RADIUS RECYCLING, INC. This section includes a discussion of our operations for the three months ended
General
Founded in 1906,
Prior to the first quarter of fiscal 2021, our internal organizational and
reporting structure included two operating and reportable segments: the Auto and
We sell ferrous and nonferrous recycled scrap metal in both foreign and domestic
markets. We also sell a range of finished steel long products produced at our
steel mini-mill. We acquire, process and recycle auto bodies, rail cars, home
appliances, industrial machinery, manufacturing scrap and construction and
demolition scrap through our recycling facilities. Our retail self-service auto
parts stores located across
Our deep water port facilities on both the East and West Coasts of the
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SCHNITZER STEEL INDUSTRIES, INC. Our results of operations depend in large part on the demand and prices for
recycled metal in foreign and domestic markets and on the supply of raw
materials, including end-of-life vehicles, available to be processed at our
facilities. We respond to changes in selling prices for processed metal by
seeking to adjust purchase prices for unprocessed scrap metal in order to manage
the impact on our operating results. We believe we generally benefit from
sustained periods of stable or rising recycled scrap metal selling prices, which
allow us to better maintain or increase both operating results and unprocessed
scrap metal flow into our facilities. When recycled scrap metal selling prices
decline, either sharply or for a sustained period, our operating margins
typically compress. Our results of operations also depend on the demand and
prices for our finished steel products, which are sold to customers located
primarily in the
Our quarterly operating results fluctuate based on a variety of factors including, but not limited to, changes in market conditions for ferrous and nonferrous recycled metal and finished steel products, the supply of scrap metal in our domestic markets, and varying demand for used auto parts from our self-service retail stores. 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 at our facilities and production levels in our yards, and retail admissions and parts sales at our auto parts stores. Further, trade actions, including tariffs and any retaliation by affected countries, and licensing and inspection requirements can impact the level of profitability on sales of our products and, in certain cases, impede or restrict our ability to sell to certain export markets or require us to direct our sales to alternative market destinations, which can cause our quarterly operating results to fluctuate.
Coronavirus Disease 2019 (COVID-19)
In
We are a company operating in a critical infrastructure industry, as defined by
the
Because the severity, magnitude and duration of the COVID-19 pandemic and its economic consequences are uncertain, continually changing and difficult to predict, the pandemic's impact on our operations and financial performance, as well as its impact on our ability to successfully execute our business strategies and initiatives, remains uncertain and difficult to predict. Further, the ultimate impact of the COVID-19 pandemic on our operations and financial performance depends on many factors that are not within our control, including, but not limited to: governmental, business and individuals' actions that have been and continue to be taken in response to the pandemic (including restrictions on travel and transport and workforce pressures); the impact of the pandemic and actions taken in response on global and regional economies, travel, and economic activity; the availability of federal, state or local funding programs; general economic uncertainty in key global markets and financial market volatility; global economic conditions and levels of economic growth; and the pace of economic recovery. While the COVID-19 pandemic could continue to 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.
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SCHNITZER STEEL INDUSTRIES, INC. 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. Our
non-GAAP financial measures should be considered in addition to, but not as a
substitute for, the most directly comparable
Financial Highlights of Results of Operations for the First Quarter of Fiscal 2021
• Diluted earnings per share from continuing operations attributable to SSI
shareholders in the first quarter of fiscal 2021 was $0.50 , compared to loss
per share of $(0.26) in the prior year quarter.
• Adjusted diluted earnings per share from continuing operations attributable
to SSI shareholders in the first quarter of fiscal 2021 was $0.57 , compared
to adjusted loss per share of $(0.17) in the prior year quarter.
• Net income in the first quarter of fiscal 2021 was $15 million , compared to
net loss of $(7) million in the prior year quarter.
• Adjusted EBITDA in the first quarter of fiscal 2021 was $40 million ,
compared to $10 million in the prior year quarter.
Market conditions for recycled metals improved in the first quarter of fiscal
2021, leading to significantly increased average net selling prices for our
ferrous and nonferrous products compared to the prior year quarter. Our results
in the first quarter of fiscal 2021 reflected an expansion in our ferrous metal
spreads from the higher price environment and increased sales volumes for our
ferrous and finished steel products compared to the prior year quarter, driven
by stronger market conditions for recycled metals globally and resilient demand
for finished steel in
The following items further highlight selected liquidity and capital structure metrics:
• For the first three months of fiscal 2021, net cash used in operating
activities was $7 million , compared to net cash provided by operating
activities of $11 million in the prior year comparable period.
• Debt was $143 million as of November 30, 2020 , compared to $104 million as
of August 31, 2020 .
• Debt, net of cash, was $136 million as of November 30, 2020 , compared to $87
million as of August 31, 2020 .
See the reconciliations of adjusted diluted earnings (loss) per share from continuing operations attributable to SSI shareholders, adjusted EBITDA, and debt, net of cash in Non-GAAP Financial Measures at the end of this Item 2.
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SCHNITZER STEEL INDUSTRIES, INC.
Results of Operations
Selected Financial Measures and Operating Statistics
Three Months Ended November 30,
($ in thousands, except for prices and per
share amounts) 2020 2019 % Change
Ferrous revenues $ 252,206 $ 199,898 26 %
Nonferrous revenues 119,709 97,841 22 %
Steel revenues(1) 88,414 77,325 14 %
Retail and other revenues 31,778 30,520 4 %
Total revenues 492,107 405,584 21 %
Cost of goods sold 420,094 364,760 15 %
Gross margin (total revenues less cost of
goods sold) $ 72,013 $ 40,824 76 %
Gross margin (%) 14.6 % 10.1 % 45 %
Selling, general and administrative
expense $ 49,906 $ 46,774 7 %
Diluted earnings (loss) per share from
continuing operations
attributable to SSI shareholders:
Reported $ 0.50 $ (0.26 ) NM
Adjusted(2) $ 0.57 $ (0.17 ) NM
Net income (loss) $ 15,064 $ (6,565 ) NM
Adjusted EBITDA(2) $ 40,255 $ 9,835 309 %
Average ferrous recycled metal sales
prices ($/LT)(3):
Domestic $ 242 $ 196 23 %
Foreign $ 276 $ 229 21 %
Average $ 269 $ 222 21 %
Ferrous volumes (LT, in thousands):
Domestic(4) 388 363 7 %
Foreign 665 613 9 %
Total ferrous volumes (LT, in
thousands)(4) 1,053 976 8 %
Average nonferrous sales price
($/pound)(3)(5) $ 0.64 $ 0.54 19 %
Nonferrous volumes (pounds, in
thousands)(4)(5) 138,236 144,176 (4 )%
Finished steel average sales price
($/ST)(3) $ 621 $ 643 (3 )%
Finished steel sales volumes (ST, in
thousands) 134 114 18 %
Cars purchased (in thousands)(6) 78 83 (6 )%
Number of auto parts stores at period end 50 51 (2 )%
Rolling mill utilization(7) 97 % 85 % 14 %
NM = Not Meaningful
LT = Long Ton, which is equivalent to 2,240 pounds. ST =
(1) Steel revenues include primarily sales of finished steel products,
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
We generated revenues of
Operating Performance
Net income in the first quarter of fiscal 2021 was
Productivity Initiatives
In the second quarter of fiscal 2020, we implemented productivity initiatives
aimed at reducing our annual operating expenses, mainly through reductions in
non-trade procurement spend, including outside and professional services, lower
employee-related expenses and other non-headcount measures. We achieved
approximately
In the first quarter of fiscal 2021, in accordance with our plan announced in
Income Tax
The effective tax rate from continuing operations for the first quarter of
fiscal 2021 was an expense on pre-tax income of 27.5% compared to a benefit on a
pre-tax loss of 27.8% for the comparable prior year period. For each quarterly
period, the effective tax rate from continuing operations was higher 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.
Operating Activities
Net cash used in operating activities in the first three months of fiscal 2021
was
Uses of cash in the first three months of fiscal 2021 included a
Sources of cash in the first three months of fiscal 2020 included a
Investing Activities
Net cash used in investing activities was
Cash used in investing activities in the first three months of fiscal 2021
included capital expenditures of
Financing Activities
Net cash provided by financing activities in the first three months of fiscal
2021 was
Cash flows from financing activities in the first three months of fiscal 2021
included
Debt
Our senior secured revolving credit facilities, which provide for revolving
loans of
We had borrowings outstanding under our credit facilities of
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SCHNITZER STEEL INDUSTRIES, INC. 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, (b) a consolidated leverage ratio, defined as consolidated funded indebtedness divided by the sum of consolidated net worth and consolidated funded indebtedness, and (c) a consolidated asset coverage ratio, defined as consolidated asset values divided by 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 primarily relate to an equipment purchase, 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 obligation is treated as a partial financing of the purchase price by the equipment vendor. Monthly payments commence when the equipment is placed in service and continue for a period of four years thereafter. We impute interest on this obligation at a rate of 4.25% reflecting the estimated rate that would be recorded in a market transaction with similar terms.
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 plan to
invest up to
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SCHNITZER STEEL INDUSTRIES, INC. 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.
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.
Off-Balance Sheet Arrangements
None requiring disclosure pursuant to Item 303 of Regulation S-K under the Securities Exchange Act of 1934.
Contractual Obligations
There were no material changes related to contractual obligations and
commitments from the information provided in our Annual Report on Form 10-K for
the fiscal year ended
We maintain stand-by letters of credit to provide support for certain
obligations, including workers' compensation and performance bonds. As of
Critical Accounting Policies and Estimates
There were no material changes to our critical accounting policies and estimates
as described in the "Management's Discussion and Analysis of Financial Condition
and Results of Operations" section of our Annual Report on Form 10-K for the
year ended
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SCHNITZER STEEL INDUSTRIES, INC. 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, 2020 August 31, 2020
Short-term borrowings $ 2,171 $ 2,184
Long-term debt, net of current maturities 141,172 102,235
Total debt 143,343 104,419
Less cash and cash equivalents 7,258 17,887
Total debt, net of cash $ 136,085 $ 86,532
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 borrowings (repayments) for the period because we believe it is useful to 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,
2020 2019
Borrowings from long-term debt $ 92,714
(53,781 ) (92,190 )
Net borrowings (repayments) of debt $ 38,933 $ 22,149
Adjusted EBITDA, adjusted selling, general and administrative expense, adjusted income (loss) from continuing operations attributable to SSI shareholders, and adjusted diluted earnings (loss) per share from continuing operations attributable to SSI shareholders
Management believes that providing these non-GAAP financial measures adds a meaningful presentation of our results from business operations excluding adjustments for charges for legacy environmental matters, net of recoveries, restructuring charges and other exit-related activities, asset impairment charges, and the income tax expense (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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SCHNITZER STEEL INDUSTRIES, INC. Following are reconciliations of net income (loss) to adjusted EBITDA, and adjusted selling, general and administrative expense (in thousands):
Three Months Ended November 30,
2020 2019
Reconciliation of adjusted EBITDA:
Net income (loss) $ 15,064 $ (6,565 )
Loss (income) from discontinued operations, net of tax 42 (28 )
Interest expense 1,780 1,423
Income tax expense (benefit) 5,719 (2,534 )
Depreciation and amortization 14,826 14,087
Charges for legacy environmental matters, net(1) 2,760 1,293
Restructuring charges and other exit-related activities 64 467
Asset impairment charges - 1,692
Adjusted EBITDA $ 40,255 $ 9,835
Selling, general and administrative expense:
As reported $ 49,906 $ 46,774
Charges for legacy environmental matters, net(1) (2,760 ) (1,293 )
Adjusted $ 47,146 $ 45,481 (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 4 - 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 (loss) from continuing operations attributable to SSI shareholders and adjusted diluted earnings (loss) per share from continuing operations attributable to SSI shareholders (in thousands, except per share data):
Three Months Ended November 30,
2020 2019
Income (loss) from continuing operations attributable to SSI shareholders: As reported
$ 14,146 $ (7,023 ) Charges for legacy environmental matters, net(1) 2,760 1,293 Restructuring charges and other exit-related activities 64 467 Asset impairment charges - 1,692 Income tax benefit allocated to adjustments(2) (649 ) (1,151 ) Adjusted$ 16,321 $ (4,722 ) Diluted earnings (loss) per share from continuing operations attributable to SSI shareholders: As reported $ 0.50 $ (0.26 )
Charges for legacy environmental matters, net, per share(1)
0.10 0.05
Restructuring charges and other exit-related
activities, per share - 0.02
Asset impairment charges, per share - 0.06
Income tax benefit allocated to adjustments, per
share(2) (0.02 ) (0.04 )
Adjusted(3) $ 0.57 $ (0.17 )
(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 4 - 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 (loss) from continuing operations attributable to SSI
shareholders and diluted earnings (loss) per share from continuing operations
attributable to SSI shareholders is determined based on a tax provision
calculated with and without the adjustments.
(3) May not foot due to rounding.
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