Table of Contents

 

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-K

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

For the Fiscal Year Ended August 31, 2023

or

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

For the Transition Period from ________ to ________

Commission File Number 000-22496

 

SCHNITZER STEEL INDUSTRIES, INC.

(Exact name of registrant as specified in its charter)

OREGON		93-0341923
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)
299 SW Clay Street, Suite 400, Portland, Oregon		97201
(Address of principal executive offices)		(Zip Code)

(503) 224-9900

(Registrant’s telephone number, including area code)

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

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

Securities registered pursuant to Section 12(g) of the Act: None

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☒ No ☐

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ☐ No ☒

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 ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted 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 such files). Yes ☒ No ☐

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.

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

 

Smaller reporting company ☐	Emerging growth company ☐

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. ☐

Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☒

If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing reflect the correction of an error to previously issued financial statements. ☐

Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation received by any of the registrant’s executive officers during the relevant recovery period pursuant to §240.10D-1(b). ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

The aggregate market value of the registrant’s outstanding common stock held by non-affiliates on February 28, 2023 was $854,343,899.

The registrant had 27,312,233 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 October 23, 2023.

 

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Table of Contents

 

SCHNITZER STEEL INDUSTRIES, INC. dba RADIUS RECYCLING

FORM 10-K

TABLE OF CONTENTS

				PAGE
FORWARD-LOOKING STATEMENTS				1
PART I
Item 1		Business		2
Item 1A		Risk Factors		14
Item 1B		Unresolved Staff Comments		27
Item 1C		Cybersecurity		27
Item 2		Properties		28
Item 3		Legal Proceedings		29
Item 4		Mine Safety Disclosures		31
PART II
Item 5		Market for Registrant’s Common Equity, Related Stockholder Matters, and Issuer Purchases of Equity Securities		32
Item 6		[Reserved]		33
Item 7		Management’s Discussion and Analysis of Financial Condition and Results of Operations		34
Item 7A		Quantitative and Qualitative Disclosures About Market Risk		52
Item 8		Financial Statements and Supplementary Data		53
Item 9		Changes in and Disagreements with Accountants on Accounting and Financial Disclosure		98
Item 9A		Controls and Procedures		98
Item 9B		Other Information		98
Item 9C		Disclosure Regarding Foreign Jurisdictions that Prevent Inspections		98
PART III
Item 10		Directors, Executive Officers, and Corporate Governance		99
Item 11		Executive Compensation		99
Item 12		Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters		99
Item 13		Certain Relationships and Related Transactions, and Director Independence		99
Item 14		Principal Accountant Fees and Services		99
PART IV
Item 15		Exhibits and Financial Statement Schedules		100
Item 16		Form 10-K Summary		103
SIGNATURES				104

 

 

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FORWARD-LOOKING STATEMENTS

Statements and information included in this Annual Report on Form 10-K by Schnitzer Steel Industries, Inc. dba Radius Recycling 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,” “Radius Recycling,” and “Radius” refer to Schnitzer Steel Industries, Inc. dba Radius Recycling and its consolidated subsidiaries.

Forward-looking statements in this Annual Report on Form 10-K include statements regarding future events or our expectations, intentions, beliefs, and strategies regarding the future, which may include statements regarding the impact of equipment upgrades, equipment failures, and facility damage on production, including timing of repairs and resumption of operations; the realization of insurance recoveries; the Company’s outlook, growth initiatives, or expected results or objectives, including pricing, margins, volumes, and profitability; completion of acquisitions and integration of acquired businesses; the progression and impact of investments in processing and manufacturing technology improvements and information technology systems; the impacts of supply chain disruptions, inflation, and rising interest rates; liquidity positions; our ability to generate cash from continuing operations; trends, cyclicality, and changes in the markets we sell into; strategic direction or goals; targets; changes to manufacturing and production processes; the realization of deferred tax assets; planned capital expenditures; the cost of and the status of any agreements or actions related to our compliance with environmental and other laws; expected tax rates, deductions, and credits; the impact of sanctions and tariffs, quotas, and other trade actions and import restrictions; the impact of pandemics, epidemics, or other public health emergencies, such as the coronavirus disease 2019 (“COVID-19”) pandemic; 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; the potential impact of adopting new accounting pronouncements; and the adequacy of accruals.

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

We may make other forward-looking statements from time to time, including in reports filed with the Securities and Exchange Commission, press releases, presentations and on public conference calls. All forward-looking statements we make are based on information available to us at the time the statements are made, and we assume no obligation to update any forward-looking statements, except as may be required by law. Our business is subject to the effects of changes in domestic and global economic conditions and a number of other risks and uncertainties that could cause actual results to differ materially from those included in, or implied by, such forward-looking statements. Some of these risks and uncertainties are discussed in Part I, Item 1A. Risk Factors of this Form 10-K. Examples of these risks include: potential environmental cleanup costs related to the Portland Harbor Superfund site or other locations; the impact of goodwill impairment charges; the impact of equipment upgrades, equipment failures, and facility damage on production; failure to realize or delays in realizing expected benefits from capital and other projects, including investments in processing and manufacturing technology improvements and information technology systems; the cyclicality and impact of general economic conditions; the impact of inflation, rising interest rates, and foreign currency fluctuations; changing conditions in global markets including the impact of sanctions and tariffs, quotas, and other trade actions and import restrictions; increases in the relative value of the U.S. dollar; economic and geopolitical instability including as a result of military conflict; volatile supply and demand conditions affecting prices and volumes in the markets for raw materials and other inputs we purchase; significant decreases in recycled metal prices; imbalances in supply and demand conditions in the global steel industry; difficulties associated with acquisitions and integration of acquired businesses; supply chain disruptions; reliance on third-party shipping companies, including with respect to freight rates and the availability of transportation; the impact of impairment of assets other than goodwill; the impact of pandemics, epidemics, or other public health emergencies, such as the COVID-19 pandemic; inability to achieve or sustain the benefits from productivity, cost savings, and restructuring initiatives; inability to renew facility leases; customer fulfillment of their contractual obligations; 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 facilities; the impact of consolidation in the steel industry; product liability claims; the impact of legal proceedings and legal compliance; the 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; the impact of increasing attention to environmental, social, and governance matters; translation risks associated with fluctuation in foreign exchange rates; the impact of hedging transactions; inability to obtain or renew business licenses and permits; environmental compliance costs and potential environmental liabilities; increased environmental regulations and enforcement; compliance with climate change and greenhouse gas emission laws and regulations; the impact of labor shortages or increased labor costs; reliance on employees subject to collective bargaining agreements; and the impact of the underfunded status of multiemployer plans in which we participate.

1 / Schnitzer Steel Industries, Inc. dba Radius Recycling Form 10-K Fiscal 2023

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Table of Contents	SCHNITZER STEEL INDUSTRIES, INC. dba RADIUS RECYCLING

 

PART I

ITEM 1. BUSINESS

General

On July 26, 2023, Schnitzer Steel Industries, Inc. announced its new brand and assumed name, Radius Recycling, reflecting its position within and connection to the circular economy. The Company will seek approval from its shareholders to change its legal name to Radius Recycling, Inc. at its January 2024 Annual Meeting of Shareholders.

Founded in 1906, Radius Recycling is one of North America’s largest recyclers of ferrous and nonferrous metal, including end-of-life vehicles, and a manufacturer of finished steel products. As a vertically integrated organization, we offer a range of products and services to meet global demand through our network that includes 50 retail self-service auto parts stores, 54 metals recycling facilities, and an electric arc furnace (“EAF”) steel mill. Our internal organizational and reporting structure includes a single operating and reportable segment.

Worldwide demand for recycled ferrous and nonferrous metal is driven primarily by production levels for finished steel and for products using nonferrous metal. Recycled ferrous metal is the primary feedstock for steel mill production using EAF technology and one of the raw materials utilized for steel manufacturing using blast furnace technology. Steel mills around the world, including those in the North American domestic market in which our own steel mill operates, are the primary end markets for our recycled ferrous metal products. Specialty steelmakers, foundries, refineries, smelters, wholesalers, and other recycled metal processors globally are the primary end markets for our recycled nonferrous metal products. Our steel mill produces finished steel products using internally sourced recycled ferrous metal as the primary raw material and sells to customers located primarily in the Western United States and Western Canada.

We believe long-term demand for recycled metals will continue to be driven by factors including global economic growth and an increased focus on environmental policies promoting natural resource conservation, decarbonization, and lower energy usage. We believe the significant environmental benefits and production efficiencies associated with steelmaking that maximizes the use of recycled metal as a raw material, compared to iron ore mined from natural resources, will positively contribute to worldwide long-term demand for recycled ferrous metal. Further, we believe decarbonization efforts by companies, industries, and governments around the world, including investments in low carbon technologies such as renewable energies, electric vehicles, and energy efficiency solutions that are more metal intensive and minimize carbon dioxide emissions from the use of fossil fuels, among other factors, support global long-term demand for recycled nonferrous metal such as aluminum and copper.

Business Acquisitions

Recycling Services

On November 18, 2022, we acquired the operating assets of ScrapSource, a recycling services company that provides solutions for industrial companies that generate scrap metal from their manufacturing process. The acquired business expands our national recycling services operations and utilizes primarily long-term contracts through which ScrapSource charges a fee to suppliers of scrap material in exchange for its services. The total purchase consideration was approximately $25 million.

Expansion of Southeast Recycling Operations

On April 29, 2022, we acquired two recycling facilities in the greater Atlanta, Georgia metropolitan area, including a metal shredding operation and recycled auto-parts center, from the previous owners of Encore Recycling. The total purchase consideration was approximately $64 million. On October 1, 2021, we acquired eight metals recycling facilities across Mississippi, Tennessee, and Kentucky from Columbus Recycling, a provider of recycled ferrous and nonferrous metal products and recycling services. The total purchase consideration was approximately $117 million. The acquired Encore Recycling and 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. The acquired Encore Recycling operations also purchase and recycle end-of-life vehicles, including through use of its shredding, nonferrous processing, and separation systems. Combined with our other regional metals recycling facilities and recycled auto-parts centers, the acquired operations offer additional recycling products, services, and logistics solutions to customers and suppliers across the Southeastern United States and nearly doubled our metals recycling facility count in the region.

See Note 7 - Business Acquisitions in the Notes to the Consolidated Financial Statements in Part II, Item 8 of this report.

2 / Schnitzer Steel Industries, Inc. dba Radius Recycling Form 10-K Fiscal 2023

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Table of Contents	SCHNITZER STEEL INDUSTRIES, INC. dba RADIUS RECYCLING

 

Revenue-Generating Activities

We acquire, process, and recycle end-of-life (salvaged) vehicles, rail cars, home appliances, industrial machinery, manufacturing scrap, and construction and demolition scrap through our facilities. Our retail self-service auto parts stores located across the United States (“U.S.”) and Western 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 major component parts containing ferrous and nonferrous metals, which are primarily sold to wholesalers. The remaining auto bodies are crushed and shipped to our metals recycling facilities where geographically practical, or sold to third parties, for shredding. 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 recycled ferrous, nonferrous, and mixed metal pieces of a size, density, and metal content required by customers to meet their production needs. Each of our shredding, nonferrous processing, and separation systems is designed to optimize the recovery of valuable recycled metal.

We operate seven deepwater port locations, six of which are equipped with large-scale shredders. Our largest port facilities in Everett, Massachusetts; Portland, Oregon; Oakland, California; and Tacoma, Washington each operate a mega-shredder with 7,000 to 9,000 horsepower. Our port facilities in Salinas, Puerto Rico, and Kapolei, Hawaii operate shredders with 1,500 and 4,000 horsepower, respectively. Our port facility in Providence, Rhode Island does not operate a shredder, but exports recycled ferrous metal acquired in the regional market. In addition, we operate a 2,500-horsepower shredder at our non-port facility in Lithonia, Georgia, which we acquired as part of the purchase of the Encore Recycling business in April 2022. Our shredders are designed to provide a denser product and, in conjunction with advanced separation equipment, a more refined form of recycled ferrous metal which can be used efficiently by steel mills in the production of new steel. The shredding process reduces auto bodies and other scrap metal into fist-size pieces of shredded recycled metal. The shredded material is then carried by conveyor under magnetized drums that attract the ferrous metal and separate it from the mixed nonferrous metal and other residue, resulting in a consistent and high-quality shredded ferrous product. The mixed nonferrous metal and residue then pass through a series of additional mechanical systems designed to recover and separate the nonferrous metal from the residue. The remaining mixed nonferrous metal is then further sorted by product and size grade before being sold as joint products, which include mainly zorba (primarily aluminum), zurik (primarily stainless steel), and shredded insulated wire (primarily copper and aluminum). We sell further separated products with higher metal content such as twitch (light gauge recycled aluminum) and shredded copper and brass. 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.

We invest in nonferrous metal extraction and separation technologies to optimize the recovery of valuable nonferrous metal and to meet the metal purity requirements of customers. We have a major strategic initiative currently in progress and partially completed to replace, upgrade, and add to our existing nonferrous metal recovery technologies in order to increase metal recovery and the volume of nonferrous material from shredding operations, provide additional product optionality, create higher quality furnace-ready products, and reduce the metallic portion of shredder residue disposed in landfills. Our program comprises seven primary nonferrous recovery systems at our major shredder facilities. Of these systems, three are major aluminum and four are major copper recovery systems. Our initiative also includes two aluminum separation systems, one on each coast, and four copper separation systems. The construction, commissioning, and ramp up of these new technologies, including commencement of permitting approvals, began substantially in fiscal 2021 and are anticipated to be completed during fiscal 2024, with total capital expenditures estimated to be approximately $133 million, of which approximately $130 million has been incurred, including $21 million during fiscal 2023.

In addition to the sale of recycled metal processed at our facilities, we provide a variety of recycling and related services including brokering the sale of ferrous and nonferrous scrap metal generated by retail and industrial entities and demolition projects to customers in the domestic market, among other services. We also lease machinery assets to customers primarily to facilitate the provision of reverse logistics and other recycling services. Contract consideration for our recycling services is generally less sensitive to changes in market prices for scrap metal compared to sales of recycled metal from our recycling operations.

Our steel mill melt shop includes an EAF, a ladle refining furnace with enhanced steel chemistry refining capabilities, and a five-strand continuous billet caster, permitting the mill to produce special alloy grades of steel not currently produced by other mills on the West Coast of the U.S. The substantial majority of billets produced are reheated in a natural gas-fueled furnace and are then hot-rolled through the rolling mill to produce finished steel long products. The rolling mill has an effective annual production capacity under current conditions of approximately 580 thousand tons of finished steel products.

3 / Schnitzer Steel Industries, Inc. dba Radius Recycling Form 10-K Fiscal 2023

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Table of Contents	SCHNITZER STEEL INDUSTRIES, INC. dba RADIUS RECYCLING

 

Products and Services

Recycled ferrous metal is a key feedstock used in the production of finished steel and is largely categorized into heavy melting steel (“HMS”), plate and structural (“bonus”), and shredded scrap metal (“shred”), although there are various grades of each category depending on metal content and the size and consistency of individual pieces. These attributes affect the product’s relative value.

Our nonferrous products include mixed metal joint products recovered from the shredding process, as well as aluminum, copper, stainless steel, nickel, brass, titanium, lead, and high temperature alloys. We also sell catalytic converters to specialty processors that extract the nonferrous precious metals including platinum, palladium, and rhodium.

We provide recycling and related services involving scrap metal and other recyclable materials to a range of customers, including large retailers, industrial manufacturers, original equipment manufacturers, and owners of end-of-life railcars. These services include primarily scrap brokerage, certified destruction, automotive parts recycling, railcar dismantling, and reverse logistics. During fiscal 2023, we expanded our recycling services operations through our acquisition of ScrapSource. Also in fiscal 2023, we launched our integrated recycling services activities under our trademarked 3PRTM brand which stands for third-party recycling and encompasses all our recycling services offerings.

Each retail self-service auto parts store offers an extensive selection of vehicles (including domestic and foreign cars, vans, and light trucks) from which customers can remove and purchase parts. We employ proprietary information technology systems to centrally manage and operate the geographically diverse network of auto parts stores, and we regularly rotate the inventory to provide customers with greater access to parts. Our used auto parts inventory is also searchable on our Pick-n-Pull public website. We enter into limited duration contracts with public entities and other third parties for vehicle dismantling and asset recovery services, which provide a source of low-cost salvage vehicles.

Our steel mill produces semi-finished goods (billets) and finished goods, consisting of rebar, coiled rebar, wire rod, merchant bar, and other specialty products, using recycled ferrous metal sourced internally from our recycling and joint venture operations and other raw materials. Semi-finished goods are predominantly used for the manufacturing of finished products. Rebar is produced in either straight length steel bars or coils and used to increase the strength of poured concrete. Coiled rebar is preferred by some manufacturers because it reduces the waste generated by cutting individual lengths to meet customer specifications and, therefore, improves yield. Wire rod is steel rod, delivered in coiled form, used by manufacturers to produce a variety of products such as chain link fencing, nails, wire, stucco netting, and pre-stressed concrete strand. Merchant bar consists of rounds and square steel bars used by manufacturers to produce a wide variety of products, including bolts, threaded bars, and dowel bars. Our steel mill is also an approved supplier of high-quality rebar to support nuclear power plant construction and has a license to produce certain patented high-strength specialty steels.

Active Facilities

Tabular presentation of our active facilities by geographic region is as follows:

		Auto Parts Stores		Metals Recycling Facilities(1)		Total Recycling Facilities(2)		Large-Scale Shredders(3)		Deepwater Ports		Steel Facilities(4)
Northwest (WA, OR, MT)		7		8		15		2		2		1
Southwest and Hawaii (CA, NV, UT, HI)		22		7		29		2		2		1
Midwest and South (AR, IL, IN, OH, MO, KS, TX)		12		—		12		—		—		—
Northeast (MA, ME, NH, RI)		2		9		11		1		2		—
Southeast and Puerto Rico (GA, AL, TN, FL, VA, KY, MS, PR)		3		26		29		2		1		—
Western Canada (BC, AB)		4		4		8		—		—		—
Total		50		54		104		7		7		2

 

4 / Schnitzer Steel Industries, Inc. dba Radius Recycling Form 10-K Fiscal 2023

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Table of Contents	SCHNITZER STEEL INDUSTRIES, INC. dba RADIUS RECYCLING

 

Pricing

Domestic and foreign prices for recycled ferrous and nonferrous metal are generally based on prevailing market rates, which differ by region, and are subject to market cycles that are influenced by worldwide demand from steel and other metal producers, the availability of materials that can be processed into saleable recycled metal, and regulatory policies, among other factors. Sanctions, trade actions, and licensing and inspection requirements can also impact pricing for the affected products. Recycled ferrous and nonferrous metal sales contracts generally provide for shipment within 30 to 60 days after the price is agreed to which, in most cases, includes freight.

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. The spread between selling prices for processed metal and the cost of purchased scrap metal (metal spread) is subject to a number of factors, including differences in the market conditions between the domestic regions where scrap metal is acquired and the areas in the world to which the processed metals are sold, market volatility from the time the selling price is agreed upon with the customer until the time the scrap metal is purchased, changes in the availability of scrap metal including the volume generated by source and grade, and changes in transportation costs. We generally benefit from sustained periods of stable or rising recycled metal selling prices, which allow us to better maintain or increase both operating income 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.

The sales prices for auto parts from salvaged vehicles are deeply discounted from prevailing national new and refurbished sales prices offered at full-service auto dismantlers, retail auto parts stores, and car dealerships. Our stores provide a list price, available at each location and online. Prices for auto bodies sold to third parties and for major component parts, such as engines, transmissions, and alternators sold to wholesalers, are based on prevailing recycled metal market rates which differ by region and are subject to market cycles. Prices for catalytic converters sold to third-party processors are based on prevailing market rates for the extracted precious metals including platinum, palladium, and rhodium. By consolidating shipments of auto bodies and component parts, we are able to optimize prices by focusing on larger wholesale customers that pay a premium for volume and consistency of shipments.

Our finished steel product prices differ by product size and grade. Selling prices are influenced by the price of raw materials, including the cost of recycled ferrous metal and required consumables including graphite electrodes and alloys, as well as regional demand in the West Coast and Western Canadian markets. Selling prices for our finished steel products may also be affected by the price and availability of steel imports.

Customers and Markets

Approximately 95% of our consolidated revenues are derived from sales of recycled ferrous and nonferrous metal products and finished steel products. We sell our recycled ferrous and nonferrous metal products globally to steel mills, foundries, refineries, smelters, wholesalers, and other recycled metal processors. Our finished steel customers are primarily steel service centers, construction industry subcontractors, steel fabricators, wire drawers, and major farm and wood products suppliers. We had no external customers that accounted for 10% or more of our consolidated revenues in fiscal 2023, 2022, or 2021.

Recycled Ferrous Metal

The table below sets forth, on a revenue and volume basis, the amount of recycled ferrous metal sold to foreign and domestic customers, during the last three fiscal years ended August 31:

		For the Year Ended August 31,												% Increase (Decrease)
($ in thousands)		2023				2022				2021				2023 vs. 2022				2022 vs. 2021
Ferrous revenues
Domestic		$	408,441			$	438,026			$	289,742				(7	)%			51	%
Foreign			1,031,542				1,476,229				1,268,149				(30	)%			16	%
Total ferrous revenues		$	1,439,983			$	1,914,255			$	1,557,891				(25	)%			23	%
Ferrous volumes (LT, in thousands)(1)
Domestic(2)			1,952				1,806				1,500				8	%			20	%
Foreign			2,424				2,810				2,908				(14	)%			(3	)%
Total ferrous volumes (LT, in thousands)(3)			4,376				4,616				4,408				(5	)%			5	%

 

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

5 / Schnitzer Steel Industries, Inc. dba Radius Recycling Form 10-K Fiscal 2023

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Table of Contents	SCHNITZER STEEL INDUSTRIES, INC. dba RADIUS RECYCLING

 

We export recycled ferrous metal primarily to countries in Asia, the Mediterranean region, and North, Central, and South America. Ferrous exports made up 55%, 61%, and 66% of our total ferrous volumes in fiscal 2023, 2022, and 2021, respectively. In fiscal 2023, the three countries from which we derived our largest ferrous export revenues from external customers were Bangladesh, Turkey, and India, which collectively accounted for 72% of our total ferrous export revenues. In fiscal 2022 and 2021, the three countries from which we derived our largest ferrous export revenues from external customers accounted for 71% and 63%, respectively, of our total ferrous export revenues. We generally attribute revenues from external customers to individual countries based on the country in which the customer is located. Our three largest external recycled ferrous metal customers accounted for 23% of total ferrous revenues in fiscal 2023, compared to 22% and 25% in fiscal 2022 and 2021, respectively.

Recycled Nonferrous Metal

The table below sets forth, on a revenue and volume basis, the amount of recycled nonferrous metal sold to foreign and domestic customers during the last three fiscal years ended August 31:

		For the Year Ended August 31,												% Increase (Decrease)
($ in thousands)		2023				2022				2021				2023 vs. 2022				2022 vs. 2021
Nonferrous revenues
Domestic		$	378,972			$	480,919			$	367,744				(21	)%			31	%
Foreign			402,130				411,525				317,118				(2	)%			30	%
Total nonferrous revenues		$	781,102			$	892,444			$	684,862				(12	)%			30	%
Nonferrous volumes (pounds, in thousands)(1)
Domestic			316,490				298,279				219,126				6	%			36	%
Foreign			422,447				389,140				374,252				9	%			4	%
Total nonferrous volumes (pounds, in thousands)(2)			738,937				687,419				593,378				7	%			16	%

 

Nonferrous exports made up 57%, 57%, and 63% of our total nonferrous sales volumes in fiscal 2023, 2022, and 2021, respectively. The substantial majority of our nonferrous joint products recovered from the shredding process are sold to the export market currently and made up 44%, 45%, and 44% of our total nonferrous sales volumes in fiscal 2023, 2022, and 2021, respectively. In fiscal 2023, the three countries from which we derived our largest nonferrous export revenues from external customers were Malaysia, China, and India, which collectively accounted for 72% of our total nonferrous export revenues. In fiscal 2022 and 2021, the three countries from which we derived our largest nonferrous export revenues from external customers accounted for 68% and 69%, respectively, of our total nonferrous export revenues.

Finished Steel Products

The table below sets forth, on a revenue and volume basis, the amount of finished steel products sold during the last three fiscal years ended August 31:

		For the Year Ended August 31,												% Increase (Decrease)
($ in thousands)		2023				2022				2021				2023 vs. 2022				2022 vs. 2021
Steel revenues(1)		$	507,550			$	531,731			$	379,203				(5	)%			40	%
Finished steel sales volumes (ST, in thousands)			521				465				488				12	%			(5	)%

 

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

We sell finished steel products to customers located primarily in the Western United States and Western Canada. Customers in California accounted for 53%, 55%, and 52% of our steel revenues in fiscal 2023, 2022, and 2021, respectively.

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Distribution

We deliver recycled ferrous and nonferrous metal to foreign customers by ship and to domestic customers by barge, rail, and road transportation networks. Cost efficiencies are achieved by operating deepwater terminal facilities in Everett, Massachusetts; Portland, Oregon; Oakland, California; Tacoma, Washington; and Providence, Rhode Island, all of which are owned, except for the Providence, Rhode Island facility which is operated under a long-term lease. We also have access to deepwater terminal facilities at Kapolei, Hawaii and Salinas, Puerto Rico through public docks. The use of deepwater terminals enables us to load ferrous material in large vessels capable of holding up to 50,000 tons for trans-oceanic shipments. We believe the use of our owned and leased terminal facilities is advantageous because it allows us to more effectively manage loading costs and minimize the berthing delays often experienced by users of unaffiliated terminals. From time to time, we may enter into contracts of affreightment, which guarantee the availability of ocean-going vessels, in order to manage the risks associated with ship availability and freight costs.

Our nonferrous products are shipped in 20- to 30-ton capacity containers from ports and rail ramps located in close proximity to our recycling facilities. Containerized shipments are exported by marine vessels to customers globally, and domestic shipments are typically shipped to customers by rail or by truck.

We sell used auto parts from our self-service retail stores. Both before and after retail customers have removed desired parts from acquired salvaged vehicles, we extract and consolidate certain valuable ferrous and nonferrous components from auto bodies for shipment by truck primarily to wholesale customers. We also remove and collect catalytic converters from salvaged vehicles for shipment by truck to specialty processers which extract the nonferrous precious metals. The salvaged auto bodies are crushed and shipped by truck to our metals recycling facilities where geographically practical, or to third-party recyclers, for shredding.

We sell finished steel products directly from our steel mill in McMinnville, Oregon and our distribution center in City of Industry, California (Los Angeles area). Finished steel products are shipped from the mill to the distribution center primarily by rail. The distribution center facilitates sales by maintaining an inventory of products close to major customers for just-in-time delivery. We communicate regularly with major customers to determine their anticipated needs and plan our rolling mill production schedule accordingly. Finished steel shipments to customers are made by common carrier, primarily truck or rail.

Sources of Unprocessed Metal

The most common forms of purchased unprocessed metal are obsolete machinery and equipment, such as automobiles, railroad cars, railroad tracks, home appliances and other consumer goods, scrap metal from manufacturing operations and retailers, and demolition metal from buildings and other infrastructure. Unprocessed metal is acquired from a diverse base of suppliers who unload at our facilities, from drop boxes at suppliers’ industrial sites, and through negotiated purchases from other large suppliers, including railroads, manufacturers, automobile salvage facilities, metal dealers, various government entities, and individuals. We typically seek to locate our retail auto parts stores in major population centers with convenient road access. Our auto parts store network spans 16 states in the U.S. and two provinces in Western Canada, with a majority of the stores concentrated in regions where our large-scale shredders are located. Through our network of auto parts stores, we seek to obtain salvaged vehicles from four primary sources: private parties, tow companies, auto auctions, and municipal and other contracts. We have a program to purchase vehicles from private parties called “Cash for Junk Cars” which is advertised in local markets. Private parties either call a toll-free number and receive a quote for their vehicle or obtain an instant online quote. The private party can either deliver the vehicle to one of our retail locations or arrange for the vehicle to be picked up. We also employ car buyers who travel to vendors and bid on vehicles. Further, we enter into limited duration contracts with public entities and other third parties for vehicle dismantling and asset recovery services, which provide a source of low-cost salvage vehicles. The expiration of such contracts may lead us to seek alternative sources of vehicles, potentially at a higher cost. We also source scrap metal and other recyclable materials through our recycling services from a range of customers including large retailers, industrial manufacturers, original equipment manufacturers, and railcar owners.

The majority of our metal collection and processing facilities receive unprocessed metal via major railroad routes, waterways, or highways. Metals recycling facilities situated near industrial manufacturing and major transportation routes have the competitive advantage of reduced freight costs because of the significant cost of freight relative to the cost of metal. The locations of our West Coast facilities provide access to sources of unprocessed metal in the Northern California region, northward to Western Canada and Alaska, and to the East, including Idaho, Montana, Utah, Colorado, and Nevada. The locations of our East Coast facilities provide access to sources of unprocessed metal in New York, Connecticut, Maine, Massachusetts, New Hampshire, Rhode Island, Vermont, Eastern Canada, and, from time to time, the Midwest. The locations of our facilities in Hawaii and Puerto Rico provide access to sources of unprocessed metal in the respective local markets. In the Southeastern U.S., approximately half of our ferrous and nonferrous unprocessed metal volume is purchased from industrial companies, including auto manufacturers, with the remaining volume being purchased from smaller dealers and individuals. These industrial companies provide us with metals that are by-products of their manufacturing processes.

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The supply of scrap metal from these various sources can fluctuate with the level of economic activity in the U.S. and can be sensitive to variability in recycled metal prices, particularly in the short term, as well as in costs such as labor and energy incurred by suppliers to generate scrap metal at economically viable levels. The effects of competition for supply of scrap metal, including of specific grades, can significantly impact the flow of scrap volumes into our facilities, our metal spreads, and our operating margins. The supply of scrap metal can also fluctuate, to a lesser degree, due to seasonal factors, such as severe weather conditions, which can inhibit scrap metal collections at our facilities and production levels in our facilities. Severe weather conditions can also adversely impact the timing of shipments of our products, the level of manufacturing activity utilizing our products, and retail admissions at our auto parts stores.

We operate an EAF steel mill in the Western U.S. that sources substantially all its recycled metal requirements from integrated metals recycling and joint venture operations. These operations provide our steel mill a mix of recycled metal grades, which allow the mill to achieve optimum efficiency in its melting operations.

Energy Supply

We require electricity to run our steel manufacturing operations, primarily its EAF. We purchase electricity under a long-term contract with McMinnville Water & Light (“MW&L”), which in turn relies on the Bonneville Power Administration. We entered into our current contract with MW&L in October 2011 that expires in September 2028. Our steel manufacturing operation also needs natural gas to operate its reheat furnace, which is used to reheat billets prior to moving them through the rolling mill. We address this demand through a natural gas agreement that obligates us at each month-end to purchase a volume of gas based on our projected needs for the immediately subsequent month on a take-or-pay basis priced using published natural gas indices. We periodically enter third-party contracts that mitigate the effect of changes in index prices on our natural gas cost for a portion of our consumption. The combined electricity and natural gas costs for our steel mill represented approximately 1% of our consolidated cost of goods sold in each of fiscal 2023, 2022, and 2021.

Competition

We compete in the U.S. and in Western Canada for the purchase of scrap metal with large, well-financed recyclers of scrap metal, steel mills that own metal recycling facilities, and with smaller metals facilities and dealers. We also compete with brokers that buy scrap or recycled metal on behalf of domestic and foreign steel mills. Our auto stores compete for the purchase of end-of-life vehicles with other auto dismantlers, used car dealers, auto auctions, and metals recyclers. In general, the competitive factors impacting the purchase of scrap metal and end-of-life vehicles are the price offered by the purchaser, the proximity of the purchaser to the source of scrap metal and end-of-life vehicles, and the purchaser’s ability to efficiently collect the scrap metal and end-of-life vehicles from certain suppliers’ locations.

Demand for our products is cyclical in nature and sensitive to general economic conditions, structural and cyclical changes in markets, and other factors. For example, in fiscal 2023, an environment of slower economic growth and activity contributed to weaker market conditions for recycled metals globally, leading to significantly lower average net selling prices for our ferrous and nonferrous products year-over-year. We compete globally for the sale of processed recycled metal to finished steel and other metal product producers. The predominant competitive factors that impact recycled metal sales are price (including duties and shipping cost), reliability of service, product quality, the relative value of the U.S. dollar, and the availability and price of raw material alternatives, including recycled metal substitutes, such as pig iron, direct reduced iron, and hot briquetted iron (all three derived from iron ore), and semi-finished products, such as steel billets. Our ability to compete in certain export markets may be impacted by sanctions and trade actions, such as tariffs, quotas, and other import restrictions, and by licensing and inspection requirements. Further, our ability to sell into certain countries may be subject to product quality requirements. Such restrictions may require us to perform additional processing and packaging of certain recycled nonferrous metal products, as well as engage in increased inspection and certification activities, in order to continue selling into the affected markets.

We also compete for the sale of used auto parts to retail customers with other self-service and full-service auto dismantlers. The auto parts industry is characterized by diverse and fragmented competition and comprises a large number of aftermarket and used auto parts suppliers of all sizes, ranging from large, multinational corporations which serve both original equipment manufacturers and the aftermarket on a worldwide basis to small, local entities which have more limited supply. The main competitive factors impacting the retail sale of auto parts are price, availability and visibility of product, quality, and convenience of the retail stores to customers.

Our ability to process substantial volumes of recycled metal products, our use of advanced processing and separation equipment, the number and geographic dispersion of our locations, our access to a variety of different modes of transportation, and the operating synergies of our integrated platform provide our business with the ability to compete successfully in varying market conditions.

Our primary domestic competitors for the sale of finished steel products include Nucor Corporation’s manufacturing facilities in Arizona, Utah, and Washington, and Commercial Metals Company’s manufacturing facilities in Arizona. In addition to domestic

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competition, we compete with foreign steel producers, principally located in Asia, Canada, Mexico, and Central and South America, primarily in shorter length rebar and certain wire rod grades. The principal competitive factors in the steel market currently are price, quality, service, product availability, and the relative value of the U.S. dollar.

For more than a decade, our steel manufacturing operation, as part of a U.S. industry coalition, petitioned the U.S. Government under our international trade laws for relief in the form of antidumping and countervailing duties against wire rod and rebar products from a number of foreign countries. Many of those cases were successful, and the resulting antidumping and countervailing duty orders led to a decrease in finished steel imports into our domestic markets from the peak reached in fiscal 2016. Those antidumping and countervailing duty orders remained in effect during fiscal 2022. The duties imposed as part of these orders are periodically reassessed through the administrative review process. In addition, the U.S. Government conducts sunset reviews every five years to determine whether revocation of the orders would likely lead to resumption of dumping and subsidization and negatively impact the U.S. domestic industry. Affirmative decisions allow the orders to continue for an additional five years. During fiscal 2023, sunset reviews of the antidumping duty orders covering rebar from Japan and Taiwan, the countervailing duty order covering rebar from Turkey, the antidumping duty orders covering wire rod from Belarus, Italy, Russia, South Africa, South Korea, Spain, Turkey, Ukraine, the United Arab Emirates, and the United Kingdom, and the countervailing duty orders covering wire rod from Italy and Turkey were completed. All reviews resulted in affirmative determinations such that the orders will remain in effect for an additional five years. During fiscal 2024, an additional sunset review covering rebar is likely to be initiated. If the final determination in any of these reviews is to revoke one or more of the orders, imports from those countries could increase which would negatively affect our results of operations, cash flows, and financial position.

There are also a number of antidumping and countervailing duty orders in effect in Canada covering rebar from many countries that we expect will continue to lead to a reduction in the volume of imports into Canada from these countries.

The long-term effectiveness of existing antidumping and countervailing duty orders related to imports of wire rod and rebar products is largely uncertain and is impacted by the level and pricing of imports and the U.S. Government’s assessment of antidumping and countervailing duty margins as well as its assessment of continued injury to the U.S. industry as part of the sunset review process.

In March 2018, the United States imposed tariffs in the amount of 25 percent and 10 percent on imports of certain steel and aluminum products, respectively. The imposition of the tariffs was the conclusion of an investigation started in April 2017 under Section 232 of the Trade Expansion Act of 1962 that allows for an exemption from normal international trade rules if imports of a product are harming national security. Currently, imports from certain countries are exempt from these duties pursuant to various agreements, including quotas. The Department of Commerce also implemented an exclusion process whereby U.S. entities can request that certain products be excluded from the Section 232 tariffs. We review any exclusion requests relevant to our product line to determine whether an objection might be appropriate. To date, the Biden Administration has allowed most Section 232 duties and procedures to remain in place.

Coronavirus Disease 2019 (“COVID-19”)

We are a company operating in a critical infrastructure industry, as defined by the U.S. Department of Homeland Security. Consistent with federal guidelines and with state and local orders, we operated across our footprint throughout the COVID-19 pandemic. Following the onset of COVID-19 and its negative effects on our business, most prominently reflected in our fiscal 2020 results, global economic conditions improved beginning in fiscal 2021 and continued to improve through most of fiscal 2022. However, there are ongoing global impacts resulting directly or indirectly from the pandemic, including labor shortages, logistical challenges, and increases in costs for certain goods and services including due to the impact of inflation, which have negatively impacted our sales volumes, operating costs, and financial results to varying degrees.

Regulatory Matters

Impact of Legislation and Regulation

Compliance with environmental laws and regulations is a significant factor in our operations. Our businesses are subject to extensive and rapidly evolving local, state, and federal environmental protection, health, safety, and transportation laws and regulations relating to, among others:

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Environmental legislation and regulations have changed rapidly in recent years, and it is likely that we will be subject to more stringent environmental standards in the future. Legislation has been proposed in the U.S. Congress on multiple occasions to address greenhouse gas (“GHG”) emissions and global climate change. In August 2022, President Biden signed the Inflation Reduction Act (“IRA”), a bill that, among other things, creates financial incentives intended to combat climate change, including by directly or indirectly discouraging use of oil and natural gas in favor of alternative sources of energy, among other measures. We cannot predict with any certainty at this time how the climate-related measures in the IRA may affect our operations. A number of states, including states in which we have operations and facilities, have considered, are considering, or have already enacted legislation or executive action to develop information on or address climate change and GHG emissions, including state-level “cap and trade” programs and climate risk and carbon emissions disclosure requirements. For example, new laws in California (i) will require companies doing business in the state with more than $1 billion in total annual revenues to annually disclose Scope 1 and 2 greenhouse gas emissions data starting in 2026 (for the prior financial year, starting on or after January 1, 2025) and Scope 3 emissions starting in 2027 (covering financial years starting on or after January 1, 2026); and/or (ii) will require companies doing business in the state with annual revenues over $500 million to biannually disclose their climate-related financial risks and the measures they have adopted to reduce and adapt to these risks. These actions may potentially inform and/or surpass the climate-related disclosure requirements proposed by the Securities and Exchange Commission (“SEC”).

Currently, we are required to annually report GHG emissions from our steel mill to the State of Oregon Department of Environmental Quality (“ODEQ”) and the EPA, and our operations in Oregon are subject to or may be impacted by ODEQ regulations, standards, and programs aimed at limiting GHG emissions and toxic air emissions in the state including from large stationary sources such as our steel mill and Portland metals recycling facility. The implementation of such regulations, standards, and programs and any associated costs, including any operating or capital expenditures, are uncertain, but may be material to our results of operations, cash flows, and financial position. In addition, we have and continue to incur material capital expenditures to enclose and install additional emission controls for our shredders to meet air emission standards or other regulatory requirements. See “Compliance with existing and future climate change, greenhouse gas, and other air emission laws and regulations may adversely impact our operating results” in Part I, Item 1A. Risk Factors. Our steel mill has an operating permit issued under Title V of the Clean Air Act Amendments of 1990, which governs certain air quality standards. The permit is based on an annual production capacity of approximately 950 thousand tons. The permit was first issued in 1998 and has since been renewed multiple times, most recently in April 2020 extending the permit through April 1, 2025. By letter dated June 22, 2023, ODEQ notified us that it intended to reopen our Title V permit for the steel mill for the purpose of incorporating the emissions of a third-party contractor that has operated on a portion of the site for decades. We have objected to such action and are engaged in discussions with ODEQ.

Federal, state, and local regulators have increased their focus on metals recycling and auto dismantling facilities that has or could lead to new or expanding regulatory requirements. For example, the California Department of Toxic Substances Control (“DTSC”) has increased its enforcement actions and sought to impose additional permitting and regulatory requirements on the metals recycling industry in the state that has resulted in increased, and could in the future further increase, operating and compliance costs and require additional capital expenditures. In addition, in July 2021, the EPA issued an enforcement alert reflecting a national enforcement initiative in conjunction with state regulators focused on Clean Air Act compliance at metal recycling facilities that operate auto and scrap metal shredders. While we believe we are an industry leader in air emission controls and have been working with state and local regulators on compliance and permitting matters, we have in the past and may in the future be subject to enforcement actions or litigation by regulators or private parties that could result in additional penalties, compliance requirements, or capital investments. See Part I, Item 3. Legal Proceedings of this report.

The U.S. Federal Government and state and local regulators are also emphasizing efforts to strengthen environmental compliance and enforcement, including with respect to clean-up actions under superfund and hazardous waste laws, in overburdened communities that may be disproportionately impacted by adverse health and environmental effects. On September 10, 2021, U.S. EPA Region 9 and the California Environmental Protection Agency announced a joint effort to expand environmental enforcement in overburdened California communities. These initiatives could result in increased enforcement, compliance, and clean-up costs, including increased capital expenditures, at our facilities located at or near such communities.

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Although our objective is to maintain compliance with applicable environmental laws and regulations, we have, in the past, incurred liabilities, expenditures, fines, and penalties associated with violations of certain of these laws and regulations. In December 2000, for example, we were notified by the EPA that we are one of the potentially responsible parties that owns or operates, or formerly owned or operated, sites which are part of or adjacent to the Portland Harbor Superfund site (“Portland Harbor”). Further, we have been notified that we are or may be a potentially responsible party at sites other than Portland Harbor currently or formerly owned or operated by us or at other sites where we may have responsibility for such costs due to past disposal or other activities. Storm water regulation and compliance is also the subject of regulatory oversight and has resulted and is expected in the future to result in increased operating costs and capital expenditures.

See further discussion of Portland Harbor and other environmental-related matters in Part I, Item 1A. Risk Factors and Note 10 - Commitments and Contingencies in the Notes to the Consolidated Financial Statements in Part II, Item 8 of this report.

We incurred capital expenditures related to environmental projects of $33 million, $35 million, and $21 million in fiscal 2023, 2022, and 2021, respectively, and we expect to spend approximately $35 million on capital expenditures related to environmental projects in fiscal 2024.

Indirect Consequences of Recent or Future Legislation and Regulation

Recent or future legislation or increased regulation regarding climate change and GHG emissions could impose significant costs on our business and our customers and suppliers, including increased energy, capital equipment, emissions controls, environmental monitoring and reporting, information technology systems, and other costs in order to comply with laws and regulations concerning and limitations imposed on climate change and GHG emissions. The potential costs of allowances, taxes, fees, offsets, or credits that may be part of “cap and trade” programs or similar future legislative or regulatory measures are still uncertain, and the future of these programs or measures is unknown. Any adopted future climate change and GHG laws or regulations could negatively impact our ability (and that of our customers and suppliers) to compete with companies situated in areas not subject to or complying with such requirements. Furthermore, even without such laws or regulations, increased awareness and any adverse publicity in the global marketplace about the GHGs emitted by companies in the metals recycling and steel manufacturing industries could harm our reputation and reduce customer demand for our products.

GHG legislation and regulation are expected to have an effect on the future price of transportation fuels, natural gas used in the manufacturing process including at our steel mill, and electricity, especially electricity generated using carbon-based fuels. Since the electricity supply for our steel mill includes a significant element of hydro-generated production which is not subject to GHG legislation and regulation, its energy costs are less likely to be impacted than those of competitors using electricity generated by carbon-based fuels. In addition, demand for recycled metal may increase from mills with blast furnaces as they seek to maximize the recycled metal component of raw material infeed, which requires less energy than melting iron ore.

Because the use of recycled iron and steel instead of iron ore to make new steel results in savings in the consumption of energy, virgin materials, and water and reduces mining wastes and other harmful environmental impacts, we believe our recycled metal products and recycling services position us to be more competitive in the future for business from companies wishing to reduce their carbon footprint and impact on the environment. In addition, the EAF at our steel mill generates significantly less GHG emissions than traditional blast furnaces.

Physical Impacts of Climate Change on Our Costs and Operations

There has been public discussion that climate change may be associated with higher temperatures, lower snowpack, drier forests, rising sea levels as well as extreme weather events and conditions such as more intense hurricanes, thunderstorms, tornadoes, wildfires, and snow or ice storms. For instance, although the impact on our operations was not significant, certain of our facilities in Puerto Rico have experienced damage due to hurricanes, including as a result of Hurricane Fiona in September 2022, and certain of our facilities in California, Oregon, and Washington were briefly closed in September 2020 due to poor air quality as a result of wildfires. Extreme weather conditions may increase our costs or cause damage to our facilities, and any damage resulting from extreme weather may not be fully insured. As many of our recycling facilities are located near deepwater ports, rising sea levels may disrupt our ability to receive scrap metal, process the scrap metal through our shredders, and ship products to our customers. Periods of extended adverse weather conditions may inhibit construction activity utilizing our products, scrap metal inflows to our recycling facilities, retail admissions and parts sales at our auto parts stores, and provision of our recycling services. Potential adverse impacts from climate change, including rising temperatures and extreme weather events and conditions, may create health and safety issues for employees operating at our facilities and may lead to an inability to maintain standard operating hours.

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Human Capital Resources

Employees

We hire employees from across the United States, Puerto Rico, and Canada and have employees residing in all states, territories, and provinces in which we operate. We aim to offer a competitive compensation package and suite of benefits that align our employees with the interests of our strategic long-term growth and our customers, communities, and shareholders. As of August 31, 2023, we had 3,353 full-time employees, 763 of whom were covered by collective bargaining agreements. Of our full-time employees as of August 31, 2023, approximately 95% resided in the United States.

Engagement

We believe employee engagement contributes significantly to our operational performance, achievement of our strategic goals, and the growth and development of our employees. Our leaders sponsor and, in many cases, lead employee engagement initiatives focusing on diversity, equity, inclusion, volunteering, community involvement, and job satisfaction. For example, our numerous Employee Resource Groups aim to broaden awareness of the diverse characteristics of our workforce and others, and we often survey our employees to gain feedback about our culture, employee experience, and leadership behaviors. In July 2023, for the third consecutive year, we were recognized as a certified Great Place to Work®. Achieving this prominent designation followed an all-employee Trust Index Survey process which had requested the views and beliefs of our employees.

Health & Safety

Safety is one of our core values. Our approach to safety is proactive and focuses on active leadership, fostering care and engagement, risk and hazard identification, training, frequent verification of the controls associated with higher-risk processes, applying what we learn from incidents, and using data to analyze and obtain insights to help reduce injuries and incidents. Creating a positive health and safety culture takes time and visible leadership that demonstrates care and concern for the health and safety of our employees.

We regularly track and evaluate numerous leading indicators, which are proactive, preventive, and predictive measures that provide information about the effective performance of our health and safety systems, processes, and critical controls, and which allow us to take preventive action to address lapses or hazards before they turn into an incident. Leading indicators that we use in connection with our health and safety programs include employee training and attendance, workplace inspections, corrective action closure rates, hazard response time analysis, and frequency and quality of layered safety observations conducted at all levels of the organization.

We also track health and safety performance using industry-standard metrics including but not limited to the following:

We work continuously to improve all aspects of our health and safety performance. Our safety strategy emphasizes the prevention of serious injuries and fatalities, works toward achieving zero injuries, and empowers employees to cultivate personal safety leadership. With zero injuries as our ultimate aspiration, we are working toward a near-term goal of a 1.00 TCIR by the end of fiscal 2025 (one recordable injury per 200,000 working hours). In fiscal year 2023, we observed fluctuations in our lagging safety indicators. While there was a year-over-year increase in recordable injuries and associated rates in fiscal 2023, we also observed an overall decrease in the severity and number of significant injuries. Enhanced safety engagements counterbalanced these fluctuations, increased hourly participation in workplace observations, and improved incident learning and communications practices, reflecting our commitment to ongoing safety improvement.

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Ethics

Our employees, both union and non-union, participate in annual training on our Company’s Core Values of Safety, Sustainability, and Integrity, which includes instruction on our Code of Conduct and ethical behavior. The training includes important topics such as reporting misconduct, prohibition against retaliation, diversity, equity, and inclusion, and the Company's sustainability program. We also provide training to employees regarding unconscious bias. We empower employees to raise issues and concerns regarding compliance with our Code of Conduct, Company policies, and the law by offering multiple reporting channels, including a third-party, confidential, multi-lingual misconduct reporting system where employees may choose to remain anonymous. We investigate all reports received through actionable channels. In addition to our Code of Conduct and related training, we have a comprehensive Anticorruption Program, inclusive of an overarching Anticorruption Policy available to all employees that details prohibitions against bribery, money laundering, and engaging with terrorists or other sanctioned entities, as well as internal controls. The broader program includes third-party vetting and monitoring, contract provisions, and employee engagement and training.

For the ninth consecutive year, we were named one of the 2023 World’s Most Ethical Companies by the Ethisphere Institute. This award is given to companies that foster a culture of ethics and transparency at every level of the company by demonstrating leadership across five key categories: ethics and compliance programs; environmental and societal impacts; culture of ethics; governance; and leadership and reputation. Through the annual process of applying for this award and analyzing our scores across all categories, we gain significant insight into current best practices and can plan and implement improvements to our Company-wide communications, training programs, and other initiatives to enhance our culture.

Executive Officers of the Company

The executive officers of the Company are elected each year at the organizational meeting of the Board of Directors, which follows the annual meeting of the shareholders, and at other Board of Directors meetings, as appropriate.

At October 25, 2023, the executive officers of the Company were as follows:

 

Name		Age		Office
Tamara L. Lundgren		66		Chairman, President and Chief Executive Officer(1)
Richard D. Peach		60		Executive Vice President and Chief Strategy Officer(2)
Stefano R. Gaggini		52		Senior Vice President and Chief Financial Officer(3)
Steven G. Heiskell		54		Senior Vice President and President, Recycling Products & Services(4)
Brian Souza		54		Senior Vice President and Chief Operations Management Officer(5)
James Matthew Vaughn		51		Senior Vice President, General Counsel, Chief Compliance Officer and Corporate Secretary(6)
Erich D. Wilson		55		Senior Vice President, Chief Human Resources Officer and Chief of Corporate Operations(7)
Mark Schuessler		44		Vice President and Chief Accounting Officer(8)

 

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Available Information

Our Internet website address is www.radiusrecycling.com. We make available on our website, free of charge, under the caption “Investors – SEC Filings” our annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and amendments to those reports as soon as reasonably practicable after electronically filing with or furnishing such materials to the Securities and Exchange Commission (“SEC”) pursuant to Sections 13(a) or 15(d) of the Securities Exchange Act of 1934. Also available on our website are our definitive Proxy Statements and ownership reports pursuant to Section 16(a) of the Securities Act of 1933. Copies of these filings may also be obtained from the SEC’s website (www.sec.gov).

We may use our website as a channel for distributing material Company information. Financial and other material information regarding our Company is routinely posted on and accessible at www.radiusrecycling.com/investors.aspx. You may register your e-mail under the caption “Investors – E-mail Alerts” to receive e-mail notifications of new company information.

The content of our website is not incorporated by reference into this Annual Report on Form 10-K.

ITEM 1A. RISK FACTORS

Described below are risks, which are categorized as “Risk Factors Relating to Our Business,” “Risk Factors Relating to the Regulatory Environment,” and “Risk Factors Relating to Our Employees,” that could have a material adverse effect on our results of operations, financial condition, and cash flows or could cause actual results to differ materially from the results contemplated by the forward-looking statements contained in this Annual Report. See “Forward-Looking Statements” that precedes Part I of this report. Additional risks and uncertainties that we are unaware of or that we currently deem immaterial may in the future have a material adverse effect on our results of operations, financial condition, and cash flows.

Risk Factors Relating to Our Business

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

In December 2000, we were notified by the United States Environmental Protection Agency (“EPA”) under the Comprehensive Environmental Response, Compensation, and Liability Act (“CERCLA”) that we are one of the potentially responsible parties (“PRPs”) that owns or operates or formerly owned or operated sites which are part of or adjacent to Portland Harbor. In January 2017, the EPA issued a Record of Decision (“ROD”) that identified the selected remedy for Portland Harbor. 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. Accordingly, the final cost may differ materially from that set forth in the ROD. The ROD provided only site-wide cost estimates and did not provide sufficient detail to estimate costs for specific sediment management areas within Portland Harbor. In addition, the ROD did not determine or allocate the responsibility for remediation costs among the PRPs. Except for certain early action projects in which we are not involved, remediation activities at Portland Harbor are not expected to commence for a number of years. Moreover, those activities are expected to be sequenced, and the order and timing of such sequencing has not been determined. We have joined with approximately 100 other PRPs in a voluntary process to establish an allocation of costs at Portland Harbor. We expect the next major stage of the allocation process to proceed in parallel with the remedial design process. In addition to the remedial action process overseen by the EPA, the Portland Harbor Natural Resource Trustee Council (“Trustee Council”) is assessing natural resource damages at Portland Harbor. We are working with the Trustee Council to finalize an early settlement of our alleged natural resource damage liability at Portland Harbor. Our environmental liabilities as of August 31, 2023 and 2022 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 allocation among the PRPs of costs of the investigations or remedial action costs, 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 Portland Harbor, although such costs could be material to our financial position, results of operations, cash flows, and liquidity. Among the facts being 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 Portland Harbor, 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, remedial design, remedial action, and mitigation for or settlement of natural resource damages claims in connection with Portland Harbor. Most of these policies jointly insure us and MMGL, LLC (“MMGL”), an unaffiliated company, as the successor to a former subsidiary. We and MMGL have negotiated the settlement with certain insurers of claims against us related to Portland Harbor, continue to seek settlements with other insurers, and formed two Qualified Settlement Funds (“QSFs”) which became operative in fiscal 2020 and the second quarter of fiscal 2023, respectively, to hold such settlement amounts until funds are needed to pay or

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reimburse costs incurred by us and MMGL in connection with Portland Harbor. These insurance policies and the funds in the QSFs may not cover all of the costs which we may incur.

The Oregon Department of Environmental Quality is separately providing oversight of our investigations and source control activities at various sites adjacent to Portland Harbor that are focused on controlling any current “uplands” releases of contaminants into the Willamette River. We have accrued liabilities for source control and related work at two sites, reflecting estimated costs of primarily investigation and design, which costs have not been material in the aggregate to date. No liabilities have been established in connection with investigations for any other sites because the extent of contamination, required source control work, and our responsibility for the contamination and source control work, in each case if any, have not yet been determined. In addition, pursuant to our insurance policies, we are being reimbursed for the costs we incur for required source control evaluation and remediation work.

Significant cash outflows in the future related to Portland Harbor could reduce the amount of our borrowing capacity that could otherwise be used for investment in capital expenditures, acquisitions, dividends, and share repurchases. Any material liabilities or cash expenditures, net of recoveries, incurred in the future related to Portland Harbor could result in our failure to maintain compliance with certain covenants in our debt agreements. See “Contingencies – Environmental” in Note 10 - Commitments and Contingencies in the Notes to the Consolidated Financial Statements in Part II, Item 8 of this report for further detail on these matters.

Goodwill impairment charges may adversely affect our operating results

Goodwill represents the excess purchase price over the net amount of identifiable assets acquired and liabilities assumed in a business combination measured at fair value. As of August 31, 2023 and 2022, we had $229 million and $255 million, respectively, of goodwill on our balance sheet. We test the goodwill balances allocated to our reporting units for impairment on an annual basis and when events occur or circumstances change that indicate that the fair value of one or more of our reporting units with allocated goodwill may be below its carrying amount. When testing goodwill for impairment, we may be required to measure the fair value of the reporting units as of a particular measurement date in order to determine the amount of impairment, if any. Market prices of our reporting units are not readily available; therefore, we typically estimate the fair value of reporting units with allocated goodwill using an income approach based on the present value of expected future cash flows, including terminal value, utilizing a market-based weighted average cost of capital (“WACC”) determined separately for each applicable reporting unit. The determination of fair value under this income approach involves the use of estimates and assumptions, including regarding revenue growth rates driven by future ferrous and nonferrous commodity price and sales volume expectations, gross margins, selling, general, and administrative expense relative to total revenues, capital expenditures, working capital requirements, discount rate (WACC), tax rate, terminal growth rate, benefits associated with a taxable transaction, and synergistic benefits available to market participants. In addition, to corroborate a reporting unit’s income approach valuation, as well as to estimate the fair value of our other reporting units, including those with no allocated goodwill, we use a market approach based on earnings multiple data, and we perform a reconciliation of our estimate of the aggregate fair value of all reporting units to our market capitalization, including consideration of a control premium. Fair value determinations require considerable judgment and are sensitive to inherent uncertainties and changes in the estimates and assumptions described above. Furthermore, we estimate the fair value of our reporting units as of a particular measurement date, most recently as of our fiscal 2023 annual goodwill impairment test date of July 1, 2023, based on information available to management as of the measurement date. Therefore, the impact of, for example, changes in market conditions after the measurement date may not be fully captured in management’s estimates and assumptions reflected in the fair values as of the measurement date.

As of our fiscal 2023 annual goodwill impairment test date of July 1, 2023, we performed the quantitative goodwill impairment test for three of our reporting units with allocated goodwill, and we recorded an impairment charge of $39 million, representing a portion of the carrying amount of goodwill allocated to one reporting unit. A lack of recovery or further deterioration in market conditions for recycled metals from current levels, a sustained trend of weaker than anticipated financial performance for the reporting units with allocated goodwill, including the pace and extent of operating margin and volume recovery, a lack of recovery or further decline in our share price from current levels for a sustained period, or an increase in the market-based WACC, among other factors, could significantly impact our impairment analysis and may result in future goodwill impairment charges that, if incurred, could have a material adverse effect on our financial condition and results of operations. See Note 8 - Goodwill and Other Intangible Assets, net in the Notes to the Consolidated Financial Statements in Part II, Item 8 of this report.

Equipment upgrades, equipment failures, and facility damage may lead to production curtailments or shutdowns

Our business operations and recycling and manufacturing processes depend on critical pieces of equipment, including information technology equipment, shredders, nonferrous sorting technology, furnaces, and a rolling mill, which may be out of service occasionally for scheduled upgrades or maintenance or as a result of unanticipated failures or events. Our facilities are subject to equipment failures and the risk of catastrophic loss due to unanticipated events such as mechanical failures, fires, earthquakes, accidents, or violent weather conditions. For instance, although the impact on our operations as a result of natural disasters has not been significant to date, certain of

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our facilities in Puerto Rico have experienced damage due to hurricanes, including as a result of Hurricane Fiona in September 2022, and certain facilities in California, Oregon, and Washington were briefly closed in September 2020 due to poor air quality as a result of wildfires. Additionally, we experienced a fire at our Cascade Steel Rolling Mills in McMinnville, Oregon in May 2021 as well as at our metals recycling facility in Everett, Massachusetts in December 2021. Direct physical loss or damage to property from these incidents was limited to the mill’s melt shop in the case of the steel mill and to the shredder building and equipment in the case of the Everett recycling facility, with no bodily injuries and no physical loss or damage to other buildings or equipment. With respect to the Everett facility shredder fire, on January 28, 2022, shredding operations at the facility began ramping up following the replacement and repairs to shredder equipment that had been damaged. In addition, shredding operations temporarily ceased at the facility on June 18, 2022, and, following discussions with the Massachusetts Department of Environmental Protection and the Massachusetts Attorney General’s office, we installed a temporary emission capture system and controls that allowed for the resumption of shredding operations on November 11, 2022, and for continued operation during the repair and replacement of the shredder enclosure building. Non-shredding operations at the facility continued during this period. The repair and replacement of most property that experienced physical loss or damage, primarily buildings and improvements, was substantially completed by the end of our fiscal 2023. While we carry insurance that we anticipate will cover repair and replacement of property that experienced physical loss or damage and business income losses resulting from these fires, as discussed in Part II, Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations, our insurance coverage is subject to deductibles, and various conditions, exclusions, and limits. Moreover, our insurance coverage may be unavailable or insufficient to protect us against losses in the case of future events. In addition, insurance may not continue to be available in the future on acceptable terms or at acceptable costs. Interruptions in our processing and production capabilities and shutdowns resulting from unanticipated events also could disrupt customer and supplier relationships and could have a material adverse effect on our financial condition, results of operations, and cash flows.

Failure to realize or delays in realizing expected benefits from capital projects, including investments in processing and manufacturing technology improvements and information technology systems, may impact our financial condition, operating results, and cash flows

We may engage in capital projects based on the forecasted project economics, political and regulatory environments, and the expected return on the capital to be employed in the project. Large-scale projects may take many years to complete, during which time the political and regulatory environment or other market conditions may change from our forecast. For example, we make significant investments in processing and manufacturing technology improvements and other information technology systems aimed at increasing the efficiency and capabilities of our businesses and to maximize our economies of scale. Completion of and realization of the benefits from such improvements may be subject to many factors including, but not limited to, permitting, construction, equipment delivery, commissioning and ramp up, environmental compliance, and technology performance risks, some of which are outside our control and could result in further delays in such projects or require us to incur additional costs. Vendors may be unable to deliver on their commitments and permitting agencies may be delayed in issuing necessary permits which can cause construction, commissioning, and ramp-up time to take significantly longer than expected. For example, we have experienced some delays in construction activities and equipment deliveries related to our capital projects, and to the time required to obtain permits from government agencies, resulting in the deferral of certain capital expenditures and in the timing of realization of the anticipated benefits of the technology improvements. We have also experienced increased commissioning and ramp-up times on some projects. Failure to realize or delays in realizing the anticipated benefits and to generate adequate returns on such capital projects may have a material adverse effect on our financial condition, results of operations, and cash flows.

We operate in industries that are cyclical and sensitive to general economic conditions, which could have a material adverse effect on our operating results, financial condition, and cash flows

Demand for most of our products is cyclical in nature and sensitive to general economic conditions. The timing and magnitude of the cycles in the industries in which our products are used, including global steel manufacturing and nonresidential and infrastructure construction in the U.S., are difficult to predict. The cyclical nature of our operations tends to reflect and be amplified by changes in economic conditions, both domestically and internationally, the effects of inflation, changes in interest rates, and foreign currency exchange fluctuations. Increasing interest rates, both domestically and internationally, could lead to slowdowns in global investment and production, resulting in reduced generation of scrap and decreased demand for our products. For example, export net selling prices for recycled ferrous metal decreased by approximately $230 per ton, or approximately 40%, between May and June 2022, reflecting weaker demand primarily from slower global growth, including due to the impact of COVID-19 lockdowns in China, inflationary pressure including high energy prices, the strength of the U.S. Dollar, and steel inventory destocking. Similarly, market demand for most recycled nonferrous metals softened beginning in May 2022 resulting in selling prices declining sharply for a period followed by a partial recovery near the end of fiscal 2022. During fiscal 2023, we experienced periods of market recovery, but market conditions for recycled metals were weaker overall in comparison to fiscal 2022. In addition, in fiscal 2022 and 2023, increasing inflation impacted our operating costs, including, but not limited to, employee compensation costs and certain costs of production. Economic downturns

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or a prolonged period of slow growth in the U.S. and foreign markets or any of the industries in which we operate could have a material adverse effect on our results of operations, financial condition, and cash flows.

Changing conditions in global markets including the impact of sanctions and tariffs, quotas, and other trade actions and import restrictions may adversely affect our operating results, financial condition, and cash flows

We generate a substantial portion of our revenues from sales to customers located outside the U.S., including countries in Asia, the Mediterranean region, and North, Central, and South America. In each of the last three years, exports comprised approximately 55 to 66 percent of our ferrous sales volumes and 57 to 63 percent of our nonferrous sales volumes. Our ability to sell our products profitably, or at all, into international markets is subject to a number of risks including adverse impacts of political, economic, military, terrorist, or major pandemic events; labor and social issues; legal and regulatory requirements or limitations imposed by foreign governments including quotas, tariffs, or other protectionist trade barriers, sanctions, adverse tax law changes, nationalization, currency restrictions, or import restrictions for certain types of products we export; and disruptions or delays in shipments caused by customs compliance or other actions of government agencies. The occurrence of such events and conditions may adversely affect our operating results, financial condition, and cash flows.

For example, in fiscal 2017, regulators in China began implementing the National Sword initiative involving inspections of Chinese industrial enterprises, including recyclers, in order to identify rules violations with respect to discharge of pollutants or illegally transferred scrap imports. Restrictions resulting from the National Sword initiative include a ban on certain imported recycled products, lower contamination limits for permitted recycled materials, and more comprehensive pre- and post-shipment inspection requirements. Disruptions in pre-inspection certifications and stringent inspection procedures at certain Chinese destination ports have limited access to these destinations and resulted in the renegotiation or cancellation of certain nonferrous customer contracts in connection with the redirection of such shipments to alternate destinations. Commencing July 1, 2019, China imposed further restrictions in the form of import license requirements and quotas on certain scrap products, including certain nonferrous products we sell. Chinese import licenses and quotas are issued to Chinese scrap consumers on a quarterly basis for the importation of scrap products. Since the implementation of this program, the size of import quotas has been steadily reduced on a quarter-over-quarter basis. We have continued to sell our recycled metal products into China; however, additional or modified license requirements and quotas, as well as additional product quality requirements, may be issued in the future. We believe that the potential impact on our recycling operations of the Chinese regulatory actions described above could include requirements that would necessitate additional processing and packaging of certain recycled nonferrous metal products, increased inspection and certification activities with respect to exports to China, or a change in the use of our sales channels in the event of delays in the issuance of licenses, restrictive quotas, or an outright ban on certain or all of our recycled metals products by China. As regulatory developments progress, we may need to make further investments in nonferrous processing equipment beyond existing planned investments where economically justified, incur additional costs in order to comply with new inspection requirements, or seek alternative markets for the impacted products, which may result in lower sales prices or higher costs and may adversely impact our business or results of operations.

In March 2018, the U.S. imposed a 25 percent tariff on certain imported steel products and a 10 percent tariff on certain imported aluminum products under Section 232 of the Trade Expansion Act of 1962. Currently, imports from certain countries are exempt from these duties pursuant to various agreements, including quotas. These tariffs, along with other U.S. trade actions, have triggered retaliatory actions by certain affected countries, and other foreign governments may impose trade measures on other U.S. goods in the future. For example, China has imposed a series of retaliatory tariffs on certain U.S. products, including a 25 percent tariff on all grades of U.S. scrap and an additional 25 percent tariff on U.S. aluminum scrap. These tariffs and other trade actions could result in a decrease in international steel demand and negatively impact demand for our products, which would adversely impact our business. Given the uncertainty regarding the scope and duration of these trade actions by the U.S. or other countries, the impact of the trade actions on our operations or results remains uncertain, but this impact could be material.

Increases in the value of the U.S. dollar relative to other currencies may reduce the demand for our products

A significant portion of our recycled metal revenues is generated from sales to foreign customers, which are denominated in U.S. dollars. At times during our 2022 and 2023 fiscal years, the U.S. dollar strengthened relative to other world currencies. A strengthening U.S. dollar makes our products more expensive for non-U.S. customers, which may negatively impact our export sales. A strengthening U.S. dollar also makes imported metal products less expensive, which may result in an increase in imports of steel products into the U.S. As a result, our finished steel products, which are made in the U.S., may become more expensive for our U.S. customers relative to imported steel products thereby reducing demand for our products.

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Economic and geopolitical instability including as a result of military conflict could have a material adverse effect on our operating results, financial condition, and cash flows

In late February 2022, Russian military forces launched significant military action against Ukraine, which has continued through the date of this report. We do not have operations in Russia or Ukraine. Nevertheless, the war between Russia and Ukraine and 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 liquidity issues, and lost efficiencies. The global energy crisis has been exacerbated by Russia's restrictions on energy exports which could similarly impact the geographies where we do business. In addition, the U.S. has taken certain trade actions as a result of the Russia-Ukraine conflict, which could result in retaliatory measures or actions, including tariffs, by Russia. While significant uncertainty exists with respect to this matter, the 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 material adverse effect on our operating results, financial condition, and cash flows.

Changes in the availability or price of inputs such as raw materials and end-of-life vehicles could reduce our sales

Our businesses require certain materials that are sourced from third-party suppliers. Although the synergies from our integrated operations allow us to be our own source for some raw materials, particularly with respect to recycled metal for our steel manufacturing operations, we rely on other suppliers for most of our raw material and other input needs, including inputs to steel production such as graphite electrodes, alloys, and other required consumables. Industry supply conditions generally involve risks, including the possibility of shortages of raw materials, increases in raw material and other input costs, and reduced control over delivery schedules. We procure our scrap inventory from numerous sources. These suppliers generally are not bound by long-term contracts and have no obligation to sell scrap metal to us. In periods of declining or lower recycled metal prices, suppliers may elect to hold scrap metal to wait for higher prices or intentionally slow their metal collection activities, tightening supply. The effects of competition for supply of scrap metal, including of specific grades, can significantly impact the flow of scrap volumes into our facilities, our metal spreads, and our operating margins. If a substantial number of suppliers cease selling scrap metal to us, we will be unable to recycle metal at desired levels, and our results of operations and financial condition could be materially adversely affected. For instance, in fiscal 2023, a slowdown in economic growth in the U.S., coupled with rising interest rates and inflation, led consumers and businesses to hold on to vehicles longer, constraining the supply of scrap metal including end-of-life vehicles, which resulted in significantly reduced processed volumes. A slowdown of industrial production in the U.S. may also reduce the supply of industrial grades of metal to the metals recycling industry, resulting in less recyclable metal available to process and market. Increased competition for domestic scrap metal, including as a result of overcapacity or consolidation in the metal recycling industry in the U.S. and Canada, may also reduce the supply of scrap metal available to us. Failure to obtain a steady supply of recyclable material could both adversely impact our ability to meet sales commitments and reduce our operating margins. Failure to obtain an adequate supply of end-of-life vehicles, including due to increasing trends over time in the proportion of electric vehicles sold to total vehicles sold, the pace of and the auto recycling industry response to which are uncertain, could adversely impact our ability to attract customers and charge admission fees and reduce parts sales at our auto parts stores. For example, cars purchased by our auto parts stores decreased by 8% in both fiscal 2022 and 2023, in each case compared to the prior fiscal year. Failure to obtain raw materials and other inputs to steel production, such as graphite electrodes, alloys, and other required consumables, could adversely impact our ability to make steel to the specifications of our customers.

Significant decreases in recycled metal prices may adversely impact our operating results

The timing and magnitude of the cycles in the industries in which we operate are difficult to predict and are influenced by different economic conditions in the domestic market, where we typically acquire our raw materials, and foreign markets, where we typically sell the majority of our products. Purchase prices for scrap metal including end-of-life vehicles and selling prices for recycled metal are subject to market forces beyond our control. While we attempt to respond to changing recycled metal selling prices through adjustments to our metal purchase prices, our ability to do so is limited by competitive and other market factors. As a result, we may not be able to reduce our metal purchase prices to fully offset a sharp reduction in recycled metal sales prices, which may adversely impact our operating income and cash flows. In addition, a rapid decrease in selling prices may compress our operating margins due to the impact of average inventory cost accounting, which causes cost of goods sold recognized in the Consolidated Statements of Operations to decrease at a slower rate than metal purchase prices. For instance, in fiscal 2022, after rising strongly and reaching a peak in April 2022, market selling prices for recycled ferrous and nonferrous metals declined sharply in May through June, reflecting weaker demand primarily from slower global growth, including due to the impact of China COVID-19 lockdowns, inflationary pressure including high energy prices, the strength of the U.S. Dollar, and steel inventory destocking. For example, export net selling prices for recycled ferrous metal decreased by approximately $230 per ton, or approximately 40%, between May and June 2022, causing our operating margins to compress significantly in the fourth quarter of fiscal 2022. Ferrous export net selling prices decreased further between the fourth quarter

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of fiscal 2022 and the first quarter of fiscal 2023, which contributed to the sequential decrease in our quarterly results between those periods.

Imbalances in supply and demand conditions in the global steel industry may reduce demand for our products

Economic expansions and contractions in global economies can result in supply and demand imbalances in the global steel industry that can significantly affect the price of commodities used and sold by our business, as well as the price of and demand for finished steel products. In a number of foreign countries, such as China, steel producers are generally government-owned and may therefore make production decisions based on political or other factors that do not reflect free market conditions. In fiscal 2023 as well as in the past, overcapacity and excess steel production in these foreign countries resulted in the export of aggressively priced semi-finished and finished steel products. This led to disruptions in steel-making operations within other countries, negatively impacting demand for our recycled metal products used by EAF mills globally as their primary feedstock. Further, the import of foreign steel products into the U.S. at similarly aggressive prices have in the past adversely impacted finished steel sales prices and sales volumes. Existing or new trade laws and regulations may cause or be inadequate to prevent disadvantageous trade practices, which could have a material adverse effect on our financial condition and results of operations. Although trade regulations restrict or impose duties on the importation of certain products, if foreign steel production significantly exceeds consumption in those countries, global demand for our recycled metal products could decline and imports of steel products into the U.S. could increase, resulting in lower volumes and selling prices for our recycled metal products and finished steel products.

Acquisitions and integration of acquired businesses may result in operating difficulties and other unintended consequences

We have made and may continue to make acquisitions of or expand into complementary businesses to enable us to expand our customer and supplier base and grow our revenues. Execution of any past or potential future acquisition or expansion involves several risks, including:

If we do not successfully execute on acquisitions or expansions and the acquired or expanded businesses do not perform as projected, our financial condition and results of operations could be materially adversely affected.

Supply chain disruptions affecting our customers, end users of our recycled products, or our suppliers could adversely impact the demand for our products or the availability of inputs, increase our costs, or otherwise adversely impact our business

Supply chain disruptions and related labor shortages and logistics constraints have and could continue to impact our customers, end users of our recycled products, and our suppliers and adversely impact our business. Direct and indirect impacts on our business of such supply chain disruptions could include reduction in the demand for and price of certain of our products, slowdown in flows of scrap metal from certain supply channels, and reduced availability or increases in costs of other inputs, consumables, supplies, and capital equipment. Disruptions within our logistics or supply chain network could adversely affect our ability to produce or deliver our products in a timely manner, which could impair our ability to meet customer demand for products and result in reduced volumes and sales, increased supply chain costs, or damage to our reputation. Such disruptions in the future may result from a number of factors beyond our control. Supply chain disruptions due to any of those factors could negatively impact our financial performance or financial condition.

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

We significantly rely on third parties to handle and transport raw materials to our production facilities and products to customers. Despite our practice of utilizing a diversified group of suppliers of transportation, factors beyond our control, including changes in fuel prices, political events, governmental regulation of transportation, changes in market rates, carrier availability, carrier bankruptcy, labor

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shortages, shipping industry consolidation, and disruptions in transportation routes and infrastructure, may adversely impact our ability to ship our products and our operating margins. These impacts could include delays or other disruptions in shipments in transit, including as a result of congested seaports and travel routes, or third-party shipping companies increasing their charges for transportation services or otherwise reducing or eliminating the availability of their containers, vehicles, rail cars, barges, or ships. For example, during fiscal 2022 and 2021, worldwide demand for logistical services increased sharply, which led to a global shortage of available shipping containers, congested seaports, and higher freight rates, impacting the timing of certain shipments and resulting in reductions in sales volumes of certain products. The delays in container shipping for U.S. exports were exacerbated by the backlog of containerized imports at U.S. seaports. While we aim to pass on the majority of shipping and related charges to our customers, there can be no assurance that we will be able to do so into the future. As a result, we may not be able to transport our products in a timely and cost-effective manner, which could have a material adverse effect on our financial condition and results of operations and may harm our reputation.

Impairment of assets other than goodwill may adversely affect our operating results

Our long-lived asset groups are subject to an impairment assessment when certain triggering events or circumstances indicate that their carrying value may be impaired. If the carrying value of an asset group is not recoverable because it exceeds our estimate of future undiscounted cash flows from the use and eventual disposition of the operations related to the asset group, an impairment loss is recognized by the amount the carrying value exceeds its fair value. The results of these tests for potential impairment, as well as the number and frequency of identified triggering events indicating potential impairment, may be adversely affected by unfavorable market conditions, our financial performance trends, or an increase in interest rates, among other factors. If, as a result of the impairment test, we determine that the fair value of any of our long-lived asset groups is less than its carrying amount, we may incur an impairment charge that could have a material adverse effect on our financial condition and results of operations. In addition to goodwill and long-lived assets, we carry other assets on our balance sheet that are subject to impairment testing and potential loss recognition in accordance with applicable accounting standards. These other assets include, but are not limited to, investments in the equity of unconsolidated entities, assets held for sale, and assets abandoned either before or after they are placed in service. We recorded impairment charges totaling $11 million on assets other than goodwill in fiscal 2023, comprising primarily $5 million relating to an equity investment and $5 million relating to capitalized implementation costs for an abandoned cloud computing arrangement. Impairment of assets other than goodwill, if incurred in the future, could have a material adverse effect on our results of operations. See Note 2 - Summary of Significant Accounting Policies in the Notes to the Consolidated Financial Statements in Part II, Item 8 of this report for further detail on long-lived asset impairment charges.

Public health emergencies, such as pandemics or epidemics, could have an adverse effect on our business, results of operations, financial condition, and cash flows

Our operations expose us to risks associated with pandemics, epidemics, or other public health emergencies. Such events could lead to restrictions and mandates, which could be applied differently across jurisdictions, and there could be global impacts resulting directly or indirectly from such an event including labor shortages, logistical challenges, and supply chain disruptions such as increased port congestion, and increases in costs for certain goods and services. For instance, the onset of the coronavirus disease 2019 (COVID-19) outbreak, which the World Health Organization characterized as a global public health emergency from March 2020 through May 2023, negatively affected our business and ongoing global impacts have negatively affected our sales volumes, operating costs, and financial results to varying degrees and could continue to negatively affect our results of operations, cash flows, and financial position in the future.

Inability to achieve or sustain the benefits from productivity, cost savings, and restructuring initiatives may adversely impact our operating results

During the past several years, we implemented a number of productivity improvement, cost savings, and restructuring initiatives designed to reduce operating expenses and improve profitability and to achieve further integration and synergistic cost efficiencies in our operating platform. These initiatives included idling underutilized assets and closing facilities to more closely align our business to market conditions, implementing productivity initiatives to increase production efficiency and material recovery, and reducing certain operating expenses through headcount reductions, reducing organizational layers, consolidating shared service functions, savings from procurement activities, streamlining of administrative and supporting services functions, and other non-headcount measures. For example, in October 2022, we announced and began implementing productivity and cost reduction initiatives with a targeted annual benefit of approximately $40 million, and in January 2023, we announced incremental initiatives aiming to reduce selling, general, and administrative costs by approximately $20 million annually. These initiatives aim to improve profitability through a combination of increased yields, efficiencies in processing, procurement, and pricing, and reduced costs including from headcount reductions, decreased lease costs, professional and outside services, and implementation of operational efficiencies. We may undertake similar or additional productivity initiatives in the future in the normal course or in response to market conditions. Our ability to achieve or sustain the anticipated cost reductions and other benefits from these initiatives within the expected time frame is subject to many estimates and

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assumptions. These estimates and assumptions are subject to significant economic, competitive, and other uncertainties, some of which are beyond our control. We have incurred, and may incur in the future, restructuring charges and other exit-related activities as a result of such initiatives. Failure to achieve or sustain the expected cost reductions and other benefits related to these productivity improvements, cost savings, and restructuring initiatives could have a material adverse effect on our results of operations and cash flows.

We may be unable to renew facility leases, thus restricting our ability to operate

We lease a significant portion of our facilities, including the substantial majority of our auto parts facilities. The cost to renew such leases may increase significantly, and we may not be able to renew such leases on commercially reasonable terms or at all. Failure to renew these leases or find suitable alternative locations for our facilities may impact our ability to continue operations within certain geographic areas, which could have a material adverse effect on our financial condition, results of operations, and cash flows.

Changing economic conditions may result in customers not fulfilling their contractual obligations

We enter into export ferrous sales contracts preceded by negotiations that include fixing price, quantity, shipping terms, and other contractual terms. Upon finalization of these terms and satisfactory completion of other contractual contingencies, the customer typically opens a letter of credit to satisfy its payment obligation under the contract prior to our shipment of the cargo. In times of changing economic conditions, including during periods of sharply falling recycled metal prices and global financial instability, there is an increased risk that customers may not be willing or able to fulfill their contractual obligations or open letters of credit. As of August 31, 2023 and 2022, 38% and 24%, respectively, of our accounts receivable balance were covered by letters of credit. In addition, in higher or rising commodity price environments and during periods of challenging global macroeconomic and steel industry conditions, we have experienced proportionately lower credit insurance coverage of applicable customer credit limits, which may increase our exposure to customer credit risk.

Potential limitations on our ability to access capital resources may restrict our ability to operate

Our operations are capital intensive. Our business also requires substantial expenditures for routine maintenance. While we expect that our cash requirements, including the funding of capital expenditures, debt service, dividends, share repurchases, and investments, will be financed by internally generated funds or from borrowings under our secured committed bank credit facilities, there can be no assurance that this will be the case. Additional acquisitions could require financing from external sources. Although we believe we have adequate access to contractually committed borrowings, we could be adversely affected if we are not able to meet the conditions required to incur such borrowing or if our banks ceased lending or were unable to honor their contractual commitments. Failure to access our credit facilities could restrict our ability to fund operations, make capital expenditures, or execute acquisitions.

The agreement governing our bank credit facilities imposes certain restrictions on our business and contains financial covenants

Our secured bank credit facilities contain certain restrictions on our business 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. These restrictions may affect our ability to operate our business or execute our strategy and may limit our ability to take advantage of potential business opportunities as they arise. Our bank credit agreement also requires that we maintain certain financial and other covenants, including a consolidated fixed charge coverage ratio and a consolidated leverage ratio. Our ability to comply with these covenants may also be affected by events beyond our control, including prevailing economic, financial, and industry conditions. Our failure to comply with any of these restrictions or financial covenants could result in an event of default under the bank credit agreement and permit our lenders to cease lending to us and declare all amounts borrowed from them to be due and payable, together with accrued and unpaid interest. This could require us to refinance our bank facilities, which we may not be able to do at terms acceptable to us, or at all.

Consolidation in the steel industry may reduce demand for our products

There has been consolidation in the steel industry that has included steel mills acquiring steel fabricators to ensure demand for their products. If any of our steel mill’s significant remaining customers were to be acquired by competing steel mills, this could reduce the demand for our products and force us to lower our prices, reducing our revenues, or to reduce production, which could increase our unit costs and have a material adverse effect on our financial condition and results of operations.

21 / Schnitzer Steel Industries, Inc. dba Radius Recycling Form 10-K Fiscal 2023

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Product liability claims may adversely impact our operating results

We could inadvertently acquire radioactive scrap metal that could potentially be included in recycled mixed metal shipped to consumers worldwide. Although we have invested in radiation detection equipment in the majority of our locations, including the facilities from which we ship directly to customers, failure to detect radioactive metal remains a possibility. Even though we maintain insurance to address the risk of this failure in detection, there can be no assurance that the insurance coverage would be adequate or will continue to be available on acceptable terms. In addition, if we fail to meet contractual requirements for a product, we may be subject to product warranty costs and claims. These costs and claims could both have a material adverse effect on our financial condition and results of operations and harm our reputation.

We are subject to legal proceedings and legal compliance risks that may adversely impact our financial condition, results of operations, and liquidity

We spend substantial resources ensuring that we comply with domestic and foreign laws and regulations, contractual obligations and other legal standards. Notwithstanding this, we are subject to a variety of legal proceedings and compliance risks in respect of various matters, including regulatory, safety, environmental, employment, transportation, intellectual property, contractual, import/export, international trade, and governmental matters that arise in the course of our business and in our industry. For example, legal proceedings can 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. An outcome in an unusual or significant legal proceeding or compliance investigation in excess of insurance recoveries could adversely affect our financial condition and results of operations. For information regarding our current significant legal proceedings and contingencies, see Part I, Item 3. Legal Proceedings and “Contingencies – Other” in Note 10 - Commitments and Contingencies in Part II, Item 8 of this report.

Climate change may adversely impact our facilities and our ongoing operations

The potential physical impacts of climate change on our operations are highly uncertain and depend upon the unique geographic and environmental factors present, for example rising sea levels at our deepwater port facilities, changing storm patterns and intensities, and changing temperature levels. As many of our recycling facilities are located near deepwater ports, rising sea levels may disrupt our ability to receive scrap metal, process the metal through our shredders, and ship products to our customers. Extreme weather events and conditions, such as wildfires, hurricanes, thunderstorms, tornadoes, and snow or ice storms, may increase our costs or cause damage to our facilities, and any damage resulting from extreme weather may not be fully insured. Increased frequency and duration of adverse weather events and conditions may also inhibit construction activity utilizing our products, scrap metal inflows to our recycling facilities, and retail admissions and parts sales at our auto parts stores. Potential adverse impacts from climate change, including rising temperatures and extreme weather events and conditions, may create health and safety issues for employees operating at our facilities and may lead to an inability to maintain standard operating hours.

We may not realize our deferred tax assets in the future

The assessment of recoverability of our deferred tax assets is based on an evaluation of existing positive and negative evidence as to whether it is more-likely-than-not that they will be realized. If negative evidence outweighs positive evidence, a valuation allowance is required. Factors that may result in a valuation allowance include significant negative industry or economic trends, a decrease in earnings performance and projections of future taxable income, adverse changes in laws or regulations, and a variety of other factors. Recording a valuation allowance could have a material adverse impact on our results of operations and financial condition. In the past, we have recorded significant valuation allowances against our deferred tax assets. Deferred tax assets may require further valuation allowances if it is not more-likely-than-not that the deferred tax assets will be realized.

Tax increases and changes in tax rules may adversely affect our financial results

As a company conducting business on a global basis with physical operations throughout North America, we are exposed, both directly and indirectly, to the effects of changes in U.S., state, local, and foreign tax rules. Taxes for financial reporting purposes and cash tax liabilities in the future may be adversely affected by changes in such tax rules. Such changes may put us at a competitive disadvantage compared to some of our major competitors, to the extent we are unable to pass the tax costs through to our customers.

On August 16, 2022, the Inflation Reduction Act of 2022 (“IRA”) was signed into law, with tax provisions primarily focused on implementing a 15% minimum tax on global adjusted financial statement income and a 1% excise tax on share repurchases. The IRA also creates a number of potentially beneficial tax credits to incentivize investments in certain technologies and industries which may be applicable to our business. Certain provisions of the IRA became effective in fiscal 2023. As of August 31, 2023, we did not meet the threshold to be subject to the 15% minimum tax. We may, however, be subject to the 1% excise tax on future share repurchases.

22 / Schnitzer Steel Industries, Inc. dba Radius Recycling Form 10-K Fiscal 2023

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One or more cybersecurity incidents may adversely impact our financial condition, results of operations, and reputation

Our operations involve the use of multiple systems, some of which are outsourced to certain third-party service and hosting providers, that process, store, and transmit sensitive information about our customers, suppliers, employees, financial position, operating results, and strategies. We face global cybersecurity risks and threats on a continual and ongoing basis, which include, but are not limited to, attempts to access systems and information, computer viruses, or denial-of-service attacks. These risks and threats range from uncoordinated individual attempts to sophisticated and targeted measures. Increased numbers of employees working remotely increases our exposure to cyber-threats. While we are not aware of any material cyber-attacks or breaches of our systems to date, such attempts occur regularly and, thus, we have and continue to implement measures to safeguard our systems and information and mitigate potential risks, including employee training around phishing, malware, and other cyber risks, but there is no assurance that such actions will be sufficient to prevent cyber-attacks or security breaches that manipulate or improperly use our systems, compromise sensitive information, destroy or corrupt data, or otherwise disrupt our operations. The occurrence of such events, including breaches of our security measures or those of our third-party service providers, could negatively impact our reputation and our competitive position and could result in litigation with third parties, regulatory action, loss of business due to disruption of operations and/or reputational damage, potential liability and increased remediation and protection costs, any of which could have a material adverse effect on our financial condition and results of operations. Additionally, as cybersecurity threats become more sophisticated, we may need to increase our investments in security measures which could have a material adverse effect on our financial condition and results of operations.

Increasing attention to environmental, social and governance (ESG) matters may impact our business and financial results

Increasing attention has been given to corporate activities related to ESG matters in public discourse and the investment community. A number of advocacy groups, both domestically and internationally, have campaigned for governmental and private action to promote ESG-related change at public companies, including, but not limited to, through the investment and voting practices of investment advisers, pension funds, universities and other members of the investing community.

These activities have also aimed to increase the attention on and demand for action related to various ESG matters, which has contributed to increasing societal, investor, and legislative focus and pressure on ESG practices and disclosures, including those related to climate change, GHG emissions targets, business resilience under the assumptions of demand-constrained scenarios, net-zero ambitions, transition plans, actions related to diversity and inclusion, political activities, racial equity audits, and governance standards. As a result, we may face increasing pressure regarding our ESG practices and disclosures. Investors, stakeholders, and other interested parties are also increasingly focusing on issues related to environmental justice. This has resulted and is likely to continue to result in increased scrutiny with respect to our business and operations, which could in turn result in the cancellation or delay of projects, the revocation or delay of permits, termination of contracts, lawsuits, regulatory action, and policy change that may adversely affect our business strategy, increase our costs, and adversely affect our reputation and financial performance.

Responding to such ESG-focused activism has been and will likely continue to be costly and time-consuming. Such response efforts could also result in the implementation of certain ESG practices and/or disclosure requirements that may present a heightened level of legal and regulatory risk, or that threaten our credibility with other investors and stakeholders. The methodologies and standards for tracking and reporting on ESG matters are relatively new, have not been standardized, and continue to evolve. As a result, our ESG-related disclosures, metrics, and targets may not necessarily be calculated in the same manner or comparable to similarly titled measures presented by us in other contexts, or by other companies or third-party estimates. While we believe that our ESG disclosures and methodologies reflect our business strategy and are reasonable at the time made or used, as our business or applicable methodologies, standards, or regulations develop and evolve, we may revise or cease reporting or using certain disclosures and methodologies if we determine that they are no longer advisable or appropriate. If our ESG disclosures and methodologies are or are perceived by government authorities, investors, or stakeholders to be inadequate, inaccurate, or non-compliant with applicable standards or regulations, or if we discover material inaccuracies therein, our reputation could be negatively impacted, and we could be exposed to litigation and other regulatory actions.

We are exposed to translation risks associated with fluctuations in foreign currency exchange rates

Our operations in Canada expose us to translation risks associated with fluctuations in foreign currency exchange rates as compared to the U.S. dollar, our reporting currency. As a result, we are subject to foreign currency exchange risks due to exchange rate movements in connection with the translation of the operating costs and the assets and liabilities of our foreign operations into our functional currency for inclusion in our Consolidated Financial Statements.

23 / Schnitzer Steel Industries, Inc. dba Radius Recycling Form 10-K Fiscal 2023

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We may incur losses and additional costs as a result of our hedging transactions

We currently use interest rate swap derivative instruments, as well as derivative contracts for commodities used in normal business operations that are settled by physical delivery, and we expect to continue their use in the future. If the instruments we use to hedge our exposure to various types of risk are not effective or increase our exposure to unexpected events or risks, we may incur losses. In addition, we may be required to incur additional costs in connection with any future regulation of derivative instruments applicable to us.

Risk Factors Relating to the Regulatory Environment

Governmental agencies may refuse to grant or renew our licenses and permits, thus restricting our ability to operate

We conduct certain aspects of our operations subject to licenses, permits, and approvals from state and local governments. Governmental agencies often resist the establishment of certain types of facilities in their communities, including metal recycling and auto parts facilities. Increased permitting requirements could require substantial additional capital expenditures, impose financial assurance obligations, subject us to increased compliance and penalty risks, severely limit operational flexibility, and increase operating costs, or adversely impact our ability to acquire or sell materials. Increased focus on strengthening environmental compliance and enforcement in overburdened communities that may be disproportionately impacted by adverse health and environmental effects may impact our ability to obtain or renew licenses and permits for facilities in or near such communities. In addition, changes in zoning and increased residential and mixed-use development near our facilities are reducing the buffer zones and creating land use conflicts with heavy industrial uses such as ours. This could result in increased complaints, increased inspections and enforcement including fines and penalties, operating restrictions, the need for additional capital expenditures, and increased opposition to maintaining or renewing required approvals, licenses, and permits. In addition, waste products from our operations are subject to classification and regulations that, among other things, determine how such materials may be handled, stored, transported, and disposed. Failure to obtain or maintain regulatory permits, approvals, or exemptions for such waste could materially increase our costs or limit our operations. For example, in fiscal 2022, as a result of court orders and regulatory changes, we were required at times to transport shredder waste from our Oakland facility out of state for disposal at increased costs. See Part I, Item 3. Legal Proceedings. As an additional example, our Bay Area Air Quality Management District (“BAAQMD”) permit to operate currently limits the number of ships that may call at our Oakland, California facility to 26 ships per year. In July 2018, we applied for a modification of such permit to increase the number of annual ship calls to 32 per year. BAAQMD has not acted on our permit modification request but, in the interim, had routinely issued annual Compliance and Settlement Agreements (“CSA”) to permit 32 ship calls in each year. In October 2022, however, BAAQMD declined to renew the CSA for 2022, following which we applied for and obtained a short-term variance authorizing the 32 ship calls in calendar year 2022. Unless we are able to operate within the current 26 ship call limit in calendar year 2023, we will need to apply for a similar variance for 2023. Failure to obtain such a variance in the future could have a material adverse effect on our financial condition and results of operations due to the reduced marine shipments, and lost profits related thereto. Additionally, by letter dated June 22, 2023, ODEQ notified the Company that it intended to reopen the Company’s Title V permit at the steel mill for purposes of incorporating the emissions of a third-party contractor that has operated on a portion of the site for decades. We have objected to such action and are engaged in discussions with ODEQ.

Furthermore, from time to time, both the U.S. and foreign governments impose regulations and restrictions on trade in the markets in which we operate. In some countries, governments require us to apply for certificates or registration before allowing shipment of recycled metal to customers in those countries. There can be no assurance that future approvals, licenses, and permits will be granted or that we will be able to maintain and renew the approvals, licenses, and permits we currently hold. Failure to obtain these approvals could cause us to limit or discontinue operations in these locations or prevent us from developing or acquiring new facilities, which could have a material adverse effect on our financial condition and results of operations.

Environmental compliance costs and potential environmental liabilities may have a material adverse effect on our financial condition and results of operations

Compliance with environmental laws and regulations is a significant factor in our business. We are subject to local, state, and federal environmental laws and regulations in the U.S. and other countries relating to, among other matters:

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We are also required to obtain environmental permits from governmental authorities for certain operations. Violation of or failure to obtain permits or comply with these laws or regulations could result in our business being fined or otherwise sanctioned by regulators or becoming subject to litigation by private parties. In recent years, capital expenditures for environmental projects have increased and have represented a significant share of our annual capital expenditures. Future environmental compliance costs, including capital expenditures for environmental projects, may increase because of new laws and regulations, changing regulatory interpretations and stricter enforcement of current laws and regulations by regulatory authorities, expanding emissions, groundwater, storm water and other testing requirements, and new information on emission or contaminant levels including with respect to emerging contaminants such as per- and polyfluoroalkyl substances (“PFAS”), uncertainty regarding adequate pollution control levels, the future costs of pollution control technology, and issues related to climate change.

We have seen an increased focus by federal, state, and local regulators on metals recycling and auto dismantling facilities and new or expanding regulatory requirements. For example, the California Department of Toxic Substances Control (“DTSC”) has increased its enforcement actions and sought to impose additional permitting and regulatory requirements on the metals recycling industry in the state that has resulted in and could in the future increase operating and compliance costs and require additional capital expenditures. In addition, in July 2021, the EPA issued an enforcement alert reflecting a national enforcement initiative in conjunction with state regulators focused on Clean Air Act compliance at metal recycling facilities that operate auto and scrap metal shredders. While we believe we are an industry leader in air emission controls and have been working with state and local regulators on compliance and permitting matters, we have in the past and may in the future be subject to enforcement actions or litigation by regulators or private parties that could result in additional penalties, compliance requirements, or capital investments. See Part I, Item 3. Legal Proceedings of this report.

In addition, previous operations by us, predecessor entities, or others at facilities that we currently or formerly owned, operated, or otherwise used may have caused contamination from hazardous substances. As a result, we are exposed to possible claims, including government fines and penalties, costs for investigation and clean-up activities, claims for natural resources damages, and claims by third parties for personal injury and property damage, under environmental laws and regulations, especially for the remediation of waterways and soil or groundwater contamination. These laws can impose liability for the cleanup of hazardous substances even if the owner or operator was neither aware of nor responsible for the release of the hazardous substances. We have, in the past, incurred liabilities, expenditures, fines and penalties associated with violations of certain of these laws and regulations. In December 2000, we were notified by the EPA that we are one of the potentially responsible parties that owns or operates, or formerly owned or operated, sites which are part of or adjacent to Portland Harbor. Further, we have been notified that we are or may be a potentially responsible party at sites other than Portland Harbor currently or formerly owned or operated by us or at other sites where we may have responsibility for such costs due to past disposal or other activities. Environmental compliance costs and potential environmental liabilities could have a material adverse effect on our financial condition, results of operations, and cash flows. See also the risk factor “Potential costs related to the environmental cleanup of Portland Harbor may be material to our financial position and liquidity” in this Item 1A and “Contingencies – Environmental” in Note 10 - Commitments and Contingencies in the Notes to the Consolidated Financial Statements in Part II, Item 8 of this report.

The U.S. Federal Government and state and local regulators are also emphasizing efforts to strengthen environmental compliance and enforcement, including with respect to clean-up actions under superfund and hazardous waste laws, in overburdened communities that may be disproportionately impacted by adverse health and environmental effects. On September 10, 2021, U.S. EPA Region 9 and the California Environmental Protection Agency announced a joint effort to expand environmental enforcement in overburdened California communities. These initiatives could result in increased enforcement, compliance, and clean-up costs, including increased capital expenditures, at our facilities located at or near such communities.

Compliance with existing and future climate change, greenhouse gas, and other air emission laws and regulations may adversely impact our operating results

Recent and future legislation or increased regulation regarding climate change and GHG emissions could impose significant costs on our business and our customers and suppliers, including increased energy, capital equipment, emissions controls, environmental monitoring and reporting, and other costs in order to comply with laws and regulations concerning and limitations imposed on climate change and GHG emissions. The potential costs of allowances, taxes, fees, offsets, or credits or additional emission reduction measures that may be part of “cap and trade” programs or other legislative or regulatory requirements are still uncertain and the future of these programs or measures is unknown. For example, in March 2020, the Governor of Oregon issued an executive order directing state

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agencies to take certain actions to reduce and regulate GHG emissions. Pursuant to this executive order, ODEQ adopted a new Climate Protection Program to limit GHG emissions in the state including from large stationary sources such as our steel mill. Pursuant to these regulations, the mill’s GHG process emissions will be subject to a best available emission reduction technology analysis and standard and its natural gas GHG combustion emissions will be subject to the cap and annual reductions applied to its natural gas supplier. The implementation of such regulations, standards, and programs and any associated costs, including any operating or capital expenditures, are uncertain, but may be material to our results of operations, cash flows, and financial position. The potential increased costs to us of natural gas supplies are also uncertain. In addition, the ODEQ Cleaner Air Oregon (“CAO”) program regulates toxic air emissions from manufacturing and commercial facilities located in Oregon. The ODEQ has published a prioritization list of the facilities within the state subject to the CAO program based on emissions inventories that facilities submitted to the ODEQ. The prioritization list established four tiers of risk groups. Our steel mill has been assigned to the first-tier risk group and entered the CAO program in 2020. To comply with the existing CAO program rules, and as they may be revised in the future, we must undertake an emissions inventory and a public health risk assessment for both our steel mill and our Portland metals recycling facility. We may be required to incur additional operating or capital expenditures to mitigate any significant identified emissions risks, and such expenditures may be material. In addition, we have and continue to incur material capital expenditures to enclose and install additional emission controls for our shredders to meet air emission standards. Recent and future climate change and GHG laws or regulations could negatively impact our ability (and that of our customers and suppliers) to compete with companies situated in areas not subject to such requirements. Until the timing, scope, and extent of any future laws or regulations becomes known, we cannot predict the effect on our financial condition, operating performance, or ability to compete. Furthermore, even without such laws or regulations, increased awareness and any adverse publicity in the global marketplace about the GHGs emitted by companies in the metals recycling and steel manufacturing industries could harm our reputation and reduce customer demand for our products.

Risk Factors Relating to Our Employees

Labor shortages or increased labor costs may adversely affect our operating results, financial condition, and cash flows

Our employees contribute to developing and meeting our business goals and objectives, and labor is a significant component of operating our business. The impact of labor shortages or increased labor costs because of increased competition for employees, unemployment levels and benefits, higher employee turnover rates, increases in the federally-mandated or state-mandated minimum wage, change in exempt and non-exempt status, or other employee benefits costs (including costs associated with health insurance coverage or workers’ compensation insurance), may increase our costs or impede our ability to operate our facilities and could have a material adverse effect on our results of operations, financial condition, and cash flows. As a result of the tight labor markets we have experienced since fiscal 2021, we have received fewer job applicants in certain local markets, which, at times, hindered our ability to reach full staffing levels at some of our facilities. Recruiting and retaining employees in sufficient numbers to optimally staff our facilities may result in increases in our labor costs.

Reliance on employees subject to collective bargaining may restrict our ability to operate

Approximately 23% of our full-time employees are represented by unions under collective bargaining agreements, including substantially all of the manufacturing employees at our steel manufacturing facility. As these agreements expire, we may not be able to negotiate extensions or replacements of such agreements on acceptable terms. Any failure to reach an agreement with one or more of our unions may result in strikes, lockouts, or other labor actions, including work slowdowns or stoppages, which could have a material adverse effect on our results of operations.

The underfunded status of our multiemployer pension plans may cause us to increase our contributions to the plans

As discussed in Note 13 - Employee Benefits in the Notes to the Consolidated Financial Statements in Part II, Item 8 of this report, we contribute to the Steelworkers Western Independent Shops Pension Plan (“WISPP”), a multiemployer plan benefiting union employees of our steel mill. Because we have no current intention of withdrawing from the WISPP, we have not recognized a withdrawal liability in our consolidated financial statements. However, if such a liability were triggered, it could have a material adverse effect on our results of operations, financial position, liquidity, and cash flows. Our contributions to the WISPP could also increase as a result of a diminished contribution base due to the insolvency or withdrawal of other employers who currently contribute to it, the inability or failure of withdrawing employers to pay their withdrawal liabilities, or other funding deficiencies, as we would need to fund the retirement obligations of these employers.

26 / Schnitzer Steel Industries, Inc. dba Radius Recycling Form 10-K Fiscal 2023

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ITEM 1B. UNRESOLVED STAFF COMMENTS

None.

ITEM 1C. CYBERSECURITY

N/A.

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ITEM 2. PROPERTIES

Our facilities and administrative offices by division, type and location were as follows as of August 31, 2023:

			Number of Facilities
Type	Location		Owned(1)					Leased
Administrative Offices	California			—					1
	New Jersey			—					1
	Oregon			—					1
	Rhode Island			—					1
Auto Parts Stores	Alberta, Canada			—					3
	Arkansas			—					1
	British Columbia, Canada			—					1
	California(2)			3					16
	Florida			—					1
	Georgia			1					—
	Illinois			—					1
	Indiana			1					—
	Kansas			—					1
	Missouri			1					3
	Nevada			—					2
	Ohio			—					1
	Oregon			—					2
	Rhode Island			2					—
	Texas			—					3
	Utah			—					1
	Virginia			—					1
	Washington			1					4
Metals Recycling	Alabama			3					—
	British Columbia, Canada			—					4
	California			4		[A]	[B]		—
	Georgia			10		[B]			—
	Hawaii			1		[A]	[B]		1
	Kentucky			3					1
	Maine			2					—
	Massachusetts			2		[A]	[B]		1
	Mississippi			3					—
	Montana			1					—
	Nevada			—					1
	New Hampshire			2					—
	Oregon			4		[A]	[B]		—
	Puerto Rico			1		[A]	[B]		3
	Rhode Island			1					1		[A]
	Tennessee			1					1
	Washington			3		[A]	[B]		—
Steel Mill	Oregon			1					—
Steel Distribution	California			1					—
Recycling Services	Texas			—					1
	Total Operating Facilities and Administrative Offices			52					59
	Non-Operating			7					7
				59					66

 

[A] Operation includes a deepwater port. Puerto Rico and Hawaii operations access deepwater ports through public docks.

[B] Includes large-scale shredding operations.

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We consider all operating properties, both owned and leased, to be well-maintained, in good operating condition, and suitable and adequate to carry on our business. For further discussion of our operating properties, see “Business,” and “Distribution” in Part I, Item 1 of this report.

ITEM 3. LEGAL PROCEEDINGS

From time to time, we are involved in various litigation matters that arise in the ordinary course of business involving normal and routine claims, including environmental compliance matters. Such proceedings include, but are not limited to, proceedings relating to our status as a potentially responsible party with respect to the Portland Harbor Superfund Site and proceedings relating to other legacy environmental issues. For additional information regarding such matters, see Note 10 - Commitments and Contingencies in the Notes to the Consolidated Financial Statements in Part II, Item 8 of this report.

In fiscal 2013, the Commonwealth of Massachusetts advised us of alleged violations of environmental requirements, including but not limited to those related to air emissions and hazardous waste management, at our operations in the Commonwealth. We actively engaged in discussions with the Commonwealth's representatives, which resulted in a settlement agreement to resolve the alleged violations. A consent judgment was jointly filed with and entered by the Superior Court for the County of Suffolk, Commonwealth of Massachusetts on September 24, 2015. The settlement involved a $450 thousand cash payment, an additional $450 thousand in suspended payments to be waived upon completion of a shredder emission control system and certain other specified milestones, and $350 thousand in supplemental environmental projects that we have completed. In fiscal 2021, the upgraded shredder emission control system became fully operational to design criteria, and the adjusted milestones for waiver of the suspended penalties were met.

On February 23, 2021, the California State Department of Toxic Substance Control (“DTSC”) issued a corrective action enforcement order with respect to our metal recycling facility in Oakland, California that would require us to submit a current conditions report, to undertake a facilities investigation, risk assessment, a corrective measures study, and to implement corrective measures selected by the DTSC based on those assessments and studies. We dispute DTSC’s alleged jurisdictional basis for the order, as well as the scope of work required by the order, which we believe is unwarranted and duplicative of ongoing assessments being conducted under the oversight of another state agency. We have filed a notice of defense that by law stays the effectiveness of the order and are challenging the order through the DTSC administrative process.

In addition, the DTSC issued a similar corrective action enforcement order on March 18, 2021 with respect to our metal recycling facility in Fresno, California based on inspections conducted by the DTSC in 2013. That 2013 inspection resulted in the issuance of a Summary of Violations in 2015 setting forth a number of alleged violations relating to hazardous waste management requirements. While we dispute the alleged violations, we engaged in settlement discussions that had resulted in a tentative agreement in April 2018 to settle the matter for $490 thousand, of which $368 thousand was to be paid as a civil penalty and $122 thousand was to be paid as reimbursement for agency investigation and enforcement costs. However, the parties were not able to reach agreement on the injunctive terms of the settlement agreement, and the California Office of the Attorney General (“COAG”), on behalf of DTSC, filed suit in the Superior Court of the State of California, County of Fresno on June 25, 2020 against Schnitzer Fresno, Inc., a wholly-owned subsidiary, which operates the facility, seeking a permanent injunction and civil penalties. In early 2022, the parties agreed to formal mediation of the dispute, which effort was unsuccessful. However, we were able to resume settlement negotiations with DTSC, and settlement was achieved in January 2023. A Stipulated Judgement resolving the case was entered by the Fresno County Superior Court on January 18, 2023. The settlement terms include payment of a penalty of $525 thousand, specified injunctive relief requirements, and completion of site investigation and remediation requirements depending on the outcome of the investigation and risk assessment.

In January 2018, the Company received a finding of violation letter from the United States Environmental Protection Agency (“USEPA”) with respect to alleged violations of environmental requirements stemming from refrigerant recovery management program inspections at 12 of our facilities in the New England and Pacific Northwest regions in July 2017 and November 2017. Except with respect to a minor and now corrected non-compliance matter at one facility, we believe that we were in compliance with the relevant regulations. Nevertheless, in December 2017 and prior to receipt of the USEPA letter, we implemented improvements to our refrigerant recovery management program to further strengthen that program, including improvements to address concerns raised by USEPA during the inspections. We conferred with USEPA and the United States Department of Justice (“USDOJ”) regarding the alleged violations and reached agreement to settle this matter. On April 21, 2022, the USDOJ on behalf of the USEPA filed a Complaint and lodged a Consent Decree reflecting the terms of the agreed settlement with the United States District Court for the District of Massachusetts, which Consent Decree was entered as a final judgment by the Court on June 23, 2022. Pursuant to the Consent Decree, the Company agreed to settle the matter without admitting any liability with respect to the allegations in the Complaint for a civil penalty of $1.55 million, implementation of an approved, further enhanced refrigerant recovery management program, and execution of a R-12 refrigerant destruction mitigation project. The Company has implemented the USEPA approved enhanced refrigerant recovery management program at its metals recycling facilities, implemented the mitigation project and paid the civil penalty on July 18, 2022.

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In January 2020, the USEPA issued a Notice of Violation (“NOV”) based on its evaluation of data requested during a June 2019 inspection at our facility in Oakland, California alleging the same violation of a Bay Area Air Quality Management District (“BAAQMD”) air emissions rule that was the subject of a Compliance and Settlement Agreement (“CSA”) with BAAQMD that was executed as of September 22, 2020 and also alleging violations of Title V Major Source permitting requirements based on source testing results of the enclosed shredder. The CSA required the installation of new emission controls for volatile organic compounds (“VOCs”), the payment of a civil penalty and excess emissions fees totaling $400 thousand, and the provision of certain VOC offsets. The Company timely filed an application for a Title V Major Source Permit and simultaneously filed an application for Synthetic Minor Operating Permit based on the proposed installation of Regenerative Thermal Oxidizers and acid gas scrubbers. The Company maintains that the timely filing of a Title V Major Source permit application constitutes compliance with Title V Major Source rules and that USEPA’s Title V non-compliance allegations are erroneous. The Company has conveyed that position to USEPA and has provided USEPA with documentation requested by USEPA confirming our position. To date, USEPA has taken no further action relating to the NOV. In addition, the Company has completed installation of new VOC emissions controls that have achieved compliance with the BAAQMD emissions rule. Accordingly, the Company does not believe that federal enforcement of the BAAQMD rule or Title V permitting requirements is warranted.

On September 3, 2021, the Oregon Department of Environmental Quality (“ODEQ”) issued a Pre-Enforcement Notice (“PEN”) alleging that the Company’s metal shredder facility in Portland, Oregon was in violation of Title V of the federal Clean Air Act (“CAA”). In the PEN, ODEQ also alleged violations of major source new source review, CAO and federal hazardous air pollutant control technology requirements and gave notice to the Company that ODEQ had referred the matter to USEPA for review and possible formal enforcement. On April 25, 2022, the Company received an Information Request from USEPA, Region 10 under Section 114 of the CAA with respect to both the Portland shredder facility and the Tacoma metal shredder facility. The Company has responded to the Information Request. In our response, we identified why Title V does not apply to the Portland and Tacoma facilities, explained that we had submitted an application to ODEQ in December 2018 for an Air Contaminant Discharge Permit for the Portland facility with plant site emission limits that would limit emissions to less than Title V thresholds, noted that the Tacoma facility operates pursuant to an Order of Approval issued by the Puget Sound Clean Air Agency, described that we were proactively enclosing the shredders and installing particulate and volatile organic compound controls at both facilities, and included information on the permit applications that had been submitted in connection with the enclosure and emission control projects. The Company does not believe that any enforcement action is warranted in this matter. ODEQ issued a separate information request for the Portland facility on December 8, 2022, and EPA transmitted a letter to the Company on December 20, 2022, indicating that ODEQ would assume lead agency status for potential enforcement. We responded to the ODEQ information request on January 12, 2023, and submitted additional information on April 13, 2023. The Company has disputed ODEQ's allegations concerning the violations and is currently in negotiations regarding resolution of this matter. If additional emissions controls are required at either or both of the facilities, the costs of installation could be material to our results of operations and cash flows.

On June 22, 2023, ODEQ issued two separate letters to the Company concerning the steel mill’s Title V permit. In the first letter, ODEQ alleged violations related to fluoride and hydrogen fluoride emissions and also claimed a failure to fully implement a pollution prevention plan. The Company has filed a notice of contested case and is in discussions with ODEQ to resolve this matter. In the second letter, ODEQ notified the Company of its intent to reopen the steel mill’s Title V permit to include a third-party contractor’s emissions that has operated on a portion of the mill property for decades and to add a greenhouse gas plant site emissions limit compliance monitoring requirement to the Title V permit. The Company has contested ODEQ’s actions and is in discussions to resolve this matter.

On August 5, 2020, The Athletics Investment Group LLC (“A’s”) filed an action in the California Superior Court for the County of Alameda against the DTSC as Respondent and the Company as Real Party in Interest, seeking rescission of the “f letter” pursuant to which DTSC classified treated shredder waste from the Company’s metal shredding facility in Oakland, California as a “nonhazardous waste” which among other things permits its use as alternative daily cover at municipal landfills. Pursuant to determinations under section 66260.200(f) of the state hazardous waste regulations issued in 1988 and 1989 (the “f letters”), the DTSC determined that treated shredder waste from the Company’s facility does not pose a significant hazard to human health, safety, or the environment. The Superior Court on April 16, 2021 issued an order and writ of mandate commanding the DTSC within 30 days to rescind the Company’s “f letters” concluding that, under a law enacted by the legislature in 2014, the DTSC had a mandatory duty to rescind the “f letters.” The Superior Court reached this decision despite a determination by DTSC in 2018 pursuant to the 2014 statute reconfirming that treated shredder residue does not need to be managed as a hazardous waste in order to protect human health, safety, or the environment. Following the lifting of an initial stay of that order, DTSC rescinded the Company’s “f letters” on November 29, 2021. As a result of the April 16, 2021 Superior Court order and subsequent orders by the same Superior Court, the Company has at times been required to transport its shredder waste out of state for disposal at increased costs. The Company filed notices of appeal of the Superior Court's orders, and on September 30, 2022 the California State Court of Appeals, First Appellate District, Division Three reversed the April 16, 2021 Superior Court order, holding that the statute does not impose a mandatory duty on DTSC to rescind the Company’s “f letters” and that DTSC could continue to regulate metal shredder waste through statutorily compliant “f letters” since DTSC’s analysis confirmed this waste need not be classified as hazardous to protect human health and the environment. DTSC subsequently agreed to an alternative treatment

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standard for the shredder waste under an existing statutory exclusion, which allowed the Company to cease transporting its shredder waste out of state. Following the California Supreme Court’s denial of review of the Court of Appeals’ decision, the Company immediately sought reinstatement of its “f letters.” On April 3, 2023, the Company received confirmation from DTSC that the “f letters” are in effect, subject to certain conditions.

On December 10, 2021, an emergency regulation (“CTMSR Regulation”) that allows metal shredding facilities to transport and dispose of treated shredder residue as non-hazardous waste under a conditional exclusion became effective, and the Company shipped treated shredder residue for use as alternative daily cover at municipal landfills in California from late December 2021 to September 7, 2022 when the emergency regulation expired. Following an inspection by the DTSC of the Company’s Oakland metal shredding facility on May 16 and 17, 2022, the Company in its compilation and review of records requested by the DTSC during that inspection discovered and promptly self-disclosed to the DTSC that it is unable to confirm that it was in compliance with certain aspects of the CTMSR Regulation for certain periods since the adoption of the emergency regulation. The Company reported the corrective actions it has taken and the numerous detailed procedures that are now in place to prevent recurrence. The Company is confident that any failure to comply with the CTMSR Regulation did not pose a risk to human health or the environment. On August 31, 2022, the DTSC issued an Inspection Report detailing alleged violations including allegations that the Company treated and stored metal shredder residue without a permit or other grant of authorization in violation of the California Hazardous Waste Control Law (“HWCL”). The Company had previously discussed with DTSC the various forms of authorization that would satisfy the CTMSR Regulation and had promptly obtained a Permit by Rule under the HCWL which it understood to be a satisfactory option. In a September 14, 2022 letter, the Company responded in detail to the alleged violations setting forth the corrective actions it has taken including having obtained interim status authorization for the treatment and storage of metal shredder residue under the permitting provisions of the HCWL with a full reservation of rights.

On May 6, 2022, the A’s filed an action in the Superior Court of the State of California, County of Alameda against the BAAQMD as Respondent and the Company as Real Party in Interest (the “BAAQMD Case”) alleging that the BAAQMD has failed to properly regulate the Company’s Oakland shredder facility under the federal and California Clean Air Acts and seeking an order requiring the BAAQMD to revoke the Company’s Permit to Operate for the Oakland facility. On June 3, 2022, the BAAQMD removed this action to the United States District Court, Northern District of California where the A’s had previously filed an action against the Company on July 7, 2021 raising substantially similar issues under the federal Clean Air Act’s citizen suit provision alleging violations by the Oakland facility of the federal Clean Air Act and permit conditions and seeking declaratory and injunctive relief, which action is currently in discovery with a trial, if any, currently scheduled for June 2024. The BAAQMD Case was remanded back to Alameda Superior Court on October 7, 2022, and no schedule has yet been established for that case.

On March 30, 2022, September 8, 2022, and July 31, 2023, the Company received letters from the COAG alleging violations of the Stipulation for Entry of Final Judgment and Order on Consent (“Consent Order”) issued by the Superior Court of the State of California, County of Alameda in February 2021 that was entered into with the Alameda County District Attorney, DTSC and COAG to settle certain alleged violations of environmental requirements at our Oakland metals recycling facility. The letters demand that the Company take additional measures to address the off-site release and deposition of light fibrous material (“LFM”). The Company does not believe that it is in violation of the Consent Order and has detailed the additional control measures that the Company has implemented and continues to implement to reduce the potential for releases of LFM from its Oakland facility. The Company is in continuing discussions with the COAG, the Alameda County District Attorney’s office, and DTSC regarding this matter and does not believe that further enforcement action is warranted.

ITEM 4. MINE SAFETY DISCLOSURES

Not applicable.

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PART II

ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS, AND ISSUER PURCHASES OF EQUITY SECURITIES

Our Class A common stock is listed on The Nasdaq Stock Market LLC (“NASDAQ”) under the symbol RDUS (SCHN prior to September 1, 2023). There were 147 holders of record of Class A common stock on October 23, 2023. Our Class A common stock has been trading since November 16, 1993. There was one holder of record of Class B common stock on October 23, 2023. Our Class B common stock is not publicly traded.

We declared our 118th consecutive quarterly dividend in the fourth quarter of fiscal 2023. The payment of future dividends is subject to approval by our Board of Directors and continued compliance with the terms of our credit agreement. See Management’s Discussion and Analysis of Financial Condition and Results of Operations in Part II, Item 7 of this report for further discussion of our credit agreement.

Issuer Purchases of Equity Securities

Pursuant to a share repurchase program as amended in 2001, 2006, and 2008, our Board of Directors had previously authorized the repurchase of up to nine million shares of our Class A common stock when management deems such repurchases to be appropriate. On June 27, 2022, our Board of Directors authorized a new share repurchase program of up to an additional three million shares of our Class A common stock. 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 factors, our cash needs, the availability of funding, our future business plans, and the market price of our stock. We did not repurchase our common stock in fiscal 2023. We repurchased approximately 944 thousand shares for a total of $34 million in open-market transactions in fiscal 2022. We did not repurchase our common stock in fiscal 2021. As of August 31, 2023, there were approximately 2.8 million shares available for repurchase under the program.

The share repurchase program does not require us to acquire any specific number of shares, and we may suspend, extend, or terminate the program at any time without prior notice, and the program may be executed through open-market purchases, privately negotiated transactions, or utilizing Rule 10b5-1 programs.

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Performance Graph

The following graph and related information compare cumulative total shareholder return on our Class A common stock for the five-year period from September 1, 2018 through August 31, 2023, with the cumulative total return for the same period of (i) the S&P 500 Steel Index and (ii) the S&P 600 Metals & Mining Index. These comparisons assume an investment of $100 at the commencement of the five-year period and that all dividends are reinvested. The stock performance outlined in the performance graph below is not necessarily indicative of our future performance, and we do not endorse any predictions as to future stock performance.

 

 

 

		Year Ended August 31,
		2018				2019				2020				2021				2022				2023
Radius Recycling(1)(2)		$	100			$	87			$	81			$	197			$	140			$	144
S&P 500 Steel		$	100			$	78			$	73			$	188			$	213			$	258
S&P 600 Metals & Mining		$	100			$	66			$	64			$	116			$	115			$	151

 

ITEM 6. [RESERVED]

 

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ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

This section includes a discussion of our operations for the fiscal years ended August 31, 2023 and 2022. The following discussion and analysis provide information which management believes is relevant to an assessment and understanding of our financial condition and results of operations. The discussion should be read in conjunction with the Consolidated Financial Statements and the related Notes thereto included in Part II, Item 8 of this report.

For discussion of our results of operations for fiscal year 2021 including comparison to fiscal 2022, refer to Part II, Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations in our Annual Report on Form 10-K for the year ended August 31, 2022.

Business

Founded in 1906, Radius Recycling is one of North America’s largest recyclers of ferrous and nonferrous metal, including end-of-life vehicles, and a manufacturer of finished steel products. As a vertically integrated organization, we offer a range of products and services to meet global demand through our network that includes 50 retail self-service auto parts stores, 54 metals recycling facilities, and an electric arc furnace (“EAF”) steel mill. Our internal organizational and reporting structure includes a single operating and reportable segment.

We sell recycled ferrous and nonferrous metal in both foreign and domestic markets. We also sell a range of finished steel long products produced at our steel mill. 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.

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 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. 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. Further, sanctions, trade actions, and licensing and inspection requirements can impact the level of 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.

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Strategic Priorities

As we continue to closely monitor economic conditions, we remain focused on the following core strategies and plans to meet our business goals and objectives:

Key economic factors and trends affecting the industries in which we operate

We sell recycled metals to the global steel industry for the production of finished steel. Our financial results largely depend on supply of raw materials in the U.S. and Western Canada and demand for recycled metal in foreign and domestic markets and for finished steel products in the Western U.S. and Western Canada. Demand for most of our products is cyclical in nature and sensitive to changes in general economic conditions. The timing and magnitude of the economic cycles in the industries in which our products are used, including global steel manufacturing and nonresidential and infrastructure construction in the U.S., are difficult to predict. Global economic conditions, including impacts of geopolitical instability and the COVID-19 pandemic, structural and cyclical changes in supply and demand conditions, inflation, rising interest rates, and the strength of the U.S. dollar, the availability and price of raw material alternatives, and trade actions such as tariffs affect market prices for and sales volumes of recycled ferrous and nonferrous metal in global markets and steel products in the Western U.S. and Western Canada and can have a significant impact on the results of our operations.

Market conditions for recycled metals globally were weaker in fiscal 2023 compared to the prior fiscal year driven by weaker demand primarily from slower global growth, including due to the impact of prolonged China COVID-19 lockdowns, inflationary pressure including high energy prices and increased scrap collection and other operating costs, rising interest rates, and the strength of the U.S. Dollar. Demand for recycled metals fluctuated throughout fiscal 2023, at times sharply, primarily reflecting the volatility in global steel demand and inventory levels. The slowdown in economic activity that began substantially in the second half of fiscal 2022 and persisted throughout fiscal 2023 led to reduced generation of scrap metal in the U.S. domestic market and increased competition for available scrap volumes. The tight supply flows in combination with the lower price environment for recycled metals put significant pressure on metals spreads in fiscal 2023, causing operating margin compression.

For our full 2023 fiscal year, the average net selling prices for our ferrous and nonferrous products decreased by 18% and 11%, respectively, compared to the prior fiscal year. In fiscal 2022, these average net selling prices increased by 19% and 23%, respectively, compared to fiscal 2021. For fiscal 2023, ferrous sales volumes decreased by 5% and nonferrous sales volumes increased by 7%, compared to the prior fiscal year. In fiscal 2022, sales volumes for these products increased by 5% and 16%, respectively, compared to fiscal 2021. Our ferrous and nonferrous sales volumes in fiscal 2023 reflected a full year, and in fiscal 2022 reflected a partial year, of additional volumes arising from the Columbus Recycling business acquired on October 1, 2021, and the Encore Recycling business acquired on April 29, 2022. Sales volumes for these products in fiscal 2023 reflected a partial year of additional volumes arising from the ScrapSource business acquired on November 18, 2022. As global economies revived and commercial and investment activities resumed in the wake of the COVID-19 pandemic, including throughout fiscal 2021 and continuing into fiscal 2022, demand for recycled metals and finished steel increased substantially, which contributed to periods of sharp increases in market selling prices for these products. Demand began to weaken in the fourth quarter of fiscal 2022, which continued into fiscal 2023 amid macroeconomic concerns including slower growth and inflationary pressures. During fiscal 2023, we experienced periods of market recovery, but market conditions for recycled metals, including supply flows, were weaker overall in comparison to fiscal 2022. Average net selling prices for our finished steel products, which are produced in our steel mill using EAF technology, decreased by 13% in fiscal 2023 compared to

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the record-high levels reached in the prior fiscal year, but remained at historically high levels, reflecting continued strong market demand for these products.

We continue to believe decarbonization efforts by companies, industries, and governments around the world, including investments in low carbon technologies such as renewable energies, electric vehicles, and energy efficiency solutions that are more metal intensive and minimize carbon dioxide emissions from the use of fossil fuels, among other factors, support global long-term demand for our recycled metal products.

Steel Mill Fire

On May 22, 2021, we experienced a fire at our steel mill in McMinnville, Oregon. Direct physical loss or damage to property from the incident was limited to the mill’s melt shop, with no bodily injuries and no physical loss or damage to other buildings or equipment. The rolling mill production ceased in early June 2021. In August 2021, our steel mill began ramping up operations following the substantial completion of replacement and repairs of property and equipment in the melt shop that had been lost or damaged by the fire. We experienced 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 is fully applicable to the losses and filed insurance claims, which are subject to deductibles and various conditions, exclusions, and limits, for the property that experienced physical loss or damage and business income losses resulting from the matter. The property damage deductible under the policies insuring our assets in this matter is $1 million, while the deductible for lost business income is 10 times the Average Daily Gross Earnings which would have been earned had no interruption occurred, calculated subject to judgments and uncertainties. In fiscal 2021, we recognized an initial $10 million insurance receivable and related insurance recovery gain, the latter reported within cost of goods sold on the Consolidated Statements of Operations, primarily offsetting applicable losses incurred including capital purchases of $10 million that we had incurred as of the end of the fiscal year. In fiscal 2022, we increased the amount of this insurance receivable to $25 million and recognized a related $15 million insurance recovery gain within cost of goods sold on the Consolidated Statements of Operations, reflecting recovery of applicable losses incurred as a result of the fire to date. In addition, during fiscal 2022, we received advance payments from insurers totaling approximately $30 million towards our claims, 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 on the Consolidated Balance Sheets as of August 31, 2022. In fiscal 2023, we received additional cash payments from insurers towards our claims totaling approximately $22 million, and in the fourth quarter of fiscal 2023 we reached a full and final settlement with our insurers for our claims and recognized an additional $27 million insurance recovery gain within cost of goods sold on the Consolidated Statements of Operations, reflecting recovery of applicable losses including business income losses incurred as a result of the fire.

Everett Facility Shredder Fire

On December 8, 2021, we experienced a fire at our metals recycling facility in Everett, Massachusetts. Direct physical loss or damage to property from the incident was limited to the facility’s shredder building and equipment, with no bodily injuries and no physical loss or damage to property reported at other buildings or equipment. As a result of the fire, shredding operations ceased, while all non-shredding operations at the facility continued, including torching, shearing, separating, and sorting purchased non-shreddable recycled ferrous metals. On January 28, 2022, shredding operations at the facility began ramping up following the replacement and repairs to shredder equipment that had been damaged. In addition, shredding operations temporarily ceased at the facility on June 18, 2022 and, following discussions with the Massachusetts Department of Environmental Protection and the Massachusetts Attorney General’s office, we installed a temporary emission capture system and controls that allowed for us to resume shredding operations on November 11, 2022 and for continued operation during the repair and replacement of the shredder enclosure building. Non-shredding operations at the facility continued during this period. The repair and replacement of most property that experienced physical loss or damage, primarily buildings and improvements, was substantially completed by the end of fiscal 2023. We have insurance that we believe is fully applicable to the losses, including but not limited to the costs of installing the temporary capture and controls system and any associated loss of business income, and have filed insurance claims, which are subject to deductibles and various conditions, exclusions, and limits, for the property damage or loss and business income losses resulting from the matter. The property damage deductible under the policies insuring our assets in this matter is $0.5 million, while the deductible for lost business income is 10 times the Average Daily Gross Earnings which would have been earned had no interruption occurred, calculated subject to judgments and uncertainties. The insurance claims resolution process may extend significantly beyond completion of repair and replacement of the physical plant property that experienced physical loss or damage and the restart of production activities. In fiscal 2022, after the fire, we recognized an aggregate $17 million insurance receivable and related insurance recovery gain. In fiscal 2023, we recognized an additional $16 million insurance receivable and related insurance recovery gain. As of August 31, 2023, we had recognized a total of $34 million in insurance recovery gains, all reported within cost of goods sold on the Consolidated Statements of Operations, reflecting recovery of applicable losses to date including impairment charges of $7 million related to the carrying value of plant and equipment assets lost in or damaged by the fire, and capital purchases, non-capitalizable repair and replacement costs, and other applicable losses totaling $27 million that had been incurred as of August 31, 2023. Also, during fiscal 2023 and 2022, we received advance payments from insurers totaling approximately

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$26 million and $7 million, respectively, towards our claims, and not reflecting any final or full settlement of claims with the insurers, which amount reduced the insurance receivable to $1 million and $10 million as of August 31, 2023 and 2022, respectively. The insurance receivable is reported within prepaid expenses and other current assets on the Consolidated Balance Sheets. These amounts do not reflect potential additional recoveries of costs for the repair and replacement of property that experienced physical loss or damage or of business income losses resulting from this matter that may be recognized in the future when settlements of the claims are resolved.

Coronavirus Disease 2019 (“COVID-19”)

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

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. 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, goodwill impairment charges, other asset impairment charges, charges for legacy environmental matters (net of recoveries), restructuring charges and other exit-related activities, business development costs not related to ongoing operations including pre-acquisition expenses, charges related to non-ordinary course legal settlements, 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 7.

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

 

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Financial Highlights of Results of Operations for Fiscal 2023

Market conditions for recycled metals were weaker in fiscal 2023 compared to the prior fiscal year, leading to significantly lower average net selling prices for our ferrous and nonferrous products and a compression in metal spreads. The average net selling prices for our ferrous and nonferrous products decreased by 18% and 11%, respectively, compared to fiscal 2022. Ferrous and nonferrous sales volumes decreased by 5% and increased by 7%, respectively, compared to the prior fiscal year, which changes included additional volumes arising from our three business acquisitions completed during fiscal 2022 and 2023, as well as the adverse impact on sales volumes in the prior fiscal year of the initial Everett shredder downtime. Our ferrous and nonferrous sales volumes in fiscal 2023 were adversely impacted by disruptions related to an extended shredder outage at the Everett facility and a regulatory issue limiting operations at our shredder facility in California, both of which were resolved by mid-November 2022. Our nonferrous sales volumes in fiscal 2023 reflected additional recovery of recycled material through our advanced metal recovery technology investments. Average net selling prices for our finished steel products decreased by 13% compared to the record-high prices in the prior fiscal year, contributing to lower metal spreads. Finished steel sales volumes increased by 12% in fiscal 2023, primarily reflecting the impact on the prior fiscal year volumes of the ramp up of steel mill operations which was substantially completed during the second quarter of fiscal 2022 following the May 2021 steel mill fire. Our results in fiscal 2023 also reflected the unfavorable impact of tighter supply flows of scrap metal and reduced processed volumes in the lower price and slower economic environment, significantly lower year-over-year platinum group metals (PGM) prices, and inflationary pressure on operating costs, as well as a favorable change in the effect of average inventory accounting year-over-year. In addition, our results in fiscal 2023 included $51 million in goodwill and other asset impairment charges and $43 million in insurance recovery gains relating to the steel mill fire and the Everett facility shredder fire. Starting in the third quarter of fiscal 2023, we achieved the full quarterly run rate of $10 million of productivity initiatives announced in October 2022 and the full quarterly run rate of $5 million of selling, general, and administrative (“SG&A”) savings initiatives announced in January 2023, which helped to offset the effects of higher operating costs including from inflationary pressure.

SG&A expense in fiscal 2023 was relatively flat compared to the prior fiscal year reflecting lower incentive compensation accruals due to Company performance, partially offset by higher salaries and wages and outside and professional services expenses, due in part to our acquisitions and other growth-related initiatives, as well as higher legacy environmental charges and the impact of inflation. These higher expenses in fiscal 2023 were partially offset by benefits from productivity and cost reduction initiatives when compared to the prior fiscal year.

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

See the reconciliations of adjusted diluted earnings per share from continuing operations attributable to Radius shareholders, adjusted EBITDA, and debt, net of cash in Non-GAAP Financial Measures at the end of this Item 7.

38 / Schnitzer Steel Industries, Inc. dba Radius Recycling Form 10-K Fiscal 2023

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Results of Operations

Selected Financial Measures and Operating Statistics

		For the Year Ended August 31,												% Increase (Decrease)
($ in thousands, except for prices and per share amounts)		2023				2022				2021				2023 vs. 2022				2022 vs. 2021
Ferrous revenues		$	1,439,983			$	1,914,255			$	1,557,891				(25	)%			23	%
Nonferrous revenues			781,102				892,444				684,862				(12	)%			30	%
Steel revenues(1)			507,550				531,731				379,203				(5	)%			40	%
Retail and other revenues			153,589				147,385				136,595				4	%			8	%
Total revenues			2,882,224				3,485,815				2,758,551				(17	)%			26	%
Cost of goods sold			2,574,513				2,997,745				2,305,357				(14	)%			30	%
Gross margin (total revenues less cost of goods sold)		$	307,711			$	488,070			$	453,194				(37	)%			8	%
Gross margin (%)			10.7	%			14.0	%			16.4	%			(24	)%			(15	)%
Selling, general and administrative expense		$	265,929			$	263,257			$	242,463				1	%			9	%
Diluted (loss) earnings per share from continuing operations attributable to Radius shareholders:
Reported		$	(0.92	)		$	5.72			$	5.66			NM					1	%
Adjusted(2)		$	0.85			$	6.07			$	6.13				(86	)%			(1	)%
Net (loss) income		$	(25,438	)		$	171,996			$	169,975			NM					1	%
Adjusted EBITDA(2)		$	144,327			$	312,715			$	289,209				(54	)%			8	%
Recycled ferrous metal average sales prices ($/LT)(3):
Domestic		$	360			$	438			$	364				(18	)%			20	%
Foreign		$	376			$	457			$	385				(18	)%			19	%
Average		$	371			$	452			$	381				(18	)%			19	%
Ferrous volumes (LT, in thousands):
Domestic(4)			1,952				1,806				1,500				8	%			20	%
Foreign			2,424				2,810				2,908				(14	)%			(3	)%
Total ferrous volumes (LT, in thousands)(4)(5)			4,376				4,616				4,408				(5	)%			5	%
Recycled nonferrous metal average sales price ($/pound)(3)(6)		$	0.96			$	1.08			$	0.88				(11	)%			23	%
Nonferrous volumes (pounds, in thousands)(4)(6)			738,937				687,419				593,378				7	%			16	%
Finished steel average sales price ($/ST)(3)		$	930			$	1,075			$	737				(13	)%			46	%
Finished steel sales volumes (ST, in thousands)			521				465				488				12	%			(5	)%
Cars purchased (in thousands)(7)			286				312				338				(8	)%			(8	)%
Number of auto parts stores at period end			50				51				50				(2	)%			2	%
Rolling mill utilization(8)			89	%			88	%			78	%			1	%			13	%

 

NM = Not Meaningful

LT = Long Ton, which is equivalent to 2,240 pounds. ST = Short Ton, which is equivalent to 2,000 pounds.

39 / Schnitzer Steel Industries, Inc. dba Radius Recycling Form 10-K Fiscal 2023

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Revenues

Revenues in fiscal 2023 decreased by 17% compared to the prior fiscal year primarily due to significantly lower average net selling prices for our ferrous and nonferrous products driven by weaker market conditions for recycled metals globally. In fiscal 2023, the average net selling prices for our ferrous and nonferrous products decreased by 18% and 11%, respectively, compared to the prior fiscal year. Ferrous and nonferrous sales volumes decreased by 5% and increased by 7%, respectively, compared to the prior fiscal year. Our ferrous and nonferrous sales volumes in fiscal 2023 in part reflected additional volumes arising from the Columbus Recycling business acquired on October 1, 2021, the Encore Recycling business acquired on April 29, 2022, and the ScrapSource business acquired on November 18, 2022, as well as the adverse impact on sales volumes in the prior fiscal year of the initial Everett shredder downtime. Our ferrous and nonferrous sales volumes in fiscal 2023 were adversely impacted by disruptions related to an extended shredder outage at the Everett facility and a regulatory issue limiting operations at our shredder facility in California, both of which were resolved by mid-November 2022, as well as tight supply flows in the lower price and slower economic environment. Our nonferrous sales volumes in fiscal 2023 reflected additional recovery of recycled material through our advanced metal recovery technology investments. Market conditions for our finished steel products were softer in fiscal 2023, leading to finished steel average selling prices decreasing 13%, compared to the record-high prices in the prior fiscal year. Finished steel sales volumes increased 12% in fiscal 2023, primarily reflecting the impact on the prior fiscal year volumes of the ramp up of steel mill operations that began in August 2021 and which was substantially completed during the second quarter of fiscal 2022. The ramp-up of steel mill operations during the first half of fiscal 2022 followed completion of repair and replacement of damaged property arising from the May 2021 steel mill fire.

Operating Performance

Net loss in fiscal 2023 was $25 million, compared to net income of $172 million in the prior fiscal year. Adjusted EBITDA in fiscal 2023 was $144 million, compared to $313 million in the prior fiscal year. The lower price environment for recycled metals, as well as the impact of tighter supply flows, reduced processed volumes, and the extended operational disruptions in the first quarter of fiscal 2023, had a significant adverse impact on our operating margins and overall operating results in fiscal 2023. Ferrous metal spreads in fiscal 2023 decreased by approximately 21% compared to the prior fiscal year driven by lower selling prices and the cost of obtaining adequate supply flows of scrap metal including end-of-life vehicles in the tighter supply environment. In addition, average net selling prices for our nonferrous joint products that are recovered from the shredding process, comprising primarily zorba, decreased by approximately 3% compared to the prior fiscal year. Finished steel metal spreads were also lower in fiscal 2023 compared to the prior fiscal year. Our results in fiscal 2023 also reflected the unfavorable impact of tighter supply flows of scrap metal and reduced processed volumes in the lower price and slower economic environment, significantly lower year-over-year PGM prices, and inflationary pressure on operating costs, as well as a favorable change in the effect of average inventory accounting year-over-year. In addition, our results in fiscal 2023 included $51 million in goodwill and other asset impairment charges and $43 million in insurance recovery gains relating to the steel mill fire and the Everett facility shredder fire. Starting in the third quarter of fiscal 2023, we achieved the full quarterly run rate of $10 million of productivity initiatives announced in October 2022 and the full quarterly run rate of $5 million of selling, general, and administrative (“SG&A”) savings initiatives announced in January 2023, which helped to offset the effects of higher operating costs including from inflationary pressure.

SG&A expense in fiscal 2023 was relatively flat compared to the prior fiscal year reflecting lower incentive compensation accruals due to Company performance, partially offset by higher salaries and wages and outside and professional services expenses, due in part to our acquisitions and other growth-related initiatives, as well as higher legacy environmental charges and the impact of inflation. These higher expenses in fiscal 2023 were partially offset by benefits from productivity and cost reduction initiatives when compared to the prior fiscal year.

In October 2022, we announced and began implementing productivity and cost reduction initiatives with a targeted annual benefit of approximately $40 million. In addition, in January 2023, we announced incremental initiatives aiming to reduce SG&A costs by approximately $20 million annually. These initiatives aim to improve profitability through a combination of increased yields, efficiencies in processing, procurement, and pricing, and reduced costs including from headcount reductions, decreased lease costs, professional and outside services, and implementation of operational efficiencies. Starting in the third quarter of fiscal 2023, we achieved the full quarterly run rate of benefits from these initiatives, and others implemented during fiscal 2022, which helped to partially offset the effects of inflationary pressure on operating costs.

In the fourth quarter of fiscal 2023, we performed the annual goodwill impairment test as of July 1, 2023, which resulted in a non-cash goodwill impairment charge of $39 million, representing a portion of the carrying amount of goodwill allocated to one reporting unit comprising a regional metals recycling operation, while the goodwill allocated to our other reporting units was deemed to not be impaired. We did not record any goodwill impairment charges in fiscal 2022. See further discussion in the Critical Accounting Estimates section at the end of Part II, Item of this report.

40 / Schnitzer Steel Industries, Inc. dba Radius Recycling Form 10-K Fiscal 2023

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See the reconciliation of adjusted EBITDA in the Non-GAAP Financial Measures at the end of this Item 7.

Interest Expense

Interest expense was $19 million, $9 million, and $5 million as of August 31, 2023, 2022, and 2021, respectively. The increase in interest expense was primarily due to higher interest rates on amounts outstanding under our bank credit facilities, as well as increased average borrowings, compared to the prior fiscal year.

Income Taxes

		Year Ended August 31,
		2023				2022				2021
(Loss) income from continuing operations before income taxes		$	(28,076	)		$	216,676			$	207,989
Income tax benefit (expense)		$	2,747			$	(44,597	)		$	(37,935	)
Effective tax rate			9.8	%			20.6	%			18.2	%

Our effective tax rate from continuing operations for fiscal 2023 was a benefit on pre-tax loss of 9.8%, compared to an expense on pre-tax income of 20.6% for fiscal 2022. Our effective tax rate from continuing operations for fiscal 2023 was lower than the U.S. federal statutory rate of 21% primarily due to the aggregate effect of the relatively low absolute level of pre-tax earnings, permanent differences from non-deductible expenses, and unrecognized tax benefits. Our effective tax rate from continuing operations for fiscal 2022 approximated the U.S. federal statutory rate of 21%, reflecting tax benefits from vesting of share-based awards, the foreign derived intangible income (“FDII”) deduction, and research and development credits, offset by the aggregate impact of state taxes and permanent differences from non-deductible expenses.

We assess the realizability of our deferred tax assets on a quarterly basis through an analysis of potential sources of future taxable income, including prior fiscal 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. We consider all negative and positive evidence to determine if valuation allowances against deferred tax assets are required. We continue to maintain valuation allowances against certain deferred tax assets in certain jurisdictions as a result of negative evidence, including historical losses in these jurisdictions, which indicates 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. 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.

Inflation Reduction Act

On August 16, 2022, the Inflation Reduction Act of 2022 (“IRA”) was signed into law, with tax provisions primarily focused on implementing a 15% Corporate Alternative Minimum Tax (“CAMT”) and a 1% excise tax on corporate share repurchases. As of August 31, 2023, we did not meet the threshold to be subject to the CAMT. We may, however, be subject to the 1% excise tax on future share repurchases.

 

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 $6 million and $44 million as of August 31, 2023 and 2022, 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 both August 31, 2023 and 2022, debt was $249 million, and debt, net of cash, was $243 million as of August 31, 2023, compared to $205 million as of August 31, 2022, which increase was primarily due to lower cash balances resulting from the repayment of increased borrowings from our credit facilities during fiscal 2023 to fund the acquisition of the ScrapSource business on November 18, 2022, and capital expenditures. See the reconciliation of debt, net of cash, in Non-GAAP Financial Measures at the end of this Item 7.

41 / Schnitzer Steel Industries, Inc. dba Radius Recycling Form 10-K Fiscal 2023

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Operating Activities

Net cash provided by operating activities in fiscal 2023 was $139 million, compared to $238 million in fiscal 2022.

Sources of cash other than from earnings in fiscal 2023 included a $48 million decrease in inventories primarily due to lower raw material purchase costs and the timing of purchases and sales and a $12 million decrease in accounts receivable primarily due to the timing of sales and collections. Uses of cash in fiscal 2023 included a $24 million decrease in accrued payroll and related liabilities primarily due to decreased incentive compensation liabilities and a $14 million decrease in accrued liabilities due in part to recognition through fiscal 2023 earnings of advance payments received from insurers in excess of recoveries as of the end of fiscal 2022 upon full and final settlement with our insurers for our claims arising from the May 2021 steel mill fire.

Sources of cash other than from earnings in fiscal 2022 included a $21 million increase in accounts payable primarily due to higher raw material purchase prices and the timing of purchases and payments. Uses of cash in fiscal 2022 included a $37 million increase in inventories due to higher raw material purchase costs and the timing of purchases and sales, a $19 million increase in prepaid expenses and other current assets primarily due to increased receivables from insurers, a $15 million decrease in environmental liabilities primarily due to payments in connection with legacy environmental matters, and a $14 million decrease in accrued payroll and related liabilities primarily due to decreased incentive compensation liabilities. 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.

Investing Activities

Net cash used in investing activities in fiscal 2023 was $144 million, compared to $316 million in fiscal 2022.

Cash used in investing activities in fiscal 2023 included $25 million paid to acquire the assets of the ScrapSource business on November 18, 2022. We funded this acquisition using cash on hand and borrowings under our existing credit facilities. See Note 7 - Business Acquisitions in the Notes to the Consolidated Financial Statements in Part II, Item 8 of this report for further detail. Cash used in investing activities in fiscal 2023 also included capital expenditures of $130 million to upgrade our equipment and infrastructure and for investments in advanced metals recovery technology and environmental and safety-related assets, compared to $150 million in the prior fiscal year. Cash flows from investing activities in fiscal 2023 included proceeds of $8 million representing the portion of advance payments from insurers deemed a recovery of capital purchases incurred for repair and replacement of damaged property arising from the December 2021 Everett facility shredder fire, compared to such proceeds totaling $17 million in the prior fiscal year in connection with our insurance claims relating to the May 2021 steel mill fire and the December 2021 Everett facility shredder fire.

Cash used in investing activities in fiscal 2022 included $117 million paid to acquire the Columbus Recycling business on October 1, 2021, which amount included $10 million paid primarily for net working capital in excess of an agreed-upon benchmark, and also included $63 million paid to acquire the Encore Recycling business on April 29, 2022, which amount included $8 million paid at closing for estimated net working capital in excess of an agreed-upon benchmark. We funded these acquisitions using cash on hand and borrowings under our existing credit facilities. Cash used in investing activities in fiscal 2022 also included the purchase of an investment in the equity of a privately-held Canadian recycling entity for $5 million.

Financing Activities

Net cash used in financing activities for fiscal 2023 was $33 million, compared to net cash provided by financing activities of $95 million in fiscal 2022.

Cash flows from financing activities in fiscal 2023 included $3 million in net repayment of debt, compared to $166 million in net borrowings of debt in the prior fiscal year (refer to Non-GAAP Financial Measures at the end of this Item 7). Uses of cash in fiscal 2023 and 2022 included $8 million and $11 million, respectively, for payment of employee tax withholdings resulting from settlement of share-based awards and $21 million in each fiscal year for the payment of dividends.

42 / Schnitzer Steel Industries, Inc. dba Radius Recycling Form 10-K Fiscal 2023

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Debt

Following is a summary of our outstanding balances and availability on credit facilities and long-term debt, exclusive of finance lease obligations (in thousands):

		Outstanding as of August 31, 2023				Remaining Availability
Bank secured revolving credit facilities(1)		$	230,000			$	573,472
Other debt obligations		$	12,192			N/A

 

Our senior secured revolving credit facilities, which provide for revolving loans of $800 million and C$15 million, mature in August 2027 pursuant to a credit agreement with Bank of America, N.A., as administrative agent, and other lenders party thereto. Interest rates on outstanding indebtedness under the credit agreement are based, at our option, on either the Secured Overnight Financing Rate (“SOFR”) (or the Canadian Dollar Offered Rate, “CDOR” for C$ loans), plus a spread of between 1.25% and 2.00%, with the amount of the spread based on a pricing grid tied to our ratio of consolidated net funded debt to EBITDA (as defined by the 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 Term SOFR plus 1.00%, in each case, plus a spread of between 0.25% and 1.00% based on a pricing grid tied to our consolidated net funded debt to EBITDA ratio. In addition, commitment fees are payable on the unused portion of the credit facilities at rates between 0.175% and 0.30% based on a pricing grid tied to our ratio of consolidated net funded debt to EBITDA.

Under the credit agreement, we may establish one or more key performance indicators (“KPIs”) to measure our performance with respect to certain of our environmental, social and governance targets. Subject to the terms and conditions of the credit agreement, we may propose to amend the credit agreement to modify (i) the pricing spread and (ii) the commitment fee rate. Such modifications would be tied to our performance against the KPIs and would allow for (i) the pricing spread to be increased or decreased by no more than (a) 0.025% per KPI and (b) 0.05% for all KPIs, and (ii) the commitment fee rate to be increased or decreased by no more than 0.005% for all KPIs. Such adjustments would be determined on an annual basis and would not be cumulative.

We had borrowings outstanding under our credit facilities of $230 million as of both August 31, 2023 and 2022. The weighted average interest rate on amounts outstanding under our credit facilities was 7.17% and 3.65% as of August 31, 2023 and 2022, respectively. In the fourth quarter of fiscal 2023, we entered three interest rate swap transactions to hedge the variability in interest cash flows associated with our variable-rate loans under our credit facilities. The interest rate swaps require us to make fixed-rate payments based on a total notional amount of $150 million and an average annual rate of approximately 4.40% in exchange for the receipt of variable-rate amounts over a three-year term ending in August 2026. See Note 15 - Derivative Financial Instruments in Part II, Item 8 of this report for disclosure related to derivative instruments and hedging activities.

We use the credit facilities to fund working capital, capital expenditures, dividends, share repurchases, investments, and acquisitions. 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. As of August 31, 2023, the financial covenants under the credit agreement included (a) a consolidated fixed charge coverage ratio, defined as the four-quarter rolling sum of consolidated EBITDA less defined maintenance capital expenditures and certain environmental expenditures divided by consolidated fixed charges, and (b) a consolidated leverage ratio, defined as consolidated funded indebtedness divided by the sum of consolidated net worth and consolidated funded indebtedness.

As of August 31, 2023, we were in compliance with the financial covenants under our credit agreement. The consolidated fixed charge coverage ratio was required to be no less than 1.50 to 1.00 and was 3.08 to 1.00 as of August 31, 2023. The consolidated leverage ratio was required to be no more than 0.55 to 1.00 and was 0.22 to 1.00 as of August 31, 2023.

Our obligations under 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.

While we currently expect to remain in compliance with the financial covenants under the credit agreement, we may not be able to do so in the event market conditions or other factors have a significant adverse impact on our results of operations and financial 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

43 / Schnitzer Steel Industries, Inc. dba Radius Recycling Form 10-K Fiscal 2023

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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. 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 $12 million and $13 million as of August 31, 2023 and 2022, 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.

Capital Expenditures

Capital expenditures totaled $130 million for fiscal 2023, compared to $150 million for fiscal 2022. Capital expenditures included approximately $33 million and $51 million for investments in growth in fiscal 2023 and 2022, respectively. We currently plan to invest approximately $100 million in capital expenditures in fiscal 2024. These capital expenditures include investments in growth, including new nonferrous processing technologies, and to support volume initiatives as well as post-acquisition and other growth projects, and investments to upgrade our equipment and infrastructure and for environmental and safety-related assets, using cash generated from operations and available credit facilities. Supply chain disruptions have contributed to some delays in construction activities and equipment deliveries related to our capital projects, and to the time required to obtain permits from government agencies, resulting in the deferral of certain capital expenditures. Given the continually evolving nature of such disruptions and other factors impacting the timing of project completion, the extent to which 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 approximately $33 million in capital expenditures for environmental projects in fiscal 2023, and we currently plan to invest approximately $35 million for such projects in fiscal 2024. These projects include investments in equipment to ensure ongoing compliance with air quality and other environmental regulations and storm water systems.

We have been identified by the 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 Portland Harbor. See Note 10 - Commitments and Contingencies in the Notes to the Consolidated Financial Statements in Part II, Item 8 of this report for a discussion of this 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 Portland Harbor, although such costs could be material to our financial position, results of operations, cash flows, and liquidity. We have insurance policies and Qualified Settlement Funds (“QSFs”) that we believe will provide reimbursement for costs we incur for defense, remediation, and mitigation for natural resource damages claims in connection with Portland Harbor, although there are no assurances that those policies and the QSFs will cover all of the costs which we may incur. Significant cash outflows in the future related to Portland Harbor could reduce the amounts available for borrowing that could otherwise be used for working capital, capital expenditures, dividends, share repurchases, investments, and acquisitions and could result in our failure to maintain compliance with certain covenants in our debt agreements, and could adversely impact our liquidity.

Dividends

On June 27, 2023, our Board of Directors declared a dividend for the fourth quarter of fiscal 2023 of $0.1875 per common share, which equates to an annual cash dividend of $0.75 per common share. Dividends of $0.75 per common share, totaling $21 million, were declared and paid during fiscal 2023, and $21 million in dividends were also declared and paid during fiscal 2022.

Share Repurchase Program

We did not repurchase any shares of our common stock during fiscal 2023. For information regarding share repurchases during fiscal 2022, see “Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities” above in Part II of this report, incorporated by reference herein.

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.

44 / Schnitzer Steel Industries, Inc. dba Radius Recycling Form 10-K Fiscal 2023

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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, investments and acquisitions, joint ventures, debt service requirements, environmental obligations, and 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.

Contractual Obligations

We have certain contractual obligations to make future payments. The following table summarizes future obligations related to debt and leases as of August 31, 2023 (in thousands):

		Payment Due by Period
		2024				2025				2026				2027				2028				Thereafter				Totals
Contractual Obligations
Credit facilities(1)		$	—			$	—			$	—			$	230,000			$	—			$	—			$	230,000
Interest payments on credit facilities(2)		$	16,491			$	16,491			$	16,491			$	16,084			$	—			$	—			$	65,557
Other debt, including interest(3)		$	3,924			$	2,799			$	2,799			$	2,799			$	704			$	234			$	13,259
Finance leases, including interest		$	2,558			$	1,746			$	1,262			$	1,103			$	939			$	445			$	8,053
Operating leases(4)		$	23,768			$	19,391			$	15,503			$	13,546			$	10,901			$	55,434			$	138,543

 

In addition to future obligations related to debt and leases presented in the table above, we have certain material cash requirements, including but not limited to commitments for capital expenditures. See “Capital Expenditures” within “Liquidity and Capital Resources” above in this Item 7 for discussion of our planned investment in capital expenditures in fiscal 2024, a portion of which represents contractual commitments that existed as of the end of our fiscal 2023. We also had open purchase orders as of August 31, 2023 for purchases of primarily fuels and lubricants, machinery and equipment components and parts, and consumables used in our operations of approximately $76 million, nearly all of which require payment of cash in our fiscal 2024.

In the fourth quarter of fiscal 2023, we entered three interest rate swap transactions to hedge the variability in interest cash flows associated with our variable-rate loans under our credit facilities. The interest rate swaps require us to make fixed-rate payments based on a total notional amount of $150 million and an average annual rate of approximately 4.40% in exchange for the receipt of variable-rate amounts over a three-year term ending in August 2026. See Note 15 - Derivative Financial Instruments in Part II, Item 8 of this report for disclosure related to derivative instruments and hedging activities.

See Note 13 - Employee Benefits in Part II, Item 8 of this report for disclosure related to qualified and nonqualified retirement plans, which include a defined benefit pension plan, a supplemental executive retirement benefit plan, multiemployer pension plans, defined contribution plans, and a deferred compensation plan.

We maintain stand-by letters of credit to provide support for certain obligations, including workers’ compensation and performance bonds. As of August 31, 2023, we had $8 million outstanding under these arrangements.

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Critical Accounting Estimates

The preparation of financial statements in accordance with accounting principles generally accepted in the United States of America requires us to make certain judgments, estimates, and assumptions regarding uncertainties that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. An accounting estimate is deemed to be critical if it is made based on assumptions and judgments about matters that are inherently uncertain at the time the estimate is made, if different estimates reasonably could have been used, or if changes in the estimate that are reasonably likely to occur could materially impact our consolidated financial statements. Because of the uncertainty inherent in these matters, actual results could differ from the estimates we use. We are not currently aware of any reasonably likely events or circumstances that would result in materially different amounts being reported.

Our critical accounting estimates include those related to inventories, business acquisitions, long-lived assets, goodwill, environmental costs, and income taxes.

Inventories

Our inventories consist of processed and unprocessed scrap metal (ferrous, nonferrous, and mixed nonferrous recovered joint products arising from the manufacturing process), semi-finished steel products (billets), finished steel products (primarily rebar, wire rod, and merchant bar), used and salvaged vehicles, and supplies. Inventories are stated at the lower of cost and net realizable value. We consider estimated future selling prices when determining the estimated net realizable value of 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 net realizable value of quantities on hand that will be shipped under these contracts and sales orders.

The accounting process we use to record ferrous scrap metal quantities relies on significant estimates. With respect to estimating the quantities of unprocessed ferrous scrap metal inventory that are moved into production, we rely on weighed quantities of the processed ferrous material, adjusted for estimated metal recoveries and yields that are based on historical trends and other judgments by management. Actual recoveries and yields can vary depending on product quality, moisture content, and the source of the unprocessed metal. The Company’s estimates are intended to reasonably reflect the quantities of unprocessed ferrous scrap metal that are used in the production of processed ferrous metal. To assist in validating the reasonableness of these estimates, we periodically review shrink factors and perform monthly physical inventories. Due to the inherent nature of our scrap metal inventories, including variations in product density, holding period, and production processes utilized to manufacture the products, physical inventories will not necessarily detect all variances for scrap metal inventory such that estimates of quantities are required. To mitigate this risk, we further adjust our ferrous physical inventories when the volume of a commodity is low and a physical inventory count is deemed to more accurately estimate the remaining volume.

Goodwill

We evaluate 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”).

When testing goodwill for impairment, we have the option to first assess qualitative factors to determine whether the existence of events or circumstances leads to a determination that it is more-likely-than-not that the estimated fair value of a reporting unit is less than its carrying amount. If we elect to perform a qualitative assessment and determine that an impairment is more-likely-than-not, we are then required to perform the quantitative impairment test, otherwise no further analysis is required. We also may elect not to perform the qualitative assessment and, instead, proceed directly to the quantitative impairment test. When performing the quantitative impairment test, we apply a one-step quantitative test and record the amount of goodwill impairment as the excess of a reporting unit’s carrying amount over its fair value, not to exceed the total amount of goodwill allocated to that reporting unit.

We estimate the fair value of a reporting unit using an income approach based on the present value of expected future cash flows utilizing a market-based weighted average cost of capital (“WACC”) determined separately for the reporting unit. To estimate the present value of the cash flows that extend beyond the final year in the discounted cash flow analysis, we employ a terminal value technique, whereby we use estimated operating cash flows minus capital expenditures, adjust for changes in working capital requirements in the final year of the analysis, and then discount these estimated cash flows by the WACC to establish the terminal value.

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The determination of fair value using the income approach requires judgment and involves the use of estimates and assumptions about expected future cash flows derived from internal forecasts and the impact of market conditions on those assumptions. Assumptions primarily include revenue growth rates driven by future ferrous and nonferrous commodity price and sales volume expectations, gross margins, selling, general and administrative expense relative to total revenues, capital expenditures, working capital requirements, discount rate (WACC), tax rate, terminal growth rate, benefits associated with a taxable transaction, and synergistic benefits available to market participants.

We also use a market approach based on earnings multiple data and our Company’s market capitalization to corroborate our reporting units’ valuations. We reconcile the Company’s market capitalization to the aggregated estimated fair value of all reporting units, including consideration of a control premium representing the estimated amount a market participant would pay to obtain a controlling interest in the Company.

In the fourth quarter of fiscal 2023, we performed the annual goodwill impairment test as of July 1, 2023. As of the testing date, the balance of our goodwill was $269 million, which was allocated among four reporting units. All of the approximately $13 million of goodwill carried by one of the reporting units, a recycling services operation, related to the business acquisition that was completed in fiscal 2023. We elected to perform the qualitative assessment for this reporting unit and concluded that it was not more likely than not that the fair value of the reporting unit was less than its carrying value. The remaining $256 million of goodwill as of the testing date was allocated among three reporting units, which consist of two regional metals recycling operations and our network of auto parts stores. Based primarily on the respective financial and operational performance of each of these three reporting units and the Company overall, as well as the year-over-year decrease in our market capitalization as of the testing date, we elected to not perform the qualitative assessment and to proceed directly to the quantitative impairment test for goodwill allocated to the three reporting units to identify potential impairment and measure an impairment loss, if necessary.

The three reporting units for which we performed the quantitative assessment consist of two regional metals recycling operations and our network of auto parts stores. For one of the metals recycling reporting units and the autos reporting unit subject to the quantitative impairment test, the estimated fair value of the reporting unit exceeded its carrying amount by approximately 24% and 33%, respectively, as of July 1, 2023. For the other metals recycling reporting unit, the estimated fair value of the reporting unit was less than its carrying amount, resulting in a partial impairment of goodwill of $39 million. The projections used in the income approach for the metals recycling and autos reporting units took into consideration, as applicable, the impact of recent and current market conditions for ferrous and nonferrous recycled metals and retail auto parts, the cost of obtaining adequate supply flows of scrap metal including end-of-life vehicles, and recent trends in production and other operating costs. The projections assumed a recovery of operating margins from the levels experienced around the time of the July 1, 2023 measurement date over a multi-year period. The WACC rate used in the income approach valuation for the two metals recycling reporting units was 13.68%, and the WACC rate used for the autos reporting unit was 13.62%. The terminal growth rate used in the income approach valuation for all three reporting units was 2%. A reporting-unit-specific risk premium is embedded in the WACC to reflect the perceived level of uncertainty inherent in each reporting unit's expected future cash flows. For the metals recycling and autos reporting units with no goodwill impairment, assuming all other components of the fair value estimates were held constant, an increase in the WACC of 100 basis points would have decreased the indicated headroom to 13% and 21%, respectively. For the metals recycling reporting unit with partial goodwill impairment, assuming all other components of the fair value estimate were held constant, an increase in the WACC of 100 basis points would have resulted in a material amount of additional impairment of the goodwill allocated to the reporting unit. See Note 8 - Goodwill and Other Intangible Assets, net in the Notes to the Consolidated Financial Statements in Part II, Item 8 of this report for further detail.

As a result of the inherent uncertainty associated with forming the estimates described above, actual results could differ from those estimates. Future events and changing market conditions may impact our assumptions as to future revenue and operating margin growth, WACC, and other factors that may result in changes in our estimates of the reporting units’ fair value. Although we believe the assumptions used in testing our reporting units’ goodwill for impairment are reasonable, a lack of recovery or further deterioration in market conditions for recycled metals from current levels, a sustained trend of weaker than anticipated financial performance for the reporting units with allocated goodwill, including the pace and extent of operating margin and volume recovery, a lack of recovery or further decline in our share price from current levels for a sustained period, or an increase in the market-based WACC, among other factors, could significantly impact our impairment analysis and may result in future goodwill impairment charges that, if incurred, could have a material adverse effect on our financial condition and results of operations.

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 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, we may update the value allocated to the assets acquired and liabilities assumed, and the resulting goodwill balance, based on information

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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 us 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. See Note 7 - Business Acquisitions in the Notes to the Consolidated Financial Statements in Part II, Item 8 of this report for disclosure of our acquisition of the Columbus Recycling business on October 1, 2021, our acquisition of the Encore Recycling business on April 29, 2022, and our acquisition of the ScrapSource business on November 18, 2022.

Long-Lived Assets

We test long-lived tangible and intangible assets for impairment at the asset group level, which is determined based on the lowest level for which identifiable cash flows are largely independent of the cash flows of other groups of assets and liabilities. We test our asset groups for impairment when certain triggering events or changes in circumstances indicate that the carrying value of the asset group may be impaired. If the carrying value of the asset group is not recoverable because it exceeds the estimate of future undiscounted cash flows from the use and eventual disposition of the asset group, an impairment loss is recognized by the amount the carrying value exceeds its fair value, if any. The impairment loss is allocated to the long-lived assets of the group on a pro rata basis using the relative carrying amounts of those assets, except that the loss allocated to an individual long-lived asset of the group shall not reduce the carrying amount of that asset below its fair value. Fair value is determined using one or more of the income, market, or cost approaches, depending on the nature of the asset group. Determination of fair value is considered a critical accounting estimate. In fiscal 2023, we did not identify any triggering events or changes in circumstances indicating that the carrying value of a material asset group may be impaired.

Environmental Costs

We operate in industries that inherently possess environmental risks. To manage these risks, we employ both our own environmental staff and outside consultants. Environmental management and finance personnel meet regularly to discuss environmental risks. We estimate future costs for known environmental remediation requirements and accrue for them on an undiscounted basis when it is probable that we have incurred a liability and the related costs can be reasonably estimated but the timing of incurring the estimated costs is unknown. The regulatory and government management of these projects is complex, which is one of the primary factors that make it difficult to assess the cost of potential and future remediation. When only a wide range of estimated amounts can be reasonably established and no other amount within the range is better than any other, the low end of the range is recorded in the financial statements. If further developments or resolution of an environmental matter result in facts and circumstances that are significantly different than the assumptions used to develop these liabilities, the accrual for environmental remediation could be materially understated or overstated. Adjustments to these liabilities are made when additional information becomes available that affects the estimated costs to study or remediate any environmental issues or when expenditures for which accruals are established are made. The factors we consider in the recognition and measurement of environmental liabilities include:

Our accrued environmental liabilities as of August 31, 2023 included $5 million related to the Portland Harbor Superfund site. Because the final remedial actions have not yet been designed and there has not been a final determination of the amount of natural resource damages or of the allocation among the potentially responsible parties of costs of the investigations, or remedial action costs, we believe it is not possible to reasonably estimate the amount or range of costs which we are likely or which it is reasonably possible that we may incur in connection with Portland Harbor, although such costs could be material to our financial position, results of operations, cash flows, and liquidity. Therefore, no additional amounts have been accrued. Further, we have been notified that we are or may be a potentially responsible party at sites other than Portland Harbor which are currently or formerly owned or operated by us or at other sites where we may have responsibility for such costs due to past disposal or other activities. See “Contingencies – Environmental” in Note 10 - Commitments and Contingencies in the Notes to the Consolidated Financial Statements in Part II, Item 8 of this report.

48 / Schnitzer Steel Industries, Inc. dba Radius Recycling Form 10-K Fiscal 2023

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Income Taxes

Valuation Allowances

We assess the realizability of our deferred tax 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. We consider all negative and positive evidence, including the weight of the evidence, to determine if valuation allowances against deferred tax assets are required. Due to the significant judgment involved, realizability of our deferred tax assets is considered a critical accounting estimate. We continue to maintain valuation allowances against certain state and Canadian deferred tax assets.

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 Note 3 - Recent Accounting Pronouncements in the Notes to the Consolidated Financial Statements in Part II, Item 8 of this report.

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 measure of our leverage, as cash and cash equivalents can be used, among other things, to repay indebtedness.

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

		August 31, 2023				August 31, 2022
Short-term borrowings		$	5,813			$	6,041
Long-term debt, net of current maturities			243,579				242,521
Total debt			249,392				248,562
Less cash and cash equivalents			6,032				43,803
Total debt, net of cash		$	243,360			$	204,759

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 for investors as a meaningful presentation of the change in debt.

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

		Fiscal 2023				Fiscal 2022				Fiscal 2021
Borrowings from long-term debt		$	625,228			$	1,055,106			$	546,706
Repayments of long-term debt			(628,020	)			(889,127	)			(578,030	)
Net (repayments) borrowings of debt		$	(2,792	)		$	165,979			$	(31,324	)

 

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Adjusted EBITDA, adjusted selling, general, and administrative expense, adjusted income from continuing operations attributable to Radius shareholders, and adjusted diluted earnings per share from continuing operations attributable to Radius shareholders

Management believes that providing these non-GAAP financial measures adds a meaningful presentation of our results from business operations excluding adjustments for goodwill impairment charges, other asset impairment charges (net of recoveries), legacy environmental matters (net of recoveries), restructuring charges and other exit-related activities, business development costs not related to ongoing operations including pre-acquisition expenses, charges related to non-ordinary course legal settlements, and the income tax 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.

Following are reconciliations of net (loss) income to adjusted EBITDA, and adjusted selling, general, and administrative expense (in thousands):

		Year Ended August 31,
		2023				2022				2021
Reconciliation of adjusted EBITDA:
Net (loss) income		$	(25,438	)		$	171,996			$	169,975
Loss from discontinued operations, net of tax			109				83				79
Interest expense			18,589				8,538				5,285
Income tax (benefit) expense			(2,747	)			44,597				37,935
Depreciation and amortization			89,760				75,053				58,599
Goodwill impairment charges			39,270				—				—
Other asset impairment charges, net(1)			11,252				1,570				—
Charges for legacy environmental matters, net(2)			10,370				7,518				13,773
Restructuring charges and other exit-related activities			2,730				77				1,008
Business development costs			432				2,693				2,155
Charges related to legal settlements(3)			—				590				400
Adjusted EBITDA		$	144,327			$	312,715			$	289,209
Selling, general and administrative expense:
As reported		$	265,929			$	263,257			$	242,463
Charges for legacy environmental matters, net(2)			(10,370	)			(7,518	)			(13,773	)
Business development costs			(432	)			(2,693	)			(2,155	)
Adjusted		$	255,127			$	253,046			$	226,535

 

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Following are reconciliations of adjusted income (loss) from continuing operations attributable to Radius shareholders and adjusted diluted earnings (loss) per share from continuing operations attributable to Radius shareholders (in thousands, except per share data):

		Year Ended August 31,
		2023				2022				2021
Income (loss) from continuing operations attributable to Radius shareholders:
As reported		$	(25,682	)		$	168,883			$	165,191
Goodwill impairment charges			39,270				—				—
Other asset impairment charges, net(1)			11,252				1,570				—
Charges for legacy environmental matters, net(2)			10,370				7,518				13,773
Restructuring charges and other exit-related activities			2,730				77				1,008
Business development costs			432				2,693				2,155
Charges related to legal settlements(3)			—				590				400
Income tax benefit allocated to adjustments(4)			(14,080	)			(1,992	)			(3,712	)
Adjusted		$	24,292			$	179,339			$	178,815
Diluted earnings (loss) per share from continuing operations attributable to Radius shareholders:
As reported		$	(0.92	)		$	5.72			$	5.66
Goodwill impairment charges, per share			1.40				—				—
Other asset impairment charges, net, per share(1)			0.40				0.05				—
Charges for legacy environmental matters, net, per share(2)			0.37				0.25				0.47
Restructuring charges and other exit-related activities, per share			0.10				—				0.03
Business development costs, per share			0.02				0.09				0.07
Charges related to legal settlements, per share(3)			—				0.02				0.01
Income tax benefit allocated to adjustments, per share(4)			(0.50	)			(0.07	)			(0.13	)
Effect of dilutive shares, per share(5)			(0.02	)			—				—
Adjusted(6)		$	0.85			$	6.07			$	6.13

 

51 / Schnitzer Steel Industries, Inc. dba Radius Recycling Form 10-K Fiscal 2023

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ITEM 7A. 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 ferrous and nonferrous metals, including recycled metal, finished steel products, auto bodies, and other commodities. The timing and magnitude of industry cycles are difficult to predict and are impacted by general economic conditions. We respond to increases and decreases in forward selling prices by adjusting purchase prices. 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 estimates of future selling prices. For our uncommitted inventories, a 10% decrease in the selling price of inventory would not have had a material NRV impact as of August 31, 2023 and 2022.

Interest Rate Risk

We are exposed to market risk associated with changes in interest rates related to our debt obligations. Our revolving credit facility is subject to variable interest rates and therefore have exposure to changes in interest rates. We may at times use derivative instruments to manage some portion of this risk. Our interest rate swap derivatives are agreements with independent counterparties that provide for payments based on a notional amount and are designed to hedge the variability in cash flows resulting from variable interest rates for a portion of our credit facilities. If market interest rates had changed 10% from actual interest rate levels in fiscal 2023 or 2022, the effect on our interest expense and net income would not have been material.

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 recycled metal and finished steel products and to make financial settlements of these obligations, or to provide sufficient quantities of recycled 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 recycled ferrous 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. We have experienced fluctuations 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 in cases of 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 recycled ferrous 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, or due to country-specific currency limitations, our customers may not be able to obtain letters of credit for the full sales value of the inventory to be shipped.

As of August 31, 2023 and 2022, 38% and 24%, respectively, of our accounts receivable balance were covered by letters of credit, and the amount of past due receivables was not material.

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. As of August 31, 2023 and 2022, we did not have any derivative contracts to manage our foreign currency exchange rate risk.

 

52 / Schnitzer Steel Industries, Inc. dba Radius Recycling Form 10-K Fiscal 2023

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ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

Management’s Annual Report on Internal Control Over Financial Reporting

Management of the Company is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Securities Exchange Act of 1934. The Company’s internal control over financial reporting is a process designed by, or under the supervision of, the Company’s principal executive and principal financial officers and effected by the Company’s Board of Directors, management, and other personnel to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles.

The Company’s internal control over financial reporting includes policies and procedures that relate to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of assets of the Company; provide reasonable assurance that transactions are recorded as necessary to permit the preparation of the Company’s consolidated financial statements in accordance with generally accepted accounting principles and that the receipts and expenditures of the Company are being made only in accordance with authorization of the Company’s management and directors; and provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the Company’s assets that could have a material effect on the Company’s consolidated financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projection of any evaluation of effectiveness to future periods is subject to the risk that controls may become inadequate because of changes in conditions or that the degree of compliance with the policies and procedures may deteriorate.

Management of the Company assessed the effectiveness of the Company’s internal control over financial reporting using the criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”). Based on its assessment, management determined that the Company’s internal control over financial reporting was effective as of August 31, 2023. As permitted by SEC guidance for newly acquired businesses, management's assessment of the Company's internal control over financial reporting did not include an assessment of internal control over financial reporting of the ScrapSource business acquired by the Company on November 18, 2022. The ScrapSource business represented less than 2% of consolidated total assets and less than 1% of consolidated total revenues as of and for the year ended August 31, 2023.

PricewaterhouseCoopers LLP, the independent registered public accounting firm that audited the Company’s consolidated financial statements included in this Annual Report, also audited the effectiveness of the Company’s internal control over financial reporting as of August 31, 2023, as stated in their report included herein.

 

Tamara L. Lundgren		Stefano R. Gaggini
Chairman, President and Chief Executive Officer		Senior Vice President and Chief Financial Officer
October 25, 2023		October 25, 2023

 

 

 

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Report of Independent Registered Public Accounting Firm

 

To the Board of Directors and Shareholders of Schnitzer Steel Industries, Inc. dba Radius Recycling

 

Opinions on the Financial Statements and Internal Control over Financial Reporting

 

We have audited the accompanying consolidated balance sheets of Schnitzer Steel Industries, Inc. dba Radius Recycling and its subsidiaries (the “Company”) as of August 31, 2023 and 2022, and the related consolidated statements of operations, of comprehensive (loss) income, of equity and of cash flows for each of the three years in the period ended August 31, 2023, including the related notes and financial statement schedule listed in the index appearing under Item 15(a)(2) (collectively referred to as the “consolidated financial statements”). We also have audited the Company's internal control over financial reporting as of August 31, 2023, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).

 

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of August 31, 2023 and 2022, and the results of its operations and its cash flows for each of the three years in the period ended August 31, 2023 in conformity with accounting principles generally accepted in the United States of America. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of August 31, 2023, based on criteria established in Internal Control - Integrated Framework(2013) issued by the COSO.

 

Basis for Opinions

 

The Company's management is responsible for these consolidated financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Annual Report on Internal Control Over Financial Reporting. Our responsibility is to express opinions on the Company’s consolidated financial statements and on the Company's internal control over financial reporting based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

 

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud, and whether effective internal control over financial reporting was maintained in all material respects.

 

Our audits of the consolidated financial statements included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.

 

As described in Management’s Annual Report on Internal Control Over Financial Reporting, management has excluded the ScrapSource business from its assessment of internal control over financial reporting as of August 31, 2023 because it was acquired by the Company in a purchase business combination during fiscal 2023. We have also excluded the ScrapSource business from our audit of internal control over financial reporting. The ScrapSource business is a wholly-owned subsidiary whose total assets and total revenues excluded from management’s assessment and our audit of internal control over financial reporting represent approximately 2% and 1%, respectively, of the related consolidated financial statement amounts as of and for the year ended August 31, 2023.

 

Definition and Limitations of Internal Control over Financial Reporting

 

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in

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accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

 

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

 

Critical Audit Matters

 

The critical audit matters communicated below are matters arising from the current period audit of the consolidated financial statements that were communicated or required to be communicated to the audit committee and that (i) relate to accounts or disclosures that are material to the consolidated financial statements and (ii) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.

 

Goodwill Impairment Assessment – One of the Metals Recycling Reporting Units

 

As described in Notes 2 and 8 to the consolidated financial statements, management 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. Management may elect not to perform the qualitative assessment and, instead, proceed directly to the quantitative impairment test. The quantitative impairment test entails estimating the fair value of each reporting unit with allocated goodwill and comparing it to the reporting unit’s carrying amount. Management records the amount of goodwill impairment as the excess of a reporting unit’s carrying amount over its fair value, if any, not to exceed the total amount of goodwill allocated to that reporting unit. Management estimated the fair value of the reporting units subject to the quantitative impairment test as of July 1, 2023 using an income approach based on the present value of expected future cash flows, including terminal value, utilizing a market-based weighted average cost of capital (WACC) determined separately for each reporting unit. The determination of fair value under this income approach involves the use of estimates and assumptions, including revenue growth rates driven by future ferrous and nonferrous commodity price and sales volume expectations, gross margins, selling, general, and administrative expense relative to total revenues, capital expenditures, working capital requirements, discount rate (WACC), tax rate, terminal growth rate, benefits associated with a taxable transaction, and synergistic benefits available to market participants. For one of the metals recycling reporting units subject to the quantitative impairment test, the estimated fair value of the reporting unit was less than its carrying amount, resulting in a partial impairment of goodwill of $39 million in the year ended August 31, 2023. The Company’s goodwill balance was $229 million as of August 31, 2023, which includes goodwill related to one of the metals recycling reporting units subject to a quantitative impairment test as of July 1, 2023.

 

The principal considerations for our determination that performing procedures relating to the goodwill impairment assessment of one of the metals recycling reporting units is a critical audit matter are (i) the significant judgment by management when developing the fair value estimate of the reporting unit; (ii) a high degree of auditor judgment, subjectivity, and effort in performing procedures and evaluating management’s significant assumptions related to the future ferrous commodity price expectations and the WACC; and (iii) the audit effort involved the use of professionals with specialized skill and knowledge.

 

Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the consolidated financial statements. These procedures included testing the effectiveness of controls relating to management’s goodwill impairment assessment, including controls over the valuation of the reporting units subject to the quantitative impairment test. These procedures also included, among others, (i) testing management’s process for developing the fair value estimate of one of the metals recycling reporting units; (ii) evaluating the appropriateness of the income approach used by management; (iii) testing the completeness and accuracy of underlying data used in the income approach; and (iv) evaluating the significant assumptions used by management related to the future ferrous commodity price expectations and the WACC. Evaluating management’s assumption related to the future ferrous commodity price expectations involved evaluating whether the assumption used by management was reasonable considering (i) the current and past performance of one of the metals recycling reporting units; (ii) the consistency with external market and industry data; and (iii) whether the assumptions were consistent with evidence obtained in other areas of the audit. Professionals with specialized skill and knowledge were used to assist in evaluating (i) the appropriateness of the income approach and (ii) the reasonableness of the WACC assumption.

 

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Volume of Ferrous Metal Inventory

 

As described in Notes 2 and 4 to the consolidated financial statements, the Company’s processed and unprocessed scrap metal inventory was $144 million as of August 31, 2023, of which processed and unprocessed ferrous metal inventory represents a significant portion. The accounting process the Company uses to record ferrous scrap metal quantities relies on significant estimates. With respect to estimating the quantities of unprocessed ferrous scrap metal inventory that are moved into production, management relies on weighed quantities of the processed ferrous material, adjusted for estimated metal recoveries and yields that are based on historical trends and other judgments by management. Actual recoveries and yields can vary depending on product quality, moisture content, and the source of the unprocessed metal. The Company’s estimates are intended to reasonably reflect the quantities of unprocessed ferrous scrap metal that are used in the production of processed ferrous metal. To assist in validating the reasonableness of these estimates, management periodically reviews shrink factors and performs monthly physical inventories. Due to the inherent nature of the Company’s scrap metal inventories, including variations in product density, holding period, and production processes utilized to manufacture the products, physical inventories will not necessarily detect all variances for scrap metal inventory such that estimates of quantities are required. To mitigate this risk, the Company further adjusts its ferrous physical inventories when the volume of a commodity is low and a physical inventory count is deemed to more accurately estimate the remaining volume.

 

The principal considerations for our determination that performing procedures relating to the volume of ferrous metal inventory is a critical audit matter are a high degree of auditor effort in performing procedures and evaluating audit evidence related to the ferrous metal inventory volumes.

 

Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the consolidated financial statements. These procedures included testing the effectiveness of controls relating to the ferrous metal inventory volumes, including the ferrous metal recoveries and yields. These procedures also included, among others, (i) testing inventory quantities received; (ii) assessing the reasonableness of management’s estimated yields by comparing them to actual yields of ultimate ferrous metal recoveries; (iii) testing ferrous metal inventory shipments; (iv) observing certain of management’s physical inventory counts; (v) assessing rollforward activity between the time of the inventory counts observed and year-end; and (vi) considering whether evidence obtained in other areas of the audit is consistent with management’s estimates related to ferrous metal inventory volumes.

 

 

 

/s/ PricewaterhouseCoopers LLP

Portland, Oregon

October 25, 2023

 

We have served as the Company’s auditor since 1976, which includes periods before the Company became subject to SEC reporting requirements.

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SCHNITZER STEEL INDUSTRIES, INC. dba RADIUS RECYCLING

CONSOLIDATED BALANCE SHEETS

(In thousands, except per share amounts)

(Currency – U.S. Dollar)

 

		August 31,
		2023				2022
Assets
Current assets:
Cash and cash equivalents		$	6,032			$	43,803
Accounts receivable, net			210,442				237,654
Inventories			278,642				315,189
Refundable income taxes			3,245				1,696
Prepaid expenses and other current assets			51,979				73,044
Total current assets			550,340				671,386
Property, plant and equipment, net			706,805				664,120
Operating lease right-of-use assets			115,686				122,413
Investments in joint ventures			10,750				12,841
Goodwill			229,419				255,198
Intangibles, net			32,540				26,155
Deferred income taxes			22,713				24,598
Other assets			47,696				49,886
Total assets		$	1,715,949			$	1,826,597
Liabilities and Equity
Current liabilities:
Short-term borrowings		$	5,813			$	6,041
Accounts payable			209,423				217,689
Accrued payroll and related liabilities			35,144				59,702
Environmental liabilities			13,743				13,031
Operating lease liabilities			19,835				21,660
Accrued income taxes			358				3,856
Other accrued liabilities			39,614				59,594
Total current liabilities			323,930				381,573
Deferred income taxes			58,617				63,328
Long-term debt, net of current maturities			243,579				242,521
Environmental liabilities, net of current portion			53,034				55,469
Operating lease liabilities, net of current maturities			96,086				101,651
Other long-term liabilities			29,044				23,581
Total liabilities			804,290				868,123
Commitments and contingencies (Note 10)
Radius Recycling (“Radius”) 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,    27,312 and 26,747 shares issued and outstanding			27,312				26,747
Class B common stock – 25,000 shares $1.00 par value authorized,    200 and 200 shares issued and outstanding			200				200
Additional paid-in capital			26,035				22,975
Retained earnings			894,316				941,146
Accumulated other comprehensive loss			(39,683	)			(37,089	)
Total Radius shareholders’ equity			908,180				953,979
Noncontrolling interests			3,479				4,495
Total equity			911,659				958,474
Total liabilities and equity		$	1,715,949			$	1,826,597

See Notes to the Consolidated Financial Statements.

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SCHNITZER STEEL INDUSTRIES, INC. dba RADIUS RECYCLING

CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except per share amounts)

(Currency – U.S. Dollar)

 

		Year Ended August 31,
		2023				2022				2021
Revenues		$	2,882,224			$	3,485,815			$	2,758,551
Operating expense:
Cost of goods sold			2,574,513				2,997,745				2,305,357
Selling, general and administrative			265,929				263,257				242,463
(Income) from joint ventures			(2,090	)			(2,740	)			(4,006	)
Goodwill impairment charges			39,270				—				—
Other asset impairment charges, net			5,797				1,570				—
Restructuring charges and other exit-related activities			2,730				77				1,008
Operating (loss) income			(3,925	)			225,906				213,729
Interest expense			(18,589	)			(8,538	)			(5,285	)
Other loss, net			(5,562	)			(692	)			(455	)
(Loss) income from continuing operations before income taxes			(28,076	)			216,676				207,989
Income tax benefit (expense)			2,747				(44,597	)			(37,935	)
(Loss) income from continuing operations			(25,329	)			172,079				170,054
Loss from discontinued operations, net of tax			(109	)			(83	)			(79	)
Net (loss) income			(25,438	)			171,996				169,975
Net income attributable to noncontrolling interests			(353	)			(3,196	)			(4,863	)
Net (loss) income attributable to Radius shareholders		$	(25,791	)		$	168,800			$	165,112
Net (loss) income per share attributable to Radius shareholders:
Basic:
(Loss) income per share from continuing operations		$	(0.92	)		$	6.01			$	5.90
Net (loss) income per share		$	(0.92	)		$	6.01			$	5.90
Diluted:
(Loss) income per share from continuing operations		$	(0.92	)		$	5.72			$	5.66
Net (loss) income per share		$	(0.92	)		$	5.72			$	5.66
Weighted average number of common shares:
Basic			28,008				28,084				27,982
Diluted			28,008				29,529				29,193

See Notes to the Consolidated Financial Statements.

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SCHNITZER STEEL INDUSTRIES, INC. dba RADIUS RECYCLING

CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS) INCOME

(In thousands)

(Currency – U.S. Dollar)

 

		Year Ended August 31,
		2023				2022				2021
Net (loss) income		$	(25,438	)		$	171,996			$	169,975
Other comprehensive (loss) income, net of tax:
Foreign currency translation adjustments			(2,661	)			(3,070	)			2,575
Cash flow hedges, net			(304	)			—				—
Pension obligations, net			371				535				(258	)
Total other comprehensive (loss) income, net of tax			(2,594	)			(2,535	)			2,317
Comprehensive (loss) income			(28,032	)			169,461				172,292
Less comprehensive income attributable to noncontrolling interests			(353	)			(3,196	)			(4,863	)
Comprehensive (loss) income attributable to Radius shareholders		$	(28,385	)		$	166,265			$	167,429

See Notes to the Consolidated Financial Statements.

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SCHNITZER STEEL INDUSTRIES, INC. dba RADIUS RECYCLING

CONSOLIDATED STATEMENTS OF EQUITY

(In thousands, except per share amounts)

(Currency – U.S. Dollar)

 

		Common Stock																Additional								Accumulated Other				Total Radius
		Class A								Class B								Paid-in				Retained				Comprehensive				Shareholders’				Noncontrolling				Total
		Shares				Amount				Shares				Amount				Capital				Earnings				Loss				Equity				Interests				Equity
Balance as of August 31, 2020			26,899			$	26,899				200			$	200			$	36,616			$	649,863			$	(36,871	)		$	676,707			$	3,729			$	680,436
Net income			—				—				—				—				—				165,112				—				165,112				4,863				169,975
Other comprehensive income, net of tax			—				—				—				—				—				—				2,317				2,317				—				2,317
Distributions to noncontrolling interests			—				—				—				—				—				—				—				—				(4,577	)			(4,577	)
Issuance of restricted stock			657				657				—				—				(657	)			—				—				—				—				—
Restricted stock withheld for taxes			(224	)			(224	)			—				—				(5,414	)			—				—				(5,638	)			—				(5,638	)
Share-based compensation cost			—				—				—				—				18,529				—				—				18,529				—				18,529
Dividends ($0.75 per common share)			—				—				—				—				—				(21,263	)			—				(21,263	)			—				(21,263	)
Balance as of August 31, 2021			27,332				27,332				200				200				49,074				793,712				(34,554	)			835,764				4,015				839,779
Net income			—				—				—				—				—				168,800				—				168,800				3,196				171,996
Other comprehensive loss, net of tax			—				—				—				—				—				—				(2,535	)			(2,535	)			—				(2,535	)
Distributions to noncontrolling interests			—				—				—				—				—				—				—				—				(2,716	)			(2,716	)
Share repurchases			(944	)			(944	)			—				—				(33,304	)			—				—				(34,248	)			—				(34,248	)
Issuance of restricted stock			568				568				—				—				(568	)			—				—				—				—				—
Restricted stock withheld for taxes			(209	)			(209	)			—				—				(10,848	)			—				—				(11,057	)			—				(11,057	)
Share-based compensation cost			—				—				—				—				18,621				—				—				18,621				—				18,621
Dividends ($0.75 per common share)			—				—				—				—				—				(21,366	)			—				(21,366	)			—				(21,366	)
Balance as of August 31, 2022			26,747				26,747				200				200				22,975				941,146				(37,089	)			953,979				4,495				958,474
Net (loss) income			—				—				—				—				—				(25,791	)			—				(25,791	)			353				(25,438	)
Other comprehensive loss, net of tax			—				—				—				—				—				—				(2,594	)			(2,594	)			—				(2,594	)
Distributions to noncontrolling interests			—				—				—				—				—				—				—				—				(1,369	)			(1,369	)
Issuance of restricted stock			847				847				—				—				(847	)			—				—				—				—				—
Restricted stock withheld for taxes			(282	)			(282	)			—				—				(7,347	)			—				—				(7,629	)			—				(7,629	)
Share-based compensation cost			—				—				—				—				11,254				—				—				11,254				—				11,254
Dividends ($0.75 per common share)			—				—				—				—				—				(21,039	)			—				(21,039	)			—				(21,039	)
Balance as of August 31, 2023			27,312			$	27,312				200			$	200			$	26,035			$	894,316			$	(39,683	)		$	908,180			$	3,479			$	911,659

See Notes to the Consolidated Financial Statements.

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SCHNITZER STEEL INDUSTRIES, INC. dba RADIUS RECYCLING

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(Currency – U.S. Dollar)

 

		Year Ended August 31,
		2023				2022				2021
Cash flows from operating activities:
Net (loss) income		$	(25,438	)		$	171,996			$	169,975
Adjustments to reconcile net (loss) income to cash provided by operating activities:
Goodwill impairment charges			39,270				—				—
Other asset impairment charges, net			11,252				1,570				—
Exit-related asset impairments			254				—				—
Depreciation and amortization			89,760				75,053				58,599
Inventory write-downs			575				3,199				—
Deferred income taxes			(3,934	)			25,052				6,884
Undistributed equity in earnings of joint ventures			(2,090	)			(2,740	)			(4,006	)
Share-based compensation expense			11,186				18,517				18,213
(Gain) loss on disposal of assets, net			(324	)			824				717
Unrealized foreign exchange loss, net			47				78				127
Credit loss, net			311				40				—
Changes in assets and liabilities, net of acquisitions:
Accounts receivable			11,637				633				(84,086	)
Inventories			48,039				(37,232	)			(88,622	)
Income taxes			(3,548	)			2,119				22,789
Prepaid expenses and other current assets			(3,359	)			(19,117	)			(15,674	)
Other long-term assets			(4,594	)			(994	)			(5,402	)
Operating lease assets and liabilities			(696	)			(2,198	)			(813	)
Accounts payable			5,458				20,578				64,956
Accrued payroll and related liabilities			(24,334	)			(13,866	)			27,824
Other accrued liabilities			(13,782	)			4,798				613
Environmental liabilities			(1,641	)			(14,866	)			12,895
Other long-term liabilities			3,313				1,132				3,825
Distributed equity in earnings of joint ventures			2,000				3,100				1,250
Net cash provided by operating activities			139,362				237,676				190,064
Cash flows from investing activities:
Capital expenditures			(129,516	)			(150,121	)			(118,866	)
Acquisitions, net of acquired cash			(26,902	)			(179,721	)			—
Proceeds from insurance and sale of assets			12,449				18,776				587
Purchase of equity investment			—				(5,000	)			—
Deposit on land option			—				(80	)			630
Net cash used in investing activities			(143,969	)			(316,146	)			(117,649	)
Cash flows from financing activities:
Borrowings from long-term debt			625,228				1,055,106				546,706
Repayments of long-term debt			(628,020	)			(889,127	)			(578,030	)
Payment of debt issuance costs			(156	)			(2,093	)			(23	)
Repurchase of Class A common stock			—				(34,248	)			—
Taxes paid related to net share settlement of share-based payment awards			(7,629	)			(11,057	)			(5,638	)
Distributions to noncontrolling interests			(1,369	)			(2,716	)			(4,577	)
Dividends paid			(21,186	)			(21,291	)			(21,259	)
Net cash (used in) provided by financing activities			(33,132	)			94,574				(62,821	)
Effect of exchange rate changes on cash			(32	)			(119	)			337
Net (decrease) increase in cash and cash equivalents			(37,771	)			15,985				9,931
Cash and cash equivalents as of beginning of year			43,803				27,818				17,887
Cash and cash equivalents as of end of year		$	6,032			$	43,803			$	27,818

See Notes to the Consolidated Financial Statements.

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SCHNITZER STEEL INDUSTRIES, INC. dba RADIUS RECYCLING

CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)

(In thousands)

(Currency – U.S. Dollar)

 

		Year Ended August 31,
		2023				2022				2021
SUPPLEMENTAL DISCLOSURES:
Cash paid during the year for:
Interest		$	16,597			$	4,712			$	2,669
Income taxes, net		$	4,702			$	17,309			$	8,244
Schedule of noncash investing and financing transactions:
Purchases of property, plant and equipment included in liabilities		$	17,117			$	38,136			$	29,337

See Notes to the Consolidated Financial Statements.

 

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ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

None.

ITEM 9A. CONTROLS AND PROCEDURES

Disclosure Controls and Procedures

The Company maintains 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 required to be disclosed by the Company in the reports that it files or submits 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. The Company’s 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 the Company's 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 ScrapSource business, which the Company acquired on November 18, 2022, from its evaluation of the effectiveness of the Company’s disclosure controls and procedures. The ScrapSource business represented less than 2% of consolidated total assets and less than 1% of consolidated total revenues as of and for the year ended August 31, 2023. Based on this evaluation, the Company’s Chief Executive Officer and Chief Financial Officer have concluded that, as of August 31, 2023, the Company’s disclosure controls and procedures were effective at the reasonable assurance level.

Management’s Annual Report on Internal Control Over Financial Reporting

Management’s Annual Report on Internal Control Over Financial Reporting is presented within Part II, Item 8 of this report and is incorporated herein by reference.

Changes in Internal Control Over Financial Reporting

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

ITEM 9B. OTHER INFORMATION

During the three months ended August 31, 2023, none of the Company's directors or officers (as defined in Rule 16a-1(f) of the Securities Exchange Act of 1934, as amended), adopted, terminated, or modified a Rule 10b5-1 trading arrangement or non-Rule 10b5-1 trading arrangement (as such terms are defined in Item 408 of Regulation S-K of the Securities Act of 1933, as amended).

ITEM 9C. DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS

Not applicable.

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PART III

ITEM 10. DIRECTORS, EXECUTIVE OFFICERS, AND CORPORATE GOVERNANCE

Information required by Item 401 of Regulation S-K regarding directors, and information required by Items 407(c)(3), 407(d)(4), and 407(d)(5) of Regulation S-K, will be included under “Election of Directors” and “Corporate Governance” in the Company’s Proxy Statement for its 2024 Annual Meeting of Shareholders and is incorporated herein by reference.

Information regarding executive officers is included in “Executive Officers of the Company” in Part I, Item 1. Business of this Form 10-K as permitted by General Instruction G(3).

Code of Ethics

On January 25, 2023, the Board of Directors approved a revised Company’s Code of Conduct that is applicable to all of its directors and employees. This document is posted under the caption “About Us – Culture – Ethics & Code of Conduct” on the Company’s internet website (www.radiusrecycling.com) and is available free of charge by calling the Company or submitting a request to ir@rdus.com. The Company intends to satisfy its disclosure obligations with respect to any amendments to or waivers of the Code of Conduct for directors, executive officers, or Senior Financial Officers by posting such information on its internet website set forth above rather than by filing a Form 8-K.

ITEM 11. EXECUTIVE COMPENSATION

Information required by this Item 11 is incorporated herein by reference to our definitive proxy statement for our 2024 Annual Meeting of Shareholders to be filed pursuant to Regulation 14A under the Exchange Act.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

Information required by this Item 12 is incorporated herein by reference to our definitive proxy statement for our 2024 Annual Meeting of Shareholders to be filed pursuant to Regulation 14A under the Exchange Act.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE

Information required by this Item 13 is incorporated herein by reference to our definitive proxy statement for our 2024 Annual Meeting of Shareholders to be filed pursuant to Regulation 14A under the Exchange Act.

ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES

Information required by this Item 14 is incorporated herein by reference to our definitive proxy statement for our 2024 Annual Meeting of Shareholders to be filed pursuant to Regulation 14A under the Exchange Act.

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PART IV

ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

 

(a)		The following documents are filed as part of this report:
			FORM 10-K
			PAGE
1.		Financial Statements:
		Report of Independent Registered Public Accounting Firm (PCAOB ID 238)	54
		Consolidated Balance Sheets as of August 31, 2023 and 2022	57
		Consolidated Statements of Operations for each of the three years ended August 31, 2023, 2022, and 2021	58
		Consolidated Statements of Comprehensive (Loss) Income for each of the three years ended August 31, 2023, 2022, and 2021	59
		Consolidated Statements of Equity for each of the three years ended August 31, 2023, 2022, and 2021	60
		Consolidated Statements of Cash Flows for each of the three years ended August 31, 2023, 2022, and 2021	61
		Notes to the Consolidated Financial Statements	63
2.		Financial Statement Schedules:
		Schedule II - Valuation and Qualifying Accounts for each of the three years ended August 31, 2023, 2022, and 2021	97
		All other schedules are omitted as the information is either not applicable or is not required.
3.		Exhibits:
3.1		2006 Restated Articles of Incorporation (as corrected December 2, 2011) of the Registrant. Filed as Exhibit 3.1 to the Registrant’s Quarterly Report on Form 10-Q for the quarter ended November 30, 2011, and incorporated herein by reference.
3.2		Restated Bylaws of the Registrant. Filed as Exhibit 3.1 to the Registrant’s Current Report on Form 8-K filed on December 16, 2013, and incorporated herein by reference.
4.1		Description of Registrant’s Securities.
10.1		Lease Agreement, dated September 1, 1988, between Schnitzer Investment Corp. and the Registrant, as amended, relating to the Portland Metals Recycling operation and which has terminated except for surviving indemnity obligations. Filed as Exhibit 10.3 to the Registrant’s Registration Statement on Form S-1 filed on September 24, 1993 (Commission File No. 33-69352), and incorporated herein by reference (P).
10.2		Purchase and Sale Agreement, dated May 4, 2005, between Schnitzer Investment Corp. and the Registrant, relating to purchase by the Registrant of the Portland Metals Recycling operations real estate. Filed as Exhibit 10.1 to the Registrant’s Current Report on Form 8-K filed on May 10, 2005, and incorporated herein by reference.
10.3		Third Amended Shared Services Agreement, dated July 26, 2006, between the Registrant, Schnitzer Investment Corp. and Island Equipment Company, Inc. Filed as Exhibit 10.5 to the Registrant’s Current Report on Form 8-K filed on July 28, 2006, and incorporated herein by reference.
10.4		Third Amended and Restated Credit Agreement dated as of April 6, 2016 among Schnitzer Steel Industries, Inc., as the US Borrower, and Schnitzer Steel Canada Ltd., as a Canadian Borrower, Bank of America, N.A., as Administrative Agent, and the other Lenders party thereto. Filed as Exhibit 10.1 to the Registrant’s Quarterly Report on Form 10-Q for the quarter ended February 29, 2016, and incorporated herein by reference.
10.5		Security Agreement dated as of April 6, 2016 among Schnitzer Steel Industries, Inc., the other Grantor’s party thereto and Bank of America, N.A., as Administrative Agent. Filed as Exhibit 10.2 to the Registrant’s Quarterly Report on Form 10-Q for the quarter ended February 29, 2016, and incorporated herein by reference.

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10.6		General Security Agreement dated as of April 6, 2016 between Schnitzer Steel Canada Ltd. and Bank of America, N.A., as Collateral Agent. Filed as Exhibit 10.3 to the Registrant’s Quarterly Report on Form 10-Q for the quarter ended February 29, 2016, and incorporated herein by reference.
10.7		First Amendment, dated as of August 24, 2018, to Third Amended and Restated Credit Agreement dated as of April 6, 2016 among Schnitzer Steel Industries, Inc., as the US Borrower, and Schnitzer Steel Canada Ltd., as a Canadian Borrower, Bank of America, N.A., as Administrative Agent, and the other Lenders party thereto. Filed as Exhibit 10.1 to the Registrant’s Current Report on Form 8-K filed on August 28, 2018, and incorporated herein by reference.
10.8		Second Amendment, dated as of June 30, 2020, to Third Amended and Restated Credit Agreement dated as of April 6, 2016 among Schnitzer Steel Industries, Inc. as the US Borrower, and Schnitzer Steel Canada Ltd., as a Canadian Borrower, Bank of America, N.A., as Administrative Agent, and the other Lenders party thereto. Filed as Exhibit 10.3 to the Registrant’s Quarterly Report on Form 10-Q for the quarter ended May 31, 2020, and incorporated herein by reference.
10.9		Third Amendment, dated as of August 22, 2022, to Third Amended and Restated Credit Agreement dated as of April 6, 2016 among Schnitzer Steel Industries, Inc. as the US Borrower, Schnitzer Steel Canada Ltd., as the Canadian Borrower, Bank of America, N.A., as Administrative Agent, and the other Lenders party thereto. Filed as Exhibit 10.1 to the Registrant’s Current Report on Form 8-K filed on August 23, 2022, and incorporated herein by reference.
*10.10		Amended Executive Annual Bonus Plan. Filed as Appendix A to the Registrant’s Annual Proxy Report on Form DEF 14A filed on December 17, 2014, and incorporated herein by reference.
*10.11		Annual Incentive Compensation Plan, effective September 1, 2006. Filed as Exhibit 10.1 to the Registrant’s Quarterly Report on Form 10-Q for the quarter ended February 28, 2007, and incorporated herein by reference.
*10.12		1993 Stock Incentive Plan of the Registrant as Amended and Restated on November 7, 2013. Filed as Appendix A to the Registrant’s Definitive Proxy Statement filed on December 18, 2013, and incorporated herein by reference.
*10.13		Form of Deferred Stock Unit Award Agreement under the 1993 Stock Incentive Plan used for non-employee directors for awards granted prior to 2023. Filed as Exhibit 10.1 to the Registrant’s Current Report on Form 8-K filed on July 28, 2006, and incorporated herein by reference.
*10.14		Form of Deferred Stock Unit Award Agreement under the 1993 Stock Incentive Plan used for non-employee directors for awards granted in 2023. Filed as Exhibit 10.1 to the Registrant’s Quarterly Report on Form 10-Q filed for the quarter ended February 28, 2023, and incorporated herein by reference.
*10.15		Deferred Compensation Plan for Non-Employee Directors. Filed as Exhibit 10.1 to the Registrant’s Quarterly Report on Form 10-Q filed for the quarter ended February 28,2022, and incorporated herein by reference.
*10.16		Summary Sheet for 2023 Non-Employee Director Compensation. Filed as Exhibit 10.2 to the Registrant’s Quarterly Report on Form 10-Q for the quarter ended February 28, 2023, and incorporated herein by reference.
*10.17		Amended and Restated Supplemental Executive Retirement Bonus Plan of the Registrant effective January 1, 2009. Filed as Exhibit 10.1 to the Registrant’s Quarterly Report on Form 10-Q for the quarter ended May 31, 2009, and incorporated herein by reference.
*10.18		Form of Change in Control Severance Agreement between the Registrant and executive officers other than Tamara L. Lundgren and used for agreements entered into prior to 2011. Filed as Exhibit 10.1 to the Registrant’s Current Report on Form 8-K filed on May 5, 2008, and incorporated herein by reference.
*10.19		Form of Change in Control Severance Agreement between the Registrant and executive officers and used for agreements entered into between 2011 and 2014. Filed as Exhibit 10.19 to the Registrant’s Annual Report on Form 10-K filed October 29, 2013 and incorporated herein by reference.
*10.20		Form of Change in Control Severance Agreement between the Registrant and executive officers and used for agreements entered into after 2014. Filed as Exhibit 10.16 to the Registrant’s Annual Report on Form 10-K filed October 27, 2015, and incorporated herein by reference.
*10.21		Amended and Restated Employment Agreement by and between the Registrant and Tamara L. Lundgren dated October 29, 2008. Filed as Exhibit 10.1 to the Registrant’s Current Report on Form 8-K filed on November 4, 2008, and incorporated herein by reference.

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*10.22		Amendment No. 1 dated June 29, 2011 to Amended and Restated Employment Agreement by and between the Registrant and Tamara L. Lundgren dated October 29, 2008. Filed as Exhibit 10.1 to the Registrant’s Quarterly Report on Form 10-Q for the quarter ended May 31, 2011 and incorporated herein by reference.
*10.23		Amendment No. 2 dated July 25, 2017 to Amended and Restated Employment Agreement by and between the Registrant and Tamara L. Lundgren dated October 29, 2008. Filed as Exhibit 10.19 to the Registrant's Annual Report on Form 10-K for the year ended August 31, 2017, and incorporated herein by reference.
*10.24		Amended and Restated Change in Control Severance Agreement by and between the Registrant and Tamara L. Lundgren dated October 29, 2008. Filed as Exhibit 10.2 to the Registrant’s Current Report on Form 8-K filed on November 4, 2008, and incorporated herein by reference.
*10.25		Form of Indemnification Agreement for Directors and certain officers used for agreements entered into prior to 2016. Filed as Exhibit 10.3 to the Registrant’s Current Report on Form 8-K filed on July 28, 2006, and incorporated herein by reference.
*10.26		Form of Indemnification Agreement for Directors and certain officers used for agreements entered into after 2015. Filed as Exhibit 10.1 to the Registrant’s Current Report on Form 8-K filed on May 3, 2016, and incorporated herein by reference.
*10.27		Form of Restricted Stock Unit Award Agreement under the 1993 Stock Incentive Plan used for awards granted in fiscal 2019. Filed as Exhibit 10.2 to the Registrant’s Quarterly Report on Form 10-Q for the quarter ended November 30, 2018 and incorporated herein by reference.
*10.28		Form of Restricted Stock Unit Award Agreement under the 1993 Stock Incentive Plan used for awards granted in fiscal 2020. Filed as Exhibit 10.2 to the Registrant’s Quarterly Report on Form 10-Q for the quarter ended May 31, 2020 and incorporated herein by reference.
*10.29		Form of Restricted Stock Unit Award Agreement under the 1993 Stock Incentive Plan used for awards granted after fiscal 2020. Filed as Exhibit 10.2 to the Registrant’s Quarterly Report on Form 10-Q for the quarter ended November 30, 2020 and incorporated herein by reference.
*10.30		Form of Long-Term Incentive Award Agreement under the 1993 Stock Incentive Plan used for awards granted in fiscal 2021. Filed as Exhibit 10.1 to the Registrant’s Quarterly Report on Form 10-Q for the quarterly period ended November 30, 2020 and incorporated herein by reference.
*10.31		Form of Long-Term Incentive Award Agreement under the 1993 Stock Incentive Plan used for awards granted in fiscal 2022. Filed as Exhibit 10.1 to the Registrant’s Quarterly Report on Form 10-Q for the quarterly period ended November 30, 2021 and incorporated herein by reference.
*10.32		Form of Long-Term Incentive Award Agreement under the 1993 Stock Incentive Plan used for awards granted in fiscal 2023. Filed as Exhibit 10.1 to the Registrant’s Quarterly Report on Form 10-Q for the quarterly period ended November 30, 2022 and incorporated herein by reference.
*10.33		Fiscal 2022 Annual Performance Bonus Program for Tamara L. Lundgren. Filed as Exhibit 10.2 to the Registrant’s Quarterly Report on Form 10-Q for the quarterly period ended November 30, 2021 and incorporated herein by reference.
*10.34		Fiscal 2023 Annual Performance Bonus Program for Tamara L. Lundgren. Filed as Exhibit 10.2 to the Registrant’s Quarterly Report on Form 10-Q for the quarterly period ended November 30, 2022 and incorporated herein by reference.
*10.35		Schnitzer Steel Deferred Compensation Plan. Filed as Exhibit 10.1 to the Registrant’s Current Report on Form 8-K filed on May 4, 2021 and incorporated herein by reference.
*10.36		Separation and Release Agreement by and between the Registrant and Michael R. Henderson.
21.1		Subsidiaries of Registrant.
23.1		Consent of Independent Registered Public Accounting Firm.
24.1		Powers of Attorney.
31.1		Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

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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.INS		Inline XBRL Instance Document – the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the 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 contained in Exhibit 101)

 

* Management contract or compensatory plan or arrangement.

The agreements and other documents filed as exhibits to this report are not intended to provide factual information or other disclosure other than with respect to the terms of the agreements or other documents themselves, and you should not rely on them for that purpose. In particular, any representations and warranties made by us in these agreements or other documents were made solely within the specific context of the relevant agreement or document as of the date they were made and may not describe the actual state of affairs for any other purpose or at any other time.

 

ITEM 16. FORM 10-K SUMMARY

None.

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SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) 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.
Dated: October 25, 2023	By:		/s/ STEFANO R. GAGGINI
			Senior Vice President and Chief Financial Officer

 

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant on October 25, 2023 in the capacities indicated.

 

Signature		Title
Principal Executive Officer:
/s/ TAMARA L. LUNDGREN		Chairman, President and Chief Executive Officer
Tamara L. Lundgren
Principal Financial Officer:
/s/ STEFANO R. GAGGINI		Senior Vice President and Chief Financial Officer
Stefano R. Gaggini
Principal Accounting Officer:
/s/ MARK SCHUESSLER		Vice President and Chief Accounting Officer
Mark Schuessler
Directors:
*GREGORY FRIEDMAN		Director
Gregory Friedman
*RHONDA D. HUNTER		Director
Rhonda D. Hunter
*DAVID L. JAHNKE		Director
David L. Jahnke
*GLENDA MINOR		Director
Glenda Minor
*LESLIE L. SHOEMAKER		Director
Leslie L. Shoemaker
*MICHAEL W. SUTHERLIN		Director
Michael W. Sutherlin

 

*By:		/s/ STEFANO R. GAGGINI
		Attorney-in-fact, Stefano R. Gaggini

 

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