Schnitzer Steel Industries

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Schnitzer Steel Industries
November 2006
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Schnitzer Steel Business Overview
Three Important Businesses Forming One Integral
Company
Metals Recycling

• One of the countrys largest metals recyclers
• Sales volumes of 5 million ferrous tons annually
• Non ferrous sales volumes of over 300 million
  pounds annually

Source of Supply
Source ofScrap Supply

• Vertically integrated metals recycler with 81
  operations in 22 states and Western Canada
• Over 3,000 employees

Auto Parts
Steel Manufacturing

• 35 self-service stores
• 17 full-service locations
• 250,000 cars processed per year
• 4mm of annual retail admissions
• 102 sales growth from FY05-FY06

• 700-800k tons annual capacity
• Record performance for last two consecutive years
• Favorable West Coast steel market conditions

Growth Capital
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Investor Highlights

• Significant 2006 accomplishments
• Dramatic increase in scale and geographic
  presence
• Successful integration of acquisitions
• Strong financial performance
• Significant investments in technology to increase
  capacity and improve productivity
• Positive long-term fundamentals and competitive
  advantages underpinning business outlook
• Management optimistic about 2007 opportunities to
  create shareholder value
• Strong balance sheet and cash flows provide
  flexibility to pursue further technological
  improvements, value creating acquisitions and
  share repurchases

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Significant 2006 Accomplishments-Scale

• Dramatic increase in scale and geographic
  presence
• Successful integration of four acquisitions
• Doubling of ferrous processing volumes 2.5X
  increase in non ferrous volumes
• Doubling of auto parts revenue 17 increase in
  self-service locations and entry into
  full-service market
• 100k ton increase in steel manufacturing sales
  volumes

Ferrous Tons (Millions)
Non Ferrous Pounds (Millions)
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Significant 2006 Accomplishments-Successful
Integration

• Completed Four Acquisitions and Committed to
  Fifth
• Three of Four Acquisitions Transformed the
  Business Platform
• Metals Recycling
• Substantially expanded geographic footprint
• Doubled revenues
• Significantly increased volume of material
  processed
• Auto Parts
• Doubled Revenues
• Increased investment in inventory to improve
  customer fill rates
• Closed underperforming full service sites
• Centralized administrative functions
• Information Technology
• Installed common platform for all businesses
• Acquisitions accretive ahead of schedule
• Developed Core Competency In Integration, Setting
  Stage for Future Acquisitions

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Significant 2006 Accomplishments-Impressive
Financial Results

• Strong Financial Performance
• Second highest EPS (4.65) in Companys history
• Revenues increased by 1 billion
• Record operating income in Auto Parts and Steel
  Businesses
• Sequential increase in Metals Recycling Business
  operating income

Revenues (Millions)
Earnings Per Share
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Significant 2006 Accomplishments-Improved
productivity

• Capital investments in technology and
  infrastructure improvements resulted in improved
  productivity in steel and metals recycling
  businesses.
• Contributed to 17 reduction in processing costs
  from first to fourth quarter
• Resulted in 14 reduction in year over year cost
  per ton in the Steel Manufacturing Business

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Growth Drivers for Metals Recycling
BusinessStrong Industry Fundamentals
Leads to scrap demand growth
Forecasted increase in steel production
Total Steel and Electric Arc Furnace (EAF)
Production
Worldwide Global Scrap Demand
Demand is robust, but supply remains tight
Forecast
Required Scrap Recovery Rates
Source 2006 World Steel Dynamics, IISI, and
Wall Street Research
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Growth Drivers for Metals Recycling
BusinessStrategic Deep Water Ports Locations
Export Facility
Ferrous Recycling Facility
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Growth Drivers for Metals Recycling
BusinessCompetitive Advantages

• Strong market position in West Coast and
  Northeast markets new presence in manufacturing
  rich Southeast market
• Bi-coastal port facilities provide barrier to
  entry and ability to access diverse export
  markets
• Significant investment in technology drives lower
  processing costs

Competitive advantages reflected in attractive
operating margins
2006 Operating Margin (1)
Average 11.7
(1) Excludes Trading Operation
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Auto Parts Industry Drivers Underpin Growth

• Healthy growth projected for full service and
  self-service automotive industry segments
• Older vehicles are still on the road, driving
  more miles, resulting in higher demand for spare
  parts to service these older vehicles

Aging US Vehicle Population
Source 2005 AAIA Factbook ( - 2005 Estimate)
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Schnitzers Auto Parts Market Position
Schnitzer is well-positioned within two high
growth areas of the Used Auto Parts Industry
Full-Service 4-6 billion
Self-Service 1-2 billion
Segment Sales Growth Rates (a)
Market Size
Revenues (in millions)
Locations
(a) Source 2005 AAIA Factbook ( - 2005
Estimate)
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2007 Strategic Focus--Continued Growth

• Increasing operating leverage through
  productivity improvements
• Higher processing volumes to feed mega-shredders
• More rapid inventory turns
• Using scale to drive down costs
• Focus on customer requirements
• Growth through value-enhancing acquisitions
• Fragmented markets provide opportunity for
  further consolidationdisciplined approach based
  on meeting key criteria
• Strong franchises
• Opportunity to capture value through management
  or capital investment
• Synergies to existing Auto Parts or Metals
  Recycling Businesses

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2007 Strategic Focus--Technology

• Continued investments in technology and improved
  logistics
• Completion of mega-shredder installations
  (Boston, Oakland, Portland) to increase capacity
  and lower processing costs
• Further installation of ferrous and non ferrous
  sorting systems to improve product quality and
  recovery of high value materials
• Continued improvements to major facilities to
  upgrade equipment and improve processing flow
• Modifications to reheat furnace and billet yard
  craneway at steel mill to increase capacity
• Strict criteria applied to 2007 budget process to
  ensure discretionary projects provide attractive
  returns
• 33 ROI and 36 month pay-back

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Value Creating Investments

• Companys strong balance sheet, operating cash
  flows and access to capital provide flexibility
  to pursue multiple options to create value
• Accretive acquisitions
• Investments in technology
• Share repurchase-Board of Directors have approved
  repurchase of up to 4.7 million shares. No
  repurchase activity since 2001

Dollars in Millions
Net Debt/EBITDA
.3 x
--
.29 x
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Overall Management Objectives

• Industry leader in creating shareholder value
• Metals Recycling product differentiation
• Auto Parts managing the automobile lifecycle
• Steel Manufacturing productivity and customer
  satisfaction
• Improve productivity
• Integration of acquisitions
• Investment in infrastructure
• Technological enhancements
• Seek growth
• Additional value-creating acquisitions
• New technologies

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Investor Highlights-Recap

• Significant 2006 Accomplishments
• Positive long-term fundamentals and competitive
  advantages underpinning business outlook
• Management optimistic about 2007 opportunities to
  create shareholder value

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Appendix Detailed Business Segment Overview
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Metals Recycling Business

• 4 million tons of ferrous scrap processed and
  sold annually
• 1 million tons sold annually by Global Trading
  Business through supplies obtained in Russian and
  Baltic Sea region
• One of countries largest exporters of ferrous
  scrap. Six deep water port facilities provide
  competitive advantage and barrier to entry
• Bi-coastal operations in 28 cities and 11 states
• Strong industry fundamentals have resulted in a
  significant increase in average prices compared
  to prior cycles
• Positive outlook

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Used Auto Parts Business

Self-service

• 35 stores
• 250,000 cars processed per year
• 4 million annual retail customers
• attractive operating margins
• Complementary to metals recycling businesssource
  of scrap supply
• Full-service
• Acquired in Oct 2005
• 17 locations
• Provides great locations and access to larger
  full-service sector of used parts market

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Steel Manufacturing Business

• The steel manufacturing business serves as a
  source of demand for the Companys metals
  recycling business, contributing to vertical
  integration model
• 700-800k tons annual capacity for rebar, wire rod
  and other long steel products

• Near-term business outlook remains bright
• Strong West Coast demand for steel products
• Recent consolidation in West Coast capacity has
  improved supply/demand balance
• New state of the art Electric Arc Furnace has
  increased melt shop capacity and improved
  productivity
• Planned improvements in rolling mill will improve
  output of finished products, provide greater
  flexibility to meet customer demand and further
  improve productivity