(Registrant’s telephone number, including area code)

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


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

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

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~~27,433,470 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 5, 2018.~~

April 4, 2022.

Table of Contents

~~SCHNITZER~~

SCHNITZER STEEL INDUSTRIES, INC.

~~INDEX~~

FORM 10-Q

TABLE OF CONTENTS

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

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements (Unaudited)	4

Unaudited Condensed Consolidated Balance Sheets as of ~~November 30, 2017~~February 28, 2022 and August 31, ~~2017~~2021	4

Unaudited Condensed Consolidated Statements of ~~Operations~~Income for the Three and Six Months Ended ~~November 30, 2017~~February 28, 2022 and ~~2016~~2021	5

Unaudited Condensed Consolidated Statements of ComprehensiveIncome ~~(Loss)~~ for the Three and Six Months Ended ~~November 30, 2017~~February 28, 2022 and ~~2016~~2021	6

Unaudited Condensed Consolidated Statements of Equity for the Three and Six Months Ended February 28, 2022 and 2021	7

Unaudited Condensed Consolidated Statements of Cash Flows for the ~~Three~~Six Months Ended ~~November 30, 2017~~February 28, 2022 and ~~2016~~2021	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 24

Item 3. Quantitative and Qualitative Disclosures about Market Risk	32 37

Item 4. Controls and Procedures	33 38

PART II. OTHER INFORMATION

Item 1. Legal Proceedings	34 39

Item 1A. Risk Factors	34 39

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds	39

Item 5. Other Information	39

Item 6. Exhibits	37 40

SIGNATURES	38 41

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~~the impact of pandemics, epidemics, or other public health emergencies, such as the coronavirus disease 2019 (“COVID-19”) pandemic; the impact of equipment upgrades, equipment failures, and ~~changes in~~facility damage on production, including timing of repairs and resumption of operations; the ~~markets we sell into;~~realization of insurance recoveries; the ~~Company's~~Company’s outlook, growth initiatives, or expected results or objectives, including pricing, margins, sales volumes, and profitability; completion of acquisitions and integration of acquired businesses; the impacts of supply chain disruptions and inflation; 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; the impact of labor shortages or increased labor costs; obligations under our retirement plans; benefits, savings, or additional costs from business realignment, cost containment, and productivity improvement programs; 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; the impact of equipment upgrades, equipment failures, and facility damage on production; potential environmental cleanup costs related to the Portland Harbor Superfund site or other locations; the cyclicality and impact of general economic conditions; changing conditions in global markets including the impact of sanctions and tariffs, quotas, and other trade actions and import restrictions; economic and geopolitical instability ~~in international markets;~~including as a result of military conflict; volatile supply and demand conditions affecting prices and volumes in the markets for ~~both our products and~~ raw materials and other inputs we purchase; significant decreases in recycled metal prices; imbalances in supply and demand conditions in the global steel industry; difficulties associated with acquisitions and integration of acquired businesses; supply chain disruptions; reliance on third-party shipping companies, including with respect to freight rates and the availability of transportation; 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; ~~difficulties associated with acquisitions and integration of acquired businesses;~~inability to renew facility leases; customer fulfillment of their contractual obligations; increases in the relative value of the U.S. dollar; the impact of inflation and foreign currency fluctuations; potential limitations on our ability to access capital resources and existing credit facilities; restrictions on our business and financial covenants under the agreement governing our bank credit ~~agreement;~~facilities; the impact of consolidation in the steel industry; inability to realize expected benefits from investments in technology; freight rates and the availability of transportation; the impact of equipment upgrades, equipment failures and facility damage on production; product liability claims; the impact of legal proceedings and legal compliance; the adverse impact of climate change; the impact of not realizing deferred tax assets; the impact of tax increases and changes in tax rules; the impact of one or more cybersecurity incidents; environmental compliance costs and potential environmental liabilities; ~~inability to obtain or renew business licenses and permits or renew facility leases;~~ compliance with climate change and greenhouse gas emission laws and regulations; the impact of labor shortages or increased labor costs; reliance on employees subject to collective bargaining agreements; and the impact of the underfunded status of multiemployer plans in which we participate.

Table of Contents

PART I. FINANCIAL INFORMATION


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

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, 2022				August 31, 2021
Assets
Current assets:
Cash and cash equivalents	$	17,823			$	27,818
Accounts receivable, net of allowance for credit losses of $1,579 and $1,566		280,254				214,098
Inventories		323,931				256,427
Refundable income taxes		1,193				837
Prepaid expenses and other current assets		36,104		��		43,934
Total current assets		659,305				543,114
Property, plant and equipment, net of accumulated depreciation of $841,296 and $837,293		597,262				562,674
Operating lease right-of-use assets		126,155				131,221
Investments in joint ventures		13,009				12,844
Goodwill		232,537				170,304
Intangibles, net of accumulated amortization of $5,323 and $3,846		23,220				3,980
Deferred income taxes		25,982				27,561
Other assets		46,859				42,665
Total assets	$	1,724,329			$	1,494,363
Liabilities and Equity
Current liabilities:
Short-term borrowings	$	7,451			$	3,654
Accounts payable		191,418				179,917
Accrued payroll and related liabilities		33,693				69,622
Environmental liabilities		12,987				24,743
Operating lease liabilities		21,869				21,417
Accrued income taxes		2,436				3,521
Other accrued liabilities		59,317				49,976
Total current liabilities		329,171				352,850
Deferred income taxes		53,291				40,593
Long-term debt, net of current maturities		254,126				71,299
Environmental liabilities, net of current portion		54,844				52,385
Operating lease liabilities, net of current maturities		106,803				113,165
Other long-term liabilities		21,445				24,292
Total liabilities		819,680				654,584
Commitments and contingencies (Note 5)
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, 27,433 and 27,332 shares issued and outstanding		27,433				27,332
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		40,821				49,074
Retained earnings		866,776				793,712
Accumulated other comprehensive loss		(34,438	)			(34,554	)
Total SSI shareholders’ equity		900,792				835,764
Noncontrolling interests		3,857				4,015
Total equity		904,649				839,779
Total liabilities and equity	$	1,724,329			$	1,494,363

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

Table of Contents

SCHNITZER STEEL INDUSTRIES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(Unaudited, in thousands, except per share amounts)

(Currency - U.S. Dollar)

	Three Months Ended February 28,						Six Months Ended February 28,
	2022			2021			2022			2021
Revenues	$	783,198		$	600,111		$	1,581,316		$	1,092,218
Operating expense:
Cost of goods sold		670,539			487,025			1,353,783			907,119
Selling, general and administrative		61,081			54,142			116,348			104,048
(Income) from joint ventures		(591	)		(454	)		(827	)		(1,181	)
Restructuring charges and other exit-related activities		4			814			26			878
Operating income		52,165			58,584			111,986			81,354
Interest expense		(1,901	)		(1,224	)		(3,273	)		(3,004	)
Other loss, net		(55	)		(242	)		(102	)		(407	)
Income from continuing operations before income taxes		50,209			57,118			108,611			77,943
Income tax expense		(12,073	)		(11,469	)		(23,170	)		(17,188	)
Income from continuing operations		38,136			45,649			85,441			60,755
Income (loss) from discontinued operations, net of tax		29			30			—			(12	)
Net income		38,165			45,679			85,441			60,743
Net income attributable to noncontrolling interests		(550	)		(1,091	)		(1,627	)		(2,051	)
Net income attributable to SSI shareholders	$	37,615		$	44,588		$	83,814		$	58,692

Net income per share attributable to SSI shareholders:
Basic:
Income per share from continuing operations	$	1.33		$	1.59		$	2.97		$	2.10
Net income per share	$	1.33		$	1.59		$	2.97		$	2.10
Diluted:
Income per share from continuing operations	$	1.27		$	1.54		$	2.81		$	2.05
Net income per share	$	1.27		$	1.54		$	2.81		$	2.05
Weighted average number of common shares:
Basic		28,231			27,991			28,195			27,899
Diluted		29,712			28,862			29,798			28,673

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~~

COMPREHENSIVE INCOME

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

(Currency - U.S. Dollar)

	Three Months Ended February 28,						Six Months Ended February 28,
	2022			2021			2022			2021
Net income	$	38,165		$	45,679		$	85,441		$	60,743
Other comprehensive income (loss), net of tax:
Foreign currency translation adjustments		722			1,572			(393	)		1,811
Pension obligations, net		119			38			509			(222	)
Total other comprehensive income, net of tax		841			1,610			116			1,589
Comprehensive income		39,006			47,289			85,557			62,332
Less comprehensive income attributable to noncontrolling interests		(550	)		(1,091	)		(1,627	)		(2,051	)
Comprehensive income attributable to SSI shareholders	$	38,456		$	46,198		$	83,930		$	60,281

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)~~

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 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


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

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
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


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

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.

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SCHNITZER STEEL INDUSTRIES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited, in thousands)

(Currency - U.S. Dollar)

	Six Months Ended February 28,
	2022			2021
Cash flows from operating activities:
Net income	$	85,441		$	60,743
Adjustments to reconcile net income to cash used in operating activities:
Depreciation and amortization		35,816			29,295
Inventory write-downs		304			—
Deferred income taxes		13,988			5,544
Undistributed equity in earnings of joint ventures		(827	)		(1,181	)
Share-based compensation expense		9,231			7,276
Loss (gain) on disposal of assets, net		1,345			(81	)
Unrealized foreign exchange loss, net		121			93
Credit loss, net		16			66
Changes in assets and liabilities, net of acquisitions:
Accounts receivable		(47,762	)		(75,961	)
Inventories		(52,624	)		(90,151	)
Income taxes		(697	)		16,097
Prepaid expenses and other current assets		1,309			1,266
Other long-term assets		(651	)		(3,765	)
Operating lease assets and liabilities		(903	)		(430	)
Accounts payable		11,762			45,050
Accrued payroll and related liabilities		(39,711	)		(85	)
Other accrued liabilities		7,583			(3,618	)
Environmental liabilities		(12,482	)		2,488
Other long-term liabilities		455			3,494
Distributed equity in earnings of joint ventures		1,000			1,250
Net cash provided by (used in) operating activities		12,714			(2,610	)
Cash flows from investing activities:
Capital expenditures		(69,409	)		(55,084	)
Acquisitions, net of acquired cash		(113,939	)		—
Proceeds from insurance and sale of assets		11,129			317
Deposit on land option		(80	)		630
Net cash used in investing activities		(172,299	)		(54,137	)
Cash flows from financing activities:
Borrowings from long-term debt		405,094			265,645
Repayment of long-term debt		(225,395	)		(199,229	)
Payment of debt issuance costs		—			(23	)
Repurchase of Class A common stock		(7,865	)		—
Taxes paid related to net share settlement of share-based payment awards		(9,577	)		(3,971	)
Distributions to noncontrolling interests		(1,785	)		(1,583	)
Dividends paid		(10,841	)		(10,828	)
Net cash provided by financing activities		149,631			50,011
Effect of exchange rate changes on cash		(41	)		175
Net decrease in cash and cash equivalents		(9,995	)		(6,561	)
Cash and cash equivalents as of beginning of period		27,818			17,887
Cash and cash equivalents as of end of period	$	17,823		$	11,326

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

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SCHNITZER STEEL INDUSTRIES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited, in thousands)

(Currency - U.S. Dollar)

	Six Months Ended February 28,
	2022		2021
SUPPLEMENTAL DISCLOSURES:
Cash paid during the period for:
Interest	$	1,748	$	1,827
Income taxes paid (refunded), net	$	9,829	$	(4,525	)
Schedule of noncash investing and financing transactions:
Purchases of property, plant and equipment included in liabilities	$	21,828	$	11,338

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~~.2021. The results for the three and six months ended ~~November 30, 2017~~February 28, 2022 and ~~2016~~2021 are not necessarily indicative of the results of operations for the entire fiscal year.

~~Accounting Changes~~

Segment Reporting

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

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

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

reportable segment.

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~~$45 million and $47 million as of February 28, 2022 and August 31, 2021, respectively.

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 the Company’s ferrous export sales have been made with letters of credit. Ferrous and nonferrous metal sales to domestic customers and finished steel sales are generally made on open account, and a portion of these sales are covered by credit insurance.

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

Also included in accounts receivable are short-term advances to scrap metal suppliers used as a mechanism to acquire unprocessed scrap metal. The advances are generally repaid with scrap metal, as opposed to cash. Repayments of advances with scrap metal are treated as noncash operating activities in the Unaudited Condensed Consolidated Statements of Cash Flows and totaled $6 million and $5 million for the six months ended February 28, 2022 and 2021, respectively.

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SCHNITZER STEEL INDUSTRIES, INC.

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Prepaid Expenses

The Company’s prepaid expenses, reported within prepaid expenses and other current assets in the Unaudited Condensed Consolidated Balance Sheets, totaled $16 million and $22 million as of February 28, 2022 and August 31, 2021, respectively, and consisted primarily of deposits on capital projects, prepaid services, prepaid insurance, and prepaid property taxes.

Other Assets

The Company’s other assets, exclusive of prepaid expenses and assets relating to certain employee benefit plans, consisted primarily of receivables from insurers, capitalized implementation costs for cloud computing arrangements, major spare parts and equipment, cash held in a client trust account relating to a legal settlement, 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.

Receivables from insurers represent the portion of insured losses expected to be recovered from the Company’s insurers. The receivable is recorded at an amount not to exceed the recorded loss and only if the terms of legally enforceable insurance contracts support that the insurance recovery will not be disputed and is deemed collectible. Receivables from insurers totaled $20 million and $21 million as of ~~November 30, 2017~~February 28, 2022 and August 31, ~~2017~~,2021, respectively.

~~Cost Method Investment~~

In Receivables from insurers as of February 28, 2022 comprised primarily $10 million relating to property loss and damage and other claims in connection with the December 2021 fire at the Company’s shredder facility in Everett, Massachusetts, $6 million relating to environmental claims, and $4 million relating to workers’ compensation claims. Receivables from insurers as of August 31, 2021 comprised primarily $10 million relating to property loss and damage and other claims in connection with the May 2021 fire at the Company’s melt shop operations in McMinnville, Oregon, $6 million relating to environmental claims, and $4 million relating to workers’ compensation claims. See “Accounting for Impacts of Involuntary Events” below in this Note for further discussion of receivables and advance payments from insurers relating to property damage and business interruption claims.

Other assets as of both February 28, 2022 and August 31, 2021 also included approximately $8 million in connection with 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 5 - 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~~The carrying value of the investment was $6 million as of ~~November 30, 2017~~February 28, 2022 and August 31, ~~2017. As of November 30, 2017,~~2021. 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 since acquisition.

Accounting for Impacts of Involuntary Events

Assets destroyed or ~~indicators~~damaged as a result of ~~other-than-temporary impairment.~~



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

~~Long-Lived Assets~~

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

Table of Contents

SCHNITZER STEEL INDUSTRIES, INC.

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

On May 22, 2021, the Company experienced a fire at its steel mill in McMinnville, Oregon. Direct physical loss or damage to property from the incident was limited to the mill’s melt shop, with no bodily injuries and no physical loss or damage to other buildings or equipment. As a result of the fire, the rolling mill production ceased in early June 2021. In August 2021, the steel mill began ramping up operations following the substantial completion of replacement and repairs of property and equipment in the ~~estimated useful lives~~melt shop that had been lost or ~~salvage values~~damaged by the fire. The Company experienced the loss of ~~individual long-lived assets,~~business income during the shutdown of the steel mill and the subsequent ramp-up phase which ~~are accounted~~was substantially completed during the second quarter of fiscal 2022. The Company filed initial insurance claims for ~~prospectively in~~ the ~~period~~physical loss and damage experienced at the mill’s melt shop and business income losses resulting from the matter. As of ~~change. For such assets, the useful life is shortened based on the Company's plans to dispose of or abandon the asset before the end of its original useful life~~August 31, 2021, prepaid expenses 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 equipmentother current assets in the ~~Cascade Steel~~Unaudited Condensed Consolidated Balance Sheets included an initial $10 million insurance receivable recognized in the fourth quarter of fiscal 2021, primarily offsetting applicable losses including capital purchases of $10 million that had been incurred by the Company as of August 31, 2021. In the first half of fiscal 2022, the Company increased the amount of this insurance receivable to $25 million and ~~Scrap ("CSS") reportable segment, which are reported~~recognized a related $15 million insurance recovery gain, $3 million recorded in the first quarter and $12 million recorded in the second quarter, within ~~other asset impairment charges (recoveries), net~~cost of goods sold in the Unaudited Condensed Consolidated Statements of ~~Operations.~~

~~Also during~~Income, reflecting recovery of applicable losses incurred as a result of the ~~three months ended November 30, 2017, CSS sold machinery and equipment assets impaired~~fire to date. In addition, during the first half of fiscal 2022, the Company received advance payments from insurers totaling approximately $30 million towards the Company’s claims, and not reflecting any final or full settlement of claims with the insurers, which amount reduced the $25 million insurance receivable to 0 with the remaining amount of advance payments of $5 million reported within other accrued liabilities in the Unaudited Condensed Consolidated Balance Sheets as of February 28, 2022.

On December 8, 2021, the Company experienced a fire at its metals recycling facility in Everett, Massachusetts. Direct physical loss or damage to property from the incident was limited to the facility’s shredder building and equipment, with no bodily injuries and no physical loss or damage to property reported at other buildings or equipment. As a result of the fire, shredding operations ceased, while all non-shredding operations at the facility continued, including torching, shearing, separating, and sorting purchased non-shreddable recycled ferrous metals. On January 28, 2022, shredding operations at the facility began ramping up following the replacement and repairs to shredder equipment that had been damaged. Completion of the remainder of repair and replacement of property that experienced physical loss or damage, primarily buildings and improvements, will occur over a longer period and impacts on business income may continue. The Company filed initial insurance claims for the property that experienced physical loss or damage and anticipated business income losses resulting from the matter. In the second quarter of fiscal ~~2017~~2022, the Company recognized an initial $10 million insurance receivable and ~~supplies inventory impaired during fiscal 2016, recognizing a~~related insurance recovery gain, ~~of $1 million which is~~ reported within prepaid expenses and other ~~asset impairment charges (recoveries), net~~current assets in the Unaudited Condensed Consolidated Balance Sheets and within cost of goods sold in the Unaudited Condensed Consolidated Statements of ~~Operations.~~

Income, respectively, reflecting recovery of applicable losses including impairment charges of $6 million related to the carrying value of plant and equipment assets lost in or damaged by the fire and initial capital purchases and other costs totaling $4 million that had been incurred by the Company as of February 28, 2022.

Business Acquisitions

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

Concentration of Credit Risk

Financial instruments that potentially subject the Company to significant concentration of credit risk consist primarily of cash and cash equivalents and accounts ~~receivable, and notes and other contractual receivables from suppliers.~~receivable. The majority of cash and cash equivalents is maintained with major financial institutions. Balances with these and certain other institutions exceeded the Federal Deposit Insurance Corporation insured amount of ~~$250,000~~of $250 thousand as of ~~November 30, 2017~~.February 28, 2022. 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~~statements.

Table 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.

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SCHNITZER STEEL INDUSTRIES, INC.

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Note 32 - Inventories

Inventories consisted of the following (in thousands):

	February 28, 2022		August 31, 2021
Processed and unprocessed scrap metal	$	198,058	$	164,960
Semi-finished goods		18,449		7,671
Finished goods		60,680		39,368
Supplies		46,744		44,428
Inventories	$	323,931	$	256,427

Note 3 - Business Acquisition

On October 1, 2021, the Company used cash on hand and borrowings under existing credit facilities to acquire 8 metals recycling facilities across Mississippi, Tennessee, and Kentucky from Columbus Recycling, a provider of recycled ferrous and nonferrous metal products and recycling services. The transaction qualified as a business combination for accounting purposes, which involves application of the acquisition method described in Accounting Standards Codification Topic 805, Business Combinations, and summarized in “Business Acquisitions” in Note 1 – Summary of Significant Accounting Policies. The cash purchase price was approximately $107 million, subject to adjustment for acquired net working capital relative to an agreed-upon benchmark, as well as other adjustments. The Company paid at closing an additional $7 million for estimated net working capital in excess of the benchmark, which is still subject to adjustment as of the date of this report, resulting in total purchase consideration measured as of the end of the second quarter of fiscal 2022 of approximately $114 million. The acquired Columbus Recycling operations purchase and process scrap metal from industrial manufacturers, local recycling companies, and individuals, and sell the recycled products to regional foundries and steel mills. Combined with the Company’s twelve existing regional metals recycling facilities in Georgia, Alabama, and Tennessee, the acquired operations offer additional recycling products, services, and logistics solutions to customers and suppliers across the Southeast, giving rise to expected benefits supporting the amount of acquired goodwill.

The following table summarizes the provisional fair values of the assets acquired and liabilities assumed by the Company as of the October 1, 2021 acquisition date (in thousands):

Cash	$	325
Accounts receivable		22,763
Inventories		10,060
Other current assets		255
Property, plant and equipment		13,570
Operating lease right-of-use assets		254
Goodwill⁽¹⁾		62,325
Intangibles and other assets		19,741
Total assets acquired		129,293
Current liabilities		11,680
Other liabilities		3,350
Total liabilities assumed		15,030
Net assets acquired	$	114,263

(1)	Approximately $59 million of the provisional amount of acquired goodwill is tax deductible.

The following table summarizes the provisional purchase price allocation to the identifiable intangible assets and their estimated useful lives as of the October 1, 2021 acquisition date (in thousands):

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

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SCHNITZER STEEL INDUSTRIES, INC.

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

The results of operations for the acquired Columbus Recycling business beginning as of the October 1, 2021 acquisition date are included in the accompanying financial statements. For each of the three and six months ended February 28, 2022 and 2021, the unaudited amount of revenues of the acquired Columbus Recycling business equaled 6% or less of the Company’s consolidated revenues reported in the Unaudited Condensed Consolidated Statements of Income, and the unaudited amount of net income of the acquired Columbus Recycling business was not material to the financial statements taken as a whole. Because the pro forma results of operations of the Company for the periods presented in this report would not be materially different as a result of the acquisition, this information is not presented.

Note 4 - 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 2022 requiring an interim goodwill impairment ~~test.~~

test, and the Company did not record a goodwill impairment charge in any of the periods presented.

The gross change in the carrying amount of goodwill for the ~~three~~six months ended ~~November 30, 2017~~February 28, 2022 was as follows (in thousands):

	Goodwill
August 31, 2021	$	170,304
Additions⁽¹⁾		62,325
Foreign currency translation adjustment		(92	)
February 28, 2022	$	232,537

(1)	Additions relate entirely to the acquired Columbus Recycling business, and the amount of acquired goodwill is provisional as of February 28, 2022. See Note 3 – Business Acquisitions.

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

Accumulated goodwill impairment charges were $471 million as of ~~November 30, 2017~~both February 28, 2022 and August 31, ~~2017.~~

2021.

Note 5 - Commitments and Contingencies

Contingencies - Environmental

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

Changes in the Company’s environmental liabilities ~~in aggregate~~ for the ~~three~~six months ended ~~November 30, 2017~~February 28, 2022 were as follows (in thousands):

Balance as of

September 1, 2021

Liabilities

Established

(Released), Net

Payments and

Other

Balance as of

February 28, 2022

Short-Term

Long-Term

77,128

6,986

(16,283

)

67,831

12,987

54,844

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 and August 31, 2017, the Company's recycling operations~~

The Company had environmental liabilities of ~~$55~~$68 million and ~~$48~~$77 million as of February 28, 2022 and August 31, 2021, 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~~“Other Legacy Environmental Loss ~~Contingencies immediately~~Contingencies” below, such liabilities were not individually material at any site.

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NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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

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

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

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

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

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

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

effort.

In January 2017, the EPA issued a Record of Decision (“ROD”) that identified the selected remedy for the Site. ~~The selected remedy is a modified version of one of the alternative remedies evaluated in the EPA’s FS that was expanded to include additional work at a greater cost.~~ 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 to occur as a result of new information and data collected during the engineering design. The Company has identified a number of concerns regarding the remedy described in the ROD, which is based on data that is more than ~~a decade~~15 years old, and the ~~EPA's~~EPA’s estimates for the costs and time required to implement the selected remedy. Because of ongoing questions regarding cost effectiveness, technical feasibility, and the use of stale data, it is uncertain whether 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



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~~technical drawings and specifications developed for the subsequent remedial action.~~ Moreover, the ROD provided only Site-wide cost estimates and did not provide sufficient detail to estimate costs for specific sediment management areas within the Site. 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 was more than a decade old at that time and would need to be updated with a new round of “baseline” sampling to be conducted prior to the remedial design phase. The remedial design phase is an engineering phase during which additional technical information and data are collected, identified, and incorporated into technical drawings and specifications developed for the subsequent remedial action. Following issuance of the ROD, the EPA proposed that the PRPs, or a subgroup of PRPs, perform the additional investigative work ~~identified~~ in ~~the ROD under a new consent order.~~

advance of remedial design.

In December 2017, the Company and ~~three~~3 other PRPs entered into ~~a new~~an Administrative Settlement Agreement and Order on Consent with the EPA to perform such pre-remedial design investigation and baseline sampling over a two-year period. The report analyzing the results concluded that Site conditions have improved substantially since the data forming the basis of the ROD was collected. The EPA found with a few limited corrections that the data is of suitable quality and stated that such data will be used, in addition to existing and forthcoming design-level data, to inform implementation of the ROD. However, the EPA did not agree that the data or the analysis warranted a change to the remedy at this time and reaffirmed its commitment to proceed with remedial design. The Company ~~estimates~~and other PRPs disagree with the EPA’s position on use of the more recent data and will continue to pursue limited, but critical, changes to the selected remedy for the Site during the remedial design phase.

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NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

The EPA encouraged PRPs to step forward (individually or in groups) to enter into consent agreements to perform remedial design in various project areas covering the entire Site. While certain PRPs executed consent agreements for remedial design work, because of the EPA’s refusal to date to modify the remedy to reflect the most current data on Site conditions and because of concerns with the terms of the consent agreement, the Company elected not to enter into a consent agreement. In April 2020, the EPA issued a unilateral administrative order (“UAO”) to the Company and MMGL, LLC (“MMGL”), an unaffiliated company, for the remedial design work in a portion of the Site designated as the River Mile 3.5 East Project Area. As required by the UAO, the Company notified the EPA of its intent to comply while reserving all of its sufficient cause defenses. Failure to comply with a UAO, without sufficient cause, could subject the Company to significant penalties or treble damages. Pursuant to the optimized remedial design timeline set forth in the UAO, the EPA’s expected schedule for completion of the remedial design work is four years. The 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 ~~will~~under the UAO would be approximately $2$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 ~~believes that such~~has insurance policies pursuant to which the Company is being reimbursed for the costs ~~will be fully covered by existing insurance coverage and, thus,~~it has ~~also~~incurred for remedial design. 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, the EPA announced that 100 percent of the Site’s areas requiring active cleanup are in ~~no net impact to~~ the ~~Company's consolidated results~~remedial design phase of ~~operations.~~

the process.

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

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

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

assessing natural resource damages at the Site. In 2008, the Trustee Council invited the Company and other PRPs to participate in funding and implementing the Natural Resource Injury Assessment for the Site. The Company and other participating PRPs ultimately agreed to fund the first two phases of the three-phase assessment, which included the development of the Natural Resource Damage Assessment Plan (“AP”) and implementation of the AP to develop information sufficient to facilitate early settlements between the Trustee Council and Phase 2 participants and the identification of restoration projects to be funded by the settlements. In late May 2018, the Trustee Council published notice of its intent to proceed with Phase 3, which will involve the full implementation of the AP and the final injury and damage determination. The Company is proceeding with the process established by the Trustee Council regarding early settlements under Phase 2. The Company has established an environmental reserve of approximately $2.3 million for this alleged natural resource damages liability as it continues to work with the Trustee Council to finalize an early settlement. The Company has insurance policies that it believes will provide reimbursement for costs related to this matter. As of February 28, 2022 and August 31, 2021, the Company had an insurance receivable in the same amount as the environmental reserve. See “Other Assets” in Note 1 – Summary of Significant Accounting Policies for further discussion of receivables from insurers.

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 the claims in this suit and does not have sufficient information to determine the likelihood of a loss in this matter or to estimate the amount of damages being sought or the amount of such damages that could be allocated to the Company.

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SCHNITZER STEEL INDUSTRIES, INC.

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

The Company’s environmental liabilities as of February 28, 2022 and August 31, 2021 included $5 million and $6 million, respectively, relating to the Portland Harbor matters described above.

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

The Company has insurance policies that it believes will provide reimbursement for costs it incurs for defense, ~~(including the pre-remedial~~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 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.

In addition, pursuant to its insurance policies, the Company is being reimbursed for the costs it incurs for required source control evaluation and remediation work.

Other Legacy Environmental Loss Contingencies

The Company’s environmental loss contingencies as of ~~November 30, 2017~~February 28, 2022 and August 31, ~~2017,~~2021, other than Portland Harbor, include actual or possible investigation and ~~cleanup~~remediation costs from historical contamination at sites currently or formerly owned or formerly operated by the Company or at other sites where the Company may have responsibility for such costs due to past disposal or other activities ("(“legacy environmental loss ~~contingencies"~~contingencies”). These legacy environmental loss contingencies relate to the potential remediation of waterways and soil and groundwater contamination and may also involve natural resource damages, governmental fines and penalties, and claims by third parties for personal injury and property damage. The Company has been notified that it is or may be a potentially responsible party at certain of these sites, and investigation and ~~cleanup~~remediation activities are ongoing or may be required in the future. The Company recognizes a liability for such matters when the loss is probable and can be reasonably estimated. ~~Where~~When investigation, allocation, and ~~cleanup~~remediation activities are ongoing or where the Company has not yet been identified as having responsibility or the contamination has not yet been identified, it is reasonably possible that the Company may need to recognize additional liabilities in connection with such sites but the Company cannot currently reasonably estimate the possible loss or range of loss absent additional information or developments. Such additional liabilities, individually or in the aggregate, may have a material adverse effect on the ~~Company's~~Company’s results of operations, financial condition, or cash flows.

~~During the first quarter~~

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SCHNITZER STEEL INDUSTRIES, INC.

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

In fiscal 2018, the Company accrued an initial $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 both February 28, 2022 and August 31, 2021, 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.~~plans. 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 investigation, analysis, and discussion by the Company and regulators. The Company is investigating whether a portion or all of the current and future losses related to this matter, if incurred, are covered by existing insurance coverage or may be offset by contributions from other responsible parties.



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

~~Steel Manufacturing Operations~~

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

In addition, the Company’s loss contingencies as of ~~November 30, 2017~~February 28, 2022 and August 31, ~~2017.~~

~~The steel mill's electric arc furnace generates dust (“EAF dust”) that is classified as hazardous waste~~2021 included $8 million and $19 million, respectively, for the estimated costs related to environmental matters in connection with a closed facility owned and previously operated by an indirect, wholly-owned subsidiary, including monitoring and remediation of soil and groundwater conditions and funding for wellhead treatment facilities. In the second quarter of fiscal 2022, the Company accrued $3 million for certain soil remediation activities based on additional information related to estimated costs to complete. Investigation and remediation activities have been conducted under the oversight of the applicable state regulatory agency and are on-going, and the Company’s subsidiary has also been working with state and local officials with respect to the protection of public and private water supplies. As part of its activities relating to the protection of public water supplies, the Company’s subsidiary agreed to reimburse the municipality for certain studies and plans and to provide funding for the construction and operation by the ~~EPA because~~municipality of ~~its zinc and lead content. As a result,~~wellhead treatment facilities, which agreement resulted in payment by the Company ~~captures~~to the ~~EAF dust~~municipality of $11 million in the second quarter of fiscal 2022. 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 ~~ships it in specialized rail cars to firms that apply treatments that allow~~can be reasonably estimated. However, the Company cannot reasonably estimate at this time the possible additional loss or range of possible additional losses associated with this matter pending the on-going implementation of the approved remediation plan for soil and groundwater conditions and completion and operation of the wellhead treatment facilities.

In addition, the Company’s loss contingencies as of both February 28, 2022 and August 31, 2021 included$8 million for the ~~ultimate disposal~~estimated costs related to remediation of a site a portion of which was previously leased to and operated by an indirect, wholly-owned subsidiary. In connection with settlement of a lawsuit relating to allocation of the ~~EAF dust.~~

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

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

Summary - Environmental Contingencies

~~Other~~

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

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

Contingencies -– Other

~~The~~

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

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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~~ - 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, 2022									Three Months Ended February 28, 2021
	Foreign Currency Translation Adjustments			Pension Obligations, Net			Total			Foreign Currency Translation Adjustments			Pension Obligations, Net			Total
Balances - December 1 (Beginning of period)	$	(32,724	)	$	(2,555	)	$	(35,279	)	$	(33,945	)	$	(2,947	)	$	(36,892	)
Other comprehensive income before reclassifications		722			0			722			1,572			0			1,572
Income tax (expense)		0			0			0			0			0			0
Other comprehensive income before reclassifications, net of tax		722			0			722			1,572			0			1,572
Amounts reclassified from accumulated other comprehensive loss		0			154			154			0			49			49
Income tax (benefit)		0			(35	)		(35	)		0			(11	)		(11	)
Amounts reclassified from accumulated other comprehensive loss, net of tax		0			119			119			0			38			38
Net periodic other comprehensive income		722			119			841			1,572			38			1,610
Balances - February 28 (End of period)	$	(32,002	)	$	(2,436	)	$	(34,438	)	$	(32,373	)	$	(2,909	)	$	(35,282	)

	Six Months Ended February 28, 2022									Six Months Ended February 28, 2021
	Foreign Currency Translation Adjustments			Pension Obligations, Net			Total			Foreign Currency Translation Adjustments			Pension Obligations, Net			Total
Balances - September 1 (Beginning of period)	$	(31,609	)	$	(2,945	)	$	(34,554	)	$	(34,184	)	$	(2,687	)	$	(36,871	)
Other comprehensive (loss) income before reclassifications		(393	)		451			58			1,811			(385	)		1,426
Income tax (expense) benefit		0			(101	)		(101	)		0			87			87
Other comprehensive (loss) income before reclassifications, net of tax		(393	)		350			(43	)		1,811			(298	)		1,513
Amounts reclassified from accumulated other comprehensive loss		0			205			205			0			98			98
Income tax (benefit)		0			(46	)		(46	)		0			(22	)		(22	)
Amounts reclassified from accumulated other comprehensive loss, net of tax		0			159			159			0			76			76
Net periodic other comprehensive (loss) income		(393	)		509			116			1,811			(222	)		1,589
Balances - February 28 (End of period)	$	(32,002	)	$	(2,436	)	$	(34,438	)	$	(32,373	)	$	(2,909	)	$	(35,282	)

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~~Income in all periods presented.

Table of Contents

SCHNITZER STEEL INDUSTRIES, INC.

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Note 97 - Revenue

Disaggregation of Revenues

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

	Three Months Ended February 28,				Six Months Ended February 28,
	2022		2021		2022		2021
Major product information:
Ferrous revenues	$	438,314	$	322,679	$	904,170	$	574,885
Nonferrous revenues		196,142		147,322		390,571		267,031
Steel revenues⁽¹⁾		116,196		99,191		219,434		187,605
Retail and other revenues		32,546		30,919		67,141		62,697
Total revenues	$	783,198	$	600,111	$	1,581,316	$	1,092,218
Revenues based on sales destination:
Foreign	$	435,471	$	332,197	$	906,644	$	600,596
Domestic		347,727		267,914		674,672		491,622
Total revenues	$	783,198	$	600,111	$	1,581,316	$	1,092,218

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

Receivables from Contracts with Customers

The revenue accounting standard defines a receivable as an entity’s right to consideration that is unconditional, meaning that only the passage of time is required before payment is due. As of February 28, 2022 and August 31, 2021, receivables from contracts with customers, net of an allowance for credit losses, totaled $276million and $210 million, respectively, representing 98% of total accounts receivable reported on the Unaudited Condensed Consolidated Balance Sheets at each reporting date.

Contract Liabilities

Contract consideration received from a customer prior to revenue recognition is recorded as a contract liability and is recognized as revenue when the Company satisfies the related performance obligation under the terms of the contract. The Company’s contract liabilities, which consist almost entirely of customer deposits for recycled metal and finished steel sales contracts, are reported within accounts payable in the Unaudited Condensed Consolidated Balance Sheets and totaled $11 million and $8 million as of February 28, 2022 and August 31, 2021, respectively. Unsatisfied performance obligations reflected in these contract liabilities relate to contracts with original expected durations of one year or less and, therefore, are not disclosed. During the three and six months ended February 28, 2022, the Company reclassified less than $1 million and $7 million, respectively, in contract liabilities as of August 31, 2021 to revenues as a result of satisfying performance obligations during the period. During the three and six months ended February 28, 2021, the Company reclassified $1 million and $6 million, respectively, in contract liabilities as of August 31, 2020 to revenues as a result of satisfying performance obligations during the period.

Note 8 - Share-Based Compensation

In the first quarter of fiscal ~~2018,~~2022, 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~~158,656 restricted stock units ~~("RSUs"~~(“RSUs”) and ~~246,161~~153,080 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.~~2022. 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$8 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.

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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 thethresholdlevel 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 2022, the performance ~~share awards based~~metrics are the Company’s recycled metal volume growthand its return on ~~a relative Total Shareholder Return ("TSR"~~capital employed (“ROCE”) ~~metric over a performance period spanning November 14, 2017 to August 31, 2020.~~. Award share payouts ~~range~~depend on the extent to which the performance goals have been achieved, which performance-based payout factors are adjusted by a total shareholder return (“TSR”) modifier based on the Company’s average TSR percentile rank relative to a designated peer group. The number of shares that a participant receives is equal to the number of performance shares granted multiplied by an initial payout factor based on recycled metal volume growth and ROCE, which ranges from a threshold of 50% to a maximum of 200%. The final payout factor is then determined by applying the TSR modifier to the initial payout factor within a certain range, with a maximum increase or decrease of 20%.

The Company granted 76,540 performance share awards based on ~~the relative ranking~~its recycled metal volume growth metric with TSR modifier and 76,540 performance share awards based on its ROCE metric with TSR modifier over a three-year performance period consisting of the Company's TSR among a designated peer group of 16 companies. The TSR award stipulates certain limitations to the payout in the event the payout reaches a defined ceiling level or the Company's TSR is negative. The TSR awards contain a market conditionCompany’s 2022, 2023, and therefore, once the award recipients complete the requisite service period, the related compensation expense based on the grant-date fair value is not changed, regardless of whether the market condition has been satisfied. The estimated fair value of the TSR awards at the date of grant was $3 million.2024 fiscal years. The Company estimated the fair value of performance share awards granted in the ~~TSR awards~~first quarter of fiscal 2022 using a Monte-Carlo simulation model utilizing several key assumptions, including ~~expected Company and peer company share price volatility, correlation coefficients between peers,~~ the ~~risk-free~~following:

	Percentage
Expected share price volatility (SSI)		51.6	%
Expected share price volatility (Peer group)		58.5	%
Expected correlation to peer group companies		46.0	%
Risk-free rate of return		0.61	%

The estimated aggregate fair value of ~~return, the expected dividend yield and other award design features.~~

~~The remaining 126,398~~these performance share awards ~~have a three-year~~at the date of grant was $8 million. The Company accrues compensation cost for these performance ~~period consisting of the Company’s 2018, 2019 and 2020 fiscal years. The performance targets are~~share awards based on the ~~Company's return on capital employed over the three-year~~probable outcome of achieving specified performance ~~period, with award payouts ranging from a threshold~~conditions, net of ~~50% to a maximum of 200%. The fair value of the awards granted was based on the market closing price of the underlying Class A common stock on the grant date and totaled $3 million.~~



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

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

2024.

In the second quarter of fiscal 2022, the Company granted deferred stock units (“DSUs”) to each of its non-employee directors under the Company’s 1993 Stock Incentive Plan, as amended. Each DSU gives the director the right to receive 1 share of Class A common stock at a future date. The grant included an aggregate of 18,924 shares that will vest in full on the day before the Company’s 2023 annual meeting of shareholders, subject to continued Board service. The total fair value of these awards at the grant date was $1 million.

Note 109 - Income Taxes

Effective Tax Rate

Table of Contents

SCHNITZER STEEL INDUSTRIES, INC.

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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 six months of fiscal 2022 was an expense on pre-tax income of 24.0% and 21.3%, respectively, compared to 20.1% and 22.1%, respectively, for the comparable prior year periods. The Company’s effective tax rate from continuing operations for the second quarter of fiscal ~~2018 and 2017~~2022 was ~~lower~~higher than the U.S. federal statutory rate of ~~35%~~21% primarily due tothe ~~lower~~aggregate impact of state taxes and permanent differences from non-deductible expenses 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 allowances against deferred tax assets are required. The Company continues to maintain valuation allowances against certain state and Canadian deferred tax assets. Canadian deferred tax assets against which the Company continues to maintain a valuation allowance ~~positions partially offset by increases in deferred tax liabilities from~~relate to indefinite-lived ~~assets in all jurisdictions.~~

assets.

The Company files federal and state income tax returns in the U.S. and foreign tax returns in Puerto Rico and Canada. For U.S. federal income tax returns, fiscal years ~~2013~~2014 to ~~2017~~2021 remain subject to examination under the statute of limitations. ~~The Company's U.S. federal income tax return for fiscal 2015 is currently under examination.~~

~~Subsequent Event~~

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

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



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

Note 1110 - Net Income ~~(Loss)~~ Per Share

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

	Three Months Ended February 28,						Six Months Ended February 28,
	2022			2021			2022			2021
Income from continuing operations	$	38,136		$	45,649		$	85,441		$	60,755
Net income attributable to noncontrolling interests		(550	)		(1,091	)		(1,627	)		(2,051	)
Income from continuing operations attributable to SSI shareholders		37,586			44,558			83,814			58,704
Income (loss) from discontinued operations, net of tax		29			30			—			(12	)
Net income attributable to SSI shareholders	$	37,615		$	44,588		$	83,814		$	58,692
Computation of shares:
Weighted average common shares outstanding, basic		28,231			27,991			28,195			27,899
Incremental common shares attributable to dilutive performance share awards, restricted stock units and deferred stock units		1,481			871			1,603			774
Weighted average common shares outstanding, diluted		29,712			28,862			29,798			28,673

Three Months Ended November 30,

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

Common stock equivalent shares of 311,736 and 199,786 were considered antidilutive and were excluded from the calculation of diluted net income per share for the three and six months ended February 28, 2022, respectively. NaN common stock equivalent shares ~~of 1,086,335~~were considered antidilutive for the three months ended February 28, 2021, while 103,566 common stock equivalent shares were considered antidilutive and were excluded from the calculation of diluted net ~~loss~~income per share for the ~~three~~six months ended ~~November 30, 2016. No common stock equivalent shares were considered antidilutive for the three months ended November 30, 2017.~~

February 28, 2021.

Note 1211 - Related Party Transactions

The Company purchases recycled metal from one of its joint venture operations at prices that approximate fair market value. These purchases totaled $3$5 million for each of the three months ended ~~November 30, 2017~~February 28, 2022 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 revenues2021, 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~~$11million 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$8 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, 2022 and 2021, 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.~~

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~~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, 2022 and ~~2016.~~2021. 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~~2021, 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"), an Oregon corporation,~~ is one of North ~~America's~~America’s largest recyclers of ferrous and nonferrous ~~scrap~~ metal, including end-of-life vehicles, and a manufacturer of finished steel products.

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

~~Prior~~services to ~~the fourth quarter of fiscal 2017,~~meet global demand through our internal organizational and reporting structure supported two operating and reportable segments: the Auto and Metals Recycling ("AMR") business and the Steel Manufacturing Business ("SMB"). In the fourth quarter of fiscal 2017, in accordance with our plan announced in June 2017, we modified our internal organizational and reporting structure to combine our steel manufacturing operations, which had been reported as our SMB segment, with our Oregonnetwork that includes 50 retail self-service auto parts stores, 52 metals recycling ~~operations, which had been reported within our AMR segment, forming a new division named Cascade Steel~~facilities, and ~~Scrap ("CSS"~~an electric arc furnace (“EAF”). The Oregon metals recycling operations include our shredding and export facilities in Portland, Oregon, and also include four metals recycling feeder yard operations located in Oregon and Southern Washington and one metals recycling joint venture ownership interest. The Oregon metals recycling operations source substantially all of the scrap raw material needs of our steel manufacturing operations. This change in organizational structure is intended to enhance our flexibility, generate internal synergies, and enable us to more effectively adjust to market changes across our recycling and steel manufacturing operations. mill.

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

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

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

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

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

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



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

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

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

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SCHNITZER STEEL INDUSTRIES, INC.

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



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

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

Coronavirus Disease 2019 (“COVID-19”)

We continue to monitor the impact of COVID-19 on all aspects of our business. 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 safety 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. Following the onset of COVID-19 and its negative effects on our business, most prominently reflected in our fiscal 2020 results, global economic conditions improved during fiscal 2021, resulting in increased demand for our products. Beginning in our second quarter of fiscal 2021 and continuing through the second quarter of fiscal 2022, there has been a trend in many parts of the world of increasing availability and administration of vaccines against COVID-19, as well as an easing of restrictions on individual, business, and government activities. The existence of new or enduring variant strains of COVID-19 may lead to a rise in infections, which could cause delays in the easing of restrictions previously in place and the implementation of new restrictions and mandates, and there are ongoing global impacts resulting directly or indirectly from the pandemic including labor shortages, logistical challenges such as increased port congestion, and increases in costs for certain goods and services, which have negatively impacted our sales volumes and operating results to varying degrees. 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.

Steel Mill Fire

On May 22, 2021, we experienced a fire at our steel mill in McMinnville, Oregon. Direct physical loss or damage to property from the incident was limited to the mill’s melt shop, with no bodily injuries and no physical loss or damage to other buildings or equipment. As a result of the fire, the rolling mill production ceased in early June 2021. In August 2021, the steel mill began ramping up operations following the substantial completion of replacement and repairs of property and equipment in the melt shop that had been lost or damaged by the fire. We experienced the loss of business income during the shutdown of the steel mill and the subsequent ramp-up phase which was substantially completed during the second quarter of fiscal 2022. We have insurance that we believe is fully applicable to the losses and have filed initial insurance claims, which are subject to deductibles and various conditions, exclusions, and limits, for the ~~First Quarter~~property that experienced physical loss or damage and business income losses resulting from the matter. The property damage deductible under the policies insuring the Company’s assets in this matter is $1 million, while the deductible for lost business income is 10 times the Average Daily Gross Earnings which would have been earned had no interruption occurred, calculated subject to judgments and uncertainties. As of ~~Fiscal 2018~~

~~We generated consolidated revenues~~August 31, 2021, prepaid expenses and other current assets in the Unaudited Condensed Consolidated Balance Sheets included an initial $10 million insurance receivable recognized in the fourth quarter of ~~$483~~fiscal 2021, primarily offsetting applicable losses including capital purchases of $10 million that we had incurred as of August 31, 2021. In the first half of fiscal 2022, we increased the amount of this insurance receivable to $25 million and recognized a related $15 million insurance recovery gain, $3 million recorded in the first quarter and $12 million recorded in the second quarter, within cost of goods sold in the Unaudited Condensed Consolidated Statements of Income , reflecting recovery of applicable losses incurred as a result of the fire to date. In addition, during the first half of fiscal ~~2018, an increase~~2022, we received advance payments from insurers totaling approximately $30 million towards our claims, and not reflecting any final or full settlement of ~~45%~~claims with the insurers, which amount reduced the $25 million insurance receivable to zero with the remaining amount of advance payments of $5 million reported within other accrued liabilities in the Unaudited Condensed Consolidated Balance Sheets as of February 28, 2022.

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SCHNITZER STEEL INDUSTRIES, INC.

Everett Facility Shredder Fire

On December 8, 2021, we experienced a fire at our metals recycling facility in Everett, Massachusetts. Direct physical loss or damage to property from the ~~$334~~incident was limited to the facility’s shredder building and equipment, with no bodily injuries and no physical loss or damage to property reported at other buildings or equipment. As a result of the fire, shredding operations ceased, while all non-shredding operations at the facility continued, including torching, shearing, separating, and sorting purchased non-shreddable recycled ferrous metals. On January 28, 2022, shredding operations at the facility began ramping up following the replacement and repairs to shredder equipment that had been damaged. Completion of the remainder of repair and replacement of property that experienced physical loss or damage, primarily buildings and improvements, will occur over a longer period and impacts on business income may continue. We have insurance that we believe is fully applicable to the losses and have filed initial insurance claims, which are subject to deductibles and various conditions, exclusions, and limits, for the property damage or loss and business income losses resulting from the matter. The property damage deductible under the policies insuring our assets in this matter is $0.5 million, while the deductible for lost business income is 10 times the Average Daily Gross Earnings which would have been earned had no interruption occurred, calculated subject to judgments and uncertainties. The insurance claims resolution process may extend significantly beyond completion of ~~consolidated revenues in~~repair and replacement of the ~~first~~physical plant property that experienced physical loss or damage and the restart of production activities. In the second quarter of fiscal ~~2017,~~2022, we recognized an initial $10 million insurance receivable and related insurance recovery gain, reported within prepaid expenses and other current assets in the Unaudited Condensed Consolidated Balance Sheets and within cost of goods sold in the Unaudited Condensed Consolidated Statements of Income, respectively, reflecting ~~significantly improved market conditions~~recovery of applicable losses including impairment charges of $6 million related to the carrying value of plant and equipment assets damaged by the fire and initial capital purchases and other costs totaling $4 million that we had incurred as of February 28, 2022.

Use of Non-GAAP Financial Measures

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

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

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SCHNITZER STEEL INDUSTRIES, INC.

Financial Highlights of Results of Operations for the Second Quarter of Fiscal 2022

•

Diluted earnings per share from continuing operations attributable to SSI shareholders in the second quarter of fiscal 2022 was $1.27, compared to $1.54 per share in the prior year quarter.

•

Adjusted diluted earnings per share from continuing operations attributable to SSI shareholders in the second quarter of fiscal 2022 was $1.38, compared to $1.51 per share in the prior year quarter.

•

Net income in the second quarter of fiscal 2022 was $38 million, compared to $46 million in the prior year quarter.

•

Adjusted EBITDA in the second quarter of fiscal 2022 was $75 million, compared to $71 million in the prior year quarter.

Market demand for recycled metals was strong in the ~~domestic and export markets, and for our finished steel products, compared~~second quarter of fiscal 2022, leading to ~~the prior year quarter. The improved conditions resulted in~~significantly higher average net selling prices and increased sales volumes for ~~AMR’s~~our ferrous and nonferrous ~~recycled metal~~ products ~~and for CSS’s finished steel products.~~

~~Consolidated operating income was $26 million in~~compared to the ~~first~~prior year quarter. In the second quarter of fiscal ~~2018, compared to $1 million in~~2022, 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 for our ferrous and nonferrous products increased by 15% and 33%, respectively, and sales volumes for these products increased by 10% and ~~increased supply of scrap metal, including end-of-life vehicles,~~8%, respectively, compared to the prior year quarter. The ~~higher price environment positively impacted~~increased sales volumes in part reflected additional volumes arising from the ~~spread between direct purchase costs and selling prices of ferrous recycled metal at AMR, with~~Columbus Recycling business acquired on October 1, 2021. Market demand for our finished steel products also improved in the ~~metal spread for the first~~second quarter of fiscal ~~2018 expanding~~2022, which contributed to finished steel average selling prices increasing by ~~approximately 50%~~51% compared to the prior year quarter. ~~AMR's operating results also benefited from cost efficiencies resulting from higher processed~~Finished steel sales volumes ~~and improved yields of nonferrous material from the shredding process. CSS reported operating income of $8 million~~were 22% lower in the ~~first~~second quarter of ~~2018,~~fiscal 2022 compared to ~~an operating loss of $3 million in~~ the prior year ~~period, reflecting steady demand for finished steel products~~quarter in part due to the impact of supply chain disruptions on current volumes, including delays to construction projects related to a concrete industry strike in the ~~West Coast markets, improved metal margins, a reduced impact from lower-priced rebar imports, and operational synergies gained through~~Pacific Northwest. Our results for the ~~integration of our steel manufacturing and Oregon metals recycling operations in the fourth~~second quarter of fiscal ~~2017, forming~~2022 reflected benefits from the ~~new CSS division. CSS's operating~~higher price environment for most of our products and increased ferrous and nonferrous sales volumes driven by strong demand compared to the prior year quarter, as well as recognition of insurance recoveries. Our results in the ~~first~~second quarter of ~~2017 were adversely impacted by~~fiscal 2022 also reflected the impact of compressed metal spreads on contracted ferrous sales for February shipments due to a surge in market prices in the second half of the quarter, a less favorable impact from average inventory accounting compared to the prior year quarter, and the effects of supply chain disruptions, lower year-over-year platinum group metals (PGM) prices, inflationary pressure ~~from lower-priced rebar imports~~on operating costs, and the adverse impact of the ~~production downtime and other costs associated with major equipment upgrades at our steel mill. Consolidated selling,~~Everett shredder downtime.

Selling, general, and administrative ~~("SG&A")~~ expense in the ~~first~~second quarter of fiscal ~~2018~~2022 increased by ~~$14 million, or 36%,~~13% compared to the prior year ~~period~~quarter primarily due to ~~an increase in~~higher legacy environmental ~~liabilities,~~charges, employee salary and wage expenses, and outside and professional services expenses, including from higher ~~incentive compensation accruals as a result of improved operating performance,~~costs resulting from our acquisition and other growth-related activities, increased competition for employees in a tight labor market, and the impacts of inflation. These higher expenses ~~related to higher volumes. This increase was~~in the second quarter of fiscal 2022 were partially offset by ~~incremental benefits from cost savings and productivity improvement measures.~~

~~Net income from continuing operations attributable to SSI~~lower accruals in ~~the first quarter of fiscal 2018 was $18 million, or $0.64 per diluted share,~~connection with our annual incentive compensation plans compared to ~~net loss from continuing operations attributable to SSI of $1 million, or $(0.05) per diluted share, in~~ the prior year ~~period.~~

quarter.

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

•

For the first six months of fiscal 2022, net cash provided by operating activities was $13 million, compared to net cash used in operating activities of $3 million in the prior year comparable period.

•

Debt was $262 million as of February 28, 2022, compared to $75 million as of August 31, 2021, which increase was primarily due to increased borrowings from our credit facilities to fund the acquisition of the assets of the Columbus Recycling business and higher net working capital needs.

•

Debt, net of cash, was $244 million as of February 28, 2022, compared to $47 million as of August 31, 2021.

•

Repurchase of 200,000 shares of Class A common stock totaling $8 million in the first six months of fiscal 2022, compared to none in the prior year comparable period.

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

Selected Financial Measures and Operating Statistics

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 February 28,									Six Months Ended February 28,
($ in thousands, except for prices and per share amounts)	2022			2021			%			2022			2021			%
Ferrous revenues	$	438,314		$	322,679			36	%	$	904,170		$	574,885			57	%
Nonferrous revenues		196,142			147,322			33	%		390,571			267,031			46	%
Steel revenues⁽¹⁾		116,196			99,191			17	%		219,434			187,605			17	%
Retail and other revenues		32,546			30,919			5	%		67,141			62,697			7	%
Total revenues		783,198			600,111			31	%		1,581,316			1,092,218			45	%
Cost of goods sold		670,539			487,025			38	%		1,353,783			907,119			49	%
Gross margin (total revenues less cost of goods sold)	$	112,659		$	113,086			(—	)%	$	227,533		$	185,099			23	%
Gross margin (%)		14.4	%		18.8	%		(23	)%		14.4	%		16.9	%		(15	)%
Selling, general and administrative expense	$	61,081		$	54,142			13	%	$	116,348		$	104,048			12	%
Diluted earnings per share from continuing operations attributable to SSI shareholders:
Reported	$	1.27		$	1.54			(18	)%	$	2.81		$	2.05			37	%
Adjusted⁽²⁾	$	1.38		$	1.51			(9	)%	$	2.96		$	2.09			42	%
Net income	$	38,165		$	45,679			(16	)%	$	85,441		$	60,743			41	%
Adjusted EBITDA⁽²⁾	$	75,259		$	71,411			5	%	$	153,345		$	111,666			37	%
Average ferrous recycled metal sales prices ($/LT)⁽³⁾:
Domestic	$	418		$	349			20	%	$	424		$	297			43	%
Foreign	$	455		$	399			14	%	$	452		$	334			35	%
Average	$	445		$	387			15	%	$	446		$	326			37	%
Ferrous volumes (LT, in thousands):
Domestic⁽⁴⁾		408			391			4	%		839			779			8	%
Foreign		663			586			13	%		1,381			1,251			10	%
Total ferrous volumes (LT, in thousands)⁽⁴⁾⁽⁸⁾		1,071			977			10	%		2,219			2,030			9	%
Average nonferrous sales price ($/pound)⁽³⁾⁽⁵⁾	$	1.10		$	0.83			33	%	$	1.08		$	0.74			46	%
Nonferrous volumes (pounds, in thousands)⁽⁴⁾⁽⁵⁾		147,145			135,899			8	%		300,373			274,135			10	%
Finished steel average sales price ($/ST)⁽³⁾	$	1,045		$	690			51	%	$	1,013		$	656			54	%
Finished steel sales volumes (ST, in thousands)		106			136			(22	)%		205			270			(24	)%
Cars purchased (in thousands)⁽⁶⁾		73			80			(9	)%		153			158			(3	)%
Number of auto parts stores at period end		50			50			(—	)%		50			50			(—	)%
Rolling mill utilization⁽⁷⁾		86	%		88	%		(2	)%		82	%		93	%		(12	)%

~~_____________________________~~

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.



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~~Auto and Metals Recycling~~

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

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

~~_____________________________~~

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 predominantly sales of finished steel products, in addition to sales of 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 Revenues~~

(8)	May not foot due to rounding.

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Revenues

Revenues in the second quarter and first six months of fiscal 2022 increased by 31% and 45%, respectively, compared to the same periods in the prior year primarily due to significantly higher average net selling prices and increased sales volumes for our ferrous and nonferrous products driven by strong market demand for recycled metals globally. In the second quarter and first six months of fiscal 2022, the average net selling prices for our ferrous products increased by 15% and 37%, respectively, and the average net selling prices for our nonferrous products increased by 33% and 46%, respectively, compared to the prior year periods. In the second quarter and first six months of fiscal 2022, ferrous sales volumes increased by 10% and 9%, respectively, and nonferrous sales volumes increased by 8% and 10%, respectively, compared to the prior year periods. The expansion in recycled metal sales volumes compared to the prior year periods reflected strong demand for these products globally, the effects of which were partially offset by the impact of logistics constraints including ship and container delays for ferrous and nonferrous sales to customers. The increased ferrous and nonferrous sales volumes in part reflected additional volumes arising from the Columbus Recycling business acquired on October 1, 2021. Finished steel average selling prices were significantly higher in the second quarter and first six months of fiscal 2022 compared to the prior year periods, reflecting robust market demand for these products. The impact of these higher average selling prices on steel revenues in the second quarter and first six months of fiscal 2022 was partially offset by lower sales volumes and rolling mill utilization compared to the prior year periods, which were primarily due to the impact of the ramp-up of steel mill operations that began in August 2021 and which was substantially completed during the second quarter, as well as the impact of supply chain disruptions on current volumes, including delays to construction projects related to a concrete industry strike in the Pacific Northwest experienced in the second quarter of fiscal 2022. The ramp-up of steel mill operations followed completion of repair and replacement of damaged property arising from the May 2021 steel mill fire.

Operating Performance

Net income in the second quarter and first six months of fiscal 2022 was $38 million and $85 million, respectively, compared to $46 million and $61 million in the prior year periods. Adjusted EBITDA in the second quarter and first six months of fiscal 2022 was $75 million and $153 million, respectively, compared to $71 million and $112 million, respectively, in the prior year periods. Our results for the second quarter of fiscal 2022 reflected benefits from the higher price environment for most of our products and increased ferrous and nonferrous sales volumes supported by strong demand compared to the prior year quarter, as well as recognition of insurance recoveries. Our results in the second quarter of fiscal 2022 also reflected the impact of compressed metal spreads on contracted ferrous sales for February shipments due to a surge in market prices in the second half of the quarter, a less favorable impact from average inventory accounting compared to the prior year quarter, and the effects of supply chain disruptions, lower year-over-year PGM prices, inflationary pressure on operating costs, and the adverse impact of the Everett shredder downtime. Our results for the first six months of fiscal 2022 benefited from a significant expansion in our ferrous metal spreads primarily during the first quarter of fiscal ~~2018~~2022 and increased finished steel metal margins, greater contributions from sales of nonferrous products, and increased ferrous and nonferrous sales volumes driven by ~~$24 million, or 36%,~~strong demand, compared to the prior year ~~period primarily~~period.

In the second quarter and first six months of fiscal 2022, we recognized insurance recoveries of $12 million and $15 million, respectively, in connection with the May 2021 fire at our steel mill in McMinnville, Oregon, reflecting recovery of applicable costs incurred by the mill operations following the incident. In the second quarter of fiscal 2022, we also recognized insurance recoveries of $10 million in connection with the December 2021 fire at our Everett shredder facility, reflecting recovery of applicable losses including asset impairment charges, initial capital purchases, and other costs incurred in the period. These amounts do not reflect potential additional recoveries of business income losses due to ~~higher average selling prices for our finished steel products, reflecting~~ the ~~impact of higher steel-making raw material costs, and higher sales volumes for our finished steel products due to steady demand~~interruptions that may be recognized in the ~~West Coast markets~~future when settlements of the business interruption claims are resolved.

Selling, general, and ~~a reduced impact from rebar imports~~administrative expense in the second quarter and first six months of fiscal 2022 increased by 13% and 12%, respectively, compared to the prior year ~~quarter. Revenues~~periods primarily due to higher legacy environmental charges, employee salary and wage expenses, and outside and professional services expenses, including from higher costs resulting from our acquisition and other growth-related activities, increased competition for employees in a tight labor market, and the impacts of inflation. These higher expenses in the second quarter and first ~~quarter~~six months of fiscal ~~2017~~2022 were ~~adversely impacted~~partially offset 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~~accruals in ~~the first quarter of fiscal 2018 was $8 million,~~connection with our annual incentive compensation plans compared to ~~operating loss of $3 million in~~ the prior year ~~period, reflecting steady demand for finished steel products~~periods.

See the reconciliation of adjusted EBITDA in Non-GAAP Financial Measures at the ~~West Coast markets, a reduced impact from lower-priced rebar imports, and operational synergies gained through the integration~~end of ~~our steel manufacturing and Oregon metals recycling operations in the fourth quarter~~this Item 2.

Table 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.

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Income Tax

~~Our~~

The effective tax rate from continuing operations for the second quarter and first six months of fiscal 2022 was an expense on pre-tax income of 24.0% and 21.3%, respectively, compared to 20.1% and 22.1%, respectively, for the comparable prior year periods. For the second quarter of fiscal ~~2018 was an expense of 23.6%, compared to a benefit of 8.6% for~~2022, the ~~prior year period.~~

~~The~~ effective tax rate from continuing operations ~~for~~was higher than the ~~first quarter of fiscal 2018 was lower than the~~U.S. federal statutory rate of ~~35%~~21% primarily due to the ~~lower~~aggregate impact of state taxes and permanent differences from non-deductible expenses on the projected annual effective tax rate applied to the quarterly results. The lower projected annual effective tax rate is the result 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.

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$18 million and $7 $28 million as of ~~November 30, 2017~~February 28, 2022 and August 31, ~~2017,~~2021, 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, 2022, debt was ~~$185~~$262 million compared to ~~$145~~$75 million as of August 31, ~~2017,~~2021, and debt, net of cash, was ~~$176~~$244 million as of February 28, 2022, compared to ~~$138~~$47 million as of August 31, ~~2017 (refer~~2021, which increases were primarily due to increased borrowings from our credit facilities to fund the acquisition of the assets of the Columbus Recycling business on October 1, 2021, and higher net working capital needs. See the reconciliation of debt, net of cash, in 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

Netcash provided by operating activities in the first six months of fiscal 2022 was $13 million, compared to net cash used in operating activities ~~in the first three months~~ of ~~fiscal 2018 was $16 million, compared to net cash provided by operating activities of $6~~$3 million in the first ~~three~~six months of fiscal ~~2017.~~

~~Uses~~2021.

Sources of cash other than from earnings in the first ~~three~~six months of fiscal ~~2018~~2022 included a $47 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$12 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 a $14~~purchases and payments and an $8 million increase in ~~accounts payable due~~other accrued liabilities primarily reflecting the portion of advance payments from insurance carriers received in the period towards our claims arising from the May 2021 steel mill fire deemed attributable to ~~the timing of payments.~~operating activities. Uses of cash in the first ~~three~~six months of fiscal ~~2017~~2022 included a ~~$13~~$53 million increase in ~~inventory~~inventories due to higher ~~volumes on hand~~raw material purchase costs and the ~~impact of~~ timing of purchases and sales, a $48 million increase in accounts receivable primarily due to higher selling prices and higher sales volumes for recycled metals, as well as the timing of sales and collections, a ~~$10~~$40 million decrease in accrued payroll and related liabilities primarily due to the payment of incentive compensation ~~payments.~~

in the first quarter of fiscal 2022 previously accrued under our fiscal 2021 plans, and a $12 million decrease in environmental liabilities primarily due to payments in connection with legacy environmental matters. The sources and uses of cash related to operating activities described above also reflect higher net working capital needs during the ramp-up of steel mill operations that began in August 2021 following completion of repair and replacement of damaged property arising from the May 2021 steel mill fire.

Uses of cash in the first six months of fiscal 2021 included a $90 million increase in inventories due to higher raw material purchase prices, higher volumes on hand, and the timing of purchases and sales, and a $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 other than from earnings in the first six months of fiscal 2021 included a $45 million increase in accounts payable primarily due to higher raw material purchase prices and the timing of payments, and a $16 million increase in income tax accruals.

Investing Activities

Net cash used in investing activities was ~~$14~~$172 million in the first ~~three~~six months of fiscal ~~2018,~~2022, compared to ~~$11~~$54 million in the first ~~three~~six months of fiscal ~~2017.~~

2021.

Cash used in investing activities in the first ~~three~~six months of fiscal ~~2018~~2022 included $114 million paid to acquire the assets of the Columbus Recycling business on October 1, 2021, which amount included $7 million paid at closing for estimated net working capital in excess of an agreed-upon benchmark. We funded the acquisition using cash on hand and borrowings under our existing credit facilities. See Note 3 - Business Acquisition in the Notes to the Unaudited Condensed Consolidated Financial Statements in Part I, Item 1 of this report for further detail.

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Cash used in investing activities in the first six months of fiscal 2022 also included capital expenditures of ~~$15~~$69 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~~$55 million in the prior year period.

Cash flows from investing activities in the first six months of fiscal 2022 included proceeds of $10 million representing the portion of advance payments from insurance carriers deemed a recovery of capital purchases incurred for repair and replacement of damaged property arising from the May 2021 steel mill fire.

Financing Activities

Net cash provided by financing activities in the first ~~three~~six months of fiscal ~~2018~~2022 was ~~$31~~$150 million, compared to ~~net cash used in financing activities of $14~~$50 million in the first ~~three~~six months of fiscal ~~2017.~~

2021.

Cash flows from financing activities in the first ~~three~~six months of fiscal ~~2018~~2022 included ~~$40~~$180 million in net ~~borrowing~~borrowings of debt, compared to $5$66 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~~2022 and ~~2017~~2021 included $10 million and $4 million, respectively, for payment of employee tax withholdings resulting from vesting of share-based awards and $11 million in each period for the payment of dividends. Cash used in financing activities for the first six months of fiscal 2022 also included $5$8 million for ~~dividends.~~

share repurchases.

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. The credit facility provides that LIBOR or any LIBOR successor rate is subject to a 0.50% floor and contains mechanics by which the parties may replace the benchmark interest rate used in the agreement from LIBOR to one or more rates based on the secured overnight financing rate administered by the Federal Reserve Bank of New York or another alternative benchmark rate.

We had borrowings outstanding under ~~the~~our credit facilities of ~~$180~~$240 million as of ~~November 30, 2017~~February 28, 2022 and ~~$140~~$60 million as of August 31, ~~2017.~~2021. The weighted average interest rate on amounts outstanding under ~~this facility~~ our credit facilities was ~~3.26%~~2.03% and ~~3.48%~~1.75% as of ~~November 30, 2017~~February 28, 2022 and August 31, ~~2017,~~2021, 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, and (b) a consolidated leverage ratio, defined as consolidated funded indebtedness divided by the sum of consolidated net worth and consolidated funded ~~indebtedness; and (c) a consolidated asset coverage ratio, defined as the consolidated asset value of eligible assets divided by the consolidated funded~~ indebtedness.

As of ~~November 30, 2017,~~ February 28, 2022, 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 to 1.00 and was ~~3.31~~5.84 to 1.00 as of ~~November 30, 2017.~~February 28, 2022. The consolidated leverage ratio was required to be no more than 0.55 to 1.00 and was ~~0.26~~0.23 to 1.00 as of ~~November 30, 2017. The asset coverage ratio was required to be no less than 1.00 to 1.00 and was 1.55 to 1.00 as of November 30, 2017.~~

~~The Company's~~February 28, 2022.

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 $15 million and $8 million as of February 28, 2022 and August 31, 2021, respectively, primarily relate to equipment purchases, 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 obligations are treated as a partial financing of the purchase price by the equipment vendor. Monthly payments commence when the equipment is placed in service and achieves specified minimum operating metrics, with payments continuing for a period of four years thereafter. In the second quarter of fiscal 2022, we recorded $7 million of additional debt obligations with these terms generally.

Capital Expenditures

Capital expenditures totaled ~~$15~~$69 million for the first ~~three~~six months of fiscal ~~2018~~,2022, compared to ~~$11~~$55 million for the prior year period. Capital expenditures in the first six months of fiscal 2022 included approximately $21 million for investments in growth. We currently plan to invest in the range of ~~$55~~$130 million to ~~$70~~$160 million in capital expenditures ~~on equipment replacement and upgrades, further investment~~ in fiscal 2022. These capital expenditures include investments in growth, including new nonferrous processing technologies, and ~~environmental-related~~to support volume initiatives as well as post-acquisition and other growth projects, ~~in fiscal 2018~~and investments to upgrade our equipment and infrastructure and for environmental and safety-related assets, 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 $10 million in capital expenditures for environmental projects in the first ~~three~~six months of fiscal ~~2018,~~2022, and we currently plan to invest upin the range of $30 million to ~~$20~~$40 million for such projects in fiscal ~~2018.~~2022. These projects include investments in ~~storm water systems and~~ equipment to ensure ongoing compliance with air quality and other ~~environmental regulations.~~

environmental regulations and storm water systems.

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 5 - 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, as well as related to other legacy environmental loss contingencies, 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.

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SCHNITZER STEEL INDUSTRIES, INC.

Dividends

On January 6, 2022, our Board of Directors declared a dividend for the second quarter of fiscal 2022 of $0.1875 per common share, which equates to an annual cash dividend of $0.75 per common share. The dividend was paid on February 14, 2022.

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, 2022, we had authorization to repurchase up to a remaining 506 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. In the second quarter of fiscal 2022, we repurchased 200 thousand shares of our Class A common stock in open-market transactions for a total of $8 million.

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.

~~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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2021.

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, 2022, 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~~2021, other than the ~~following:~~

~~Inventories~~

~~Our inventories consist~~following.

Business Acquisitions

We recognize the assets acquired, the liabilities assumed, and any noncontrolling interest in the acquiree at the acquisition date, measured at their fair values as of ~~processed and unprocessed scrap metal (ferrous, nonferrous, and nonferrous recovered joint product arising~~that date. Contingent purchase consideration is recorded at fair value at the date of acquisition. Any excess purchase price over the fair value of the net assets acquired is recorded as goodwill. Within one year from the ~~manufacturing process), semi-finished steel products (billets), finished steel products (primarily rebar, merchant bar~~date of acquisition, we may update the value allocated to the assets acquired and ~~wire rod), used~~liabilities assumed, and ~~salvaged vehicles,~~the resulting goodwill balance, based on information received regarding the valuation of such assets and ~~supplies. As~~liabilities that was not available at the time of purchase. Measuring assets and liabilities at fair value requires us to determine the price that would be paid by a third-party market participant based on the highest and best use 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)assets 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.

~~Recently Issued Accounting Standards~~

~~For a description of recent accounting pronouncements that may have an impact on our financial condition, results of operations or cash flows, see~~interests acquired. See Note 23 - ~~Recent Accounting Pronouncements~~Business Acquisition in the Notes to the Unaudited Condensed Consolidated Financial Statements in Part I, Item 1 of this ~~report.~~

report for disclosure of our acquisition of the assets of the Columbus Recycling business on October 1, 2021. As of the date of this report, measurement of actual acquired net working capital, as well as the fair values of certain other acquired assets and assumed liabilities, is still preliminary and subject to change based on the completion of valuation procedures.

Recently Issued Accounting Standards

We have not identified any recent accounting pronouncements that are expected to have a material impact on our financial condition, results of operations, or cash flows upon adoption.

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SCHNITZER STEEL INDUSTRIES, INC.

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, 2022		August 31, 2021
Short-term borrowings	$	7,451	$	3,654
Long-term debt, net of current maturities		254,126		71,299
Total debt		261,577		74,953
Less cash and cash equivalents		17,823		27,818
Total debt, net of cash	$	243,754	$	47,135

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 our borrowings (repayments) for the period because we believe it is useful tofor 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,
	2022			2021
Borrowings from long-term debt	$	405,094		$	265,645
Repayments of long-term debt		(225,395	)		(199,229	)
Net borrowings (repayments) of debt	$	179,699		$	66,416

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~~EBITDA, adjusted 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

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~~business development costs not related to ongoing operations including pre-acquisition expenses, legacy environmental matters (net of ~~recoveries,~~recoveries), restructuring charges and other exit-related activities, ~~recoveries related to~~and the ~~resale or modification of previously contracted shipments, and~~ income tax ~~expense (benefit) associated with~~benefit 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 to sharp declines in 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&A expense in the Unaudited Condensed Consolidated Statements of Operations and are also excluded from the measures.adjusted EBITDA (in thousands):

	Three Months Ended February 28,						Six Months Ended February 28,
	2022			2021			2022		2021
Reconciliation of adjusted EBITDA:
Net income	$	38,165		$	45,679		$	85,441	$	60,743
(Income) loss from discontinued operations, net of tax		(29	)		(30	)		—		12
Interest expense		1,901			1,224			3,273		3,004
Income tax expense		12,073			11,469			23,170		17,188
Depreciation and amortization		18,596			14,469			35,816		29,295
Charges (recoveries) for legacy environmental matters, net⁽¹⁾		4,004			(2,214	)		4,460		546
Business development costs		545			—			1,159		—
Restructuring charges and other exit-related activities		4			814			26		878
Adjusted EBITDA	$	75,259		$	71,411		$	153,345	$	111,666


(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 5 - 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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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 February 28,						Six Months Ended February 28,
	2022			2021			2022			2021
Income from continuing operations attributable to SSI shareholders:
As reported	$	37,586		$	44,558		$	83,814		$	58,704
Charges (recoveries) for legacy environmental matters, net⁽¹⁾		4,004			(2,214	)		4,460			546
Business development costs		545			—			1,159			—
Restructuring charges and other exit-related activities		4			814			26			878
Income tax (benefit) expense allocated to adjustments⁽²⁾		(1,073	)		334			(1,322	)		(315	)
Adjusted	$	41,066		$	43,492		$	88,137		$	59,813

Diluted earnings per share from continuing operations attributable to SSI shareholders:
As reported	$	1.27		$	1.54		$	2.81		$	2.05
Charges (recoveries) for legacy environmental matters, net, per share⁽¹⁾		0.13			(0.08	)		0.15			0.02
Business development costs, per share		0.02			—			0.04			—
Restructuring charges and other exit-related activities, per share		—			0.03			—			0.03
Income tax (benefit) expense allocated to adjustments, per share⁽²⁾		(0.04	)		0.01			(0.04	)		(0.01	)
Adjusted⁽³⁾	$	1.38		$	1.51		$	2.96		$	2.09

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 5 - 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.



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

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.~~conditions as well as other factors including political and military events. 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~~ as of ~~our reportable segments as of November 30, 2017.~~

February 28, 2022.

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.~~

2021.

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. As a result 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. In addition, in higher or rising commodity price environments, we have experienced proportionately lower credit insurance coverage of applicable customer credit limits, which 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~~February 28, 2022 and August 31, ~~2017,~~2021, 40% and 30% ~~and 33%~~, respectively, of our ~~trade~~ accounts receivable balance was covered by letters of credit. Of the remaining balance, ~~94%~~99% and ~~88%, respectively,~~97% was less than 60 days past due as of ~~November 30, 2017~~February 28, 2022 and August 31, ~~2017.~~

2021, respectively.

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, 2022 and August 31, ~~2017,~~ 2021, we did not have any derivative contracts.

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~~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. Consistent with guidance issued by the Securities and Exchange Commission that an assessment of internal controls over financial reporting of a recently acquired business may be omitted from management's evaluation of disclosure controls and procedures, management is excluding an assessment of the internal controls of the acquired Columbus Recycling business, which we acquired on October 1, 2021, from its evaluation of the effectiveness of our disclosure controls and procedures. The Columbus Recycling business represented approximately 8% of our consolidated total assets and 4% of our consolidated total revenues as of and for the six months ended February 28, 2022. Based on this evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that, as of ~~November 30, 2017~~,February 28, 2022, 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, 2022, that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

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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,~~2021; and ~~below~~ in ~~this~~ Part II, ~~"Item~~“Item 1. Legal ~~Proceedings" of this~~Proceedings” in our Quarterly Report on Form ~~10-Q.~~10-Q for the quarterly period ended November 30, 2021. Also see Note 5 - Commitments and Contingencies in the Notes to the Unaudited Condensed Consolidated Financial Statements in Part I, Item I,1, incorporated by reference herein.

In November 2017, the Company received a pre-filing negotiation letter from the United States Environmental Protection Agency (“EPA”) with respect to alleged violations of environmental requirements stemming from industrial stormwater and hazardous waste management inspections at two of our facilities in Kansas City. We have already completed facility improvements that we believe address the concerns identified in the EPA inspection reports. Accordingly, we expect to negotiate a settlement with EPA and do not believe that the outcome of this matter will be material to our financial position, results of operations, cash flows or liquidity.


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

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 and Exchange Commission on October 24, 2017,~~2021, except for the ~~following:~~

~~Potential costs related to~~changes disclosed in the ~~environmental cleanup of Portland Harbor may be material to our financial position and liquidity~~

~~In December 2000, we were notified by~~subsequent Quarterly Report on Form 10-Q for the United States Environmental Protection Agency (“EPA”) under the Comprehensive Environmental Response, Compensation and Liability Act (“CERCLA”) that we are one of the potentially responsible parties (“PRPs”) that owns or operates 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 the Site, the parties to be involved, the timing of any specific remedial actionquarterly period ended November 30, 2021, 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~~following.

Economic 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,~~geopolitical instability 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.



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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 to occur as a result of ~~new information~~military conflict could have a material adverse effect on our operating results, financial condition, and ~~data collected during~~cash flows

In late February 2022, Russian military forces launched significant military action against Ukraine, which has continued through the ~~engineering design.~~date of this report. We do not have ~~identified a number~~operations in Russia or Ukraine. Nevertheless, the outbreak of ~~concerns regarding the remedy described in the ROD, which is based on data more than a decade old,~~war between Russia and Ukraine and the ~~EPA's estimates for the~~resulting sanctions by U.S. and European governments, together with any additional future sanctions by them, could have a larger impact that expands into other geographies where we do business, including our supply chain, business partners, and customers in those markets, which could result in lost sales, supply shortages, commodity price fluctuations, increased manufacturing costs, transportation logistics challenges, customer credit and ~~time required to implement the selected remedy. Because of ongoing questions regarding cost effectiveness, technical feasibility,~~liquidity issues, and ~~the use of stale data, it is uncertain whether the ROD will be implemented as issued.~~lost efficiencies. 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~~U.S. has commenced certain trade actions as a result of the ~~data used~~Russia-Ukraine conflict, which are expected to result in ~~preparing~~retaliatory measures or actions, including tariffs, by Russia. While significant uncertainty exists with respect to this matter, the ~~ROD was more than~~Russia-Ukraine conflict and its broader impacts, including any increased trade barriers or restrictions on global trade imposed by the U.S. or further retaliatory trade measures taken by Russia or other countries in response, could have a ~~decade old~~material adverse effect on our operating results, financial condition, and ~~would need~~cash flows.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

Pursuant to a share repurchase program, as amended in 2001, 2006 and 2008, our Board of Directors has authorized the repurchase of 9 million shares of our Class A common stock when management deems such repurchases to be ~~updated with a new round~~appropriate. We repurchased 200 thousand shares of ~~“baseline” sampling to be conducted prior to~~our Class A common stock under the ~~remedial design phase. Accordingly,~~program in open-market transactions during 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 that such costs will be fully covered by~~2022. As of February 28, 2022, we had existing ~~insurance coverage and, thus, has also recorded an insurance receivable for $2 million in~~authorization remaining under the ~~first~~program to repurchase up to approximately 506 thousand shares.

The table below presents a summary of our share repurchases during the quarter ~~of fiscal 2018, resulting in no net impact~~ended February 28, 2022:

	Total Number of Shares Purchased		Average Price Paid per Share		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs		Maximum Number of Shares that may yet be Purchased under the Plans or Programs
December 1 - December 31, 2021		—	$	—		—		705,998
January 1 - January 30, 2022		200,000	$	39.33		200,000		505,998
February 1 - February 28, 2022		—	$	—		—		505,998
Total second quarter 2022		200,000				200,000

The share repurchase program does not require us to ~~our consolidated results of operations.~~

~~Except for certain early action projects in which we are not involved, remediation activities are not expected to commence for a~~acquire any specific number of ~~years. In addition, as discussed above, responsibility for implementing~~shares. The program does not have a stated expiration date, and ~~funding~~we may suspend, extend, or terminate the ~~remedy will~~program at any time without prior notice. The program may 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.~~

executed through open-market purchases, privately negotiated transactions, or utilizing Rule 10b5-1 programs.

ITEM 5. OTHER INFORMATION

None.

Table of Contents

SCHNITZER STEEL INDUSTRIES, INC.

ITEM 6.EXHIBITS

Exhibit Number		Exhibit Description

~~Table of Contents~~ *10.1	~~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 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 in connection with the Site, although such costs could be material to our 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. 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.

Deferred Compensation Plan for Non-Employee Directors

*10.2	~~Table~~Summary Sheet of ~~Contents~~2022 Non-Employee Director Compensation	~~SCHNITZER STEEL INDUSTRIES, INC.~~


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


31.1
~~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 and Restated Agreement for Services by and between the Registrant and John D. Carter dated June 29, 2011.~~

10.3*		~~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.


*
~~Table of Contents~~	~~SCHNITZER STEEL INDUSTRIES, INC.~~	Management contract or compensatory plan or arrangement.

Table of Contents

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 6, 2022		By:	/s/ Tamara L. Lundgren
					Tamara L. Lundgren
					Chairman, President and Chief Executive Officer

Date:	~~January 9, 2018~~	~~By:~~ April 6, 2022		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	%

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