Operator: Good day, ladies and gentlemen, and welcome to the Schnitzer Steel's First Quarter 2016 Earnings Release Call. At this time, all participants are in a listen-only mode. Later we will conduct a question-and-answer session and instructions will follow at that time. [Operator Instructions] As a reminder, this conference is being recorded. I would like to introduce your host for today's conference, Ms.

Alexandra Deignan of Schnitzer Steel Industries. Ma'am, please begin.

Alexandra Deignan: Thank you, Ben. Good morning. I am Alexandra Deignan, the company's Vice President of Investor Relations.

Welcome to Schnitzer Steel's First Quarter Fiscal 2016 Earnings Presentation. In addition to today's audio comments, we prepared a set of slides that you can access on our Web site at www.schnitzersteel.com or www.schn.com. Before we get started, let me call your attention to the detailed Safe Harbor statements on Slide 2, which are also included in our press release of today and in the company's Form 10-Q, which will be filed later today. These statements in summary say that in spite of management's good faith current opinions on various forward-looking matters, circumstances can change and not everything we think will happen always happens. Please note that we will be discussing some non-GAAP measures during our presentation today.

We've included a reconciliation of those metrics to GAAP in the appendix of our slide presentation. Now, let me turn our call over to Tamara Lundgren, our Chief Executive Officer. She will host the call today with Richard Peach, our Chief Financial Officer.

Tamara Lundgren: Good morning, everyone and welcome to our first quarter conference call. This morning, we issued our press release which is posted along with our slides on our Web site.

I will begin our call today with a review of the market trends impacting our first quarter and an update on our productivity initiatives and our fiscal 2016 priorities. Richard will then provide more details on our segment performance and capital structure. I will wrap up with some closing remarks and then we will take a few questions. Let's start now on Slide 3. During our first quarter, market conditions continued to be very challenging both the metals recycling and steel manufacturing industries are impacted by a high level of steel imports, over production of iron ore, a strong U.S.

dollar, subdued global growth and customer destocking in the face of falling prices. During the quarter, ferrous scrap prices dropped as much as 30% and finished steel prices dropped almost 20%, sales volume fell as well. Against this backdrop, we experienced an adverse impact from average inventory accounting of approximately $7 million or $0.20 per share. Including this impact, we reported an adjusted loss per share of $0.13 for the first quarter. We continued to deliver on our $60 million target in cost reduction and productivity initiatives, the benefits from these programs materially contributed to the positive segments operating profits we delivered.

We have identified further actions and synergies which have enabled us to raise our $60 million annual target by approximately 10% and we've also taken actions to reduce our variable cost in line with the lower volume environment. During the first quarter, we generated operating cash flows of $41 million reduced our net debt to its lowest level in the last five years and return capital to our shareholders through our 87th consecutive quarterly dividend and through share repurchases. Our strong cash flow reflects our ability to maintain positive metal spreads even in a declining market. And it also reflects our focus on reducing our cost base and increasing working capital efficiency. Let's turn now to Slide 4 to review some key price trends.

On this slide, you can see the price trends for ferrous and non-ferrous scrap as well as for rebar and wire rods as all three chart illustrates, prices have moved steadily downwards for the last 12 months. During the first quarter of our fiscal 2016, ferrous scrap prices in the domestic market declined steeply in September and October and scrap supply flows fell-off sharply. Prices recovered slightly in mid-November and stabilized somewhat in December on weak sales activity. Export prices also declined during the quarter although to a lesser extent than the domestic market. Demand from Turkey and India supported higher prices toward the end of the quarter.

In Turkey, less political uncertainty as a result of the elections and restocking activity contributed to slightly improved scrap demand. In India, a strong GDP and a government led focus on investment in infrastructure improved demand for scrap and steel. In the non-ferrous scrap market similar to ferrous prices continued their downward trend throughout the quarter reflecting both a stronger U.S. dollar and weaker global demand. Moving to our steel business, steel demand in the U.S.

non-residential market was solid driven by increasing construction spending which neared an 8-year high in October. However, market prices for rebar and wire rod fell almost 20% during the quarter due to the high level of imports and prices for raw materials which were at multiyear low. Competition from imports has driven the severe contraction in U.S. capacity utilization rates which has fallen to 61% from the 74% to 76% range a year ago. Our own steel mill operated at 68% utilization in the first quarter down from 74% in the fourth quarter and 72% in the first quarter of last year.

Moving to Slide 5, we can review our sales activity for the first quarter. While overall ferrous sales volumes during Q1 were down quarter-over-quarter and year-over-year, the domestic market fell-off much more sharply than the export market due to the impact of imports on domestic demand. Our flexible platform allowed us to access better demand from Turkey and India which partially offsets softer demand in other regions. Let's turn now to Slide 6 for an update on our cost reduction and productivity initiatives. Last April, we announced the third phase of our $125 million multiyear cost reduction and productivity improvement program.

As you recall, the first two phases were completed by the end of fiscal 2014. The third phase represented $60 million of annual benefits derived from a combination of productivity improvements, SG&A cost reductions, capacity adjustments and of course efficiencies from the integration of our metals recycling and auto parts businesses. Against the $60 million third phase, during the first quarter we delivered $16 million of benefits. When added to the $28 million we delivered in fiscal 2015, this brings us to $44 million achieved to-date against the $60 million target. We are tracking ahead of schedule.

In the first quarter, we identified additional benefits including synergies from the integration of MRB and APB and we've now raised our $60 million target by nearly 10%. We anticipate these additional savings will be realized this fiscal year. We also expect to identify additional synergies and efficiencies that will enable us to further increase this target. Now, I will turn it over to Richard, who will provide a more detailed review of our segment performance and our capital structure. Richard?

Richard Peach: Thank you, Tamara, and good morning.

I will start on Slide 7 with the first quarter results for our auto and metals recycling business. As shown on the left-hand graph, adjusted operating income per ton was positive at $3 per ton a result which we achieved despite significant sequential decreases in both ferrous and non-ferrous sales volume and sales prices. In the face of these strong headwinds, AMR was still able to produce a positive first quarter results due to $14 million of benefits from our cost reductions and productivity initiatives. Our consolidated results also include a further $2 million of savings from within our corporate segments. The AMR performance was slightly less than we anticipated when we announced our full year results at the end of October.

The reason for this is because we experienced tighter margins in November, which were caused by a drop in supply flows resulting from the multiyear loss in market prices for recycled metals. For the first quarter as a whole selling prices fell faster than average inventory cost, which impacted our cost of goods sold by approximately $7 million or $8 per ton. Excluding this impact, operating income per ton was approximately $11 for the quarter. While this lag from average inventory accounting was higher when compared to the previous quarter, it was not as much as anticipated. The reason was higher purchase cost in November and reduced levels of production on the lower in-take volumes.

Market volatility continues to effect individual quarters as the graph on the left shows, when we look at AMR's performance for the last six months adjusted operating income per ton was $10 in that period and excluding the impact of average inventory accounting, we were at $17 per ton. Moving to the graphs on the right-hand side of the page, the main driver of the lower volumes in the first quarter was a declining price environment caused by weaker demand. Starting with ferrous, volumes of 805,000 tons were within the range of our expectations. In the face of softer domestic demand, we were able to utilize the flexibility in our platform by shipping 64% of ferrous sales to export markets. This represented a 5 percentage point increase from the previous quarter.

Lower non-ferrous sales of 111 million tons reflected a combination of, firstly, the strong shipments in the previous quarter, which caused low inventories coming into September and secondly, the lower first quarter in-take volumes which were caused by weak overall market conditions. Following a similar trend, car purchase volumes for our retail stores decreased by 13% sequentially because the sharp drop in commodity prices had an adverse impact on the supply flow of end of life vehicles. While our margins and volumes were adversely impacted by the lower price environment, we continue to proactively execute on previously announced plans and to identifying new savings. Of the $60 million annual plan, the AMR component is $53 million which is coming from a combination of productivity improvements, SG&A cost reductions, synergies from integrating our metals and auto businesses and other actions which we completed in fiscal 2015. By the end of the first quarter, AMR has now achieved $39 million of its target and including the new $5 million identified will deliver a total $19 million in the remainder of fiscal 2016.

Actions have already been substantially completed to implement this remaining amount and this is the reason why restructuring costs were slightly higher in the first quarter compared with the fourth quarter of fiscal 2015. And finally on AMR separate from these sustainable productivity improvements, we have taken additional steps in the first quarter to reduce a variable production costs with the objective of keeping our processing cost per ton neutral in a lower volume environment. Now moving to Slide 8, I will review the first quarter results of our steel manufacturing business. SMB continued its trend of profitable quarters. However, operating income of $2.8 million was low sequentially and also year-over-year as our operating margins were adversely impacted by the declining price environments.

Average sales prices in the first quarter were $554 per ton which was a drop of 8% sequentially and which represented a decrease of 19% from the prior year. Sales volumes of 123,000 tons were in the same range as the prior year but down sequentially which was due to seasonally lower demand and increased competition from imports. Rolling mill utilization was 68% down sequentially by 6 percentage points reflecting the impact on production of softer steel demand. Now moving to Slide 9, I will review our cash flow capital expenditures and net debt. Operating cash flow of $41 million continued a strong trend and enabled further reductions in total debt to $204 million while still funding CapEx share repurchases other quarterly dividend.

We are able to deliver cash flow through a combination of actions which includes achieving a positive cash metal spreads, reducing our operating costs and a laser focus on managing inventory turns and collection of receivables. Leverage of 26% was a sequential decrease of 160 basis points a net debt of $185 million was a quarterly reduction of 10%. Capital expenditures totaled $9 million from a combination of maintenance CapEx environmental projects and safety related programs. During the first quarter, we paid our quarterly dividend and repurchased 203,000 shares. The effective tax rate in the first quarter was 10.5% and for fiscal 2016 as a whole, we currently expect the effective rate to be 14% subject to the level of our future performance.

This tax rate is well below the statutory federal rate as we expect to utilize prior year tax losses to offset a high proposition of any new tax expense on this year's performance. Now, I will turn the remainder of our presentation back over to Tamara for her summary remarks.

Tamara Lundgren: Thank you, Richard. Looking ahead to our second quarter, we saw prices for ferrous scrap stabilize in December and early reports for January appear to reflect stronger pricing. Demand however continues to be impacted by the overall macro economic and import environment and seasonal weather condition.

Due to these market conditions, we do not expect Q2 to be materially different from Q1 as expected improvements in AMR are likely to be offset by seasonally weaker performance in SMB including a planned maintenance outage. We do expect operating cash flow to continue at positive trends. Looking beyond the second quarter, we expect tailwinds from infrastructure constructions seasonal improvements and industry capacity reductions. We are not simply waiting for the market to improve. We continue to take actions to reduce our cost, maximize metal spreads, deliver positive operating cash flow and deliver and drive further synergies between our businesses.

Our focus is squarely on increasing long-term shareholder value through a variety of strategies intended to drive operational and economic benefits. We are on track to achieve our updated commitment of $65 million in annual run rate savings and we are continually reassessing and increasing our target as we further optimize our platform in line with the current market environment. In closing, I would like to thank our employees for remaining focused on execution in the midst of these challenging market conditions as it relates to the things we can't control, safety, environmental practices, product quality, customer service and operational efficiencies, you have delivered on every count. Thank you for your dedication and your commitment to all of our stakeholders. Operator, let's now open up the call for questions.

Operator: Yes, ma'am. [Operator Instructions] Our first question is from Evan Kurt of Morgan Stanley. Your line is open sir.

Tamara Lundgren: Good morning, Evan.

Evan Kurt: Happy New Year, guys.

Richard Peach: Happy New Year. How are you?

Tamara Lundgren: Happy New Year. Happy New Year.

Evan Kurt: So few questions maybe one just on the most recent scrap moves ever been seen in the market. We had a little bump last month and it sounds like we're in store for another bump this month.

What are some of the factors that are driving that improvement and how sustainable do you think that is?

Tamara Lundgren: Well, Evan, as you know, in Q1, we hit the lowest level in scrap prices on an inflation adjusted basis that we obtained in 10 years. And that as a result created a shock to supply flows that we haven't seen since the global financial crisis. So I think that -- the constraint on supplies reverberated through the market and we saw some of that come through in higher prices towards the end of November and into December. And part of that was also due to stronger demand from Turkey as they began to restock as there was less political uncertainty due to the elections and so more confident outlook in terms of their infrastructure spend. And in India, their infrastructure led program as well drove stronger demand.

So I think that -- I think the supply flow shock put some tailwinds into the price market for scrap.

Evan Kurt: And how does that look today with this -- I guess it's a relatively small bounce that we are seeing right now, is that encouraging people to -- collectors to go out again and you are seeing flows pick-up or is it still at a level where flows are really constrained?

Tamara Lundgren: Well, I think that we are seeing the supply flows ease slightly and clearly what we have seen historically in the past is that when we achieve some level of stability in prices, the supply flows do start to ease and increase because the suppliers recognize that they were at a new price level and prices have stopped falling.

Evan Kurt: Got it. And then just one question on the guidance, little surprise that's going to be flat considering that prices are moving up again and stabilizing at a minimum. Is there going to be some sort of an inventory -- average inventory headwind again next quarter? I notice that the inventory levels on the balance sheet are relatively flat, does that mean you are seating on a bunch of higher cost scrap that still needs a flow through?

Tamara Lundgren: Well, before we answer that question and I will let Richard to answer that question.

Let's go back to the commentary which is that we are expecting AMR to show an improvement quarter-over-quarter. The issue is that SMB is heading into a weak seasonal period and has a planned maintenance outage. So as I think you need to look at those separately and that's why I said SMB may offset the improvement in AMR. But I will let Richard to comment on the average inventory question.

Richard Peach: Yes.

Hi, Evan. On the average inventory in Q1 as we mentioned, we have $7 million adverse impact. And you are right in terms of your interpretation that it should be lower in the second quarter given the up tick in prices. We are expecting average inventory to be roughly half of what we saw in the first quarter and that's mainly in the first half of the second quarter as the residual averaging works its way out. But we are not sitting on higher cost inventory.

In fact, our inventories are very low and we are maintaining them at low levels which is we believe entirely appropriate in this market to turn them as fast as possible because that's what minimizes your exposure and to the market volatility.

Evan Kurt: Okay. Thanks guys. I will hand it over.

Tamara Lundgren: Thank you.

Operator: Thank you. Our next question is from Brent Thielman of DA Davidson. Your line is open sir.

Brent Thielman: Thanks. Good morning.

Tamara Lundgren: Good morning. Happy New Year.

Brent Thielman: Happy New Year. Just back on that Q2 expectation for AMR in terms of quarter-over-quarter improvement, are you expecting an up tick in export volumes as well just based on what you see in the current order book?

Richard Peach: We are expecting our volumes to be approximately in the same range that's what we saw in the first quarter.

Brent Thielman: And that's all in domestic and export?

Richard Peach: That's the mix of the two.

Brent Thielman: Okay. And then we've seen this downward trend in ferrous volume through some time now. But if I recall kind of a non-ferrous portion of the business hasn't been quite as bad, is there anything to takeaway from what you saw in the first quarter in non-ferrous with the sharper dip in volume? I'm just curious if there is some other issue and simply sort of a byproduct of lower pricing, lower ferrous demand?

Richard Peach: Yes. That's what you feel Brent. There was two issues that impacted non-ferrous sales volumes in the first quarter.

The first one was that in the fourth quarter of fiscal 2015, we actually had a very strong quarter of shipments in that quarter. So we came into the first quarter with very low inventories. And then, during the first quarter because our intake volumes were down that then and also impacted the amount of non-ferrous we had available for sale. So these are the two reasons. One was a timing issue and one was more related to the overall intake volumes.

Brent Thielman: Got it. Okay. And then Richard that corporate run rate $8 million, is that still fair going forward?

Richard Peach: Yes. I would say something in that range is reasonable.

Brent Thielman: Okay, great.

Thank you.

Operator: Thank you. Your next question is from Andrew Lane of Morningstar. Your line is open.

Andrew Lane: Hi, good morning.

Tamara Lundgren: Good morning.

Richard Peach: Good morning.

Andrew Lane: With the SMB having now generated more operating income than the AMR segment this quarter, I just wanted to ask about the potential impact of the FAST Act of 2015, do you anticipate that will provide a meaningful boost to the SMBs results over time and if so, when do you think those benefits will hit the books.

Tamara Lundgren: Well, we do expect that it will be meaningful. I would say that even today we are seeing a strong construction market on the West Coast.

And we saw levels significantly -- our demand significantly increase year-over-year, what is impacting SMB and the industry generally is the import situation which is putting a unrealistic level on prices and really impacting the ability to generate profits that would otherwise be much more in line with the level of demand that we are seeing. The FAST Act was a very good and very welcome action by Congress. We would like to see more of it so that it becomes more of a game changer. It was positive. But we are still looking for a stronger infrastructure program coming out of Washington that would help the country nationally.

Andrew Lane: Great. And then this is the second question, it looks like rebar shipments for the SMB picked up year-over-year, but we saw a major fall in coil product shipments, was there any particular factor that droves that development?

Richard Peach: Well, the rebar, hi, Andrew, it's Richard. The rebar improvements are driven by the improvements in non-residential construction demand, which is really meaning that it's quite a strong market for demand for rebar. On the other hand, the coiled products and the wire rods are being hit hard despite imports and that's why that's going in a different direction.

Andrew Lane: Okay.

Understood. Thank you.

Tamara Lundgren: Thank you.

Operator: Thank you. Our next question is from Phil Gibbs of KeyBanc Capital Markets.

Your line is open sir.

Phil Gibbs: Good morning.

Tamara Lundgren: Good morning, Phil. Happy New Year.

Phil Gibbs: Happy New Year to you and thanks so much.

I had a question on the non-ferrous business. I think one of the other gentlemen ask the question around the timing piece that you called out in your press release, did you mean timing of shipments is there more going to be let in the second quarter, was there meaning, do you have some shipments that will carry into the second quarter or was it more of a timing aspect from a different perspective, I just want some clarity on that.

Richard Peach: Hi, Phil. It's Richard.

Phil Gibbs: Hi.

Richard Peach: And the timing we called out was mainly coming from the fourth quarter into the first quarter. We would anticipate in the second quarter and sales volumes are broadly in the same range as what we saw in the first. One thing I would stress though and is one of reasons why we continued to have such strong operating cash flow as we are continuing to operate with a great focus on positive metal spreads and our cash flow is in the quarter of $41 million are combination of that positive EBITDA that comes from the metal spreads together with working capital benefits in the lower volume and pricing environment.

Phil Gibbs: Okay. That's helpful.

And then on the steel side given the lower volumes in the outage, do you anticipate the business to be still in the black in the second quarter or will that be a challenge?

Richard Peach: We're anticipating that will be slightly above breakeven but slightly less than where we were in the first quarter due to the maintenance outage.

Phil Gibbs: Okay. I think that does it for me. Thanks so much.

Tamara Lundgren: Thank you very much Phil.

And thank you everyone for joining us on our call today and for your interest in our company. We look forward to speaking with you again when we announce our second quarter results in April. Thank you.

Operator: Ladies and gentlemen, thank you for your participation in today's conference. This concludes the program.

You may now disconnect. Everyone have a great day.