UNITED STATES SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q



				☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

~~SECURITIES AND EXCHANGE COMMISSION~~



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

299 SW Clay Street, Suite 350 , Portland, Oregon	97201
(Address of principal executive offices)	(Zip Code)

~~(503)~~

(503) 224-9900

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:


Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Class A Common Stock, $1.00 par value	SCHN	The Nasdaq Stock Market LLC

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.

☐

Indicate by check mark whether the registrant has submitted electronically ~~and posted on its corporate Website, if any,~~ every Interactive Data File required to be submitted ~~and posted~~ pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit ~~and post~~ such files).

☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act. ~~(check one)~~



Large accelerated filer	o ☒	Accelerated filer	x ☐	Non-accelerated filer	o ☐



Smaller reporting company	o ☐	Emerging growth company	o ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o

☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

☒

The ~~Registrant~~registrant had ~~27,003,291~~27,254,958 shares of Class A common stock, par value of $1.00 per share, and 200,000 shares of Class B common stock, par value of $1.00 per share, outstanding as of ~~January~~April 5, ~~2018.~~

SCHNITZER STEEL INDUSTRIES, INC.

FORWARD-LOOKING STATEMENTS

Statements and information included in this Quarterly Report on Form 10-Q by Schnitzer Steel Industries, Inc. ~~(the “Company”)~~ that are not purely historical are forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934 and are made pursuant to the “safe harbor” provisions of the Private Securities Litigation Reform Act of 1995. Except as noted herein or as the context may otherwise require, all references to “we,” “our,” “us,” “the Company,” and “SSI” refer to ~~the Company~~Schnitzer Steel Industries, Inc. and its consolidated subsidiaries.

Forward-looking statements in this Quarterly Report on Form 10-Q include statements regarding future events or our expectations, intentions, beliefs, and strategies regarding the future, which may include statements regarding ~~trends, cyclicality~~the impact of equipment upgrades, equipment failures, and ~~changes in~~facility damage on production, including timing of repairs and resumption of operations; the ~~markets we sell into;~~realization of insurance recoveries; the ~~Company's~~impact of pandemics, epidemics, or other public health emergencies, such as the coronavirus disease 2019 (“COVID-19”) pandemic; the Company’s outlook, growth initiatives, or expected results or objectives, including pricing, margins, sales volumes, and profitability; completion of acquisitions and integration of acquired businesses; the impacts of supply chain disruptions, inflation, and rising interest rates; liquidity positions; our ability to generate cash from continuing operations; trends, cyclicality, and changes in the markets we sell into; strategic direction or goals; targets; changes to manufacturing and production processes; the realization of deferred tax assets; planned capital expenditures; the cost of and the status of any agreements or actions related to our compliance with environmental and other laws; expected tax rates, deductions, and ~~credits and~~credits; the impact of sanctions and tariffs, quotas, and other trade actions and import restrictions; the ~~recently enacted federal tax reform; the realization of deferred tax assets; planned capital expenditures; liquidity positions; ability to generate cash from continuing operations; the potential~~ impact of ~~adopting new accounting pronouncements;~~labor shortages or increased labor costs; obligations under our retirement plans; benefits, savings, or additional costs from business realignment, cost containment, and productivity improvement programs; the potential impact of adopting new accounting pronouncements; and the adequacy of accruals.

Forward-looking statements by their nature address matters that are, to different degrees, uncertain, and often contain words such as “outlook,” “target,” “aim,” “believes,” “expects,” “anticipates,” “intends,” “assumes,” “estimates,” “evaluates,” “may,” “will,” “should,” “could,” “opinions,” “forecasts,” “projects,” “plans,” “future,” “forward,” “potential,” “probable,” and similar expressions. However, the absence of these words or similar expressions does not mean that a statement is not forward-looking.

We may make other forward-looking statements from time to time, including in reports filed with the Securities and Exchange Commission, press releases, presentations, and on public conference calls. All forward-looking statements we make are based on information available to us at the time the statements are made, and we assume no obligation to update any forward-looking statements, except as may be required by law. Our business is subject to the effects of changes in domestic and global economic conditions and a number of other risks and uncertainties that could cause actual results to differ materially from those included in, or implied by, such forward-looking statements. Some of these risks and uncertainties are discussed in “Item 1A. Risk Factors” inof Part I of our most recent Annual Report on Form ~~10-K and Part II of this Quarterly Report on Form 10-Q.~~10-K. Examples of these risks include: potential environmental cleanup costs related to the Portland Harbor Superfund site or other locations; the impact of equipment upgrades, equipment failures, and facility damage on production; failure to realize or delays in realizing expected benefits from capital projects, including investments in processing and manufacturing technology improvements; the cyclicality and impact of general economic conditions; the impact of inflation, rising interest rates, and foreign currency fluctuations; changing conditions in global markets including the impact of sanctions and tariffs, quotas, and other trade actions and import restrictions; increases in the relative value of the U.S. dollar; economic and geopolitical instability ~~in international markets;~~including as a result of military conflict; volatile supply and demand conditions affecting prices and volumes in the markets for ~~both our products and~~ raw materials and other inputs we purchase; significant decreases in recycled metal prices; imbalances in supply and demand conditions in the global steel industry; difficulties associated with acquisitions and integration of acquired businesses; supply chain disruptions; reliance on third-party shipping companies, including with respect to freight rates and the availability of transportation; the impact of goodwill impairment charges; the impact of long-lived asset and ~~cost and~~ equity ~~method~~ investment impairment charges; the impact of pandemics, epidemics, or other public health emergencies, such as the COVID-19 pandemic; inability to achieve or sustain the benefits from productivity, cost savings, and restructuring initiatives; ~~difficulties associated with acquisitions and integration of acquired businesses;~~inability to renew facility leases; customer fulfillment of their contractual obligations; ~~increases in the relative value of the U.S. dollar; the impact of foreign currency fluctuations;~~ potential limitations on our ability to access capital resources and existing credit facilities; restrictions on our business and financial covenants under the agreement governing our bank credit ~~agreement;~~facilities; the impact of consolidation in the steel industry; inability to realize expected benefits from investments in technology; freight rates and the availability of transportation; the impact of equipment upgrades, equipment failures and facility damage on production; product liability claims; the impact of legal proceedings and legal compliance; the adverse impact of climate change; the impact of not realizing deferred tax assets; the impact of tax increases and changes in tax rules; the impact of one or more cybersecurity incidents; ~~environmental compliance costs and potential environmental liabilities;~~translation risks associated with fluctuation in foreign exchange rates; inability to obtain or renew business licenses and ~~permits or renew facility leases;~~permits; environmental compliance costs and potential environmental liabilities; increased environmental regulations and enforcement; compliance with climate change and greenhouse gas emission laws and regulations; the impact of labor shortages or increased labor costs; reliance on employees subject to collective bargaining agreements; and the impact of the underfunded status of multiemployer plans in which we participate.

Table of Contents

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS (UNAUDITED)

SCHNITZER STEEL INDUSTRIES, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited, in thousands, except per share amounts)

November 30, 2017 August 31, 2017
Assets
Current assets:
Cash and cash equivalents $ 9,194
$ 7,287
Accounts receivable, net of allowance for doubtful accounts of $2,265
and $2,280
144,578
138,998
Inventories 216,365
166,942
Refundable income taxes 692
2,366
Prepaid expenses and other current assets 24,591
22,357
Total current assets 395,420
337,950
Property, plant and equipment, net of accumulated depreciation of $719,192 and $756,494 386,847
390,629
Investments in joint ventures 11,521
11,204
Goodwill 167,203
167,835
Intangibles, net of accumulated amortization of $4,089 and $3,913 4,248
4,424
Other assets 20,674
21,713
Total assets $ 985,913
$ 933,755
Liabilities and Equity
Current liabilities:
Short-term borrowings $ 657
$ 721
Accounts payable 97,176
94,674
Accrued payroll and related liabilities 23,667
41,593
Environmental liabilities 7,214
2,007
Accrued income taxes 2,177
9
Other accrued liabilities 40,593
37,256
Total current liabilities 171,484
176,260
Deferred income taxes 19,712
19,147
Long-term debt, net of current maturities 184,225
144,403
Environmental liabilities, net of current portion 47,444
46,391
Other long-term liabilities 11,431
10,061
Total liabilities 434,296
396,262
Commitments and contingencies (Note 5)

Schnitzer Steel Industries, Inc. (“SSI”) shareholders’ equity:
Preferred stock – 20,000 shares $1.00 par value authorized, none issued —
—
Class A common stock – 75,000 shares $1.00 par value authorized, 27,003 and 26,859 shares issued and outstanding 27,003
26,859
Class B common stock – 25,000 shares $1.00 par value authorized, 200 and 200 shares issued and outstanding 200
200
Additional paid-in capital 40,059
38,050
Retained earnings 516,842
503,770
Accumulated other comprehensive loss (36,920 ) (35,293 )
Total SSI shareholders’ equity 547,184
533,586
Noncontrolling interests 4,433
3,907
Total equity 551,617
537,493
Total liabilities and equity $ 985,913
$ 933,755

(Currency - U.S. Dollar)


	February 28, 2023			August 31, 2022
Assets
Current assets:
Cash and cash equivalents	$	11,459		$	43,803
Accounts receivable, net of allowance for credit losses of $1,744 and $1,566		240,632			237,654
Inventories		286,733			315,189
Refundable income taxes		2,219			1,696
Prepaid expenses and other current assets		52,447			73,044
Total current assets		593,490			671,386
Property, plant and equipment, net of accumulated depreciation of $882,121 and $855,032		689,374			664,120
Operating lease right-of-use assets		112,600			122,413
Investments in joint ventures		11,681			12,841
Goodwill		268,497			255,198
Intangibles, net of accumulated amortization of $9,412 and $7,256		35,570			26,155
Deferred income taxes		22,254			24,598
Other assets		47,629			49,886
Total assets	$	1,781,095		$	1,826,597
Liabilities and Equity
Current liabilities:
Short-term borrowings	$	6,527		$	6,041
Accounts payable		212,598			217,689
Accrued payroll and related liabilities		26,045			59,702
Environmental liabilities		8,495			13,031
Operating lease liabilities		20,601			21,660
Accrued income taxes		763			3,856
Other accrued liabilities		46,186			59,594
Total current liabilities		321,215			381,573
Deferred income taxes		55,968			63,328
Long-term debt, net of current maturities		303,552			242,521
Environmental liabilities, net of current portion		54,980			55,469
Operating lease liabilities, net of current maturities		93,074			101,651
Other long-term liabilities		23,868			23,581
Total liabilities		852,657			868,123
Commitments and contingencies (Note 5)
Schnitzer Steel Industries, Inc. (“SSI”) shareholders’ equity:
Preferred stock – 20,000 shares $1.00 par value authorized, none issued		—			—
Class A common stock – 75,000 shares $1.00 par value authorized, 27,255 and 26,747 shares issued and outstanding		27,255			26,747
Class B common stock – 25,000 shares $1.00 par value authorized, 200 and 200 shares issued and outstanding		200			200
Additional paid-in capital		20,831			22,975
Retained earnings		917,266			941,146
Accumulated other comprehensive loss		(40,605	)		(37,089	)
Total SSI shareholders’ equity		924,947			953,979
Noncontrolling interests		3,491			4,495
Total equity		928,438			958,474
Total liabilities and equity	$	1,781,095		$	1,826,597

The accompanying Notes to the Unaudited Condensed Consolidated Financial Statement are an integral part of these statements.

Table of Contents

SCHNITZER STEEL INDUSTRIES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited, in thousands, except per share amounts)

(Currency - U.S. Dollar)


	Three Months Ended February 28,						Six Months Ended February 28,
	2023			2022			2023			2022
Revenues	$	755,953		$	783,198		$	1,354,683		$	1,581,316
Operating expense:
Cost of goods sold		682,937			670,539			1,232,948			1,353,783
Selling, general and administrative		63,957			61,081			128,185			116,348
(Income) from joint ventures		(311	)		(591	)		(1,101	)		(827	)
Restructuring charges and other exit-related activities		828			4			2,420			26
Operating income (loss)		8,542			52,165			(7,769	)		111,986
Interest expense		(4,908	)		(1,901	)		(8,232	)		(3,273	)
Other loss, net		(99	)		(55	)		(3,983	)		(102	)
Income (loss) from continuing operations before income taxes		3,535			50,209			(19,984	)		108,611
Income tax benefit (expense)		513			(12,073	)		6,545			(23,170	)
Income (loss) from continuing operations		4,048			38,136			(13,439	)		85,441
Income from discontinued operations, net of tax		224			29			155			—
Net income (loss)		4,272			38,165			(13,284	)		85,441
Net loss (income) attributable to noncontrolling interests		81			(550	)		(151	)		(1,627	)
Net income (loss) attributable to SSI shareholders	$	4,353		$	37,615		$	(13,435	)	$	83,814

Net income (loss) per share attributable to SSI shareholders:
Basic:
Income (loss) per share from continuing operations	$	0.15		$	1.33		$	(0.49	)	$	2.97
Net income (loss) per share	$	0.16		$	1.33		$	(0.48	)	$	2.97
Diluted:
Income (loss) per share from continuing operations	$	0.14		$	1.27		$	(0.49	)	$	2.81
Net income (loss) per share	$	0.15		$	1.27		$	(0.48	)	$	2.81
Weighted average number of common shares:
Basic		28,081			28,231			27,912			28,195
Diluted		28,617			29,712			27,912			29,798

The accompanying Notes to the Unaudited Condensed Consolidated Financial Statements

are an integral part of these statements.

Table of Contents

SCHNITZER STEEL INDUSTRIES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF ~~OPERATIONS~~

COMPREHENSIVE INCOME (LOSS)

(Unaudited, in ~~thousands, except per share amounts)~~

Three Months Ended November 30,
2017 2016
Revenues $ 483,279
$ 334,161
Operating expense:
Cost of goods sold 406,251
295,892
Selling, general and administrative 51,043
37,492
(Income) from joint ventures (450 ) (412 )
Other asset impairment charges (recoveries), net (88 ) 401
Restructuring charges and other exit-related activities 100
201
Operating income 26,423
587
Interest expense (2,059 ) (1,741 )
Other income, net 849
437
Income (loss) from continuing operations before income taxes 25,213
(717 )
Income tax (expense) benefit (5,957 ) 62
Income (loss) from continuing operations 19,256
(655 )
Loss from discontinued operations, net of tax (35 ) (53 )
Net income (loss) 19,221
(708 )
Net income attributable to noncontrolling interests (857 ) (618 )
Net income (loss) attributable to SSI $ 18,364
$ (1,326 )

Net income (loss) per share attributable to SSI:
Basic:

Income (loss) per share from continuing operations attributable to SSI $ 0.66
$ (0.05 )
Loss per share from discontinued operations attributable to SSI —
—
Net income (loss) per share attributable to SSI $ 0.66
$ (0.05 )
Diluted:
Income (loss) per share from continuing operations attributable to SSI $ 0.64
$ (0.05 )
Loss per share from discontinued operations attributable to SSI —
—
Net income (loss) per share attributable to SSI $ 0.64
$ (0.05 )
Weighted average number of common shares:
Basic 27,695
27,372
Diluted 28,662
27,372
Dividends declared per common share $ 0.1875
$ 0.1875

thousands)

(Currency - U.S. Dollar)


	Three Months Ended February 28,						Six Months Ended February 28,
	2023			2022			2023			2022
Net income (loss)	$	4,272		$	38,165		$	(13,284	)	$	85,441
Other comprehensive (loss) income, net of tax:
Foreign currency translation adjustments		(1,361	)		722			(3,607	)		(393	)
Pension obligations, net		58			119			91			509
Total other comprehensive (loss) income, net of tax		(1,303	)		841			(3,516	)		116
Comprehensive income (loss)		2,969			39,006			(16,800	)		85,557
Less comprehensive loss (income) attributable to noncontrolling interests		81			(550	)		(151	)		(1,627	)
Comprehensive income (loss) attributable to SSI shareholders	$	3,050		$	38,456		$	(16,951	)	$	83,930

The accompanying Notes to the Unaudited Condensed Consolidated Financial Statements

are an integral part of these statements.

Table of Contents

SCHNITZER STEEL INDUSTRIES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF ~~COMPREHENSIVE INCOME (LOSS)~~

EQUITY

(Unaudited, in ~~thousands)~~

Three Months Ended November 30,
2017 2016
Net income (loss) $ 19,221
$ (708 )
Other comprehensive income (loss), net of tax:
Foreign currency translation adjustments (1,709 ) (1,034 )
Pension obligations, net 82
(65 )
Total other comprehensive loss, net of tax (1,627 ) (1,099 )
Comprehensive income (loss) 17,594
(1,807 )
Less comprehensive income attributable to noncontrolling interests (857 ) (618 )
Comprehensive income (loss) attributable to SSI $ 16,737
$ (2,425 )

thousands, except per share amounts)

(Currency - U.S. Dollar)


	Common Stock																Accumulated
	Class A						Class B				Additional						Other			Total SSI
Three Months Ended February 28, 2022	Shares			Amount			Shares		Amount		Paid-in Capital			Retained Earnings			Comprehensive Loss			Shareholders’ Equity			Noncontrolling Interests			Total Equity
Balance as of December 1, 2021		27,624		$	27,624			200	$	200	$	43,641		$	834,504		$	(35,279	)	$	870,690		$	4,066		$	874,756
Net income		—			—			—		—		—			37,615			—			37,615			550			38,165
Other comprehensive income, net of tax		—			—			—		—		—			—			841			841			—			841
Distributions to noncontrolling interests		—			—			—		—		—			—			—			—			(759	)		(759	)
Share repurchases		(200	)		(200	)		—		—		(7,665	)		—			—			(7,865	)		—			(7,865	)
Issuance of restricted stock		9			9			—		—		(9	)		—			—			—			—			—
Share-based compensation cost		—			—			—		—		4,854			—			—			4,854			—			4,854
Dividends ($0.1875 per common share)		—			—			—		—		—			(5,343	)		—			(5,343	)		—			(5,343	)
Balance as of February 28, 2022		27,433		$	27,433			200	$	200	$	40,821		$	866,776		$	(34,438	)	$	900,792		$	3,857		$	904,649


	Common Stock														Accumulated
	Class A				Class B				Additional						Other			Total SSI
Three Months Ended February 28, 2023	Shares		Amount		Shares		Amount		Paid-in Capital			Retained Earnings			Comprehensive Loss			Shareholders' Equity			Noncontrolling Interests			Total Equity
Balance as of December 1, 2022		27,165	$	27,165		200	$	200	$	18,582		$	918,094		$	(39,302	)	$	924,739		$	3,765		$	928,504
Net income (loss)		—		—		—		—		—			4,353			—			4,353			(81	)		4,272
Other comprehensive (loss), net of tax		—		—		—		—		—			—			(1,303	)		(1,303	)		—			(1,303	)
Distributions to noncontrolling interests		—		—		—		—		—			—			—			—			(193	)		(193	)
Issuance of restricted stock		90		90		—		—		(90	)		—			—			—			—			—
Restricted stock withheld for taxes		—		—		—		—		(2	)		—			—			(2	)		—			(2	)
Share-based compensation cost		—		—		—		—		2,341			—			—			2,341			—			2,341
Dividends ($0.1875 per common share)		—		—		—		—		—			(5,181	)		—			(5,181	)		—			(5,181	)
Balance as of February 28, 2023		27,255	$	27,255		200	$	200	$	20,831		$	917,266		$	(40,605	)	$	924,947		$	3,491		$	928,438

The accompanying Notes to the Unaudited Condensed Consolidated Financial Statements

are an integral part of these statements.

Table of Contents

SCHNITZER STEEL INDUSTRIES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF ~~CASH FLOWS~~

EQUITY

(Unaudited, in ~~thousands)~~

Three Months Ended November 30,
2017 2016
Cash flows from operating activities:
Net income (loss) $ 19,221
$ (708 )
Adjustments to reconcile net income (loss) to cash (used in) provided by
operating activities:
Depreciation and amortization 12,522
12,543
Other asset impairment charges (recoveries), net (88 ) 401
Exit-related asset impairment charges —
158
Inventory write-down 38
—
Share-based compensation expense 5,004
3,408
Deferred income taxes 761
(60 )
Undistributed equity in earnings of joint ventures (450 ) (412 )
Loss on disposal of assets, net 51
45
Unrealized foreign exchange gain, net (407 ) (23 )
Bad debt expense (recoveries), net (14 ) 17
Changes in assets and liabilities:
Accounts receivable (8,640 ) (1,546 )
Inventories (47,267 ) (12,586 )
Income taxes 3,842
(150 )
Prepaid expenses and other current assets 70
(614 )
Other long-term assets (112 ) 164
Accounts payable 8,548
14,343
Accrued payroll and related liabilities (17,894 ) (10,080 )
Other accrued liabilities 3,504
899
Environmental liabilities 4,034
(29 )
Other long-term liabilities 1,487
(193 )
Distributed equity in earnings of joint ventures 200
350
Net cash (used in) provided by operating activities (15,590 ) 5,927
Cash flows from investing activities:
Capital expenditures (15,157 ) (10,603 )
Joint venture receipts (payments), net 11
(55 )
Proceeds from sale of assets 1,534
73
Net cash used in investing activities (13,612 ) (10,585 )
Cash flows from financing activities:
Borrowings from long-term debt 189,500
102,631
Repayment of long-term debt (149,713 ) (107,491 )
Payment of debt issuance costs —
(53 )
Taxes paid related to net share settlement of share-based payment arrangements (2,851 ) (3,301 )
Distributions to noncontrolling interests (331 ) (522 )
Dividends paid (5,478 ) (5,185 )
Net cash provided by (used in) financing activities 31,127
(13,921 )
Effect of exchange rate changes on cash (18 ) (140 )
Net increase (decrease) in cash and cash equivalents 1,907
(18,719 )
Cash and cash equivalents as of beginning of period 7,287
26,819
Cash and cash equivalents as of end of period $ 9,194
$ 8,100

thousands, except per share amounts)

(Currency - U.S. Dollar)


	Common Stock																Accumulated
	Class A						Class B				Additional						Other			Total SSI
Six Months Ended February 28, 2022	Shares			Amount			Shares		Amount		Paid-in Capital			Retained Earnings			Comprehensive Loss			Shareholders' Equity			Noncontrolling Interests			Total Equity
Balance as of September 1, 2021		27,332		$	27,332			200	$	200		49,074		$	793,712		$	(34,554	)	$	835,764		$	4,015		$	839,779
Net income		—			—			—		—		—			83,814			—			83,814			1,627			85,441
Other comprehensive income, net of tax		—			—			—		—		—			—			116			116			—			116
Distributions to noncontrolling interests		—			—			—		—		—			—			—			—			(1,785	)		(1,785	)
Share repurchases		(200	)		(200	)		—		—		(7,665	)		—			—			(7,865	)		—			(7,865	)
Issuance of restricted stock		479			479			—		—		(479	)		—			—			—			—			—
Restricted stock withheld for taxes		(178	)		(178	)		—		—		(9,399	)		—			—			(9,577	)		—			(9,577	)
Share-based compensation cost		—			—			—		—		9,290			—			—			9,290			—			9,290
Dividends ($0.375 per common share)		—			—			—		—		—			(10,750	)		—			(10,750	)		—			(10,750	)
Balance as of February 28, 2022		27,433		$	27,433		200		$	200	$	40,821		$	866,776		$	(34,438	)	$	900,792		$	3,857		$	904,649


	Common Stock																Accumulated
	Class A						Class B				Additional						Other			Total SSI
Six Months Ended February 28, 2023	Shares			Amount			Shares		Amount		Paid-in Capital			Retained Earnings			Comprehensive Loss			Shareholders' Equity			Noncontrolling Interests			Total Equity
Balance as of September 1, 2022		26,747		$	26,747			200	$	200	$	22,975		$	941,146		$	(37,089	)	$	953,979		$	4,495		$	958,474
Net (loss) income		—			—			—		—		—			(13,435	)		—			(13,435	)		151			(13,284	)
Other comprehensive (loss), net of tax		—			—			—		—		—			—			(3,516	)		(3,516	)		—			(3,516	)
Distributions to noncontrolling interests		—			—			—		—		—			—			—			—			(1,155	)		(1,155	)
Issuance of restricted stock		762			762			—		—		(762	)		—			—			—			—			—
Restricted stock withheld for taxes		(254	)		(254	)		—		—		(6,555	)		—			—			(6,809	)		—			(6,809	)
Share-based compensation cost		—			—			—		—		5,173			—			—			5,173			—			5,173
Dividends ($0.375 per common share)		—			—			—		—		—			(10,445	)		—			(10,445	)		—			(10,445	)
Balance as of February 28, 2023		27,255		$	27,255			200	$	200	$	20,831		$	917,266		$	(40,605	)	$	924,947		$	3,491		$	928,438

The accompanying Notes to the Unaudited Condensed Consolidated Financial Statements

are an integral part of these statements.

Table of Contents

SCHNITZER STEEL INDUSTRIES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited, in thousands)

(Currency - U.S. Dollar)


	Six Months Ended February 28,
	2023			2022
Cash flows from operating activities:
Net (loss) income	$	(13,284	)	$	85,441
Adjustments to reconcile net (loss) income to cash provided by operating activities:
Asset impairment charges		4,000			—
Exit-related asset impairments		143			—
Depreciation and amortization		43,850			35,816
Inventory write-downs		575			304
Deferred income taxes		(6,337	)		13,988
Undistributed equity in earnings of joint ventures		(1,101	)		(827	)
Share-based compensation expense		5,144			9,231
Loss on disposal of assets, net		16			1,345
Unrealized foreign exchange loss, net		85			121
Credit loss, net		195			16
Changes in assets and liabilities, net of acquisitions:
Accounts receivable		(13,914	)		(47,762	)
Inventories		33,834			(52,624	)
Income taxes		(4,783	)		(697	)
Prepaid expenses and other current assets		9,758			1,309
Other long-term assets		(1,389	)		(651	)
Operating lease assets and liabilities		232			(903	)
Accounts payable		12,245			11,762
Accrued payroll and related liabilities		(33,421	)		(39,711	)
Other accrued liabilities		(7,177	)		7,583
Environmental liabilities		(4,914	)		(12,482	)
Other long-term liabilities		1,935			455
Distributed equity in earnings of joint ventures		—			1,000
Net cash provided by operating activities		25,692			12,714
Cash flows from investing activities:
Capital expenditures		(74,511	)		(69,409	)
Acquisitions, net of acquired cash		(26,902	)		(113,939	)
Proceeds from insurance and sale of assets		3,026			11,129
Deposit on land option		—			(80	)
Net cash used in investing activities		(98,387	)		(172,299	)
Cash flows from financing activities:
Borrowings from long-term debt		333,242			405,094
Repayment of long-term debt		(274,036	)		(225,395	)
Payment of debt issuance costs		(156	)		—
Repurchase of Class A common stock		—			(7,865	)
Taxes paid related to net share settlement of share-based payment awards		(6,809	)		(9,577	)
Distributions to noncontrolling interests		(1,155	)		(1,785	)
Dividends paid		(10,671	)		(10,841	)
Net cash provided by financing activities		40,415			149,631
Effect of exchange rate changes on cash		(64	)		(41	)
Net decrease in cash and cash equivalents		(32,344	)		(9,995	)
Cash and cash equivalents as of beginning of period		43,803			27,818
Cash and cash equivalents as of end of period	$	11,459		$	17,823

The accompanying Notes to the Unaudited Condensed Consolidated Financial Statements are an integral part of these statements.

Table of Contents

SCHNITZER STEEL INDUSTRIES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited, in thousands)

(Currency - U.S. Dollar)


	Six Months Ended February 28,
	2023		2022
SUPPLEMENTAL DISCLOSURES:
Cash paid during the period for:
Interest	$	7,339	$	1,748
Income taxes, net	$	4,332	$	9,829
Schedule of noncash investing and financing transactions:
Purchases of property, plant and equipment included in liabilities	$	13,815	$	21,828

The accompanying Notes to the Unaudited Condensed Consolidated Financial Statements are an integral part of these statements.

Table of Contents

SCHNITZER STEEL INDUSTRIES, INC.

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Note 1 - Summary of Significant Accounting Policies

Basis of Presentation

The accompanying Unaudited Condensed Consolidated Financial Statements of Schnitzer Steel Industries, Inc. and its majority-owned and wholly-owned subsidiaries (the “Company”) have been prepared pursuant to generally accepted accounting principles in the United States of America (“U.S. GAAP”) for interim financial information and the rules and regulations of the United States Securities and Exchange Commission (the “SEC”) for Form 10-Q, including Article 10 of Regulation S-X. The year-end condensed consolidated balance sheet data was derived from audited financial statements but does not include all disclosures required by U.S. GAAP. Certain information and note disclosures normally included in annual financial statements have been condensed or omitted pursuant to the rules and regulations of the SEC. In the opinion of management, all normal, recurring adjustments considered necessary for a fair statement have been included. Management suggests that these Unaudited Condensed Consolidated Financial Statements be read in conjunction with the financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the fiscal year ended August 31, ~~2017~~.2022. The results for the three and six months ended ~~November 30, 2017~~February 28, 2023 and ~~2016~~2022 are not necessarily indicative of the results of operations for the entire fiscal year.

~~Accounting Changes~~

Segment Reporting

The Company acquires and recycles ferrous and nonferrous scrap metal for sale to foreign and domestic metal producers, processors, and brokers, and it procures salvaged vehicles and sells serviceable used auto parts from these vehicles through a network of self-service auto parts stores. Most of these auto parts stores supply the Company’s shredding facilities with auto bodies that are processed into saleable recycled metal products. In ~~July 2015,~~addition to the sale of recycled metal products processed at its facilities, the Company provides a variety of recycling and related services. The Company also produces a range of finished steel long products at its electric arc furnace (“EAF”) steel mill using recycled ferrous metal sourced internally from its recycling and joint venture operations and other raw materials.

The accounting standards for reporting information about operating segments define an ~~accounting standard update was issued~~operating segment as a component of an enterprise that ~~requires an entity to measure certain types of inventory, including inventory~~engages in business activities from which it may earn revenues and incur expenses for which discrete financial information is available that is ~~measured using~~evaluated regularly by the ~~first-in, first out ("FIFO") or average cost method, at the lower of cost~~chief operating decision-maker in deciding how to allocate resources and ~~net realizable value.~~in assessing performance. The accounting standard in effect at the time of issuance of the update required an entity to measure inventory at the lower of cost or market, whereby market could be replacement cost, net realizable value, or net realizable value less an approximately normal profit margin. The amendments do not apply to inventory that is measured using the last-in, first-out ("LIFO") or retail inventory method. The Company adopted the new requirement, which is to be applied prospectively, as of the beginning of the first quarter of fiscal 2018 with no impact to the Unaudited Condensed Consolidated Financial Statements.Company’s internal organizational and reporting structure reflects a functionally based, integrated model and includes a single operating and reportable segment.

In March 2016, an accounting standard update was issued that amends several aspects of the accounting for share-based payments, including accounting for income taxes, forfeitures and statutory tax withholding requirements, and classification within the statement of cash flows. The Company adopted the new requirements as of the beginning of the first quarter of fiscal 2018 with no impact to the Unaudited Condensed Consolidated Financial Statements, including no cumulative-effect adjustments to retained earnings, as of the date of adoption. On a prospective basis beginning with the date of adoption, the Company records all of the tax effects related to share-based payments through the income statement, subject to normal valuation allowance considerations, and all tax-related cash flows resulting from share-based payments are reported as operating activities in the statement of cash flows. The Company has elected to continue the practice of estimating the forfeiture rate for the purpose of recognizing estimated compensation cost over the requisite service period.

Cash and Cash Equivalents

Cash and cash equivalents include short-term securities that are not restricted by third parties and have an original maturity date of 90 days or less. Included in accounts payable are book overdrafts representing outstanding ~~checks~~payments in excess of funds on deposit of ~~$30~~$64 million and ~~$21~~$56 million as of ~~November 30, 2017~~February 28, 2023 and August 31, ~~2017~~,2022, respectively.

~~Cost Method Investment~~

Accounts Receivable, net

Accounts receivable represent amounts primarily due from customers on product and other sales. These accounts receivable, which are reduced by an allowance for credit losses, are recorded at the invoiced amount and do not bear interest. The Company extends credit to customers under contracts containing customary and explicit payment terms, and payment is generally required within 30 to 60 days of shipment. Nonferrous export sales typically require a deposit prior to shipment. Historically, almost all of the Company’s ferrous export sales have been made with letters of credit. Ferrous and nonferrous metal sales to domestic customers and finished steel sales are generally made on open account, and a portion of these sales are covered by credit insurance.

The Company evaluates the collectibility of its accounts receivable based on a combination of factors, including whether sales were made pursuant to letters of credit or required deposits prior to shipment, the aging of customer receivable balances, the financial condition of the Company’s customers, historical collection rates, and economic trends. Management uses this evaluation to estimate the amount of customer receivables that may not be collected in the future and records a provision for expected credit losses. Accounts are written off when all efforts to collect have been exhausted.

Also included in accounts receivable are short-term advances to scrap metal suppliers used as a mechanism to acquire unprocessed scrap metal. The advances are generally repaid with scrap metal, as opposed to cash. Repayments of advances with scrap metal are treated as noncash operating activities in the Unaudited Condensed Consolidated Statements of Cash Flows and totaled $6 million for each of the six months ended February 28, 2023 and 2022.

Prepaid Expenses

The Company’s prepaid expenses, reported within prepaid expenses and other current assets in the Unaudited Condensed Consolidated Balance Sheets, totaled $26 million and $43 million as of February 28, 2023 and August 31, 2022, respectively, and consisted primarily of deposits on capital projects, prepaid services, prepaid insurance, and prepaid property taxes.

Other Assets

The Company’s other assets, exclusive of prepaid expenses and assets relating to certain employee benefit plans, consisted primarily of receivables from insurers, capitalized implementation costs for cloud computing arrangements, cash held in a client trust account relating to a legal settlement, major spare parts and equipment, two equity investments, debt issuance costs, and notes and other contractual receivables. Other assets are reported within either prepaid expenses and other current assets or other assets in the Unaudited Condensed Consolidated Balance Sheets based on their expected use either during or beyond the current operating cycle of one year from the reporting date.

Receivables from insurers represent the portion of insured losses expected to be recovered from the Company’s insurers under various insurance policies or from a Qualified Settlement Fund holding settlement amounts deposited by certain insurers of claims against the Company related to the Portland Harbor Superfund site. The receivables are recorded at an amount not to exceed the recorded loss and only if the terms of legally enforceable insurance contracts support that the insurance recovery will not be disputed and is deemed collectible, or if recovery of the loss by the Company from a Qualified Settlement Fund is probable. Receivables from insurers totaled $26 million and $28 million as of February 28, 2023 and August 31, 2022, respectively. As of February 28, 2023, receivables from insurers comprised primarily $10 million relating to property loss and damage and other claims in connection with the December 2021 fire at the Company’s shredder facility in Everett, Massachusetts, $12 million relating to environmental claims, $2 million relating to workers’ compensation claims, and $2 million relating to third-party claims. As of August 31, 2022, receivables from insurers comprised primarily $10 million relating to property loss and damage and other claims in connection with the December 2021 fire at the Company’s shredder facility in Everett, Massachusetts, $7 million relating to environmental claims, $6 million relating to third-party claims, and $4 million relating to workers’ compensation claims. See “Accounting for Impacts of Involuntary Events” below in this Note for further discussion of receivables and advance payments from insurers relating to property damage and business interruption claims.

Other assets as of each of February 28, 2023 and August 31, 2022 also included approximately $7 million in connection with cash deposited into a client trust account in the second quarter of fiscal 2021 to fund the remediation of a site, a portion of which was previously leased to and operated by an indirect, wholly-owned subsidiary. The cash was deposited into the client trust account by other potentially liable parties in connection with settlement of a lawsuit relating to allocation of the remediation costs, including agreement by the Company’s subsidiary to perform certain remedial actions. See “Other Legacy Environmental Loss Contingencies” within “Contingencies – Environmental” in Note 5 - Commitments and Contingencies for further discussion of this matter.

The Company invested $6 million in the equity of a privately-held U.S. waste and recycling entity in fiscal 2017, and in May 2022, the Company invested $6$5 million in athe equity of an unrelated privately-held Canadian recycling technology entity. In August 2022, the privately-held U.S. waste and recycling entity merged with a publicly-traded U.S. entity. As a result of the merger, the Company's investment is held in equity units of a subsidiary of the publicly-traded entity, which equity units are not publicly traded but are exchangeable for shares of the publicly traded entity. The timing and magnitude of exchange is solely at the discretion of the publicly traded entity. The Company's influence over the operating and financial policies of ~~the~~each entity is not significant, and, thus, the ~~investment is~~investments are accounted for under the ~~cost method. Under the cost method, the investment is~~guidance for investments in equity securities. The equity investments do not have readily determinable fair values and, therefore, are carried at cost and adjusted ~~only~~ for ~~other-than-temporary~~ impairments ~~certain distributions~~ and ~~additional investments. The~~observable price changes. In the first quarter of fiscal 2023, the Company identified an impairment indicator for its investment ~~is presented as part~~in the U.S. waste and recycling entity and, based on its fair value measurement incorporating observable trading prices of the ~~Auto~~publicly-traded entity and ~~Metals Recycling ("AMR") reportable segment and~~unobservable inputs, recognized a $4 million impairment in other loss, net on the Unaudited Condensed Consolidated Statement of Operations. The Company has not recorded any impairments or upward or downward adjustments to the carrying value of its investment in the Canadian recycling technology entity since its acquisition. Both investments are reported within other assets in the Unaudited Condensed Consolidated Balance Sheets. ~~The Company does not hold any other cost-method investments. The~~As of February 28, 2023 and August 31, 2022, the aggregate carrying value of the ~~investment~~investments was $6$7 million and $11 million, respectively.

Accounting for Impacts of Involuntary Events

Assets destroyed or damaged as a result of involuntary events are written off or reduced in carrying value to their salvage value. When recovery of all or a portion of the amount of property damage loss or other covered expenses through insurance proceeds is demonstrated to be probable, a receivable is recorded and offsets the loss or expense up to the amount of the total loss or expense. No gain is recorded until all contingencies related to the insurance claim have been resolved.

On May 22, 2021, the Company experienced a fire at its steel mill in McMinnville, Oregon. Direct physical loss or damage to property from the incident was limited to the mill’s melt shop, with no bodily injuries and no physical loss or damage to other buildings or equipment. As a result of the fire, the rolling mill production ceased in early June 2021. In August 2021, the steel mill began ramping up operations following the substantial completion of replacement and repairs of property and equipment in the melt shop that had been lost or damaged by the fire. The Company experienced the loss of business income during the shutdown of the steel mill and the subsequent ramp-up phase, which was substantially completed during the second quarter of fiscal 2022. The Company filed insurance claims for the physical loss and damage experienced at the mill’s melt shop and business income losses resulting from the matter. As of August 31, 2021, prepaid expenses and other current assets included an initial $10 million insurance receivable recognized in fiscal 2021, primarily offsetting applicable losses including capital purchases of $10 million that had been incurred by the Company as of ~~November 30, 2017 and~~ August 31, ~~2017. As~~2021. In the first half of ~~November 30, 2017,~~fiscal 2022, the Company ~~had not identified any events or changes in circumstances that may have~~increased the amount of this insurance receivable to $25 million and recognized a ~~significant adverse effect on the fair value~~related $15 million insurance recovery gain, $3 million and $12 million of ~~the investment or indicators of other-than-temporary impairment.~~



~~Table of Contents~~	~~SCHNITZER STEEL INDUSTRIES, INC.~~
~~NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

~~Long-Lived Assets~~

~~Changes in circumstances may merit a change~~which was recognized in the ~~estimated useful lives or salvage values~~first and second quarters of ~~individual long-lived assets, which are accounted for prospectively in the period~~fiscal 2022, respectively, within cost of ~~change. For such assets, the useful life is shortened based on the Company's plans to dispose of or abandon the asset before the end of its original useful life~~goods sold and depreciation is accelerated beginning when that determination is made. During the three months ended November 30, 2017 and 2016, the Company recognized accelerated depreciation of $1 million and less than $1 million, respectively, due to shortening the useful lives of decommissioned machinery and equipment assets in the Cascade Steel and Scrap ("CSS") reportable segment, which are reportedincluded within ~~other asset impairment charges (recoveries), net in~~ the Unaudited Condensed Consolidated Statements of ~~Operations.~~

~~Also during~~Operations, reflecting recovery of applicable losses incurred as a result of the ~~three months ended November 30, 2017, CSS sold machinery and equipment assets impaired~~fire to date. In addition, during the first ~~quarter~~half of fiscal ~~2017~~2022, the Company received advance payments from insurers totaling approximately $30 million towards the Company’s claims, and ~~supplies inventory impaired during fiscal 2016, recognizing a gain~~not reflecting any final or full settlement of $1claims with the insurers, which amount reduced the $25 million ~~which is~~insurance receivable to zero with the remaining amount of advance payments reported within other ~~asset impairment charges (recoveries), net~~accrued liabilities in the Unaudited Condensed Consolidated ~~Statements~~Balance Sheets. The amount of ~~Operations.~~advance payments reported within other accrued liabilities was $4 million as of February 28, 2023 and $5 million as of August 31, 2022.

On December 8, 2021, the Company experienced a fire at its metals recycling facility in Everett, Massachusetts. Direct physical loss or damage to property from the incident was limited to the facility’s shredder building and equipment, with no bodily injuries and no physical loss or damage to property reported at other buildings or equipment. As a result of the fire, shredding operations ceased, while all non-shredding operations at the facility continued, including torching, shearing, separating, and sorting purchased non-shreddable recycled ferrous metals. On January 28, 2022, shredding operations at the facility began ramping up following the replacement and repairs to shredder equipment that had been damaged. Completion of the remainder of repair and replacement of property that experienced physical loss or damage, primarily buildings and improvements, will occur over a longer period and impacts on business income may continue. In addition, shredding operations temporarily ceased at the facility on June 18, 2022 and, following discussions with the Massachusetts Department of Environmental Protection and the Massachusetts Attorney General’s office, the Company installed a temporary emission capture system and controls that allowed for the resumption of shredding operations on November 11, 2022 and for continued operation during the repair and replacement of the shredder enclosure building. Non-shredding operations at the facility continued during this period. The Company filed insurance claims for the property that experienced physical loss or damage and anticipated business income losses resulting from the matter. In fiscal 2022, after the fire, the Company recognized an aggregate $17 million insurance receivable and related insurance recovery gain, $10 million of which was recorded in the second quarter of fiscal 2022, reported within prepaid expenses and other current assets and cost of goods sold, respectively, reflecting recovery of costs including impairment charges of $7 million related to the carrying value of plant and equipment assets lost in or damaged by the fire and initial capital purchases, non-capitalizable repair and replacement costs, and other applicable losses totaling $10 million that had been incurred by the Company as of August 31, 2022. Also, during fiscal 2022, the Company received advance payments from insurers totaling approximately $7 million towards the Company's claims, and not reflecting any final or full settlement of claims with the insurers, which amount reduced the insurance receivable to $10 million as of February 28, 2023 and August 31, 2022.

Table of Contents

SCHNITZER STEEL INDUSTRIES, INC.

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Investments in Joint Ventures

As of August 31, 2022, the Company had two50%-owned joint venture interests which were accounted for under the equity method of accounting. On November 7, 2022, the Company sold its ownership interest in one of the 50%-owned joint ventures for approximately $2 million. No gain or loss was recognized as a result of the sale.

Business Acquisitions

The Company recognizes the assets acquired, the liabilities assumed, and any noncontrolling interest in the acquiree at the acquisition date, measured at their fair values as of that date. Contingent purchase consideration is recorded at fair value at the date of acquisition. Any excess purchase price over the fair value of the net assets acquired is recorded as goodwill. Within one year from the date of acquisition, the Company may update the value allocated to the assets acquired and liabilities assumed and the resulting goodwill balance as a result of information received regarding the valuation of such assets and liabilities that was not available at the time of purchase. Measuring assets and liabilities at fair value requires the Company to determine the price that would be paid by a third-party market participant based on the highest and best use of the assets or interests acquired. Acquisition costs are expensed as incurred. See Note 3 - Business Acquisitions for further detail.

Concentration of Credit Risk

Financial instruments that potentially subject the Company to significant concentration of credit risk consist primarily of cash and cash equivalents and accounts ~~receivable, and notes and other contractual receivables from suppliers.~~receivable. The majority of cash and cash equivalents is maintained with major financial institutions. Balances with these and certain other institutions exceeded the Federal Deposit Insurance Corporation insured amount of $~~250,000~~250 thousand as of ~~November 30, 2017~~.February 28, 2023. Concentration of credit risk with respect to accounts receivable is limited because a large number of geographically diverse customers make up the Company’s customer base. The Company controls credit risk through credit approvals, credit limits, credit insurance, letters of credit or other collateral, cash deposits, and monitoring procedures. The Company is exposed to a residual credit risk with respect to open letters of credit by virtue of the possibility of the failure of a bank providing a letter of credit. ~~The Company had $44 million and $48 million of open letters of credit as of~~ ~~November 30, 2017~~ ~~and~~ ~~August 31, 2017, respectively.~~

~~Financial Instruments~~

The Company’s financial instruments include cash and cash equivalents, accounts receivable, accounts payable and debt. The Company uses the market approach to value its financial assets and liabilities, determined using available market information. The net carrying amounts of cash and cash equivalents, accounts receivable and accounts payable approximate fair value due to the short-term nature of these instruments. For long-term debt, which is primarily at variable interest rates, fair value is estimated using observable inputs (Level 2) and approximates its carrying value.

~~Fair Value Measurements~~

~~Fair value is measured using inputs from the~~ ~~three~~ ~~levels of the fair value hierarchy. Classification within the hierarchy is determined based on the lowest level input that is significant to the fair value measurement. The~~ ~~three~~ ~~levels are described as follows:~~

When developing the fair value measurements, the Company uses quoted market prices whenever available or seeks to maximize the use of observable inputs and minimize the use of unobservable inputs when quoted market prices are not available.

~~Restructuring Charges~~

Restructuring charges consist of severance, contract termination and other restructuring-related costs. A liability for severance costs is typically recognized when the plan of termination has been communicated to the affected employees and is measured at its fair value at the communication date. Contract termination costs consist primarily of costs that will continue to be incurred under operating leases for their remaining terms without economic benefit to the Company. A liability for contract termination costs is recognized at the date the Company ceases using the rights conveyed by the lease contract and is measured at its fair value, which is determined based on the remaining contractual lease rentals reduced by estimated sublease rentals. A liability for other restructuring-related costs is measured at its fair value in the period in which the liability is incurred. Restructuring charges that directly involve a discontinued operation are included in the results of discontinued operations in all periods presented. See Note 6 - Restructuring Charges and Other Exit-Related Activities for further detail.



~~Table of Contents~~	~~SCHNITZER STEEL INDUSTRIES, INC.~~
~~NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

~~Note 2 -~~

Recent Accounting Pronouncements

In May 2014, an accounting standard update was issued that clarifies the principles for recognizing revenue from contracts with customers. The update will supersede the existing standard for recognizing revenue. Additional updates have been issued since May 2014 amending aspects of the initial update and providing implementation guidance. The guidance is applicable to all contracts with customers regardless of industry-specific or transaction-specific fact patterns. Further, the guidance requires improved disclosures to help users of financial statements better understand the nature, amount, timing, and uncertainty of revenue that is recognized. The standard is effective for the Company beginning in fiscal 2019, including interim periods within that fiscal year. Upon becoming effective, an entity may adopt the standard either retrospectively to each prior reporting period presented, or retrospectively with the cumulative effect of initially applying the guidance recognized at the date of initial application.

The Company isdoes not expect that its adoption in the ~~process~~future of examining its current revenue streams and significant contracts with customers under the requirements of the new standard and, based on the progress of this examination to date, does not believe the standardany recently issued accounting pronouncements will have a material impact on its financial position, net income or cash flows. In particular, the Company is currently examining certain scrap metal purchase and sale arrangements to determine if it is the principal or the agent in the transaction under the new guidance. The outcome of this determination could result in a different classification of the cost of scrap metal purchased compared to the Company's treatment under the existing revenue standard. The Company is also analyzing the expanded disclosure requirements under the new standard, the method of adoption, and potential changes to its accounting policies, processes, systems and internal controls that may be required to support the new standard.

In January 2016, an accounting standard update was issued that amends certain aspects of the reporting model for financial instruments. Most prominent among the amendments is the requirement for equity investments, with certain exceptions including those accounted for under the equity method of accounting, to be measured at fair value with changes in fair value recognized in net income. An entity may choose to measure equity investments that do not have readily determinable fair values, such as certain cost method investments, at cost minus impairment, plus or minus changes resulting from observable price changes. The amendments also require a qualitative assessment to identify impairment of equity investments without readily determinable fair values. The standard is effective for the Company beginning in fiscal 2019, including interim periods within that fiscal year. The Company is evaluating the impact of adopting this standard on its consolidated financial ~~position, results of operations and cash flows.~~

In February 2016, an accounting standard was issued that will supersede the existing lease standard and requiring a lessee to recognize a lease liability and a lease asset on its balance sheet for all leases, including those classified as operating leases under the existing lease standard. The update also expands the required quantitative and qualitative disclosures surrounding leases. This standard is effective for the Company beginning in fiscal 2020, including interim periods within that fiscal year. This standard will be applied using a modified retrospective transition approach for leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements. The Company is in the process of identifying its population of leases within the scope of the new accounting standard and documenting salient lease terms to support the initial and subsequent measurement of lease liabilities and lease assets. The Company is evaluating the impact of adopting this standard on its financial position, results of operations, cash flows and disclosures.

In August 2016, an accounting standard update was issued that addresses how certain cash receipts and cash payments are presented and classified in the statement of cash flows. Among the cash flow matters addressed in the update are payments for costs related to debt prepayments or extinguishments, payments related to settlement of certain types of debt instruments, payments of contingent consideration made after a business combination, proceeds from insurance claims and corporate-owned life insurance policies, and distributions received from equity method investees, among others. The standard is effective for the Company beginning in fiscal 2019, including interim periods within that fiscal year. Early adoption is permitted, including adoption in an interim period. If an entity early adopts the amendments in an interim period, any adjustments should be reflected as of the beginning of the fiscal year that includes that interim period, and all of the amendments must be adopted together in the same period. The amendments will be applied using a retrospective transition method to each period presented, unless impracticable for specific cash flow matters, in which case the amendments would be applied prospectively as of the earliest date practicable. The Company is evaluating the impact of adopting this standard on its consolidated statement of cash flows.



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In October 2016, an accounting standard update was issued that amends the existing guidance on the accounting for the income tax effects of intra-entity transfers of assets other than inventory. Current accounting standards prohibit the recognition of current and deferred income taxes for an intra-entity asset transfer until the asset has been sold to an outside party. The amendments in the update require that entities recognize the income tax effects of an intra-entity transfer of an asset other than inventory when the transfer occurs. The amendments do not change accounting standards for the pre-tax effects of an intra-entity asset transfer under accounting standards applicable to consolidation, or for an intra-entity transfer of inventory. The standard is effective for the Company beginning in fiscal 2019, including interim periods within that fiscal year. Early adoption is permitted in the first interim period of a fiscal year. The amendments will be applied on a modified retrospective basis through a cumulative-effect adjustment directly to retained earnings as of the beginning of the period of adoption. The Company is evaluating the impact of adopting this standard on its consolidated financial position, results of operations and cash flows.

In March 2017, an accounting standard update was issued that modifies the presentation requirements for net periodic pension cost and net periodic postretirement benefit cost within an entity's income statement. The amendments in the update require that an employer report the service cost component in the same line item or items as other compensation costs arising from services rendered by the pertinent employees during the period. The amendments also require the other components of net periodic pension cost and net periodic postretirement benefit cost to be presented in the income statement separately from the service cost component and outside a subtotal of income from operations. Additionally, only the service cost component is eligible for capitalization, when applicable. The standard is effective for the Company beginning in fiscal 2019, including interim periods within that fiscal year. Early adoption is permitted beginning with the first quarter of fiscal 2018. Aspects of the update affecting income statement presentation must be applied retrospectively, while aspects affecting the capitalization of the service cost component in assets must be applied prospectively on and after the effective date. The Company is evaluating the impact of adopting this standard on its consolidated financial position, results of operations and cash flows.

Note 32 - Inventories

Inventories consisted of the following (in thousands):


	February 28, 2023		August 31, 2022
Processed and unprocessed scrap metal	$	135,975	$	166,368
Semi-finished goods		18,226		20,009
Finished goods		70,180		72,625
Supplies		62,352		56,187
Inventories	$	286,733	$	315,189

Note 3 - Business Acquisitions

Fiscal 2023 Business Acquisition

On November 18, 2022, the Company used cash on hand and borrowings under existing credit facilities to acquire the operating assets of ScrapSource, a recycling services company that provides solutions for industrial companies that generate scrap metal from their manufacturing process. The acquired business expands the Company's national recycling services operations, giving rise to expected benefits supporting the amount of acquired goodwill. The transaction qualified as a business combination for accounting purposes, which involves application of the acquisition method described in Accounting Standards Codification Topic 805, Business Combinations, and summarized in “Business Acquisitions” in Note 1 - Summary of Significant Accounting Policies. The total purchase consideration was approximately $25 million. As of the date of this report, measurement of the fair values of certain assets acquired and liabilities assumed is still preliminary and subject to change based on the completion of valuation procedures.

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The following table summarizes the provisional fair values of assets acquired and liabilities assumed by the Company as of the November 18, 2022 acquisition date (in thousands):


Operating lease right-of-use assets	$	466
Goodwill(1)		13,105
Other intangible assets		11,955
Other assets		9
Total assets acquired		25,535
Operating lease liability		466
Total liabilities assumed		466
Net assets acquired	$	25,069

(1)

All of the provisional amount of acquired goodwill is tax deductible.

November 30, 2017 August 31, 2017
Processed and unprocessed scrap metal $ 129,635
$ 88,441
Semi-finished goods (billets) 7,514
3,243
Finished goods 45,332
40,462
Supplies 33,884
34,796
Inventories $ 216,365
$ 166,942

The following table summarizes the provisional purchase price allocation to the identifiable intangible assets and their estimated useful lives as of the November 18, 2022 acquisition date (in thousands):

The results of operations for the acquired ScrapSource business beginning as of the November 18, 2022 acquisition date are included in the accompanying financial statements. For the three and six months ended February 28, 2023, the revenues and net income contributed by the acquired ScrapSource business and reported in the Unaudited Condensed Consolidated Statements of Operations were not material to the financial statements taken as a whole.

Fiscal 2022 Business Acquisitions

On October 1, 2021, the Company completed the acquisition of eight metals recycling facilities across Mississippi, Tennessee, and Kentucky from Columbus Recycling, a provider of recycled ferrous and nonferrous metal products and recycling services. The total purchase consideration of $117 million was allocated to the assets acquired and liabilities assumed based on their respective estimated fair values on the date of the acquisition. The $65 million excess of the total purchase consideration over the fair value of the identifiable net assets acquired was recorded as goodwill. The results of operations for the acquired Columbus Recycling business beginning as of the October 1, 2021 acquisition date are included in the accompanying financial statements.

On April 29, 2022, the Company completed the acquisition of two recycling facilities in the greater Atlanta, Georgia metropolitan area, including a metal shredding operation and recycled auto-parts center, from the previous owners of Encore Recycling. The total purchase consideration of $64 million was allocated to the assets acquired and liabilities assumed based on their respective estimated fair values on the date of the acquisition. The $21 million excess of the total purchase consideration over the fair value of the identifiable net assets acquired was recorded as goodwill. The results of operations for the acquired Encore Recycling business beginning as of the April 29, 2022 acquisition date are included in the accompanying financial statements.

Unaudited Pro Forma Information

The following unaudited pro forma information presents the effect on the consolidated financial results of the Company of the Columbus Recycling and Encore Recycling businesses acquired during fiscal 2022 as though the businesses had been acquired as of the beginning of fiscal 2021 (in thousands):


	Three Months Ended February 28,		Six Months Ended February 28,
	2022		2022
Revenues	$	802,000	$	1,642,500
Net income	$	41,500	$	94,000
Net income attributable to SSI shareholders	$	41,000	$	92,500

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There are no individually material, nonrecurring pro forma adjustments directly attributable to the business combinations included in these pro forma revenues and earnings.

For the three months ended February 28, 2022 and for the six months ended February 28, 2023 and 2022, the unaudited pro forma amounts of revenues and net income of the acquired ScrapSource business were not material to the financial statements taken as a whole and, therefore, are not included in the unaudited pro forma information presented above.

The information included in the unaudited pro forma amounts is derived from historical information obtained from the sellers of the businesses. These unaudited pro forma results are not necessarily indicative of what actual results would have been had these acquisitions occurred as of the beginning of fiscal 2021. In addition, the unaudited pro forma results are not intended to be a projection of future results and do not reflect any synergies that may be achieved from combining operations.

The Company evaluates goodwill for impairment annually on July 1 and upon the occurrence of certain triggering events or substantive changes in circumstances that indicate that the fair value of goodwill may be impaired. There were no triggering events identified during the ~~three months ended November 30, 2017~~first half of fiscal 2023 requiring an interim goodwill impairment ~~test.~~

The gross change in the carrying amount of goodwill for the ~~three~~six months ended ~~November 30, 2017~~February 28, 2023 was as follows (in thousands):

(1)

Additions to goodwill relate entirely to the ScrapSource business acquired on November 18, 2022, and are exclusive of measurement period adjustments. See Note 3 - Business Acquisitions.

AMR
August 31, 2017 $ 167,835
Foreign currency translation adjustment (632 )
November 30, 2017 $ 167,203
(2)

Measurement period adjustments relate to the acquired ScrapSource and Encore Recycling businesses.

~~Accumulated goodwill impairment charges were $471 million as of November 30, 2017 and August 31, 2017.~~

Note 5 - Commitments and Contingencies

Contingencies - Environmental

The Company evaluates the adequacy of its environmental liabilities on a quarterly basis. Adjustments to the liabilities are made when additional information becomes available that affects the estimated costs to study or remediate any environmental issues or expenditures are made for which liabilities were established.

Changes in the Company’s environmental liabilities ~~in aggregate~~ for the ~~three~~six months ended ~~November 30, 2017~~February 28, 2023 were as follows (in thousands):


Balance as of September 1, 2022		Liabilities Established (Released), Net		Payments and Other			Balance as of February 28, 2023		Short-Term		Long-Term
$	68,500	$	1,608	$	(6,633	)	$	63,475	$	8,495	$	54,980

Balance as of August 31, 2017 Liabilities Established (Released), Net Payments and Other Balance as of November 30, 2017 Short-Term Long-Term
$ 48,398
$ 7,021
$ (761 ) $ 54,658
$ 7,214
$ 47,444

~~Recycling Operations~~

As of ~~November 30, 2017~~February 28, 2023 and August 31, ~~2017,~~2022, the ~~Company's recycling operations~~Company had environmental liabilities of ~~$55~~$63 million and ~~$48~~$69 million, respectively, for the potential remediation of locations where it has conducted business or has environmental liabilities from historical or recent activities. ~~The~~These liabilities relate to the investigation and potential ~~future~~ remediation of waterways and soil ~~contamination,~~and groundwater contamination ~~storm water runoff issues~~ and ~~other~~may also involve natural resource ~~damages.~~damages, governmental fines and penalties, and claims by third parties for personal injury and property damage. Except for Portland Harbor and certain liabilities discussed under ~~Other~~“Other Legacy Environmental Loss ~~Contingencies immediately~~Contingencies” below, such liabilities were not individually material at any site.

In December 2000, the Company was notified by the United States Environmental Protection Agency (“EPA”) under the Comprehensive Environmental Response, Compensation and Liability Act (“CERCLA”) that it is one of the potentially responsible parties (“PRPs”) that own or operate or formerly owned or operated sites which are part of or adjacent to the Portland Harbor Superfund site ~~(the “Site”~~(“Portland Harbor”).

The precise nature and extent of ~~any~~ cleanup of ~~the Site,~~any specific areas within Portland Harbor, the parties to be involved, the timing of any specific remedial action and the allocation of the costs for any cleanup among responsible parties have not yet been determined.



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The process of site investigation, remedy selection, identification of additional PRPs, and allocation of costs has been underway for a number of years, but significant uncertainties remain. It is unclear to what extent the Company will be liable for environmental costs or ~~natural resource damage claims or third party~~third-party contribution or damage claims with respect to ~~the Site.~~

~~While the Company participated in certain preliminary Site study efforts, it was not party~~Portland Harbor.

From 2000 to ~~the consent order entered into by~~2017, the EPA ~~with certain other PRPs, referred to as the “Lower Willamette Group” (“LWG”), for~~oversaw a remedial investigation/feasibility study (“RI/FS”)~~. During fiscal 2007,~~ at Portland Harbor. The Company was not among the ~~Company and certain other~~ parties ~~agreed~~that performed the RI/FS, but it contributed to the costs through an interim settlement with the ~~LWG under which the Company made a cash contribution to the LWG RI/FS.~~performing parties. The ~~LWG has~~performing parties have indicated that ~~it had~~they incurred ~~over $115~~more than $155 million in investigation-related costs over an approximately 10 year period working on the RI/FS. Following submittal of draft RI and FS documents which the EPA largely rejected, the EPA took over the RI/FS process.

The Company has joined with approximately 100 other PRPs, including the LWG members, in a voluntary process to establish an allocation of costs at the Site, including the costs incurred by the LWG in the RI/FS process. The LWG members have also commenced federal court litigation, which has been stayed, seeking to bring additional parties into the allocation process.

In January 2008, the Portland Harbor Natural Resource Trustee Council (“Trustee Council”) invited the Company and other PRPs to participate in funding and implementing the Natural Resource Injury Assessment for the Site. Following meetings among the Trustee Council and the PRPs, funding and participation agreements were negotiated under which the participating PRPs, including the Company, agreed to fund the first phase of the three-phase natural resource damage assessment. Phase 1, which included the development of the Natural Resource Damage Assessment Plan ("AP") and implementation of several early studies, was substantially completed in 2010. The Company recently joined with other participating PRPs in agreeing to fund Phase 2 of the natural resource damage assessment, which includes the implementation of the AP to develop information sufficient to facilitate early settlements between the Trustee Council and Phase 2 participants and the identification of restoration projects to be funded by the settlements. Phase 3, which has not yet commenced, will involve the full implementation of the AP and the final injury and damage determination. The Company has not yet commenced discussions with the Trustee Council regarding early settlements under Phase 2, and therefore it is uncertain whether it will enter into an early settlement for natural resource damages or what costs it may incur in any such early settlement.

On January 30, 2017, one of the Trustees, the Confederated Tribes and Bands of the Yakama Nation, which withdrew from the council in 2009, filed a suit against approximately 30 parties, including the Company, seeking reimbursement of certain past and future response costs in connection with remedial action at the Site and recovery of assessment costs related to natural resources damages from releases at and from the Site to the Multnomah Channel and the Lower Columbia River. The Company intends to defend against such claims and does not have sufficient information to determine the likelihood of a loss in this matter or to estimate the amount of damages being sought or the amount of such damages that ~~could be allocated to the Company.~~

Estimates of the cost of remedial action for the cleanup of the in-river portion of the Site have varied widely in various drafts of the FS and in the EPA’s final FS issued in June 2016 from approximately $170 million to over $2.5 billion (net present value), depending on the remedial alternative and a number of other factors. In comments submitted to the EPA, the Company and certain other stakeholders identified a number of serious concerns regarding the EPA's risk and remedial alternatives assessments, cost estimates, scheduling assumptions and conclusions regarding the feasibility and effectiveness of remediation technologies.

effort.

In January 2017, the EPA issued a Record of Decision (“ROD”) that identified the selected remedy for ~~the Site. The selected remedy is a modified version of one of the alternative remedies evaluated in the EPA’s FS that was expanded to include additional work at a greater cost.~~Portland Harbor. The EPA has estimated the total cost of the selected remedy at ~~$1.7~~$1.7 billion with a net present value cost of ~~$1.05~~$1.05 billion (at a 7%7% discount rate) and an estimated construction period of 13 years following completion of the remedial designs. In the ROD, the EPA stated that the cost estimate is an order-of-magnitude engineering estimate that is expected to be within ~~+50%~~+50% to ~~-30%~~-30% of the actual project cost and that changes in the cost elements are likely to occur as a result of new information and data collected during the engineering design. The Company has identified a number of concerns regarding the remedy described in the ROD, which is based on data that is more than ~~a decade~~15 years old, and the ~~EPA's~~EPA’s estimates for the costs and time required to implement the selected remedy. ~~Because of ongoing questions regarding cost effectiveness, technical feasibility, and the use of stale data, it is uncertain whether~~Moreover, the ROD ~~will be implemented as issued.~~provided only site-wide cost estimates and did not provide sufficient detail to estimate costs for specific sediment management areas within Portland Harbor. In addition, the ROD did not determine or allocate the responsibility for remediation costs among the PRPs.

In the ROD, the EPA acknowledged that much of the data ~~used in preparing the ROD~~ was more than a decade old at that time and would need to be updated with a new round of “baseline” sampling to be conducted prior to the remedial design phase. Accordingly, the ROD provided for additional pre-remedial design investigative work and baseline sampling to be conducted in order to provide a baseline of current conditions and delineate particular remedial actions for specific areas within the Site. This additional sampling needs to occur prior to proceeding with the next phase in the process which is the remedial design. The remedial design phase is an engineering phase during which additional technical information and data ~~will be~~are collected, identified, and incorporated into



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technical drawings and specifications developed for the subsequent remedial action. ~~Moreover, the ROD provided only Site-wide cost estimates and did not provide sufficient detail to estimate costs for specific sediment management areas within the Site.~~ Following issuance of the ROD, the EPA proposed that the PRPs, or a subgroup of PRPs, perform the additional investigative work ~~identified~~ in ~~the ROD under a new consent order.~~

advance of remedial design.

In December 2017, the Company and three other PRPs entered into ~~a new~~an Administrative Settlement Agreement and Order on Consent with the EPA to perform such pre-remedial design investigation and baseline sampling over a two-year period. The report analyzing the results concluded that Portland Harbor conditions have improved substantially since the data forming the basis of the ROD was collected. The EPA found with a few limited corrections that the new baseline data is of suitable quality and stated that such data will be used, in addition to existing and forthcoming design-level data, to inform implementation of the ROD. However, the EPA did not agree that the data or the analysis warranted a change to the remedy at this time and reaffirmed its commitment to proceed with remedial design. The Company ~~estimates~~and other PRPs disagree with the EPA’s position on use of the more recent data and will continue to pursue limited, but critical, changes to the selected remedy for Portland Harbor during the remedial design phase.

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The EPA encouraged PRPs to step forward (individually or in groups) to enter into consent agreements to perform remedial design in various project areas covering Portland Harbor. While certain PRPs executed consent agreements for remedial design work, because of the EPA’s refusal to date to modify the remedy to reflect the most current data on Portland Harbor conditions and because of concerns with the terms of the consent agreement, the Company elected not to enter into a consent agreement. In April 2020, the EPA issued a unilateral administrative order (“UAO”) to the Company and MMGL, LLC (“MMGL”), an unaffiliated company, for the remedial design work in a portion of Portland Harbor designated as the River Mile 3.5 East Project Area. As required by the UAO, the Company notified the EPA of its intent to comply while reserving all of its sufficient cause defenses. Failure to comply with a UAO, without sufficient cause, could subject the Company to significant penalties or treble damages. Pursuant to the optimized remedial design timeline set forth in the UAO, the EPA’s expected schedule for completion of the remedial design work was four years. At the time it issued the UAO in April 2020, the EPA estimated the cost of the work at approximately $4 million. The Company has agreed with the other respondent to the UAO, MMGL, that ~~its share~~the Company will lead the performance and be responsible for a portion of the costs of ~~performing~~the work for remedial design under the UAO and also entered into an agreement with another PRP pursuant to which such ~~work will be approximately $2~~other PRP has agreed to fund a portion of the costs of such work. These agreements are not an allocation of liability or claims associated with Portland Harbor between the respondents or with respect to any third party. As of each of February 28, 2023 and August 31, 2022, the Company had $3 million in environmental reserves related to this matter. The Company has insurance policies and Qualified Settlement Funds (“QSFs”) pursuant to which the Company is being reimbursed for the costs it ~~recorded to environmental liabilities~~has incurred for remedial design. See further discussion of the QSFs below in this Note. As of both February 28, 2023 and ~~selling, general~~August 31, 2022, the Company had insurance and ~~administrative expense~~other receivables in the ~~consolidated financial statements~~same amount as the environmental reserves for such remedial design work under the UAO. See “Other Assets” in Note 1 - Summary of Significant Accounting Policies for further discussion of insurance and other related receivables. The Company also expects to pursue in the ~~first quarter~~future allocation or contribution from other PRPs for a portion of ~~fiscal 2018. The Company believes~~such remedial design costs. In February 2021, the EPA announced that ~~such costs will be fully covered by existing insurance coverage and, thus, has also recorded an insurance receivable for $2 million~~100 percent of Portland Harbor’s areas requiring active cleanup are in the ~~first quarter~~remedial design phase of ~~fiscal 2018, resulting in no net impact to~~ the ~~Company's consolidated results of operations.~~

process.

Except for certain early action projects in which the Company is not involved, remediation activities at Portland Harbor are not expected to commence for a number of years. Moreover, those activities are expected to be sequenced, and the order and timing of such sequencing has not been determined. In addition, as ~~discussed~~noted above, ~~responsibility for implementing and funding~~ the ~~remedy will be determined~~ROD does not determine the allocation of costs among PRPs.

The Company has joined with approximately 100 other PRPs, including the RI/FS performing parties, in a ~~separate~~voluntary process to establish an allocation ~~process.~~of costs at Portland Harbor, including the costs incurred in the RI/FS, ongoing remedial design costs, and future remedial action costs. The Company ~~does not expect~~expects the next major stage of the allocation process to proceed ~~until after~~in parallel with the ~~additional pre-remedial~~remedial design ~~data~~process.

In addition to the remedial action process overseen by the EPA, the Portland Harbor Natural Resource Trustee Council (“Trustee Council”) is ~~collected.~~

assessing natural resource damages at Portland Harbor. In 2008, the Trustee Council invited the Company and other PRPs to participate in funding and implementing the Natural Resource Injury Assessment for Portland Harbor. The Company and other participating PRPs ultimately agreed to fund the first two phases of the three-phase assessment, which included the development of the Natural Resource Damage Assessment Plan (“AP”) and implementation of the AP to develop information sufficient to facilitate early settlements between the Trustee Council and Phase 2 participants and the identification of restoration projects to be funded by the settlements. In late May 2018, the Trustee Council published notice of its intent to proceed with Phase 3, which will involve the full implementation of the AP and the final injury and damage determination. The Company is proceeding with the process established by the Trustee Council regarding early settlements under Phase 2. The Company has established an environmental reserve of approximately $2.3 million for this alleged natural resource damages liability as it continues to work with the Trustee Council to finalize an early settlement. As of each of February 28, 2023 and August 31, 2022, the Company had a receivable in the same amount as the environmental reserve. See “Other Assets” in Note 1 - Summary of Significant Accounting Policies for further discussion of insurance and other related receivables.

On January 30, 2017, one of the Trustees, the Confederated Tribes and Bands of the Yakama Nation, which withdrew from the council in 2009, filed a suit against approximately 30 parties, including the Company, seeking reimbursement of certain past and future response costs in connection with remedial action at Portland Harbor and recovery of assessment costs related to natural resources damages from releases at and from Portland Harbor to the Multnomah Channel and the Lower Columbia River. The parties filed various motions to dismiss or stay this suit, and in August 2019, the court issued an order denying the motions to dismiss and staying the action. The Company intends to defend against the claims in this suit and does not have sufficient information to determine the likelihood of a loss in this matter or to estimate the amount of damages being sought or the amount of such damages that could be allocated to the Company.

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The Company’s environmental liabilities as of February 28, 2023 and August 31, 2022included $5 million and $6 million, respectively, relating to the Portland Harbor matters described above.

Because the final remedial actions have not yet been designed and there has not been a determination of the ~~specific remediation actions that will be required,~~allocation among the ~~amount of natural resource damages or the allocation~~PRPs of costs of the investigations ~~and any remedy and natural resource damages among the PRPs,~~or remedial action costs, the Company believes it is not possible to reasonably estimate the amount or range of costs which it is likely to or which it is reasonably possible that it will incur in connection with ~~the Site,~~Portland Harbor, although such costs could be material to the Company’s financial position, results of operations, cash flows, and liquidity. Among the facts ~~currently~~ being ~~developed~~evaluated are detailed information on the history of ownership of and the nature of the uses of and activities and operations performed on each property within ~~the Site,~~Portland Harbor, which are factors that will play a substantial role in determining the allocation of investigation and remedy costs among the PRPs.

The Company has insurance policies that it believes will provide reimbursement for costs it incurs for defense, ~~(including the pre-remedial design investigative activities),~~ remediation, and mitigation for or settlement of natural resource damages claims in connection with ~~the Site,~~Portland Harbor, although there isare no ~~assurance~~assurances that those policies will cover all of the costs which the Company may incur. AsMost of ~~November 30, 2017,~~these policies jointly insure the ~~Company's total liability for its estimated share~~Company and MMGL, as the successor to a former subsidiary of the Company. The Company and MMGL have negotiated the settlement with certain insurers of claims against them related to Portland Harbor, continue to seek settlements with other insurers, and formed two QSFs which became operative in fiscal 2020 and the second quarter of fiscal 2023, respectively, to hold such settlement amounts until funds are needed to pay or reimburse costs incurred by the Company and MMGL in connection with Portland Harbor. These insurance policies and the funds in the QSFs may not cover all of the costs which the Company may incur. Each QSF is an unconsolidated variable interest entity (“VIE”) with no primary beneficiary. Two managers unrelated to each other, one appointed by the Company and one appointed by MMGL, share equally the power to direct the activities of each VIE that most significantly impact its economic performance. The Company’s appointee to co-manage each VIE is an executive officer of the ~~investigation was $3 million.~~

Company. Neither MMGL nor its appointee to co-manage each VIE is a related party of the Company for the purpose of the primary beneficiary assessment or otherwise.

The Oregon Department of Environmental Quality is separately providing oversight of ~~voluntary~~ investigations and source control activities by the Company ~~involving the Company’s~~at various sites adjacent to ~~the~~ Portland Harbor ~~which~~that are focused on controlling any current “uplands” releases of contaminants into the Willamette River. The Company has accrued liabilities for source control and related work at two sites, reflecting estimated costs of primarily investigation and design, which costs have not been material in the aggregate to date. No liabilities have been established in connection with ~~these~~ investigations for any other sites because the extent of contamination, ~~(if any)~~required source control work, and the Company’s responsibility for the contamination ~~(if any)~~and source control work, in each case if any, have not yet been determined.

The Company believes that, pursuant to its insurance policies, it will be reimbursed for the costs it incurs for required source control evaluation and remediation work; however, the Company’s insurance policies may not cover all of the costs which the Company incurs. As of both February 28, 2023 and August 31, 2022, the Company had an insurance receivable in the same amount as the environmental reserve for such source control work.

Other Legacy Environmental Loss Contingencies

The Company’s environmental loss contingencies as of ~~November 30, 2017~~February 28, 2023 and August 31, ~~2017,~~2022, other than Portland Harbor, include actual or possible investigation and ~~cleanup~~remediation costs from historical contamination at sites currently or formerly owned or formerly operated by the Company or at other sites where the Company may have responsibility for such costs due to past disposal or other activities ("(“legacy environmental loss ~~contingencies"~~contingencies”). These legacy environmental loss contingencies relate to the potential remediation of waterways and soil and groundwater contamination and may also involve natural resource damages, governmental fines and penalties, and claims by third parties for personal injury and property damage. The Company has been notified that it is or may be a potentially responsible party at certain of these sites, and investigation and ~~cleanup~~remediation activities are ongoing or may be required in the future. The Company recognizes a liability for such matters when the loss is probable and can be reasonably estimated. ~~Where~~When investigation, allocation, and ~~cleanup~~remediation activities are ongoing or where the Company has not yet been identified as having responsibility or the contamination has not yet been identified, it is reasonably possible that the Company may need to recognize additional liabilities in connection with such sites but the Company cannot currently reasonably estimate the possible loss or range of loss absent additional information or developments. Such additional liabilities, individually or in the aggregate, may have a material adverse effect on the ~~Company's~~Company’s results of operations, financial condition, or cash flows.

~~During the first quarter~~

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In fiscal 2018, the Company accrued $4$4 million ~~in expense at its Corporate division~~ for the estimated costs related to remediation of shredder residue disposed of in or around the 1970s at third-party sites located near each other. Investigation activities have been conducted under oversight of the applicable state regulatory agency. As of each of February 28, 2023 and August 31, 2022, the Company had $4 million accrued for this matter. It is reasonably possible that the Company may recognize additional liabilities in connection with this matter at the time such losses are probable and can be reasonably estimated. The Company ~~estimates~~previously estimated a range of reasonably possible losses related to this matter in excess of current accruals at between zero and ~~$28~~$28 million based on a range of remedial alternatives and subject to development and approval by regulators of a specific remedy implementation ~~plan.~~plans. However, subsequent to the development of those remedial alternatives, the Company performed additional investigative activities under new state requirements that are likely to impact the required remedial actions and associated cost estimates, but the scope of such impacts and the amount or the range of the additional associated costs are not reasonably estimable at this time and are subject to further investigation, analysis, and discussion by the Company and regulators. The Company is investigating whether a portion or all of the current and future losses related to this matter, if incurred, are covered by existing insurance coverage or may be offset by contributions from other responsible parties.



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~~Steel Manufacturing Operations~~

~~The Company's steel manufacturing operations had no environmental liabilities~~

In addition, the Company’s loss contingencies as of ~~November 30, 2017~~February 28, 2023 and August 31, ~~2017.~~

~~The steel mill's electric arc furnace generates dust (“EAF dust”) that is classified as hazardous waste~~2022 included $4 million and $8 million, respectively, for the estimated costs related to environmental matters in connection with a closed facility owned and previously operated by an indirect, wholly-owned subsidiary, including monitoring and remediation of soil and groundwater conditions and funding for wellhead treatment facilities. In the first quarter of fiscal 2023, the Company accrued an incremental $1 million for certain soil remediation activities based on additional information related to estimated costs to complete. Investigation and remediation activities have been conducted under the oversight of the applicable state regulatory agency and are on-going, and the Company’s subsidiary has also been working with state and local officials with respect to the protection of public and private water supplies. As part of its activities relating to the protection of public water supplies, the Company’s subsidiary agreed to reimburse the municipality for certain studies and plans and to provide funding for the construction and operation by the ~~EPA because~~municipality of ~~its zinc and lead content. As a result,~~wellhead treatment facilities. It is reasonably possible that the Company ~~captures~~may recognize additional liabilities in connection with this matter at the ~~EAF dust~~time such additional losses are probable and ~~ships it in specialized rail cars to firms that apply treatments that allow~~can be reasonably estimated. However, the Company cannot reasonably estimate at this time the possible additional loss or range of possible additional losses associated with this matter pending the on-going implementation of the approved remediation plans for soil and groundwater conditions and completion and operation of the wellhead treatment facilities.

In addition, the Company’s loss contingencies as of each of February 28, 2023 and August 31, 2022 included $7 million for the ~~ultimate disposal~~estimated costs related to remediation of a site a portion of which was previously leased to and operated by an indirect, wholly-owned subsidiary. In connection with settlement of a lawsuit relating to allocation of the ~~EAF dust.~~

~~The Company's steel mill has an operating permit issued under Title V~~remediation costs, the Company’s subsidiary agreed to perform the remedial action related to metals contamination on the site estimated to cost approximately $7.9 million, and another potentially liable party agreed to perform the remedial action related to creosote contamination at the site. As part of the ~~Clean Air Act Amendments~~settlement, other potentially liable parties agreed to make payments totaling approximately $7.6 million to fund the remediation of ~~1990, which governs certain air quality standards. The permit is based on an annual production capacity of 950 thousand tons. The permit~~the metals contamination at the site in exchange for a release and indemnity. This amount was ~~first issued in 1998 and has since been renewed through February 1, 2018. The permit renewal process occurs every five years and is underway~~fully funded into a client trust account for the ~~next renewal period.~~

Company’s subsidiary in December 2020. See “Other Assets” in Note 1 - Summary of Significant Accounting Policies for further discussion of this client trust account. It is reasonably possible that the Company may recognize additional liabilities in connection with this matter at the time such additional losses are probable and can be reasonably estimated. However, the Company cannot reasonably estimate at this time the possible additional loss or range of possible additional losses associated with this matter pending completion, approval, and implementation of the remediation action plan.

Summary - Environmental Contingencies

~~Other~~

With respect to environmental contingencies other than the Portland Harbor Superfund site and ~~legacy environmental loss contingencies,~~the Other Legacy Environmental Loss Contingencies, which are discussed separately above, management currently believes that adequate provision has been made for the potential impact of ~~these issues and that the ultimate outcomes will not have a material adverse effect on the Company's consolidated financial statements as a whole.~~its environmental contingencies. Historically, the amounts the Company has ultimately paid for such remediation activities have not been material in any given ~~period.~~

period, but there can be no assurance that such amounts paid will not be material in the future.

Contingencies -– Other

~~The~~

In addition to legal proceedings relating to the contingencies described above, the Company is a party to various legal proceedings arising in the normal course of business. The Company recognizes a liability for such matters when the loss is probable and can be reasonably estimated. Legal proceedings include those arising from accidents involving Company-owned vehicles, including Company tractor trailers. In some instances, such accidents and the related litigation involve accidents that have resulted in third party fatalities. It is reasonably possible that the Company may recognize additional losses in connection with such lawsuits at the time such losses are probable and can be reasonably estimated. Such losses may be material to the Company's consolidated financial statements. At this time, the amount of such additional reasonably possible losses cannot be reasonably estimated. To the extent that circumstances change and the Company determines that a loss is reasonably possible, can be reasonably estimated, and is material, the Company would then disclose an estimate of the possible loss or range of loss. The Company believes that such losses, if incurred, would be substantially covered by existing insurance coverage. The Company does not anticipate that the ~~resolution of~~liabilities arising from such legal proceedings ~~arising~~ in the normal course of business, after taking into consideration expected insurance recoveries, will have a material adverse effect on its results of operations, financial condition, or cash flows.

Note 6 ~~- Restructuring Charges and Other Exit-Related Activities~~

The Company incurred restructuring charges of less than $1 million during the three months ended November 30, 2017 and 2016. These charges primarily relate to initiatives announced in the second quarter of fiscal 2015 and expanded in subsequent periods, which were designed to reduce operating expenses and improve profitability and to achieve further integration and synergistic cost efficiencies in the Company's operating platform. Charges related to these initiatives were substantially complete by the end of fiscal 2017. However, the Company incurred and may continue to incur additional restructuring charges primarily as a result of remeasuring lease contract termination liabilities to reflect changes in contractual lease rentals and estimated sublease rentals.

In addition to the restructuring charges recorded related to these initiatives, the Company incurred charges associated with other exit-related activities of less than $1 million during the three months ended November 30, 2016, consisting of asset impairments and accelerated depreciation of assets in connection with site closures and idled equipment.

~~Note 7~~ ~~- Changes in Equity~~

~~Changes in equity were comprised of the following (in thousands):~~

Three Months Ended November 30, 2017 Three Months Ended November 30, 2016

SSI Shareholders’
Equity

Noncontrolling
Interests

Total
Equity

SSI Shareholders’
Equity

Noncontrolling
Interests

Total
Equity
Balance - September 1 (Beginning of period) $ 533,586
$ 3,907
$ 537,493
$ 497,721
$ 3,711
$ 501,432
Net income (loss) 18,364
857
19,221
(1,326 ) 618
(708 )
Other comprehensive loss, net of tax (1,627 ) —
(1,627 ) (1,099 ) —
(1,099 )
Distributions to noncontrolling interests —
(331 ) (331 ) —
(522 ) (522 )
Restricted stock withheld for taxes (2,851 ) —
(2,851 ) (3,301 ) —
(3,301 )
Share-based compensation 5,004
—
5,004
3,408
—
3,408
Dividends (5,292 ) —
(5,292 ) (5,143 ) —
(5,143 )
Balance - November 30
(End of period)
$ 547,184
$ 4,433
$ 551,617
$ 490,260
$ 3,807
$ 494,067



~~Table of Contents~~	~~SCHNITZER STEEL INDUSTRIES, INC.~~
~~NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

~~Note 8~~ - Accumulated Other Comprehensive Loss

Changes in accumulated other comprehensive loss, net of tax, ~~were comprised of~~comprise the following (in thousands):


	Three Months Ended February 28, 2023									Three Months Ended February 28, 2022
	Foreign Currency Translation Adjustments			Pension Obligations, Net			Total			Foreign Currency Translation Adjustments			Pension Obligations, Net			Total
Balances - December 1 (Beginning of period)	$	(36,925	)	$	(2,377	)	$	(39,302	)	$	(32,724	)	$	(2,555	)	$	(35,279	)
Other comprehensive (loss) income before reclassifications		(1,361	)		—			(1,361	)		722			—			722
Income tax benefit (expense)		—			—			—			—			—			—
Other comprehensive (loss) income before reclassifications, net of tax		(1,361	)		—			(1,361	)		722			—			722
Amounts reclassified from accumulated other comprehensive loss		—			75			75			—			154			154
Income tax (benefit)		—			(17	)		(17	)		—			(35	)		(35	)
Amounts reclassified from accumulated other comprehensive loss, net of tax		—			58			58			—			119			119
Net periodic other comprehensive (loss) income		(1,361	)		58			(1,303	)		722			119			841
Balances - February 28 (End of period)	$	(38,286	)	$	(2,319	)	$	(40,605	)	$	(32,002	)	$	(2,436	)	$	(34,438	)


	Six Months Ended February 28, 2023									Six Months Ended February 28, 2022
	Foreign Currency Translation Adjustments			Pension Obligations, Net			Total			Foreign Currency Translation Adjustments			Pension Obligations, Net			Total
Balances - September 1 (Beginning of period)	$	(34,679	)	$	(2,410	)	$	(37,089	)	$	(31,609	)	$	(2,945	)	$	(34,554	)
Other comprehensive (loss) income before reclassifications		(3,607	)		(34	)		(3,641	)		(393	)		451			58
Income tax benefit (expense)		—			8			8			—			(101	)		(101	)
Other comprehensive (loss) income before reclassifications, net of tax		(3,607	)		(26	)		(3,633	)		(393	)		350			(43	)
Amounts reclassified from accumulated other comprehensive loss		—			151			151			—			205			205
Income tax (benefit)		—			(34	)		(34	)		—			(46	)		(46	)
Amounts reclassified from accumulated other comprehensive loss, net of tax		—			117			117			—			159			159
Net periodic other comprehensive (loss) income		(3,607	)		91			(3,516	)		(393	)		509			116
Balances - February 28 (End of period)	$	(38,286	)	$	(2,319	)	$	(40,605	)	$	(32,002	)	$	(2,436	)	$	(34,438	)

Three Months Ended November 30, 2017 Three Months Ended November 30, 2016
Foreign Currency Translation Adjustments Pension Obligations, net Total Foreign Currency Translation Adjustments Pension Obligations, net Total
Balances - September 1
(Beginning of period)
$ (31,828 ) $ (3,465 ) $ (35,293 ) $ (34,539 ) $ (5,576 ) $ (40,115 )
Other comprehensive income (loss) before reclassifications (1,709 ) (185 ) (1,894 ) (1,034 ) 49
(985 )
Income tax expense —
227
227
—
(194 ) (194 )
Other comprehensive income (loss) before reclassifications, net of tax (1,709 ) 42
(1,667 ) (1,034 ) (145 ) (1,179 )
Amounts reclassified from accumulated other comprehensive loss —
63
63
—
125
125
Income tax benefit —
(23 ) (23 ) —
(45 ) (45 )
Amounts reclassified from accumulated other comprehensive loss, net of tax —
40
40
—
80
80
Net periodic other comprehensive income (loss) (1,709 ) 82
(1,627 ) (1,034 ) (65 ) (1,099 )
Balances - November 30
(End of period)
$ (33,537 ) $ (3,383 ) $ (36,920 ) $ (35,573 ) $ (5,641 ) $ (41,214 )

Reclassifications from accumulated other comprehensive loss to earnings, both individually and in the aggregate, were ~~immaterial~~not material to the impacted captions in the Unaudited Condensed Consolidated Statements of Operations ~~for~~in all periods presented.

Note 7 - Revenue

Disaggregation of Revenues

The table below illustrates the Company’s revenues disaggregated by major product and sales destination (in thousands):


	Three Months Ended February 28,				Six Months Ended February 28,
	2023		2022		2023		2022
Major product information:
Ferrous revenues	$	434,122	$	438,314	$	695,851	$	904,170
Nonferrous revenues		179,655		196,142		357,330		390,571
Steel revenues(1)		107,825		116,196		232,340		219,434
Retail and other revenues		34,351		32,546		69,162		67,141
Total revenues	$	755,953	$	783,198	$	1,354,683	$	1,581,316
Revenues based on sales destination:
Foreign	$	436,219	$	435,471	$	708,903	$	906,644
Domestic		319,734		347,727		645,780		674,672
Total revenues	$	755,953	$	783,198	$	1,354,683	$	1,581,316

(1)

Steel revenues include predominantly sales of finished steel products, in addition to sales of semi-finished goods (billets) and steel manufacturing scrap.

Receivables from Contracts with Customers

The revenue accounting standard defines a receivable as an entity’s right to consideration that is unconditional, meaning that only the passage of time is required before payment is due. As of February 28, 2023 and August 31, 2022, receivables from contracts with customers, net of an allowance for credit losses, totaled $238 million and $230 million, respectively, representing 99% and 97%, respectively, of total accounts receivable reported in the Unaudited Condensed Consolidated Balance Sheets at each reporting date.

Contract Liabilities

Contract consideration received from a customer prior to revenue recognition is recorded as a contract liability and is recognized as revenue when the Company satisfies the related performance obligation under the terms of the contract. The Company’s contract liabilities, which consist almost entirely of customer deposits for recycled metal and finished steel sales contracts, are reported within accounts payable in the Unaudited Condensed Consolidated Balance Sheets and totaled $9 million and $8 million as of February 28, 2023 and August 31, 2022, respectively. Unsatisfied performance obligations reflected in these contract liabilities relate to contracts with original expected durations of one year or less and, therefore, are not disclosed. The substantial majority of outstanding contract liabilities are reclassified to revenues within three months of the reporting date as a result of satisfying performance obligations.

Note 98 - Share-Based Compensation

In the first quarter of fiscal ~~2018,~~2023, as part of the annual awards under the ~~Company's~~Company’s Long-Term Incentive Plan, the Compensation Committee of the ~~Company's~~Company’s Board of Directors ~~("Compensation Committee")~~ granted ~~252,865~~213,080 restricted stock units ~~("RSUs"~~(“RSUs”) and ~~246,161~~211,046 performance share awards to the ~~Company's~~Company’s key employees and officers under the ~~Company's~~Company’s 1993 Amended and Restated Stock Incentive ~~Plan ("SIP").~~ Plan.

The RSUs have a five-year term and vest ~~20%~~20% per year commencing October 31, ~~2018.~~2023. The aggregate fair value of all of the RSUs granted was based on the market closing price of the underlying Class A common stock on the grant date and totaled $7$7 million. The compensation expense associated with the RSUs is recognized over the requisite service period of the awards, net of ~~forfeitures.~~

forfeitures, which for participants who were retirement eligible as of the grant date or who will become retirement eligible during the five-year term of the awards is the longer of two years or the period ending on the date retirement eligibility is achieved.

Table of Contents

SCHNITZER STEEL INDUSTRIES, INC.

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

The performance share awards ~~are comprised of~~comprise two separate and distinct awards with different vesting conditions.

~~The Compensation Committee~~ Awards vest if the threshold level under the specified metric is met at the end of the approximately three-year performance period. For awards granted ~~119,763~~in the first quarter of fiscal 2023, the performance ~~share awards based~~metrics are the Company’s recycled metal volume growth and its return on ~~a relative Total Shareholder Return ("TSR"~~capital employed (“ROCE”) ~~metric over a performance period spanning November 14, 2017 to August 31, 2020.~~. Award share payouts ~~range~~depend on the extent to which the performance goals have been achieved, which performance-based payout factors are adjusted by a total shareholder return (“TSR”) modifier based on the Company’s average TSR percentile rank relative to a designated peer group. The number of shares that a participant receives is equal to the number of performance shares granted multiplied by an initial payout factor based on recycled metal volume growth and ROCE, which ranges from a threshold of ~~50%~~50% to a maximum of ~~200%~~200%. The final payout factor is then determined by applying the TSR modifier to the initial payout factor within a certain range, with a maximum increase or decrease of 20%.

Half of the performance share awards granted by the Company during the first quarter of fiscal 2023 were based on the ~~relative ranking~~Company's recycled metal volume growth metric and half were based on its ROCE metric, in each case subject to a TSR modifier with performance measured over a three-year period consisting of the Company's TSR among a designated peer group of 16 companies. The TSR award stipulates certain limitations to the payout in the event the payout reaches a defined ceiling level or the Company's TSR is negative. The TSR awards contain a market conditionCompany’s 2023, 2024, and therefore, once the award recipients complete the requisite service period, the related compensation expense based on the grant-date fair value is not changed, regardless of whether the market condition has been satisfied. The estimated fair value of the TSR awards at the date of grant was $3 million. 2025 fiscal years. The Company estimated the fair value of performance share awards granted in the ~~TSR awards~~first quarter of fiscal 2023 using a Monte-Carlo simulation model utilizing several key assumptions, including ~~expected Company and peer company share price volatility, correlation coefficients between peers,~~ the ~~risk-free rate of return, the expected dividend yield and other award design features.~~

The remaining 126,398 performance share awards have a three-year performance period consisting of the Company’s 2018, 2019 and 2020 fiscal years. The performance targets are based on the Company's return on capital employed over the three-year performance period, with award payouts ranging from a threshold of 50% to a maximum of 200%. The fair value of the awards granted was based on the market closing price of the underlying Class A common stock on the grant date and totaled $3 million.



~~Table of Contents~~	~~SCHNITZER STEEL INDUSTRIES, INC.~~	Percentage
~~NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~ Expected share price volatility (SSI)			56.1	%
Expected share price volatility (Peer group)			60.5	%
Expected correlation to peer group companies			48.1	%
Risk-free rate of return			4.16	%

The ~~compensation expense associated with~~estimated aggregate fair value of these performance share awards ~~is recognized~~at the date of grant was $7 million. The Company accrues compensation cost for these performance share awards based on the probable outcome of achieving specified performance conditions, net of estimated forfeitures, over the requisite service period ~~net~~(or to the date a qualifying employment termination event entitles the recipient to a prorated award, if before the end of ~~forfeitures.~~the service period). The Company reassesses whether achievement of the performance conditions is probable at each reporting date. If it is probable that the actual performance results will exceed the stated target performance conditions, the Company accrues additional compensation cost for the additional performance shares to be awarded irrespective of the TSR modifier, the effects of which are incorporated in the grant-date fair value of the awards. If, upon reassessment, it is no longer probable that the actual performance results will exceed the stated target performance conditions, or that it is no longer probable that the target performance conditions will be achieved, the Company reverses any recognized compensation cost for shares no longer probable of being issued. If the performance conditions are not achieved at the end of the performance period, all related compensation cost previously recognized is reversed. Performance share awards will be paid in Class A common stock as soon as practicable after the end of the requisite service period and vesting date of October 31, ~~2020.~~2025.

In the second quarter of fiscal 2023, the Company granted deferred stock units (“DSUs”) to each of its non-employee directors under the Company’s 1993 Stock Incentive Plan, as amended. Each DSU gives the director the right to receive one share of Class A common stock at a future date. The grant reflected an aggregate of 21,438 DSUs that will vest in full on the day before the Company’s 2024 annual meeting of shareholders, subject to continued Board service. The total fair value of these awards at the grant date was $1 million.

Note 109 - Income Taxes

Effective Tax Rate

The ~~effective tax rate for the~~ Company’s ~~continuing operations for the three months ended November 30, 2017 was an expense of 23.6% compared to a benefit of 8.6% for the three months ended November 30, 2016.~~

~~A reconciliation of the difference between the federal statutory rate and the Company’s effective rate is as follows:~~

Three Months Ended November 30,
2017 2016
Federal statutory rate 35.0 % 35.0 %
State taxes, net of credits 0.1
2.1
Foreign income taxed at different rates (1.2 ) (3.4 )
Valuation allowance on deferred tax assets (6.8 ) (25.0 )
Unrecognized tax benefits 0.6
1.9
Non-deductible officers’ compensation 1.5
2.7
Research and development credits (0.5 ) (1.4 )
Section 199 deduction (1.9 ) —
Other non-deductible expenses —
1.3
Other (1.3 ) (0.2 )
Noncontrolling interests (1.9 ) (4.4 )
Effective tax rate⁽¹⁾
23.6 % 8.6 %

~~_____________________________~~

~~The~~ effective tax rate from continuing operations for the second quarter and first six months of fiscal 2023 was a benefiton pre-tax income of 14.5% and a benefit on pre-tax loss of 32.8%, respectively, compared to an expense on pre-tax income of 24.0% and 21.3%, respectively, for the comparable prior year periods. The Company’s effective tax rate from continuing operations for the second quarter of fiscal ~~2018 and 2017~~2023 was ~~lower~~significantly different than the U.S. federal statutory rate of ~~35%~~21% primarily due to the ~~lower~~Company’s financial performance and the effect of discrete items on intra-period allocation. For the second quarter of fiscal 2022, the Company's effective tax rate from continuing operations was higher than the U.S. federal statutory rate of 21% primarily due to the aggregate impact of state taxes and permanent differences from non-deductible expenses on the projected annual effective tax rate applied to the quarterly results.

Table of Contents

SCHNITZER STEEL INDUSTRIES, INC.

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Valuation Allowances

The ~~lower projected annual effective~~Company assesses the realizability of its deferred tax ~~rate is~~assets on a quarterly basis through an analysis of potential sources of future taxable income, including prior year taxable income available to absorb a carryback of tax losses, reversals of existing taxable temporary differences, tax planning strategies, and forecasts of taxable income. The Company considers all negative and positive evidence, including the ~~result~~weight of the ~~Company’s full~~evidence, to determine if valuation allowances against deferred tax assets are required. The Company continues to maintain valuation allowances against certain state and Canadian deferred tax assets. Canadian deferred tax assets against which the Company continues to maintain a valuation allowance ~~positions partially offset by increases in deferred tax liabilities from~~relate to indefinite-lived ~~assets in all jurisdictions.~~

assets.

The Company files federal and state income tax returns in the U.S. and foreign tax returns in Puerto Rico and Canada. For U.S. federal income tax returns, fiscal years ~~2013~~2014 to ~~2017~~2022 remain subject to examination under the statute of limitations. ~~The Company's U.S. federal income tax return for fiscal 2015 is currently under examination.~~

~~Subsequent Event~~

On December 22, 2017, the President of the United States signed and enacted into law H.R. 1, the Tax Cuts and Jobs Act (“TCJA”), which, except for certain provisions, is effective for tax years beginning on or after January 1, 2018. As a fiscal year taxpayer, the Company will not be subject to the majority of the tax law provisions until fiscal year 2019; however, there are certain significant items of impact that will be recognized in fiscal year 2018 resulting from the retroactive reduction in the statutory tax rate. Because a change in tax law is accounted for in the period of enactment, the effects (including retroactive effects) will be reflected in the second quarter of fiscal 2018.

The TCJA’s primary change is a reduction in the Federal statutory corporate tax rate from 35.0% to 21.0%, including a pro rata reduction from 35.0% to 25.7% for the Company in fiscal 2018. As a result, the Company expects to recognize a benefit in its tax provision as of the beginning of the second quarter of fiscal 2018 due to the revaluation of the Company's net deferred tax liability to reflect the lower statutory rate. The Company also expects to record a benefit in its tax provision for fiscal 2018 to account for the effect of the retroactive rate reduction on fiscal 2018 tax expense. The Company continues to assess the effects of the TCJA on its consolidated financial statements. Because of the ongoing assessment of the effects of the TCJA, the Company is not yet in a position to estimate the projected effective tax rate for fiscal 2018.



~~Table of Contents~~	~~SCHNITZER STEEL INDUSTRIES, INC.~~
~~NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

Note 1110 - Net Income (Loss) Per Share

The following table sets forth the information used to compute basic and diluted net income (loss) per share attributable to SSI shareholders (in thousands):


	Three Months Ended February 28,					Six Months Ended February 28,
	2023		2022			2023			2022
Income (loss) from continuing operations	$	4,048	$	38,136		$	(13,439	)	$	85,441
Net loss (income) attributable to noncontrolling interests		81		(550	)		(151	)		(1,627	)
Income (loss) from continuing operations attributable to SSI shareholders	$	4,129	$	37,586		$	(13,590	)	$	83,814
Income from discontinued operations, net of tax		224		29			155			—
Net income (loss) attributable to SSI shareholders	$	4,353	$	37,615		$	(13,435	)	$	83,814
Computation of shares:
Weighted average common shares outstanding, basic		28,081		28,231			27,912			28,195
Incremental common shares attributable to dilutive performance share awards, restricted stock units and deferred stock units		536		1,481			—			1,603
Weighted average common shares outstanding, diluted		28,617		29,712			27,912			29,798

Three Months Ended November 30,

2017 2016
Income (loss) from continuing operations $ 19,256
$ (655 )
Net income attributable to noncontrolling interests (857 ) (618 )
Income (loss) from continuing operations attributable to SSI 18,399
(1,273 )
Loss from discontinued operations, net of tax (35 ) (53 )
Net income (loss) attributable to SSI $ 18,364
$ (1,326 )
Computation of shares:
Weighted average common shares outstanding, basic 27,695
27,372
Incremental common shares attributable to dilutive performance share, RSU and DSU awards 967
—
Weighted average common shares outstanding, diluted 28,662
27,372

Common stock equivalent shares of ~~1,086,335~~56,520 and 796,877 were considered antidilutive and were excluded from the calculation of diluted net ~~loss~~income (loss) per share for the three and six months ended ~~November 30, 2016. No common stock equivalent shares were considered antidilutive~~February 28, 2023, respectively, compared to 311,736 and 199,786 for the three and six months ended ~~November 30, 2017.~~February 28, 2022, respectively.

Note 1211 - Related Party Transactions

The Company purchases recycled metal from one of its joint venture operations at prices that approximate fair market value. These purchases totaled $3$4 million and $5 million for the three months ended ~~November 30, 2017~~February 28, 2023 and ~~2016, respectively.~~

~~Note 13~~ ~~- Segment Information~~

The accounting standards for reporting information about operating segments define an operating segment as a component of an enterprise that engages in business activities from which it may earn revenues2022, respectively, and ~~incur expenses for which discrete financial information is available that is evaluated regularly by the chief operating decision maker in deciding how to allocate resources~~$8 million and ~~in assessing performance.~~

Prior to the fourth quarter of fiscal 2017, the Company's internal organizational and reporting structure supported two operating and reportable segments: the Auto and Metals Recycling ("AMR") business and the Steel Manufacturing Business ("SMB"). In the fourth quarter of fiscal 2017, in accordance with its plan announced in June 2017, the Company modified its internal organizational and reporting structure to combine its steel manufacturing operations, which had been reported as the SMB segment, with its Oregon metals recycling operations, which had been reported within the AMR segment, forming a new division named Cascade Steel and Scrap ("CSS"). This resulted in a realignment of how the Chief Executive Officer, who is considered the Company's chief operating decision maker, reviews performance and makes decisions on resource allocation. The Company began reporting under this new segment structure in the fourth quarter of fiscal 2017 as reflected in its Annual Report on Form 10-K$11 million for the ~~year~~six months ended ~~August 31, 2017. The segment data for the comparable periods presented herein has been recast to conform to the current period presentation for all activities~~February 28, 2023 and 2022, respectively.



~~Table of Contents~~	~~SCHNITZER STEEL INDUSTRIES, INC.~~
~~NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~



~~Table of Contents~~	~~SCHNITZER STEEL INDUSTRIES, INC.~~
~~NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~



~~Table of Contents~~	~~SCHNITZER STEEL INDUSTRIES, INC.~~

SCHNITZER STEEL INDUSTRIES, INC.

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

This section includes a discussion of our operations for the three and six months ended ~~November 30, 2017~~February 28, 2023 and ~~2016.~~2022. The following discussion and analysis ~~provides~~provide information which management believes is relevant to an assessment and understanding of our financial condition and results of ~~operations and financial condition.~~operations. The discussion should be read in conjunction with our Annual Report on Form 10-K for the year ended August 31, ~~2017~~2022, and the Unaudited Condensed Consolidated Financial Statements and the related Notes thereto included in Part I, Item 1 of this report.

Founded in 1906, Schnitzer Steel Industries, Inc. ~~("SSI"), an Oregon corporation,~~ is one of North ~~America's~~America’s largest recyclers of ferrous and nonferrous ~~scrap~~ metal, including end-of-life vehicles, and a manufacturer of finished steel products.

~~Our internal organizational~~ As a vertically integrated organization, we offer a range of products and ~~reporting structure supports two operating and reportable segments: the Auto and Metals Recycling ("AMR") business and the Cascade Steel and Scrap business ("CSS").~~

~~Prior~~services to ~~the fourth quarter of fiscal 2017,~~meet global demand through our internal organizational and reporting structure supported two operating and reportable segments: the Auto and Metals Recycling ("AMR") business and the Steel Manufacturing Business ("SMB"). In the fourth quarter of fiscal 2017, in accordance with our plan announced in June 2017, we modified our internal organizational and reporting structure to combine our steel manufacturing operations, which had been reported as our SMB segment, with our Oregonnetwork that includes 50 retail self-service auto parts stores, 54 metals recycling ~~operations, which had been reported within our AMR segment, forming a new division named Cascade Steel~~facilities, and ~~Scrap ("CSS"~~an electric arc furnace (“EAF”). The Oregon metals recycling operations include our shredding and export facilities in Portland, Oregon, and also include four metals recycling feeder yard operations located in Oregon and Southern Washington and one metals recycling joint venture ownership interest. The Oregon metals recycling operations source substantially all of the scrap raw material needs of our steel manufacturing operations. This change in organizational structure is intended to enhance our flexibility, generate internal synergies, and enable us to more effectively adjust to market changes across our recycling and steel manufacturing operations. mill.

We began reporting under this new segment structure in the fourth quarter of fiscal 2017 as reflected in our Annual Report on Form 10-K for the year ended August 31, 2017. The segment data for the comparable period presented herein has been recast to conform to the current period presentation for all activities of the reorganized segments. Recasting this historical information did not have an impact on the consolidated financial performance of SSI for any of the periods presented.

~~AMR sells and brokers~~sell recycled ferrous ~~recycled scrap metal (containing iron) to foreign and domestic steel producers~~ and nonferrous ~~recycled scrap~~ metal ~~(not containing iron) to~~in both foreign and domestic markets. ~~AMR procures scrap supply from salvaged~~We also sell a range of finished steel long products produced at our steel mill. We acquire, process, and recycle end-of-life (salvaged) vehicles, rail cars, home appliances, industrial machinery, manufacturing scrap, and construction and demolition scrap through ~~its 92 auto and metals recycling~~our facilities. Our largest source of autobodies is our own network of auto parts stores, which operate under the commercial brand-name Pick-n-Pull. AMR procures salvaged vehicles and sells serviceable used auto parts from these vehicles through 53retail self-service auto parts stores located across the United States (“U.S.”) and Western ~~Canada. The~~Canada, which operate under the commercial brand-name Pick-n-Pull, procure the significant majority of our salvaged vehicles and sell serviceable used auto parts from these vehicles. Upon acquiring a salvaged vehicle, we remove catalytic converters, aluminum wheels, and batteries for separate processing and sale prior to placing the vehicle in our retail lot. After retail customers have removed desired parts from a vehicle, we may remove remaining ~~portions of the vehicles, primarily autobodies and~~ major component parts containing ferrous and nonferrous ~~materials,~~metals, which are primarily sold to wholesalers. The remaining auto bodies are crushed and shipped to our ~~metal~~metals recycling facilities to be shredded or sold to ~~wholesalers~~third parties when ~~economically advantageous. AMR then processes~~geographically more economical. At our metals recycling facilities, we process mixed and large pieces of scrap metal into smaller pieces by crushing, torching, shearing, shredding, separating, and sorting, resulting in ~~scrap~~recycled ferrous, nonferrous, and mixed metal pieces of a size, density, and metal content required by customers to meet their production needs.

~~CSS operates~~ Each of our shredding, nonferrous processing, and separation systems is designed to optimize the recovery of valuable recycled metal. We also purchase nonferrous metal directly from industrial vendors and other suppliers and aggregate and prepare this metal for shipment to customers by ship, rail, or truck. In addition to the sale of recycled metal processed at our facilities, we also provide a variety of recycling and related services including brokering the sale of ferrous and nonferrous scrap metal generated by industrial entities and demolition projects to customers in the domestic market, among other services. Our steel ~~mini-mill in McMinnville, Oregon that~~mill produces ~~a range~~semi-finished goods (billets) and finished goods, consisting of ~~finished steel long products such as reinforcing bar (rebar) and~~rebar, coiled rebar, wire rod, merchant bar, and ~~sells to industrial customers primarily in North America. The primary feedstock for the manufacture of its~~other specialty products, isusing recycled ~~scrap metal. CSS's steel mill obtains substantially all of its scrap~~ferrous metal ~~raw material requirements~~sourced internally from ~~its integrated metals~~our recycling and joint venture ~~operations. CSS's metals recycling~~ operations are comprised of a collection, shredding and export operation in Portland, Oregon, four feeder yard operations located in Oregon and Southern Washington, and one metals recycling joint venture ownership interest. Additionally, CSS purchases small volumes of ferrous scrap metal from AMR and sells ferrous and nonferrous recycled scrap metal into the export market.

~~We use operating income to measure our segment performance. Restructuring charges~~ and other ~~exit-related activities~~raw materials.

We operate seven deepwater port locations, six of which are not allocated to segment operating income because we do not include this information in our measurement of the segments’ performance. Certain expenses related to shared services that support operational activities and transactions are allocated from Corporate to the segments. Unallocated Corporate expense consists primarily of expense for management and certain administrative services that benefit both segments. The results of discontinued operations are excluded from segment operating results and are presented separately, net of tax, from the results of ongoing operations for all periods presented.

For further information regarding our reportable segments, see Note 13 - Segment Information in the Notes to the Unaudited Condensed Consolidated Financial Statements in Part I, Item 1 of this report.



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equipped with large-scale shredders. Our results of operations depend in large part on the demand and prices for recycled metal in foreign and domestic markets and on the supply of raw materials, including end-of-life vehicles, available to be processed at our facilities. We respond to changes in selling prices for processed metal by seeking to adjust purchase prices for unprocessed scrap metal in order to manage the impact on our operating income. We believe we generally benefit from sustained periods of rising recycled scrap metal selling prices, which allow us to better maintain or increase both operating income and unprocessed scrap metal flow into our facilities. When recycled scrap metal selling prices decline for a sustained period, our operating margins typically compress.

~~Our deep water~~deepwater port facilities on both the East and West Coasts of the ~~United States~~U.S. (in Everett, Massachusetts; Providence, Rhode Island; Oakland, California; Tacoma, Washington; and Portland, Oregon) and access to public ~~deep water~~deepwater port facilities (in Kapolei, ~~Hawaii;~~Hawaii and Salinas, Puerto Rico) allow us to ~~efficiently meet the global demand for~~ship bulk cargoes of processed recycled ferrous metal ~~by shipping bulk cargoes~~ to steel manufacturers located in Europe, Africa, the Middle East, Asia, ~~and~~ North America, Central America, and South America. Our exports of nonferrous recycled metal are shipped in containers through various public docks to specialty steelmakers, foundries, aluminum sheet and ingot manufacturers, copper refineries and smelters, brass and bronze ingot manufacturers, ~~and~~ wire and cable producers, wholesalers, and other recycled metal processors globally. We also transport both ferrous and nonferrous metals by truck, rail, and barge in order to transfer scrap metal between our facilities for further processing, to load shipments at our export facilities, and to meet regional domestic demand.

Our results of operations depend in large part on the demand and prices for recycled metal in foreign and domestic markets and on the supply of raw materials, including end-of-life vehicles, available to be processed at our facilities. Our results of operations also depend substantially on our operating leverage from processing and selling higher volumes of recycled metal as well as our ability to efficiently extract ferrous and nonferrous metals from the shredding process. We respond to changes in selling prices for processed metal by seeking to adjust purchase prices for unprocessed scrap metal in order to manage the impact on our operating results. We believe we generally benefit from sustained periods of stable or rising recycled metal selling prices, which allow us to better maintain or increase both operating results and unprocessed scrap metal flow into our facilities. When recycled metal selling prices decline, either sharply or for a sustained period, our operating margins typically compress. With respect to finished steel products produced at our steel mill, our results of operations are impacted by demand and prices for these products, which are sold to customers located primarily in the Western U.S. and Western Canada.

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SCHNITZER STEEL INDUSTRIES, INC.

Our quarterly operating results fluctuate based on a variety of factors including, but not limited to, changes in market conditions for recycled ferrous and nonferrous ~~recycled~~ metal and finished steel products, the supply of scrap metal in our domestic markets, ~~and~~ varying demand for used auto parts from our self-service retail ~~stores. These~~stores, the efficiency of our supply chain, and variations in production and other operating costs. Certain of these factors are influenced, to a degree, by the impact of seasonal changes including severe weather conditions, which can impact the timing of shipments and inhibit construction activity utilizing our products, scrap metal collection and production levels at our facilities, and retail admissions and parts sales at our auto parts stores.



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~~Executive Overview~~ Further, sanctions, trade actions, and licensing, product quality, and inspection requirements can impact the level of ~~Financial Results~~profitability on sales of our products and, in certain cases, impede or restrict our ability to sell to certain export markets or require us to direct our sales to alternative market destinations, which can cause our quarterly operating results to fluctuate.

Steel Mill Fire

On May 22, 2021, we experienced a fire at our steel mill in McMinnville, Oregon. Direct physical loss or damage to property from the incident was limited to the mill’s melt shop, with no bodily injuries and no physical loss or damage to other buildings or equipment. The rolling mill production ceased in early June 2021. In August 2021, our steel mill began ramping up operations following the substantial completion of replacement and repairs of property and equipment in the melt shop that had been lost or damaged by the fire. We experienced the loss of business income during the shutdown of the steel mill and the subsequent ramp-up phase which was substantially completed during the second quarter of fiscal 2022. We have insurance that we believe is fully applicable to the losses and have filed insurance claims, which are subject to deductibles and various conditions, exclusions, and limits, for the ~~First~~property that experienced physical loss or damage and business income losses resulting from the matter. The property damage deductible under the policies insuring our assets in this matter is $1 million, while the deductible for lost business income is 10 times the Average Daily Gross Earnings which would have been earned had no interruption occurred, calculated subject to judgments and uncertainties. As of August 31, 2021, prepaid expenses and other current assets included an initial $10 million insurance receivable recognized in fiscal 2021, primarily offsetting applicable losses including capital purchases of $10 million that we had incurred as of August 31, 2021. In the first half of fiscal 2022, we increased the amount of this insurance receivable to $25 million and recognized a related $15 million insurance recovery gain, $3 million and $12 million of which was recognized in the first and second quarters of fiscal 2022, respectively, within cost of goods sold and included within the Unaudited Condensed Consolidated Statements of Operations, reflecting recovery of applicable losses incurred as a result of the fire to date. In addition, during the first half of fiscal 2022, we received advance payments from insurers totaling approximately $30 million towards our claims, and not reflecting any final or full settlement of claims with the insurers, which amount reduced the $25 million insurance receivable to zero with the remaining amount of advance payments reported within other accrued liabilities on the Unaudited Condensed Consolidated Balance Sheets. The amount of advance payments reported within other accrued liabilities was $4 million as of February 28, 2023 and $5 million as of August 31, 2022. In March 2023, during the third quarter of fiscal 2023, we received additional advance payments from insurers of approximately $13 million towards our claims, increasing the total of such advance payments from insurers to approximately $43 million, and not reflecting any final or full settlement of claims with the insurers. These amounts do not reflect potential additional recoveries of business income losses resulting from this matter that may be recognized in the future when settlements of the business interruption claims are resolved.

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SCHNITZER STEEL INDUSTRIES, INC.

Everett Facility Shredder Fire

On December 8, 2021, we experienced a fire at our metals recycling facility in Everett, Massachusetts. Direct physical loss or damage to property from the incident was limited to the facility’s shredder building and equipment, with no bodily injuries and no physical loss or damage to property reported at other buildings or equipment. As a result of the fire, shredding operations ceased, while all non-shredding operations at the facility continued, including torching, shearing, separating, and sorting purchased non-shreddable recycled ferrous metals. On January 28, 2022, shredding operations at the facility began ramping up following the replacement and repairs to shredder equipment that had been damaged. Completion of the remainder of repair and replacement of property that experienced physical loss or damage, primarily buildings and improvements, will occur over a longer period and impacts on business income may continue. For example, shredding operations temporarily ceased at the facility on June 18, 2022 and, following discussions with the Massachusetts Department of Environmental Protection and the Massachusetts Attorney General’s office, we installed a temporary emission capture system and controls that allowed for us to resume shredding operations on November 11, 2022 and continue shredding operations while the repair and replacement of the shredder enclosure building is completed. Non-shredding operations at the facility continued during this period. We have insurance that we believe is fully applicable to the losses, including but not limited to the costs of installing the temporary capture and controls system and any associated loss of business income, and have filed insurance claims, which are subject to deductibles and various conditions, exclusions, and limits, for the property damage or loss and business income losses resulting from the matter. The property damage deductible under the policies insuring our assets in this matter is $0.5 million, while the deductible for lost business income is 10 times the Average Daily Gross Earnings which would have been earned had no interruption occurred, calculated subject to judgments and uncertainties. The insurance claims resolution process may extend significantly beyond completion of repair and replacement of the physical plant property that experienced physical loss or damage and the restart of production activities. In fiscal 2022, after the fire, we recognized an aggregate $17 million insurance receivable and related insurance recovery gain, $10 million of which was recorded in the second quarter of fiscal 2022, reported within prepaid expenses and other current assets and within cost of goods sold, respectively, reflecting recovery of applicable losses including impairment charges of $7 million related to the carrying value of plant and equipment assets damaged by the fire and initial capital purchases and other costs totaling $10 million that we had incurred as of August 31, 2022. Also during fiscal 2022, we received advance payments from insurers totaling approximately $7 million towards our claims, and not reflecting any final or full settlement of claims with the insurers, which amount reduced the insurance receivable to $10 million as of February 28, 2023 and August, 31 2022. These amounts do not reflect potential additional recoveries of costs for the repair and replacement of property that experienced physical loss or damage or of business income losses resulting from this matter that may be recognized in the future when settlements of the claims are resolved.

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SCHNITZER STEEL INDUSTRIES, INC.

Coronavirus Disease 2019 (“COVID-19”)

We continue to monitor the impact of COVID-19 on all aspects of our business. Following the onset of COVID-19 and its negative effects on our business, most prominently reflected in our fiscal 2020 results, global economic conditions improved beginning in fiscal 2021 and continued to improve through most of fiscal 2022. However, there are ongoing global impacts resulting directly or indirectly from the pandemic including labor shortages, logistical challenges, and increases in costs for certain goods and services including due to the impact of inflation, which have negatively impacted our sales volumes, operating costs, and financial results to varying degrees. The ongoing effects of the COVID-19 pandemic could negatively impact our results of operations, cash flows, and financial position in the future.

Use of Non-GAAP Financial Measures

In this management’s discussion and analysis, we use supplemental measures of our performance, liquidity, and capital structure which are derived from our consolidated financial information, but which are not presented in our consolidated financial statements prepared in accordance with GAAP. We believe that providing these non-GAAP financial measures adds a meaningful presentation of our operating and financial performance, liquidity, and capital structure. For example, we use adjusted EBITDA as one of the measures to compare and evaluate financial performance. Adjusted EBITDA is the sum of our net income (loss) before results from discontinued operations, interest expense, income taxes, depreciation and amortization, restructuring charges and other exit-related activities, business development costs not related to ongoing operations including pre-acquisition expenses, charges for legacy environmental matters (net of recoveries), asset impairment charges, and other items which are not related to underlying business operational performance. See the reconciliations of supplemental financial measures, including adjusted EBITDA, in Non-GAAP Financial Measures at the end of this Item 2.

Our non-GAAP financial measures should be considered in addition to, but not as a substitute for, the most directly comparable GAAP measures. Although we find these non-GAAP financial measures useful in evaluating the performance of our business, our reliance on these measures is limited because they often materially differ from our consolidated financial statements presented in accordance with GAAP. Therefore, we typically use these adjusted amounts in conjunction with our GAAP results to address these limitations. Our non-GAAP financial measures may not be comparable to similarly titled measures of other companies. Other companies, including companies in our industry, may calculate non-GAAP financial measures differently than we do, limiting the usefulness of those measures for comparative purposes.

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SCHNITZER STEEL INDUSTRIES, INC.

Financial Highlights of Results of Operations for the Second Quarter of Fiscal ~~2018~~2023

•

Diluted earnings per share from continuing operations attributable to SSI shareholders in the second quarter of fiscal 2023 was $0.14, compared to $1.27 per share in the prior year quarter.

~~We generated consolidated revenues~~•

Adjusted diluted earnings per share from continuing operations attributable to SSI shareholders in the second quarter of ~~$483~~fiscal 2023 was $0.14, compared to adjusted diluted earnings per share of $1.38 in the prior year quarter.

•

Net income in the second quarter of fiscal 2023 was $4 million, compared to net income of $38 million in the prior year quarter.

•

Adjusted EBITDA in the second quarter of fiscal 2023 was $32 million, compared to $75 million in the prior year quarter.

Market conditions for recycled metals were weaker in the second quarter of fiscal 2023 compared to the prior year quarter, leading to lower average net selling prices for our ferrous and nonferrous products and a compression in metal spreads. The average net selling prices for our ferrous and nonferrous products decreased by 18% and 10%, respectively, compared to the second quarter of fiscal 2022. Ferrous and nonferrous sales volumes increased by 18% and 12%, respectively, compared to the prior year quarter, reflecting additional volumes arising from our two business acquisitions completed in April and November 2022, a drawdown of ferrous inventories due to the delay of several bulk shipments at the end of the first quarter of fiscal ~~2018, an increase~~2023, and the adverse impact of ~~45% from~~ the ~~$334 million of consolidated revenues~~initial Everett shredder downtime on sales volumes in the ~~first quarter of fiscal 2017, reflecting significantly improved market~~prior year quarter. Market conditions ~~for recycled metals in the domestic and export markets, and~~ for our finished steel products were softer in the second quarter of fiscal 2023, leading to finished steel average selling prices decreasing 10% compared to the prior year quarter. ~~The improved conditions resulted in higher average net selling prices and increased sales volumes for AMR’s ferrous and nonferrous recycled metal products and for CSS’s finished steel products.~~

~~Consolidated operating income was $26 million~~Our results in the ~~first~~second quarter of fiscal ~~2018, compared to $1 million~~2023 also reflected tighter supply flows and reduced processed volumes in the first quarter of fiscal 2017. AMR reported operating income in the first quarter of fiscal 2018 of $35 million, compared to $13 million in the prior year period. Operating results at AMR in the first quarter of fiscal 2018 benefited from stronger market conditions for recycledlower price environment, lower year-over-year platinum group metals ~~and an improving trend in U.S. economic conditions which led to higher average net selling~~(PGM) prices, and ~~sales volumes, and increased supply~~the impact of ~~scrap metal, including end-of-life vehicles,~~inflation, partially offset by a more favorable impact from average inventory accounting compared to the prior year quarter. ~~The higher price environment positively impacted~~We achieved a benefit of approximately $23 million from productivity and cost reduction initiatives in the ~~spread between direct purchase costs and selling prices of ferrous recycled metal at AMR, with the metal spread for the first~~second quarter of fiscal ~~2018 expanding~~2023, including from measures announced in October 2022 and January 2023 and implemented during the first half of fiscal 2023, which helped to partially offset the effects of higher operating costs including from inflationary pressure.

Selling, general, and administrative (“SG&A”) expense in the second quarter of fiscal 2023 increased by ~~approximately 50%~~5% compared to the prior year ~~quarter. AMR's operating results also benefited~~quarter reflecting higher salaries and wages, outside services, and insurance expenses, in part from ~~cost efficiencies~~higher costs resulting from ~~higher processed volumes~~our acquisitions and improved yields of nonferrous material from the shredding process. CSS reported operating income of $8 million in the first quarter of 2018, compared to an operating loss of $3 million in the prior year period, reflecting steady demand for finished steel products in the West Coast markets, improved metal margins, a reduced impact from lower-priced rebar imports, and operational synergies gained through the integration of our steel manufacturing and Oregon metals recycling operations in the fourth quarter of fiscal 2017, forming the new CSS division. CSS's operating results in the first quarter of 2017 were adversely impacted by pressure from lower-priced rebar importsother growth-related initiatives, and the ~~adverse~~ impact of the production downtime and other costs associated with major equipment upgrades at our steel mill. Consolidated selling, general and administrative ("SG&A") expense in the first quarter of fiscal 2018 increased by $14 million, or 36%, compared to the prior year period primarily due to an increase in environmental liabilities, higher incentive compensation accruals as a result of improved operating performance, and other expenses related to higher volumes. This increase wasinflation, partially offset by ~~incremental~~ benefits from productivity and cost ~~savings~~reduction initiatives and ~~productivity improvement measures.~~

Net income from continuing operations attributable to SSI in the first quarter of fiscal 2018 was $18 million, or $0.64 per diluted share, compared to net loss from continuing operations attributable to SSI of $1 million, or $(0.05) per diluted share, in the prior year period.

lower share-based compensation expense and legacy environmental charges.

The following items further highlight selected liquidity and capital structure ~~metrics for~~metrics:

•

For the first ~~quarter~~six months of fiscal ~~2018:~~

~~Net cash used in operating activities of $16 million, compared to~~2023, net cash provided by operating activities ~~of $6~~was $26 million, compared to $13 million in the prior year ~~period;~~comparable period.

•

Debt ~~of $185~~was $310 million as of ~~November 30, 2017,~~February 28, 2023, compared to ~~$145~~$249 million as of August 31, ~~2017;~~2022, as a result of increased borrowings from our credit facilities primarily to fund capital expenditures and the acquisition of the ScrapSource business.

•

Debt, net of cash, ~~of $176~~was $299 million as of ~~November 30, 2017,~~February 28, 2023, compared to ~~$138~~$205 million as of August 31, ~~2017 (see~~2022.

See the ~~reconciliation~~reconciliations of adjusted diluted earnings per share from continuing operations attributable to SSI shareholders, adjusted EBITDA, and debt, net of cash in Non-GAAP Financial Measures at the end of this Item ~~2).~~



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SCHNITZER STEEL INDUSTRIES, INC.

Results of Operations

Three Months Ended November 30,
($ in thousands) 2017 2016 % Change
Revenues:
Auto and Metals Recycling $ 398,054
$ 271,773
46 %
Cascade Steel and Scrap 89,984
66,023
36 %
Intercompany revenue eliminations⁽¹⁾
(4,759 ) (3,635 ) 31 %
Total revenues 483,279
334,161
45 %
Cost of goods sold:
Auto and Metals Recycling 331,949
233,855
42 %
Cascade Steel and Scrap 78,580
65,464
20 %
Intercompany cost of goods sold eliminations⁽¹⁾
(4,278 ) (3,427 ) 25 %
Total cost of goods sold 406,251
295,892
37 %
Selling, general and administrative expense:
Auto and Metals Recycling 30,933
25,547
21 %
Cascade Steel and Scrap 3,466
2,963
17 %
Corporate⁽²⁾
16,644
8,982
85 %
Total selling, general and administrative expense 51,043
37,492
36 %
(Income) from joint ventures:
Auto and Metals Recycling —
(235 ) (100 )%
Cascade Steel and Scrap (450 ) (177 ) 154 %
Total (income) from joint ventures (450 ) (412 ) 9 %
Other asset impairment charges (recoveries), net:
Cascade Steel and Scrap (88 ) 401
NM
Total other asset impairment charges (recoveries), net (88 ) 401
NM
Operating income (loss):
Auto and Metals Recycling 35,172
12,606
179 %
Cascade Steel and Scrap 8,476
(2,628 ) NM
Segment operating income 43,648
9,978
337 %
Restructuring charges and other exit-related activities⁽³⁾
(100 ) (201 ) (50 )%
Corporate expense⁽²⁾
(16,644 ) (8,982 ) 85 %
Change in intercompany profit elimination⁽⁴⁾
(481 ) (208 ) 131 %
Total operating income $ 26,423
$ 587
4,401 %

~~_____________________________~~

Selected Financial Measures and Operating Statistics


	Three Months Ended February 28,									Six Months Ended February 28,
($ in thousands, except for prices and per share amounts)	2023			2022			%			2023			2022			%
Ferrous revenues	$	434,122		$	438,314			(1	)%	$	695,851		$	904,170			(23	)%
Nonferrous revenues		179,655			196,142			(8	)%		357,330			390,571			(9	)%
Steel revenues(1)		107,825			116,196			(7	)%		232,340			219,434			6	%
Retail and other revenues		34,351			32,546			6	%		69,162			67,141			3	%
Total revenues		755,953			783,198			(3	)%		1,354,683			1,581,316			(14	)%
Cost of goods sold		682,937			670,539			2	%		1,232,948			1,353,783			(9	)%
Gross margin (total revenues less cost of goods sold)	$	73,016		$	112,659			(35	)%	$	121,735		$	227,533			(46	)%
Gross margin (%)		9.7	%		14.4	%		(33	)%		9.0	%		14.4	%		(38	)%
Selling, general and administrative expense	$	63,957		$	61,081			5	%	$	128,185		$	116,348			10	%
Diluted earnings (loss) per share from continuing operations attributable to SSI shareholders:
Reported	$	0.14		$	1.27			(89	)%	$	(0.49	)	$	2.81		NM
Adjusted(2)	$	0.14		$	1.38			(90	)%	$	(0.30	)	$	2.96		NM
Net income (loss)	$	4,272		$	38,165			(89	)%	$	(13,284	)	$	85,441		NM
Adjusted EBITDA(2)	$	31,850		$	75,259			(58	)%	$	40,212		$	153,345			(74	)%
Average ferrous recycled metal sales prices ($/LT)(3):
Domestic	$	359		$	418			(14	)%	$	336		$	424			(21	)%
Foreign	$	368		$	455			(19	)%	$	364		$	452			(19	)%
Average	$	367		$	445			(18	)%	$	357		$	446			(20	)%
Ferrous volumes (LT, in thousands):
Domestic(4)		444			408			9	%		876			839			4	%
Foreign		819			663			24	%		1,238			1,381			(10	)%
Total ferrous volumes (LT, in thousands)(4)(8)		1,263			1,071			18	%		2,114			2,219			(5	)%
Average nonferrous sales price ($/pound)(3)(5)	$	0.99		$	1.10			(10	)%	$	0.94		$	1.08			(13	)%
Nonferrous volumes (pounds, in thousands)(4)(5)		164,796			147,145			12	%		327,516			300,373			9	%
Finished steel average sales price ($/ST)(3)	$	943		$	1,045			(10	)%	$	980		$	1,013			(3	)%
Finished steel sales volumes (ST, in thousands)		109			106			3	%		227			205			11	%
Cars purchased (in thousands)(6)		72			73			(1	)%		141			153			(8	)%
Number of auto parts stores at period end		50			50			(—	)%		50			50			(—	)%
Rolling mill utilization(7)		75	%		86	%		(13	)%		78	%		82	%		(5	)%

NM = Not Meaningful

We operate our business across two reportable segments: AMR and CSS. Additional financial information relating to these reportable segments is contained in Note 13 - Segment Information in the Notes to the Unaudited Condensed Consolidated Financial Statements in Part I, Item 1 of this report.



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~~Auto and Metals Recycling~~

Three Months Ended November 30,
($ in thousands, except for prices) 2017 2016 % Change
Ferrous revenues $ 254,983
$ 157,178
62 %
Nonferrous revenues 110,343
84,386
31 %
Retail and other revenues 32,728
30,209
8 %
Total segment revenues 398,054
271,773
46 %
Segment operating income $ 35,172
$ 12,606
179 %
Average ferrous recycled metal sales prices ($/LT):⁽¹⁾

Domestic $ 259
$ 169
53 %
Foreign $ 306
$ 203
51 %
Average $ 292
$ 194
51 %
Ferrous sales volume (LT, in thousands):
Domestic 238
197
21 %
Foreign 559
520
8 %
Total ferrous sales volume (LT, in thousands) 797
717
11 %
Average nonferrous sales price ($/pound)⁽¹⁾⁽²⁾
$ 0.73
$ 0.58
26 %
Nonferrous sales volumes (pounds, in thousands)⁽³⁾
129,137
125,817
3 %
Cars purchased (in thousands)⁽³⁾
108
94
15 %
Number of auto parts stores at period end 53
52
2 %
Outbound freight in cost of goods sold 25,745
21,529
20 %

~~_____________________________~~



	PAGE
~~FORWARD LOOKING~~FORWARD-LOOKING STATEMENTS	3

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements (Unaudited)	4

Unaudited Condensed Consolidated Balance Sheets as of ~~November 30, 2017~~February 28, 2023 and August 31, ~~2017~~2022	4

Unaudited Condensed Consolidated Statements of Operations for the Three and Six Months Ended ~~November 30, 2017~~February 28, 2023 and ~~2016~~2022	5

Unaudited Condensed Consolidated Statements of Comprehensive Income (Loss) for the Three and Six Months Ended ~~November 30, 2017~~February 28, 2023 and ~~2016~~2022	6

Unaudited Condensed Consolidated Statements of Equity for the Three and Six Months Ended February 28, 2023 and 2022	7

Unaudited Condensed Consolidated Statements of Cash Flows for the ~~Three~~Six Months Ended ~~November 30, 2017~~February 28, 2023 and ~~2016~~2022	7 9

Notes to the Unaudited Condensed Consolidated Financial Statements	8 11

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations	20 25

Item 3. Quantitative and Qualitative Disclosures about Market Risk	32 38

Item 4. Controls and Procedures	33 39

PART II. OTHER INFORMATION

Item 1. Legal Proceedings	34 40

Item 1A. Risk Factors	34 40

Item 5. Other Information	40

Item 6. Exhibits	37 41

SIGNATURES	38 42



	November 30, 2017			August 31, 2017
Auto and Metals Recycling⁽¹⁾	$	1,331,468		$	1,298,757
Cascade Steel and Scrap⁽¹⁾	703,262			696,269
Total segment assets	2,034,730			1,995,026
Corporate and eliminations⁽²⁾	(1,048,817		)	(1,061,271		)
Total assets	$	985,913		$	933,755



	Three Months Ended November 30,
	2017			2016
Consolidated operating income:
As reported	$	26,423		$	587
Other asset impairment charges (recoveries), net	(88		)	401
Restructuring charges and other exit-related activities	100			201
Recoveries related to the resale or modification of previously contracted shipments	(417		)	(139		)
Adjusted	$	26,018		$	1,050

AMR operating income:
As reported	$	35,172		$	12,606
Recoveries related to the resale or modification of previously contracted shipments	(417		)	(139		)
Adjusted	$	34,755		$	12,467

CSS operating income (loss):
As reported	$	8,476		$	(2,628	)
Other asset impairment charges (recoveries), net	(88		)	401
Adjusted	$	8,388		$	(2,227	)

Net Income (loss) from continuing operations attributable to SSI:
As reported	$	18,399		$	(1,273	)
Other asset impairment charges (recoveries), net	(88		)	401
Restructuring charges and other exit-related activities	100			201
Recoveries related to the resale or modification of previously contracted shipments	(417		)	(139		)
Income tax expense (benefit) allocated to adjustments⁽¹⁾	131			(40		)
Adjusted	$	18,125		$	(850	)

Diluted earnings (loss) per share from continuing operations attributable to SSI:
As reported	$	0.64		$	(0.05	)
Other asset impairment charges (recoveries), net, per share	—			0.01
Restructuring charges and other exit-related activities, per share	—			0.01
Recoveries related to the resale or modification of previously contracted shipments, per share	(0.01		)	(0.01		)
Income tax expense (benefit) allocated to adjustments, per share⁽¹⁾	—			—
Adjusted⁽²⁾	$	0.63		$	(0.03	)



x	~~Quarterly Report Pursuant to Section~~ ☐ TRANSITION REPORT PURSUANT TO SECTION 13 orOR 15(d) ~~of the Securities Exchange Act of~~ OF THE SECURITIES EXCHANGE ACT OF 1934
	~~For the Quarterly Period Ended November 30, 2017~~



o	~~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~~



	AMR
August 31, 2017	$	167,835
Foreign currency translation adjustment	(632		)
November 30, 2017	$	167,203



Balance as of August 31, 2017		Liabilities Established (Released), Net		Payments and Other			Balance as of November 30, 2017		Short-Term		Long-Term
$	48,398	$	7,021	$	(761	)	$	54,658	$	7,214	$	47,444



	Three Months Ended November 30, 2017									Three Months Ended November 30, 2016
	SSI Shareholders’ Equity			Noncontrolling Interests			Total Equity			SSI Shareholders’ Equity			Noncontrolling Interests			Total Equity
Balance - September 1 (Beginning of period)	$	533,586		$	3,907		$	537,493		$	497,721		$	3,711		$	501,432
Net income (loss)	18,364			857			19,221			(1,326		)	618			(708		)
Other comprehensive loss, net of tax	(1,627		)	—			(1,627		)	(1,099		)	—			(1,099		)
Distributions to noncontrolling interests	—			(331		)	(331		)	—			(522		)	(522		)
Restricted stock withheld for taxes	(2,851		)	—			(2,851		)	(3,301		)	—			(3,301		)
Share-based compensation	5,004			—			5,004			3,408			—			3,408
Dividends	(5,292		)	—			(5,292		)	(5,143		)	—			(5,143		)
Balance - November 30 (End of period)	$	547,184		$	4,433		$	551,617		$	490,260		$	3,807		$	494,067


~~(1)~~	~~For periods with reported pre-tax losses, the effect of reconciling items with positive signs is a tax benefit in excess of applying the federal statutory rate to the pre-tax loss.~~


~~(1)~~	AMR total assets included $5 million for investments in joint ventures as of November 30, 2017 and August 31, 2017. CSS total assets included $7 million for investments in joint ventures as of November 30, 2017 and August 31, 2017.


~~(2)~~	~~The substantial majority of Corporate and eliminations total assets is comprised of Corporate intercompany payables to the Company's operating segments and intercompany eliminations.~~


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



	Three Months Ended November 30,
($ in thousands)	2017			2016			% Change
Revenues:
Auto and Metals Recycling	$	398,054		$	271,773		46	%
Cascade Steel and Scrap	89,984			66,023			36	%
Intercompany revenue eliminations⁽¹⁾	(4,759		)	(3,635		)	31	%
Total revenues	483,279			334,161			45	%
Cost of goods sold:
Auto and Metals Recycling	331,949			233,855			42	%
Cascade Steel and Scrap	78,580			65,464			20	%
Intercompany cost of goods sold eliminations⁽¹⁾	(4,278		)	(3,427		)	25	%
Total cost of goods sold	406,251			295,892			37	%
Selling, general and administrative expense:
Auto and Metals Recycling	30,933			25,547			21	%
Cascade Steel and Scrap	3,466			2,963			17	%
Corporate⁽²⁾	16,644			8,982			85	%
Total selling, general and administrative expense	51,043			37,492			36	%
(Income) from joint ventures:
Auto and Metals Recycling	—			(235		)	(100	)%
Cascade Steel and Scrap	(450		)	(177		)	154	%
Total (income) from joint ventures	(450		)	(412		)	9	%
Other asset impairment charges (recoveries), net:
Cascade Steel and Scrap	(88		)	401			NM
Total other asset impairment charges (recoveries), net	(88		)	401			NM
Operating income (loss):
Auto and Metals Recycling	35,172			12,606			179	%
Cascade Steel and Scrap	8,476			(2,628		)	NM
Segment operating income	43,648			9,978			337	%
Restructuring charges and other exit-related activities⁽³⁾	(100		)	(201		)	(50	)%
Corporate expense⁽²⁾	(16,644		)	(8,982		)	85	%
Change in intercompany profit elimination⁽⁴⁾	(481		)	(208		)	131	%
Total operating income	$	26,423		$	587		4,401	%


~~ITEM 1.~~	~~FINANCIAL STATEMENTS (UNAUDITED)~~


~~(1)~~	~~AMR sells a small portion of its recycled ferrous metal to CSS at prices that approximate local market rates. These intercompany revenues and cost of goods sold are eliminated in consolidation.~~


~~(2)~~	~~Corporate expense consists primarily of unallocated expenses for management and certain administrative services that benefit both reportable segments.~~


~~(3)~~	Restructuring charges consist of expense for severance, contract termination and other restructuring costs that management does not include in its measurement of the performance of the reportable segments. Other exit-related activities consist of asset impairments and accelerated depreciation, net of gains on exit-related disposals, related to site closures.


~~(4)~~	~~Intercompany profits are not recognized until the finished products are sold to third parties; therefore, intercompany profit is eliminated while the products remain in inventory.~~



	Three Months Ended November 30,
($ in thousands, except for prices)	2017		2016		% Change
Ferrous revenues	$	254,983	$	157,178	62	%
Nonferrous revenues	110,343		84,386		31	%
Retail and other revenues	32,728		30,209		8	%
Total segment revenues	398,054		271,773		46	%
Segment operating income	$	35,172	$	12,606	179	%
Average ferrous recycled metal sales prices ($/LT):⁽¹⁾
Domestic	$	259	$	169	53	%
Foreign	$	306	$	203	51	%
Average	$	292	$	194	51	%
Ferrous sales volume (LT, in thousands):
Domestic	238		197		21	%
Foreign	559		520		8	%
Total ferrous sales volume (LT, in thousands)	797		717		11	%
Average nonferrous sales price ($/pound)⁽¹⁾⁽²⁾	$	0.73	$	0.58	26	%
Nonferrous sales volumes (pounds, in thousands)⁽³⁾	129,137		125,817		3	%
Cars purchased (in thousands)⁽³⁾	108		94		15	%
Number of auto parts stores at period end	53		52		2	%
Outbound freight in cost of goods sold	25,745		21,529		20	%


~~(1)~~	~~Price information is shown after netting the cost of freight incurred to deliver the product to the customer.~~


~~(2)~~	~~Average sales price and volume information excludes platinum group metals ("PGMs") in catalytic converters.~~



	Three Months Ended November 30,
($ in thousands, except for price)	2017			2016			% Change
Steel revenues⁽¹⁾	$	80,446		$	52,596		53	%
Recycling revenues⁽²⁾	$	9,538		$	13,427		(29	)%
Total segment revenues	$	89,984		$	66,023		36	%
Segment operating income (loss)	$	8,476		$	(2,628	)	NM
Finished steel average sales price ($/ST)⁽³⁾	$	599		$	492		22	%
Finished steel products sold (ST, in thousands)	127			101			26	%
Rolling mill utilization⁽⁴⁾	95		%	65		%	46	%


~~(1)~~	~~Steel revenues include primarily sales of finished steel products, semi-finished goods (billets) and manufacturing scrap.~~


~~(2)~~	~~Recycling revenues include primarily sales of ferrous and nonferrous recycled scrap metal to export markets.~~


~~(4)~~	~~Rolling mill utilization is based on effective annual production capacity under current conditions of 580 thousand tons of finished steel products.~~


~~(1)~~	Income tax allocated to the aggregate adjustments reconciling reported and adjusted net income (loss) from continuing operations attributable to SSI and diluted earnings (loss) per share from continuing operations attributable to SSI is determined based on a tax provision calculated with and without the adjustments.



~~Table of Contents~~(3) Income tax allocated to the aggregate adjustments reconciling reported and adjusted income (loss) from continuing operations attributable to SSI shareholders and diluted earnings (loss) per share from continuing operations attributable to SSI shareholders is determined based on a tax provision calculated with and without the adjustments.	~~SCHNITZER STEEL INDUSTRIES, INC.~~


~~ITEM 3.~~	~~QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK~~



~~Table of Contents~~ Exhibit Number	~~SCHNITZER STEEL INDUSTRIES, INC.~~

Exhibit Description

~~Table of Contents~~ 10.1*	~~SCHNITZER STEEL INDUSTRIES, INC.~~



~~Exhibit Number~~		~~Exhibit Description~~

10.1*		Form of ~~Long-Term Incentive~~Deferred Stock Unit Award Agreement under the 1993 Stock Incentive Plan used for non-employee directors for awards granted in ~~fiscal 2018.~~2023

10.2*		~~Amendment No. 3, dated October 25, 2017, to the Amended and Restated Agreement for Services by and between the Registrant and John D. Carter dated June 29, 2011.~~Summary Sheet of 2023 Non-Employee Director Compensation

10.3* 31.1		~~Fiscal 2018 Annual Performance Bonus Program for the Chief Executive Officer.~~

~~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.

~~101~~ 101.INS		~~The following financial information from Schnitzer Steel Industries, Inc.’s Quarterly Report on Form 10-Q for~~ Inline XBRL Instance Document – the ~~quarter ended November 30, 2017, formatted~~instance document does not appear in the Interactive Data File because its XBRL ~~(eXtensible Business Reporting Language): (i) Unaudited Condensed Consolidated Statements of Operations for~~tags are embedded within the ~~three months ended November 30, 2017~~Inline XBRL document.

101.SCH		Inline XBRL Taxonomy Extension Schema Document

101.CAL		Inline XBRL Taxonomy Extension Calculation Linkbase Document

101.DEF		Inline XBRL Taxonomy Extension Definition Linkbase Document

101.LAB		Inline XBRL Taxonomy Extension Label Linkbase Document

101.PRE		Inline XBRL Taxonomy Extension Presentation Linkbase Document

104		Cover Page Interactive Data File (formatted as inline XBRL and 2016, (ii) Unaudited Condensed Consolidated Balance Sheets as of November 30, 2017 and August 31, 2017, (iii) Unaudited Condensed Consolidated Statements of Comprehensive Income (Loss) for the three months ended November 30, 2017 and 2016, (iv) Unaudited Condensed Consolidated Statements of Cash Flows for the three months ended November 30, 2017 and 2016, and (v) the Notes to Unaudited Condensed Consolidated Financial Statements.contained in Exhibit 101)



				SCHNITZER STEEL INDUSTRIES, INC.
				(Registrant)

Date:	~~January 9, 2018~~	~~By:~~ April 7, 2023		By:	/s/ Tamara L. Lundgren
					Tamara L. Lundgren
					Chairman, President and Chief Executive Officer

Date:	~~January 9, 2018~~	~~By:~~ April 7, 2023		By:	/s/ ~~Richard D. Peach~~Stefano R. Gaggini
			~~Richard D. Peach~~		Stefano R. Gaggini
					Senior Vice President and Chief Financial Officer ~~and Chief of Corporate Operations~~

Useful Life

Supplier relationships

Non-compete intangible assets

Customer relationships