RADIUS RECYCLING, INC. This section includes a discussion of our operations for the three months ended
General
Founded in 1906,
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
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
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
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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, and varying demand for used auto parts from our self-service retail stores. Certain of these factors are influenced, to a degree, by the impact of seasonal changes including severe weather conditions, which can impact the timing of shipments and inhibit construction activity utilizing our products, scrap metal collection and production levels at our facilities, and retail admissions and parts sales at our auto parts stores. Further, sanctions, trade actions, and licensing, 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
Steel
On
Everett Facility Shredder Fire
On
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SCHNITZER STEEL INDUSTRIES, INC.
Given that the incident occurred after the end of our first quarter of fiscal
2022, the matter did not have an impact on our results of operations for that
quarter. Based on our current schedule, we expect to substantially complete
repair and replacement of portions of the property that experienced physical
loss or damage to enable resumption of shredding operations at the facility
within the second quarter of fiscal 2022. Completion of the remainder of repair
and replacement of property that experienced physical loss or damage will likely
occur over a longer period. Impacts on business income are expected to continue
during the period of repair and replacement of the physical plant property that
experienced physical loss or damage and the restart of production activities and
may continue thereafter. We have insurance that we believe is fully applicable
to the losses and have filed initial insurance claims, which are subject to
deductibles and various conditions, exclusions, and limits, for the property
damage or loss and business income losses resulting from the matter. The
property damage deductible under the policies insuring our assets in this matter
is
Use of Non-GAAP Financial Measures
In this management's discussion and analysis, we use supplemental measures of our performance, liquidity, and capital structure which are derived from our consolidated financial information, but which are not presented in our consolidated financial statements prepared in accordance with GAAP. We believe that providing these non-GAAP financial measures adds a meaningful presentation of our operating and financial performance, liquidity, and capital structure. For example, we use adjusted EBITDA as one of the measures to compare and evaluate financial performance. Adjusted EBITDA is the sum of our net income before results from discontinued operations, interest expense, income taxes, depreciation and amortization, business development costs not related to ongoing operations including pre-acquisition expenses, charges for legacy environmental matters (net of recoveries), restructuring charges and other exit-related activities, and other items which are not related to underlying business operational performance. See the reconciliations of supplemental financial measures, including adjusted EBITDA, in Non-GAAP Financial Measures at the end of this Item 2.
Our non-GAAP financial measures should be considered in addition to, but not as a substitute for, the most directly comparable GAAP measures. Although we find these non-GAAP financial measures useful in evaluating the performance of our business, our reliance on these measures is limited because they often materially differ from our consolidated financial statements presented in accordance with GAAP. Therefore, we typically use these adjusted amounts in conjunction with our GAAP results to address these limitations. Our non-GAAP financial measures may not be comparable to similarly titled measures of other companies. Other companies, including companies in our industry, may calculate non-GAAP financial measures differently than we do, limiting the usefulness of those measures for comparative purposes.
Financial Highlights of Results of Operations for the First Quarter of Fiscal 2022
• Diluted earnings per share from continuing operations attributable to SSI
shareholders in the first quarter of fiscal 2022 was $1.55 , compared to
$0.50 per share in the prior year quarter.
• Adjusted diluted earnings per share from continuing operations attributable
to SSI shareholders in the first quarter of fiscal 2022 was $1.58 , compared
to $0.57 per share in the prior year quarter.
• Net income in the first quarter of fiscal 2022 was $47 million , compared to
$15 million in the prior year quarter.
• Adjusted EBITDA in the first quarter of fiscal 2022 was $78 million ,
compared to $40 million in the prior year quarter.
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SCHNITZER STEEL INDUSTRIES, INC. Market conditions for recycled metals were strong in the first quarter of fiscal
2022, leading to significantly higher average net selling prices and increased
sales volumes for our ferrous and nonferrous products compared to the prior year
quarter. In the first quarter of fiscal 2022, the average net selling prices for
our ferrous and nonferrous products increased by 66% and 64%, respectively, and
sales volumes for these products increased by 9% and 11%, respectively, compared
to the prior year quarter. The increased sales volumes in part reflected
additional volumes arising from the
The following items further highlight selected liquidity and capital structure metrics:
• For the first three months of fiscal 2022, net cash used in operating
activities was $34 million , compared to $7 million in the prior year
comparable period, in each case reflecting uses of cash for net working
capital that exceeded sources of cash from earnings.
• Debt was $260 million as of November 30, 2021 , 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 $241 million as of November 30, 2021 , compared to $47
million as of August 31, 2021 .
See the reconciliations of adjusted diluted earnings per share from continuing operations attributable to SSI shareholders, adjusted EBITDA, and debt, net of cash in Non-GAAP Financial Measures at the end of this Item 2.
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SCHNITZER STEEL INDUSTRIES, INC.
Results of Operations
Selected Financial Measures and Operating Statistics
Three Months Ended November 30,
($ in thousands, except for prices and
per share amounts) 2021 2020 %
Ferrous revenues $ 465,856 $ 252,206 85 %
Nonferrous revenues 194,429 119,709 62 %
Steel revenues(1) 103,238 88,414 17 %
Retail and other revenues 34,595 31,778 9 %
Total revenues 798,118 492,107 62 %
Cost of goods sold 683,244 420,094 63 %
Gross margin (total revenues less cost
of goods sold) $ 114,874 $ 72,013 60 %
Gross margin (%) 14.4 % 14.6 % (2 )%
Selling, general and administrative
expense $ 55,267 $ 49,906 11 %
Diluted earnings per share from
continuing operations attributable to
SSI shareholders:
Reported $ 1.55 $ 0.50 210 %
Adjusted(2) $ 1.58 $ 0.57 177 %
Net income $ 47,276 $ 15,064 214 %
Adjusted EBITDA(2) $ 78,086 $ 40,255 94 %
Average ferrous recycled metal sales
prices ($/LT)(3):
Domestic $ 431 $ 242 78 %
Foreign $ 450 $ 276 63 %
Average $ 446 $ 269 66 %
Ferrous volumes (LT, in thousands):
Domestic(4) 430 388 11 %
Foreign 718 665 8 %
Total ferrous volumes (LT, in
thousands)(4) 1,148 1,053 9 %
Average nonferrous sales price
($/pound)(3)(5) $ 1.05 $ 0.64 64 %
Nonferrous volumes (pounds, in
thousands)(4)(5) 153,227 138,236 11 %
Finished steel average sales price
($/ST)(3) $ 979 $ 621 58 %
Finished steel sales volumes (ST, in
thousands) 99 134 (26 )%
Cars purchased (in thousands)(6) 80 78 3 %
Number of auto parts stores at period
end 50 50 (- )%
Rolling mill utilization(7) 78 % 97 % (20 )%
NM = Not Meaningful
LT = Long Ton, which is equivalent to 2,240 pounds. ST =
(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.
(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.
(5) Average sales price and volume information excludes platinum group metals
("PGMs") in catalytic converters.
(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.
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SCHNITZER STEEL INDUSTRIES, INC.
Revenues
Revenues in the first quarter of fiscal 2022 increased by 62% compared to the
prior year quarter primarily due to significantly higher average net selling
prices and increased sales volumes for our ferrous and nonferrous products
driven by strong market conditions for recycled metals globally. In the first
quarter of fiscal 2022, the average net selling prices for our ferrous and
nonferrous products increased by 66% and 64%, respectively, and sales volumes
for these products increased by 9% and 11%, respectively, compared to the prior
year quarter. The expansion in export ferrous sales volumes compared to the
prior year quarter reflected strong demand for recycled ferrous metal from
steelmakers globally, the effects of which were partially offset by the impact
of logistics constraints including ship delays for sales to export customers.
The increased ferrous and nonferrous sales volumes in part reflected additional
volumes arising from the
Operating Performance
Net income in the first quarter of fiscal 2022 was
See the reconciliation of adjusted EBITDA in Non-GAAP Financial Measures at the end of this Item 2.
Income Tax
The effective tax rate from continuing operations for the first quarter of
fiscal 2022 was an expense on pre-tax income of 19.0%, compared to 27.5% for the
comparable prior year period. For the first quarter of fiscal 2022, the
effective tax rate from continuing operations was lower than the
Liquidity and Capital Resources
We rely on cash provided by operating activities as a primary source of liquidity, supplemented by current cash on hand and borrowings under our existing credit facilities.
Sources and Uses of Cash
We had cash balances of
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SCHNITZER STEEL INDUSTRIES, INC.
acquisition of the assets of the
Operating Activities
Net cash used in operating activities in the first three months of fiscal 2022
was
Uses of cash in the first three months of fiscal 2022 included a
Uses of cash in the first three months of fiscal 2021 included a
Investing Activities
Net cash used in investing activities was
Cash used in investing activities in the first three months of fiscal 2022
included
Cash used in investing activities in the first three months of fiscal 2022 also
included capital expenditures of
Financing Activities
Net cash provided by financing activities in the first three months of fiscal
2022 was
Cash flows from financing activities in the first three months of fiscal 2022
included
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SCHNITZER STEEL INDUSTRIES, INC.
Debt
Our senior secured revolving credit facilities, which provide for revolving
loans of
We had borrowings outstanding under our credit facilities of
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
Our obligations under our credit agreement are guaranteed by substantially all of our subsidiaries. The credit facilities and the related guarantees are secured by senior first priority liens on certain of our and our subsidiaries' assets, including equipment, inventory, and accounts receivable.
While we currently expect to remain in compliance with the financial covenants under the credit agreement, we may not be able to do so in the event market conditions, 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
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SCHNITZER STEEL INDUSTRIES, INC.
Capital Expenditures
Capital expenditures totaled
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
We have been identified by the
Dividends
On
Share Repurchase Program
Pursuant to our share repurchase program as amended in 2001, 2006 and 2008, we
were authorized to repurchase up to nine million shares of our Class A common
stock. As of
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.
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SCHNITZER STEEL INDUSTRIES, INC.
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
We maintain stand-by letters of credit to provide support for certain
obligations, including workers' compensation and performance bonds. As of
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
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
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.
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, 2021 August 31, 2021
Short-term borrowings $ 3,501 $ 3,654
Long-term debt, net of current maturities 256,215 71,299
Total debt 259,716 74,953
Less cash and cash equivalents 19,081 27,818
Total debt, net of cash $ 240,635 $ 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):
Three Months Ended November 30,
2021 2020
Borrowings from long-term debt
(86,314 ) (53,781 )
Net borrowings (repayments) of debt
Adjusted EBITDA, adjusted selling, general and administrative expense, adjusted income from continuing operations attributable to SSI shareholders, and adjusted diluted 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 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.
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Following are reconciliations of net income to adjusted EBITDA, and adjusted selling, general and administrative expense (in thousands):
Three Months Ended November 30,
2021 2020
Reconciliation of adjusted EBITDA:
Net income $ 47,276 $ 15,064
Loss from discontinued operations, net of tax 29 42
Interest expense 1,372 1,780
Income tax expense 11,097 5,719
Depreciation and amortization 17,220 14,826
Business development costs 614 -
Charges for legacy environmental matters, net(1) 456 2,760
Restructuring charges and other exit-related activities 22 64
Adjusted EBITDA $ 78,086 $ 40,255
Selling, general and administrative expense:
As reported $ 55,267 $ 49,906
Business development costs (614 ) -
Charges for legacy environmental matters, net(1) (456 ) (2,760 )
Adjusted $ 54,197 $ 47,146 (1) Legal and environmental charges, net of recoveries, for legacy environmental
matters including those related to the Portland Harbor Superfund site and to
other legacy environmental loss contingencies. See Note 5 - Commitments and
Contingencies, "Portland Harbor " and "Other Legacy Environmental Loss
Contingencies" in the Notes to the Unaudited Condensed Consolidated Financial
Statements in Part I, Item 1 of this report.
Following are reconciliations of adjusted income from continuing operations attributable to SSI shareholders and adjusted diluted earnings per share from continuing operations attributable to SSI shareholders (in thousands, except per share data):
Three Months Ended November 30,
2021 2020
Income from continuing operations attributable to
SSI shareholders:
As reported $ 46,228 $ 14,146
Business development costs 614 -
Charges for legacy environmental matters, net(1) 456 2,760
Restructuring charges and other exit-related
activities 22 64
Income tax benefit allocated to adjustments(2) (249 ) (649 )
Adjusted $ 47,071 $ 16,321
Diluted earnings per share from continuing
operations attributable to SSI shareholders:
As reported $ 1.55 $ 0.50
Business development costs, per share 0.02 -
Charges for legacy environmental matters, net, per share(1)
0.02 0.10
Restructuring charges and other exit-related
activities, per share - -
Income tax benefit allocated to adjustments, per
share(2) (0.01 ) (0.02 )
Adjusted(3) $ 1.58 $ 0.57
(1) Legal and environmental charges, net of recoveries, for legacy environmental
matters including those related to the Portland Harbor Superfund site and to
other legacy environmental loss contingencies. See Note 5 - Commitments and
Contingencies, "Portland Harbor " and "Other Legacy Environmental Loss
Contingencies" in the Notes to the Unaudited Condensed Consolidated Financial
Statements in Part I, Item 1 of this report.
(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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