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.

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 ~~27,433,470~~27,165,180 shares of Class A common stock, par value of $1.00 per share, and 200,000 shares of Class B common stock, par value of $1.00 per share, outstanding as of January 3, 2023.

Statements and information included in this Quarterly Report on Form 10-Q by 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,” and “SSI” refer to Schnitzer Steel Industries, Inc. and its consolidated subsidiaries.

Forward-looking statements in this Quarterly Report on Form 10-Q include statements regarding future events or our expectations, intentions, beliefs, and strategies regarding the future, which may include statements regarding the impact of ~~pandemics, epidemics, or other public health emergencies, such as the coronavirus disease 2019 (“COVID-19”) pandemic; the impact of~~ equipment upgrades, equipment failures, and facility damage on production, including timing of repairs and resumption of operations; the realization of insurance recoveries; the impact of pandemics, epidemics, or other public health emergencies, such as the coronavirus disease 2019 (“COVID-19”) pandemic; the Company’s outlook, growth initiatives, or expected results or objectives, including pricing, margins, sales volumes, and profitability; completion of acquisitions and integration of acquired businesses; the impacts of supply chain disruptions, inflation, and ~~inflation;~~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 ~~potential impact of adopting new accounting pronouncements; the~~ impact of labor shortages or increased labor costs; obligations under our retirement plans; benefits, savings, or additional costs from business realignment, cost containment, and productivity improvement programs; 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, as supplemented by our subsequently filed Quarterly Reports on Form 10-Q.~~10-K. Examples of these risks include: ~~the impact of pandemics, epidemics, or other public health emergencies, such as the COVID-19 pandemic; the impact of equipment upgrades, equipment failures, and facility damage on production;~~ potential environmental cleanup costs related to the Portland Harbor Superfund site or other locations; the impact of equipment upgrades, equipment failures, and facility damage on production; failure to realize or delays in realizing expected benefits from capital projects, including investments in processing and manufacturing technology improvements; the cyclicality and impact of general economic conditions; the impact of inflation, rising interest rates, and foreign currency fluctuations; changing conditions in global markets including the impact of sanctions and tariffs, quotas, and other trade actions and import restrictions; increases in the relative value of the U.S. dollar; economic and geopolitical instability 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; ~~inability to obtain or renew business licenses and permits;~~ the impact of goodwill impairment charges; the impact of long-lived asset and equity investment impairment charges; ~~failure to realize~~the impact of pandemics, epidemics, or ~~delays in realizing expected benefits from investments in processing and manufacturing technology improvements;~~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; ~~increases in the relative value of the U.S. dollar; the impact of inflation and foreign currency fluctuations;~~ potential limitations on our ability to access capital resources and existing credit facilities; restrictions on our business and financial covenants under the agreement governing our bank credit facilities; the impact of consolidation in the steel industry; product liability claims; the impact of legal proceedings and legal compliance; the adverse impact of climate change; the impact of not realizing deferred tax assets; the impact of tax increases and changes in tax rules; the impact of one or more cybersecurity incidents; translation risks associated with fluctuation in foreign exchange rates; 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.

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

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

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

Note 1 - Summary of Significant Accounting Policies

Basis of Presentation

The accompanying Unaudited Condensed Consolidated Financial Statements of Schnitzer Steel Industries, Inc. and its majority-owned and wholly-owned subsidiaries (the “Company”) have been prepared pursuant to generally accepted accounting principles in the United States of America (“U.S. GAAP”) for interim financial information and the rules and regulations of the United States Securities and Exchange Commission (the “SEC”) for Form 10-Q, including Article 10 of Regulation S-X. The year-end condensed consolidated balance sheet data was derived from audited financial statements but does not include all disclosures required by U.S. GAAP. Certain information and note disclosures normally included in annual financial statements have been condensed or omitted pursuant to the rules and regulations of the SEC. In the opinion of management, all normal, recurring adjustments considered necessary for a fair statement have been included. Management suggests that these Unaudited Condensed Consolidated Financial Statements be read in conjunction with the financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the fiscal year ended August 31, ~~2021.~~2022. The results for the three ~~and six~~ months ended ~~February 28,~~November 30, 2022 and 2021 are not necessarily indicative of the results of operations for the entire fiscal year.

Segment Reporting

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

The accounting standards for reporting information about operating segments define an operating segment as a component of an enterprise that engages in business activities from which it may earn revenues and incur expenses for which discrete financial information is available that is evaluated regularly by the chief operating decision-maker in deciding how to allocate resources and in assessing performance. The Company’s internal organizational and reporting structure reflects a functionally based, integrated model and includes a single operating and reportable ~~segment~~.segment.

Cash and Cash Equivalents

Cash and cash equivalents include short-term securities that are not restricted by third parties and have an original maturity date of 90 days or less. Included in accounts payable are book overdrafts representing outstanding checks in excess of funds on deposit of ~~$45~~$52 million and ~~$47~~$56 million as of ~~February 28,~~November 30, 2022 and August 31, ~~2021,~~2022, respectively.

Accounts Receivable, net

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

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

Also included in accounts receivable are short-term advances to scrap metal suppliers used as a mechanism to acquire unprocessed scrap metal. The advances are generally repaid with scrap metal, as opposed to cash. Repayments of advances with scrap metal are treated as noncash operating activities in the Unaudited Condensed Consolidated Statements of Cash Flows and totaled ~~$6 million and $5~~$3 million for each of the ~~six~~three months ended ~~February 28,~~November 30, 2022 and ~~2021, respectively.~~2021.

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SCHNITZER STEEL INDUSTRIES, INC.

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Prepaid Expenses

The Company’s prepaid expenses, reported within prepaid expenses and other current assets in the Unaudited Condensed Consolidated Balance Sheets, totaled ~~$16~~$36 million and ~~$22~~$43 million as of ~~February 28,~~November 30, 2022 and August 31, ~~2021,~~2022, respectively, and consisted primarily of deposits on capital projects, prepaid services, prepaid insurance, and prepaid property taxes.

Other Assets

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

Receivables from insurers represent the portion of insured losses expected to be recovered from the Company’s insurers. The receivable is recorded at an amount not to exceed the recorded loss and only if the terms of legally enforceable insurance contracts support that the insurance recovery will not be disputed and is deemed collectible. Receivables from insurers totaled ~~$20~~$27 million and ~~$21~~$28 million as of ~~February 28,~~November 30, 2022 and August 31, ~~2021,~~2022, respectively. ~~Receivables~~As of November 30, 2022, receivables from insurers ~~as of February 28, 2022~~ comprised primarily ~~$10~~$10 million relating to property loss and damage and other claims in connection with the December 2021 fire at the Company’s shredder facility in Everett, Massachusetts, $6$6 million relating to environmental claims, $6 million relating to third-party claims, and $4$4 million relating to workers’ compensation claims. ~~Receivables from insurers as~~As of August 31, ~~2021~~2022, receivables from insurers comprised primarily ~~$10~~$10 million relating to property loss and damage and other claims in connection with the ~~May~~December 2021 fire at the Company’s ~~melt shop operations~~shredder facility in ~~McMinnville, Oregon, $6~~Everett, Massachusetts, $7 million relating to environmental claims, $6 million relating to third-party claims, and $4$4 million relating to workers’ compensation claims. See “Accounting for Impacts of Involuntary Events” below in this Note for further discussion of receivables and advance payments from insurers relating to property damage and business interruption claims.

Other assets as of ~~both February 28,~~each of November 30, 2022 and August 31, ~~2021~~2022 also included approximately $8$7 million in connection with cash deposited into a client trust account in the second quarter of fiscal 2021 to fund the remediation of a site, a portion of which was previously leased to and operated by an indirect, wholly-owned subsidiary. The cash was deposited into the client trust account by other potentially liable parties in connection with settlement of a lawsuit relating to allocation of the remediation costs, including agreement by the Company’s subsidiary to perform certain remedial actions. See “Other Legacy Environmental Loss Contingencies” within “Contingencies – Environmental” in Note 5 - Commitments and Contingencies for further discussion of this matter.

The Company invested $6$6 million in the equity of a privately-held U.S. waste and recycling entity in fiscal ~~2017.~~2017, and in May 2022, the Company invested $5 million in the equity of an unrelated privately-held Canadian recycling technology entity. In August 2022, the privately-held U.S. waste and recycling entity merged with a publicly-traded U.S. entity. As a result of the merger, the Company's investment is held in equity units of a subsidiary of the publicly-traded entity, which equity units are not publicly traded but are exchangeable for shares of the publicly traded entity. The timing and magnitude of exchange is solely at the discretion of the publicly traded entity. The Company's influence over the operating and financial policies of each entity is not significant, and, thus, the investments are accounted for under the guidance for investments in equity securities. The equity ~~investment does~~investments do not have a readily determinable fair ~~value~~values and, therefore, isare carried at cost and adjusted for impairments and observable price changes. In the first quarter of fiscal 2023, the Company identified an impairment indicator for its investment in the U.S. waste and recycling entity and, based on its fair value measurement incorporating observable trading prices of the publicly-traded entity and unobservable inputs, recognized a $4 million impairment in other loss, net on the Unaudited Condensed Consolidated Statement of Operations. The Company has not recorded any impairments or upward or downward adjustments to the carrying value of its investment isin the Canadian recycling technology entity since its acquisition. Both investments are reported within other assets in the Unaudited Condensed Consolidated Balance Sheets. TheAs of November 30, 2022 and August 31, 2022, the aggregate carrying value of the ~~investment~~investments was $6$7 million ~~as of February 28, 2022~~and ~~August 31, 2021. The~~ $~~Company has not recorded any impairments~~ 11~~or upward or downward adjustments to the carrying value of the investment since acquisition.~~ million, respectively.

Accounting for Impacts of Involuntary Events

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

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SCHNITZER STEEL INDUSTRIES, INC.

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

On May 22, 2021, the Company experienced a fire at its steel mill in McMinnville, Oregon. Direct physical loss or damage to property from the incident was limited to the mill’s melt shop, with no bodily injuries and no physical loss or damage to other buildings or equipment. As a result of the fire, the rolling mill production ceased in early June 2021. In August 2021, the steel mill began ramping up operations following the substantial completion of replacement and repairs of property and equipment in the melt shop that had been lost or damaged by the fire. The Company experienced the loss of business income during the shutdown of the steel mill and the subsequent ramp-up phase, which was substantially completed during the second quarter of fiscal 2022. The Company filed initial insurance claims for the physical loss and damage experienced at the mill’s melt shop and business income losses resulting from the matter. As of August 31, 2021, prepaid expenses and other current assets ~~in the Unaudited Condensed Consolidated Balance Sheets~~ included an initial ~~$10~~$10 million insurance receivable recognized in ~~the fourth quarter of~~ fiscal 2021, primarily offsetting applicable losses including capital purchases of ~~$10~~$10 million that had been incurred by the Company as of August 31, 2021. In ~~the first half of~~ fiscal 2022, the Company increased the amount of this insurance receivable to ~~$25~~$25 million and recognized a related ~~$15~~$15 million insurance recovery gain $3within cost of goods sold, $3 million ~~recorded~~of which was recognized in the first quarter of fiscal 2022 and ~~$12 million recorded in the second quarter,~~included within ~~cost of goods sold in~~ the Unaudited Condensed Consolidated Statements of ~~Income,~~Operations, reflecting recovery of applicable losses incurred as a result of the fire to date. In addition, during ~~the first half of~~ fiscal 2022, the Company received advance payments from insurers totaling approximately ~~$30~~$30 million towards the Company’s claims, and not reflecting any final or full settlement of claims with the insurers, which amount reduced the ~~$25~~$25 million insurance receivable to 0zero with the remaining amount of advance payments of $5$5 million reported within other accrued liabilities in the Unaudited Condensed Consolidated Balance Sheets as of ~~February 28,~~November 30, 2022 and August 31, 2022.

On December 8, 2021, the Company experienced a fire at its metals recycling facility in Everett, Massachusetts. Direct physical loss or damage to property from the incident was limited to the facility’s shredder building and equipment, with no bodily injuries and no physical loss or damage to property reported at other buildings or equipment. As a result of the fire, shredding operations ceased, while all non-shredding operations at the facility continued, including torching, shearing, separating, and sorting purchased non-shreddable recycled ferrous metals. On January 28, 2022, shredding operations at the facility began ramping up following the replacement and repairs to shredder equipment that had been damaged. Completion of the remainder of repair and replacement of property that experienced physical loss or damage, primarily buildings and improvements, will occur over a longer period and impacts on business income may continue. In addition, shredding operations temporarily ceased at the facility on June 18, 2022 and, following discussions with the Massachusetts Department of Environmental Protection and the Massachusetts Attorney General’s office, the Company installed a temporary emission capture system and controls that allowed for the resumption of shredding operations on November 11, 2022 and for continued operation during the repair and replacement of the shredder enclosure building. Non-shredding operations at the facility continued during this period. The Company filed initial insurance claims for the property that experienced physical loss or damage and anticipated business income losses resulting from the matter. In ~~the second quarter of~~ fiscal 2022, after the fire, the Company recognized an ~~initial $10~~aggregate $17 million insurance receivable and related insurance recovery gain, reported within prepaid expenses and other current assets ~~in the Unaudited Condensed Consolidated Balance Sheets~~ and ~~within~~ cost of goods sold, ~~in the Unaudited Condensed Consolidated Statements of Income,~~ respectively, reflecting recovery of ~~applicable losses~~costs including impairment charges of $6$7 million related to the carrying value of plant and equipment assets lost in or damaged by the fire and initial capital purchases, non-capitalizable repair and replacement costs, and other ~~costs~~applicable losses totaling $4$10 million that had been incurred by the Company as of ~~February 28,~~August 31, 2022. Also, during fiscal 2022, the Company received advance payments from insurers totaling approximately $7 million towards the Company's claims, and not reflecting any final or full settlement of claims with the insurers, which amount reduced the insurance receivable to $10 million as of November 30, 2022 and August 31, 2022.

Investments in Joint Ventures

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

Business Acquisitions

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

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SCHNITZER STEEL INDUSTRIES, INC.

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Concentration of Credit Risk

Financial instruments that potentially subject the Company to significant concentration of credit risk consist primarily of cash and cash equivalents and accounts receivable. The majority of cash and cash equivalents is maintained with major financial institutions. Balances with these and certain other institutions exceeded the Federal Deposit Insurance Corporation insured amount oof $~~f $250~~250 thousand as of ~~February 28,~~November 30, 2022. Concentration of credit risk with respect to accounts receivable is limited because a large number of geographically diverse customers make up the Company’s customer base. The Company controls credit risk through credit approvals, credit limits, credit insurance, letters of credit or other collateral, cash deposits, and monitoring procedures.

Recent Accounting Pronouncements

The Company does not expect that its adoption in the future of any recently issued accounting pronouncements will have a material impact on its consolidated financial statements.

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~~SCHNITZER STEEL INDUSTRIES, INC.~~

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

Note 2 - Inventories

Inventories consisted of the following (in thousands):


	November 30, 2022		August 31, 2022
Processed and unprocessed scrap metal	$	203,432	$	166,368
Semi-finished goods		12,706		20,009
Finished goods		69,848		72,625
Supplies		59,212		56,187
Inventories	$	345,198	$	315,189

February 28, 2022

August 31, 2021

Processed and unprocessed scrap metal

$
198,058

$
164,960

Semi-finished goods

18,449

7,671

Finished goods

60,680

39,368

Supplies

46,744

44,428

Inventories

$
323,931

$
256,427

On ~~October 1, 2021,~~November 18, 2022, the Company used cash on hand and borrowings under existing credit facilities to acquire 8the operating assets of ScrapSource, a recycling services company that provides solutions for industrial companies that generate scrap metal from their manufacturing process. The acquired business expands the Company's national recycling services operations, giving rise to expected benefits supporting the amount of acquired goodwill. The transaction qualified as a business combination for accounting purposes, which involves application of the acquisition method described in Accounting Standards Codification Topic 805, Business Combinations, and summarized in “Business Acquisitions” in Note 1 - Summary of Significant Accounting Policies. The total purchase consideration was approximately $25 million. As of the date of this report, measurement of the fair values of assets acquired and liabilities assumed is still preliminary and subject to change based on the completion of valuation procedures.

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


Operating lease right-of-use assets	$	466
Goodwill(1)		14,759
Other intangible assets(2)		10,310
Total assets acquired		25,535
Operating lease liability		466
Total liabilities assumed		466
Net assets acquired	$	25,069

(1)

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

(2)

Acquired other intangible assets comprise supplier relationships, customer relationships, and non-compete agreements with estimated useful lives of 5 to 6 years.

The results of operations for the acquired ScrapSource business beginning as of the November 18, 2022 acquisition date are included in the accompanying financial statements. For the three months ended November 30, 2022, the revenues and net income contributed by the acquired ScrapSource business and reported in the Unaudited Condensed Consolidated Statements of Operations were not material to the financial statements taken as a whole.

On October 1, 2021, the Company completed the acquisition of eight metals recycling facilities across Mississippi, Tennessee, and Kentucky from Columbus Recycling, a provider of recycled ferrous and nonferrous metal products and recycling services. The ~~transaction qualified as a business combination for accounting purposes, which involves application of the acquisition method described in Accounting Standards Codification Topic 805,~~ ~~Business Combinations~~, and summarized in “Business Acquisitions” in Note 1 – Summary of Significant Accounting Policies. The cash purchase price was approximately $107 million, subject to adjustment for acquired net working capital relative to an agreed-upon benchmark, as well as other adjustments. The Company paid at closing an additional $7 million for estimated net working capital in excess of the benchmark, which is still subject to adjustment as of the date of this report, resulting in total purchase consideration ~~measured as~~ of the end of the second quarter of fiscal 2022 of approximately $114 million. The acquired Columbus Recycling operations purchase and process scrap metal from industrial manufacturers, local recycling companies, and individuals, and sell the recycled products$117 million was allocated to regional foundries and steel mills. Combined with the Company’s twelve existing regional metals recycling facilities in Georgia, Alabama, and Tennessee, the acquired operations offer additional recycling products, services, and logistics solutions to customers and suppliers across the Southeast, giving rise to expected benefits supporting the amount of acquired goodwill.

~~The following table summarizes the provisional fair values of~~ the assets acquired and liabilities assumed bybased on their respective estimated fair values on the ~~Company as~~date of the ~~October 1, 2021 acquisition date (in thousands):~~

acquisition. The ~~following table summarizes~~$65 million excess of the ~~provisional~~total purchase ~~price allocation to~~consideration over the fair value of the identifiable ~~intangible~~net assets ~~and their estimated useful lives~~acquired was recorded as ~~of the October 1, 2021 acquisition date (in thousands):~~

goodwill. The results of operations for the acquired Columbus Recycling business beginning as of the October 1, 2021 acquisition date are included in the accompanying financial statements.

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

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


	Three Months Ended November 30,
	2021
Revenues	$	840,500
Net income	$	53,000
Net income attributable to SSI shareholders	$	51,500

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

For each of the three ~~and six~~ months ended ~~February 28,~~November 30, 2022 and 2021, the unaudited ~~amount~~pro forma amounts of revenues ~~of the acquired Columbus Recycling business equaled 6% or less of the Company’s consolidated revenues reported in the Unaudited Condensed Consolidated Statements of Income,~~ and ~~the unaudited amount of~~ net income of the acquired ~~Columbus Recycling~~ScrapSource business ~~was~~were not material to the financial statements taken as a ~~whole. Because~~whole and, therefore, are not included in the unaudited pro forma information presented above.

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

Note 4 - Goodwill

The Company evaluates goodwill for impairment annually on July 1 and upon the occurrence of certain triggering events or substantive changes in circumstances that indicate that the fair value of goodwill may be impaired. There were no triggering events identified during the first three months of fiscal 2023 requiring an interim goodwill impairment test, and the Company did not record a goodwill impairment charge in any of the periods presented.

Impairment of goodwill is tested at the reporting unit level. A reporting unit is an operating segment or one level below an operating segment (referred to as a “component”). A component of an operating segment is required to be identified as a reporting unit if the component is a business for which discrete financial information is available and segment management regularly reviews its operating results. ~~There were no triggering~~The Company most recently performed the quantitative impairment test for goodwill carried by two of its reporting units, consisting of a regional metals recycling operation and its network of auto parts stores, as of July 1, 2022. For the metals recycling and autos reporting units subject to the quantitative impairment test, the estimated fair value of the reporting unit exceeded its carrying amount by approximately 32% and 44%, respectively, as of July 1, 2022.

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SCHNITZER STEEL INDUSTRIES, INC.

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

The determination of fair value of the reporting units used to perform the impairment test requires judgment and involves significant estimates and assumptions about the expected future cash flows and the impact of market conditions on those assumptions. Future events ~~identified during~~and changing market conditions may impact management's assumptions used to estimate the ~~first half~~reporting units’ fair value. Although the Company believes the assumptions used in testing its reporting units’ goodwill for impairment are reasonable, a lack of ~~fiscal 2022 requiring~~recovery or further deterioration in market conditions from current levels, a trend of weaker than anticipated financial performance for the reporting units with allocated goodwill, a decline in the Company's share price from current levels for a sustained period of time, or an ~~interim~~increase in the weighted average cost of capital, among other factors, could significantly impact the Company's impairment analysis and may result in future goodwill impairment ~~test,~~charges that, if incurred, could have a material adverse effect on its financial condition and ~~the Company did not record a goodwill impairment charge in any~~results of ~~the periods presented.~~operations.

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


	Goodwill
August 31, 2022	$	255,198
Additions(1)		14,759
Measurement period adjustments(2)		805
Foreign currency translation adjustment		(413	)
November 30, 2022	$	270,349

Goodwill

August 31, 2021

$
170,304

Additions⁽¹⁾

62,325

Foreign currency translation adjustment

(92
)
February 28, 2022

$
232,537

(1)

~~(1)~~

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

~~Accumulated~~ goodwill ~~impairment~~ relate entirely to the ScrapSource business acquired on November 18, 2022. See Note 3 - Business Acquisitions.

Note 5 - Commitments and Contingencies

Contingencies - Environmental

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

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

Balance as of September 1, 2021		Liabilities Established (Released), Net		Payments and Other			Balance as of February 28, 2022		Short-Term		Long-Term

Balance as of September 1, 2022													Balance as of September 1, 2022	Liabilities Established (Released), Net		Payments and Other			Balance as of November 30, 2022		Short-Term		Long-Term
$	77,128	$	6,986	$	(16,283	)	$	67,831	$	12,987	$	54,844	68,500	$	920	$	(3,435	)	$	65,985	$	10,919	$	55,066

~~The~~As of November 30, 2022 and August 31, 2022, the Company had environmental liabilities of $~~$68~~66 million and ~~$77~~$69 million, ~~as of February 28, 2022 and August 31, 2021,~~ respectively, for the potential remediation of locations where it has conducted business or has environmental liabilities from historical or recent activities. ~~The~~These liabilities relate to the investigation and potential ~~future~~ remediation of ~~contaminated sediments~~waterways and ~~riverbanks,~~ soil ~~contamination,~~and groundwater contamination ~~storm water runoff issues,~~ and ~~other~~may also involve natural resource ~~damages.~~damages, governmental fines and penalties, and claims by third parties for personal injury and property damage. Except for Portland Harbor and certain liabilities discussed under “Other Legacy Environmental Loss Contingencies” below, such liabilities were not individually material at any site.

~~Table of Contents~~

~~SCHNITZER STEEL INDUSTRIES, INC.~~

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

Portland Harbor

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

The precise nature and extent of cleanup of any specific areas within ~~the Site,~~Portland Harbor, the parties to be involved, the timing of any specific remedial action and the allocation of the costs for any cleanup among responsible parties have not yet been determined. The process of site investigation, remedy selection, identification of additional PRPs, and allocation of costs has been underway for a number of years, but significant uncertainties remain. It is unclear to what extent the Company will be liable for environmental costs or third-party contribution or damage claims with respect to ~~the Site.~~Portland Harbor.

Table of Contents

SCHNITZER STEEL INDUSTRIES, INC.

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

From 2000 to 2017, the EPA oversaw a remedial investigation/feasibility study (“RI/FS”) at ~~the Site.~~Portland Harbor. The Company was not among the parties that performed the RI/FS, but it contributed to the costs through an interim settlement with the performing parties. The performing parties have indicated that they incurred more than ~~$155~~$155 million in that effort.

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

In the ROD, the EPA acknowledged that much of the data was more than a decade old at that time and would need to be updated with a new round of “baseline” sampling to be conducted prior to the remedial design phase. The remedial design phase is an engineering phase during which additional technical information and data are collected, identified, and incorporated into technical drawings and specifications developed for the subsequent remedial action. Following issuance of the ROD, the EPA proposed that the PRPs, or a subgroup of PRPs, perform the additional investigative work in advance of remedial design.

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

~~Table of Contents~~

~~SCHNITZER STEEL INDUSTRIES, INC.~~

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

The EPA encouraged PRPs to step forward (individually or in groups) to enter into consent agreements to perform remedial design in various project areas covering ~~the entire Site.~~Portland Harbor. While certain PRPs executed consent agreements for remedial design work, because of the EPA’s refusal to date to modify the remedy to reflect the most current data on ~~Site~~Portland Harbor conditions and because of concerns with the terms of the consent agreement, the Company elected not to enter into a consent agreement. In April 2020, the EPA issued a unilateral administrative order (“UAO”) to the Company and MMGL, LLC (“MMGL”), an unaffiliated company, for the remedial design work in a portion of ~~the Site~~Portland Harbor designated as the River Mile 3.5 East Project Area. As required by the UAO, the Company notified the EPA of its intent to comply while reserving all of its sufficient cause defenses. Failure to comply with a UAO, without sufficient cause, could subject the Company to significant penalties or treble damages. Pursuant to the optimized remedial design timeline set forth in the UAO, the EPA’s expected schedule for completion of the remedial design work is was four ~~years. The~~years. At the time it issued the UAO in April 2020, the EPA ~~has~~ estimated the cost of the work at approximately $4$4 million. The Company has agreed with the other respondent to the UAO, MMGL, that the Company will lead the performance and be responsible for a portion of the costs of the work for remedial design under the UAO and also entered into an agreement with another PRP pursuant to which such other PRP has agreed to fund a portion of the costs of such work. These agreements are not an allocation of liability or claims associated with ~~the Site~~Portland Harbor as between the respondents or with respect to any third party. ~~The~~As of November 30, 2022 and August 31, 2022, the Company ~~estimated that its share of the costs of performing such work under the UAO would be approximately $3~~had $3 million ~~which it recorded~~in environmental reserves related to ~~environmental liabilities and selling, general, and administrative expense in the consolidated financial statements in the third quarter of fiscal 2020.~~this matter. The Company has insurance policies and a Qualified Settlement Fund (“QSF”) pursuant to which the Company is being reimbursed for the costs it has incurred for remedial design. InSee further discussion of the ~~second quarter~~QSF below in this Note. As of ~~fiscal 2021,~~both November 30, 2022 and August 31, 2022, the Company ~~recorded an~~had insurance ~~receivable~~ and ~~a related insurance recovery to selling, general, and administrative expense~~other receivables in the same amount as the environmental reserves for ~~approximately $3 million.~~such remedial design work under the UAO. See “Other Assets” in Note 1 –- Summary of Significant Accounting Policies for further discussion of ~~receivables from insurers.~~insurance and other related receivables. The Company also expects to pursue in the future allocation or contribution from other PRPs for a portion of such remedial design costs. In February 2021, the EPA announced that 100 percent of ~~the Site’s~~Portland Harbor’s areas requiring active cleanup are in the remedial design phase of the process.

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

Table of Contents

SCHNITZER STEEL INDUSTRIES, INC.

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

The Company has joined with approximately 100 other PRPs, including the RI/FS performing parties, in a voluntary process to establish an allocation of costs at ~~the Site,~~Portland Harbor, including the costs incurred in the RI/FS, ongoing remedial design costs, and future remedial action costs. The Company expects 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 ~~the Site.~~Portland Harbor. In 2008, the Trustee Council invited the Company and other PRPs to participate in funding and implementing the Natural Resource Injury Assessment for ~~the Site.~~Portland Harbor. The Company and other participating PRPs ultimately agreed to fund the first two phases of the three-phase assessment, which included the development of the Natural Resource Damage Assessment Plan (“AP”) and implementation of the AP to develop information sufficient to facilitate early settlements between the Trustee Council and Phase 2 participants and the identification of restoration projects to be funded by the settlements. In late May 2018, the Trustee Council published notice of its intent to proceed with Phase 3, which will involve the full implementation of the AP and the final injury and damage determination. The Company is proceeding with the process established by the Trustee Council regarding early settlements under Phase 2. The Company has established an environmental reserve of approximately ~~$2.3~~$2.3 million for this alleged natural resource damages liability as it continues to work with the Trustee Council to finalize an early settlement. ~~The Company has insurance policies that it believes will provide reimbursement for costs related to this matter.~~ As of ~~February 28,~~each of November 30, 2022 and August 31, ~~2021,~~2022, the Company had ~~an insurance~~ a receivable in the same amount as the environmental reserve. See ~~“Other~~“Other Assets” in Note 1 –- Summary of Significant Accounting Policies for further discussion of ~~receivables from insurers.~~insurance and other related receivables.

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

~~Table of Contents~~

~~SCHNITZER STEEL INDUSTRIES, INC.~~

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

The Company’s environmental liabilities as of ~~February 28,~~each of November 30, 2022 and August 31, ~~2021~~2022 included $5$6 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, the Company believes it is not possible to reasonably estimate the amount or range of costs which it is likely to or which it is reasonably possible that it will incur in connection with ~~the Site,~~Portland Harbor, although such costs could be material to the Company’s financial position, results of operations, cash flows, and liquidity. Among the facts 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 ~~the Site,~~Portland Harbor, which are factors that will play a substantial role in determining the allocation of investigation and remedy costs among the PRPs.

The Company has insurance policies that it believes will provide reimbursement for costs it incurs for defense, remedial design, remedial action, and mitigation for or settlement of natural resource damages claims in connection with ~~the Site.~~Portland Harbor. Most of these policies jointly insure the Company and MMGL, as the successor to a former subsidiary of the Company. The Company and MMGL have negotiated the settlement with certain insurers of claims against them related to ~~the Site,~~Portland Harbor, continue to seek settlements with other insurers, and formed a ~~Qualified Settlement Fund (“QSF”)~~QSF which became operative in fiscal 2020 to hold such settlement amounts until funds are needed to pay or reimburse costs incurred by the Company and MMGL in connection with ~~the Site.~~Portland Harbor. These insurance policies and the funds in the QSF may not cover all of the costs which the Company may incur. The QSF is an unconsolidated variable interest entity (“VIE”) with no primary beneficiary. Two parties unrelated to each other, one appointed by the Company and one appointed by MMGL, share equally the power to direct the activities of the VIE that most significantly impact its economic performance. The Company’s appointee to co-manage the VIE is an executive officer of the Company. Neither MMGL nor its appointee to co-manage the VIE is a related party of the Company for the purpose of the primary beneficiary assessment or otherwise.

Table of Contents

SCHNITZER STEEL INDUSTRIES, INC.

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

The Oregon Department of Environmental Quality is separately providing oversight of investigations and source control activities by the Company at various sites adjacent to Portland Harbor that are focused on controlling any current “uplands” releases of contaminants into the Willamette River. NoThe Company has accrued liabilities ~~have been established in connection with these investigations beyond the~~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,~~date. No liabilities have been established in connection with investigations for any other sites because the extent of contamination, required source control work, and the Company’s responsibility for the contamination and source control work, in each case if any, have not yet been determined. In addition, pursuant to its insurance policies, the Company is being reimbursed for the costs it incurs for required source control evaluation and remediation work. As of each of November 30, 2022 and August 31, 2022, the Company had an insurance receivable in the same amount as the environmental reserve for such source control work.

Other Legacy Environmental Loss Contingencies

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

~~Table of Contents~~

~~SCHNITZER STEEL INDUSTRIES, INC.~~

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

In fiscal 2018, the Company accrued ~~an initial $4~~$4 million for the estimated costs related to remediation of shredder residue disposed of in or around the 1970s at third-party sites located near each other. Investigation activities have been conducted under oversight of the applicable state regulatory agency. As of ~~both~~ ~~February 28,~~each of November 30, 2022 and August 31, ~~2021~~,2022, the Company had $4$4 million accrued for this matter. It is reasonably possible that the Company may recognize additional liabilities in connection with this matter at the time such losses are probable and can be reasonably estimated. The Company previously estimated a range of reasonably possible losses related to this matter in excess of current accruals at between 0zero and ~~$28~~$28 million based on a range of remedial alternatives and subject to development and approval by regulators of specific remedy implementation plans. However, subsequent to the development of those remedial alternatives, the Company performed additional investigative activities under new state requirements that ~~have the potential~~are likely to impact the required remedial actions and associated cost estimates, ~~pending~~but the scope of such impacts and the amount or the range of the additional associated costs are not reasonably estimable at this time and are subject to further investigation, analysis, and discussion by the Company and regulators. The Company is investigating whether a portion or all of the current and future losses related to this matter, if incurred, are covered by existing insurance coverage or may be offset by contributions from other responsible parties.

In addition, the Company’s loss contingencies as of ~~February 28,~~November 30, 2022 and August 31, ~~2021~~2022 included $8$7 million and ~~$19~~$8 million, respectively, for the estimated costs related to environmental matters in connection with a closed facility owned and previously operated by an indirect, wholly-owned subsidiary, including monitoring and remediation of soil and groundwater conditions and funding for wellhead treatment facilities. In the ~~second~~first quarter of fiscal ~~2022,~~2023, the Company accrued $3an incremental $1 million for certain soil remediation activities based on additional information related to estimated costs to complete. Investigation and remediation activities have been conducted under the oversight of the applicable state regulatory agency and are on-going, and the Company’s subsidiary has also been working with state and local officials with respect to the protection of public and private water supplies. As part of its activities relating to the protection of public water supplies, the Company’s subsidiary agreed to reimburse the municipality for certain studies and plans and to provide funding for the construction and operation by the municipality of wellhead treatment ~~facilities, which agreement resulted in payment by the Company to the municipality of $11 million in the second quarter of fiscal 2022.~~facilities. It is reasonably possible that the Company may recognize additional liabilities in connection with this matter at the time such additional losses are probable and can be reasonably estimated. However, the Company cannot reasonably estimate at this time the possible additional loss or range of possible additional losses associated with this matter pending the on-going implementation of the approved remediation ~~plan~~plans for soil and groundwater conditions and completion and operation of the wellhead treatment facilities.

Table of Contents

SCHNITZER STEEL INDUSTRIES, INC.

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

In addition, the Company’s loss contingencies as of ~~both~~ ~~February 28,~~each of November 30, 2022 and August 31, ~~2021~~2022 included $ ~~included~~7$8 million for the estimated costs related to remediation of a site a portion of which was previously leased to and operated by an indirect, wholly-owned subsidiary. In connection with settlement of a lawsuit relating to allocation of the remediation costs, the Company’s subsidiary agreed to perform the remedial action related to metals contamination on the site estimated to cost approximately ~~$7.9~~$7.9 million, and another potentially liable party agreed to perform the remedial action related to creosote contamination at the site. As part of the settlement, other potentially liable parties agreed to make payments totaling approximately ~~$7.6~~$7.6 million to fund the remediation of the metals contamination at the site in exchange for a release and indemnity. This amount was fully funded into a client trust account for the Company’s subsidiary in December 2020. See “Other Assets” in Note 1 - Summary of Significant Accounting Policies for further discussion of this client trust account. It is reasonably possible that the Company may recognize additional liabilities in connection with this matter at the time such additional losses are probable and can be reasonably estimated. However, the Company cannot reasonably estimate at this time the possible additional loss or range of possible additional losses associated with this matter pending completion, approval, and implementation of the remediation action plan.

Summary - Environmental Contingencies

With respect to environmental contingencies other than the Portland Harbor Superfund site and the Other Legacy Environmental Loss Contingencies, which are discussed separately above, management currently believes that adequate provision has been made for the potential impact of its environmental contingencies. Historically, the amounts the Company has ultimately paid for such remediation activities have not been material in any given period, but there can be no assurance that such amounts paid will not be material in the future.

Contingencies – Other

In addition to legal proceedings relating to the contingencies described above, the Company is a party to various legal proceedings arising in the normal course of business. The Company recognizes a liability for such matters when the loss is probable and can be reasonably estimated. The Company does not anticipate that the liabilities arising from such legal proceedings in the normal course of business, after taking into consideration expected insurance recoveries, will have a material adverse effect on its results of operations, financial condition, or cash flows.

~~Table of Contents~~

~~SCHNITZER STEEL INDUSTRIES, INC.~~

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

Note 6 - Accumulated Other Comprehensive Loss

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

Three Months Ended February 28, 2022

Three Months Ended February 28, 2021

Foreign Currency
Translation
Adjustments

Pension Obligations,
Net

Total

Foreign Currency
Translation
Adjustments

Pension Obligations,
Net

Total

Balances - December 1 (Beginning of period)

$
(32,724
)

$
(2,555
)

$
(35,279
)

$
(33,945
)

$
(2,947
)

$
(36,892
)
Other comprehensive income before reclassifications

722

0

722

1,572

0

1,572

Income tax (expense)

0

0

0

0

0

0

Other comprehensive income before reclassifications, net of tax

722

0

722

1,572

0

1,572

Amounts reclassified from accumulated other comprehensive loss

0

154

154

0

49

49

Income tax (benefit)

0

(35
)

(35
)

0

(11
)

(11
)
Amounts reclassified from accumulated other comprehensive loss, net of tax

0

119

119

0

38

38

Net periodic other comprehensive income

722

119

841

1,572

38

1,610

Balances - February 28 (End of period)

$
(32,002
)

$
(2,436
)

$
(34,438
)

$
(32,373
)

$
(2,909
)

$
(35,282
)


	Three Months Ended November 30, 2022									Three Months Ended November 30, 2021
	Foreign Currency Translation Adjustments			Pension Obligations, Net			Total			Foreign Currency Translation Adjustments			Pension Obligations, Net			Total
Balances - September 1 (Beginning of period)	$	(34,679	)	$	(2,410	)	$	(37,089	)	$	(31,609	)	$	(2,945	)	$	(34,554	)
Other comprehensive (loss) income before reclassifications		(2,246	)		(34	)		(2,280	)		(1,115	)		451			(664	)
Income tax benefit (expense)		—			8			8			—			(101	)		(101	)
Other comprehensive (loss) income before reclassifications, net of tax		(2,246	)		(26	)		(2,272	)		(1,115	)		350			(765	)
Amounts reclassified from accumulated other comprehensive loss		—			76			76			—			52			52
Income tax benefit		—			(17	)		(17	)		—			(12	)		(12	)
Amounts reclassified from accumulated other comprehensive loss, net of tax		—			59			59			—			40			40
Net periodic other comprehensive (loss) income		(2,246	)		33			(2,213	)		(1,115	)		390			(725	)
Balances - November 30 (End of period)	$	(36,925	)	$	(2,377	)	$	(39,302	)	$	(32,724	)	$	(2,555	)	$	(35,279	)

Table of Contents

SCHNITZER STEEL INDUSTRIES, INC.

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Six Months Ended February 28, 2022

Six Months Ended February 28, 2021

Foreign
Currency
Translation
Adjustments

Pension
Obligations,
Net

Total

Foreign
Currency
Translation
Adjustments

Pension
Obligations,
Net

Total

Balances - September 1 (Beginning of period)

$
(31,609
)

$
(2,945
)

$
(34,554
)

$
(34,184
)

$
(2,687
)

$
(36,871
)
Other comprehensive (loss) income before reclassifications

(393
)

451

58

1,811

(385
)

1,426

Income tax (expense) benefit

0

(101
)

(101
)

0

87

87

Other comprehensive (loss) income before reclassifications, net of tax

(393
)

350

(43
)

1,811

(298
)

1,513

Amounts reclassified from accumulated other comprehensive loss

0

205

205

0

98

98

Income tax (benefit)

0

(46
)

(46
)

0

(22
)

(22
)
Amounts reclassified from accumulated other comprehensive loss, net of tax

0

159

159

0

76

76

Net periodic other comprehensive (loss) income

(393
)

509

116

1,811

(222
)

1,589

Balances - February 28 (End of period)

$
(32,002
)

$
(2,436
)

$
(34,438
)

$
(32,373
)

$
(2,909
)

$
(35,282
)

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

~~Table of Contents~~

~~SCHNITZER STEEL INDUSTRIES, INC.~~

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

Note 7 - Revenue

Disaggregation of Revenues

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


	Three Months Ended November 30,
	2022		2021
Major product information:
Ferrous revenues	$	261,729	$	465,856
Nonferrous revenues		177,675		194,429
Steel revenues(1)		124,515		103,238
Retail and other revenues		34,811		34,595
Total revenues	$	598,730	$	798,118
Revenues based on sales destination:
Foreign	$	272,684	$	471,173
Domestic		326,046		326,945
Total revenues	$	598,730	$	798,118

Three Months Ended February 28,

Six Months Ended February 28,

2022

2021

2022

2021

Major product information:

Ferrous revenues

$
438,314

$
322,679

$
904,170

$
574,885

Nonferrous revenues

196,142

147,322

390,571

267,031

Steel revenues⁽¹⁾

116,196

99,191

219,434

187,605

Retail and other revenues

32,546

30,919

67,141

62,697

Total revenues

$
783,198

$
600,111

$
1,581,316

$
1,092,218

Revenues based on sales destination:

Foreign

$
435,471

$
332,197

$
906,644

$
600,596

Domestic

347,727

267,914

674,672

491,622

Total revenues

$
783,198

$
600,111

$
1,581,316

$
1,092,218

(1)

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

~~(1)~~

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

Receivables from Contracts with Customers

The revenue accounting standard defines a receivable as an entity’s right to consideration that is unconditional, meaning that only the passage of time is required before payment is due. As of ~~February 28,~~November 30, 2022 and August 31, ~~2021,~~2022, receivables from contracts with customers, net of an allowance for credit losses, totaled ~~$276~~$212 million and ~~$210~~$230 million, respectively, representing 9897% of total accounts receivable reported onin the Unaudited Condensed Consolidated Balance Sheets at each reporting date.

Contract Liabilities

Contract consideration received from a customer prior to revenue recognition is recorded as a contract liability and is recognized as revenue when the Company satisfies the related performance obligation under the terms of the contract. The Company’s contract liabilities, which consist almost entirely of customer deposits for recycled metal and finished steel sales contracts, are reported within accounts payable in the Unaudited Condensed Consolidated Balance Sheets and totaled ~~$11~~$6 million and $8$8 million as of ~~February 28,~~November 30, 2022 and August 31, ~~2021,~~2022, respectively. Unsatisfied performance obligations reflected in these contract liabilities relate to contracts with original expected durations of one year or less and, therefore, are not disclosed. ~~During the three and six months ended February 28, 2022, the Company reclassified less than $1 million and $7 million, respectively, in~~The substantial majority of outstanding contract liabilities asare reclassified to revenues within three months of ~~August 31, 2021 to revenues~~the reporting date as a result of satisfying performance obligations during the period. During the three and six months ended February 28, 2021, the Company reclassified $1 million and $6 million, respectively, in contract liabilities as of August 31, 2020 to revenues as a result of satisfying performance obligations during the period.obligations.

Note 8 - Share-Based Compensation

In the first quarter of fiscal ~~2022,~~2023, as part of the annual awards under the Company’s Long-Term Incentive Plan, the Compensation Committee of the Company’s Board of Directors granted ~~158,656~~213,080 restricted stock units (“RSUs”) and ~~153,080~~211,046 performance share awards to the Company’s key employees and officers under the Company’s 1993 Amended and Restated Stock Incentive Plan.

The RSUs have a five-year term and vest ~~20%~~20% per year commencing October 31, ~~2022.~~2023. The aggregate fair value of all the RSUs granted was based on the market closing price of the underlying Class A common stock on the grant date and totaled $8$7 million. The compensation expense associated with the RSUs is recognized over the requisite service period of the awards, net of forfeitures, which for participants who were retirement eligible as of the grant date or who will become retirement eligible during the five-year term of the awards is the longer of two years or the period ending on the date retirement eligibility is achieved.

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NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

The performance share awards comprise two separate and distinct awards with different vesting conditions. Awards vest if thethresholdlevel under the specified metric is met at the end of the approximately three-year performance period. For awards granted in the first quarter of fiscal ~~2022,~~2023, the performance metrics are the Company’s recycled metal volume growthand its return on capital employed (“ROCE”). Award share payouts depend on the extent to which the performance goals have been achieved, which performance-based payout factors are adjusted by a total shareholder return (“TSR”) modifier based on the Company’s average TSR percentile rank relative to a designated peer group. The number of shares that a participant receives is equal to the number of performance shares granted multiplied by an initial payout factor based on recycled metal volume growth and ROCE, which ranges from a threshold of ~~50%~~50% to a maximum of ~~200%~~200%. The final payout factor is then determined by applying the TSR modifier to the initial payout factor within a certain range, with a maximum increase or decrease of 20%.

~~The Company granted 76,540~~Half of the performance share awards granted by the Company during the first quarter of fiscal 2023 were based on ~~its~~the Company's recycled metal volume growth metric ~~with TSR modifier~~ and ~~76,540 performance share awards~~half were based on its ROCE metric, ~~with~~in each case subject to a TSR modifier with performance measured over a three-year ~~performance~~ period consisting of the Company’s ~~2022,~~ 2023, 2024, and ~~2024~~2025 fiscal years. The Company estimated the fair value of performance share awards granted in the first quarter of fiscal ~~2022~~2023 using a Monte-Carlo simulation model utilizing several key assumptions, including the following:


	Percentage
Expected share price volatility (SSI)		~~51.6~~56.1	%
Expected share price volatility (Peer group)		~~58.5~~60.5	%
Expected correlation to peer group companies		~~46.0~~48.1	%
Risk-free rate of return		~~0.61~~4.16	%

The estimated aggregate fair value of these performance share awards at the date of grant was $8$7 million. The Company accrues compensation cost for these performance share awards based on the probable outcome of achieving specified performance conditions, net of estimated forfeitures, over the requisite service period (or to the date a qualifying employment termination event entitles the recipient to a prorated award, if before the end of the service period). The Company reassesses whether achievement of the performance conditions is probable at each reporting date. If it is probable that the actual performance results will exceed the stated target performance conditions, the Company accrues additional compensation cost for the additional performance shares to be awarded irrespective of the TSR modifier, the effects of which are incorporated in the grant-date fair value of the awards. If, upon reassessment, it is no longer probable that the actual performance results will exceed the stated target performance conditions, or that it is no longer probable that the target performance conditions will be achieved, the Company reverses any recognized compensation cost for shares no longer probable of being issued. If the performance conditions are not achieved at the end of the performance period, all related compensation cost previously recognized is reversed. Performance share awards will be paid in Class A common stock as soon as practicable after the end of the requisite service period and vesting date of October 31, ~~2024.~~2025.

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

Note 9 - Income Taxes

Effective Tax Rate

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~~SCHNITZER STEEL INDUSTRIES, INC.~~

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

The Company’s effective tax rate from continuing operations for the ~~second~~first quarter ~~and first six months~~ of fiscal ~~2022~~2023 was a benefit on pre-tax loss of 25.6% compared to an expense on pre-tax income of ~~24.0% and 21.3%, respectively, compared to 20.1% and 22.1%, respectively,~~19.0% for the comparable prior year ~~periods.~~period. The Company’s effective tax rate from continuing operations for the ~~second~~first quarter of fiscal ~~2022~~2023 was higher than the U.S. federal statutory rate of ~~21%~~21% primarily due to discrete tax benefits resulting from vesting of share-based awards in the quarter, as well as the impact of permanent differences from non-deductible expenses on the projected annual effective tax rate applied to the quarterly results. For the first quarter of fiscal 2022, the Company's effective tax rate from continuing operations was lower than the U.S. federal statutory rate of 21% primarily due to discrete tax benefits resulting from vesting of share-based awards in the quarter, which more than offsets the aggregate impact of state taxes and permanent differences from non-deductible expenses on the projected annual effective tax rate applied to the quarterly results.

Valuation Allowances

The Company assesses the realizability of its 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. The Company considers all negative and positive evidence, including the weight of the evidence, to determine if valuation allowances against deferred tax assets are required. The Company continues to maintain valuation allowances against certain state and Canadian deferred tax assets. Canadian deferred tax assets against which the Company continues to maintain a valuation allowance relate to indefinite-lived assets.

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SCHNITZER STEEL INDUSTRIES, INC.

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

The Company files federal and state income tax returns in the U.S. and foreign tax returns in Puerto Rico and Canada. For U.S. federal income tax returns, fiscal years 2014 to ~~2021~~2022 remain subject to examination under the statute of limitations.

Note 10 - Net (Loss) Income Per Share

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

	Three Months Ended February 28,						Six Months Ended February 28,
	2022			2021			2022			2021			Three Months Ended November 30,
Income from continuing operations	$	38,136		$	45,649		$	85,441		$	60,755
													2022			2021
(Loss) income from continuing operations													$	(17,487	)	$	47,305
Net income attributable to noncontrolling interests		(550	)		(1,091	)		(1,627	)		(2,051	)		(232	)		(1,077	)
Income from continuing operations attributable to SSI shareholders		37,586			44,558			83,814			58,704
Income (loss) from discontinued operations, net of tax		29			30			—			(12	)
Net income attributable to SSI shareholders	$	37,615		$	44,588		$	83,814		$	58,692
(Loss) income from continuing operations attributable to SSI shareholders													$	(17,719	)	$	46,228
Loss from discontinued operations, net of tax														(69	)		(29	)
Net (loss) income attributable to SSI shareholders													$	(17,788	)	$	46,199
Computation of shares:
Weighted average common shares outstanding, basic		28,231			27,991			28,195			27,899			27,723			28,159
Incremental common shares attributable to dilutive performance share awards, restricted stock units and deferred stock units		1,481			871			1,603			774			—			1,726
Weighted average common shares outstanding, diluted		29,712			28,862			29,798			28,673			27,723			29,885

Common stock equivalent shares of ~~311,736~~1,084,867 and ~~199,786 were considered~~ antidilutive and were excluded from the calculation of diluted net income per share for the three and six months ended February 28, 2022, respectively. NaN common stock equivalent shares were considered antidilutive for the three months ended February 28, 2021, while 103,566 common stock equivalent shares89,068 were considered antidilutive and were excluded from the calculation of diluted net (loss) income per share for the ~~six~~three months ended ~~February 28, 2021.~~November 30, 2022 and 2021, respectively.

Note 11 - Related Party Transactions

The Company purchases recycled metal from one of its joint venture operations at prices that approximate fair market value. These purchases totaled $4 million and $56 million for ~~each of~~ the three months ended ~~February 28,~~November, 2022 and 2021, ~~and $~~respectively.

11~~million and $8 million for the six months ended February 28, 2022 and 2021, respectively.~~

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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 28,~~November 30, 2022 and 2021. 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, ~~2021,~~2022, and the Unaudited Condensed Consolidated Financial Statements and the related Notes thereto included in Part I, Item 1 of this report.

General

Founded in 1906, Schnitzer Steel Industries, Inc. 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 5051 retail self-service auto parts stores, 5254 metals recycling facilities, and an electric arc furnace (“EAF”) steel mill.

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 ~~meet the global demand for~~ship bulk cargoes of processed recycled ferrous metal ~~by enabling us to ship bulk cargoes~~ 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.

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

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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.

~~Coronavirus Disease 2019 (“COVID-19”)~~

We continue to monitor the impact of COVID-19 on all aspects of our business. We are a company operating in a critical infrastructure industry, as defined by the U.S. Department of Homeland Security. Consistent with federal guidelines and with state and local orders to date, we have continued to operate across our footprint throughout the COVID-19 pandemic. Ensuring the health and safety of our employees, and all who visit our sites, is our top priority, and we are following all U.S. Centers for Disease Control and Prevention and state and local health department guidelines. Following the onset of COVID-19 and its negative effects on our business, most prominently reflected in our fiscal 2020 results, global economic conditions improved during fiscal 2021, resulting in increased demand for our products. Beginning in our second quarter of fiscal 2021 ~~and continuing through the second quarter of fiscal 2022, there has been~~ a trend in many parts of the world of increasing availability and administration of vaccines against COVID-19, as well as an easing of restrictions on individual, business, and government activities. The existence of new or enduring variant strains of COVID-19 may lead to a rise in infections, which could cause delays in the easing of restrictions previously in place and the implementation of new restrictions and mandates, and there are ongoing global impacts resulting directly or indirectly from the pandemic including labor shortages, logistical challenges such as increased port congestion, and increases in costs for certain goods and services, which have negatively impacted our sales volumes and operating results to varying degrees. While the ongoing effects of the COVID-19 pandemic could negatively impact our results of operations, cash flows, and financial position, the current level of uncertainty over the economic and operational impacts of COVID-19 means the related financial impact cannot be reasonably estimated at this time.

Steel Mill Fire

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

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Everett Facility Shredder Fire

On December 8, 2021, we experienced a fire at our metals recycling facility in Everett, Massachusetts. Direct physical loss or damage to property from the incident was limited to the facility’s shredder building and equipment, with no bodily injuries and no physical loss or damage to property reported at other buildings or equipment. As a result of the fire, shredding operations ceased, while all non-shredding operations at the facility continued, including torching, shearing, separating, and sorting purchased non-shreddable recycled ferrous metals. On January 28, 2022, shredding operations at the facility began ramping up following the replacement and repairs to shredder equipment that had been damaged. Completion of the remainder of repair and replacement of property that experienced physical loss or damage, primarily buildings and improvements, will occur over a ~~long~~erlonger period and impacts on business income may continue. For example, shredding operations temporarily ceased at the facility on June 18, 2022 and, following discussions with the Massachusetts Department of Environmental Protection and the Massachusetts Attorney General’s office, we installed a temporary emission capture system and controls that allowed for us to resume shredding operations on November 11, 2022 and continue. shredding operations while the repair and replacement of the shredder enclosure building is completed. Non-shredding operations at the facility continued during this period. We have insurance that we believe is fully applicable to the losses, including but not limited to the costs of installing the temporary capture and controls system and any associated loss of business income, and have filed initial insurance claims, which are subject to deductibles and various conditions, exclusions, and limits, for the property damage or loss and business income losses resulting from the matter. The property damage deductible under the policies insuring our assets in this matter is $0.5 million, while the deductible for lost business income is 10 times the Average Daily Gross Earnings which would have been earned had no interruption occurred, calculated subject to judgments and uncertainties. The insurance claims resolution process may extend significantly beyond completion of repair and replacement of the physical plant property that experienced physical loss or damage and the restart of production activities. In ~~the second quarter of~~ fiscal 2022, after the fire, we recognized an ~~initial $10~~aggregate $17 million insurance receivable and related insurance recovery gain, reported within prepaid expenses and other current assets ~~in the Unaudited Condensed Consolidated Balance Sheets~~ and within cost of goods sold, ~~in the Unaudited Condensed Consolidated Statements of Income,~~ respectively, reflecting recovery of applicable losses including impairment charges of $6$7 million related to the carrying value of plant and equipment assets damaged by the fire and initial capital purchases and other costs totaling $4$10 million that we had incurred as of ~~February 28,~~August 31, 2022. Also during fiscal 2022, we received advance payments from insurers totaling approximately $7 million towards our claims, and not reflecting any final or full settlement of claims with the insurers, which amount reduced the insurance receivable to $10 million as of November 30, 2022 and August, 31 2022. These amounts do not reflect potential additional recoveries of costs for the repair and replacement of property that experienced physical loss or damage or of business income losses resulting from this matter that may be recognized in the future when settlements of the claims are resolved.

Coronavirus Disease 2019 (“COVID-19”)

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

Use of Non-GAAP Financial Measures

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

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SCHNITZER STEEL INDUSTRIES, INC.

See the reconciliations of supplemental financial measures, including adjusted EBITDA, in Non-GAAP Financial Measures at the end of this Item 2.

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

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SCHNITZER STEEL INDUSTRIES, INC.

Financial Highlights of Results of Operations for the ~~Second~~First Quarter of Fiscal ~~2022~~2023

•

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

•

Diluted loss per share from continuing operations attributable to SSI shareholders in the first quarter of fiscal 2023 was $(0.64), compared to earnings per share of $1.55 in the prior year quarter.

•

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

•

Adjusted diluted loss per share from continuing operations attributable to SSI shareholders in the first quarter of fiscal 2023 was ($0.44), compared to adjusted diluted earnings per share of $1.58 in the prior year quarter.

•

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

•

Net loss in the first quarter of fiscal 2023 was $18 million, compared to net income of $47 million in the prior year quarter.

•

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

•

Adjusted EBITDA in the first quarter of fiscal 2023 was $8 million, compared to $78 million in the prior year quarter.

Market ~~demand~~conditions for recycled metals ~~was strong~~were weaker in the ~~second~~first quarter of fiscal ~~2022,~~2023 compared to the prior year quarter, leading to significantly ~~higher~~lower average net selling prices ~~and increased sales volumes~~ for our ferrous and nonferrous products ~~compared to the prior year quarter.~~and a significant compression in metal spreads. In the ~~second~~first quarter of fiscal ~~2022,~~2023, the average net selling prices for our ferrous and nonferrous products ~~increased~~decreased by ~~15%~~24% and ~~33%~~14%, respectively, and ferrous sales volumes ~~for these products increased~~decreased by ~~10% and 8%~~26%, ~~respectively,~~ compared to the prior year quarter. The ~~increased~~reduction in ferrous sales volumes was primarily due to disruptions related to an extended shredder outage at our Everett metals recycling facility and a regulatory issue limiting operations at our shredder facility in ~~part reflected additional~~California, both of which were resolved by mid-November, tight supply flows in the lower price environment, and the delay of several bulk shipments to December 2022, partially offset by the impact on our quarterly sales volumes ~~arising from~~of business acquisitions completed during the ~~Columbus Recycling business acquired on October 1, 2021.~~first and third quarters of fiscal 2022. Market ~~demand~~conditions for our finished steel products ~~also improved~~were robust in the ~~second~~first quarter of fiscal ~~2022, which contributed to~~2023, with finished steel average selling prices increasing ~~by 51% compared to the prior year quarter. Finished steel sales volumes were 22% lower in the second quarter of fiscal 2022~~4% compared to the prior year quarter which contributed to expanded metal spreads, while finished steel sales volumes increased 19%, in part due to the impact ~~of supply chain disruptions~~ on current volumes, including delays to construction projects related to a concrete industry strike in the Pacific Northwest. Our results for the second quarter of fiscal 2022 reflected benefits from the higher price environment for most of our products and increased ferrous and nonferrous sales volumes driven by strong demand compared to the prior year ~~quarter, as well as recognition~~quarterly volumes of ~~insurance recoveries.~~the ramp up of steel mill operations following the May 2021 fire. Our results in the ~~second~~first quarter of fiscal ~~2022~~2023 also reflected ~~the impact of compressed metal spreads on contracted ferrous sales for February shipments due to a surge in market prices in the second half of the quarter, a less favorable~~an unfavorable impact from average inventory accounting compared to a favorable impact in the prior year quarter, ~~and the effects of supply chain disruptions,~~ lower year-over-year platinum group metals (PGM) prices, an impairment charge related to an equity investment, and the impact of inflation. We achieved a benefit of approximately $14 million from productivity and cost reduction initiatives, including from measures announced in October 2022 and implemented during the first quarter of fiscal 2023, which helped to partially offset the effects of inflationary pressure on operating ~~costs, and the adverse impact of the Everett shredder downtime.~~costs.

Selling, general, and administrative (“SG&A”) expense in the ~~second~~first quarter of fiscal ~~2022~~2023 increased by ~~13%~~16% compared to the prior year quarter primarily due to higher ~~legacy environmental charges, employee salary and wage expenses, and outside and~~employee-related, professional services, and travel expenses, ~~including~~partially from higher costs resulting from our ~~acquisition~~acquisitions and other growth-related ~~activities,~~initiatives, increased ~~competition for employees in a tight labor market,~~legacy environmental charges, and the ~~impacts~~impact of inflation. ~~These higher expenses in the second quarter of fiscal 2022 were partially offset by lower accruals in connection with our annual incentive compensation plans compared to the prior year quarter.~~

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

•

For the first three months of fiscal 2023, net cash used in operating activities was $62 million, in part reflecting an increase in net working capital due to higher inventories as a result of the delay of several bulk shipments to December 2022, compared to $34 million in the prior year comparable period.

•

Debt was $358 million as of November 30, 2022, compared to $249 million as of August 31, 2022, as a result of increased borrowings from our credit facilities primarily to fund higher net working capital needs, capital expenditures, and the acquisition of the ScrapSource business.

•

Debt, net of cash, was $354 million as of November 30, 2022, compared to $205 million as of August 31, 2022.

•

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

•

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

•

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

•

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

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

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SCHNITZER STEEL INDUSTRIES, INC.

Results of Operations

Selected Financial Measures and Operating Statistics


	Three Months Ended February 28,									Six Months Ended February 28,									Three Months Ended November 30,
($ in thousands, except for prices and per share amounts)	2022			2021			%			2022			2021			%			2022			2021			%
Ferrous revenues	$	438,314		$	322,679			36	%	$	904,170		$	574,885			57	%	$	261,729		$	465,856			(44	)%
Nonferrous revenues		196,142			147,322			33	%		390,571			267,031			46	%		177,675			194,429			(9	)%
Steel revenues⁽¹⁾		116,196			99,191			17	%		219,434			187,605			17	%
Steel revenues(1)																				124,515			103,238			21	%
Retail and other revenues		32,546			30,919			5	%		67,141			62,697			7	%		34,811			34,595			1	%
Total revenues		783,198			600,111			31	%		1,581,316			1,092,218			45	%		598,730			798,118			(25	)%
Cost of goods sold		670,539			487,025			38	%		1,353,783			907,119			49	%		550,011			683,244			(20	)%
Gross margin (total revenues less cost of goods sold)	$	112,659		$	113,086			(—	)%	$	227,533		$	185,099			23	%	$	48,719		$	114,874			(58	)%
Gross margin (%)		14.4	%		18.8	%		(23	)%		14.4	%		16.9	%		(15	)%		8.1	%		14.4	%		(44	)%
Selling, general and administrative expense	$	61,081		$	54,142			13	%	$	116,348		$	104,048			12	%	$	64,228		$	55,267			16	%
Diluted earnings per share from continuing operations attributable to SSI shareholders:
Diluted (loss) earnings per share from continuing operations attributable to SSI shareholders:
Reported	$	1.27		$	1.54			(18	)%	$	2.81		$	2.05			37	%	$	(0.64	)	$	1.55		NM
Adjusted⁽²⁾	$	1.38		$	1.51			(9	)%	$	2.96		$	2.09			42	%
Net income	$	38,165		$	45,679			(16	)%	$	85,441		$	60,743			41	%
Adjusted EBITDA⁽²⁾	$	75,259		$	71,411			5	%	$	153,345		$	111,666			37	%
Average ferrous recycled metal sales prices ($/LT)⁽³⁾:
Adjusted(2)																			$	(0.44	)	$	1.58		NM
Net (loss) income																			$	(17,556	)	$	47,276		NM
Adjusted EBITDA(2)																			$	8,362		$	78,086			(89	)%
Average ferrous recycled metal sales prices ($/LT)(3):
Domestic	$	418		$	349			20	%	$	424		$	297			43	%	$	313		$	431			(27	)%
Foreign	$	455		$	399			14	%	$	452		$	334			35	%	$	356		$	450			(21	)%
Average	$	445		$	387			15	%	$	446		$	326			37	%	$	340		$	446			(24	)%
Ferrous volumes (LT, in thousands):
Domestic⁽⁴⁾		408			391			4	%		839			779			8	%
Domestic(4)																				432			430			(—	)%
Foreign		663			586			13	%		1,381			1,251			10	%		418			718			(42	)%
Total ferrous volumes (LT, in thousands)⁽⁴⁾⁽⁸⁾		1,071			977			10	%		2,219			2,030			9	%
Average nonferrous sales price ($/pound)⁽³⁾⁽⁵⁾	$	1.10		$	0.83			33	%	$	1.08		$	0.74			46	%
Nonferrous volumes (pounds, in thousands)⁽⁴⁾⁽⁵⁾		147,145			135,899			8	%		300,373			274,135			10	%
Finished steel average sales price ($/ST)⁽³⁾	$	1,045		$	690			51	%	$	1,013		$	656			54	%
Total ferrous volumes (LT, in thousands)(4)(8)																				851			1,148			(26	)%
Average nonferrous sales price ($/pound)(3)(5)																			$	0.90		$	1.05			(14	)%
Nonferrous volumes (pounds, in thousands)(4)(5)																				162,720			153,227			6	%
Finished steel average sales price ($/ST)(3)																			$	1,015		$	979			4	%
Finished steel sales volumes (ST, in thousands)		106			136			(22	)%		205			270			(24	)%		118			99			19	%
Cars purchased (in thousands)⁽⁶⁾		73			80			(9	)%		153			158			(3	)%
Cars purchased (in thousands)(6)																				69			80			(14	)%
Number of auto parts stores at period end		50			50			(—	)%		50			50			(—	)%		51			50			2	%
Rolling mill utilization⁽⁷⁾		86	%		88	%		(2	)%		82	%		93	%		(12	)%
Rolling mill utilization(7)																				81	%		78	%		4	%

NM = Not Meaningful

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

~~(1)~~

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

(1)

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

~~(2)~~

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

(2)

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

~~(3)~~

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

(3)

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

~~(4)~~

~~Ferrous and nonferrous volumes sold externally and delivered to our steel mill for finished steel production.~~

(4)

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

~~(5)~~

~~Average sales price and volume information excludes PGMs in catalytic converters.~~

(5)

Average sales price and volume information excludes PGMs in catalytic converters.

~~(6)~~

~~Cars purchased by auto parts stores only.~~

(6)

Cars purchased by auto parts stores only.

~~(7)~~

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

(7)

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

~~(8)~~

~~May not foot due to rounding.~~

(8)

May not foot due to rounding.

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SCHNITZER STEEL INDUSTRIES, INC.

Revenues

~~Revenues~~

Revenues in the ~~second~~first quarter ~~and first six months~~ of fiscal ~~2022 increased~~2023 decreased by ~~31% and 45%, respectively,~~25% compared to the ~~same periods in the~~ prior year quarter primarily due to significantly ~~higher~~lower average net selling prices ~~and increased sales volumes~~ for our ferrous and nonferrous products driven by ~~strong~~weaker market ~~demand~~conditions for recycled metals globally. In the ~~second~~first quarter ~~and first six months~~ of fiscal ~~2022,~~2023, the average net selling prices for our ferrous ~~products increased by 15%~~ and ~~37%, respectively, and the average net selling prices for our~~ nonferrous products ~~increased~~decreased by ~~33%~~24% and ~~46%~~14%, respectively, compared to the prior year ~~periods. In~~quarter. Ferrous sales volumes in the ~~second~~first quarter ~~and first six months~~ of fiscal ~~2022, ferrous sales volumes increased~~2023 decreased by ~~10% and 9%, respectively, and nonferrous sales volumes increased by 8% and 10%, respectively,~~26% compared to the prior year ~~periods. The expansion~~quarter primarily due to extended operational disruptions at our Everett and Oakland metals recycling facilities that were resolved by mid-November, tight supply flows in ~~recycled metal sales volumes compared~~the lower price environment, and the delay of several bulk shipments to ~~the prior year periods reflected strong demand for these products globally, the effects of which were~~December 2022, partially offset by the impact on our quarterly sales volumes of ~~logistics constraints including ship and container delays for ferrous and nonferrous sales to customers. The increased~~our fiscal 2022 business acquisitions. Our ferrous and nonferrous sales volumes in ~~part reflected~~the first quarter of fiscal 2023 included additional volumes arising from the Columbus Recycling business acquired on October 1, ~~2021. Finished~~2021, and the Encore Recycling business acquired on April 29, 2022. Market conditions for our finished steel products were robust in the first quarter of fiscal 2023, with finished steel average selling prices were significantly higher in the second quarter and first six months of fiscal 2022 compared to the prior year periods, reflecting robust market demand for these products. The impact of these higher average selling prices on steel revenues in the second quarter and first six months of fiscal 2022 was partially offset by lower sales volumes and rolling mill utilization compared to the prior year periods, which were primarily due to the impact of the ramp-up of steel mill operations that began in August 2021 and which was substantially completed during the second quarter, as well as the impact of supply chain disruptions on current volumes, including delays to construction projects related to a concrete industry strike in the Pacific Northwest experienced in the second quarter of fiscal 2022. The ramp-up of steel mill operations followed completion of repair and replacement of damaged property arising from the May 2021 steel mill fire.

~~Operating Performance~~

Net income in the second quarter and first six months of fiscal 2022 was $38 million and $85 million, respectively, compared to $46 million and $61 million in the prior year periods. Adjusted EBITDA in the second quarter and first six months of fiscal 2022 was $75 million and $153 million, respectively, compared to $71 million and $112 million, respectively, in the prior year periods. Our results for the second quarter of fiscal 2022 reflected benefits from the higher price environment for most of our products and increased ferrous and nonferrous sales volumes supported by strong demandincreasing 4% compared to the prior year quarter, while finished steel sales volumes increased 19%, in part due to the impact on the prior year quarterly volumes of the ramp up of steel mill operations following the May 2021 fire.

Operating Performance

Net loss in the first quarter of fiscal 2023 was $18 million, compared to net income of $47 million in the prior year quarter. Adjusted EBITDA in the first quarter of fiscal 2023 was $8 million, compared to $78 million in the prior year quarter. The lower price environment for recycled metals, as well as ~~recognition~~significantly decreased ferrous sales volumes primarily due to the extended operational disruptions, tight supply flows, and several bulk shipment delays, had a significant adverse impact on our operating margins and overall operating results in the first quarter of ~~insurance recoveries.~~fiscal 2023. Ferrous metal spreads in the first quarter of fiscal 2023 decreased by approximately 20%, and average net selling prices for our nonferrous joint products that are recovered from the shredding process, comprising primarily zorba, decreased by approximately 10%, compared to the prior year quarter. Finished steel metal spreads and sales volumes were significantly higher in the first quarter of fiscal 2023, benefiting operating results compared to the prior year quarter. Our results in the ~~second~~first quarter of fiscal ~~2022~~2023 also reflected ~~the impact of compressed metal spreads on contracted ferrous sales for February shipments due to a surge in market prices in the second half of the quarter, a less favorable~~an unfavorable impact from average inventory accounting compared to a favorable impact in the prior year quarter, ~~and the effects of supply chain disruptions,~~ lower year-over-year PGM prices, ~~inflationary pressure on operating costs,~~an impairment charge related to an equity investment, and the ~~adverse~~ impact of ~~the Everett shredder downtime. Our results for the first six months of fiscal 2022 benefited from a significant expansion~~inflation.

SG&A expense in ~~our ferrous metal spreads primarily during~~ the first quarter of fiscal ~~2022 and~~2023 increased ~~finished steel metal margins, greater contributions from sales of nonferrous products, and increased ferrous and nonferrous sales volumes driven~~ by ~~strong demand,~~16% compared to the prior year ~~period.~~

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

~~Selling, general, and administrative expense in the second quarter and first six months of fiscal 2022 increased by 13% and 12%, respectively, compared to the prior year periods~~ primarily due to higher employee-related, professional services, and travel expenses, partially resulting from our acquisitions and other growth-related initiatives, increased legacy environmental charges, employee salary and wage expenses, and outside and professional services expenses, including from higher costs resulting from our acquisition and other growth-related activities, increased competition for employees in a tight labor market, and the ~~impacts~~impact of inflation. These higher expenses in the ~~second~~first quarter ~~and first six months~~ of fiscal ~~2022~~2023 were partially offset by ~~lower accruals in connection with our annual incentive compensation plans~~benefits from productivity and cost reduction initiatives when compared to the prior year ~~periods.~~quarter.

In October 2022, we announced and began implementing productivity and cost reduction initiatives with a targeted annual benefit of approximately $40 million, the vast majority of which is expected to be achieved in fiscal 2023. In addition, in January 2023, we announced incremental initiatives aiming to reduce SG&A costs by approximately $20 million annually, of which approximately two-thirds is expected to be achieved in fiscal 2023. 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. In the first quarter of fiscal 2023, we achieved a benefit from these initiatives, and others implemented during fiscal 2022, of approximately $14 million, which helped to partially 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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~~SCHNITZER STEEL INDUSTRIES, INC.~~

Income Tax

The effective tax rate from continuing operations for the ~~second~~first quarter ~~and first six months~~ of fiscal ~~2022~~2023 was a benefit on pre-tax loss of 25.6% compared to an expense on pre-tax income of ~~24.0% and 21.3%, respectively, compared~~ ~~to 20.1% and~~ ~~22.1%, respectively,~~ 19.0% for the comparable prior year ~~periods.~~ quarter. Our effective tax rate from continuing operations for the first quarter of fiscal 2023 was higher than the U.S. federal statutory rate of 21% primarily due to discrete tax benefits resulting from vesting of share-based awards in the quarter, as well as the impact of permanent differences from non-deductible expenses on the projected annual effective tax rate applied to the quarterly results. For the ~~second~~first quarter of fiscal 2022, the effective tax rate from continuing operations was ~~higher~~lower than the U.S. federal statutory rate ~~of 21%~~ primarily due to discrete tax benefits resulting from vesting of share-based awards in the quarter, which more than offset the aggregate impact of state taxes and permanent differences from non-deductible expenses on the projected annual effective tax rate applied to the quarterly results.

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.

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SCHNITZER STEEL INDUSTRIES, INC.

Sources and Uses of Cash

We had cash balances of ~~$18~~$4 million and ~~$28~~ $44 million as of ~~February 28,~~November 30, 2022 and August 31, ~~2021~~,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 ~~February 28,~~November 30, 2022, debt was ~~$262~~$358 million compared to ~~$75~~$249 million as of August 31, ~~2021,~~2022, and debt, net of cash, was ~~$244~~$354 million as of ~~February 28,~~November 30, 2022, compared to ~~$47~~$205 million as of August 31, ~~2021,~~2022, which increases were primarily due to increased borrowings from our credit facilities to fund higher net working capital needs, capital expenditures, and the acquisition of the ~~assets of the Columbus Recycling~~ScrapSource business on ~~October 1, 2021, and higher net working capital needs.~~November 18, 2022. See the reconciliation of debt, net of cash, in Non-GAAP Financial Measures at the end of this Item 2.

Operating Activities

Net cash ~~provided by~~ used in operating activities in the first ~~six~~three months of fiscal ~~2022~~2023 was ~~$13~~$62 million, compared to ~~net cash used in operating activities of $3~~$34 million in the first ~~six~~three months of fiscal ~~2021.~~2022.

Uses of cash in the first three months of fiscal 2023 included a $29 million decrease in accrued payroll and related liabilities primarily due to the payment of incentive compensation previously accrued under our fiscal 2022 plans, a $28 million increase in inventory primarily due to the delay of several bulk shipments to December 2022, and a $19 million decrease in accounts payable due to the timing of purchases and payments. Sources of cash ~~other than from earnings~~ in the first ~~six~~three months of fiscal 2023 included a $17 million decrease in accounts receivable primarily due to a decrease in selling prices for recycled metals and the timing of sales and collections.

Uses of cash in the first three months of fiscal 2022 included a ~~$12~~$68 million increase in accounts ~~payable~~receivable primarily due to higher selling prices and higher sales volumes for recycled metals, as well as the timing of sales and collections, a $46 million increase in inventories due to higher raw material purchase ~~prices~~costs and the timing of purchases and ~~payments~~sales, and ~~an $8~~a $39 million decrease in accrued payroll and related liabilities primarily due to the payment of incentive compensation previously accrued under our fiscal 2021 plans. Sources of cash in the first three months of fiscal 2022 included a $21 million increase in other accrued liabilities primarily reflecting the portion of advance payments from insurance carriers received in the period towards our claims arising from the May 2021 steel mill fire deemed attributable to operating ~~activities. Uses of cash in the first six months of fiscal 2022 included~~activities, and a ~~$53~~$21 million increase in ~~inventories~~accounts payable primarily due to higher raw material purchase ~~costs~~prices and the timing of purchases and sales, a $48 million increase in accounts receivable primarily due to higher selling prices and higher sales volumes for recycled metals, as well as the timing of sales and collections, a $40 million decrease in accrued payroll and related liabilities primarily due to the payment of incentive compensation in the first quarter of fiscal 2022 previously accrued under our fiscal 2021 plans, and a $12 million decrease in environmental liabilities primarily due to payments in connection with legacy environmental matters.payments. The sources and uses of cash related to operating activities described above also reflect higher net working capital needs in the first quarter during the ramp-up of steel mill operations that began in August 2021 following completion of repair and replacement of damaged property arising from the May 2021 steel mill fire.

Uses of cash in the first six months of fiscal 2021 included a $90 million increase in inventories due to higher raw material purchase prices, higher volumes on hand, and the timing of purchases and sales, and a $76 million increase in accounts receivable primarily due to increases in selling prices for recycled metals and finished steel as well as the timing of sales and collections. Sources of cash other than from earnings in the first six months of fiscal 2021 included a $45 million increase in accounts payable primarily due to higher raw material purchase prices and the timing of payments, and a $16 million increase in income tax accruals.

Investing Activities

Net cash used in investing activities was ~~$172~~$72 million in the first ~~six~~three months of fiscal ~~2022,~~2023, compared to ~~$54~~$143 million in the first ~~six~~three months of fiscal ~~2021.~~2022.

Cash used in investing activities in the first ~~six~~three months of fiscal ~~2022~~ 2023 included ~~$114~~$25 million paid to acquire the assets of the ~~Columbus Recycling~~ScrapSource business on ~~October 1, 2021,~~ ~~which amount~~ ~~included $7 million~~ ~~paid at closing for estimated net working capital in excess of an agreed-upon benchmark.~~November 18, 2022. We funded the acquisition using cash on hand and borrowings under our existing credit facilities. See Note 3 - Business ~~Acquisition~~Acquisitions in the Notes to the Unaudited Condensed Consolidated Financial Statements in Part I, Item 1 of this report for further detail.

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~~SCHNITZER STEEL INDUSTRIES, INC.~~

Cash used in investing activities ~~in the first six months of fiscal 2022~~ also included capital expenditures of ~~$69~~$48 million to upgrade our equipment and infrastructure and for investments in advanced metals recovery technology and environmental and safety-related assets, compared to ~~$55~~$40 million in the prior year period.

~~period.~~ Cash ~~flows from~~ used in investing activities in the first ~~six~~three months of fiscal 2022 included $114 million paid to acquire the assets of the Columbus Recycling business on October 1, 2021. We funded the acquisition using cash on hand and borrowings under our existing credit facilities. See Note 3 - Business Acquisitions in the Notes to the Unaudited Condensed Consolidated Financial Statements in Part I, Item 1 of this report for further detail. Cash flows from investing activities in the first three months of fiscal 2022 also included proceeds of $10 million representing the portion of advance payments from insurance carriers deemed a recovery of capital purchases incurred for repair and replacement of damaged property arising from the May 2021 steel mill fire.

Financing Activities

Net cash provided by financing activities in the first ~~six~~three months of fiscal ~~2022~~2023 was ~~$150~~$94 million,, compared to ~~$50~~$169 million in the first ~~six~~three months of fiscal ~~2021.~~2022.

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SCHNITZER STEEL INDUSTRIES, INC.

Cash flows from financing activities in the first ~~six~~three months of fiscal ~~2022~~2023 included ~~$180~~$108 million in net borrowings of debt, compared to ~~$66~~$185 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~~three months of fiscal 2023 and 2022 ~~and~~ ~~2021~~included ~~$10~~$7 million and $4$10 million, respectively, for payment of employee tax withholdings resulting from vesting of share-based awards and ~~$11~~$6 million in each period for the payment of dividends. ~~Cash used in financing activities for the first six months of fiscal 2022 also included $8 million for share repurchases.~~

Debt

Our senior secured revolving credit facilities, which provide for revolving loans of ~~$700~~$800 million and C$15 million, mature in August ~~2023~~2027 pursuant to a credit agreement with Bank of America, N.A., as administrative agent, and other lenders party thereto. Interest rates on outstanding indebtedness under the credit agreement are based, at our option, on either the ~~London Interbank Offered~~Secured Overnight Financing Rate (“~~LIBOR”~~SOFR”) (or the Canadian ~~equivalent~~Dollar Offered Rate, "CDOR" for C$ loans), plus a spread of between 1.25% and ~~3.50%~~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 ~~one-month LIBOR~~Term SOFR plus ~~1.75%~~1.00%, in each case, plus a spread of between ~~0.00%~~0.25% and ~~2.50%~~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 ~~0.20%~~0.175% and ~~0.50%~~0.30% based on a pricing grid tied to our ratio of consolidated net funded debt to EBITDA. ~~The~~

Under the credit ~~facility provides that LIBOR or any LIBOR successor rate is subject to a 0.50% floor and contains mechanics by which the parties~~agreement, we may ~~replace the benchmark interest rate used in the agreement from LIBOR to~~establish one or more ~~rates based~~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 ~~the secured overnight financing rate administered by the Federal Reserve Bank of New York or another alternative benchmark rate.~~an annual basis and would not be cumulative.

We had borrowings outstanding under our credit facilities of ~~$240~~$338 million as of ~~February 28,~~November 30, 2022 and ~~$60~~$230 million as of August 31, ~~2021.~~2022. The weighted average interest rate on amounts outstanding under our credit facilities was ~~2.03%~~5.34% and ~~1.75%~~3.65% as of ~~February 28,~~November 30, 2022 and August 31, ~~2021,~~2022, 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 28,~~November 30, 2022, 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 ~~5.84~~5.02 to 1.00 as of ~~February 28,~~November 30, 2022. The consolidated leverage ratio was required to be no more than 0.55 to 1.00 and was ~~0.23~~0.28 to 1.00 as of ~~February 28,~~November 30, 2022.

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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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, COVID-19, or other negative 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 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 ~~$15 million and $8~~$13 million as of ~~February 28,~~each of November 30, 2022 and August 31, ~~2021,~~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. ~~In the second quarter of fiscal 2022, we recorded $7 million of additional debt obligations with these terms generally.~~

Capital Expenditures

Capital expenditures totaled ~~$69~~$48 million for the first ~~six~~three months of fiscal ~~2022,~~2023, compared to ~~$55~~$40 million for the prior year period. Capital expenditures in the first ~~six~~three months of fiscal ~~2022~~2023 included approximately ~~$21~~$10 million for investments in growth. We currently plan to invest in the range of $130 million to ~~$160~~$140 million in capital expenditures in fiscal ~~2022.~~2023, which range excludes capital expenditures associated with the ongoing repair and replacement of the shredder enclosure building damaged by the fire at our Everett facility, as these expenditures are expected to be substantially recovered through insurance. 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. ~~The~~Supply chain disruptions, including those created directly or indirectly by the COVID-19 pandemic, ~~has~~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 ~~the COVID-19 pandemic~~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 ~~$10~~$6 million in capital expenditures for environmental projects in the first ~~six~~three months of fiscal ~~2022,~~2023, and we currently plan to invest in the range of ~~$30~~$40 million to ~~$40~~$50 million for such projects in fiscal ~~2022.~~2023. These projects include investments in equipment to ensure ongoing compliance with air quality and other en~~vironmental~~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 ~~(the “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 ~~the Site,~~Portland Harbor, although such costs could be material to our financial position, results of operations, cash flows, and liquidity. We have insurance policies and a Qualified Settlement Fund (“QSF”) that we believe will provide reimbursement for costs we incur for defense, remediation, and mitigation for natural resource damages claims in connection with ~~the Site,~~Portland Harbor, although there are no assurances that those policies and the QSF will cover all of the costs which we may incur. Significant cash outflows in the future related to ~~the Site,~~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.

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Dividends

On ~~January 6,~~ October 24, 2022, our Board of Directors declared a dividend for the ~~second~~first quarter of fiscal ~~2022~~2023 of $0.1875 per common share, which equates to an annual cash dividend of $0.75 per common share. The dividend was paid on ~~February 14, 2022~~November 29, 2022..

Share Repurchase Program

~~Pursuant~~As of November 30, 2022, pursuant to our board-authorized share repurchase ~~program as amended in 2001, 2006 and 2008,~~programs, we ~~were authorized~~had remaining authorization to repurchase up to ~~nine~~2.8 million ~~shares of our Class A common stock. As of February 28, 2022, we had authorization to repurchase up~~ ~~to a remaining 506 thousand~~ shares of our Class A common stock when we deem such repurchases to be appropriate. We may repurchase our common stock for a variety of reasons, such as to optimize our capital structure and to offset dilution related to share-based compensation arrangements. We consider several factors in determining whether to make share repurchases including, among other things, our cash needs, the availability of funding, our future business plans, and the market price of our stock. InWe did not repurchase any of our common stock during the ~~second~~first quarter of fiscal ~~2022, we repurchased 200 thousand shares of our Class A common stock in open-market transactions for a total of $8 million.~~2023 or 2022.

Assessment of Liquidity and Capital Resources

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

We generally believe our current cash resources, internally generated funds, existing credit facilities, and access to the capital markets will provide adequate short-term and long-term liquidity needs for working capital, capital expenditures, dividends, share repurchases, 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

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, ~~2021.~~2022.

We maintain stand-by letters of credit to provide support for certain obligations, including workers’ compensation and performance bonds. As of ~~February 28,~~November 30, 2022, we had $8 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, ~~2021, other than the following.~~

~~Business Acquisitions~~

We recognize the assets acquired, the liabilities assumed, and any noncontrolling interest in the acquiree at the acquisition date, measured at their fair values as of 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 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 3 - Business Acquisition in the Notes to the Unaudited Condensed Consolidated Financial Statements in Part I, Item 1 of this report for disclosure of our acquisition of the assets of the Columbus Recycling business on October 1, 2021. As of the date of this report, measurement of actual acquired net working capital, as well as the fair values of certain other acquired assets and assumed liabilities, is still preliminary and subject to change based on the completion of valuation procedures.2022.

Recently Issued Accounting Standards

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

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~~SCHNITZER STEEL INDUSTRIES, INC.~~

Non-GAAP Financial Measures

Debt, net of cash

Debt, net of cash is the difference between (i) the sum of long-term debt and short-term borrowings (i.e., total debt) and (ii) cash and cash equivalents. We believe that presenting debt, net of cash is useful to investors as a 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):


	November 30, 2022		August 31, 2022
Short-term borrowings	$	6,379	$	6,041
Long-term debt, net of current maturities		351,200		242,521
Total debt		357,579		248,562
Less cash and cash equivalents		3,539		43,803
Total debt, net of cash	$	354,040	$	204,759

February 28, 2022

August 31, 2021

Short-term borrowings

$
7,451

$
3,654

Long-term debt, net of current maturities

254,126

71,299

Total debt

261,577

74,953

Less cash and cash equivalents

17,823

27,818

Total debt, net of cash

$
243,754

$
47,135

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SCHNITZER STEEL INDUSTRIES, INC.

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 28,						Three Months Ended November 30,
	2022			2021			2022			2021
Borrowings from long-term debt	$	405,094		$	265,645		$	186,356		$	271,091
Repayments of long-term debt		(225,395	)		(199,229	)		(78,781	)		(86,314	)
Net borrowings (repayments) of debt	$	179,699		$	66,416		$	107,575		$	184,777

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

Management believes that providing these non-GAAP financial measures adds a meaningful presentation of our results from business operations excluding adjustments for asset impairment charges, restructuring charges and other exit-related activities, charges for legacy environmental matters (net of recoveries), business development costs not related to ongoing operations including pre-acquisition expenses, ~~legacy environmental matters (net of recoveries), restructuring charges and other exit-related activities,~~ 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 November 30,
	2022			2021
Reconciliation of adjusted EBITDA:
Net (loss) income	$	(17,556	)	$	47,276
Loss from discontinued operations, net of tax		69			29
Interest expense		3,324			1,372
Income tax (benefit) expense		(6,032	)		11,097
Depreciation and amortization		21,451			17,220
Asset impairment charges(1)		4,000			—
Restructuring charges and other exit-related activities		1,592			22
Charges for legacy environmental matters, net(2)		1,279			456
Business development costs		235			614
Adjusted EBITDA	$	8,362		$	78,086

Selling, general and administrative expense:
As reported	$	64,228		$	55,267
Charges for legacy environmental matters, net(2)		(1,279	)		(456	)
Business development costs		(235	)		(614	)
Adjusted	$	62,714		$	54,197

Three Months Ended February 28,

Six Months Ended February 28,

2022

2021

2022

2021

Reconciliation of adjusted EBITDA:

Net income

$
38,165

$
45,679

$
85,441

$
60,743

(Income) loss from discontinued operations, net of tax

(29
)

(30
)

—

12

Interest expense

1,901

1,224

3,273

3,004

Income tax expense

12,073

11,469

23,170

17,188

Depreciation and amortization

18,596

14,469

35,816

29,295

Charges (recoveries) for legacy environmental matters, net⁽¹⁾

4,004

(2,214
)

4,460

546

Business development costs

545

—

1,159

—

Restructuring charges and other exit-related activities

4

814

26

878

Adjusted EBITDA

$
75,259

$
71,411

$
153,345

$
111,666

(1)

For the first quarter of fiscal 2023, asset impairment charges included $4 million reported within "Other loss, net" on the Unaudited Condensed Consolidated Statement of Operations.

(2)

Legal and environmental charges, net of recoveries, for legacy environmental matters including those related to the Portland Harbor Superfund site and to other legacy environmental loss contingencies. See Note 5 - Commitments and Contingencies, “Portland Harbor” and “Other Legacy Environmental Loss Contingencies” in the Notes to the Unaudited Condensed Consolidated Financial Statements in Part I, Item 1 of this report.

~~(1)~~35

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


	Three Months Ended November 30,
	2022			2021
(Loss) income from continuing operations attributable to SSI shareholders:
As reported	$	(17,719	)	$	46,228
Asset impairment charges(1)		4,000			—
Restructuring charges and other exit-related activities		1,592			22
Charges for legacy environmental matters, net(2)		1,279			456
Business development costs		235			614
Income tax benefit allocated to adjustments(3)		(1,714	)		(249	)
Adjusted	$	(12,327	)	$	47,071

Diluted (loss) earnings per share from continuing operations attributable to SSI shareholders:
As reported	$	(0.64	)	$	1.55
Asset impairment charges, per share(1)		0.14			—
Restructuring charges and other exit-related activities, per share		0.06			—
Charges for legacy environmental matters, net, per share(2)		0.05			0.02
Business development costs, per share		0.01			0.02
Income tax benefit allocated to adjustments, per share(3)		(0.06	)		(0.01	)
Adjusted	$	(0.44	)	$	1.58

Three Months Ended February 28,

Six Months Ended February 28,

2022

2021

2022

2021

Income from continuing operations attributable to SSI shareholders:

As reported

$
37,586

$
44,558

$
83,814

$
58,704

Charges (recoveries) for legacy environmental matters, net⁽¹⁾

4,004

(2,214
)

4,460

546

Business development costs

545

—

1,159

—

Restructuring charges and other exit-related activities

4

814

26

878

Income tax (benefit) expense allocated to adjustments⁽²⁾

(1,073
)

334

(1,322
)

(315
)
Adjusted

$
41,066

$
43,492

$
88,137

$
59,813

Diluted earnings per share from continuing operations attributable to SSI shareholders:

As reported

$
1.27

$
1.54

$
2.81

$
2.05

Charges (recoveries) for legacy environmental matters, net, per share⁽¹⁾

0.13

(0.08
)

0.15

0.02

Business development costs, per share

0.02

—

0.04

—

Restructuring charges and other exit-related activities, per share

—

0.03

—

0.03

Income tax (benefit) expense allocated to adjustments, per share⁽²⁾

(0.04
)

0.01

(0.04
)

(0.01
)
Adjusted⁽³⁾

$
1.38

$
1.51

$
2.96

$
2.09

(1)

For the first quarter of fiscal 2023, asset impairment charges included $4 million ($0.14 per share) reported within "Other loss, net" on the Unaudited Condensed Consolidated Statement of Operations.

(2)

(3)

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

~~(1)~~36

~~(2)~~

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

~~(3)~~

~~May not foot due to rounding.~~

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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 28,~~November 30, 2022.

Interest Rate Risk

There have been no material changes to our disclosure regarding interest rate risk set forth in Item 7A. Quantitative and Qualitative Disclosures About Market Risk included in our Annual Report on Form 10-K for the year ended August 31, ~~2021.~~2022.

Credit Risk

Credit risk relates to the risk of loss that might occur as a result of non-performance by counterparties of their contractual obligations to take delivery of scrap metal and finished steel products and to make financial settlements of these obligations, or to provide sufficient quantities of scrap metal or payment to settle advances, loans and other contractual receivables in connection with demolition and scrap extraction projects. We manage our exposure to credit risk through a variety of methods, including shipping ferrous scrap metal exports under letters of credit, collection of deposits prior to shipment for certain nonferrous export customers, establishment of credit limits for certain sales on open terms, credit insurance and designation of collateral and financial guarantees securing advances, loans, and other contractual receivables. ~~As a result~~Due in part to the effects of COVID-19, we have experienced reductions in the availability of credit insurance that we have historically used to cover a portion of our recycled metal and finished steel sales to domestic customers, which reduced availability may increase our exposure to customer credit risk. 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 28,~~November 30, 2022 and August 31, ~~2021, 40%~~2022, 34% and ~~30%~~24%, respectively, of our accounts receivable balance was covered by letters of credit. Of the remaining balance, ~~99%~~94% and ~~97%~~99% was less than 60 days past due as of ~~February 28,~~November 30, 2022 and August 31, ~~2021,~~2022, respectively.

Foreign Currency Exchange Rate Risk

We are exposed to foreign currency exchange rate risk, mainly associated with sales transactions and related accounts receivable denominated in the U.S. Dollar by our Canadian subsidiary with a functional currency of the Canadian Dollar. In certain instances, we may use derivatives to manage some portion of this risk. As of ~~February 28,~~November 30, 2022 and August 31, ~~2021,~~ 2022, we did not have any derivative contracts.

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SCHNITZER STEEL INDUSTRIES, INC.

ITEM 4. CONTROLS AND PROCEDURES

Disclosure Controls and Procedures

We maintain disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the Securities and Exchange Act of 1934, as amended (the “Exchange Act”)) that are designed to ensure that information we are required to disclose in the reports we file or submit under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified by the Securities and Exchange Commission’s rules and forms and that such information is accumulated and communicated to management, including the Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosures. Any controls and procedures, no matter how well designed and operated, can only provide reasonable assurance of achieving the desired control objectives. Our management, with the participation of the Chief Executive Officer and Chief Financial Officer, has completed an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures. Consistent with guidance issued by the Securities and Exchange Commission that an assessment of internal controls over financial reporting of a recently acquired business may be omitted from management's evaluation of disclosure controls and procedures, management is excluding an assessment of the internal controls of the acquired ~~Columbus~~Encore Recycling business, which we acquired on ~~October 1, 2021,~~April 29, 2022, and the ScrapSource business, which we acquired on November 18, 2022, from its evaluation of the effectiveness of our disclosure controls and procedures. ~~The Columbus~~Together, the Encore Recycling ~~business~~and ScrapSource businesses represented approximately 8%5% of our consolidated total assets and 4%3% of our consolidated total revenues as of and for the ~~six~~three months ended ~~February 28, 2022~~. November 30, 2022. Based on this evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that, as of ~~February 28,~~November 30, 2022, our disclosure controls and procedures were effective at the reasonable assurance level.

Changes in Internal Control Over Financial Reporting

There was no change in our internal control over financial reporting (as that term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the quarter ended ~~February 28,~~November 30, 2022, that has materially affected,, or is reasonably likely to materially affect, our internal control over financial reporting.

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SCHNITZER STEEL INDUSTRIES, INC.

PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

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, ~~2021;~~2022 and ~~in Part II, “Item 1. Legal Proceedings” in our Quarterly Report on Form 10-Q for the quarterly period ended November 30, 2021. Also see~~ Note 5 - Commitments and Contingencies in the Notes to the Unaudited Condensed Consolidated Financial Statements in Part I, Item 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, ~~2021~~2022.~~, except for the changes disclosed in the subsequent Quarterly Report on Form 10-Q for the quarterly period ended November 30, 2021, and the following.~~

~~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 outbreak of 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. In addition, the U.S. has commenced certain trade actions as a result of the Russia-Ukraine conflict, which are expected to 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.

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

Pursuant to a share repurchase program, as amended in 2001, 2006 and 2008, our Board of Directors has authorized the repurchase of 9 million shares of our Class A common stock when management deems such repurchases to be appropriate. We repurchased 200 thousand shares of our Class A common stock under the program in open-market transactions during the second quarter of fiscal 2022. As of February 28, 2022, we had existing authorization remaining under the program to repurchase up to approximately 506 thousand shares.

~~The table below presents a summary of our share repurchases during the quarter ended February 28, 2022:~~

Total Number
of Shares
Purchased

Average
Price Paid
per Share

Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs

Maximum Number of Shares that may yet be Purchased under the Plans or Programs

December 1 - December 31, 2021

—

$
—

—

705,998

January 1 - January 30, 2022

200,000

$
39.33

200,000

505,998

February 1 - February 28, 2022

—

$
—

—

505,998

Total second quarter 2022

200,000

200,000

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

ITEM 5. OTHER INFORMATION

None.

Table of Contents

SCHNITZER STEEL INDUSTRIES, INC.

ITEM 6. EXHIBITS~~EXHIBITS~~


Exhibit Number		Exhibit Description

10.1 10.1		~~Deferred Compensation~~Form of Long-Term Incentive Award Agreement under the 1993 Stock Incentive Plan used for ~~Non-Employee Directors~~awards granted in fiscal 2023.

10.2 10.2		~~Summary Sheet of 2022 Non-Employee Director Compensation~~Fiscal 2023 Annual Performance Bonus Program for the Chief Executive Officer.

31.1		Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

31.2		Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

32.1		Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

32.2		Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

101.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.

~~Management contract or compensatory plan or arrangement.~~

Table of Contents

SCHNITZER STEEL INDUSTRIES, INC.

SIGNATURES

~~SIGNATURES~~

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


		SCHNITZER STEEL INDUSTRIES, INC.
		(Registrant)

Date:	~~April 6, 2022~~January 5, 2023	By:	/s/ Tamara L. Lundgren
			Tamara L. Lundgren
			Chairman, President and Chief Executive Officer

Date:	~~April 6, 2022~~January 5, 2023	By:	/s/ ~~Richard D. Peach~~Stefano R. Gaggini
			~~Richard D. Peach~~Stefano R. Gaggini
			~~Executive~~Senior Vice President and Chief Financial Officer ~~and Chief Strategy Officer~~



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

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


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


	February 28, 2022				August 31, 2021			November 30, 2022			August 31, 2022
Assets
Current assets:
Cash and cash equivalents	$	17,823			$	27,818			$	3,539		$	43,803
Accounts receivable, net of allowance for credit losses of $1,579 and $1,566		280,254				214,098
Accounts receivable, net of allowance for credit losses of $1,531 and $1,566									218,189			237,654
Inventories		323,931				256,427			345,198			315,189
Refundable income taxes		1,193				837			1,642			1,696
Prepaid expenses and other current assets		36,104		��		43,934			65,996			73,044
Total current assets		659,305				543,114			634,564			671,386
Property, plant and equipment, net of accumulated depreciation of $841,296 and $837,293		597,262				562,674
Property, plant and equipment, net of accumulated depreciation of $867,979 and $855,032									682,738			664,120
Operating lease right-of-use assets		126,155				131,221			117,806			122,413
Investments in joint ventures		13,009				12,844			11,246			12,841
Goodwill		232,537				170,304			270,349			255,198
Intangibles, net of accumulated amortization of $5,323 and $3,846		23,220				3,980
Intangibles, net of accumulated amortization of $8,281 and $7,256									35,440			26,155
Deferred income taxes		25,982				27,561			23,105			24,598
Other assets		46,859				42,665			47,371			49,886
Total assets	$	1,724,329			$	1,494,363		$	1,822,619		$	1,826,597
Liabilities and Equity
Current liabilities:
Short-term borrowings	$	7,451			$	3,654		$	6,379		$	6,041
Accounts payable		191,418				179,917			185,170			217,689
Accrued payroll and related liabilities		33,693				69,622			30,581			59,702
Environmental liabilities		12,987				24,743			10,919			13,031
Operating lease liabilities		21,869				21,417			21,538			21,660
Accrued income taxes		2,436				3,521			4,190			3,856
Other accrued liabilities		59,317				49,976			50,230			59,594
Total current liabilities		329,171				352,850			309,007			381,573
Deferred income taxes		53,291				40,593			57,028			63,328
Long-term debt, net of current maturities		254,126				71,299			351,200			242,521
Environmental liabilities, net of current portion		54,844				52,385			55,066			55,469
Operating lease liabilities, net of current maturities		106,803				113,165			97,536			101,651
Other long-term liabilities		21,445				24,292			24,278			23,581
Total liabilities		819,680				654,584			894,115			868,123
Commitments and contingencies (Note 5)
Schnitzer Steel Industries, Inc. (“SSI”) shareholders’ equity:
Preferred stock – 20,000 shares $1.00 par value authorized, NaN issued		0				0
Class A common stock – 75,000 shares $1.00 par value authorized, 27,433 and 27,332 shares issued and outstanding		27,433				27,332
Class B common stock – 25,000 shares $1.00 par value authorized, 200 and 200 shares issued and outstanding		200				200
Preferred stock – 20,000 shares $1.00 par value authorized, none issued									—			—
Class A common stock – 75,000 shares $1.00 par value authorized, 27,165 and 26,747 shares issued and outstanding									27,165			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		40,821				49,074			18,582			22,975
Retained earnings		866,776				793,712			918,094			941,146
Accumulated other comprehensive loss		(34,438	)			(34,554	)		(39,302	)		(37,089	)
Total SSI shareholders’ equity		900,792				835,764			924,739			953,979
Noncontrolling interests		3,857				4,015			3,765			4,495
Total equity		904,649				839,779			928,504			958,474
Total liabilities and equity	$	1,724,329			$	1,494,363		$	1,822,619		$	1,826,597


	Three Months Ended November 30,
	2022			2021
Cash flows from operating activities:
Net (loss) income	$	(17,556	)	$	47,276
Adjustments to reconcile net (loss) income to cash provided by operating activities:
Asset impairment charges		4,000			—
Exit-related asset impairments		143			—
Depreciation and amortization		21,451			17,220
Inventory write-downs		575			192
Deferred income taxes		(5,741	)		11,227
Undistributed equity in earnings of joint ventures		(790	)		(236	)
Share-based compensation expense		2,816			4,392
Loss on disposal of assets, net		300			307
Unrealized foreign exchange loss (gain), net		141			(10	)
Credit loss, net		(18	)		(4	)
Changes in assets and liabilities, net of acquisitions:
Accounts receivable		16,925			(68,490	)
Inventories		(27,846	)		(45,581	)
Income taxes		(293	)		(59	)
Prepaid expenses and other current assets		1,839			546
Other long-term assets		(1,212	)		(488	)
Operating lease assets and liabilities		313			(337	)
Accounts payable		(18,692	)		20,509
Accrued payroll and related liabilities		(28,902	)		(38,642	)
Other accrued liabilities		(8,709	)		21,327
Environmental liabilities		(2,452	)		(3,628	)
Other long-term liabilities		1,556			210
Net cash used in operating activities		(62,152	)		(34,269	)
Cash flows from investing activities:
Capital expenditures		(47,520	)		(39,719	)
Acquisitions, net of acquired cash		(26,902	)		(113,939	)
Proceeds from insurance and sale of assets		2,219			10,643
Net cash used in investing activities		(72,203	)		(143,015	)
Cash flows from financing activities:
Borrowings from long-term debt		186,356			271,091
Repayment of long-term debt		(78,781	)		(86,314	)
Payment of debt issuance costs		(135	)		—
Taxes paid related to net share settlement of share-based payment awards		(6,807	)		(9,577	)
Distributions to noncontrolling interests		(962	)		(1,026	)
Dividends paid		(5,540	)		(5,568	)
Net cash provided by financing activities		94,131			168,606
Effect of exchange rate changes on cash		(40	)		(59	)
Net decrease in cash and cash equivalents		(40,264	)		(8,737	)
Cash and cash equivalents as of beginning of period		43,803			27,818
Cash and cash equivalents as of end of period	$	3,539		$	19,081

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


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


	PAGE
FORWARD-LOOKING STATEMENTS	3

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements (Unaudited)	4

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

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

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

Unaudited Condensed Consolidated Statements of Equity for the Three ~~and Six~~ Months Ended ~~February 28,~~November 30, 2022 and 2021	7

Unaudited Condensed Consolidated Statements of Cash Flows for the ~~Six~~Three Months Ended ~~February 28,~~November 30, 2022 and 2021	98

Notes to the Unaudited Condensed Consolidated Financial Statements	1110

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations	2423

Item 3. Quantitative and Qualitative Disclosures about Market Risk	37

Item 4. Controls and Procedures	38

PART II. OTHER INFORMATION

Item 1. Legal Proceedings	39

Item 1A. Risk Factors	39

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

Item 5. Other Information	39

Item 6. Exhibits	40

SIGNATURES	41


	Common Stock																Accumulated
	Class A						Class B				Additional						Other			Total SSI
Three Months Ended November 30, 2021	Shares			Amount			Shares		Amount		Paid-in Capital			Retained Earnings			Comprehensive Loss			Shareholders’ Equity			Noncontrolling Interests			Total Equity
Balance as of September 1, 2021		27,332		$	27,332			200	$	200	$	49,074		$	793,712		$	(34,554	)	$	835,764		$	4,015		$	839,779
Net income		—			—			—		—		—			46,199			—			46,199			1,077			47,276
Other comprehensive loss, net of tax		—			—			—		—		—			—			(725	)		(725	)		—			(725	)
Distributions to noncontrolling interests		—			—			—		—		—			—			—			—			(1,026	)		(1,026	)
Issuance of restricted stock		470			470			—		—		(470	)		—			—			—			—			—
Restricted stock withheld for taxes		(178	)		(178	)		—		—		(9,399	)		—			—			(9,577	)		—			(9,577	)
Share-based compensation cost		—			—			—		—		4,436			—			—			4,436			—			4,436
Dividends ($0.1875 per common share)		—			—			—		—		—			(5,407	)		—			(5,407	)		—			(5,407	)
Balance as of November 30, 2021		27,624		$	27,624			200	$	200	$	43,641		$	834,504		$	(35,279	)	$	870,690		$	4,066		$	874,756

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

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

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

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

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