(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	NASDAQ Global Select Market

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes x☒ No o

☐

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).

Yes x☒ No o

☐

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).

Yes o☐ No x

☒

The ~~Registrant~~registrant had ~~27,003,291~~27,264,633 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.~~

2021.

Table of Contents

~~SCHNITZER~~

SCHNITZER STEEL INDUSTRIES, INC.

~~INDEX~~

FORM 10-Q

TABLE OF CONTENTS



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

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements (Unaudited)

Unaudited Condensed Consolidated Balance Sheets as of ~~November 30, 2017~~February 28, 2021 and August 31, ~~2017~~2020	4

Unaudited Condensed Consolidated Statements of Operations for the Three and Six Months Ended ~~November 30, 2017~~February 28, 2021 and ~~2016~~February 29, 2020	5

Unaudited Condensed Consolidated Statements of Comprehensive Income (Loss) for the Three and Six Months Ended ~~November 30, 2017~~February 28, 2021 and ~~2016~~February 29, 2020	6

Unaudited Condensed Consolidated Statements of Equity for the Three and Six Months Ended February 28, 2021 and February 29, 2020	7

Unaudited Condensed Consolidated Statements of Cash Flows for the ~~Three~~Six Months Ended ~~November 30, 2017~~February 28, 2021 and ~~2016~~February 29, 2020	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 23

Item 3. Quantitative and Qualitative Disclosures about Market Risk	32 34

Item 4. Controls and Procedures	33 35

PART II. OTHER INFORMATION

Item 1. Legal Proceedings	34 36

Item 1A. Risk Factors	34 37

Item 5. Other Information	37

Item 6. Exhibits	37 38

SIGNATURES	38 39

Table of Contents

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 and changes in~~ the ~~markets we sell into;~~impact of pandemics, epidemics or other public health emergencies, such as the ~~Company's~~coronavirus disease 2019 (“COVID-19”) pandemic; the Company’s outlook, growth initiatives or expected results or objectives, including pricing, margins, sales volumes and profitability; 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 ~~the recently enacted federal tax reform; the realization of deferred tax assets; planned capital expenditures; liquidity positions; ability to generate cash from continuing operations;~~sanctions and tariffs, quotas and other trade actions and import restrictions; the potential impact of adopting new accounting pronouncements; obligations under our retirement plans; benefits, savings or additional costs from business realignment, cost containment and productivity improvement programs; 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~~as supplemented by our subsequently filed Quarterly ~~Report~~Reports on Form 10-Q. Examples of these risks include: the impact of pandemics, epidemics or other public health emergencies, such as the COVID-19 pandemic; potential environmental cleanup costs related to the Portland Harbor Superfund site or other locations; the cyclicality and impact of general economic conditions; ~~instability~~changing conditions in ~~international markets;~~global markets including the impact of sanctions and tariffs, quotas and other trade actions and import restrictions; 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 scrap metal prices; imbalances in supply and demand conditions in the global steel industry; reliance on third party shipping companies, including with respect to freight rates and the availability of transportation; inability to obtain or renew business licenses and permits; the impact of goodwill impairment charges; the impact of long-lived asset and ~~cost and~~ equity ~~method~~ investment impairment charges; failure to realize or delays in realizing expected benefits from investments in processing and manufacturing technology improvements; inability to achieve or sustain the benefits from productivity, cost savings and restructuring initiatives; inability to renew facility leases; difficulties associated with acquisitions and integration of acquired businesses; 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 property tax increases or property tax rate changes; the impact of one or more cybersecurity incidents; environmental compliance costs and potential environmental liabilities; ~~inability to obtain or renew business licenses and permits or renew facility leases;~~ compliance with climate change and greenhouse gas emission laws and regulations; 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)~~

ITEM 1. FINANCIAL STATEMENTS (UNAUDITED)

SCHNITZER STEEL INDUSTRIES, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited, in thousands, except per share amounts)

(Currency - U.S. Dollar)

	February 28, 2021			August 31, 2020
Assets
Current assets:
Cash and cash equivalents	$	11,326		$	17,887
Accounts receivable, net of allowance for credit losses of $1,633 and $1,593		210,480			139,147
Inventories		252,268			157,269
Refundable income taxes		6,538			18,253
Prepaid expenses and other current assets		34,621			30,075
Total current assets		515,233			362,631
Property, plant and equipment, net of accumulated depreciation of $835,799 and $811,623		502,484			487,004
Operating lease right-of-use assets		136,278			140,584
Investments in joint ventures		10,382			10,057
Goodwill		170,100			169,627
Intangibles, net of accumulated amortization of $3,543 and $3,528		4,283			4,585
Deferred income taxes		26,201			27,152
Other assets		40,368			28,287
Total assets	$	1,405,329		$	1,229,927
Liabilities and Equity
Current liabilities:
Short-term borrowings	$	2,372		$	2,184
Accounts payable		142,717			106,676
Accrued payroll and related liabilities		41,203			41,436
Environmental liabilities		12,975			6,302
Operating lease liabilities		20,279			19,760
Other accrued liabilities		44,936			47,306
Total current liabilities		264,482			223,664
Deferred income taxes		42,175			38,292
Long-term debt, net of current maturities		168,441			102,235
Environmental liabilities, net of current portion		53,965			47,162
Operating lease liabilities, net of current maturities		119,751			125,001
Other long-term liabilities		22,476			13,137
Total liabilities		671,290			549,491
Commitments and contingencies (Note 4)
Schnitzer Steel Industries, Inc. (“SSI”) shareholders’ equity:
Preferred stock – 20,000 shares $1.00 par value authorized, NaN issued		0			0
Class A common stock – 75,000 shares $1.00 par value authorized, 27,263 and 26,899 shares issued and outstanding		27,263			26,899
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		39,695			36,616
Retained earnings		697,966			649,863
Accumulated other comprehensive loss		(35,282	)		(36,871	)
Total SSI shareholders’ equity		729,842			676,707
Noncontrolling interests		4,197			3,729
Total equity		734,039			680,436
Total liabilities and equity	$	1,405,329		$	1,229,927

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

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

(Unaudited, in thousands, except per share amounts)

(Currency - U.S. Dollar)

	Three Months Ended						Six Months Ended
	February 28,			February 29,			February 28,			February 29,
	2021			2020			2021			2020
Revenues	$	600,111		$	439,482		$	1,092,218		$	845,066
Operating expense:
Cost of goods sold		487,025			380,520			907,119			745,280
Selling, general and administrative		54,142			46,426			104,048			93,200
(Income) from joint ventures		(454	)		(190	)		(1,181	)		(389	)
Asset impairment charges		—			402			—			2,094
Restructuring charges and other exit-related activities		814			4,633			878			5,100
Operating income (loss)		58,584			7,691			81,354			(219	)
Interest expense		(1,224	)		(1,320	)		(3,004	)		(2,743	)
Other (loss) income, net		(242	)		(98	)		(407	)		108
Income (loss) from continuing operations before income taxes		57,118			6,273			77,943			(2,854	)
Income tax (expense) benefit		(11,469	)		(1,770	)		(17,188	)		764
Income (loss) from continuing operations		45,649			4,503			60,755			(2,090	)
Income (loss) from discontinued operations, net of tax		30			1			(12	)		29
Net income (loss)		45,679			4,504			60,743			(2,061	)
Net income attributable to noncontrolling interests		(1,091	)		(621	)		(2,051	)		(1,051	)
Net income (loss) attributable to SSI shareholders	$	44,588		$	3,883		$	58,692		$	(3,112	)

Net income (loss) per share attributable to SSI shareholders:
Basic:
Income (loss) per share from continuing operations	$	1.59		$	0.14		$	2.10		$	(0.11	)
Net income (loss) per share	$	1.59		$	0.14		$	2.10		$	(0.11	)
Diluted:
Income (loss) per share from continuing operations	$	1.54		$	0.14		$	2.05		$	(0.11	)
Net income (loss) per share	$	1.54		$	0.14		$	2.05		$	(0.11	)
Weighted average number of common shares:
Basic		27,991			27,721			27,899			27,618
Diluted		28,862			28,139			28,673			27,618

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

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)

(Unaudited, in thousands)

(Currency - U.S. Dollar)

	Three Months Ended						Six Months Ended
	February 28,			February 29,			February 28,			February 29,
	2021			2020			2021			2020
Net income (loss)	$	45,679		$	4,504		$	60,743		$	(2,061	)
Other comprehensive income (loss), net of tax:
Foreign currency translation adjustments		1,572			(630	)		1,811			(419	)
Pension obligations, net		38			115			(222	)		142
Total other comprehensive income (loss), net of tax		1,610			(515	)		1,589			(277	)
Comprehensive income (loss)		47,289			3,989			62,332			(2,338	)
Less comprehensive income attributable to noncontrolling interests		(1,091	)		(621	)		(2,051	)		(1,051	)
Comprehensive income (loss) attributable to SSI shareholders	$	46,198		$	3,368		$	60,281		$	(3,389	)

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 )

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)~~thousands, except per share amounts)

(Currency - U.S. Dollar)

	Common Stock																Accumulated
	Class A						Class B				Additional						Other			Total SSI
Three Months Ended February 29, 2020	Shares			Amount			Shares		Amount		Paid-in Capital			Retained Earnings			Comprehensive Loss			Shareholders' Equity			Noncontrolling Interests			Total Equity
Balance as of December 1, 2019		26,943		$	26,943			200	$	200	$	29,528		$	662,707		$	(38,525	)	$	680,853		$	4,183		$	685,036
Net income		—			—			—		—		—			3,883			—			3,883			621			4,504
Other comprehensive loss, net of tax		—			—			—		—		—			—			(515	)		(515	)		—			(515	)
Distributions to noncontrolling interests		—			—			—		—		—			—			—			—			(507	)		(507	)
Share repurchases		(53	)		(53	)		—		—		(861	)		—			—			(914	)		—			(914	)
Issuance of restricted stock		9			9			—		—		(9	)		—			—			—			—			—
Share-based compensation cost		—			—			—		—		2,516			—			—			2,516			—			2,516
Dividends ($0.1875 per common share)		—			—			—		—		—			(5,172	)		—			(5,172	)		—			(5,172	)
Balance as of February 29, 2020		26,899		$	26,899			200	$	200	$	31,174		$	661,418		$	(39,040	)	$	680,651		$	4,297		$	684,948

	Common Stock																Accumulated
	Class A						Class B				Additional						Other			Total SSI
Three Months Ended February 28, 2021	Shares			Amount			Shares		Amount		Paid-in Capital			Retained Earnings			Comprehensive Loss			Shareholders' Equity			Noncontrolling Interests			Total Equity
Balance as of December 1, 2020		27,254		$	27,254			200	$	200	$	35,310		$	658,710		$	(36,892	)	$	684,582		$	3,966		$	688,548
Net income		—			—			—		—		—			44,588			—			44,588			1,091			45,679
Other comprehensive income, net of tax		—			—			—		—		—			—			1,610			1,610			—			1,610
Distributions to noncontrolling interests		—			—			—		—		—			—			—			—			(860	)		(860	)
Issuance of restricted stock		10			10			—		—		(10	)		—			—			—			—			—
Restricted stock withheld for taxes		(1	)		(1	)		—		—		—			—			—			(1	)		—			(1	)
Share-based compensation cost		—			—			—		—		4,395			—			—			4,395			—			4,395
Dividends ($0.1875 per common share)		—			—			—		—		—			(5,332	)		—			(5,332	)		—			(5,332	)
Balance as of February 28, 2021		27,263		$	27,263			200	$	200	$	39,695		$	697,966		$	(35,282	)	$	729,842		$	4,197		$	734,039

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

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 EQUITY

(Unaudited, in thousands, except per share amounts)

(Currency - U.S. Dollar)

	Common Stock										Additional						Accumulated Other			Total SSI
	Class A						Class B				Paid-in			Retained			Comprehensive			Shareholders’			Noncontrolling			Total
Six Months Ended February 29, 2020	Shares			Amount			Shares		Amount		Capital			Earnings			Loss			Equity			Interests			Equity
Balance as of August 31, 2019		26,464		$	26,464			200	$	200	$	33,700		$	675,363		$	(38,763	)	$	696,964		$	4,332		$	701,296
Cumulative effect on adoption of new accounting guidance for leases, net of tax		—			—			—		—		—			(463	)		—			(463	)		—			(463	)
Balance as of September 1, 2019		26,464			26,464			200		200		33,700			674,900			(38,763	)		696,501			4,332			700,833
Net (loss) income		—			—			—		—		—			(3,112	)		—			(3,112	)		1,051			(2,061	)
Other comprehensive loss, net of tax		—			—			—		—		—			—			(277	)		(277	)		—			(277	)
Distributions to noncontrolling interests		—			—			—		—		—			—			—			—			(1,086	)		(1,086	)
Share repurchases		(53	)		(53	)		—		—		(861	)		—			—			(914	)		—			(914	)
Issuance of restricted stock		762			762			—		—		(762	)		—			—			—			—			—
Restricted stock withheld for taxes		(274	)		(274	)		—		—		(5,571	)		—			—			(5,845	)		—			(5,845	)
Share-based compensation cost		—			—			—		—		4,668			—			—			4,668			—			4,668
Dividends ($0.375 per common share)		—			—			—		—		—			(10,370	)		—			(10,370	)		—			(10,370	)
Balance as of February 29, 2020		26,899		$	26,899			200	$	200	$	31,174		$	661,418		$	(39,040	)	$	680,651		$	4,297		$	684,948

	Common Stock																Accumulated
	Class A						Class B				Additional						Other			Total SSI
Six Months Ended February 28, 2021	Shares			Amount			Shares		Amount		Paid-in Capital			Retained Earnings			Comprehensive Loss			Shareholders' Equity			Noncontrolling Interests			Total Equity
Balance as of September 1, 2020		26,899		$	26,899			200	$	200	$	36,616		$	649,863		$	(36,871	)	$	676,707		$	3,729		$	680,436
Net income		—			—			—		—		—			58,692			—			58,692			2,051			60,743
Other comprehensive income, net of tax		—			—			—		—		—			—			1,589			1,589			—			1,589
Distributions to noncontrolling interests		—			—			—		—		—			—			—			—			(1,583	)		(1,583	)
Issuance of restricted stock		553			553			—		—		(553	)		—			—			—			—			—
Restricted stock withheld for taxes		(189	)		(189	)		—		—		(3,782	)		—			—			(3,971	)		—			(3,971	)
Share-based compensation cost		—			—			—		—		7,414			—			—			7,414			—			7,414
Dividends ($0.375 per common share)		—			—			—		—		—			(10,589	)		—			(10,589	)		—			(10,589	)
Balance as of February 28, 2021		27,263		$	27,263			200	$	200	$	39,695		$	697,966		$	(35,282	)	$	729,842		$	4,197		$	734,039

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,			February 29,
	2021			2020
Cash flows from operating activities:
Net income (loss)	$	60,743		$	(2,061	)
Adjustments to reconcile net income (loss) to cash (used in) provided by operating activities:
Asset impairment charges		—			2,094
Exit-related asset impairments		—			971
Depreciation and amortization		29,295			28,472
Deferred income taxes		5,544			(1,057	)
Undistributed equity in earnings of joint ventures		(1,181	)		(389	)
Share-based compensation expense		7,276			4,639
Gain on the disposal of assets, net		(81	)		(274	)
Unrealized foreign exchange loss (gain), net		93			(12	)
Credit loss, net		66			53
Changes in assets and liabilities, net of acquisitions:
Accounts receivable		(75,961	)		(18,339	)
Inventories		(90,151	)		9,067
Income taxes		16,097			28
Prepaid expenses and other current assets		1,266			3,056
Other long-term assets		(3,765	)		258
Operating lease assets and liabilities		(430	)		(144	)
Accounts payable		45,050			(8,298	)
Accrued payroll and related liabilities		(85	)		(6,655	)
Other accrued liabilities		(3,618	)		4,943
Environmental liabilities		2,488			(740	)
Other long-term liabilities		3,494			41
Distributed equity in earnings of joint ventures		1,250			1,000
Net cash (used in) provided by operating activities		(2,610	)		16,653
Cash flows from investing activities:
Capital expenditures		(55,084	)		(37,100	)
Proceeds from sale of assets		317			608
Deposit on land option		630			630
Net cash used in investing activities		(54,137	)		(35,862	)
Cash flows from financing activities:
Borrowings from long-term debt		265,645			244,382
Repayment of long-term debt		(199,229	)		(208,614	)
Payment of debt issuance costs		(23	)		—
Repurchase of Class A common stock		—			(914	)
Taxes paid related to net share settlement of share-based payment awards		(3,971	)		(5,845	)
Distributions to noncontrolling interests		(1,583	)		(1,086	)
Dividends paid		(10,828	)		(10,734	)
Net cash provided by financing activities		50,011			17,189
Effect of exchange rate changes on cash		175			(31	)
Net decrease in cash and cash equivalents		(6,561	)		(2,051	)
Cash and cash equivalents as of beginning of period		17,887			12,377
Cash and cash equivalents as of end of period	$	11,326		$	10,326

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,			February 29,
	2021			2020
SUPPLEMENTAL DISCLOSURES:
Cash paid during the period for:
Interest	$	1,827		$	1,698
Income taxes (refunded) paid, net	$	(4,525	)	$	196
Schedule of noncash investing and financing transactions:
Purchases of property, plant and equipment included in current liabilities	$	11,338		$	7,642

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~~.2020. The results for the three and six months ended ~~November 30, 2017~~February 28, 2021 and ~~2016~~February 29, 2020, are not necessarily indicative of the results of operations for the entire fiscal year.

~~Accounting Changes~~

~~In July 2015,~~

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 scrap metal. The Company also produces a range of finished steel long products at its steel mini-mill using ferrous recycled scrap metal primarily 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,~~chief operating decision-maker in deciding how to allocate resources and in assessing performance.

Prior to the first ~~out ("FIFO"~~quarter of fiscal 2021, the Company’s internal organizational and reporting structure included 2 operating and reportable segments: the Auto and Metals Recycling (“AMR”) ~~or average cost method, at~~business and the ~~lower~~Cascade Steel and Scrap (“CSS”) business. In the first quarter of ~~cost~~fiscal 2021, in accordance with its plan announced in April 2020, the Company completed its transition to a new internal organizational and net realizable value. 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.reporting structure reflecting a functionally-based, integrated model. The Company ~~adopted~~consolidated its operations, sales, services and other functional capabilities at an enterprise level reflecting enhanced focus by management on optimizing the Company’s vertically integrated value chain. This change 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, supporting a single segment. The Company began reporting on this new ~~requirement, which is to be applied prospectively,~~single-segment structure in the first quarter of fiscal 2021 as reflected in its Quarterly Report on Form 10-Q for the quarterly period ended November 30, 2020.

Accounting Changes

As of the beginning of the first quarter of fiscal ~~2018 with no impact to~~2020, the ~~Unaudited Condensed Consolidated Financial Statements.~~

~~In March 2016,~~Company adopted an accounting ~~standard~~standards update ~~was issued~~ that ~~amends several aspects of the accounting~~requires a lessee to recognize a lease liability and a lease right-of-use asset on its balance sheet for ~~share-based payments,~~all leases greater than 12 months, including ~~accounting for income taxes, forfeitures and statutory tax withholding requirements, and classification within the statement of cash flows.~~those classified as operating leases. The Company adopted the new lease accounting standard using the modified retrospective transition method, whereby it applied the new requirements by recognizing a cumulative-effect adjustment to the opening balance of retained earnings as of September 1, 2019. Such cumulative-effect adjustment for the ~~beginning of the first quarter of fiscal 2018 with no impact to~~Company was less than $1 million, which is presented separately in the Unaudited Condensed Consolidated ~~Financial Statements, including no cumulative-effect adjustments to retained earnings, as~~Statement 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 rateEquity for the ~~purpose of recognizing estimated compensation cost over the requisite service period.~~

six months ended February 29, 2020.

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 in excess of funds on deposit ~~of $30~~of $43 million and ~~$21~~$20 million as of ~~November 30, 2017~~February 28, 2021 and August 31, ~~2017~~,2020, respectively.

~~Cost Method Investment~~

Table of Contents

SCHNITZER STEEL INDUSTRIES, INC.

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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 credit insurance is in place. Management evaluates the aging of customer receivable balances, the financial condition of the Company’s customers, historical collection rates and economic trends 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 $5 million for each of the six months ended February 28, 2021 and February 29, 2020.

Prepaid Expenses

The Company’s prepaid expenses, reported within prepaid expenses and other current assets in the Unaudited Condensed Consolidated Balance Sheets, totaled $23 million as of each of February 28, 2021 and August 31, 2020, 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 retirement plans, consist primarily of receivables from insurers, cash held in a client trust account relating to a legal settlement, spare parts, capitalized implementation costs for cloud computing arrangements, an equity investment, 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.

Other assets as of February 28, 2021 and August 31, 2020 included $12 million and $5 million, respectively, in receivables from insurers, comprising $7 million and less than $1 million, respectively, relating to environmental claims and $4 million as of each reporting date relating to workers’ compensation claims.

Other assets as of February 28, 2021 also included approximately $7.6 million in cash deposited into a client trust account in the second quarter of fiscal ~~2017,~~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 4 – Commitments and Contingencies for further discussion of this matter.

The Company invested $6 million in the equity of a privately-held waste and recycling ~~entity.~~entity in fiscal 2017. The ~~Company's influence over the operating~~equity investment does not have a readily determinable fair value and, ~~financial policies of the entity is not significant and, thus, the investment is accounted for under the cost method. Under the cost method, the investment~~therefore, is carried at cost and adjusted ~~only~~ for ~~other-than-temporary~~ impairments ~~certain distributions~~ and ~~additional investments.~~observable price changes. The investment is ~~presented as part of the Auto and Metals Recycling ("AMR") reportable segment and~~ reported within other assets in the Unaudited Condensed Consolidated Balance Sheets. The ~~Company does not hold any other cost-method investments. The~~ carrying value of the investment was $6$6 million as of ~~November 30, 2017~~February 28, 2021 and August 31, ~~2017. As of November 30, 2017,~~2020. The Company has not recorded any impairments or upward or downward adjustments to the ~~Company had not identified any events or changes in circumstances that may have a significant adverse effect on the fair~~carrying value 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~~

since acquisition.

Long-Lived Assets

~~Changes in circumstances may merit a change in~~

The Company tests long-lived tangible and intangible assets for impairment at the ~~estimated useful lives or salvage values of individual long-lived assets,~~asset group level, which ~~are accounted for prospectively in the period of change. For such assets, the useful life~~ is ~~shortened~~determined based on the ~~Company's plans to dispose~~lowest level for which identifiable cash flows are largely independent of ~~or abandon~~ the ~~asset before the end~~cash flows of ~~its original useful life~~other groups of assets 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 assetsliabilities. The segment realignment completed in ~~the Cascade Steel and Scrap ("CSS") reportable segment, which are reported within other asset impairment charges (recoveries), net in the Unaudited Condensed Consolidated Statements of Operations.~~

~~Also during the three months ended November 30, 2017, CSS sold machinery and equipment assets impaired during~~ the first quarter of fiscal ~~2017 and supplies inventory impaired during fiscal 2016, recognizing a gain~~2021 described above in this Note under “Segment Reporting” did not significantly impact the composition of ~~$1 million which is reported within other~~the Company’s asset ~~impairment charges (recoveries), net in the Unaudited Condensed Consolidated Statements~~groups.

Table of ~~Operations.~~

Contents

SCHNITZER STEEL INDUSTRIES, INC.

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Concentration of Credit Risk

Financial instruments that potentially subject the Company to significant concentration of credit risk consist primarily of cash and cash equivalents, accounts receivable, and notes and other contractual ~~receivables from suppliers.~~receivables. 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~~of $250 thousand as of ~~November 30, 2017~~.February 28, 2021. 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:~~

~~Level 1 – Unadjusted quoted prices in active markets for identical assets and liabilities.~~

~~Level 2 – Inputs other than quoted prices included within Level 1 that are observable for the determination of the fair value of the asset or liability, either directly or indirectly.~~

~~Level 3 – Unobservable inputs that are significant to the determination of the fair value of the asset or liability.~~

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.



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

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, 2021		August 31, 2020
Processed and unprocessed scrap metal	$	142,342	$	63,058
Semi-finished goods		12,411		6,909
Finished goods		53,637		44,476
Supplies		43,878		42,826
Inventories	$	252,268	$	157,269

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

Note 43 - Goodwill

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. Impairment of goodwill is tested at the reporting unit level. A reporting unit is an operating segment or one level below an operating segment (referred to as a “component”). A component of an operating segment is required to be identified as a reporting unit if the component is a business for which discrete financial information is available and segment management regularly reviews its operating results. There were no triggering events identified during the ~~three months ended November 30, 2017~~first half of fiscal 2021 requiring an interim goodwill impairment test, and the Company did 0t record a goodwill impairment charge in any of the periods presented.

As of August 31, 2020, the balance of the Company’s goodwill was $170 million, and all but $1 million of such balance was carried by a single reporting unit within the AMR operating segment that existed at the time. The Company had last performed the quantitative impairment test of goodwill carried by this reporting unit in the fourth quarter of fiscal 2020 using a measurement date of July 1, 2020. The estimated fair value of the reporting unit exceeded its carrying amount by approximately 29% as of July 1, 2020. In the first quarter of fiscal 2021, the Company completed its transition to a new internal organizational and reporting structure reflecting a functionally-based, integrated model, resulting in a single operating segment, replacing the AMR and CSS operating segments. The change in structure led to the identification of components within the single operating segment based on disaggregation of financial information regularly reviewed by segment management. In accordance with the accounting guidance, the Company then reassigned the Company's goodwill to the reporting units affected based on the relative fair values of the elements transferred and the elements remaining within the original reporting units as of the date of the reassessment, September 1, 2020. The Company measured the relative fair values of such elements under the market approach based on earnings multiple data. Beginning on the date of reassessment of September 1, 2020, the Company's goodwill is carried by 3 reporting units comprising 2 separate regional groups of metals recycling operations and the Company’s retail auto parts stores.

In connection with the segment realignment and redefinition of the Company's reporting units effective as of September 1, 2020, management evaluated if it was more likely than not that the fair value of any of the either legacy or new reporting units with allocated goodwill was below its carrying value as of September 1, 2020, which would indicate a triggering event requiring a goodwill impairment test.

Based on management's assessment as of September 1, 2020, it was not more likely than not that the fair value of each reporting unit with allocated goodwill was below its carrying value.

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SCHNITZER STEEL INDUSTRIES, INC.

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

The gross change in the carrying amount of goodwill for the ~~three~~six months ended ~~November 30, 2017~~February 28, 2021 was as follows (in thousands):

	Goodwill
September 1, 2020	$	169,627
Foreign currency translation adjustment		473
February 28, 2021	$	170,100

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

Accumulated goodwill impairment charges were ~~$471~~$471 million as of ~~November 30, 2017~~February 28, 2021 and August 31, ~~2017.~~

2020.

Note 54 - 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, 2021 were as follows (in thousands):

Balance as of September 1, 2020

Liabilities

Established

(Released), Net

Payments and

Other

Balance as of

February 28, 2021

Short-Term

Long-Term

53,464

14,974

(1,498

)

66,940

12,975

53,965

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, 2021 and August 31, ~~2017,~~2020, the ~~Company's recycling operations~~Company had environmental liabilities of ~~$55~~$67 million and ~~$48~~$53 million, respectively, for the potential remediation of locations where it has conducted business or has environmental liabilities from historical or recent activities. The liabilities relate to the investigation and potential future remediation of contaminated sediments and riverbanks, soil contamination, groundwater contamination, storm water runoff issues and other natural resource damages. Except for Portland Harbor and certain liabilities discussed ~~under Other~~under “Other Legacy Environmental Loss ~~Contingencies immediately~~Contingencies” below, such liabilities were not individually material at any site.

Portland Harbor

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”). The precise nature and extent of ~~any~~ cleanup of any specific areas within the Site, 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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~~NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

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 contribution or damage claims with respect to the Site.

While the Company participated in certain preliminary Site study efforts, it was not party to the consent order entered into by the EPA with certain other PRPs, referred to as the “Lower Willamette Group” (“LWG”), for a remedial investigation/feasibility study (“RI/FS”). During fiscal 2007, the Company and certain other parties agreed to an interim settlement with the LWG under which the Company made a cash contribution to the LWG RI/FS. The LWG has indicated that it had incurred over ~~$115~~$155 million in investigation-related costs over an approximately 1018 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.

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NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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"~~(“AP”) and implementation of several early studies, was substantially completed in 2010. ~~The~~In December 2017, 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. In late May 2018, the Trustee Council published notice of its intent to proceed with 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~~is proceeding with the process established by 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 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 ~~such~~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.

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 ranging 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~~EPA’s risk and remedial alternatives assessments, cost estimates, scheduling assumptions and conclusions regarding the feasibility and effectiveness of remediation technologies.



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~~NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

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, EPA proposed that the PRPs, or a subgroup of PRPs, perform the additional investigative work identified in the ROD under a new consent order.

In December 2017, the Company and ~~three~~3 other PRPs entered into a new Administrative Settlement Agreement and Order on Consent with EPA to perform such pre-remedial design investigation and baseline sampling over a two-year period. The Company ~~estimates~~estimated that its share of the costs of performing such work ~~will~~would be approximately $2 million, which it accrued in fiscal 2018. Such costs were fully covered by existing insurance coverage and, thus, the Company also recorded an insurance receivable for $2 million in fiscal 2018, resulting in no net impact to the Company’s consolidated results of operations.

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SCHNITZER STEEL INDUSTRIES, INC.

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

The pre-remedial design investigation and baseline sampling work has been completed, and the report evaluating the data was submitted to EPA on June 17, 2019. The evaluation report concludes that Site conditions have improved substantially since the data forming the basis of the ROD was collected over a decade ago. The analysis contained in the report has significant implications for remedial design and remedial action at the Site. EPA has reviewed the report, finding with a few limited corrections that the data is of suitable quality and generally acceptable and stating that such data will be used, in addition to existing and forthcoming design-level data, to inform implementation of the ROD. However, EPA did not agree that the data or the analysis warrants a change to the remedy at this time and reaffirmed its commitment to proceed with remedial design. The Company and other PRPs disagree with EPA’s position on use of the more recent data and will continue to pursue limited, but critical, changes to the selected remedy for the Site during the remedial design phase.

EPA encouraged PRPs to step forward (individually or in groups) to enter into consent agreements to perform remedial design covering the entire Site and proposed dividing the Site into 8 to 10 subareas for remedial design. While certain PRPs executed consent agreements for remedial design work, because of EPA’s refusal to date to modify the remedy to reflect the most current data on Site conditions and because of concerns with the terms of the consent agreement, the Company elected not to enter into a consent agreement for remedial design with respect to any of the subareas at the Site. On March 26, 2020, EPA issued a unilateral administrative order (UAO) to the Company and MMGL, LLC (“MMGL”), an unaffiliated company, for the remedial design work in the portion of one of the EPA identified subareas within the Site designated as the River Mile 3.5 East Project Area. Following a conference with the Company to discuss the UAO and written comments submitted by the Company, EPA made limited modifications to the UAO and issued an amendment to the UAO on April 27, 2020 with an effective date of May 4, 2020. As required by the UAO, the Company notified EPA of its intent to comply with the UAO on the effective date 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, EPA’s expected schedule for completion of the remedial design work is four years. EPA has estimated the cost of the work at approximately $4 million. The Company has agreed with the other respondent to the UAO, MMGL, that the Company will lead the performance and be responsible for a portion of the costs of the work for remedial design under the UAO and also entered into an agreement with another PRP pursuant to which such 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 the Site as between the respondents or with respect to any third party. The Company estimated that its share of the costs of performing such work under the UAO would be approximately $3 million, which it recorded to environmental liabilities and selling, general and administrative expense in the consolidated financial statements in the ~~first~~third quarter of fiscal ~~2018.~~2020. The Company has insurance policies that it believes ~~that such~~will provide reimbursement for costs ~~will be fully covered by existing insurance coverage and, thus, has also~~it incurs for remedial design, but not for any penalties. In the second quarter of fiscal 2021, the Company recorded an insurance receivable and a related insurance recovery to selling, general and administrative expense for ~~$2 million~~approximately $3 million. See “Other Assets” in Note 1 – Summary of Significant Accounting Policies for further discussion of receivables from insurers. The Company also expects to pursue in the ~~first quarter~~future allocation or contribution from other PRPs for a portion of ~~fiscal 2018, resulting~~such remedial design costs. In February 2021, EPA announced that 100 percent of the Site’s areas requiring active cleanup are in ~~no net impact~~the remedial design phase of the process.

The Company’s environmental liabilities as of February 28, 2021 and August 31, 2020 included $6 million and $4 million, respectively, relating to the ~~Company's consolidated results of operations.~~

Portland Harbor matters described above.

Except for certain early action projects in which the Company is not involved, remediation activities are not expected to commence for a number of years. Moreover, remediation activities at the Site are expected to be sequenced, and the order and timing of such sequencing has not been determined. In addition, as discussed above, responsibility for implementing and funding the remedy will be determined in a separate allocation ~~process.~~process, which is on-going. 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 is collected.~~

process.

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, the~~ amount of natural resource damages or of the allocation among the PRPs of costs of the investigations, ~~and any remedy and~~remedial action costs or natural resource damages, ~~among the PRPs,~~ 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, 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 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, which are factors that will play a substantial role in determining the allocation of investigation and remedy costs among the PRPs.

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NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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

Company. Neither MMGL nor its appointee to co-manage the 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. No liabilities have been established in connection with these investigations beyond the costs of investigation and design, which costs have not been material to date, 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.

Other Legacy Environmental Loss Contingencies

The Company’s environmental loss contingencies as of ~~November 30, 2017~~February 28, 2021 and August 31, ~~2017,~~2020, other than Portland Harbor, include actual or possible investigation and cleanup 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 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 and cleanup 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 of~~ fiscal 2018, the Company accrued $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 February 28, 2021 and August 31, 2020, 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~~0 and $28 million based on a range of remedial alternatives and subject to development and approval by regulators of a specific remedy implementation plan. However, subsequent to the development of those remedial alternatives, the Company performed additional investigative activities under new state requirements that have the potential to impact the required remedial actions and associated cost estimates pending further 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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~~NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

~~Steel Manufacturing Operations~~

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

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SCHNITZER STEEL INDUSTRIES, INC.

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

In addition, the Company’s loss contingencies as of ~~November 30, 2017~~February 28, 2021 and August 31, ~~2017.~~

2020 included $9 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. Investigation activities have been conducted under the oversight of the applicable state regulatory agency, and the Company has also been working with local officials with respect to the protection of public water supplies. The ~~steel mill's electric arc furnace generates dust (“EAF dust”)~~increase in the loss contingency accrual in the first six months of fiscal 2021 primarily reflects accrual in the second quarter of $4 million for incremental estimated remediation costs, partially offset by payment during the first quarter of penalties in the amount of $2.7 million pursuant to the previously agreed settlement. It is reasonably possible that ~~is classified as hazardous waste by~~ the ~~EPA because~~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 of cost estimates and implementation of the approved remediation plan. As part of its ~~zinc and lead content. As a result,~~activities relating to the protection of public water supplies, the Company ~~captures~~has agreed to reimburse the ~~EAF dust~~municipality for certain studies and ~~ships~~plans, and it is reasonably possible that it may incur additional liabilities and costs in ~~specialized rail cars~~the future, including for wellhead treatment, which in the case of costs for installation of wellhead treatment, if incurred, could be in the range of $10 million to ~~firms that apply treatments that allow~~$13 million.

In addition, the Company’s loss contingencies as of February 28, 2021 and August 31, 2020 included $8 million and less than $1 million, respectively, 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.

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SCHNITZER STEEL INDUSTRIES, INC.

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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~~5 - 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, 2021									Three Months Ended February 29, 2020
	Foreign Currency Translation Adjustments			Pension Obligations, Net			Total			Foreign Currency Translation Adjustments			Pension Obligations, Net			Total
Balances - December 1 (Beginning of period)	$	(33,945	)	$	(2,947	)	$	(36,892	)	$	(35,478	)	$	(3,047	)	$	(38,525	)
Other comprehensive income (loss) before reclassifications		1,572			0			1,572			(630	)		0			(630	)
Income tax benefit		0			0			0			0			0			0
Other comprehensive income (loss) before reclassifications, net of tax		1,572			0			1,572			(630	)		0			(630	)
Amounts reclassified from accumulated other comprehensive loss		0			49			49			0			148			148
Income tax (benefit)		0			(11	)		(11	)		0			(33	)		(33	)
Amounts reclassified from accumulated other comprehensive loss, net of tax		0			38			38			0			115			115
Net periodic other comprehensive income (loss)		1,572			38			1,610			(630	)		115			(515	)
Balances - February 28 and 29, respectively (End of period)	$	(32,373	)	$	(2,909	)	$	(35,282	)	$	(36,108	)	$	(2,932	)	$	(39,040	)

	Six Months Ended February 28, 2021									Six Months Ended February 29, 2020
	Foreign Currency Translation Adjustments			Pension Obligations, Net			Total			Foreign Currency Translation Adjustments			Pension Obligations, Net			Total
Balances - September 1 (Beginning of period)	$	(34,184	)	$	(2,687	)	$	(36,871	)	$	(35,689	)	$	(3,074	)	$	(38,763	)
Other comprehensive income (loss) before reclassifications		1,811			(385	)		1,426			(419	)		(17	)		(436	)
Income tax benefit		—			87			87			—			4			4
Other comprehensive income (loss) before reclassifications, net of tax		1,811			(298	)		1,513			(419	)		(13	)		(432	)
Amounts reclassified from accumulated other comprehensive loss		—			98			98			—			200			200
Income tax (benefit)		—			(22	)		(22	)		—			(45	)		(45	)
Amounts reclassified from accumulated other comprehensive loss, net of tax		—			76			76			—			155			155
Net periodic other comprehensive income (loss)		1,811			(222	)		1,589			(419	)		142			(277	)
Balances - February 28 and 29, respectively (End of period)	$	(32,373	)	$	(2,909	)	$	(35,282	)	$	(36,108	)	$	(2,932	)	$	(39,040	)

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.~~

presented.

Table of Contents

SCHNITZER STEEL INDUSTRIES, INC.

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Note 96 - Revenue

Disaggregation of Revenues

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

	Three Months Ended				Six Months Ended
	February 28,		February 29,		February 28,		February 29,
	2021		2020		2021		2020
Major product information:
Ferrous revenues	$	322,679	$	232,066	$	574,885	$	431,964
Nonferrous revenues		147,322		94,522		267,031		192,363
Steel revenues⁽¹⁾		99,191		85,539		187,605		162,864
Retail and other revenues		30,919		27,355		62,697		57,875
Total revenues	$	600,111	$	439,482	$	1,092,218	$	845,066
Revenues based on sales destination:
Foreign	$	332,197	$	224,503	$	600,596	$	442,985
Domestic		267,914		214,979		491,622		402,081
Total revenues	$	600,111	$	439,482	$	1,092,218	$	845,066

(1)	Steel revenues include primarily sales of finished steel products, semi-finished goods (billets) and 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, 2021 and August 31, 2020, receivables from contracts with customers, net of an allowance for credit losses, totaled $208 million and $135 million, respectively, representing 99% and 97%, respectively, of total accounts receivable reported on the Unaudited Condensed Consolidated Balance Sheets.

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 consist almost entirely of customer deposits for recycled scrap metal sales contracts, which are reported within accounts payable on the Unaudited Condensed Consolidated Balance Sheets and totaled $8 million as of each of February 28, 2021 and August 31, 2020. 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. During the three and six months ended February 28, 2021, the Company reclassified $1 million and $6 million, respectively, in customer deposits as of August 31, 2020 to revenues as a result of satisfying performance obligations during the respective periods. During the three and six months ended February 29, 2020, the Company reclassified less than $1 million and $2 million, respectively, in customer deposits as of August 31, 2019 to revenues as a result of satisfying performance obligations during the respective periods.

Note 7 - Share-Based Compensation

In the first quarter of fiscal ~~2018,~~2021, 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~~317,760 restricted stock units ~~("RSUs"~~(“RSUs”) and ~~246,161~~316,649 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% per year commencing October 31, ~~2018.~~2021. 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 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 2021, the performance ~~share awards based~~metrics were the Company’s total shareholder return (“TSR”) relative to a designated peer group and the Company’s 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. The number of shares that a participant receives is equal to the number of performance shares granted multiplied by a payout factor, which ranges from a threshold of 50% to a maximum of 200% ~~based on the relative ranking 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 value of the payout reaches a defined ceiling level or the ~~Company's~~Company’s TSR is negative.

The Company granted 157,791 performance share awards based on its relative TSR metric over a performance period spanning November 9, 2020 to August 31, 2023. The Company estimates the fair value of TSR awards ~~contain~~using a ~~market condition and, therefore, once~~Monte-Carlo simulation model utilizing several key assumptions, including the ~~award recipients complete the requisite service period, the related compensation expense based~~following for TSR awards granted on ~~the grant-date fair value is not changed, regardless of whether the market condition has been satisfied.~~ November 9, 2020:

	Percentage
Expected share price volatility (SSI)		48.5	%
Expected share price volatility (Peer group)		54.9	%
Expected correlation to peer group companies		44.5	%
Risk-free rate of return		0.23	%

The estimated fair value of the TSR awards at the date of grant was $3$4 million. The ~~Company estimated the fair value of~~compensation expense for the TSR awards ~~using~~based on the grant-date fair value, net of estimated forfeitures, is recognized over the requisite service period (or to the date a ~~Monte-Carlo simulation model utilizing several key assumptions including expected~~qualifying employment termination event entitles the recipient to a prorated award, if before the end of the service period), regardless of whether the market condition has been or will be satisfied.

The 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~~granted 158,858 performance share awards ~~have a~~ based on its ROCE for the three-year performance period consisting of the Company’s ~~2018, 2019~~2021, 2022 and ~~2020~~2023 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$4 million.



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

The Company accrues compensation ~~expense associated with~~cost for ROCE awards based on the probable outcome of achieving specified performance ~~share awards is recognized~~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. 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 service 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.~~

2023.

In the second quarter of fiscal 2021, the Company granted deferred stock units (“DSUs”) to each of its non-employee directors under the Company’s SIP. Each DSU gives the director the right to receive 1 share of Class A common stock at a future date. The grant included an aggregate of 28,042 shares that will vest in full on the day before the Company’s 2022 annual meeting of shareholders, subject to continued Board service. The total fair value of these awards at the grant date was $1 million.

Table of Contents

SCHNITZER STEEL INDUSTRIES, INC.

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Note 108 - 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 %

~~_____________________________~~


~~(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.~~

~~The~~ effective tax rate from continuing operations for the second quarter and first ~~quarter~~six months of fiscal ~~2018~~2021 was an expense on pre-tax income of 20.1% and ~~2017~~22.1%, respectively, compared to an expense on pre-tax income of 28.2% and a benefit on pre-tax loss of 26.8%, respectively, for the comparable prior year periods. The Company’s effective tax rate from continuing operations for the second quarter and first six months of fiscal 2021 was lower than that for the comparable prior year periods primarily due to the benefit from the foreign derived intangible income deduction in fiscal 2021 and the effects of higher pre-tax income compared to the prior year periods. The Company’s effective tax rate from continuing operations for the second quarter and first six months of fiscal 2020 was higher than the U.S. federal statutory rate of ~~35%~~21% primarily due to the ~~lower~~impact of non-deductible officers’ compensation and other expenses, as well as the aggregate impact of state taxes, on the projected annual effective tax rate applied to the quarterly results.

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 ~~allowance positions partially offset by increases in~~allowances against deferred tax ~~liabilities from indefinite-lived~~ assets inare required. The Company maintains valuation allowances against certain state, Canadian and all ~~jurisdictions.~~

Puerto Rican deferred tax 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~~2020 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 119 - 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						Six Months Ended
	February 28,			February 29,			February 28,			February 29,
	2021			2020			2021			2020
Income (loss) from continuing operations	$	45,649		$	4,503		$	60,755		$	(2,090	)
Net income attributable to noncontrolling interests		(1,091	)		(621	)		(2,051	)		(1,051	)
Income (loss) from continuing operations attributable to SSI shareholders		44,558			3,882			58,704			(3,141	)
Income (loss) from discontinued operations, net of tax		30			1			(12	)		29
Net income (loss) attributable to SSI shareholders	$	44,588		$	3,883		$	58,692		$	(3,112	)
Computation of shares:
Weighted average common shares outstanding, basic		27,991			27,721			27,899			27,618
Incremental common shares attributable to dilutive performance share awards, restricted stock units and deferred stock units		871			418			774			—
Weighted average common shares outstanding, diluted		28,862			28,139			28,673			27,618

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

NaN common stock equivalent shares were considered antidilutive for the three months ended February 28, 2021. Common stock equivalent shares of ~~1,086,335~~103,566 were considered antidilutive and were excluded from the calculation of diluted net ~~loss~~income (loss) per share attributable to SSI shareholders for the six months ended February 28, 2021, compared to 531,305 and 687,247 for the three and six months ended ~~November 30, 2016. No common stock equivalent shares were considered antidilutive for the three months ended November 30, 2017.~~

February 29, 2020, respectively.

Note 1210 - Related Party Transactions

The Company purchases recycled metal from its joint venture operations at prices that approximate fair market value. These purchases totaled $3$5 million and $3 millionfor the three months ended ~~November 30, 2017~~February 28, 2021 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 revenuesFebruary 29, 2020, 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$6 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, 2021 and February 29, 2020, respectively.

Table of ~~the reorganized segments. Recasting this historical information did not have an impact on the Company's consolidated financial performance for any of the periods presented.~~

AMR buys and processes ferrous and nonferrous scrap metal for sale to foreign and domestic steel producers or their representatives and procures salvaged vehicles and sells serviceable used auto parts from these vehicles through a network of self-service auto parts stores. These auto parts stores also supply the Company's shredding facilities with autobodies that are processed into saleable recycled scrap metal. CSS operates a steel mini-mill that produces a range of finished steel long products using recycled scrap metal and other raw materials. CSS's steel mill obtains substantially all of its recycled scrap metal raw material requirements from its integrated metals recycling and joint venture operations. CSS's metals recycling operations also sell recycled metal to external customers primarily in export markets.



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

The Company holds noncontrolling ownership interests in joint ventures, which are either in the metals recycling business or are suppliers of unprocessed metal. The Company's allocable portion of the results of these joint ventures is reported within the segment results. Three of the joint venture interests are presented as part of AMR operations, and one interest is presented as part of CSS operations. The joint ventures sell recycled scrap metal to AMR and to CSS at prices that approximate local market rates, which produces intercompany profit. This intercompany profit is eliminated while the products remain in inventory and is not recognized until the finished products are sold to third parties.

Intersegment sales from AMR to CSS are made at prices that approximate local market rates. These intercompany sales tend to produce intercompany profits which are not recognized until the finished products are ultimately sold to third parties.

The information provided below is obtained from internal information that is provided to the Company’s chief operating decision maker for the purpose of corporate management. The Company uses segment operating income to measure segment performance. The Company does not allocate corporate interest income and expense, income taxes and other income and expense to its reportable segments. 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 reportable segments. Because of the unallocated income and expense, the operating income of each reportable segment does not reflect the operating income the reportable segment would report as a stand-alone business. In addition, the Company does not allocate restructuring charges and other exit-related activities and charges related to certain legacy environmental liabilities to the segment operating income because management does not include this information in its measurement of the performance of the operating segments. The results of discontinued operations are excluded from segment operating income and are presented separately, net of tax, from the results of ongoing operations for all periods presented.

~~The table below illustrates the Company’s revenues from continuing operations by reportable segment (in thousands):~~

Three Months Ended November 30,
2017 2016
Revenues:
Auto and Metals Recycling:
Revenues $ 398,054
$ 271,773
Less: Intersegment revenues (4,759 ) (3,635 )
AMR external customer revenues 393,295
268,138
Cascade Steel and Scrap
Revenues 89,984
66,023
Total revenues $ 483,279
$ 334,161

~~The table below illustrates the reconciliation of the Company’s segment operating income to income (loss) from continuing operations before income taxes (in thousands):~~

Three Months Ended November 30,
2017 2016
Auto and Metals Recycling $ 35,172
$ 12,606
Cascade Steel and Scrap 8,476
(2,628 )
Segment operating income 43,648
9,978
Restructuring charges and other exit-related activities (100 ) (201 )
Corporate and eliminations (17,125 ) (9,190 )
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 )



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

~~The following is a summary of the Company’s total assets by reportable segment (in thousands):~~

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

~~_____________________________~~


~~(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.~~

Contents



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


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

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, 2021 and ~~2016.~~February 29, 2020. 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~~2020, and the Unaudited Condensed Consolidated Financial Statements and the related Notes thereto included in Part I, Item 1 of this report.

General

Founded in 1906, Schnitzer Steel Industries, Inc. ~~("SSI"~~(“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~~ As a vertically integrated organization, we offer a range of products and services to meet global demand through our network that includes 50 retail self-service auto parts stores, 44 metals recycling facilities and a steel mini-mill in Oregon.

Prior to the first quarter of fiscal 2021, our internal organizational and reporting structure ~~supports~~included two operating and reportable segments: the Auto and Metals Recycling ~~("AMR"~~(“AMR”) business and the Cascade Steel and Scrap ~~business ("CSS"~~(“CSS”).

~~Prior to~~ business. In the ~~fourth~~first quarter of fiscal 2017, 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 2017,2021, in accordance with our plan announced in ~~June 2017,~~April 2020, we ~~modified our~~completed the transition to a new internal organizational and reporting structure ~~to combine~~reflecting a functionally-based, integrated model, supporting a single segment. We consolidated our ~~steel manufacturing~~ operations, ~~which had been reported as~~sales, services and other functional capabilities at an enterprise level reflecting enhanced focus by management on optimizing our SMB segment, with our Oregon metals recycling operations, which had been reported within our AMR segment, forming a new division named Cascade Steel and Scrap ("CSS"). 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.vertically integrated value chain. We began reporting ~~under~~on this new ~~segment~~single-segment structure in the ~~fourth~~first quarter of fiscal ~~2017~~2021 as reflected in our ~~Annual~~Quarterly Report on Form ~~10-K~~10-Q for the ~~year~~quarterly period 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~~November 30, 2020.

We sell 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 vehicles,~~We also sell a range of finished steel long products produced at our steel mini-mill. We acquire, process and recycle auto bodies, rail cars, home appliances, industrial machinery, manufacturing scrap and construction and demolition scrap through ~~its 92 auto and metals~~our recycling 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 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 when economically advantageous. AMR then processes~~third parties where 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 and sorting, resulting in scrap metal pieces of a size, density and metal content required by customers to meet their production needs.

~~CSS operates~~ The manufacturing process includes physical separation of ferrous and nonferrous materials through automated and manual processes into various sub-classifications, each of which has a value and metal content used by our customers for their end products. We use a variety of shredding and separation systems to efficiently process and sort recycled scrap metal. Our steel mini-mill ~~in McMinnville, Oregon that~~ produces ~~a range of~~ finished steel ~~long~~ products such as ~~reinforcing bar (rebar) and~~rebar, wire rod, coiled rebar, merchant bar and ~~sells to industrial customers primarily in North America. The primary feedstock for the manufacture of its~~other specialty products isusing ferrous recycled scrap ~~metal. CSS's steel mill obtains substantially all of its scrap~~ metal ~~raw material requirements~~primarily sourced internally from ~~its integrated metals~~our recycling and joint venture ~~operations. CSS's metals recycling~~ operations ~~are comprised~~and other raw materials.

Our deep water port facilities on both the East and West Coasts of ~~a collection, shredding~~the U.S. (in Everett, Massachusetts; Providence, Rhode Island; Oakland, California; Tacoma, Washington; and ~~export operation in~~ Portland, ~~Oregon, four feeder yard operations~~Oregon) and access to public deep water port facilities (in Kapolei, Hawaii and Salinas, Puerto Rico) allow us to efficiently meet the global demand for recycled ferrous metal by enabling us to ship bulk cargoes to steel manufacturers located in ~~Oregon~~Europe, Africa, the Middle East, Asia, North America, Central America and ~~Southern Washington,~~South America. Our exports of nonferrous recycled metal are shipped in containers through various public docks to specialty steelmakers, foundries, aluminum sheet and ~~one metals recycling joint venture ownership interest. Additionally, CSS purchases small volumes of ferrous scrap~~ingot manufacturers, copper refineries and smelters, brass and bronze ingot manufacturers, wire and cable producers, wholesalers, and other recycled metal ~~from AMR and sells~~processors globally. We also transport both ferrous and nonferrous ~~recycled~~metals by truck, rail and barge in order to transfer scrap metal ~~into the~~between our facilities for further processing, to load shipments at our export ~~market.~~

~~We use operating income~~facilities, and to ~~measure our segment performance. Restructuring charges and other exit-related activities are not allocated to segment operating income because we do not include this information in our measurement~~meet regional domestic demand.

Table 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.



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

Contents

SCHNITZER STEEL INDUSTRIES, INC.

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.~~results. We believe we generally benefit from sustained periods of stable or rising recycled scrap metal selling prices, which allow us to better maintain or increase both operating ~~income~~results and unprocessed scrap metal flow into our facilities. When recycled scrap metal selling prices decline, either sharply or for a sustained period, our operating margins typically compress.

Our ~~deep water port facilities~~results of operations also depend on ~~both~~ the ~~East~~demand and ~~West Coasts of~~prices for our finished steel products, which are sold to customers located primarily in the ~~United States (in Everett, Massachusetts; Providence, Rhode Island; Oakland, California; Tacoma, Washington;~~Western U.S. and Portland, Oregon) and access to public deep water port facilities (in Kapolei, Hawaii; and Salinas, Puerto Rico) allow us to efficiently meet the global demand for recycled ferrous metal by shipping bulk cargoes to steel manufacturers located in Europe, Africa, the Middle East, Asia, and North, Central 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 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.

Western Canada.

Our quarterly operating results fluctuate based on a variety of factors including, but not limited to, changes in market conditions for 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~~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 at our facilities and production levels in our yards, and retail admissions and parts sales at our auto parts stores.



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

~~Executive Overview~~ Further, trade actions, including tariffs and any retaliation by affected countries, and licensing 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.

Coronavirus Disease 2019 (COVID-19)

We continue to monitor the impact of COVID-19 on all aspects of our business. The COVID-19 outbreak, which the World Health Organization characterized as a pandemic in March 2020, has resulted in governments around the world implementing measures with various levels of stringency to help control the spread of the virus. In addition, governments and central banks in several parts of the world have enacted fiscal and monetary stimulus measures to counteract the impacts of COVID-19. We are a company operating in a critical infrastructure industry, as defined by the U.S. Department of Homeland Security. Consistent with federal guidelines and with state and local orders to date, we have continued to operate across our footprint throughout the COVID-19 pandemic. Ensuring the health and welfare of our employees, and all who visit our sites, is our top priority, and we are following all U.S. Centers for Disease Control and Prevention and state and local health department guidelines. Further, we implemented infection control measures at all our sites and put in place travel and in-person meeting restrictions and other physical distancing measures. Following the onset of COVID-19 and its negative effects on our business, most prominently reflected in our third quarter fiscal 2020 results, global economic conditions improved during the first half of our fiscal 2021, resulting in increased demand for our products, which led to our earnings for the ~~First Quarter~~second quarter and first six months of ~~Fiscal 2018~~

our fiscal 2021 exceeding the results for the pre-pandemic comparable prior periods. While the ongoing effects of the COVID-19 pandemic could negatively impact our results of operations, cash flows and financial position, the current level of uncertainty over the economic and operational impacts of COVID-19 means the related financial impact cannot be reasonably estimated at this time.

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 ~~generated consolidated revenues~~believe that providing these non-GAAP financial measures adds a meaningful presentation of ~~$483 million~~our operating and financial performance, liquidity and capital structure. For example, following the modification of our internal organizational and reporting structure completed in the first quarter of fiscal ~~2018, an increase~~2021, we use adjusted EBITDA as one of ~~45%~~the measures to compare and evaluate financial performance. Adjusted EBITDA is the sum of our net income before results from discontinued operations, interest expense, income taxes, depreciation and amortization, restructuring charges and other exit-related activities, charges for legacy environmental matters (net of recoveries), business development costs, asset impairment charges (net of recoveries) 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 U.S. 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 2021

•

Diluted earnings per share from continuing operations attributable to SSI shareholders in the second quarter of fiscal 2021 was $1.54, compared to $0.14 in the prior year quarter.

•

Adjusted diluted earnings per share from continuing operations attributable to SSI shareholders in the second quarter of fiscal 2021 was $1.51, compared to $0.31 in the prior year quarter.

•

Net income in the second quarter of fiscal 2021 was $46 million, compared to $5 million in the prior year quarter.

•

Adjusted EBITDA in the second quarter of fiscal 2021 was $71 million, compared to $28 million in the prior year quarter.

Market conditions for recycled metals improved in the second quarter of fiscal 2021, including sharply rising selling prices that reached multi-year highs for certain recycled metal commodities. Average net selling prices for our ferrous and nonferrous products increased significantly compared to the prior year quarter. In the second quarter of fiscal 2021, the average net selling prices for our ferrous and nonferrous products increased by 52% and 51%, respectively, compared to the prior year period. Market conditions for our finished steel products also improved in the second quarter of fiscal 2021, which contributed to higher finished steel average selling prices and sales volumes compared to the prior year period. Our results in the second quarter of fiscal 2021 reflected substantial benefits from the ~~$334 million~~higher price environment for most of ~~consolidated revenues~~our products including a significant expansion in our ferrous metal spreads and a favorable impact from average inventory accounting, as well as increased nonferrous and finished steel sales volumes, compared to the prior year period. We also benefited in the quarter from commercial initiatives and productivity improvements that were supported by the implementation of our One Schnitzer functionally-based organization model completed in the first quarter of fiscal 2017, reflecting significantly improved market conditions for recycled metals in the domestic and export markets, and for our finished steel products, 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 in the first quarter of fiscal 2018, compared to $1 million 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 recycled metals and an improving trend in U.S. economic conditions which led to higher average net selling prices and sales volumes, and increased supply of scrap metal, including end-of-life vehicles, compared to the prior year quarter. The higher price environment positively impacted the spread between direct purchase costs and selling prices of ferrous recycled metal at AMR, with the metal spread for the first quarter of fiscal 2018 expanding by approximately 50% compared to the prior year quarter. AMR's operating results also benefited from cost efficiencies resulting from higher processed volumes 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 imports 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 was partially offset by incremental benefits from cost savings 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.

2021.

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

•

For the first six months of fiscal 2021, net cash used in operating activities was $3 million, compared to net cash provided by operating activities of $17 million in the prior year comparable period.

•

Debt was $171 million as of February 28, 2021, compared to $104 million as of August 31, 2020.

•

Debt, net of cash, was $159 million as of February 28, 2021, compared to $87 million as of August 31, 2020.

See the ~~first quarter~~reconciliations of ~~fiscal 2018:~~

~~Net cash used in operating activities of $16 million, compared~~adjusted diluted earnings per share from continuing operations attributable to ~~net cash provided by operating activities of $6 million in the prior year period;~~

~~Debt of $185 million as of November 30, 2017, compared to $145 million as of August 31, 2017;~~SSI shareholders, adjusted EBITDA, and

~~Debt, net of cash, of $176 million as of November 30, 2017, compared to $138 million as of August 31, 2017 (see the reconciliation of~~ debt, net of cash in Non-GAAP Financial Measures at the end of this Item ~~2).~~

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

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 %

	Three Months Ended									Six Months Ended
($ in thousands, except for prices	February 28,			February 29,			Change			February 28,			February 29,			Change
and per share amounts)	2021			2020			%			2021			2020			%
Ferrous revenues	$	322,679		$	232,066			39	%	$	574,885		$	431,964			33	%
Nonferrous revenues		147,322			94,522			56	%		267,031			192,363			39	%
Steel revenues⁽¹⁾		99,191			85,539			16	%		187,605			162,864			15	%
Retail and other revenues		30,919			27,355			13	%		62,697			57,875			8	%
Total revenues		600,111			439,482			37	%		1,092,218			845,066			29	%
Cost of goods sold		487,025			380,520			28	%		907,119			745,280			22	%
Gross margin (total revenues less cost of goods sold)	$	113,086		$	58,962			92	%	$	185,099		$	99,786			85	%
Gross margin (%)		18.8	%		13.4	%		40	%		16.9	%		11.8	%		44	%
Selling, general and administrative expense	$	54,142		$	46,426			17	%	$	104,048		$	93,200			12	%
Diluted earnings (loss) per share from continuing operations attributable to SSI shareholders:
Reported	$	1.54		$	0.14			1,000	%	$	2.05		$	(0.11	)	NM
Adjusted⁽²⁾	$	1.51		$	0.31			387	%	$	2.09		$	0.14			1,393	%
Net income (loss)	$	45,679		$	4,504			914	%	$	60,743		$	(2,061	)	NM
Adjusted EBITDA⁽²⁾	$	71,411		$	28,265			153	%	$	111,666		$	38,100			193	%
Average ferrous recycled metal sales prices ($/LT)⁽³⁾:
Domestic	$	349		$	244			43	%	$	297		$	222			34	%
Foreign	$	399		$	258			55	%	$	334		$	243			37	%
Average	$	387		$	255			52	%	$	326		$	235			39	%
Ferrous volumes (LT, in thousands):
Domestic⁽⁴⁾		391			379			3	%		779			743			5	%
Foreign		586			609			(4	)%		1,251			1,221			2	%
Total ferrous volumes (LT, in thousands)⁽⁴⁾		977			988			(1	)%		2,030			1,964			3	%
Average nonferrous sales price ($/pound)⁽³⁾⁽⁵⁾	$	0.83		$	0.55			51	%	$	0.74		$	0.55			35	%
Nonferrous volumes (pounds, in thousands)⁽⁴⁾⁽⁵⁾		135,899			124,342			9	%		274,135			268,518			2	%
Finished steel average sales price ($/ST)⁽³⁾	$	690		$	627			10	%	$	656		$	635			3	%
Finished steel sales volumes (ST, in thousands)		136			129			6	%		270			242			11	%
Cars purchased (in thousands)⁽⁶⁾		80			85			(6	)%		158			168			(6	)%
Number of auto parts stores at period end		50			51			(2	)%		50			51			(2	)%
Rolling mill utilization⁽⁷⁾		88	%		72	%		22	%		93	%		79	%		18	%

~~_____________________________~~

NM = Not Meaningful


~~(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.~~

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.



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

~~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 %

~~_____________________________~~

LT = Long Ton, which is equivalent to 2,240 ~~pounds~~

pounds. ST = Short Ton, which is equivalent to 2,000 pounds.

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

~~(1)~~

(2)

See the reconciliations of Non-GAAP Financial Measures at the end of this Item 2.

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

(4)	Ferrous and nonferrous volumes sold externally and delivered to our steel mill for finished steel production.

~~(2)~~

(5)

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

(6)
~~(3)~~	Cars purchased by auto parts stores only.

~~AMR Segment Revenues~~

Revenues in the first quarter of fiscal 2018 increased by 46% compared to the prior year period primarily due to stronger market conditions for recycled metals in the domestic and export markets resulting in higher average net selling prices and increased sales volumes compared to the prior year period. Average net selling prices for shipments of ferrous scrap metal in the first quarter of fiscal 2018 increased by 51% compared to the prior year period. Ferrous sales volumes in the first quarter of fiscal 2018 increased by 11% compared to the prior year period. Additionally, nonferrous average net selling prices and sales volumes in the first quarter of fiscal 2018 were higher by 26% and 3%, respectively, compared to the prior year period.

~~AMR Segment Operating Income~~

Operating income in the first quarter of fiscal 2018 was $35 million, compared to $13 million in the first quarter of fiscal 2017. Operating results at AMR in the first quarter of fiscal 2018 benefited from stronger market conditions for recycled metals and an improving trend in U.S. economic conditions which led to higher average net selling prices and sales volumes, and increased supply of scrap metal, including end-of-life vehicles, compared to the prior year quarter. The higher price environment positively impacted the spread between direct purchase costs and selling prices of ferrous recycled metal at AMR, with the metal spread for the first quarter of fiscal 2018 expanding by approximately 50% compared to the prior year quarter. AMR's operating results also benefited from cost efficiencies resulting from higher processed volumes and improved yields of nonferrous material from the shredding process. AMR selling, general and administrative ("SG&A") expense in the first quarter of fiscal 2018 increased by $5 million, or 21%, compared to the prior year period primarily due to higher employee-related expenses and other expenses related to higher volumes.


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~~Cascade Steel and Scrap~~

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 %

~~___________________________~~

~~ST = Short Ton, which is 2,000 pounds~~

~~NM = Not Meaningful~~


~~(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.~~


~~(3)~~	~~Price information is shown after netting the cost of freight incurred to deliver the product to the customer.~~


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

~~CSS Segment~~

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SCHNITZER STEEL INDUSTRIES, INC.

Revenues

Revenues in the second quarter and first six months of fiscal 2021 increased by 37% and 29%, respectively, compared to the same periods in the prior year primarily due to significantly higher average net selling prices for our ferrous and nonferrous products in both export and domestic markets. These increases were driven by stronger market conditions for recycled metals globally, including periods of sharply rising selling prices that reached multi-year highs for certain recycled metal commodities during the second quarter of fiscal 2021. In the second quarter and first six months of fiscal 2021, the average net selling price for our ferrous products increased by 52% and 39%, respectively, and the average net selling price for our nonferrous products increased by 51% and 35%, respectively, compared to the prior year periods. Nonferrous sales volumes for the second quarter and first six months of fiscal 2021 increased by 9% and 2%, respectively, compared to the prior year periods reflecting stronger demand partially offset by the effects of a shortage of available shipping containers that impacted the timing of shipments. Ferrous sales volumes in the second quarter of fiscal 2021 declined marginally compared to the prior year quarter primarily due to weather-related delays that impacted the timing of shipments. Market conditions for our finished steel products also improved in the second quarter and first six months of fiscal 2021, which contributed to higher finished steel average selling prices and sales volumes compared to the prior year periods, and reflected steady demand in West Coast construction markets and higher rolling mill utilization.

Operating Performance

Net income in the second quarter and first six months of fiscal 2021 was $46 million and $61 million, respectively, compared to net income of $5 million and net loss of $2 million, respectively, in the prior year periods. Adjusted EBITDA in the second quarter and first six months of fiscal 2021 was $71 million and $112 million, respectively, compared to $28 million and $38 million, respectively, in the prior year periods. The improvement in our results for the second quarter and first six months of fiscal 2021 reflected substantial benefits from the higher price environment for most of our products including a significant expansion in our ferrous metal spreads and a favorable impact from average inventory accounting, as well as increased nonferrous and finished steel sales volumes, compared to the prior year periods. Ferrous metal spreads in the second quarter and first six months of fiscal 2021 increased by approximately 45% and 25%, respectively, and average net selling prices for our nonferrous joint products that are recovered from the shredding process, comprising primarily zorba, increased by approximately 60% and 45%, respectively, compared to the prior year periods. Our results in the second quarter and first six months of fiscal 2021 also reflected increased contributions from sales of higher priced PGM products compared to the prior year periods and achievement of the full run rate of benefits from productivity initiatives implemented throughout fiscal 2020. In comparison, the lower price environment in the first half of fiscal 2020, which included a sharp decline in commodity prices during most of the first quarter of fiscal ~~2018~~2020 before recovering moderately in the second quarter, adversely impacted ferrous metal margins, the supply of scrap metal including end-of-life vehicles, processed volumes and overall operating results. Selling, general and administrative expense in the second quarter and first six months of fiscal 2021 increased by ~~$24 million, or 36%~~17%and 12%, respectively, compared to the prior year ~~period~~periods primarily due to higher ~~average selling prices for~~incentive compensation accruals aligned with improved business performance. See the reconciliation of adjusted EBITDA in Non-GAAP Financial Measures at the end of this Item 2.

In fiscal 2020, we implemented productivity initiatives aimed at reducing our ~~finished steel products, reflecting~~annual operating expenses, mainly through reductions in non-trade procurement spend, including outside and professional services, lower employee-related expenses and other non-headcount measures. We targeted $20 million in annual benefits from these initiatives, and we achieved the ~~impact~~full run rate of ~~higher steel-making raw material costs, and higher sales volumes for our finished steel products due to steady demand~~benefits in the ~~West Coast markets~~second quarter and ~~a reduced impact from rebar imports compared to~~first half of fiscal 2021. We achieved approximately $4 million and $6 million in realized benefits in the ~~prior year quarter. Revenues in~~second quarter and first six months of fiscal 2020, respectively.

In the first quarter of fiscal ~~2017 were adversely impacted by lower selling prices for finished steel products and reduced sales volumes reflecting competition from lower-priced rebar imports and customer de-stocking.~~

~~CSS Segment Operating Income (Loss)~~

~~Operating income~~2021, in accordance with our plan announced in April 2020, we completed the first quarter of fiscal 2018 was $8 million, compared to operating loss of $3 million in the prior year period, reflecting steady demand for finished steel products in the West Coast markets, 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. Operating margins at CSS in the first quarter of fiscal 2018 were also positively impacted by selling prices for finished steel products rising faster than cost of goods sold.

CSS's operating results in the first quarter of 2017 were adversely impacted by pressure from lower-priced rebar imports and costs of $2 million associated with a major equipment upgrade at our steel mill during that quarter. Additionally, in the first quarter of fiscal 2017, we recognized accelerated depreciation of less than $1 million due to shortening the useful lives of decommissioned machinery and equipment assets, which is reported within other asset impairment charges (recoveries), net in the Unaudited Condensed Consolidated Statements of Operations.

~~Corporate~~

Corporate expense consists primarily of unallocated SG&A expense for management and certain administrative services that benefit both reportable segments. Corporate SG&A expense for the first quarter of fiscal 2018 was $17 million compared to $9 million for the prior year period. The higher level of expense for the first three months of fiscal 2018 was primarily due to increased environmental liabilities and higher incentive compensation accruals as a result of improved operating performance.

~~Income Tax~~

~~Our effective tax rate from continuing operations for the first quarter of fiscal 2018 was an expense of 23.6%, compared~~transition to a ~~benefit~~new internal organizational and reporting structure reflecting a functionally-based, integrated model. This change in structure has resulted in a more agile organization and solidified achievement of ~~8.6% for the prior year period.~~

recent productivity improvements and cost reduction initiatives.

Income Tax

The effective tax rate from continuing operations for the second quarter and first ~~quarter~~six months of fiscal ~~2018~~2021 was an expense on pre-tax income of 20.1% and 22.1%, respectively, compared to an expense on pre-tax income of 28.2% and a benefit on pre-tax loss of 26.8%, respectively, for the comparable prior year periods. The effective tax rate from continuing operations for the second quarter and first six months of fiscal 2021 was lower than that for the comparable prior year periods primarily due to the benefit from the foreign derived intangible income deduction in fiscal 2021 and the effects of higher pre-tax income compared to the prior year periods. The effective tax rate from continuing operations for the second quarter and first six months of fiscal 2020 was higher than the U.S. federal statutory rate of ~~35%~~21% primarily due to the ~~lower~~impact of non-deductible officers’ compensation and other expenses, as well as the aggregate impact of state taxes, on the projected annual effective tax rate applied to the quarterly results. ~~The lower projected annual effective tax rate is the result~~

Table of our full valuation allowance positions partially offset by increases in deferred tax liabilities from indefinite-lived assets in all jurisdictions. The increase in the effective tax rate from continuing operations compared to the prior year period primarily reflects the projected recognition of tax expense on pre-tax book income generated after the reversal during fiscal 2018 of deferred tax assets related to net operating losses.



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The effective tax rate from continuing operations for the first quarter of fiscal 2017 was lower than the federal statutory rate of 35% primarily due to the low projected annual effective tax rate applied to the quarterly results. The low projected annual effective tax rate was the result of our full valuation allowance positions partially offset by increases in deferred tax liabilities from indefinite-lived assets in all jurisdictions.

The valuation allowances on our deferred tax assets are the result of negative objective evidence, including the effects of historical losses in our tax jurisdictions, outweighing positive objective and subjective evidence, indicating that it is more likely than not that the associated tax benefit will not be realized. Realization of the deferred tax assets is dependent upon generating sufficient taxable income in the associated tax jurisdictions in future years to benefit from the reversal of net deductible temporary differences and from the utilization of net operating losses. We will continue to regularly assess the realizability of deferred tax assets. Changes in historical earnings performance and future earnings projections, among other factors, may cause us to adjust our valuation allowance on deferred tax assets, which would impact our results of operations in the period we determine that these factors have changed. It is reasonably possible that sufficient positive evidence required to release a portion of our valuation allowance within the next twelve months may result in a reduction to the valuation allowance, which could be material.

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, we will not be subject to the majority of the tax law provisions until fiscal 2019; however, there are 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) cannot be recognized in fiscal 2018 first quarter financial results.

We continue to assess the effects of the TCJA on our consolidated financial statements. Overall, we anticipate the TCJA will favorably affect our effective tax rate, exclusive of the impact of valuation allowances, and cash flows in fiscal 2018 and in future fiscal years compared to current Federal tax laws. 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 our fiscal 2018. As a result, we expect to recognize a benefit in our tax provision as of the beginning of the second quarter of fiscal 2018 due to the revaluation of our net deferred tax liability to reflect the lower statutory rate. We also expect to record a benefit in our tax provision for fiscal 2018 to account for the effect of the retroactive rate reduction on fiscal 2018 tax expense. Further, the TCJA provides changes to a number of permanent and temporary book-to-tax differences, many of which will be effective starting in fiscal 2019, that are generally variable in nature and may be material to our future effective tax rate and cash flows, with impacts that are both beneficial and detrimental compared to the current Federal tax laws. Because of the ongoing assessment of the effects of the TCJA, we are not yet in a position to estimate the projected effective tax rate for fiscal 2018.

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SCHNITZER STEEL INDUSTRIES, INC.

Liquidity and Capital Resources

We rely on cash provided by operating activities as a primary source of liquidity, supplemented by current cash on hand and borrowings under our existing credit facilities.

Sources and Uses of Cash

We had cash balances of $9$11 million and $7$18 million as of ~~November 30, 2017~~February 28, 2021 and August 31, ~~2017,~~2020, respectively. Cash balances are intended to be used primarily for working capital, capital expenditures, dividends, share repurchases, investments and acquisitions. We use excess cash on hand to reduce amounts outstanding under our credit facilities. As of ~~November 30, 2017,~~February 28, 2021, debt was ~~$185~~$171 million compared to ~~$145~~$104 million as of August 31, ~~2017,~~2020, and debt, net of cash, was ~~$176~~$159 million as of February 28, 2021 compared to ~~$138~~$87 million as of August 31, ~~2017~~2020 (refer to Non-GAAP Financial Measures at the end of this Item 2). ~~Debt, net of cash, increased by $38 million primarily due to increased investment in working capital related to higher sales and purchase volumes.~~

Operating Activities

Net cash used in operating activities in the first ~~three~~six months of fiscal ~~2018~~2021 was ~~$16~~$3 million, compared to net cash provided by operating activities of $6$17 million in the first ~~three~~six months of fiscal ~~2017.~~

~~Uses~~2020.

Sources of cash other than from earnings in the first ~~three~~six months of fiscal ~~2018~~2021 included a ~~$47~~$45 million increase in inventory due to higher raw material purchase prices, higher volumes on hand and the impact of timing of purchases and sales, a $9 million increase in accounts receivable primarily due to increases in recycled metal selling prices and sales volumes and the timing of sales and collections, and a $18 million decrease in accrued payroll and related liabilities due to incentive compensation payments. Sources of cash in the first three months of fiscal 2018 included a $9 million increase in accounts payable primarily due to higher raw material purchase prices and the timing of ~~payments.~~



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~~Sources of cash in the three months of fiscal 2017 included~~payments, and a ~~$14~~$16 million increase in ~~accounts payable due to the timing of payments.~~income tax accruals. Uses of cash in the first ~~three~~six months of fiscal ~~2017~~2021 included a ~~$13~~$90 million increase in ~~inventory~~inventories due to higher raw material purchase prices, higher volumes on hand and the ~~impact of~~ timing of purchases and sales, and a ~~$10~~$76 million increase in accounts receivable primarily due to increases in selling prices for recycled metals and finished steel as well as the timing of sales and collections.

Sources of cash in the first six months of fiscal 2020 included a $9 million decrease in inventories due to lower raw material purchase prices and the timing of purchases and sales. Uses of cash in the first six months of fiscal 2020 included a $18 million increase in accounts receivable primarily due to the timing of sales and collections, a $8 million decrease in accounts payable primarily due to lower raw material purchase prices and the timing of payments, and a $7 million decrease in accrued payroll and related liabilities primarily due to the payment of incentive compensation ~~payments.~~

previously accrued for under our fiscal 2019 plans.

Investing Activities

Net cash used in investing activities was ~~$14~~$54 million in the first ~~three~~six months of fiscal ~~2018,~~2021, compared to ~~$11~~$36 million in the first ~~three~~six months of fiscal ~~2017.~~

2020.

Cash used in investing activities in the first ~~three~~six months of fiscal ~~2018~~2021 included capital expenditures of ~~$15~~$55 million to upgrade our equipment and infrastructure and for ~~additional~~ investments in ~~environmental-related~~advanced metals recovery technology and environmental and safety-related assets, compared to ~~$11~~$37 million in the prior year period.

Financing Activities

Net cash provided by financing activities in the first ~~three~~six months of fiscal ~~2018~~2021 was ~~$31~~$50 million, compared to ~~net cash used in financing activities of $14~~$17 million in the first ~~three~~six months of fiscal ~~2017.~~

2020.

Cash flows from financing activities in the first ~~three~~six months of fiscal ~~2018~~2021 included ~~$40~~$66 million in net ~~borrowing~~borrowings of debt, compared to $5$36 million ~~in net repayment of debt~~ in the prior year period (refer to Non-GAAP Financial Measures at the end of this Item 2). Uses of cash in the first ~~three~~six months of fiscal ~~2018~~2021 and ~~2017 also~~2020 included $5$11 million for the payment of dividends.

Cash used in financing activities in the first six months of fiscal 2020 included $1 million for share repurchases.

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SCHNITZER STEEL INDUSTRIES, INC.

Debt

Our senior secured revolving credit facilities, which provide for revolving loans of ~~$335~~$700 million and C$15 million, mature in ~~April 2021~~August 2023 pursuant to a credit agreement with Bank of America, N.A., as administrative agent, and other lenders party thereto. Interest rates on outstanding indebtedness under the credit agreement are based, at our option, on either the London Interbank Offered Rate ~~("LIBOR"~~(“LIBOR”)~~, or~~ (or the Canadian equivalent for C$ loans), plus a spread of between ~~1.75%~~1.25% and ~~2.75%~~3.50%, with the amount of the spread based on a pricing grid tied to our ratio of consolidated funded debt to EBITDA (as defined by the ~~Company’s leverage ratio,~~credit agreement), or the greater of (a) the prime rate, (b) the federal funds rate plus 0.50%, or (c) the daily rate equal to one-month LIBOR plus 1.75%, in each case, plus a spread of between ~~zero~~0.00% and ~~1.00%~~2.50% based on a pricing grid tied to ~~the Company's leverage~~our consolidated funded debt to EBITDA ratio. In addition, commitment fees are payable on the unused portion of the credit facilities at rates between 0.20% and ~~0.40%~~0.50% based on a pricing grid tied to our ~~leverage ratio.~~

ratio of consolidated funded debt to EBITDA.

We had borrowings outstanding under ~~the~~our credit facilities of ~~$180~~$157 million as of ~~November 30, 2017~~February 28, 2021 and ~~$140~~$90 million as of August 31, ~~2017.~~2020, with the increase relating primarily to funding working capital and capital expenditures. The weighted average interest rate on amounts outstanding under ~~this facility~~our credit facilities was ~~3.26%~~2.02% and ~~3.48%~~4.59% as of ~~November 30, 2017~~February 28, 2021 and August 31, ~~2017,~~2020, respectively.

We use the credit facilities to fund working capital, capital expenditures, dividends, share repurchases, investments and acquisitions. ~~The~~Our credit agreement contains various representations and warranties, events of default and financial and other customary covenants which limit (subject to certain exceptions) our ability to, among other things, incur or suffer to exist certain liens, make investments, incur or guaranty additional indebtedness, enter into consolidations, mergers, acquisitions, and sales of assets, make distributions and other restricted payments, change the nature of our business, engage in transactions with affiliates and enter into restrictive agreements, including agreements that restrict the ability of our subsidiaries to make distributions. The financial covenants under the credit agreement include (a) a consolidated fixed charge coverage ratio, defined as the four-quarter rolling sum of consolidated ~~adjusted~~ EBITDA less defined maintenance capital expenditures and certain environmental expenditures divided by consolidated fixed ~~charges;~~charges, (b) a consolidated leverage ratio, defined as consolidated funded indebtedness divided by the sum of consolidated net worth and consolidated funded ~~indebtedness;~~indebtedness, and (c) a consolidated asset coverage ratio, defined as ~~the~~ consolidated asset ~~value of eligible assets~~values divided by ~~the~~ consolidated funded indebtedness.

As of ~~November 30, 2017,~~February 28, 2021, we were in compliance with the financial covenants under ~~the~~our credit agreement. The consolidated fixed charge coverage ratio was required to be no less than ~~1.50~~1.10 to 1.00 and was ~~3.31~~4.47 to 1.00 as of ~~November 30, 2017.~~February 28, 2021. The consolidated leverage ratio was required to be no more than 0.55 to 1.00 and was ~~0.26~~0.20 to 1.00 as of ~~November 30, 2017.~~February 28, 2021. The consolidated asset coverage ratio was required to be no less than 1.00 to 1.00 and was ~~1.55~~2.39 to 1.00 as of ~~November 30, 2017.~~

~~The Company's~~February 28, 2021.

Our obligations under ~~the~~our credit agreement are guaranteed by substantially all of our subsidiaries. The credit facilities and the related guarantees are secured by senior first priority liens on certain of our and our subsidiaries’ assets, including equipment, inventory and accounts receivable.



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While we currently expect to remain in compliance with the financial covenants under the credit agreement, ~~there can be no assurances that~~ we ~~will~~may not be able to do so in the event market conditions, COVID-19 or other negative factors ~~which adversely~~have a significant adverse impact on our results of operations and financial ~~position lead to a trend of consolidated net losses.~~position. If we do not maintain compliance with our financial covenants and are unable to obtain an amendment or waiver from our lenders, a breach of a financial covenant would constitute an event of default and allow the lenders to exercise remedies under the agreements, the most severe of which is the termination of the credit facility under our committed bank credit agreement and acceleration of the amounts owed under the agreement. In such case, we would be required to evaluate available alternatives and take appropriate steps to obtain alternative funds. ~~There can be no assurances~~We cannot assure that any such alternative funds, if sought, could be obtained or, if obtained, would be adequate or on acceptable terms.

Other debt obligations, which totaled $7 million as of each of February 28, 2021 and August 31, 2020, primarily relate to an equipment purchase, the contract consideration for which includes an obligation to make future monthly payments to the vendor in the form of licensing fees. For accounting purposes, such obligation is treated as a partial financing of the purchase price by the equipment vendor. Monthly payments commence when the equipment is placed in service and continue for a period of four years thereafter.

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SCHNITZER STEEL INDUSTRIES, INC.

Capital Expenditures

Capital expenditures totaled ~~$15~~$55 million for the first ~~three~~six months of fiscal ~~2018~~,2021, compared to ~~$11~~$37 million for the prior year period. We currently plan to invest ~~in the range of $55 million~~up to ~~$70~~$120 million in capital expenditures ~~on equipment replacement and upgrades, further investment~~ in fiscal 2021, including approximately $55 million for investments in growth, including new nonferrous processing technologies, support for volume initiatives and ~~environmental-related~~other growth projects, ~~in fiscal 2018~~ using cash generated from operations and available credit facilities.

~~Dividends~~

~~On October 27, 2017,~~ The COVID-19 pandemic has contributed to some delays in construction activities and equipment deliveries related to our ~~Board~~capital projects, and to the time required to obtain permits from government agencies, resulting in the deferral of ~~Directors declared a dividend for~~certain capital expenditures. Given the ~~first quarter~~continually evolving nature of ~~fiscal 2018~~the COVID-19 pandemic and other factors impacting the timing of ~~$0.1875 per common share,~~project completion, the extent to which ~~equates to an annual cash dividend of $0.75 per common share. The dividend was paid on November 27, 2017.~~

forecasted capital expenditures could be deferred is uncertain.

Environmental Compliance

Building on our commitment to recycling and operating our business in an environmentally responsible manner, we continue to invest in facilities that improve our environmental presence in the communities in which we operate. As part of our capital expenditures discussed in the prior paragraph, we invested $2approximately $7 million in capital expenditures for environmental projects in the first ~~three~~six months of fiscal ~~2018,~~2021, and we currently plan to invest up to ~~$20~~$25 million for such projects in fiscal ~~2018.~~2021. These projects include investments in storm water systems and equipment to ensure ongoing compliance with air quality and other environmental regulations.

We have been identified by the United States Environmental Protection Agency ~~(“EPA”)~~ as one of the potentially responsible parties that own or operate or formerly owned or operated sites which are part of or adjacent to the Portland Harbor Superfund site ~~(“the Site”~~(the “Site”). See Note 54 - Commitments and Contingencies in the Notes to the Unaudited Condensed Consolidated Financial Statements in Part I, Item 1 of this report for a discussion of this ~~matter.~~matter, as well as other legacy environmental loss contingencies. We believe it is not possible to reasonably estimate the amount or range of costs which we are likely to or which it is reasonably possible that we will incur in connection with the Site, although such costs could be material to our financial position, results of operations, cash flows and liquidity. We have insurance policies that we believe will provide reimbursement for costs we incur for defense, remediation and mitigation for natural resource damages claims in connection with the Site, although there are no assurances that those policies will cover all of the costs which we may incur. Significant cash outflows in the future related to the Site and other environmental matters could reduce the amounts available for borrowing that could otherwise be used for working capital, capital expenditures, dividends, share repurchases, investments and acquisitions and could result in our failure to maintain compliance with certain covenants in our debt agreements, and could adversely impact our liquidity.

Dividends

On January 7, 2021, our Board of Directors declared a dividend for the second quarter of fiscal 2021 of $0.1875 per common share, which equates to an annual cash dividend of $0.75 per common share. The dividend totaling $5 million was paid on February 1, 2021.

Share Repurchase Program

Pursuant to our share repurchase program as amended in 2001, 2006 and 2008, we were authorized to repurchase up to nine million shares of our Class A common stock. As of February 28, 2021, we had authorization to repurchase up to a remaining 706 thousand shares of our Class A common stock when we deem such repurchases to be appropriate. We may repurchase our common stock for a variety of reasons, such as to optimize our capital structure and to offset dilution related to share-based compensation arrangements. We consider several factors in determining whether to make share repurchases including, among other things, our cash needs, the availability of funding, our future business plans and the market price of our stock. We did not repurchase our common stock during the first half of fiscal 2021.

Assessment of Liquidity and Capital Resources

Historically, our available cash resources, internally generated funds, credit facilities and equity offerings have financed our acquisitions, capital expenditures, working capital and other financing needs.

We generally believe our current cash resources, internally generated funds, existing credit facilities and access to the capital markets will provide adequate short-term and long-term liquidity needs for working capital, capital expenditures, dividends, share repurchases, ~~dividends,~~investments and acquisitions, joint ventures, debt service requirements, environmental obligations ~~investments~~ and ~~acquisitions.~~other contingencies. However, in the event of a sustained market deterioration, we may need additional liquidity, which would require us to evaluate available alternatives and take appropriate steps to obtain sufficient additional funds. There can be no assurances that any such supplemental funding, if sought, could be obtained or, if obtained, would be adequate or on acceptable terms.

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SCHNITZER STEEL INDUSTRIES, INC.

Off-Balance Sheet Arrangements

None requiring disclosure pursuant to Item 303 of Regulation S-K under the Securities Exchange Act of 1934.

Contractual Obligations

There were no material changes related to contractual obligations and commitments from the information provided in our Annual Report on Form 10-K for the fiscal year ended August 31, ~~2017~~.



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2020.

We maintain stand-by letters of credit to provide support for certain obligations, including workers’ compensation and performance bonds. As of ~~November 30, 2017,~~February 28, 2021, we had ~~$10~~$8 million outstanding under these arrangements.

Critical Accounting Policies and Estimates

~~We reaffirm~~

There were no material changes to our critical accounting policies and estimates as described in the “Management’s Discussion and Analysis of Financial Condition and Results of Operations” section of our Annual Report on Form 10-K for the year ended August 31, ~~2017, except for the following:~~

~~Inventories~~

Our inventories consist of processed and unprocessed scrap metal (ferrous, nonferrous, and nonferrous recovered joint product arising from the manufacturing process), semi-finished steel products (billets), finished steel products (primarily rebar, merchant bar and wire rod), used and salvaged vehicles, and supplies. As of the beginning of the first quarter of fiscal 2018, we adopted an accounting standard update that requires an entity to measure certain types of inventory, including inventory that is measured using the first-in, first out (FIFO) or average cost method, at the lower of cost and net realizable value. Prior to adoption, we measured such inventories at the lower of cost or market, whereby market generally reflected the inventories' estimated net realizable value, which is consistent with the requirements of the updated standard. Therefore, adoption of the new requirements had no impact on the Unaudited Condensed Consolidated Financial Statements. We consider estimated future selling prices when determining the estimated net realizable value for our inventory. As we generally sell our recycled ferrous metal under contracts that provide for shipment within 30 to 60 days after the price is agreed, we utilize the selling prices under committed contracts and sales orders for determining the estimated market price of quantities on hand.

2020.

Recently Issued Accounting Standards

~~For a description of~~

We have not identified any recent accounting pronouncements that ~~may~~are expected to have ana material impact on our financial condition, results of operations or cash flows ~~see Note 2 - Recent Accounting Pronouncements in the Notes to the Unaudited Condensed Consolidated Financial Statements in Part I, Item 1 of this report.~~



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upon adoption.

Non-GAAP Financial Measures

Debt, net of cash

Debt, net of cash is the difference between (i) the sum of long-term debt and short-term borrowings (i.e., total debt) and (ii) cash and cash equivalents. We believe that presenting debt, net of cash is useful to investors as a ~~useful~~ measure ~~for investors because,~~of our leverage, as cash and cash equivalents can be used, among other things, to repay ~~indebtedness, netting this against total debt is a useful measure of our leverage.~~

indebtedness.

The following is a reconciliation of debt, net of cash (in thousands):

	February 28, 2021		August 31, 2020
Short-term borrowings	$	2,372	$	2,184
Long-term debt, net of current maturities		168,441		102,235
Total debt		170,813		104,419
Less cash and cash equivalents		11,326		17,887
Total debt, net of cash	$	159,487	$	86,532

November 30, 2017 August 31, 2017
Short-term borrowings $ 657
$ 721
Long-term debt, net of current maturities 184,225
144,403
Total debt 184,882
145,124
Less: cash and cash equivalents 9,194
7,287
Total debt, net of cash $ 175,688
$ 137,837

Net borrowings (repayments) of debt

Net borrowings (repayments) of debt is the sum of borrowings from long-term debt and repayments of long-term debt. We present this amount as the net change in borrowings (repayments) for the period because we believe it is useful to investors as a meaningful presentation of the change in debt.

The following is a reconciliation of net borrowings (repayments) of debt (in thousands):

	Six Months Ended
	February 28,			February 29,
	2021			2020
Borrowings from long-term debt	$	265,645		$	244,382
Repayments of long-term debt		(199,229	)		(208,614	)
Net borrowings (repayments) of debt	$	66,416		$	35,768

Three Months Ended November 30,
2017 2016
Borrowings from long-term debt $ 189,500
$ 102,631
Repayment of long-term debt (149,713 ) (107,491 )
Net borrowings (repayments) of debt $ 39,787
$ (4,860 )

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SCHNITZER STEEL INDUSTRIES, INC.

Adjusted ~~consolidated operating income,~~EBITDA, adjusted ~~AMR operating income,~~selling, general and administrative expense, adjusted ~~CSS operating income (loss), adjusted net~~ income (loss) from continuing operations attributable to SSI shareholders, and adjusted diluted earnings (loss) per share from continuing operations attributable to SSI

shareholders

Management believes that providing these non-GAAP financial measures ~~provides~~adds a meaningful presentation of our results from business operations excluding adjustments for ~~other asset impairment charges net of recoveries,~~ restructuring charges and other exit-related activities, ~~recoveries~~legacy environmental matters (net of recoveries), business development costs not related to ongoing operations, asset impairment charges, and the ~~resale or modification of previously contracted shipments, and~~ income tax expense (benefit) ~~associated with~~allocated to these adjustments, items which are not related to underlying business operational performance, and improves the period-to-period comparability of our results from business operations. ~~Adjusted operating results in fiscal 2015 excluded the impact from the resale or modification~~

Following are reconciliations of ~~the terms, each at significantly lower prices due~~net income (loss) to ~~sharp declines in~~adjusted EBITDA, and adjusted selling, prices, of certain previously-contracted bulk shipments for delivery during fiscal 2015. Recoveries resulting from settlements with the original contract parties, which began in the third quarter of fiscal 2016, are reported within SG&Ageneral and administrative expense ~~in the Unaudited Condensed Consolidated Statements of Operations and are also excluded from the measures.~~(in thousands):

	Three Months Ended						Six Months Ended
	February 28,			February 29,			February 28,			February 29,
	2021			2020			2021			2020
Reconciliation of adjusted EBITDA:
Net income (loss)	$	45,679		$	4,504		$	60,743		$	(2,061	)
(Income) loss from discontinued operations, net of tax		(30	)		(1	)		12			(29	)
Interest expense		1,224			1,320			3,004			2,743
Income tax expense (benefit)		11,469			1,770			17,188			(764	)
Depreciation and amortization		14,469			14,385			29,295			28,472
Restructuring charges and other exit-related activities		814			4,633			878			5,100
(Recoveries) charges for legacy environmental matters, net⁽¹⁾		(2,214	)		451			546			1,744
Business development costs		—			801			—			801
Asset impairment charges		—			402			—			2,094
Adjusted EBITDA	$	71,411		$	28,265		$	111,666		$	38,100

Selling, general and administrative expense:
As reported	$	54,142		$	46,426		$	104,048		$	93,200
Recoveries (charges) for legacy environmental matters, net⁽¹⁾		2,214			(451	)		(546	)		(1,744	)
Business development costs		—			(801	)		—			(801	)
Adjusted	$	56,356		$	45,174		$	103,502		$	90,655


(1)
~~Table~~ Legal and environmental charges, net of ~~Contents~~	~~SCHNITZER STEEL INDUSTRIES, INC.~~	recoveries, for legacy environmental matters including those related to the Portland Harbor Superfund site and to other legacy environmental loss contingencies. See Note 4 - Commitments and Contingencies, “Portland Harbor” and “Other Legacy Environmental Loss Contingencies” in the Notes to the Unaudited Condensed Consolidated Financial Statements in Part I, Item 1 of this report.

~~The following is a reconciliation~~

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SCHNITZER STEEL INDUSTRIES, INC.

Following are reconciliations of adjusted ~~consolidated operating income, adjusted AMR operating income, adjusted CSS operating income (loss), adjusted net~~ income (loss) from continuing operations attributable to SSI shareholders and adjusted diluted earnings (loss) per share from continuing operations attributable to SSI shareholders (in thousands, except per share data):

	Three Months Ended						Six Months Ended
	February 28,			February 29,			February 28,			February 29,
	2021			2020			2021			2020
Income (loss) from continuing operations attributable to SSI shareholders:
As reported	$	44,558		$	3,882		$	58,704		$	(3,141	)
Restructuring charges and other exit-related activities		814			4,633			878			5,100
(Recoveries) charges for legacy environmental matters, net⁽¹⁾		(2,214	)		451			546			1,744
Business development costs		—			801			—			801
Asset impairment charges		—			402			—			2,094
Income tax expense (benefit) allocated to adjustments⁽²⁾		334			(1,464	)		(315	)		(2,615	)
Adjusted	$	43,492		$	8,705		$	59,813		$	3,983

Diluted earnings (loss) per share from continuing operations attributable to SSI shareholders:
As reported	$	1.54		$	0.14		$	2.05		$	(0.11	)
Restructuring charges and other exit-related activities, per share		0.03			0.16			0.03			0.18
(Recoveries) charges for legacy environmental matters, net, per share⁽¹⁾		(0.08	)		0.02			0.02			0.06
Business development costs, per share		—			0.03			—			0.03
Asset impairment charges, per share		—			0.01			—			0.08
Income tax expense (benefit) allocated to adjustments, per share⁽²⁾		0.01			(0.05	)		(0.01	)		(0.09	)
Adjusted⁽³⁾	$	1.51		$	0.31		$	2.09		$	0.14

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 )

~~____________________________~~

(1)

Legal and environmental charges, net of recoveries, for legacy environmental matters including those related to the Portland Harbor Superfund site and to other legacy environmental loss contingencies. See Note 4 - Commitments and Contingencies, “Portland Harbor” and “Other Legacy Environmental Loss Contingencies” in the Notes to the Unaudited Condensed Consolidated Financial Statements in Part I, Item 1 of this report.

~~(1)~~

(2)

Income tax allocated to the aggregate adjustments reconciling reported and adjusted ~~net~~ 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.

(3)
~~(2)~~	May not foot due to rounding.

We believe that these non-GAAP financial measures allow for a better understanding of our operating and financial performance. These non-GAAP financial measures should be considered in addition to, but not as a substitute for, the most directly comparable U.S. 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 the adjustments often have a material impact on 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.



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


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

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SCHNITZER STEEL INDUSTRIES, INC.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Commodity Price Risk

We are exposed to commodity price risk, mainly associated with variations in the market price for ~~finished steel products and~~ ferrous and nonferrous metals, including scrap metal, ~~end-of-life vehicles~~finished steel products, auto bodies and other commodities. The timing and magnitude of industry cycles are difficult to predict and are impacted by general economic conditions. We respond to increases and decreases in forward selling prices by adjusting purchase ~~prices on a timely basis.~~prices. We actively manage our exposure to commodity price risk and monitor the actual and expected spread between forward selling prices and purchase costs and processing and shipping expense. Sales contracts are based on prices negotiated with our customers, and generally orders are placed 30 to 60 days ahead of the shipment date. However, financial results may be negatively impacted when forward selling prices fall more quickly than we can adjust purchase prices or when customers fail to meet their contractual obligations. We assess the net realizable value of inventory (“NRV”) each quarter based upon contracted sales orders and estimated future selling prices. Based on contracted sales and estimates of future selling prices, ~~at November 30, 2017,~~ a 10% decrease in the selling price of inventory would not have had a material NRV impact ~~on any of our reportable segments~~ as of ~~November 30, 2017.~~

February 28, 2021.

Interest Rate Risk

There have been no material changes to our disclosure regarding interest rate risk set forth in Item 7A. Quantitative and Qualitative Disclosures About Market Risk included in our Annual Report on Form 10-K for the year ended August 31, ~~2017.~~

2020.

Credit Risk

Credit risk relates to the risk of loss that might occur as a result of non-performance by counterparties of their contractual obligations to take delivery of scrap metal and finished steel products and to make financial settlements of these obligations, or to provide sufficient quantities of scrap metal or payment to settle advances, loans and other contractual receivables in connection with demolition and scrap extraction projects. We manage our exposure to credit risk through a variety of methods, including shipping ferrous scrap metal exports under letters of credit, collection of deposits prior to shipment for certain nonferrous export customers, establishment of credit limits for certain sales on open terms, credit insurance and designation of collateral and financial guarantees securing advances, loans and other contractual receivables. Due in part to the effects of COVID-19, we have experienced reductions in the availability of credit insurance that we have historically used to cover a portion of our recycled metal and finished steel sales to domestic customers, which reduced availability may increase our exposure to customer credit risk.

Historically, we have shipped almost all of our large shipments of ferrous scrap metal to foreign customers under contracts supported by letters of credit issued or confirmed by banks deemed creditworthy. The letters of credit ensure payment by the customer. As we generally sell export recycled ferrous metal under contracts or orders that generally provide for shipment within 30 to 60 days after the price is agreed, our customers typically do not have difficulty obtaining letters of credit from their banks in periods of rising ferrous prices, as the value of the letters of credit are collateralized by the value of the inventory on the ship. However, in periods of significantly declining prices, our customers may not be able to obtain letters of credit for the full sales value of the inventory to be shipped.

As of ~~November 30, 2017~~each of February 28, 2021 and August 31, ~~2017, 30% and 33%, respectively,~~2020, 40% of our ~~trade~~ accounts receivable balance was covered by letters of credit. Of the remaining balance, ~~94% and 88%, respectively,~~98% was less than 60 days past due as of ~~November 30, 2017~~each of February 28, 2021 and August 31, ~~2017.~~

2020.

Foreign Currency Exchange Rate Risk

We are exposed to foreign currency exchange rate risk, mainly associated with sales transactions and related accounts receivable denominated in the U.S. Dollar by our Canadian subsidiary with a functional currency of the Canadian Dollar. In certain instances, we may use derivatives to manage some portion of this risk. ~~Our derivatives are agreements with independent counterparties that provide for payments based on a notional amount.~~ As of ~~November 30, 2017~~February 28, 2021 and August 31, ~~2017,~~2020, we did not have any derivative contracts.

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


~~ITEM 4.~~	~~CONTROLS AND PROCEDURES~~

SCHNITZER STEEL INDUSTRIES, INC.

ITEM 4. CONTROLS AND PROCEDURES

Disclosure Controls and Procedures

We maintain disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the Securities and Exchange Act of 1934, as amended (the “Exchange Act”)) that are designed to ensure that information we are required to disclose in the reports we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified by the Securities and Exchange Commission’s rules and forms and that such information is accumulated and communicated to management, including the Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosures. Any controls and procedures, no matter how well designed and operated, can only provide reasonable assurance of achieving the desired control objectives. Our management, with the participation of the Chief Executive Officer and Chief Financial Officer, has completed an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures. Based on this evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that, as of ~~November 30, 2017~~,February 28, 2021, our disclosure controls and procedures were effective at the reasonable assurance level.

Changes in Internal Control Over Financial Reporting

There was no change in our internal control over financial reporting (as that term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during ~~our most recent fiscal~~the quarter ended February 28, 2021, that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

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

SCHNITZER STEEL INDUSTRIES, INC.

PART II. OTHER INFORMATION


~~ITEM 1.~~	~~LEGAL PROCEEDINGS~~

ITEM 1. LEGAL PROCEEDINGS

Information regarding reportable legal proceedings is contained in Part I, ~~"Item~~“Item 3. Legal ~~Proceedings"~~Proceedings” in our Annual Report on Form 10-K for the fiscal year ended August 31, ~~2017,~~2020; in Part II, “Item 1. Legal Proceedings” in our Quarterly Report on Form 10-Q for the quarterly period ended November 30, 2020; and below in this Part II, ~~"Item~~“Item 1. Legal ~~Proceedings"~~Proceedings” of this Quarterly Report on Form 10-Q. Also see Note 54 - Commitments and Contingencies in the Notes to the Unaudited Condensed Consolidated Financial Statements in Part I, Item I, incorporated by reference herein.

~~In November 2017,~~

As previously reported, we had reached agreement with the ~~Company received a pre-filing negotiation letter from~~Alameda County District Attorney and the ~~United States Environmental Protection Agency (“EPA”) with respect~~California Office of the Attorney General (COAG), the latter on behalf of certain state agencies, to settle certain alleged violations of environmental requirements at one of our operations in California stemming from ~~industrial stormwater~~investigations initiated in 2013 and ~~hazardous waste management~~ inspections ~~at two~~conducted in 2015. The settlement provided for $2.05 million for civil penalties and reimbursement of ~~our~~the agencies’ enforcement costs and $2.05 million to fund Supplemental Environmental Projects in the local community to promote public health and the environment. On February 3, 2021, a stipulation and consent order was filed in and approved by the Alameda County Superior Court of the State of California. The monetary payments pursuant to the settlement were made in March 2021. On February 23, 2021, the California State Department of Toxic Substance Control (DTSC), one of the state agencies involved in the investigations and settlement, issued a corrective action enforcement order that would require us to submit a current conditions report, to undertake a facilities ~~in Kansas City.~~investigation, risk assessment and corrective measures study, and to implement corrective measures selected by the DTSC based on those assessments and studies. We dispute DTSC’s alleged jurisdictional basis for the order, as well as the scope of work required by the order, which we believe is unwarranted and duplicative of ongoing assessments being conducted under the oversight of another state agency. We have ~~already completed~~filed a notice of defense that by law stays the effectiveness of the order and are challenging the order through the DTSC administrative process.

In addition, the DTSC issued a similar corrective action enforcement order on March 18, 2021 with respect to our metal recycling facility ~~improvements~~in Fresno, California based on inspections conducted by the DTSC in 2013. That 2013 inspection is the basis for the previously reported enforcement matter brought by the COAG, on behalf of DTSC, that ~~we believe address the concerns identified~~was filed in the ~~EPA inspection reports. Accordingly,~~Superior Court of the State of California, County of Fresno in June 2020. We dispute DTSC’s alleged jurisdictional basis for the recent order, as well as the scope of work required by that order. We have also filed a notice of defense in this matter that by law stays the effectiveness of the order and are challenging the order through the DTSC administrative process.

In addition, as previously reported, we have been in discussions with the District Attorneys for six counties in California in connection with a joint investigation into alleged violations of environmental requirements at various Pick-n-Pull locations within California. We have implemented additional compliance measures at all operating Pick-n-Pull locations in the state and expect to negotiate a state-wide settlement ~~with EPA~~of this matter that will address the concerns raised in this joint investigation. Based on the settlement discussions to date and the program improvements we have implemented, we do not believe that the outcome of this matter will be material to our financial position, results of operations, cash flows or liquidity.

On March 23, 2021, the California Superior Court for the County of Alameda issued an order in a case filed on August 5, 2020 by The Athletics Investment Group LLC against the DTSC as Respondent and the Company as Real Party in Interest seeking a writ of mandate commanding the DTSC to rescind the “f letter” issued to the Company’s metal shredding facility in California. Pursuant to determinations under section 66260.200(f) of the state hazardous waste regulations issued in 1988 and 1989 (the “f letters”), the DTSC determined that treated shredder waste from the Company’s facility does not pose a significant hazard to human health, safety or the environment and therefore classified the waste as a “nonhazardous waste” which among other things permits its use as alternative daily cover at municipal landfills. The court in its order concluded that, under a law enacted by the legislature in 2014, the DTSC had a mandatory duty to rescind the “f letters” and granted the petition for writ of mandate. The court reached this decision despite a determination by DTSC in 2018 pursuant to the 2014 statute that treated shredder residue does not need to be managed as a hazardous waste in order to protect human health, safety or the environment. Separate orders implementing the court’s ruling have not yet been issued, and the timing and procedures for rescission of the “f letters,” as well as whether the DTSC will establish a workable alternative that will allow treated residue to continue to qualify as non-hazardous waste, remain uncertain. DTSC and the Company have 60 days from issuance of the order to provide a notice of appeal, which notice would result in an automatic stay of the order.

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~~ITEM 1A.~~	~~RISK FACTORS~~

SCHNITZER STEEL INDUSTRIES, INC.

ITEM 1A. RISK FACTORS

There have been no material changes to our risk factors reported or new risk factors identified since the filing of our Annual Report on Form 10-K for the year ended August 31, ~~2017, which was filed with the Securities~~2020, except as follows:

Risk Factors Relating to Our Business

Reliance on third party shipping companies may restrict our ability to ship our products

We significantly rely on third parties to handle and ~~Exchange Commission on October 24, 2017, except for the following:~~

~~Potential costs related to the environmental cleanup of Portland Harbor may be material~~transport raw materials to our ~~financial position~~production facilities and ~~liquidity~~

In December 2000, we were notified by the United States Environmental Protection Agency (“EPA”) under the Comprehensive Environmental Response, Compensation and Liability Act (“CERCLA”) that we are oneproducts to customers. Despite our practice of ~~the potentially responsible parties (“PRPs”) that owns or operates or formerly owned or operated sites which are part~~utilizing a diversified group of ~~or adjacent to the Portland Harbor Superfund site (the “Site”). The precise nature and extent~~suppliers of any cleanup of the Site, 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. 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 we will be liable for environmental costs or natural resource damage claims or third party contribution or damage claims with respect to the Site.

While we participated in certain preliminary Site study efforts, we were not party to the consent order entered into by the EPA with certain other PRPs, referred to as the “Lower Willamette Group” (“LWG”), for a remedial investigation/feasibility study (“RI/FS”). During fiscal 2007, we and certain other parties agreed to an interim settlement with the LWG under which we made a cash contribution to the LWG RI/FS. The LWG has indicated that it had incurred over $115 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.

~~We have joined with approximately 100 other PRPs,~~transportation, factors beyond our control, 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 us 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 us, 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. We 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. We have not yet commenced discussions with the Trustee Council regarding early settlements under Phase 2, and therefore it is uncertain whether we will enter into an early settlement for natural resource damages or what costs we may incur in any such early settlement.



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

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 us, 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. We intend to defend against such claims and do 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 us.

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, we 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.

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. The EPA has estimated the total cost of the selected remedy at $1.7 billion with a net present value cost of $1.05 billion (at a 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% to -30% of the actual project cost and that changes in ~~the cost elements are likely~~fuel prices, political events, governmental regulation of transportation, changes in market rates, carrier availability, carrier bankruptcy, labor shortages, shipping industry consolidation and disruptions in transportation routes and infrastructure, may adversely impact our ability to ~~occur~~ship our products and our operating margins. These impacts could include delays or other disruptions in shipments in transit, including as a result of ~~new information~~congested seaports and ~~data collected~~travel routes, or third party shipping companies increasing their charges for transportation services or otherwise reducing or eliminating the availability of their containers, vehicles, rail cars, barges or ships. For example, during the engineering design. We have identified a number of concerns regarding the remedy described in the ROD, which is based on data more than a decade old, and the 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 the ROD will be implemented as issued. 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 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 collected, identified and incorporated into 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, EPA proposed that the PRPs, or a subgroup of PRPs, perform the additional investigative work identified in the ROD under a new consent order.

In December 2017, we and three other PRPs entered into a new Administrative Settlement Agreement and Order on Consent with EPA to perform such pre-remedial design investigation and baseline sampling over a two-year period. We estimate that our share of the costs of performing such work will be approximately $2 million, which we recorded to environmental liabilities and selling, general and administrative expense in the consolidated financial statements in the firstsecond quarter of fiscal ~~2018. We believe~~2021, worldwide demand for logistical services increased sharply, which led to a global shortage of available shipping containers, congested seaports and higher freight rates, impacting the timing of certain shipments and resulting in reductions in sales volumes of certain products. The delays in container shipping for U.S. exports have been exacerbated by the backlog of containerized imports at U.S. seaports and the recent disruption in transit through the Suez Canal. While we aim to pass on the majority of shipping and related charges to our customers, there can be no assurance that ~~such costs~~we will be ~~fully covered by existing insurance coverage~~able to do so into the future. As a result, we may not be able to transport our products in a timely and cost-effective manner, which could have a material adverse effect on our financial condition and results of operations and may harm our reputation.

Risk Factors Relating to the Regulatory Environment

Governmental agencies may refuse to grant or renew our licenses and permits, thus ~~has also recorded an insurance receivable~~restricting our ability to operate

We conduct certain of our operations subject to licenses, permits and approvals from state and local governments. Governmental agencies often resist the establishment of certain types of facilities in their communities, including metal recycling and auto parts facilities. Changes in zoning and increased residential and mixed-use development near our facilities are reducing the buffer zones and creating land use conflicts with heavy industrial uses such as ours. This could result in increased complaints, increased inspections and enforcement including fines and penalties, operating restrictions, the need for ~~$2 million~~additional capital expenditures and increased opposition to maintaining or renewing required approvals, licenses and permits. In addition, waste products from our operations are subject to classification and regulation that, among other things, determine how such materials may be handled, stored, transported and disposed. Failure to obtain or maintain regulatory permits, approvals or exemptions for such waste could materially increase our costs or limit our operations.

In March 2021, for example, a state court in California determined that the state regulatory agency had a mandatory duty under a 2014 law to rescind the regulatory determinations pursuant to which treated metal shredder residue from our and other metal recycling facilities in the ~~first quarter~~state has been classified as non-hazardous and safely used as alternative daily cover at landfills for over 30 years. See Part II, “Item 1. Legal Proceedings” in this Quarterly Report on Form 10-Q for further discussion of ~~fiscal 2018, resulting~~this matter. While implementation of the court’s decision is unclear at this point, failure to put in ~~no net impact~~place a workable alternative that will allow such material to continue to qualify as non-hazardous waste or to identify other cost-effective disposal options or to overturn this decision on appeal could limit our ~~consolidated~~operations in the state and could have a material adverse effect on our results of ~~operations.~~

~~Except for certain early action projects~~operations and on the metal shredding industry in California in general.

Furthermore, from time to time, both the U.S. and foreign governments impose regulations and restrictions on trade in the markets in which we ~~are not involved, remediation activities are not expected~~operate. In some countries, governments require us to ~~commence~~apply for ~~a number~~certificates or registration before allowing shipment of ~~years. In addition, as discussed above, responsibility for implementing~~recycled metal to customers in those countries. There can be no assurance that future approvals, licenses and ~~funding the remedy~~permits will be ~~determined in a separate allocation process. We do not expect the allocation process to proceed until after the additional pre-remedial design data is collected.~~



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

~~Because there has not been a determination of the specific remediation actions that will be required, the amount of natural resource damages~~granted or the allocation of costs of the investigations and any remedy and natural resource damages among the PRPs, we believe it is not possible to reasonably estimate the amount or range of costs which we are likely to or which we are reasonably possible that we will ~~incur~~be able to maintain and renew the approvals, licenses and permits we currently hold. Failure to obtain these approvals could cause us to limit or discontinue operations in ~~connection with the Site, although such costs~~these locations or prevent us from developing or acquiring new facilities, which could behave a material toadverse effect on our financial ~~position,~~condition and results of ~~operations, cash flows and liquidity. Among the facts currently being developed are detailed information on the history~~operations.

ITEM 5. OTHER INFORMATION

None.

Table of ownership of and the nature of the uses of and activities and operations performed on each property within the Site, which are factors that will play a substantial role in determining the allocation of investigation and remedy costs among the PRPs. We have insurance policies that we believe will provide reimbursement for costs we incur for defense (including the pre-remedial design investigative activities), remediation and mitigation for natural resource damages claims in connection with the Site, although there is no assurance that those policies will cover all of the costs which we may incur. Significant cash outflows in the future related to the Site could reduce the amount of our borrowing capacity that could otherwise be used for investment in capital expenditures, dividends, share repurchases and acquisitions. Any material liabilities incurred in the future related to the Site could result in our failure to maintain compliance with certain covenants in our debt agreements. See “Contingencies – Environmental” in Note 5 – Commitments and Contingencies in the Notes to the Unaudited Condensed Consolidated Financial Statements in Part I, Item 1 of this report.

Contents

SCHNITZER STEEL INDUSTRIES, INC.

ITEM 6.EXHIBITS

Exhibit Number	Exhibit Description

10.1*	~~Table~~Summary Sheet of ~~Contents~~2021 Non-Employee Director Compensation	~~SCHNITZER STEEL INDUSTRIES, INC.~~


~~ITEM 6.~~	~~EXHIBITS~~


10.2*
~~Exhibit Number~~		~~Exhibit Description~~

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

10.2*		~~Amendment No. 3, dated October 25, 2017, to the Amended~~Separation and ~~Restated~~Release Agreement ~~for Services~~ by and between the Registrant and ~~John D. Carter~~Jeff Dyck, dated ~~June 29, 2011.~~February 17, 2021

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)

*Management contract or compensatory plan or arrangement.

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

SCHNITZER STEEL INDUSTRIES, INC.

SIGNATURES

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



				SCHNITZER STEEL INDUSTRIES, INC.
				(Registrant)

Date:	~~January 9, 2018~~	~~By:~~ April 7, 2021		By:	/s/ Tamara L. Lundgren
					Tamara L. Lundgren
					Chairman, President and Chief Executive Officer

Date:	~~January 9, 2018~~	~~By:~~ April 7, 2021		By:	/s/ Richard D. Peach
					Richard D. Peach
			~~Senior~~		Executive Vice President, Chief Financial Officer and Chief ~~of Corporate Operations~~Strategy Officer



~~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)



x	~~Quarterly Report Pursuant to Section~~ ☒ QUARTERLY 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~~ ☐ TRANSITION REPORT PURSUANT TO SECTION 13 orOR 15(d) ~~of the Securities Exchange Act of~~ OF THE SECURITIES EXCHANGE ACT OF 1934
	~~For the Transition Period from _______ to_______~~
	~~Commission File Number 0-22496~~



	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



	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



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



	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,
($ 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	%



	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	%



	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	%