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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549



FORM 10-Q



[X] Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 for the quarterly period ended November 30, 2003 or


[_] Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the transition period from ________ to ________.


Commission file number 0-22496





SCHNITZER STEEL INDUSTRIES, INC.
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)



OREGON 93-0341923
- ------------------------------- -------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)



3200 N.W. Yeon Ave.
P.O Box 10047
Portland, OR 97296-0047
- ---------------------------------------- ----------
(Address of principal executive offices) (Zip Code)



(503) 224-9900
----------------------------------------------------
(Registrant's telephone number, including area code)



Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes [X] No [_]

Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Act).
Yes [X] No [_]

The Registrant had 13,810,822 shares of Class A Common Stock, par value of $1.00
per share, and 6,180,676 shares of Class B Common Stock, par value of $1.00 per
share, outstanding at December 31, 2003.

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INDEX






PAGE NO.
--------

PART I. FINANCIAL INFORMATION

Consolidated Balance Sheets at November 30, 2003
and August 31, 2003 ...................................................... 3

Consolidated Statement of Operations for the
Three Months Ended November 30, 2003 and 2002 ............................ 4

Consolidated Statement of Shareholders' Equity for
the Year Ended August 31, 2003 and the Three
Months Ended November 30, 2003 ........................................... 5

Consolidated Statement of Cash Flows for the Three
Months Ended November 30, 2003 and 2002 .................................. 6

Notes to Consolidated Financial Statements ................................... 7

Management's Discussion and Analysis of Financial
Condition and Results of Operations ......................................13

Quantitative and Qualitative Disclosures about Market Risk....................23

Controls and Procedures.......................................................24





PART II. OTHER INFORMATION

Exhibits and Reports on Form 8-K..............................................24

SIGNATURE PAGE................................................................25








2

SCHNITZER STEEL INDUSTRIES, INC.
CONSOLIDATED BALANCE SHEETS
(in thousands, except per share amounts)

Nov. 30, 2003 Aug. 31, 2003
------------ ------------
(Unaudited) (Audited)

Assets
------
Current Assets:
Cash $ 4,990 $ 1,687
Accounts receivable, less allowance for
doubtful accounts of $749 and $712 21,879 38,428
Accounts receivable from related parties 330 555
Inventories (Note 2) 67,388 61,143
Deferred income taxes 4,524 4,524
Prepaid expenses and other 7,523 7,400
------------ ------------
Total current assets 106,634 113,737

Net property, plant and equipment 142,714 141,224

Other assets:
Investment in joint and advances to venture partnerships 125,357 119,066
Notes receivable, less current portion 1,439 1,565
Goodwill 111,874 107,209
Intangibles and other 3,968 5,093
------------ ------------
$ 491,986 $ 487,894
============ ============

Liabilities and Shareholders' Equity
------------------------------------
Current liabilities:
Current portion of long-term debt $ 235 $ 220
Accounts payable 19,286 21,537
Accrued payroll liabilities 6,727 8,896
Current portion of environmental liabilities 4,600 4,639
Other accrued liabilities 5,977 6,004
------------ ------------
Total current liabilities 36,825 41,296

Deferred income taxes 27,693 33,093

Long-term debt, less current portion 84,983 87,045

Environmental liabilities, net of current portion 16,375 17,139

Other long-term liabilities 2,741 2,704

Minority interests 3,899 3,620

Commitments and contingencies -- --

Shareholders' equity:
Preferred stock--20,000 shares authorized, none issued -- --
Class A common stock--75,000 shares $1 par value
authorized, 13,802 and 12,445 shares issued and outstanding 13,802 12,445
Class B common stock--25,000 shares $1 par value
authorized, 6,182 and 7,061 shares issued and outstanding 6,182 7,061
Additional paid-in capital 108,567 104,249
Retained earnings 190,919 179,242
------------ ------------
Total shareholders' equity 319,470 302,997
------------ ------------
$ 491,986 $ 487,894
============ ============


The accompanying notes are an integral part of this statement.

3

SCHNITZER STEEL INDUSTRIES, INC.
CONSOLIDATED STATEMENT OF OPERATIONS
(in thousands, except per share amounts)
(unaudited)

For The Three Months Ended November 30,
---------------------------------
2003 2002
------------ ------------

Revenues $ 128,376 $ 90,667

Cost and expenses:
Cost of goods sold and other operating expenses 106,698 76,780
Selling and commission expenses 1,278 1,185
General and administrative expenses 8,232 7,106
------------ ------------

Income from wholly-owned operations 12,168 5,596

Income from joint ventures 5,937 3,175
------------ ------------

Income from operations 18,105 8,771

Other income (expense):
Interest expense (440) (380)
Other income (expense) 204 (203)
------------ ------------

(236) (583)
------------ ------------
Income before cumulative effect of change
in accounting principle, income taxes,
minority interests and pre-acquisition interests 17,869 8,188

Income tax provision (5,182) (2,015)
------------ ------------
Income before cumulative effect of change
in accounting principle, minority interests,
and pre-acquisition interests 12,687 6,173

Minority interests, net of tax (510) (447)
Pre-acquisition interests, net of tax -- (1,852)
------------ ------------
Income before cumulative effect of change
in accounting principle 12,177 3,874

Cumulative effect of change in accounting principle -- (983)
------------ ------------
Net income $ 12,177 $ 2,891
============ ============
Net income per share - basic:
Income before cumulative effect of change
in accounting principle $ 0.62 $ 0.21
Cumulative effect of change in accounting principle -- (0.05)
------------ ------------
Net Income $ 0.62 $ 0.16
============ ============
Net income per share - diluted:
Income before cumulative effect of change
in accounting principle $ 0.59 $ 0.20
Cumulative effect of change in accounting principle -- (0.05)
------------ ------------
Net Income $ 0.59 $ 0.15
============ ============

The accompanying notes are an integral part of this statement.

4


SCHNITZER STEEL INDUSTRIES, INC.
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
(in thousands)
(unaudited)

Class A Class B
Common Stock Common Stock Additional
------------------------ ------------------------ Paid-in Retained
Shares Amount Shares Amount Capital Earnings Total
---------- ---------- ---------- ---------- ---------- ---------- ----------

Balance at August 31, 2002 5,025 $ 5,025 4,180 $ 4,180 $ 96,074 $ 147,669 $ 252,948

Class B common stock converted
to Classs A common stock 635 635 (635) (635) --
Class A common stock issued 547 547 8,175 8,722
Net income 43,201 43,201
Stock dividend 6,238 6,238 3,516 3,516 (9,754) --
Cash dividends paid (1,874) (1,874)
---------- ---------- ---------- ---------- ---------- ---------- ----------

Balance at August 31, 2003 12,445 12,445 7,061 7,061 104,249 179,242 302,997

Class B common stock converted
to Classs A common stock 879 879 (879) (879) --
Class A common stock issued 478 478 4,318 4,796
Net income 12,177 12,177
Cash dividends paid (500) (500)
---------- ---------- ---------- ---------- ---------- ---------- ----------

Balance at November 30, 2003 13,802 $ 13,802 6,182 $ 6,182 $ 108,567 $ 190,919 $ 319,470
========== ========== ========== ========== ========== ========== ==========














The accompanying notes are an integral part of this statement.

5


SCHNITZER STEEL INDUSTRIES, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(in thousands)
(unaudited)



For The Three Months Ended November 30,
---------------------------------
2003 2002
------------ ------------

Operations:
Net income $ 12,177 $ 2,891
Noncash items included in income:
Cumulative effect of change in accounting principle -- 983
Depreciation and amortization 5,050 4,029
Minority and pre-acquisition interests 718 3,106
Equity in income of joint ventures (5,937) (3,175)
Deferred income tax (5,400) (1)
(Gain) loss on disposal of assets (341) 16
Cash provided (used) by changes in working capital:
Accounts receivable 16,774 12,659
Inventories (6,245) (15,035)
Prepaid expenses and other (123) 74
Accounts payable (2,251) (4,066)
Accrued liabilities (2,198) (1,343)
Environmental liabilities (803) (314)
Other assets and liabilities 973 (3,543)
------------ ------------

Net cash provided (used) by operations 12,394 (3,719)
------------ ------------

Investing:
Capital expenditures (6,209) (4,231)
Investment in subsidiaries (4,695) --
Cash received from joint ventures 42 1,005
Cash paid to joint ventures (433) (284)
Proceeds from sale of assets 395 18
------------ ------------

Net cash used by investments (10,900) (3,492)
------------ ------------

Financing:
Issuance of Class A common stock 4,796 --
Distributions to minority and pre-acquisition interests (440) --
Dividends declared and paid (500) (461)
Decrease in long-term debt (2,047) (22,694)
------------ ------------

Net cash provided (used) by financing 1,809 (23,155)
------------ ------------

Net increase (decrease) in cash 3,303 (30,366)

Cash at beginning of period 1,687 32,974
------------ ------------

Cash at end of period $ 4,990 $ 2,608
============ ============


The accompanying notes are an integral part of this statement.

6

SCHNITZER STEEL INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED NOVEMBER 30, 2003 AND 2002

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

BASIS OF PRESENTATION
The accompanying unaudited interim financial statements of Schnitzer Steel
Industries, Inc. (the Company) have been prepared pursuant to the rules and
regulations of the Securities and Exchange Commission (SEC). Certain information
and note disclosures normally included in annual financial statements have been
condensed or omitted pursuant to those rules and regulations. In the opinion of
management, all adjustments, consisting only of normal, recurring adjustments
considered necessary for a fair presentation, have been included. Although
management believes that the disclosures made are adequate to ensure that the
information presented is not misleading, management suggests that these
financial statements be read in conjunction with the financial statements and
notes thereto included in the Company's annual report for the fiscal year ended
August 31, 2003. The results for the three months ended November 30, 2003 and
2002 are not necessarily indicative of the results of operations for the entire
year.

Note 3 of the Notes to the Consolidated Financial Statements describes an
acquisition that occurred on February 14, 2003. Under Statement of Financial
Accounting Standards No. 141 ("SFAS 141"), "Business Combinations," the
acquisition is considered a "step" acquisition due to the fact that the Company
had a significant joint venture interest in the acquired business for a number
of years. Additionally, since the acquisition occurred during the year, the
Company elected to include it in the consolidated results as though it had
occurred at the beginning of fiscal 2003. Thus, the statement of operations,
balance sheet, and statement of cash flows for the three months ended November
30, 2002 have been adjusted to consolidate the acquisition as of September 1,
2002. Also, the acquired businesses were consolidated with the Company's
previous interest in the business to form a separate reporting segment called
the Auto Parts Business. As such, the financial information that was reported in
the Company's Form 10-Q for the quarter ended November 30, 2002 has been
restated to consolidate the acquisition as of September 1, 2002.

RECLASSIFICATIONS
Certain prior year amounts have been reclassified to conform to the fiscal 2004
presentation. These changes had no impact on previously reported results of
operations or shareholders' equity.

EARNINGS AND DIVIDENDS PER SHARE
Basic earnings per share (EPS) are computed based upon the weighted average
number of common shares outstanding during the period. Diluted EPS reflects the
potential dilution that would occur if securities or other contracts to issue
common stock were exercised or converted into common stock.

7


SCHNITZER STEEL INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED NOVEMBER 30, 2003 AND 2002

The following represents reconciliation from basic EPS to diluted EPS (in
thousands, except per share amounts):


For the Three Months Ended
November 30,
2003 2002
-------- --------

Income before cumulative effect of change in accounting principle $ 12,177 $ 3,874
Cumulative effect of change in accounting principle -- (983)
-------- --------
Net income $ 12,177 $ 2,891
======== ========

Computation of shares (1):
Average common shares outstanding 19,721 18,410
Stock options 910 300
-------- --------
Diluted average common shares outstanding 20,631 18,710
======== ========

Basic EPS:
Income before cumulative effect of change in accounting principle $ 0.62 $ 0.21
Cumulative effect of change in accounting principle -- (0.05)
------ ------
Net income $ 0.62 $ 0.16
====== ======

Diluted EPS:
Income before cumulative effect of change in accounting principle $ 0.59 $ 0.20
Cumulative effect of change in accounting principle -- (0.05)
------ ------
Net income $ 0.59 $ 0.15
====== ======

Dividend per share $0.025 $0.025
====== ======



(1) Basic and diluted earnings per share and dividends per common share for the
three months ended November 30, 2002, have been adjusted to reflect the
one-for-one share dividend paid on August 14, 2003, to shareholders of
record on July 24, 2003.

Options to purchase 1,003,400 shares were outstanding at November 30, 2002, but
not included in the computation of diluted earnings per share because the
options' exercise prices were greater than the average market price of the
common shares and, therefore, the effect would be anti-dilutive.

STOCK INCENTIVE PLAN
The Company's compensation expense for its stock incentive plans is determined
using the intrinsic value method. Accordingly, because the exercise price equals
the market price on the date of the grant, no compensation expense is recognized
by the Company for stock options issued to employees, consultants and directors.
If the fair value based method had been applied in measuring stock compensation
expense, the pro forma effect on net income per share would have been as follows
(in thousands, except earnings per share):

8

SCHNITZER STEEL INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED NOVEMBER 30, 2003 AND 2002


Three Months Ended
November 30,
------------
2003 2002
------- ------
Reported net income $12,177 $2,891
Stock compensation expense, net of tax ( -- ) ( 219)
------- ------
Pro forma net income $12,177 $2,672
======= ======

Reported basic income per share $ 0.62 $0.16
Pro forma basic income per share $ 0.62 $0.14

Reported diluted income per share $ 0.59 $0.15
Pro forma diluted income per share $ 0.59 $0.14

Pro forma diluted net income per share for the quarter ended November 30, 2002
is computed excluding potential common shares of 1,003,400, as their effect is
anti-dilutive.

GOODWILL AND INTANGIBLE ASSETS
The changes in the carrying amount of goodwill for the three months ended
November 30, 2003, are as follows (in thousands):


Metals Steel
Recycling Manufacturing Auto Parts
Business Business Business Total
-------- -------- -------- -----

Balance as of August 31, 2003,
audited $ 34,771 -- $ 72,438 $107,209
Acquisition (Note 3) -- -- 4,665 4,665
-------- -------- -------- --------
Balance as of November 30, 2003,
unaudited $ 34,771 $ -- 77,103 $111,874
======== ======== ======== ========


The Company performed a transitional impairment test of its goodwill and
intangible assets during the second quarter of fiscal 2003. As a result of this
test, the Company recorded a non-cash impairment charge of $983,000, effective
September 1, 2002, and reported it as a "Cumulative effect of change in
accounting principle" on the Consolidated Statement of Operations. The goodwill
was not deductible for tax purposes, thus the amount was not tax affected. The
Company will perform impairments tests annually and whenever events and
circumstances indicate that the value of goodwill and other indefinite-lived
intangible assets might be impaired.


NOTE 2 - INVENTORIES:

Inventories consisted of the following (in thousands):

November 30, August 31,
2003 2003
----------- ----------
(Unaudited) (Audited)

Recycled metals $25,296 $21,115
Work in process 9,363 8,254
Finished goods 20,475 19,912
Supplies 12,254 11,862
------- -------
$67,388 $61,143
======= =======

9


SCHNITZER STEEL INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED NOVEMBER 30, 2003 AND 2002


NOTE 3 - BUSINESS COMBINATIONS:

During the Company's most recent fiscal year, on February 14, 2003, the
Company's wholly-owned subsidiary, Norprop, Inc. ("Norprop") closed its
acquisition (the "Acquisition") of all of the stock of Pick and Pull Auto
Dismantling, Inc., which was the Company's 50% partner in Pick-N-Pull Auto
Dismantlers, a California general partnership (the "Joint Venture") and all of
the membership interests in Pick-N-Pull Auto Dismantlers, Stockton, LLC
("Stockton"). The cost of the Acquisition consisted of $71.4 million of cash
paid to the seller at closing, $3.3 million of debt assumed and immediately paid
off, and $0.6 million of acquisition costs. In addition, Norprop assumed
approximately $12.5 million of debt owed by the Joint Venture to the Company. An
additional payment of $4.7 million was made during the fiscal quarter ended
November 30, 2003, as a result of an amendment to the Purchase Agreement,
bringing the total purchase price to $92.5 million (or $88.9 million net of the
seller's $3.6 million share of the Joint Venture's cash on hand at closing). The
Joint Venture stores together with the Stockton store are one of the country's
leading self-service used auto parts networks with 23 store locations, 17 in
northern California, two in Nevada, and one in each of Texas, Utah, Illinois and
Indiana.

The purchase price is subject to the terms of the Purchase Agreement, which
provides for a purchase price adjustment one year after closing based upon
calendar year 2002 and 2003 earnings before interest, taxes, depreciation and
amortization (EBITDA) of the acquired Auto Parts Business. As defined by the
Purchase Agreement, the contingent future adjustment may increase or decrease
the initial purchase price by up to $12 million.

The purchase price allocation has been prepared on a preliminary basis and is
subject to changes due primarily to the contingent future adjustment mentioned
above. The following is a summary of the estimated fair values of the assets
acquired and liabilities assumed as of the date of the acquisition (in
millions):

Property, plant and equipment $13.3
Other tangible assets 2.6
Other assets 5.4
Liabilities (4.1)
Goodwill 75.3
-----
Total $92.5
=====

Goodwill of $75.3 million represents the excess of purchase price over the fair
value of the net tangible assets acquired, and, as a result of a tax election
filed jointly by the Company and seller, substantially all of it will be
deductible for tax purposes over a 15-year period. Also, approximately $1.8
million of goodwill existed on the Joint Venture's balance sheet prior to the
Acquisition but was not shown separately in accordance with the equity method of
accounting. Therefore, the total increase to goodwill related to the Acquisition
was $77.1 million. In accordance with Statement of Financial Accounting
Standards No. 142, "Goodwill and Other Intangible Assets," goodwill is not
amortized and will be tested for impairment at least annually.

NOTE 4 - SEGMENT INFORMATION:

The Company operates in three industry segments: metal processing and recycling
(Metals Recycling Business), mini-mill steel manufacturing (Steel Manufacturing
Business) and self-service used auto parts (Auto Parts Business). Additionally,
the Company is a non-controlling partner in joint ventures, which are either in
the metals recycling business or are suppliers of unprocessed metals. The Joint
Ventures in the Metals Recycling Business sell recycled metals that have been
processed at their facilities (Processing) and also buy and sell third parties'
processed metals (Brokering). The Company considers these joint ventures to be
separate segments because they are managed separately. These joint ventures are
accounted for using the equity method. As such, the operating information
provided below related to the joint ventures is shown separately from
consolidated

10


SCHNITZER STEEL INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED NOVEMBER 30, 2003 AND 2002

information, except for the Company's equity in the net income of, investments
in and advances to the joint ventures. Additionally, assets and capital
expenditures are not shown for the joint ventures as management does not use
that information to allocate resources or assess performance. The Company does
not allocate corporate interest income and expense, income taxes or other income
and expenses related to corporate activity to its operating segments.

The financial statement information that was reported in the Company's Form 10-Q
for the quarter ended November 30, 2002 has been restated to include the new
reporting segment called the Auto Parts Business. This segment was formed as a
result of an acquisition which occurred in February 2003. Please refer to Note 3
of the Notes to the Consolidated Financial Statements.

Revenues from external customers for the Company's consolidated operations are
as follows (in thousands):

For the Three Months Ended
November 30,
2003 2002
-------- --------

Metals Recycling Business $ 79,602 $ 45,574
Auto Parts Business 17,660 16,139
Steel Manufacturing Business 53,219 42,830
Intersegment revenues (22,105) (13,876)
-------- --------
Consolidated revenues $128,376 $ 90,667
======== ========

The joint ventures' revenues from external customers are as follows (in
thousands):

For the Three Months Ended
November 30,
2003 2002
-------- --------
Joint Ventures in the Metals Recycling Business:
Processing $128,711 $104,570
Brokering 45,121 50,532
Joint Venture Suppliers of Metals 2,048 2,095
-------- --------
Total revenues $175,880 $157,197
======== ========


The Company's income (loss) from operations is as follows (in thousands):

For the Three Months Ended
November 30,
2003 2002
-------- --------
Metals Recycling Business $ 9,923 $ 3,096
Auto Parts Business 5,889 5,208
Steel Manufacturing Business (142) (1,257)
Joint Ventures in the Metals Recycling Business 5,986 3,071
Joint Ventures Suppliers of Metals (49) 104
Corporate expense (2,646) (2,024)
Eliminations (856) 573
-------- --------
Consolidated income from operations $ 18,105 $ 8,771
======== ========


Income from operations generated by the joint ventures represents the Company's
equity in the income or loss of these entities.

11


SCHNITZER STEEL INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED NOVEMBER 30, 2003 AND 2002


The Company's share of depreciation and amortization expense included in the
determination of joint ventures' income from operations is as follows (in
thousands):


For the Three Months Ended
November 30,
2003 2002
-------- --------
Joint Ventures in the Metal Recycling Business $ 1,732 $ 1,636
Joint Ventures Suppliers or Metals 66 74
-------- --------
Total $ 1,798 $ 1,710
======== ========























12


SCHNITZER STEEL INDUSTRIES, INC.

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS


GENERAL

The Company operates in three industry segments. The Company's Metals Recycling
Business collects, processes and recycles steel and other metals through its
facilities. The Company's Steel Manufacturing Business operates a mini-mill near
Portland, Oregon, which melts recycled metal, produces finished steel products
and maintains one mill depot in Southern California and a third party depot in
Central California. The Company's Auto Parts Business purchases used and wrecked
automobiles and allows retail customers the opportunity of extracting parts for
purchase in its self-service auto parts stores, with 17 located in California,
two in Nevada and one store in each of Texas, Utah, Illinois and Indiana.
Additionally, the Company is a non-controlling partner in joint ventures that
are either in the metals recycling business or are suppliers of unprocessed
metals. The Joint Ventures in the Metals Recycling Business sell recycled metals
that have been processed at their facilities (Processing) and also buy and sell
third parties' processed metals (Brokering).

Note 3 of the Notes to the Consolidated Financial Statements describes an
acquisition that occurred on February 14, 2003. Under Statement of Financial
Accounting Standards No. 141 ("SFAS 141"), "Business Combinations," the
acquisition is considered a "step" acquisition due to the fact that the Company
had a significant joint venture interest in the acquired business for a number
of years. Additionally, since the acquisition occurred during the year, the
Company elected to include it in the consolidated results as though it had
occurred at the beginning of fiscal 2003. Thus, the statement of operations,
balance sheet, and statement of cash flows for the three months ended November
30, 2002 have been adjusted to consolidate the acquisition as of September 1,
2002. Also, the acquired businesses were consolidated with the Company's
previous interest in the business to form a separate reporting segment called
the Auto Parts Business. As such, the financial information that was reported in
the Company's Form 10-Q for the quarter ended November 30, 2002 has been
restated to consolidate the acquisition as of September 1, 2002.






13


SCHNITZER STEEL INDUSTRIES, INC.

RESULTS OF OPERATIONS

The Company's revenues and operating results by business segment are summarized
below (in thousands):

For the Three Months Ended
November 30,
2003 2002
--------- ---------
REVENUES:
Metals Recycling Business:
Ferrous sales $ 65,894 $ 33,930
Nonferrous sales 12,409 10,115
Other sales 1,299 1,529
--------- ---------
Total sales 79,602 45,574

Auto Parts Business 17,660 16,139
Steel Manufacturing Business 53,219 42,830
Intercompany sales eliminations (22,105) (13,876)
--------- ---------
Total $ 128,376 $ 90,667
========= =========

INCOME (LOSS) FROM OPERATIONS:
Metals Recycling Business $ 9,923 $ 3,096
Auto Parts Business 5,889 5,208
Steel Manufacturing Business (142) (1,257)
Joint Ventures 5,937 3,175
Corporate expense (2,646) (2,024)
Intercompany eliminations (856) 573
--------- ---------
Total $ 18,105 $ 8,771
========= =========

NET INCOME $ 12,177 $ 2,891
========= =========



The Joint Ventures' revenues and results of operations were as follows (in
thousands):

For the Three Months Ended
November 30,
2003 2002
-------- ---------

Total revenues from external customers recognized by:

Joint Ventures in the Metals Recycling Business
Processing $128,711 $104,570
Trading 45,121 50,532
Joint Venture Suppliers of Metals 2,048 2,095
-------- --------
$175,880 $157,197


Income from joint ventures recognized by the Company from:

Joint Ventures in the Metals Recycling Business $ 5,986 $ 3,071
Joint Venture Suppliers of Metals (49) 104
-------- --------
$ 5,937 $ 3,175
======== ========

14


SCHNITZER STEEL INDUSTRIES, INC.

The following table summarizes certain selected operating data for the Company
and its joint venture businesses:

For the Three Months Ended
November 30,
2003 2002
-------- --------
SHIPMENTS (in thousands):

METALS RECYCLING BUSINESS:
Ferrous recycled metal (long tons):
To Steel Manufacturing Business 158 115
To other unaffiliated domestic customers 16 38
To export customers 235 142
-------- --------
Total ferrous recycled metal 409 295
======== ========

Nonferrous metal (pounds) 28,300 25,500
======== ========

STEEL MANUFACTURING BUSINESS:
Finished steel products (net tons) 163 142
======== ========

JOINT VENTURES IN THE METALS RECYCLING BUSINESS:
Ferrous recycled metal (long tons):
Processed 675 636
Brokered 677 470
-------- --------
1,352 1,106
======== ========

FIRST QUARTER FISCAL 2004 COMPARED TO FIRST QUARTER FISCAL 2003

GENERAL. During the first quarter of fiscal 2004, the Metals Recycling Business
continued to experience improved market conditions, which have not been seen
since before the 1997 Asian financial crisis. Markets began to improve early in
calendar 2002 primarily due to export tariffs and bans imposed by some of the
countries of the former Soviet Union which caused the supplies of ferrous
recycled metals available to export from those countries to decrease. In
addition, global demand for ferrous recycled metal has grown due primarily to
the growing Asian economies, in particular, China. Due to the rising prices,
certain foreign steel producers delayed placing new orders during the first
quarter of fiscal 2003. By the end of the quarter, foreign buyers needed to
replenish their inventories and began to place orders at price levels that were
at or above prices recognized in the first two months of the quarter. As a
result, the Metals Recycling Business' ferrous sales volumes were unusually low
in the first quarter of fiscal 2003. Throughout much of the remainder of fiscal
2003 and into the first quarter of fiscal 2004, selling prices continued to rise
primarily due to strong Asian demand, the tight supply of ferrous metal
available in the export market and the weakness of the U.S. dollar relative to
other foreign currencies. Demand, which is being fueled primarily by China,
continues to remain strong. In 2000, China produced an estimated 129 million
tons of steel representing 16% of the world's production. It's anticipated that
China will produce approximately 215 million tons of crude steel in all of 2003
representing nearly 23% of the world's total production. This growing steel
production is directly increasing demand and prices for recycled ferrous metal.

The Company has also experienced modest increases in demand domestically over
the previous year due to improvements in the U.S. economy. Additionally,
continued strong demand for nonferrous recycled metals, particularly from China,
boosted nonferrous metals selling prices. During the same period, the cost of
unprocessed metal rose as well, which, combined with rising ocean freight rates,
partially offset the increase in selling prices. Ocean freight costs rose 50%
from the first quarter of last year, due to the combination of higher

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SCHNITZER STEEL INDUSTRIES, INC.

fuel prices and an increase in Asian demand for bulk cargo vessels that
traditionally ship scrap metal and other bulk commodity products.

The Joint Ventures in the Metals Recycling Business were affected by many of the
same supply and demand factors as the Company's wholly-owned Metals Recycling
Business during the first fiscal 2004 quarter.

The Steel Manufacturing Business saw higher average selling prices and higher
sales volumes during the first quarter of fiscal 2004 compared with the first
quarter of fiscal 2003. Sales prices benefited from a higher valued product
sales mix and lower volumes of competing imported steel, which is partially
attributed to the weakness of the U.S. dollar and higher ocean freight rates.
Additionally, steel producers continued to raise selling prices in an attempt to
offset the sharp rise in raw material and energy costs. Sales volumes have
increased over the first quarter of fiscal 2003, due primarily to industry
consolidation, modest increases in end user demand and lower steel imports
resulting from the weakness in the U.S. dollar relative to foreign currencies.
Partially offsetting the higher selling prices and volumes was an increase in
the cost of ferrous recycled metal.

The Auto Parts Business segment was formed in the second quarter of fiscal 2003
as a result of the acquisition referred to in the "Overview" section. It
purchases used and salvaged vehicles, sells parts from those vehicles through
its retail facilities and wholesale operations and sells the remaining portion
of the vehicles to metal recyclers. The retail operations are somewhat seasonal
and principally affected by weather conditions and promotional events. Since the
stores are open to the natural elements, during periods of prolonged wet, cold
or extreme heat, the retail business tends to slow down due to the difficult
customer working conditions. Further, the Company generally runs promotional
events during seasonably moderate times of the year when it is most likely to
affect the buying patterns of its retail customers. As a result, the Company's
first and third fiscal quarters tend to generate the most retail sales and the
second and fourth fiscal quarters are the slowest in terms of retail sales. The
Auto Parts Business' other primary source of revenue is the sale of scrap metal
and other parts wholesale. Revenues for the wholesale product lines are
principally affected by commodity prices and shipping schedules. In recent
years, the wholesale business has also improved by efficiency and work practice
changes, which has increased the volume of wholesale parts sales. As mentioned
earlier in the discussions regarding the Metal Recycling Business, recycled
metal prices have increased dramatically since the second quarter of fiscal
2002, which has positively affected the wholesale revenues and profits of the
Auto Parts Business.

Net income for the first quarter of fiscal 2004 compared with the same quarter
in the previous fiscal year benefited from improvements in all of the Company's
business segments. The Metals Recycling Business and the Steel Manufacturing
Business experienced higher average selling prices as well as higher sales
volumes. The Auto Parts Business saw an increase in wholesale revenues offset by
a modest decline in retail revenues. Wholesale revenues have increased due to
the increase in recycled metals prices. The joint ventures in the metals
recycling business also saw higher income primarily due to the same factors as
the Company's Metals Recycling Business.

REVENUES. Consolidated revenues for the quarter ended November 30, 2003
increased 42% from $90.7 million to $128.4 million compared with the first
quarter of fiscal 2003. The increase was primarily a result of increases in the
Metals Recycling Business' sales volume and average net selling price per ton.
The Steel Manufacturing Business also showed gains in average selling prices and
sales volumes and the Auto Parts Business wholesale revenues increased while its
retail revenues have declined slightly.

Revenues for the Metals Recycling Business for the quarter ended November 30,
2003, before intercompany eliminations, increased $34.0 million (75%) compared
with the fiscal 2003 quarter primarily due to higher average net selling prices
per ton and higher sales volumes. Total ferrous sales volumes increased by
approximately 114,000 tons (39%) due primarily to the market conditions
previously mentioned in the "General" paragraph. Ferrous export sales volumes
increased 65%. Sales to the Steel Manufacturing Business increased by 43,000
tons (37%) to 158,000 tons in order to meet the increased melt shop production
at the Company's steel mill. The average sales price, net of shipping costs
(average net sales price), for ferrous metals

16


SCHNITZER STEEL INDUSTRIES, INC.

increased $38 per ton (37%) to $140 per ton from the first quarter of fiscal
2004 due to the lower supplies of competing metal in global markets and strong
demand in Asia. Nonferrous sales volume increased 11% and the average selling
price per pound increased 11%, which was primarily attributable to continued
strong demand from China.

The Steel Manufacturing Business' revenues for the quarter ended November 30,
2003 increased $10.4 million (24%), to $53.2 million compared with the prior
year quarter, reflecting higher average sales prices and higher volumes.
Finished steel shipments were 15% higher than the prior year with the average
finished steel net selling price up $26 per ton (9%) to $310 per ton compared
with the same quarter last year. These price increases were primarily caused by
steel producers attempting to offset the sharp rise in raw material and energy
costs. The wire rod average net sales price was up 3% compared with the first
quarter of fiscal 2003. Average rebar selling prices have increased 13% and
merchant bar selling prices have increased 12% from the first fiscal 2003
quarter. These increases were due to market dynamics in which the production
costs for most suppliers were higher than selling prices and selling prices
needed to be adjusted upward.

Revenues for the Auto Parts Business for the first quarter ended November 30,
2003, before intercompany eliminations, increased $1.5 million (9%) compared
with the fiscal 2003 quarter primarily due to an increase in wholesale revenues
driven by higher sales prices for scrapped auto bodies due to rising ferrous
recycled metal prices. Wholesale prices also benefited from the implementation
of improved efficiencies and changes in work practices which was caused in part
by a new distribution center. This, coupled with strong pricing, resulted in
increased sales volumes. Retail revenues were down slightly due to a reduction
in customer admissions in certain markets resulting primarily from increased
competition.

COST OF GOODS SOLD. Consolidated cost of goods sold increased $29.9 million
(39%) for the first quarter ended November 30, 2003, compared with the same
period last year. Cost of goods sold decreased as a percentage of revenues from
85% to 83%. Gross profit increased $7.8 million to $21.7 million during the
latest quarter compared to the prior year quarter driven by profit margin
improvements at the Company's Metal Recycling and Steel Manufacturing Business
segments.

For the Metal Recycling Business, the cost of goods sold as a percentage of
revenues decreased compared with the first quarter of fiscal 2003 from 85% to
82%. Gross profit increased by $7.4 million to $14.4 million. The increase in
gross profit was attributable to higher average net selling prices per ton and
higher sales volumes. Compared with the first quarter of last year, the average
ferrous metals cost of sales per ton increased 31% due primarily to higher
purchase costs for unprocessed ferrous metals. Generally, a change in the cost
of unprocessed metal has a strong correlation to changes in the average selling
price. Thus, as selling prices rose compared with last year's quarter, so did
the cost of unprocessed metal.

For the first quarter of fiscal 2004, cost of goods sold for the Steel
Manufacturing Business increased $9.1 million (21%) compared to the same period
last year and as a percentage of revenues decreased from 101% to 99%. Cost of
goods sold per ton increased 6% primarily due to higher raw material costs. In
the first quarter of fiscal 2004, the gross profit was $0.7 million compared
with a gross loss of $0.5 million in the first quarter of last year. This
improvement was primarily attributable to higher prices offset by higher raw
material costs. The Auto Parts Business' cost of sales was $1.0 million (11%)
higher during the first quarter of fiscal 2004 as compared to the cost of sales
for the fiscal 2003 quarter. The higher cost of sales was due to higher car
purchase costs that result from higher scrap metal prices. As a percentage of
revenues, the cost of sales remained relatively unchanged from the prior year.

JOINT VENTURES. The Joint Ventures in the Metals Recycling Business
predominantly sell recycled ferrous metal. Revenues for this segment in the
first quarter of fiscal 2004 increased $18.7 million (12%) compared with the
prior year quarter primarily due to higher average net selling prices per ton.
Due to the same supply and demand circumstances described earlier for the
Company's wholly-owned businesses, the Joint Ventures that process

17


SCHNITZER STEEL INDUSTRIES, INC.

recycled metals had a 35% increase in the average net selling price per ton for
ferrous recycled metals and sales volumes increased 6% over the prior year.

The Company's equity in income from its Joint Ventures for the first quarter of
fiscal 2004 increased to $5.9 million from $3.2 million in the first quarter of
fiscal 2003. The increase in income from these Joint Ventures was primarily
caused by the earlier-mentioned higher selling prices of the processing Joint
Ventures. Additionally, the Joint Ventures have worked to improve operational
efficiencies, thereby increasing their operating margins per ton.

GENERAL AND ADMINISTRATIVE EXPENSE. Compared with the first quarter of fiscal
2003, general and administrative expense for the same quarter this fiscal year
increased $1.1 million. As a percentage of revenues, general and administrative
expense has decreased by 1.4 percentage points, from 7.8% to 6.4% due to
spreading the Company's fixed costs over higher revenues.

INTEREST EXPENSE. Interest expense for the first quarter of fiscal 2004
increased 16% to $0.4 million compared with the first quarter of fiscal 2003.
The increase was primarily a result of higher average debt balances during the
fiscal 2004 quarter compared with the fiscal 2003 quarter.

INCOME TAX PROVISION. The tax rate for the first quarter of fiscal 2004 was
approximately 29.0%, compared with a tax rate of 24.6% for the prior year
quarter. The current quarter rate is lower than the 35% federal statutory tax
rate for three primary reasons: (1) The implementation of SFAS 142 has
eliminated the amortization of goodwill for financial reporting purposes, while
some goodwill can be amortized for tax purposes; (2) export sales, which under
current Federal law are taxed at a lower rate than domestic sales, have
increased; and (3) net operating loss carryforwards that accompanied an earlier
acquisition continue to provide benefit.

PRE-ACQUISITION INTERESTS. For the first quarter of fiscal 2003, pre-acquisition
interests of $1.9 million, which are net of tax, represent the share of income
attributable to the former joint venture partner prior to the acquisition. See
Note 3 of the Notes to the Consolidated Financial Statements.

CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE. The Company performed a
transitional impairment test of its goodwill and intangible assets during the
second quarter of fiscal 2003. As a result of this test, the Company recorded a
non-cash impairment charge of $983,000, effective September 1, 2002, and
reported it as a "Cumulative effect of change in accounting principle" on the
Consolidated Statement of Operations.

LIQUIDITY AND CAPITAL RESOURCES. Cash provided by operations for the three
months ended November 30, 2003 was $12.4 million compared with a cash usage of
$3.7 million for the same period in the prior fiscal year. The change in cash
flow was due primarily to higher net income and a smaller increase in inventory
levels for the current period compared to the previous year.

Capital expenditures for the three months ended November 30, 2003 were $6.2
million compared with $4.2 million during the first three months of fiscal 2003.
The increase was primarily due to improvement projects at the Company's Oakland,
California recycling facility and its steel mill. The Company expects to spend
approximately $24.3 million on capital projects during the remainder of fiscal
2004.

As a result of acquisitions completed in prior years the Company had $21.0
million of accrued environmental liabilities as of November 30, 2003. The
Company expects to require significant future cash outlays as it incurs the
actual costs relating to the remediation of such environmental liabilities.

As of November 30, 2003, the Company had a committed unsecured bank credit
facility totaling $150 million that matures in May 2006. The Company also had an
additional unsecured line of credit of $20 million, which is uncommitted. The
Company's debt agreements have certain restrictive covenants. As of November 30,
2003, the Company was in compliance with such covenants and had aggregate bank
borrowings outstanding of $77.0 million.

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SCHNITZER STEEL INDUSTRIES, INC.

In July 2002, the Company's metals recycling joint ventures with Hugo Neu
Corporation entered into a $70 million revolving credit facility ("JV Credit
Facility") with a group of banks for working capital and general corporate
purposes. Prior to that time, the joint ventures' working capital and other cash
needs had been met by advances provided equally by the Company and its partner,
Hugo Neu Corporation. The JV Credit Facility expires in July 2004 and is secured
by the inventory and receivables of the joint venture businesses. The Company is
not a guarantor of the JV Credit Facility. The JV Credit Facility has a number
of covenants and restrictions, including restrictions on the level of
distributions to the joint venture partners. As of November 30, 2003, the joint
ventures were in compliance with such covenants. Borrowings under the JV Credit
Facility totaled $64.0 million at November 30, 2003. The increased borrowing
levels were primarily caused by increases in working capital resulting from
increasing volumes from the global trading business coupled with shipping delays
that resulted in a temporary build up in inventory. Additionally, the Joint
Ventures recently requested an increase in the credit line of $40 million to
fund growth.

Pursuant to a stock repurchase program, the Company is authorized to repurchase
up to 3.0 million shares of its stock when the market price of the Company's
stock is not reflective of management's opinion of an appropriate valuation of
the stock. Management believes that repurchasing shares under these conditions
enhances shareholder value. During the first three months of fiscal 2004, the
Company made no share repurchases. As of November 30, 2003, the Company had
repurchased a total of 1.3 million shares under this program.

The Company believes that its current cash balance, internally generated funds
and existing credit facilities will provide adequate financing for capital
expenditures, working capital, joint ventures, stock repurchases, debt service
requirements and future environmental obligations for the next twelve months. In
the longer term, the Company may seek to finance business expansion with
additional borrowing arrangements or additional equity financing.

OUTLOOK. The Metals Recycling Business normally accepts orders 60 to 90 days
before shipment. Based upon the Metals Recycling Businesses' second quarter 2004
order backlog, contracted selling prices are, on average, higher than the amount
realized in the first quarter of fiscal 2004, and significantly higher than the
amount reported during last year's second quarter. The higher selling prices are
expected to be tempered by rising ocean freight rates as well as upward pressure
on the cost to purchase metal from suppliers. Sales volumes are anticipated to
be in the range of 520,000 to 550,000 tons. Similar market factors are expected
to affect our Joint Ventures in the Metals Recycling Business.

On December 4, 2003, President Bush terminated the steel import tariffs that
were enacted in March 2002. The tariffs affected two of the Steel Manufacturing
Business's three major production lines, namely rebar and merchant bar products.
It has been management's belief that the tariffs, when enacted, did not
significantly benefit the pricing of the Company's products. Thus, the
President's decision to rescind the tariffs is not expected to significantly
affect the prices of these products going forward. Management anticipates the
domestic economy will continue to improve, which should benefit the Company's
Steel Manufacturing Business. However, second quarter demand and sales volumes
are traditionally the lowest of the four fiscal quarters due to seasonal and
weather factors. Over the last few months, the Steel Manufacturing Business and
its competitors announced a number of price increases, which led to higher
selling prices. Two additional announced price increases totaling $40 per ton on
rebar and merchant bar are expected to take effect in the second quarter of 2004
and should result in higher average selling prices. The higher selling prices
should mitigate the rise in recycled metal and energy costs. The Steel
Manufacturing Business also received $1.8 million during the second quarter as a
final payment regarding an electrode price fixing settlement that was settled in
favor of a number of steel mills, including the Company. This amount will be
recognized as income from operations during the second quarter of fiscal 2004.

19


SCHNITZER STEEL INDUSTRIES, INC.

Due to adverse weather conditions, the second quarter of each fiscal year is
seasonably slow for the Auto Parts Business in terms of retail sales. The slower
retail sales are expected to be partially offset by stronger wholesale revenues.

Overall, the Company estimates its second quarter 2004 income from operations to
be in the $19 million to $22 million range. This amount compares to income from
operations of $13.1 million reported for the second quarter of fiscal 2003.

The Company anticipates that its effective tax rate will continue to benefit
from net operating loss carryforwards that were acquired as part of a 1996
acquisition as well as from Extraterritorial Income Exclusion benefits
associated with certain export sales. These, as well as other factors, should
result in an effective fiscal 2004 tax rate in the high twenty percent range.

FACTORS THAT COULD AFFECT FUTURE RESULTS. Management's Discussion and Analysis
of Financial Condition and Results of Operations, particularly "Outlook" above,
contains forward-looking statements, within the meaning of Section 27A of the
Securities Act of 1933 and Section 21E of the Securities Act of 1934, that are
made pursuant to the safe harbor provisions of the Private Securities Litigation
Reform Act of 1995. One can generally identify these forward-looking statements
because they contain "expect", "believe" "anticipate", "estimate" and other
words which convey a similar meaning. One can also identify these statements as
they do not relate strictly to historical or current facts. Examples of factors
affecting Schnitzer Steel Industries, Inc.'s consolidated operations and its
joint ventures (the Company) that could cause actual results to differ
materially are the following:

Cyclicality and General Market Considerations: Selling prices for recycled
metals are highly cyclical in nature and subject to worldwide economic
conditions. In addition, the cost and availability of recycled metals are
subject to volatile supply and demand conditions beyond the Company's control,
resulting in periodic fluctuations in recycled metals prices. While the Company
attempts to maintain margins by responding to changing recycled metals selling
prices through adjustments to its metals purchase prices, the Company's ability
to do so is limited by competitive factors as well as the impact of lower prices
on the volume of recycled metal available to the Company. Moreover, increases in
recycled metals prices can adversely affect the operating results of the
Company's Steel Manufacturing Business because increases in steel prices
generally lag increases in ferrous recycled metals prices.

The steel industry is also highly cyclical in nature and sensitive to general
economic conditions. Future economic downturns or a stagnant economy may
adversely affect the performance of the Company.

The Company expects to continue to experience seasonal fluctuations in its
revenues and net income. Revenues can fluctuate significantly quarter-to-quarter
due to factors such as the seasonal slowdown in the construction industry, which
is an important buyer of the Company's finished steel products. The timing and
extent of the slowdown is also dependent on the weather.

Another factor, which may affect revenues, relates to the seasonal reduction in
demand for recycled metal from foreign customers who tend to reduce their
finished steel production during the summer months to offset higher energy
costs. Also, severe weather conditions may affect the Company's global market
conditions.

The Company makes a number of large ferrous recycled metals shipments to foreign
steel producers each year. Customer requirements, shipping schedules and other
factors limit the Company's control over the timing of these shipments.
Variations in the number of foreign shipments from quarter to quarter will
result in fluctuations in quarterly revenues and earnings. The Company's
expectations regarding ferrous metal sales prices and volumes, as well as
earnings, are based in part on a number of assumptions (for example,
uncertainties relating to customer orders, metal availability, estimated freight
rates, cost and volume of inventory yet to be processed, and production output,
etc.).

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SCHNITZER STEEL INDUSTRIES, INC.

The Auto Parts Business experiences modest seasonal fluctuations in demand. The
retail stores are open to the natural elements. During periods of extreme
temperatures and precipitation, customers tend to delay their purchases and wait
for milder conditions. As a result, retail sales are generally higher during the
spring and fall of each calendar year and lower in the winter and summer months.

Competition: The recycled metals industry is highly competitive, with the volume
of purchases and sales subject to a number of competitive factors, principally
price. The Company has competition from both large and numerous smaller
companies in its markets for the purchase of recyclable metals. The Company
competes with a number of domestic and foreign recycled metals processors and
brokers for processed and unprocessed metal as well as for sales to domestic and
foreign customers. In the recent past, lower cost ferrous recycled metals
supplies from the countries of the former Soviet Union had adversely affected
the Company's ferrous recycled metals selling prices and volumes. Currently,
those countries have export tariffs and some outright export bans which have
significantly reduced their export volumes and lowered the worldwide supply of
ferrous recycled metals. These tariffs and bans have had a positive effect on
the Company's selling prices and volumes. However, the Company cannot predict
when or if the countries of the former Soviet Union will change their export
policies and what effect, if any, such changes might have on the Company's
operating results.

Some of the more significant domestic competitors include regional steel mills
and their brokers who compete for recycled metal for the purpose of providing
the mill with feedstock to produce finished steel. During periods when market
supplies of metal are in short supply, these buyers may, at times, react by
raising buying prices to levels that are not reasonable in relation to more
normal market conditions. As a result, the Company may have to raise its buying
prices to maintain its production levels.

The domestic steel industry also is highly competitive. Steel prices can be
highly volatile and price is a significant competitive factor. The Company
competes with several domestic steel producers in the Western United States for
sales of its products. In recent years, the Company has experienced significant
foreign competition, which is sometimes subsidized by large foreign government
agencies. There can be no assurance that such competition will not increase in
the future. In March and April 2002, the ITC imposed tariffs on imported steel,
under Section 201 of the 1974 Trade Act, to temporarily aid the domestic steel
industry. On December 4, 2003, President Bush, in response to pressure by the
World Trade Organization, terminated these tariffs. However, management is of
the belief that the tariffs did not significantly benefit selling prices for
finished steel products on the West Coast of the United States. In the spring of
2002, the U.S. Government imposed anti-dumping and countervailing duties against
wire rod products from eight foreign countries. These duties have assisted the
Company in increasing sales of wire rod products; any expiration or termination
of the duties could have a corresponding adverse effect.

In December 2002, Nucor Corporation assumed ownership of the assets of
Birmingham Steel Corp., and acquired a steel manufacturing business in Seattle,
Washington. Nucor Corporation, the leader in setting finished steel prices in
the Company's markets, has a significant share of the West Coast finished steel
market and is considered an aggressive competitor. The long term impact, if any,
which Nucor's ownership and operation of Birmingham Steel's Seattle facility
will have on the Steel Manufacturing Business' and the Metals Recycling
Business' operating results cannot be determined at this time. Additionally,
until recently the Steel Manufacturing Business also competed with the North
Star steel mill in Kingman, Arizona, a producer of wire rod and rebar products,
which was sold to Nucor. That facility is currently idle, but any future
start-up of its operations could negatively impact the Company's recycled metal
and finished steel markets and prices.

Geographical Concentration: The Company competes in the scrap metal business
through its wholly-owned Metals Recycling Business as well as through its joint
venture businesses. Over the last few years, a significant portion of the
revenues and operating profits earned in these segments have been generated from
sales to Asian countries, principally China and South Korea. In addition, the
Company's sales in these countries are also concentrated with relatively few
customers that vary depending on buying cycles and general market conditions.
Due to the

21


SCHNITZER STEEL INDUSTRIES, INC.

concentration of sales in these countries and to a relatively small customer
base, a significant change in buying patterns, change in political events,
change in regulatory requirements, tariffs and other export restrictions within
the United States, severe weather conditions or general changes in economic
conditions could adversely affect the financial results of the Company.

Joint Ventures: The Company has significant investments in joint venture
companies. The Company does not manage the day-to-day activities of these
businesses. As a result, it does not have the same ability to control the
operations and related financial results as it does with its consolidated
businesses. These businesses are, however, affected by many of the same risk
factors mentioned above. Therefore, it is difficult to predict the financial
results of these businesses. Additionally, two of these joint ventures continue
to use LIFO inventory accounting, which tends to defer income taxes.
Historically, the effects of LIFO adjustments, which are recorded during the
fourth quarter of each fiscal year, have been difficult to predict.

Energy Supply: The Company and its joint ventures utilize various energy sources
to operate their facilities. In particular, electricity and natural gas
currently represent approximately 11% of the cost of steel manufactured for the
Company's Steel Manufacturing Business. The Steel Manufacturing Business
purchases electric power under a long-term contract from McMinnville Water &
Light (McMinnville) which in turn relies on the Bonneville Power Administration
(BPA). Historically, these contracts have had favorable prices and are long-term
in nature. The Company has a five-year contract that expires in September 2006.
On October 1, 2001, the BPA increased its electricity rates due to increased
demand on the West Coast and lower supplies. This increase was in the form of a
Cost Recovery Adjustment Clause (CRAC) added to BPA's contract with McMinnville.
The CRAC is an additional monthly surcharge on selected power charges to recover
costs associated with buying higher priced power during the West Coast power
shortage. Because the BPA can adjust the CRAC every six months, it is not
possible to predict future rate changes.

The Steel Manufacturing Business also has a contract for natural gas. The
current annual contract expires on October 31, 2004. The new contract price has
increased 15% over the previous year's contract.

If the Company is unable to negotiate favorable terms of electricity, natural
gas and other energy sources, this could adversely affect the performance of the
Company.

Tax Laws: The Company has been able to reduce its effective tax rate below the
federal statutory tax rate for each of the last three years by using a
combination of Net Operating Loss Carryforwards (NOLs), State of California
Enterprise Zone tax credits and Foreign Sales Corporations or Extraterritorial
Income Exclusions. The Company cannot predict how future tax law changes might
affect the Company's effective tax rate.

Currency Fluctuations: Demand from the Company's foreign customers is partially
driven by foreign currency fluctuations relative to the U.S. dollar. Recent
weakness of the U.S. dollar relative to foreign currencies is believed to have
had a significant effect in the increases in recycled metals prices over the
last year, as well as resulted in increasing the cost of certain finished steel
imports. Strengthening of the U.S. dollar could adversely affect the
competitiveness of the Company's products in the markets in which the Company
competes. The Company has no control over such fluctuations and, as such, these
dynamics could affect the Company's revenues and earnings.

Shipping and Handling: Both the Metals Recycling Business and the Steel
Manufacturing Business often rely on third parties to handle and transport their
products to end users in a timely manner. The cost to transport the products, in
particular by ocean freight, can be affected by circumstances over which the
Company has no control such as fuel prices, political events, governmental
regulations on transportation and changes in market rates due to carrier
availability. In estimating quarterly volumes of ferrous metal exports, the
Company makes assumptions regarding the anticipated timing of ship arrival into
loading ports and the estimated time to load the ships. The actual timing of
ship departure, and thus the ultimate revenue recognition, can vary due to ship
availability, weather, mechanical delays, and governmental regulatory delays.
One export ferrous shipment can

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SCHNITZER STEEL INDUSTRIES, INC.

range from 25,000 to 40,000 tons representing a significant portion of the
Company's quarterly revenue and profit. Thus, the delay of one shipment into the
next quarter can significantly affect the quarterly financial results.

Insurance: The cost of the Company's insurance is affected not only by its own
loss experience but also by cycles in the insurance market. The Company cannot
predict future events and circumstances which could cause rates to materially
change such as war, terrorist activities or natural disasters.

Auto Parts Business: The Auto Parts Business competes with both full-service and
self-service auto dismantlers as well as larger well financed retail auto parts
chains for retail customers. Periodically, the Auto Parts Business increases
prices, which may affect customer flow and buying patterns. Additionally, in
markets where the Company has only a few stores, it does not have the same
pricing power it experiences in the larger markets in which it operates. As this
segment expands, the Company may experience new competition from others
attempting to replicate the Company's business model. The ultimate impact of
these dynamics cannot be predicted. Also, the business competes for its
automobile inventory with other dismantlers, used car dealers, auto auctions and
metal recyclers. Inventory costs can fluctuate significantly depending on market
conditions and prices for recycled metal.

The Auto Parts Business is subject to a number of other risks that could prevent
it from maintaining or exceeding its current levels of profitability, such as
volatile supply and demand conditions affecting prices and volumes in the
markets for its products, services and raw materials; environmental issues;
local and worldwide economic conditions; increased competition; and business
integration and management transition issues.

Intercompany Sales: The Auto Parts Business sells autobodies to the Metals
Recycling Business, and the Metals Recycling Business sells ferrous recycled
metal to the Steel Manufacturing Business, at prices that are intended to
approximate market. When the Company consolidates it results in accordance with
generally accepted accounting principles, the Company eliminates the
intercompany sales and purchases and also eliminates the estimated profit
remaining in inventory ("Profit Elimination") at the end of each reporting
period. In estimating future operating and financial performance, the Company
makes assumptions regarding the forecasted Profit Elimination computation and
its impact on the quarterly financial results of the Company. Small variations
in price, sales volume, production volume, and purchase volumes from both within
the Company and from third parties can result in significant differences between
forecasted Profit Elimination and actual results.

One should understand that it is not possible to predict or identify all factors
that could cause actual results to differ from the Company's forward-looking
statements. Consequently, the reader should not consider any such list to be a
complete statement of all potential risks or uncertainties. Further, the Company
does not assume any obligation to update any forward-looking statement.


ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The Company periodically uses derivative financial instruments to limit exposure
to changes in interest rates. Because such derivative instruments are used
solely as hedges and not for speculative trading purposes, they do not represent
incremental risk to the Company. For further discussion of derivative financial
instruments, refer to "FAIR VALUE OF FINANCIAL INSTRUMENTS" in the consolidated
Financial Statements included in Item 8 of Form 10-K for the fiscal year ended
August 31, 2003.


ITEM 4. CONTROLS AND PROCEDURES

Schnitzer Steel Industries, Inc. management, under supervision of the Chief
Executive Officer and Chief Financial Officer, is responsible for establishing
and maintaining disclosure controls and procedures for Schnitzer Steel
Industries, Inc. and its subsidiaries. As of November 30, 2003, with the
participation of the Chief Executive Officer and the Chief Financial Officer,
management completed an evaluation of the

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SCHNITZER STEEL INDUSTRIES, INC.

Company's disclosure controls and procedures. Based upon this evaluation, the
Company's Chief Executive Officer and Chief Financial Officer have concluded
that the disclosure controls and procedures are effective to ensure that all
material information relating to Schnitzer Steel Industries, Inc. and its
subsidiaries is made known to them by others within the organization as
appropriate to allow timely decisions regarding required disclosures.

There were no changes in the Company's internal control over financial reporting
during the first fiscal quarter that have materially affected, or are reasonably
likely to materially affect, the internal control over financial reporting.



PART II


ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

(A) EXHIBITS

2.1 Amendment No. 1 dated November 14, 2003, to Stock and Membership
Interest Purchase Agreement dated January 8, 2003, among Bob
Spence, Pick and Pull Auto Dismantling, Inc., Pick-N-Pull Auto
Dismantlers, Pick-N-Pull Auto Dismantlers, Stockton, LLC, Norprop,
Inc. and the Company

31.1 Certification of Chief Executive Officer pursuant to Section 302
of the Sarbanes-Oxley Act of 2002

31.2 Certification of Chief Financial Officer pursuant to Section 302
of the Sarbanes-Oxley Act of 2002

32.1 Certification of Chief Executive Officer pursuant to 18 U.S.C.
Section 1350 as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.

32.2 Certification of Chief Financial Officer pursuant to 18 U.S.C.
Section 1350 as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.

(B) REPORTS ON FORM 8-K

The following reports were filed on Form 8-K during the fiscal quarter ended
November 30, 2003:

On October 2, 2003, the Company filed a Current Report on Form 8-K, to
report under Item 12 the issuance of a press release announcing
financial results for the Company's quarter and year ended August 31,
2003.

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SCHNITZER STEEL INDUSTRIES, INC.

SIGNATURE


Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.




SCHNITZER STEEL INDUSTRIES, INC.
(Registrant)



Date: January 14, 2004 By: /s/ Barry A. Rosen
---------------- ---------------------------
Barry A. Rosen
Vice President, Finance and
Chief Financial Officer










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