, Schnitzer Steel reported net earnings of $73.2 million on revenues of $483.7 million.

Third Quarter Results—Net income, $42.5 million ($1.37 per diluted share) compares to net income of $15.0 million ($0.52 per diluted share) for the quarter ended May 31, 2003. Revenues of $193.8 million compare to revenues of $127.9 million for the year-ago third quarter.

First Nine Month Results—Net earnings of $73.2 million ($2.36 per diluted share) compare to net income of $26.3 million ($0.92 per diluted share) during the first nine months of fiscal 2003. Revenues of $483.7 million compare to revenues of $343.3 million during the first nine months of fiscal 2003.

Comments—"It's a pleasure to report another record quarter for Schnitzer Steel," said Robert W. Philip, Chairman and CEO. "The quarter's results even exceeded our revised earnings guidance; however, what's especially pleasing about the third quarter's results was the fact that not just one business, but all of our major business segments reported record profits during the period. The company's quarterly performance was led by our metals recycling business segments that include both our wholly-owned and joint venture businesses. Combined, the metals recycling businesses increased their operating profits by 219% over last year's third quarter. These businesses continue to benefit from our strategic export locations along the West Coast and Northeastern seaboards of the United States that allow us to efficiently access both export and domestic customers."

Mr. Philip added, "During the third quarter of fiscal 2004 we also saw our Auto Parts Business segment grow its operating profit into record territory, which was due in part to the March 2004 acquisition of three new stores in Canada. This acquisition has gone well and is performing as we anticipated. Our Steel Manufacturing Business is also producing excellent results. During the most recent quarter, the steel mill reported its most profitable quarter ever as it continues to benefit from the improving economy, rising steel consumption and higher finished steel prices."

In closing, Mr. Philip commented, "Schnitzer Steel is clearly benefiting from the improving worldwide economic conditions, but much of the credit goes to the managers and employees of both our wholly-owned and joint venture businesses who, on a daily basis, execute the strategies and business processes that ultimately make us successful."

Fourth Quarter Outlook—During the third quarter of fiscal 2004 ferrous recycled metal selling prices began to ease from the record highs that were achieved for orders received in early March 2004. The company believes that the decline was caused by a number of factors, including concerns over the impact of the Chinese government's recent attempt to slow its economy coupled with Asian steel mills buying metal ahead in anticipation of higher prices. Today, the uncertainty continues; however, market prices for ferrous metal have recently firmed and remain high from an historical perspective.

The Metals Recycling Business normally accepts export orders 60 to 90 days before shipment. Based upon the Metals Recycling Businesses' current order backlog, contracted selling prices that are expected to be shipped in the fourth quarter are, on average, above the average realized in the first nine months of fiscal 2004, but below the record average prices in the third quarter of fiscal 2004. Fourth quarter 2004 ferrous metal sales volumes are anticipated to be in the 475,000 to 500,000 ton range. Ocean freight rates also remain relatively high; however, rates have receded from levels incurred by the company in the third quarter of fiscal 2004. The cost of unprocessed ferrous metal remains very competitive and volatile. The company anticipates the cost of unprocessed metal to generally follow the trend of market selling prices.

The joint venture processors in the metals recycling business are anticipated to experience similar market trends as the company's wholly owned Metals Recycling Business; however, their financial results may vary depending on geographical locations, competition and other factors. Fourth quarter 2004 sales volumes should approximate a more normal quarterly shipment rate. Two of the joint venture businesses use last-in first-out (LIFO) to value their inventory and record a LIFO adjustment during the fourth quarter of each fiscal year. During last year's fourth quarter, the LIFO adjustment resulted in a $2.2 million charge that reduced income from operations. It is difficult to predict the ultimate impact of LIFO on the Company's fourth quarter 2004 earnings.

Due to the timing of when finished steel price increases took effect in the third quarter of fiscal 2004 as well as recently announced additional price increases, Schnitzer anticipates that the Steel Manufacturing Business's average selling price will rise in the fourth quarter of fiscal 2004. Fourth quarter sales volumes are expected to be modestly above third quarter 2004 levels, which approximate the mill's current production rate. Compared to the third quarter of fiscal 2004, fourth quarter raw material costs should be modestly lower due to anticipated declines in recycled metal selling prices.

The Auto Parts Business typically experiences a modest reduction in retail demand in the fourth quarter of each year as customer admissions decrease due to hot weather conditions. Wholesale revenues are anticipated to decline from the third quarter 2004 levels due to lower recycled metal pricing, but remain ahead of last year's levels. The Auto Parts Business's operating profits should continue to benefit from the addition of the three new Canadian stores where retail sales tend to be seasonably strong during the summer months.

Assuming no LIFO inventory valuation adjustments at the company's joint venture businesses, the company estimates its fourth quarter 2004 income from operations to be in the $45 million to $52 million range. This amount compares to income from operations of $24.8 million reported for the fourth quarter of fiscal 2003, which includes the aforementioned $2.2 million LIFO charge that was recorded in the 2003 fourth quarter.

The company's effective tax rate for the fourth quarter of fiscal 2004 should continue to benefit from Extraterritorial Income Exclusion benefits associated with certain export sales. These, as well as other factors, including increased profitability, should result in a fourth quarter 2004 effective tax rate of approximately 35%.

Schnitzer Steel Industries, Inc. is one of the nation's largest recyclers of ferrous metals, a manufacturer of finished steel products and a leading self-service used auto parts retailer. The company, with its joint venture partners, processes approximately 5.0 million tons of recycled ferrous metals per year as well as brokers nearly 2.0 million tons through it global trading joint venture. In addition, the company's steel mill, Cascade Steel Rolling Mills, has an annual production capacity of approximately 700,000 tons of finished steel products. The company and its joint venture partners operate primarily along the West Coast and Northeastern seaboard of the United States.