Metals Recycling Business—Schnitzer Steel’s wholly owned Metals Recycling Business reported operating income of $13.2 million in the second quarter of fiscal 2004, an improvement of $4.7 million (55%) over the same quarter last year. Operating income divided by ferrous tons sold averaged $26 per ton in the second quarter of fiscal 2004, which compares to $15 per ton and $24 per ton in the second quarter of fiscal 2003 and the first quarter of fiscal 2004, respectively. The improved operating margins were primarily driven by higher average selling prices, which rose by 42% and 13%, over the second quarter of fiscal 2003 and the first quarter of 2004, respectively. Overall, market selling prices rose rapidly in the second fiscal quarter due primarily to the strength in demand from domestic steel manufacturers who saw their finished product order backlog and prices grow. Fiscal 2004 second quarter average domestic selling prices actually increased at a greater rate than our average export selling prices, which was primarily caused by the timing of when orders are received and shipped. Export orders are typically received 60-90 days ahead of shipment, whereas domestic sales are typically shipped within 30 days of order.

Partially offsetting the higher selling prices were lower sales volumes and increases in amounts paid for unprocessed metal and ocean charters. Ferrous sales volumes amounted to 501,000 tons in the second quarter of fiscal 2004, which compares to 555,000 tons in last year’s second quarter. Second quarter 2003 sales volume was a record quarterly high caused by export customers delaying orders in the first quarter of fiscal 2003. This year’s second quarter sales volumes were more typical of the quarterly shipment rate. Export sales shipping costs continued to climb in the second quarter of fiscal 2004 and were 72% and 30% above the second quarter of fiscal 2003 and first quarter of fiscal 2004, respectively. Ocean freight rates have been rising due primarily to increasing demand from Asia for various bulk commodities.

Joint Venture Businesses—Income from Joint Ventures amounted to $8.7 million for the second quarter of fiscal 2004 compared to $6.2 million in last year's second quarter. The increase in the joint ventures' quarterly income came primarily from a significant margin improvement in our global trading joint venture that has been growing its market share and is now serving additional markets and customers.

The joint venture processors of recycled metal reported relatively flat operating income in the fiscal 2004 second quarter as compared to the prior year period and did not experience the same rise in profitability as the company's wholly owned Metals Recycling Business. The processing joint ventures, which are mainly based in the northeastern U.S. and southern California, experienced similar gross selling prices (before freight and ship loading costs) as the company's west coast based wholly owned Metals Recycling Business; however, east coast based joint ventures' export shipping costs were significantly higher than was experienced by the west coast businesses, which constrained profits. In addition, sales volumes from the joint venture processors of recycled metal declined 12% from the prior year quarter due primarily to the fact that last year's second quarter volume was near record levels and was the result of customer order delays from the first quarter of fiscal 2003.

Auto Parts Business—The Auto Parts Business reported operating income of $5.1 million in the second quarter of fiscal 2004, which compares to $5.0 million in the 2003 second quarter. Second quarter 2004 retail revenues were relatively unchanged from the prior year quarter; however, wholesale revenues increased due to generally higher selling prices and slightly higher sales volumes. The higher revenues were offset by increases in inventory and labor costs as well as from additional amortization of intangibles from the 2003 acquisition of a former partner's interest in the business.

On March 8, 2004 a newly formed Canadian subsidiary of the company acquired three stores in Calgary, Edmonton and Kelowna, Canada, which increased the number of Pick-N-Pull stores to 26.