UNITED STATES SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

 

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

 

For the Quarterly Period Ended February 29, 2024

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

 

 

RADIUS RECYCLING, 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

 

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 is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

The registrant had 27,782,161 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 April 2, 2024.

 

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RADIUS RECYCLING, INC.

FORM 10-Q

TABLE OF CONTENTS

 

	PAGE
FORWARD-LOOKING STATEMENTS	3
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)	4
Unaudited Condensed Consolidated Balance Sheets as of February 29, 2024 and August 31, 2023	4
Unaudited Condensed Consolidated Statements of Operations for the Three and Six Months Ended February 29, 2024 and February 28, 2023	5
Unaudited Condensed Consolidated Statements of Comprehensive Loss for the Three and Six Months Ended February 29, 2024 and February 28, 2023	6
Unaudited Condensed Consolidated Statements of Equity for the Three and Six Months Ended February 29, 2024 and February 28, 2023	7
Unaudited Condensed Consolidated Statements of Cash Flows for the Six Months Ended February 29, 2024 and February 28, 2023	9
Notes to the Unaudited Condensed Consolidated Financial Statements	11
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations	26
Item 3. Quantitative and Qualitative Disclosures about Market Risk	38
Item 4. Controls and Procedures	39
PART II. OTHER INFORMATION
Item 1. Legal Proceedings	40
Item 1A. Risk Factors	40
Item 5. Other Information	40
Item 6. Exhibits	41
SIGNATURES	42

 

 

 

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FORWARD-LOOKING STATEMENTS

Statements and information included in this Quarterly Report on Form 10-Q by Radius Recycling, Inc. (formerly Schnitzer Steel Industries, Inc.) 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 Radius Recycling, Inc. and its consolidated subsidiaries.

Forward-looking statements in this Quarterly Report on Form 10-Q include statements regarding future events or our expectations, intentions, beliefs, and strategies regarding the future, which may include statements regarding 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 “Item 1A. Risk Factors” of Part I of our most recent Annual Report on 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.

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PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS (UNAUDITED)

RADIUS RECYCLING, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited, in thousands, except per share amounts)

(Currency - U.S. Dollar)

		February 29, 2024				August 31, 2023
Assets
Current assets:
Cash and cash equivalents		$	13,562			$	6,032
Accounts receivable, net of allowance for credit losses of $1,593    and $1,590			218,745				210,442
Inventories			314,421				278,642
Refundable income taxes			3,426				3,245
Prepaid expenses and other current assets			44,438				51,979
Total current assets			594,592				550,340
Property, plant and equipment, net of accumulated depreciation of $940,096 and $902,231			691,901				706,805
Operating lease right-of-use assets			117,763				115,686
Investments in joint ventures			10,491				10,750
Goodwill			229,319				229,419
Intangibles, net of accumulated amortization of $15,451 and $12,442			31,279				32,540
Deferred income taxes			19,457				22,713
Other assets			50,727				47,696
Total assets		$	1,745,529			$	1,715,949
Liabilities and Equity
Current liabilities:
Short-term borrowings		$	5,459			$	5,813
Accounts payable			192,200				209,423
Accrued payroll and related liabilities			26,141				35,144
Environmental liabilities			13,656				13,743
Operating lease liabilities			19,932				19,835
Accrued income taxes			78				358
Other accrued liabilities			46,510				39,614
Total current liabilities			303,976				323,930
Deferred income taxes			46,187				58,617
Long-term debt, net of current maturities			368,119				243,579
Environmental liabilities, net of current portion			52,034				53,034
Operating lease liabilities, net of current maturities			97,959				96,086
Other long-term liabilities			29,788				29,044
Total liabilities			898,063				804,290
Commitments and contingencies (Note 5)
Radius Recycling, Inc. (“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,    27,782 and 27,312 shares issued and outstanding			27,782				27,312
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			24,503				26,035
Retained earnings			831,636				894,316
Accumulated other comprehensive loss			(39,684	)			(39,683	)
Total Radius shareholders’ equity			844,437				908,180
Noncontrolling interests			3,029				3,479
Total equity			847,466				911,659
Total liabilities and equity		$	1,745,529			$	1,715,949

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

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RADIUS RECYCLING, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited, in thousands, except per share amounts)

(Currency - U.S. Dollar)

		Three Months Ended								Six Months Ended
		February 29,				February 28,				February 29,				February 28,
		2024				2023				2024				2023
Revenues		$	621,059			$	755,953			$	1,293,956			$	1,354,683
Operating expense:
Cost of goods sold			580,996				682,937				1,214,416				1,232,948
Selling, general and administrative			62,160				63,957				125,262				128,185
(Income) from joint ventures			(30	)			(311	)			(703	)			(1,101	)
Asset impairment charges			1,476				—				1,476				—
Restructuring charges and other exit-related activities			3,175				828				3,210				2,420
Operating (loss) income			(26,718	)			8,542				(49,705	)			(7,769	)
Interest expense			(5,803	)			(4,908	)			(10,613	)			(8,232	)
Other loss, net			(263	)			(99	)			(432	)			(3,983	)
(Loss) income from continuing operations before income taxes			(32,784	)			3,535				(60,750	)			(19,984	)
Income tax (expense) benefit			(1,195	)			513				8,975				6,545
(Loss) income from continuing operations			(33,979	)			4,048				(51,775	)			(13,439	)
(Loss) income from discontinued operations, net of tax			(31	)			224				(33	)			155
Net (loss) income			(34,010	)			4,272				(51,808	)			(13,284	)
Net loss (income) attributable to noncontrolling interests			31				81				(135	)			(151	)
Net (loss) income attributable to Radius shareholders		$	(33,979	)		$	4,353			$	(51,943	)		$	(13,435	)
Net (loss) income per share attributable to Radius shareholders:
Basic:
(Loss) income per share from continuing operations		$	(1.19	)		$	0.15			$	(1.83	)		$	(0.49	)
Net (loss) income per share		$	(1.19	)		$	0.16			$	(1.83	)		$	(0.48	)
Diluted:
(Loss) income per share from continuing operations		$	(1.19	)		$	0.14			$	(1.83	)		$	(0.49	)
Net (loss) income per share		$	(1.19	)		$	0.15			$	(1.83	)		$	(0.48	)
Weighted average number of common shares:
Basic			28,454				28,081				28,337				27,912
Diluted			28,454				28,617				28,337				27,912

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

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RADIUS RECYCLING, INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS) INCOME

(Unaudited, in thousands)

(Currency - U.S. Dollar)

 

		Three Months Ended								Six Months Ended
		February 29,				February 28,				February 29,				February 28,
		2024				2023				2024				2023
Net (loss) income		$	(34,010	)		$	4,272			$	(51,808	)		$	(13,284	)
Other comprehensive income (loss), net of tax:
Foreign currency translation adjustments			(83	)			(1,361	)			(582	)			(3,607	)
Cash flow hedges, net			285				—				178				—
Pension obligations, net			216				58				403				91
Total other comprehensive income (loss), net of tax			418				(1,303	)			(1	)			(3,516	)
Comprehensive (loss) income			(33,592	)			2,969				(51,809	)			(16,800	)
Less comprehensive loss (income) attributable to noncontrolling interests			31				81				(135	)			(151	)
Comprehensive (loss) income attributable to Radius shareholders		$	(33,561	)		$	3,050			$	(51,944	)		$	(16,951	)

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

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RADIUS RECYCLING, INC.

CONDENSED CONSOLIDATED STATEMENTS OF EQUITY

(Unaudited, in thousands, except per share amounts)

(Currency - U.S. Dollar)

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

		Common Stock																								Accumulated
		Class A								Class B								Additional								Other				Total Radius
Three Months Ended February 29, 2024		Shares				Amount				Shares				Amount				Paid-in Capital				Retained Earnings				Comprehensive Loss				Shareholders' Equity				Noncontrolling Interests				Total Equity
Balance as of December 1, 2023			27,663			$	27,663				200			$	200			$	22,258			$	870,975			$	(40,102	)		$	880,994			$	3,282			$	884,276
Net loss			—				—				—				—				—				(33,979	)			—				(33,979	)			(31	)			(34,010	)
Other comprehensive income, net of tax			—				—				—				—				—				—				418				418				—				418
Distributions to noncontrolling interests			—				—				—				—				—				—				—				—				(222	)			(222	)
Issuance of restricted stock			119				119				—				—				(119	)			—				—				—				—				—
Restricted stock withheld for taxes			—				—				—				—				(1	)			—				—				(1	)			—				(1	)
Share-based compensation cost			—				—				—				—				2,365				—				—				2,365				—				2,365
Dividends ($0.1875 per common share)			—				—				—				—				—				(5,360	)			—				(5,360	)			—				(5,360	)
Balance as of February 29, 2024			27,782			$	27,782				200			$	200			$	24,503			$	831,636			$	(39,684	)		$	844,437			$	3,029			$	847,466

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

 

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RADIUS RECYCLING, INC.

CONDENSED CONSOLIDATED STATEMENTS OF EQUITY

(Unaudited, in thousands, except per share amounts)

(Currency - U.S. Dollar)

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

		Common Stock																								Accumulated
		Class A								Class B								Additional								Other				Total Radius
Six Months Ended February 29, 2024		Shares				Amount				Shares				Amount				Paid-in Capital				Retained Earnings				Comprehensive Loss				Shareholders' Equity				Noncontrolling Interests				Total Equity
Balance as of September 1, 2023			27,312			$	27,312				200			$	200			$	26,035			$	894,316			$	(39,683	)		$	908,180			$	3,479			$	911,659
Net (loss) income			—				—				—				—				—				(51,943	)			—				(51,943	)			135				(51,808	)
Other comprehensive loss, net of tax			—				—				—				—				—				—				(1	)			(1	)			—				(1	)
Distributions to noncontrolling interests			—				—				—				—				—				—				—				—				(585	)			(585	)
Issuance of restricted stock			681				681				—				—				(681	)			—				—				—				—				—
Restricted stock withheld for taxes			(211	)			(211	)			—				—				(4,592	)			—				—				(4,803	)			—				(4,803	)
Share-based compensation cost			—				—				—				—				3,741				—				—				3,741				—				3,741
Dividends ($0.375 per common share)			—				—				—				—				—				(10,737	)			—				(10,737	)			—				(10,737	)
Balance as of February 29, 2024			27,782			$	27,782				200			$	200			$	24,503			$	831,636			$	(39,684	)		$	844,437			$	3,029			$	847,466

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

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RADIUS RECYCLING, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited, in thousands)

(Currency - U.S. Dollar)

		Six Months Ended
		February 29,				February 28,
		2024				2023
Cash flows from operating activities:
Net loss		$	(51,808	)		$	(13,284	)
Adjustments to reconcile net loss to cash (used in) provided by operating activities:
Asset impairment charges			1,967				4,000
Exit-related asset impairments			—				143
Depreciation and amortization			47,782				43,850
Inventory write-downs			—				575
Deferred income taxes			(9,500	)			(6,337	)
Undistributed equity in earnings of joint ventures			(703	)			(1,101	)
Share-based compensation expense			3,741				5,144
(Gain) loss on disposal of assets, net			(459	)			16
Unrealized foreign exchange loss, net			273				85
Credit loss, net			177				195
Changes in assets and liabilities, net of acquisitions:
Accounts receivable			(14,504	)			(13,914	)
Inventories			(30,423	)			33,834
Income taxes			144				(4,783	)
Prepaid expenses and other current assets			12,519				9,758
Other long-term assets			(3,696	)			(1,389	)
Operating lease assets and liabilities			(195	)			232
Accounts payable			(6,368	)			12,245
Accrued payroll and related liabilities			(8,996	)			(33,421	)
Other accrued liabilities			2,686				(7,177	)
Environmental liabilities			(1,072	)			(4,914	)
Other long-term liabilities			1,042				1,935
Distributed equity in earnings of joint ventures			1,000				—
Net cash (used in) provided by operating activities			(56,393	)			25,692
Cash flows from investing activities:
Capital expenditures			(39,791	)			(74,511	)
Acquisitions, net of acquired cash			—				(26,902	)
Proceeds from insurance and sale of assets			2,133				3,026
Purchase of investments			(6,000	)			—
Net cash used in investing activities			(43,658	)			(98,387	)
Cash flows from financing activities:
Borrowings from long-term debt			389,692				333,242
Repayment of long-term debt			(265,910	)			(274,036	)
Payment of debt issuance costs			—				(156	)
Taxes paid related to net share settlement of share-based payment awards			(4,803	)			(6,809	)
Distributions to noncontrolling interests			(585	)			(1,155	)
Dividends paid			(10,798	)			(10,671	)
Net cash provided by financing activities			107,596				40,415
Effect of exchange rate changes on cash			(15	)			(64	)
Net increase (decrease) in cash and cash equivalents			7,530				(32,344	)
Cash and cash equivalents as of beginning of period			6,032				43,803
Cash and cash equivalents as of end of period		$	13,562			$	11,459

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

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RADIUS RECYCLING, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited, in thousands)

(Currency - U.S. Dollar)

 

		Six Months Ended
		February 29,				February 28,
		2024				2023
SUPPLEMENTAL DISCLOSURES:
Cash paid during the period for:
Interest		$	9,792			$	7,339
Income taxes, net		$	368			$	4,332
Schedule of noncash investing and financing transactions:
Purchases of property, plant and equipment included in liabilities		$	5,470			$	13,815

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

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

This section includes a discussion of our operations for the three and six months ended February 29, 2024 and February 28, 2023. 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 our Annual Report on Form 10-K for the year ended August 31, 2023, and the Unaudited Condensed Consolidated Financial Statements and the related Notes thereto included in Part I, Item 1 of this report.

General

Founded in 1906, Radius Recycling, Inc., formerly known as Schnitzer Steel Industries, Inc., 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. 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 to be shredded or sold to third parties when geographically more economical. At our metals recycling facilities, we process mixed and large pieces of scrap metal into smaller pieces by crushing, torching, shearing, shredding, separating, and sorting, resulting in 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 also purchase nonferrous metal directly from industrial vendors and other suppliers and aggregate and prepare this metal for shipment to customers by ship, rail, or truck. In addition to the sale of recycled metal processed at our facilities, we also provide a variety of recycling and related services including brokering the sale of ferrous and nonferrous scrap metal generated by industrial entities and demolition projects to customers in the domestic market, among other services. Our steel 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.

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

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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. 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 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, varying demand for used auto parts from our self-service retail stores, the efficiency of our supply chain, and variations in production and other operating costs. Certain of these factors are influenced, to a degree, by the impact of seasonal changes including severe weather conditions, which can impact the timing of shipments and inhibit construction activity utilizing our products, scrap metal collection and production levels at our facilities, and retail admissions and parts sales at our auto parts stores. Further, sanctions, trade actions, and licensing, product quality, 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.

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. We experienced loss of business income during the shutdown of the steel mill and the subsequent ramp-up phase which was substantially completed in 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. In the fourth quarter of fiscal 2023, we reached a full and final settlement with our insurers for our claims. All insurance proceeds and recovery gains in connection with our claims had been received and recognized, respectively, as of August 31, 2023.

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. As of August 31, 2023, we had recognized, in aggregate, $34 million in insurance recovery gains and had received, in aggregate, advance payments from insurers totaling approximately $33 million towards our claims. During the first half of fiscal 2024, we recognized an additional $6 million insurance receivable and related insurance recovery gain, reported within cost of goods sold on the Unaudited Condensed Consolidated Statements of Operations, $2 million of which was recognized in the second quarter.

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As of February 29, 2024, we had recognized, in aggregate, $40 million in insurance recovery gains and had received, in aggregate, advance payments from insurers totaling approximately $37 million towards our claims, and not reflecting any final or full settlement of claims with our insurers. As of February 29, 2024 and August 31, 2023, we had receivables from our insurers of $3 million and $1 million, respectively, reported within prepaid expenses and other current assets on the Unaudited Condensed 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.

Use of Non-GAAP Financial Measures

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

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

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Financial Highlights of Results of Operations for the Second Quarter of Fiscal 2024

Our operating results in the second quarter of fiscal 2024 decreased significantly compared to the prior year quarter, reflecting primarily the impact of lower ferrous sales volumes, compressed recycled metal spreads due to persistently tight supply conditions for scrap metal, and lower finished steel prices. Contributing to the year-over-year decline in ferrous sales volumes by 22% was the timing of shipments of bulk cargoes, as the second quarter of fiscal 2024 was impacted by the delay of certain bulk shipments at quarter-end, while volumes in the prior year period reflected a drawdown of inventories due to the delay of several bulk shipments at the end of the first quarter of fiscal 2023. Average net selling prices for our ferrous products increased 5% year-over year as a result of the strengthening in global prices in the early part of the second quarter of fiscal 2024 driven by restocking, before softening towards the end of the quarter due to lower demand including continued elevated levels of Chinese steel exports. Average net selling prices for our nonferrous products decreased 5% compared to the second quarter of fiscal 2023, while additional production using our advanced nonferrous recovery technologies contributed to a 7% increase in nonferrous volumes year-over-year. Finished steel average net selling prices were 12% lower than in the second quarter of fiscal 2023, which contributed to lower metal spreads. Our results in the second quarter of fiscal 2024 also reflected the impact of lower year-over-year platinum group metals (PGM) prices, a less favorable impact from average inventory accounting compared to the prior year quarter, and the impact of inflation. Contributions from productivity and cost reduction initiatives implemented throughout fiscal 2023, as well as new initiatives identified and commenced in the first and second quarters of fiscal 2024, helped to offset the effects of inflationary pressure on operating costs.

Selling, general, and administrative (“SG&A”) expense in the second quarter of fiscal 2024 decreased 3% compared to the prior year quarter. Productivity and cost reduction initiatives more than offset the impact of inflation and growth-related initiatives on our SG&A expense.

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 2.

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Results of Operations

Selected Financial Measures and Operating Statistics

		Three Months Ended												Six Months Ended
($ in thousands, except for prices and per share amounts)		February 29, 2024				February 28, 2023				%				February 29, 2024				February 28, 2023				%
Ferrous revenues		$	316,097			$	434,122				(27	)%		$	664,994			$	695,851				(4	)%
Nonferrous revenues			164,481				179,655				(8	)%			333,775				357,330				(7	)%
Steel revenues(1)			100,721				107,825				(7	)%			214,252				232,340				(8	)%
Retail and other revenues			39,760				34,351				16	%			80,935				69,162				17	%
Total revenues			621,059				755,953				(18	)%			1,293,956				1,354,683				(4	)%
Cost of goods sold			580,996				682,937				(15	)%			1,214,416				1,232,948				(2	)%
Gross margin (total revenues less cost of goods sold)		$	40,063			$	73,016				(45	)%		$	79,540			$	121,735				(35	)%
Gross margin (%)			6.5	%			9.7	%			(33	)%			6.1	%			9.0	%			(32	)%
Selling, general and administrative expense		$	62,160			$	63,957				(3	)%		$	125,262			$	128,185				(2	)%
Diluted (loss) income per share from continuing operations attributable to Radius shareholders:
Reported		$	(1.19	)		$	0.14			(NM)				$	(1.83	)		$	(0.49	)			273	%
Adjusted(2)		$	(1.04	)		$	0.14			(NM)				$	(1.68	)		$	(0.30	)			463	%
Net (loss) income		$	(34,010	)		$	4,272			(NM)				$	(51,808	)		$	(13,284	)			290	%
Adjusted EBITDA(2)		$	2,796			$	31,850				(91	)%		$	3,858			$	40,212				(90	)%
Average ferrous recycled metal sales prices ($/LT)(3):
Domestic		$	391			$	359				9	%		$	366			$	336				9	%
Foreign		$	381			$	368				4	%		$	369			$	364				1	%
Average		$	384			$	367				5	%		$	368			$	357				3	%
Ferrous volumes (LT, in thousands):
Domestic(4)			483				444				9	%			1,018				876				16	%
Foreign			497				819				(39	)%			1,114				1,238				(10	)%
Total ferrous volumes (LT, in thousands)(4)(8)			980				1,263				(22	)%			2,132				2,114				1	%
Average nonferrous sales price ($/pound)(3)(5)		$	0.94			$	0.99				(5	)%		$	0.93			$	0.94				(1	)%
Nonferrous volumes (pounds, in thousands)(4)(5)			176,477				164,796				7	%			358,205				327,516				9	%
Finished steel average sales price ($/ST)(3)		$	832			$	943				(12	)%		$	832			$	980				(15	)%
Finished steel sales volumes (ST, in thousands)			114				109				5	%			243				227				7	%
Cars purchased (in thousands)(6)			67				72				(7	)%			131				141				(7	)%
Number of auto parts stores at period end			50				50				(—	)%			50				50				(—	)%
Rolling mill utilization(7)			81	%			75	%			8	%			88	%			78	%			13	%

 

NM = Not Meaningful

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

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Revenues

Revenues in the second quarter and first six months of fiscal 2024 decreased 18% and 4%, respectively, compared to the prior year periods. Our ferrous sales volumes in the second quarter of fiscal 2024 decreased 22% compared to the prior year quarter, reflecting the impact of persistently tight supply conditions for scrap metal, including end-of-life vehicles, and the timing of shipments of bulk cargoes. The second quarter of fiscal 2024 was adversely impacted by the delay of certain bulk shipments at quarter-end, while volumes in the prior year second quarter reflected a drawdown of inventories due to the delay of several bulk shipments at the end of the first quarter of fiscal 2023. Our nonferrous sales volumes in the second quarter and first six months of fiscal 2024 increased 7% and 9%, respectively, partially as a result of additional production using our advanced nonferrous recovery technologies. Our ferrous and nonferrous sales volumes in the first six months of fiscal 2024 also reflected additional volumes arising from the ScrapSource business acquired near the end of the first quarter of fiscal 2023, as well as the adverse impact in the prior year period of disruptions related to an extended shredder outage at the Everett metals recycling facility and a regulatory issue limiting operations at our shredder facility in California, both of which were resolved near the end of the first quarter of fiscal 2023. In the second quarter and first six months of fiscal 2024, the average net selling prices for our ferrous products increased 5% and 3%, respectively, compared to the prior year periods as a result of the strengthening in global prices in the early part of the second quarter of fiscal 2024 driven by restocking, before softening towards the end of the quarter due to lower demand including continued elevated levels of Chinese steel exports. Average net selling prices for our nonferrous products decreased 5% and 1%, respectively, in the second quarter and first six months of fiscal 2024 compared to the prior year periods. Finished steel average selling prices in the second quarter and first six months of fiscal 2024 were 12% and 15% lower, respectively, compared to the prior year periods, while finished steel sales volumes increased 5% and 7%, respectively, reflecting the continued strength of non-residential and infrastructure demand in the Western U.S.

Operating Performance

Net loss in the second quarter and first six months of fiscal 2024 was $34 million and $52 million, respectively, compared to net income of $4 million and net loss of $13 million, respectively, in the prior year periods. Adjusted EBITDA in the second quarter and first six months of fiscal 2024 was $3 million and $4 million, respectively, compared to $32 million and $40 million, respectively, in the prior year periods. The combination of significantly lower second quarter ferrous sales volumes and year-over-year PGM prices, lower year-over-year finished steel prices, as well as higher production and other operating costs, had a significant adverse impact on our operating margins in the second quarter and first six months of fiscal 2024. Compared to the prior year period, ferrous metal spreads in the second quarter of fiscal 2024 remained relatively flat, while ferrous metal spreads in the first six months of fiscal 2024 decreased 6% relative to the first six months of fiscal 2023. Finished steel metal spreads were also lower in the second quarter and first six months of fiscal 2024 primarily driven by decreases in average selling prices compared to the prior year periods. In addition, our results in the second quarter and first six months of fiscal 2024 reflected a less favorable impact from average inventory accounting compared to the prior year periods and the impact of inflation on operating costs.

SG&A expense in the second quarter and first six months of fiscal 2024 decreased 3% and 2%, respectively, compared to the prior year periods. Productivity and cost reduction initiatives more than offset the impact of inflation and growth-related initiatives on our SG&A expense.

In addition to the $60 million in productivity and cost reduction initiatives announced in fiscal 2023, for which we achieved the $15 million full quarterly run rate of benefits starting in the third quarter of fiscal 2023, we began implementing new initiatives in the first quarter of fiscal 2024 with a targeted annual benefit of approximately $30 million through a combination of increased yields, efficiencies in processing, transportation and procurement, and reduced costs including from headcount reductions. We achieved substantially the full quarterly run rate of benefits from these initiatives in the second quarter of fiscal 2024.

During the second quarter of fiscal 2024, we implemented a plan to reduce SG&A expense by 10% and increase production cost efficiencies to deliver $40 million in annual benefits, which are in addition to the $30 million in annual benefits implemented in the first quarter of fiscal 2024. The measures include reductions in headcount and other employee-related expenses, as well as decreases in non-trade procurement spend, transportation and logistics, and other outside services. Approximately half of the targeted quarterly run-rate benefits from these initiatives are expected to be achieved in the third quarter of fiscal 2024, with substantially all of the remainder by the end of the fiscal year. We expect to incur related restructuring charges and other exit-related costs in the range of $6 million, of which $3 million was incurred during the second quarter of fiscal 2024. Contributions from productivity and cost reduction initiatives implemented throughout fiscal 2023, as well as new initiatives implemented in the first and second quarters of fiscal 2024, helped to offset the effects of inflationary pressure on operating costs.

See the reconciliation of adjusted EBITDA in Non-GAAP Financial Measures at the end of this Item 2.

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Interest Expense

Interest expense was $6 million and $11 million, respectively, for the second quarter and first six months of fiscal 2024, compared to $5 million and $8 million for the same periods in the prior year. The increase in interest expense was primarily due to higher interest rates on amounts outstanding under our bank credit facilities compared to the prior year periods.

Income Tax

The effective tax rate from continuing operations for the second quarter and first six months of fiscal 2024 was an expense on pre-tax loss of 3.6% and a benefit on pre-tax loss of 14.8%, respectively, compared to a benefit on pre-tax income of 14.5% and a benefit on pre-tax loss of 32.8%, respectively, for the comparable prior year periods. Our effective tax rate from continuing operations for the second quarter of fiscal 2024 was significantly different than the U.S. federal statutory rate of 21% primarily due to the aggregate effect of the Company’s financial performance, permanent differences from non-deductible expenses, and unrecognized tax benefits on intra-period allocation of the estimated annual tax provision, as well as the recognition of a $2 million valuation allowance against deferred tax assets in our Puerto Rico tax jurisdiction. We recognized this valuation allowance as a result of negative evidence, including recent losses in the tax jurisdiction, outweighing the more subjective positive evidence, indicating that it is more likely than not that the associated tax benefits will not be realized. For the second quarter of fiscal 2023, our effective tax rate from continuing operations was significantly different than the U.S. federal statutory rate of 21% primarily due to the Company’s financial performance and the effect of discrete items.

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 $14 million and $6 million as of February 29, 2024 and August 31, 2023, 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 February 29, 2024, debt was $374 million compared to $249 million as of August 31, 2023, and debt, net of cash, was $360 million as of February 29, 2024, compared to $243 million as of August 31, 2023. The increase in debt was primarily due to increased borrowings from our credit facilities mainly to fund working capital needs and capital expenditures. See the reconciliation of debt, net of cash, in Non-GAAP Financial Measures at the end of this Item 2.

Operating Activities

Net cash used in operating activities in the first six months of fiscal 2024 was $56 million, compared to net cash provided by operating activities of $26 million in the first six months of fiscal 2023.

Sources of cash in the first six months of fiscal 2024 included a $13 million decrease in prepaid expenses and other current assets primarily due to a decrease in prepaid insurance premiums. Uses of cash in the first six months of fiscal 2024 included a $30 million increase in inventories primarily due to delay of certain bulk shipments at period-end, a $15 million increase in accounts receivable primarily due to the timing of sales and collections, and a $9 million decrease in accrued payroll and related liabilities primarily due to the payment of incentive compensation in the first quarter of fiscal 2024 previously accrued under our fiscal 2023 plans.

Sources of cash in the first six months of fiscal 2023 included a $34 million decrease in inventory primarily due to lower raw material purchase costs and the timing of purchases and sales and a $12 million increase in accounts payable primarily due to the timing of purchases and payments. Uses of cash in the first six months of fiscal 2023 included a $33 million decrease in accrued payroll and related liabilities primarily due to the payment of incentive compensation in the first quarter of fiscal 2023 previously accrued under our fiscal 2022 plans and a $14 million increase in accounts receivable primarily due to the timing of sales and collections.

Investing Activities

Net cash used in investing activities was $44 million in the first six months of fiscal 2024, compared to $98 million in the first six months of fiscal 2023.

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Cash used in investing activities in the first six months of fiscal 2024 included capital expenditures of $40 million to upgrade our equipment and infrastructure and for investments in advanced metals recovery technology, information technology systems, and environmental and safety-related assets, compared to $75 million in the prior year period.

Cash used in investing activities in the first six months of fiscal 2023 included $25 million paid to acquire the assets of the ScrapSource business on November 18, 2022. We funded the acquisition using cash on hand and borrowings under our existing credit facilities.

Financing Activities

Net cash provided by financing activities in the first six months of fiscal 2024 was $108 million, compared to $40 million in the first six months of fiscal 2023.

Cash flows from financing activities in the first six months of fiscal 2024 included $124 million in net borrowings of debt, compared to $59 million in the prior year period (refer to Non-GAAP Financial Measures at the end of this Item 2). Uses of cash in the first six months of fiscal 2024 and 2023 included $5 million and $7 million, respectively, for payment of employee tax withholdings resulting from vesting of share-based awards and $11 million in each period for the payment of dividends.

Debt

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 $355 million as of February 29, 2024 and $230 million as of August 31, 2023. The weighted average interest rate on amounts outstanding under our credit facilities was 6.92% and 7.17% as of February 29, 2024 and August 31, 2023, respectively.

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. The financial covenants under the credit agreement include (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 February 29, 2024, 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 2.37 to 1.00 as of February 29, 2024. The consolidated leverage ratio was required to be no more than 0.55 to 1.00 and was 0.31 to 1.00 as of February 29, 2024.

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.

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We currently face challenging market conditions resulting in compressed operating margins. We have taken steps to reduce our operating costs and improve margins. If market conditions do not improve, we are unable to realize the expected value of our cost savings initiatives, or other negative factors occur, we anticipate we would be unable to remain in compliance with the financial covenants under the credit agreement. If we do not maintain compliance with our financial covenants and are unable to obtain an amendment or waiver from our lenders, a breach of a financial covenant would constitute an event of default and allow the lenders to exercise remedies under the agreements, the most severe of which is the termination of the credit facility under our committed bank credit agreement and acceleration of the amounts owed under the agreement. If such actions became necessary, we expect that we would be successful in renegotiating an amendment or obtaining a waiver on terms acceptable to the Company. Alternatively, 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 as of each of February 29, 2024 and August 31, 2023, 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 $40 million for the first six months of fiscal 2024, compared to $75 million for the prior year period. We currently plan to invest approximately $80 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, infrastructure, and information technology systems, 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 $9 million in capital expenditures for environmental projects in the first six months of fiscal 2024, and we currently plan to invest approximately $25 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 United States Environmental Protection Agency as one of the potentially responsible parties that own or operate or formerly owned or operated sites which are part of or adjacent to the Portland Harbor Superfund site (“Portland Harbor”). See Note 5 - Commitments and Contingencies in the Notes to the Unaudited Condensed Consolidated Financial Statements in Part I, Item 1 of this report for a discussion of this matter, 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, as well as related to other legacy environmental loss contingencies, could reduce the amounts available for borrowing that could otherwise be used for working capital, capital expenditures, dividends, share repurchases, investments, and acquisitions and could result in our failure to maintain compliance with certain covenants in our debt agreements, and could adversely impact our liquidity.

Dividends

On January 4, 2024, our Board of Directors declared a dividend for the second quarter of fiscal 2024 of $0.1875 per common share, which equates to an annual cash dividend of $0.75 per common share. The dividend was paid on February 20, 2024.

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Share Repurchase Program

As of February 29, 2024, pursuant to our board-authorized share repurchase programs, we had remaining authorization to repurchase up to 2.8 million shares of our Class A common stock when we deem such repurchases to be appropriate. We may repurchase our common stock for a variety of reasons, such as to optimize our capital structure and to offset dilution related to share-based compensation arrangements. We consider several factors in determining whether to make share repurchases including, among other things, our cash needs, the availability of funding, our future business plans, and the market price of our stock. We did not repurchase any of our common stock during the second quarter of fiscal 2024.

Assessment of Liquidity and Capital Resources

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

We generally believe our current cash resources, internally generated funds, existing credit facilities, and access to the capital markets will provide adequate short-term and long-term liquidity needs for working capital, capital expenditures, dividends, investments and acquisitions, joint ventures, debt service requirements, environmental obligations, share repurchases, 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

There were no material changes related to contractual obligations and commitments from the information provided in our Annual Report on Form 10-K for the fiscal year ended August 31, 2023.

We maintain stand-by letters of credit to provide support for certain obligations, including workers’ compensation and performance bonds. As of February 29, 2024, we had $7 million outstanding under these arrangements.

Critical Accounting Estimates

There were no material changes to our critical accounting estimates as described in the “Management’s Discussion and Analysis of Financial Condition and Results of Operations” section of our Annual Report on Form 10-K for the year ended August 31, 2023.

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 “Recent Accounting Pronouncements” in Note 1 - Summary of Significant Accounting Policies in the Notes to the Unaudited Condensed Consolidated Financial Statements in Part I, Item 1 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):

		February 29, 2024				August 31, 2023
Short-term borrowings		$	5,459			$	5,813
Long-term debt, net of current maturities			368,119				243,579
Total debt			373,578				249,392
Less cash and cash equivalents			13,562				6,032
Total debt, net of cash		$	360,016			$	243,360

 

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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 borrowings (repayments) of debt (in thousands):

 

		Six Months Ended
		February 29,				February 28,
		2024				2023
Borrowings from long-term debt		$	389,692			$	333,242
Repayments of long-term debt			(265,910	)			(274,036	)
Net borrowings (repayments) of debt		$	123,782			$	59,206

 

Adjusted EBITDA, adjusted selling, general, and administrative expense, adjusted (loss) income from continuing operations attributable to Radius shareholders, and adjusted diluted (loss) 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 restructuring charges and other exit-related activities, asset impairment charges, amortization of capitalized cloud computing implementation costs, charges for legacy environmental matters (net of recoveries), business development costs not related to ongoing operations including pre-acquisition expenses, 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):

 

		Three Months Ended								Six Months Ended
		February 29,				February 28,				February 29,				February 28,
		2024				2023				2024				2023
Reconciliation of adjusted EBITDA:
Net (loss) income		$	(34,010	)		$	4,272			$	(51,808	)		$	(13,284	)
Loss (income) from discontinued operations, net of tax			31				(224	)			33				(155	)
Interest expense			5,803				4,908				10,613				8,232
Income tax expense (benefit)			1,195				(513	)			(8,975	)			(6,545	)
Depreciation and amortization			24,311				22,399				47,782				43,850
Restructuring charges and other exit-related activities			3,175				828				3,210				2,420
Asset impairment charges(1)			1,748				—				1,967				4,000
Amortization of cloud computing software costs(2)			247				—				327				—
Charges for legacy environmental matters, net(3)			156				77				479				1,356
Business development costs			140				103				230				338
Adjusted EBITDA		$	2,796			$	31,850			$	3,858			$	40,212
Selling, general and administrative expense:
As reported		$	62,160			$	63,957			$	125,262			$	128,185
Charges for legacy environmental matters, net(3)			(156	)			(77	)			(479	)			(1,356	)
Business development costs			(140	)			(103	)			(230	)			(338	)
Adjusted		$	61,864			$	63,777			$	124,553			$	126,491

 

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

		Three Months Ended								Six Months Ended
		February 29,				February 28,				February 29,				February 28,
		2024				2023				2024				2023
(Loss) income from continuing operations attributable to Radius shareholders:
As reported		$	(33,948	)		$	4,129			$	(51,910	)		$	(13,590	)
Restructuring charges and other exit-related activities			3,175				828				3,210				2,420
Asset impairment charges(1)			1,748				—				1,967				4,000
Charges for legacy environmental matters, net(2)			156				77				479				1,356
Business development costs			140				103				230				338
Income tax benefit allocated to adjustments(3)			(938	)			(1,151	)			(1,675	)			(2,865	)
Adjusted		$	(29,667	)		$	3,986			$	(47,699	)		$	(8,341	)
Diluted (loss) income per share from continuing operations attributable to Radius shareholders:
As reported		$	(1.19	)		$	0.14			$	(1.83	)		$	(0.49	)
Restructuring charges and other exit-related activities, per share			0.11				0.03				0.11				0.09
Asset impairment charges, per share(1)			0.06				—				0.07				0.14
Charges for legacy environmental matters, net, per share(2)			0.01				—				0.02				0.05
Business development costs, per share			—				—				0.01				0.01
Income tax benefit allocated to adjustments, per share(3)			(0.03	)			(0.04	)			(0.06	)			(0.10	)
Adjusted(4)		$	(1.04	)		$	0.14			$	(1.68	)		$	(0.30	)

 

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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Commodity Price Risk

We are exposed to commodity price risk, mainly associated with variations in the market price for ferrous and nonferrous metals, including scrap 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 as well as other factors including political and military events. 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 estimated future selling prices. Based on contracted sales and estimates of future selling prices, a 10% decrease in the estimated selling price of inventory would not have had a material NRV impact as of February 29, 2024.

Interest Rate Risk

There have been no material changes to our disclosure regarding interest rate risk set forth in Item 7A. Quantitative and Qualitative Disclosures About Market Risk included in our Annual Report on Form 10-K for the year ended August 31, 2023.

Credit Risk

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

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

As of February 29, 2024 and August 31, 2023, 28% and 38%, respectively, of our accounts receivable balance was 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.

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ITEM 4. CONTROLS AND PROCEDURES

Disclosure Controls and Procedures

We maintain disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the Securities and Exchange Act of 1934, as amended (the “Exchange Act”)) that are designed to ensure that information we are required to disclose in the reports we file or submit under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified by the Securities and Exchange Commission’s rules and forms and that such information is accumulated and communicated to management, including the Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosures. Any controls and procedures, no matter how well designed and operated, can only provide reasonable assurance of achieving the desired control objectives. Our management, with the participation of the Chief Executive Officer and Chief Financial Officer, has completed an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures. Based on this evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that, as of February 29, 2024, our disclosure controls and procedures were effective at the reasonable assurance level.

Changes in Internal Control Over Financial Reporting

There was no change in our internal control over financial reporting (as that term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the quarter ended February 29, 2024, that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

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PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

Information regarding reportable legal proceedings is contained in Part I, “Item 3. Legal Proceedings” in our Annual Report on Form 10-K for the fiscal year ended August 31, 2023; and in Part II, “Item 1. Legal Proceedings” in our Quarterly Report on Form 10-Q for the quarterly period ended November 30, 2023. Also see Note 5 - Commitments and Contingencies in the Notes to the Unaudited Condensed Consolidated Financial Statements in Part I, Item 1 of this Quarterly Report on Form 10-Q, incorporated by reference herein.

 

ITEM 1A. RISK FACTORS

There have been no material changes to our risk factors reported or new risk factors identified since the filing of our Annual Report on Form 10-K for the year ended August 31, 2023.

 

ITEM 5. OTHER INFORMATION

During the three months ended February 29, 2024, 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).

Appointment of Chief Accounting Officer

On April 1, 2024, the Board of Directors (the “Board”) of Radius Recycling, Inc. (the “Company”) appointed Erika Kelley to serve as the Company’s Vice President and Chief Accounting Officer, effective April 8, 2024. Following the effectiveness of Ms. Kelley’s appointment, Stefano Gaggini will step down from his role as interim Chief Accounting Officer but will remain in his role as Senior Vice President and Chief Financial Officer. Prior to her appointment, Ms. Kelley, 46, served in various roles of increasing responsibility with Intel Corporation since 2012, including most recently as Corporate Controller, Accounting Operations since 2022. Prior to that, Ms. Kelley served as Intel Capital/M&A Accounting Senior Controller from 2019 until 2022 and as SEC and External Reporting Controller from 2015 until 2019.

In connection with her appointment, the Company entered into an offer letter with Ms. Kelley, pursuant to which Ms. Kelley will receive a base salary of $350,000 per annum, will be eligible to participate in the Company’s Annual Incentive Compensation Plan (“AICP”), with a target AICP bonus equal to 50% of her annual base salary, and will be recommended to participate in the Company’s Long-Term Incentive Plan. Further, pursuant to the offer letter, Ms. Kelley is entitled to receive a signing bonus of $100,000 upon commencement of employment with the Company and an additional signing bonus of $100,000 after completing 12 months of employment with the Company. In the event that Ms. Kelley voluntarily terminates her employment within 12 months following receipt of either signing bonus, she is required to repay the signing bonus to the Company on a pro-rated basis. Ms. Kelley is also eligible to participate in the Company’s health, welfare and retirement employee benefit plans.

It is expected that Ms. Kelley will enter into the Company’s standard form of indemnification and change in control agreements, in substantially the same forms filed as Exhibits 10.20 and 10.26, respectively, to the Company’s Annual Report on Form 10-K for the fiscal year ended August 31, 2023.

The selection of Ms. Kelley to serve as Vice President and Chief Accounting Officer was not pursuant to any arrangement or understanding with respect to any other person. There are no family relationships between Ms. Kelley and any director or executive officer of the Company, and there are no transactions between Ms. Kelley and the Company that would be required to be reported under Item 404(a) of Regulation S-K.

 

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ITEM 6. EXHIBITS

 

Exhibit Number		Exhibit Description
3.1		Amended and Restated Articles of Incorporation. Filed as Exhibit 3.1 to the Registrant’s Current Report on Form 8-K filed on February 2, 2024 and incorporated by reference herein.
3.2		Amended and Restated Bylaws of the Registrant. Filed as Exhibit 3.2 to the Registrant’s Current Report on Form 8-K filed on February 2, 2024 and incorporated by reference herein.
10.1*		Form of Deferred Stock Unit Award Agreement under the 2024 Omnibus Incentive Plan used for non-employee directors for awards granted in 2024
10.2*		Summary Sheet for 2024 Non-Employee Director Compensation
10.3*		Radius Recycling, Inc. 2024 Omnibus Incentive Plan. Filed as Exhibit 10.1 to the Registrant’s Registration Statement on Form S-8 filed on January 30, 2024 and incorporated herein by reference.
31.1		Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2		Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1		Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2		Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101.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 With Embedded Linkbase Documents
104		Cover Page Interactive Data File (formatted as inline XBRL and contained in Exhibit 101)

* Management contract or compensatory plan or arrangement.

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SIGNATURES

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

 

				RADIUS RECYCLING, INC.
				(Registrant)
Date:		April 4, 2024		By:		/s/ Tamara L. Lundgren
						Tamara L. Lundgren
						Chairman, President and Chief Executive Officer
Date:		April 4, 2024		By:		/s/ Stefano R. Gaggini
						Stefano R. Gaggini
						Senior Vice President and Chief Financial Officer

 

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