ITEM 1. FINANCIAL STATEMENTS (UNAUDITED)
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.
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.
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.
The accompanying Notes to the Unaudited Condensed Consolidated Financial Statements are an integral part of these statements.
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL 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, 2020. The results for the three and nine months ended May 31, 2021 and 2020 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 scrap metal. The Company also produces a range of finished steel long products at its steel mini-mill using ferrous recycled scrap metal primarily sourced internally from its recycling and joint venture operations and other raw 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.
Prior to the first quarter of fiscal 2021, the Company’s internal organizational and reporting structure included two operating and reportable segments: the Auto and Metals Recycling (“AMR”) business and the Cascade Steel and Scrap (“CSS”) business. In the first quarter of fiscal 2021, in accordance with its plan announced in April 2020, the Company completed its transition to a new internal organizational and reporting structure reflecting a functionally-based, integrated model. The Company consolidated its operations, sales, services and other functional capabilities at an enterprise level reflecting enhanced focus by management on optimizing the Company’s vertically integrated value chain. This change resulted in a realignment of how the Chief Executive Officer, who is considered the Company’s chief operating decision-maker, reviews performance and makes decisions on resource allocation, supporting a single segment. The Company began reporting on this new single-segment structure in the first quarter of fiscal 2021 as reflected in its Quarterly Report on Form 10-Q for the quarterly period ended November 30, 2020.
Accounting Changes
As of the beginning of the first quarter of fiscal 2020, the Company adopted an accounting standards update that requires a lessee to recognize a lease liability and a lease right-of-use asset on its balance sheet for all leases greater than 12 months, including those classified as operating leases. The Company adopted the new lease accounting standard using the modified retrospective transition method, whereby it applied the new requirements by recognizing a cumulative-effect adjustment to the opening balance of retained earnings as of September 1, 2019. Such cumulative-effect adjustment for the Company was less than $1 million, which is presented separately in the Unaudited Condensed Consolidated Statement of Equity for the nine months ended May 31, 2021.
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 $46 million and $20 million as of May 31, 2021 and August 31, 2020, respectively.
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SCHNITZER STEEL INDUSTRIES, INC.
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
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 credit insurance is in place. Management evaluates the aging of customer receivable balances, the financial condition of the Company’s customers, historical collection rates and economic trends 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 $7 million for each of the nine months ended May 31, 2021 and 2020.
Prepaid Expenses
The Company’s prepaid expenses, reported within prepaid expenses and other current assets in the Unaudited Condensed Consolidated Balance Sheets, totaled $31 million and $23 million as of May 31, 2021 and August 31, 2020, 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 retirement plans, consisted primarily of receivables from insurers, capitalized implementation costs for cloud computing arrangements, cash held in a client trust account relating to a legal settlement, major spare parts and equipment, an equity investment, 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.
Other assets as of May 31, 2021 and August 31, 2020 included $12 million and $5 million, respectively, in receivables from insurers, comprising primarily $7 million and less than $1 million, respectively, relating to environmental claims and $4 million as of each reporting date relating to workers’ compensation claims.
Other assets as of May 31, 2021 also included approximately $7.6 million in 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 4 – Commitments and Contingencies for further discussion of this matter.
The Company invested $6 million in the equity of a privately-held waste and recycling entity in fiscal 2017. The equity investment does not have a readily determinable fair value and, therefore, is carried at cost and adjusted for impairments and observable price changes. The investment is reported within other assets in the Unaudited Condensed Consolidated Balance Sheets. The carrying value of the investment was $6 million as of May 31, 2021 and August 31, 2020. The Company has not recorded any impairments or upward or downward adjustments to the carrying value of the investment since acquisition.
Accounting for Impacts of Steel Mill Fire
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
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SCHNITZER STEEL INDUSTRIES, INC.
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
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.
On May 22, 2021, the Company experienced a fire at its Cascade Steel Rolling Mill in McMinnville, Oregon. Direct physical loss or damage to property from the incident was limited to the mill’s melt shop, with no bodily injuries and no physical loss or damage to other buildings or equipment. The Company filed insurance claims for the property that experienced physical loss or damage and business income losses resulting from the matter, and it recognized losses of $1 million related to the carrying value of plant, equipment and inventory assets damaged by the fire, as well as an insurance receivable and a related insurance recovery in the same amount. Given that the incident occurred near the end of the Company’s third quarter of fiscal 2021, the matter did not have a significant impact on its results of operations for that quarter.
Other Asset Impairment Charges
During the nine months ended May 31, 2020, the Company recognized asset impairment charges of $4 million, which relate primarily to abandonment of obsolete machinery and equipment assets, accelerated depreciation due to the shortening of the useful lives of certain metals recovery assets and the closure of an auto parts store.
Long-Lived Assets
The Company tests long-lived tangible and intangible assets for impairment at the asset group level, which is determined based on the lowest level for which identifiable cash flows are largely independent of the cash flows of other groups of assets and liabilities. The segment realignment completed in the first quarter of fiscal 2021 described above in this Note under “Segment Reporting” did not significantly impact the composition of the Company’s asset groups.
Concentration of Credit Risk
Financial instruments that potentially subject the Company to significant concentration of credit risk consist primarily of cash and cash equivalents, accounts receivable, and notes and other contractual receivables. 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 of $250 thousand as of May 31, 2021. 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.
Note 2 - Inventories
Inventories consisted of the following (in thousands):
|
|
May 31, 2021
|
|
|
August 31, 2020
|
|
Processed and unprocessed scrap metal
|
|
$
|
153,166
|
|
|
$
|
63,058
|
|
Semi-finished goods
|
|
|
8,134
|
|
|
|
6,909
|
|
Finished goods
|
|
|
52,149
|
|
|
|
44,476
|
|
Supplies
|
|
|
43,780
|
|
|
|
42,826
|
|
Inventories
|
|
$
|
257,229
|
|
|
$
|
157,269
|
|
Note 3 - 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. 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 events identified
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SCHNITZER STEEL INDUSTRIES, INC.
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
during the first nine months of fiscal 2021 requiring an interim goodwill impairment test, and the Company did not record a goodwill impairment charge in any of the periods presented.
As of August 31, 2020, the balance of the Company’s goodwill was $170 million, and all but $1 million of such balance was carried by a single reporting unit within the AMR operating segment that existed at the time. The Company had last performed the quantitative impairment test of goodwill carried by this reporting unit in the fourth quarter of fiscal 2020 using a measurement date of July 1, 2020. The estimated fair value of the reporting unit exceeded its carrying amount by approximately 29% as of July 1, 2020. In the first quarter of fiscal 2021, the Company completed its transition to a new internal organizational and reporting structure reflecting a functionally-based, integrated model, resulting in a single operating segment, replacing the AMR and CSS operating segments. The change in structure led to the identification of components within the single operating segment based on disaggregation of financial information regularly reviewed by segment management. In accordance with the accounting guidance, the Company then reassigned the Company's goodwill to the reporting units affected based on the relative fair values of the elements transferred and the elements remaining within the original reporting units as of the date of the reassessment, September 1, 2020. The Company measured the relative fair values of such elements under the market approach based on earnings multiple data. Beginning on the date of reassessment of September 1, 2020, the Company's goodwill is carried by three reporting units comprising two separate regional groups of metals recycling operations and the Company’s retail auto parts stores.
In connection with the segment realignment and redefinition of the Company's reporting units effective as of September 1, 2020, management evaluated if it was more likely than not that the fair value of any of the either legacy or new reporting units with allocated goodwill was below its carrying value as of September 1, 2020, which would indicate a triggering event requiring a goodwill impairment test. Based on management's assessment as of September 1, 2020, it was not more likely than not that the fair value of each reporting unit with allocated goodwill was below its carrying value.
The gross change in the carrying amount of goodwill for the nine months ended May 31, 2021 was as follows (in thousands):
|
|
Goodwill
|
|
September 1, 2020
|
|
$
|
169,627
|
|
Foreign currency translation adjustment
|
|
|
1,606
|
|
May 31, 2021
|
|
$
|
171,233
|
|
Accumulated goodwill impairment charges were $471 million as of May 31, 2021 and August 31, 2020.
Note 4 - 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 nine months ended May 31, 2021 were as follows (in thousands):
Balance as of September 1, 2020
|
|
|
Liabilities
Established
(Released), Net
|
|
|
Payments and
Other
|
|
|
Balance as of
May 31, 2021
|
|
|
Short-Term
|
|
|
Long-Term
|
|
$
|
53,464
|
|
|
$
|
15,389
|
|
|
$
|
(2,412
|
)
|
|
$
|
66,441
|
|
|
$
|
12,548
|
|
|
$
|
53,893
|
|
As of May 31, 2021 and August 31, 2020, the Company had environmental liabilities of $66 million and $53 million, respectively, for the potential remediation of locations where it has conducted business or has environmental liabilities from historical or recent activities. The liabilities relate to the investigation and potential future remediation of contaminated sediments and riverbanks, soil contamination, groundwater contamination, storm water runoff issues and other natural resource damages. Except for Portland Harbor and certain liabilities discussed under “Other Legacy Environmental Loss Contingencies” below, such liabilities were not individually material at any site.
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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”). The precise nature and extent of cleanup of any specific areas within the Site, 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.
While the Company participated in certain preliminary Site study efforts, it was not party to the consent order entered into by the EPA with certain other PRPs, referred to as the “Lower Willamette Group” (“LWG”), for a remedial investigation/feasibility study (“RI/FS”). During fiscal 2007, the Company and certain other parties agreed to an interim settlement with the LWG under which the Company made a cash contribution to the LWG RI/FS. The LWG has indicated that it had incurred over $155 million in investigation-related costs over an approximately 18 year period working on the RI/FS. Following submittal of draft RI and FS documents which the EPA largely rejected, the EPA took over the RI/FS process.
The Company has joined with approximately 100 other PRPs, including the LWG members, in a voluntary process to establish an allocation of costs at the Site, including the costs incurred by the LWG in the RI/FS process. The LWG members have also commenced federal court litigation, which has been stayed, seeking to bring additional parties into the allocation process.
In January 2008, the Portland Harbor Natural Resource Trustee Council (“Trustee Council”) invited the Company and other PRPs to participate in funding and implementing the Natural Resource Injury Assessment for the Site. Following meetings among the Trustee Council and the PRPs, funding and participation agreements were negotiated under which the participating PRPs, including the Company, agreed to fund the first phase of the three-phase natural resource damage assessment. Phase 1, which included the development of the Natural Resource Damage Assessment Plan (“AP”) and implementation of several early studies, was substantially completed in 2010. In December 2017, the Company joined with other participating PRPs in agreeing to fund Phase 2 of the natural resource damage assessment, which includes the 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 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 May 31, 2021, the Company had an insurance receivable in the same amount as the environmental reserve. See “Other Assets” in Note 1 – Summary of Significant Accounting Policies for further discussion of receivables from insurers.
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 and recovery of assessment costs related to natural resources damages from releases at and from the Site 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.
Estimates of the cost of remedial action for the cleanup of the in-river portion of the Site have varied widely in various drafts of the FS and in the EPA’s final FS issued in June 2016 ranged from approximately $170 million to over $2.5 billion (net present value), depending on the remedial alternative and a number of other factors. In comments submitted to the EPA, the Company and certain other stakeholders identified a number of serious concerns regarding the EPA’s risk and remedial alternatives assessments, cost estimates, scheduling assumptions and conclusions regarding the feasibility and effectiveness of remediation technologies.
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SCHNITZER STEEL INDUSTRIES, INC.
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
In January 2017, the EPA issued a Record of Decision (“ROD”) that identified the selected remedy for the Site. The selected remedy is a modified version of one of the alternative remedies evaluated in the EPA’s FS that was expanded to include additional work at a greater cost. The EPA has estimated the total cost of the selected remedy at $1.7 billion with a net present value cost of $1.05 billion (at a 7% discount rate) and an estimated construction period of 13 years following completion of the remedial designs. In the ROD, the EPA stated that the cost estimate is an order-of-magnitude engineering estimate that is expected to be within +50% to -30% of the actual project cost and that changes in the cost elements are likely to occur as a result of new information and data collected during the engineering design. The Company has identified a number of concerns regarding the remedy described in the ROD, which is based on data that is more than a decade old, and the EPA’s estimates for the costs and time required to implement the selected remedy. Because of ongoing questions regarding cost effectiveness, technical feasibility, and the use of stale data, it is uncertain whether the ROD will be implemented as issued. Moreover, the ROD provided only Site-wide cost estimates and did not provide sufficient detail to estimate costs for specific sediment management areas within the Site. 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 used in preparing the ROD was more than a decade old and would need to be updated with a new round of “baseline” sampling to be conducted prior to the remedial design phase. Accordingly, the ROD provided for additional pre-remedial design investigative work and baseline sampling to be conducted in order to provide a baseline of current conditions and delineate particular remedial actions for specific areas within the Site. This additional sampling was required prior to proceeding with the next phase in the process which is the remedial design. 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, EPA proposed that the PRPs, or a subgroup of PRPs, perform the additional investigative work identified in the ROD under a new consent order.
In December 2017, the Company and three other PRPs entered into a new Administrative Settlement Agreement and Order on Consent with EPA to perform such pre-remedial design investigation and baseline sampling over a two-year period. The Company estimated that its share of the costs of performing such work would be approximately $2 million, which it accrued in fiscal 2018. Such costs were fully covered by existing insurance coverage and, thus, the Company also recorded an insurance receivable for $2 million in fiscal 2018, resulting in no net impact to the Company’s consolidated results of operations.
The pre-remedial design investigation and baseline sampling work has been completed, and the report evaluating the data was submitted to EPA on June 17, 2019. The evaluation report concludes that Site conditions have improved substantially since the data forming the basis of the ROD was collected over a decade ago. The analysis contained in the report has significant implications for remedial design and remedial action at the Site. EPA has reviewed the report, finding with a few limited corrections that the data is of suitable quality and generally acceptable and stating that such data will be used, in addition to existing and forthcoming design-level data, to inform implementation of the ROD. However, EPA did not agree that the data or the analysis warrants a change to the remedy at this time and reaffirmed its commitment to proceed with remedial design. The Company and other PRPs disagree with 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 during the remedial design phase.
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SCHNITZER STEEL INDUSTRIES, INC.
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
EPA encouraged PRPs to step forward (individually or in groups) to enter into consent agreements to perform remedial design covering the entire Site and proposed dividing the Site into eight to ten subareas for remedial design. While certain PRPs executed consent agreements for remedial design work, because of EPA’s refusal to date to modify the remedy to reflect the most current data on Site conditions and because of concerns with the terms of the consent agreement, the Company elected not to enter into a consent agreement for remedial design with respect to any of the subareas at the Site. On March 26, 2020, EPA issued a unilateral administrative order (“UAO”) to the Company and MMGL, LLC (“MMGL”), an unaffiliated company, for the remedial design work in the portion of one of the EPA identified subareas within the Site designated as the River Mile 3.5 East Project Area. Following a conference with the Company to discuss the UAO and written comments submitted by the Company, EPA made limited modifications to the UAO and issued an amendment to the UAO on April 27, 2020 with an effective date of May 4, 2020. As required by the UAO, the Company notified EPA of its intent to comply with the UAO on the effective date 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, EPA’s expected schedule for completion of the remedial design work is four years. EPA has estimated the cost of the work at approximately $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 as between the respondents or with respect to any third party. The Company estimated that its share of the costs of performing such work under the UAO would be approximately $3 million, which it recorded to environmental liabilities and selling, general and administrative expense in the consolidated financial statements in the third quarter of fiscal 2020. The Company has insurance policies pursuant to which the Company is being reimbursed for the costs it has incurred for remedial design. In the second quarter of fiscal 2021, the Company recorded an insurance receivable and a related insurance recovery to selling, general and administrative expense for approximately $3 million. See “Other Assets” in Note 1 – Summary of Significant Accounting Policies for further discussion of receivables from insurers. 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, EPA announced that 100 percent of the Site’s areas requiring active cleanup are in the remedial design phase of the process.
The Company’s environmental liabilities as of May 31, 2021 and August 31, 2020 included $6 million and $4 million, respectively, relating to the Portland Harbor matters described above.
Except for certain early action projects in which the Company is not involved, remediation activities are not expected to commence for a number of years. Moreover, remediation activities at the Site are expected to be sequenced, and the order and timing of such sequencing has not been determined. In addition, as discussed above, responsibility for implementing and funding the remedy will be determined in a separate allocation process, which is on-going. The Company expects the next major stage of the allocation process to proceed in parallel with the remedial design process.
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, 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, 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. 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, continue to seek settlements with other insurers and formed a Qualified Settlement Fund (“QSF”) which became operative in the fourth quarter of 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. 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.
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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. No liabilities have been established in connection with these investigations beyond the costs of investigation and design, which costs have not been material to date, 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.
Other Legacy Environmental Loss Contingencies
The Company’s environmental loss contingencies as of May 31, 2021 and August 31, 2020, other than Portland Harbor, include actual or possible investigation and cleanup 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 cleanup 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 and cleanup 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.
During fiscal 2018, the Company accrued $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 May 31, 2021 and August 31, 2020, the Company had $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 zero and $28 million based on a range of remedial alternatives and subject to development and approval by regulators of a specific remedy implementation plan. However, subsequent to the development of those remedial alternatives, the Company performed additional investigative activities under new state requirements that have the potential to impact the required remedial actions and associated cost estimates pending further 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 each of May 31, 2021 and August 31, 2020 included $8 million 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. Investigation and remediation activities have been conducted under the oversight of the applicable state regulatory agency and are on-going, and the Company has also been working with local officials with respect to the protection of public water supplies. The Company accrued $4 million in the second quarter of fiscal 2021 for incremental estimated remediation costs, which was offset by payments during the first nine months of fiscal 2021 including payment during the first quarter of penalties in the amount of $2.7 million pursuant to a previously agreed settlement. 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. As part of its activities relating to the protection of public water supplies, the Company has agreed to reimburse the municipality for certain studies and plans, and it is reasonably possible that it may incur additional liabilities and costs in the future, including for wellhead treatment, which in the case of costs for installation of wellhead treatment, if incurred, could be in the range of $10 million to $13 million.
18
Table of Contents
SCHNITZER STEEL INDUSTRIES, INC.
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
In addition, the Company’s loss contingencies as of May 31, 2021 and August 31, 2020 included $8 million and less than $1 million, respectively, 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 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 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.
19
Table of Contents
SCHNITZER STEEL INDUSTRIES, INC.
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Note 5 - Accumulated Other Comprehensive Loss
Changes in accumulated other comprehensive loss, net of tax, comprise the following (in thousands):
|
|
Three Months Ended May 31, 2021
|
|
|
Three Months Ended May 31, 2020
|
|
|
|
Foreign Currency
Translation
Adjustments
|
|
|
Pension Obligations,
Net
|
|
|
Total
|
|
|
Foreign Currency
Translation
Adjustments
|
|
|
Pension Obligations,
Net
|
|
|
Total
|
|
Balances - March 1 (Beginning of period)
|
|
$
|
(32,373
|
)
|
|
$
|
(2,909
|
)
|
|
$
|
(35,282
|
)
|
|
$
|
(36,108
|
)
|
|
$
|
(2,932
|
)
|
|
$
|
(39,040
|
)
|
Other comprehensive income (loss) before reclassifications
|
|
|
4,514
|
|
|
|
—
|
|
|
|
4,514
|
|
|
|
(1,904
|
)
|
|
|
—
|
|
|
|
(1,904
|
)
|
Income tax benefit
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Other comprehensive income (loss) before reclassifications, net of tax
|
|
|
4,514
|
|
|
|
—
|
|
|
|
4,514
|
|
|
|
(1,904
|
)
|
|
|
—
|
|
|
|
(1,904
|
)
|
Amounts reclassified from accumulated other comprehensive loss
|
|
|
—
|
|
|
|
49
|
|
|
|
49
|
|
|
|
—
|
|
|
|
58
|
|
|
|
58
|
|
Income tax (benefit)
|
|
|
—
|
|
|
|
(12
|
)
|
|
|
(12
|
)
|
|
|
—
|
|
|
|
(13
|
)
|
|
|
(13
|
)
|
Amounts reclassified from accumulated other comprehensive loss, net of tax
|
|
|
—
|
|
|
|
37
|
|
|
|
37
|
|
|
|
—
|
|
|
|
45
|
|
|
|
45
|
|
Net periodic other comprehensive income (loss)
|
|
|
4,514
|
|
|
|
37
|
|
|
|
4,551
|
|
|
|
(1,904
|
)
|
|
|
45
|
|
|
|
(1,859
|
)
|
Balances - May 31 (End of period)
|
|
$
|
(27,859
|
)
|
|
$
|
(2,872
|
)
|
|
$
|
(30,731
|
)
|
|
$
|
(38,012
|
)
|
|
$
|
(2,887
|
)
|
|
$
|
(40,899
|
)
|
|
|
Nine Months Ended May 31, 2021
|
|
|
Nine Months Ended May 31, 2020
|
|
|
|
Foreign
Currency
Translation
Adjustments
|
|
|
Pension
Obligations,
Net
|
|
|
Total
|
|
|
Foreign
Currency
Translation
Adjustments
|
|
|
Pension
Obligations,
Net
|
|
|
Total
|
|
Balances - September 1 (Beginning of period)
|
|
$
|
(34,184
|
)
|
|
$
|
(2,687
|
)
|
|
$
|
(36,871
|
)
|
|
$
|
(35,689
|
)
|
|
$
|
(3,074
|
)
|
|
$
|
(38,763
|
)
|
Other comprehensive income (loss) before reclassifications
|
|
|
6,325
|
|
|
|
(385
|
)
|
|
|
5,940
|
|
|
|
(2,323
|
)
|
|
|
(17
|
)
|
|
|
(2,340
|
)
|
Income tax benefit
|
|
|
—
|
|
|
|
87
|
|
|
|
87
|
|
|
|
—
|
|
|
|
4
|
|
|
|
4
|
|
Other comprehensive income (loss) before reclassifications, net of tax
|
|
|
6,325
|
|
|
|
(298
|
)
|
|
|
6,027
|
|
|
|
(2,323
|
)
|
|
|
(13
|
)
|
|
|
(2,336
|
)
|
Amounts reclassified from accumulated other comprehensive loss
|
|
|
—
|
|
|
|
147
|
|
|
|
147
|
|
|
|
—
|
|
|
|
258
|
|
|
|
258
|
|
Income tax (benefit)
|
|
|
—
|
|
|
|
(34
|
)
|
|
|
(34
|
)
|
|
|
—
|
|
|
|
(58
|
)
|
|
|
(58
|
)
|
Amounts reclassified from accumulated other comprehensive loss, net of tax
|
|
|
—
|
|
|
|
113
|
|
|
|
113
|
|
|
|
—
|
|
|
|
200
|
|
|
|
200
|
|
Net periodic other comprehensive income (loss)
|
|
|
6,325
|
|
|
|
(185
|
)
|
|
|
6,140
|
|
|
|
(2,323
|
)
|
|
|
187
|
|
|
|
(2,136
|
)
|
Balances - May 31 (End of period)
|
|
$
|
(27,859
|
)
|
|
$
|
(2,872
|
)
|
|
$
|
(30,731
|
)
|
|
$
|
(38,012
|
)
|
|
$
|
(2,887
|
)
|
|
$
|
(40,899
|
)
|
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 Operations in all periods presented.
20
Table of Contents
SCHNITZER STEEL INDUSTRIES, INC.
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Note 6 - Revenue
Disaggregation of Revenues
The table below illustrates the Company’s revenues disaggregated by major product and sales destination (in thousands):
|
|
Three Months Ended May 31,
|
|
|
Nine Months Ended May 31,
|
|
|
|
2021
|
|
|
2020
|
|
|
2021
|
|
|
2020
|
|
Major product information:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ferrous revenues
|
|
$
|
448,684
|
|
|
$
|
201,972
|
|
|
$
|
1,023,569
|
|
|
$
|
633,936
|
|
Nonferrous revenues
|
|
|
204,512
|
|
|
|
85,506
|
|
|
|
471,543
|
|
|
|
277,869
|
|
Steel revenues(1)
|
|
|
129,057
|
|
|
|
83,414
|
|
|
|
316,662
|
|
|
|
246,278
|
|
Retail and other revenues
|
|
|
38,465
|
|
|
|
31,791
|
|
|
|
101,162
|
|
|
|
89,666
|
|
Total revenues
|
|
$
|
820,718
|
|
|
$
|
402,683
|
|
|
$
|
1,912,936
|
|
|
$
|
1,247,749
|
|
Revenues based on sales destination:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign
|
|
$
|
466,739
|
|
|
$
|
213,403
|
|
|
$
|
1,067,335
|
|
|
$
|
656,388
|
|
Domestic
|
|
|
353,979
|
|
|
|
189,280
|
|
|
|
845,601
|
|
|
|
591,361
|
|
Total revenues
|
|
$
|
820,718
|
|
|
$
|
402,683
|
|
|
$
|
1,912,936
|
|
|
$
|
1,247,749
|
|
(1)
|
Steel revenues include primarily sales of finished steel products, 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 May 31, 2021 and August 31, 2020, receivables from contracts with customers, net of an allowance for credit losses, totaled $262 million and $135 million, respectively, representing 99% and 97%, respectively, of total accounts receivable reported on the Unaudited Condensed Consolidated Balance Sheets.
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 consist almost entirely of customer deposits for recycled scrap metal sales contracts, which are reported within accounts payable on the Unaudited Condensed Consolidated Balance Sheets and totaled $8 million as of each of May 31, 2021 and August 31, 2020. 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 nine months ended May 31, 2021, the Company reclassified less than $1 million and $7 million, respectively, in customer deposits as of August 31, 2020 to revenues as a result of satisfying performance obligations during the respective periods. During the three and nine months ended May 31, 2020, the Company reclassified less than $1 million and $3 million, respectively, in customer deposits as of August 31, 2019 to revenues as a result of satisfying performance obligations during the respective periods.
Note 7 - Share-Based Compensation
In the first quarter of fiscal 2021, 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 317,760 restricted stock units (“RSUs”) and 316,649 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% per year commencing October 31, 2021. The aggregate fair value of all of the RSUs granted was based on the market closing price of the underlying Class A common stock on the grant date and totaled $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.
21
Table of Contents
SCHNITZER STEEL INDUSTRIES, INC.
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 the threshold level 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 2021, the performance metrics were the Company’s total shareholder return (“TSR”) relative to a designated peer group and the Company’s return on capital employed (“ROCE"). Award share payouts depend on the extent to which the performance goals have been achieved. The number of shares that a participant receives is equal to the number of performance shares granted multiplied by a payout factor, which ranges from a threshold of 50% to a maximum of 200%. The TSR award stipulates certain limitations to the payout in the event the value of the payout reaches a defined ceiling level or the Company’s TSR is negative.
The Company granted 157,791 performance share awards based on its relative TSR metric over a performance period spanning November 9, 2020 to August 31, 2023. The Company estimates the fair value of TSR awards using a Monte-Carlo simulation model utilizing several key assumptions, including the following for TSR awards granted on November 9, 2020:
|
|
Percentage
|
|
Expected share price volatility (SSI)
|
|
|
48.5
|
%
|
Expected share price volatility (Peer group)
|
|
|
54.9
|
%
|
Expected correlation to peer group companies
|
|
|
44.5
|
%
|
Risk-free rate of return
|
|
|
0.23
|
%
|
The estimated fair value of the TSR awards at the date of grant was $4 million. The compensation expense for the TSR awards based on the grant-date fair value, net of estimated forfeitures, is recognized 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), regardless of whether the market condition has been or will be satisfied.
The Company granted 158,858 performance share awards based on its ROCE for the three-year performance period consisting of the Company’s 2021, 2022 and 2023 fiscal years. The fair value of the awards granted was based on the market closing price of the underlying Class A common stock on the grant date and totaled $4 million.
The Company accrues compensation cost for ROCE 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. 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 service 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, 2023.
In the second quarter of fiscal 2021, the Company granted deferred stock units (“DSUs”) to each of its non-employee directors under the Company’s SIP. Each DSU gives the director the right to receive one share of Class A common stock at a future date. The grant included an aggregate of 28,042 shares that will vest in full on the day before the Company’s 2022 annual meeting of shareholders, subject to continued Board service. The total fair value of these awards at the grant date was $1 million.
Note 8 - Income Taxes
Effective Tax Rate
The Company’s effective tax rate from continuing operations for the third quarter and first nine months of fiscal 2021 was an expense on pre-tax income of 18.0% and 20.0%, respectively, compared to a benefit on pre-tax loss of 28.0% and 27.6%, respectively, for the comparable prior year periods. The Company’s effective tax rate from continuing operations for the third quarter and first nine months of fiscal 2021 was lower than that for the comparable prior year periods primarily due to the effects of higher pre-tax income compared to the prior year periods, and was lower than the U.S. federal statutory rate of 21% primarily due to the benefit from the foreign derived intangible income deduction in fiscal 2021 and the impacts of research and development credits and other discrete items.
22
Table of Contents
SCHNITZER STEEL INDUSTRIES, INC.
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The Company typically measures the provision for income taxes for interim reporting periods by applying the projected annual effective tax rate to the quarterly results. For the third quarter and first nine months of fiscal 2020, based on the Company’s projection of full-year results at the time, as well as the projected impact of permanent tax differences and other items that are generally not proportional to full-year results, small changes in the projections would have led to significant changes in the projected annual effective tax rate. Therefore, applying the Company’s typical method would not have provided a reliable estimate of the provision for income taxes for the fiscal 2020 interim reporting periods presented in this report. Accordingly, the Company measured the year-to-date fiscal 2020 tax benefit based on year-to-date results, referred to as the discrete method, and it measured the third quarter fiscal 2020 tax benefit as the foregoing year-to-date fiscal 2020 tax benefit less the tax benefit recognized previously in the first half of fiscal 2020.
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 maintains valuation allowances against certain state, Canadian and all Puerto Rican deferred tax assets.
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 2020 remain subject to examination under the statute of limitations.
Note 9 - Restructuring Charges and Other Exit-Related Activities
In fiscal 2020, the Company implemented restructuring initiatives aimed at further reducing its annual operating expenses, primarily selling, general and administrative, mainly through reductions in non-trade procurement spend, including outside and professional services, lower employee-related expenses and other non-headcount measures. Additionally, in April 2020, the Company announced its intention to modify its internal organizational and reporting structure to the One Schnitzer functionally-based, integrated model, which it completed in the first quarter of fiscal 2021. During the first nine months of fiscal 2020, the Company incurred severance costs of $2 million, exit-related costs associated with a lease contract termination of $1 million, and professional services costs related to these initiatives of $5 million.
Note 10 - Net Income (Loss) Per Share
The following table sets forth the information used to compute basic and diluted net income (loss) per share attributable to SSI shareholders (in thousands):
|
|
Three Months Ended May 31,
|
|
|
Nine Months Ended May 31,
|
|
|
|
2021
|
|
|
2020
|
|
|
2021
|
|
|
2020
|
|
Income (loss) from continuing operations
|
|
$
|
65,482
|
|
|
$
|
(4,648
|
)
|
|
$
|
126,237
|
|
|
$
|
(6,738
|
)
|
Net income attributable to noncontrolling interests
|
|
|
(1,801
|
)
|
|
|
(278
|
)
|
|
|
(3,852
|
)
|
|
|
(1,329
|
)
|
Income (loss) from continuing operations attributable to SSI shareholders
|
|
|
63,681
|
|
|
|
(4,926
|
)
|
|
|
122,385
|
|
|
|
(8,067
|
)
|
Loss from discontinued operations, net of tax
|
|
|
(46
|
)
|
|
|
(69
|
)
|
|
|
(58
|
)
|
|
|
(40
|
)
|
Net income (loss) attributable to SSI shareholders
|
|
$
|
63,635
|
|
|
$
|
(4,995
|
)
|
|
$
|
122,327
|
|
|
$
|
(8,107
|
)
|
Computation of shares:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding, basic
|
|
|
28,047
|
|
|
|
27,724
|
|
|
|
27,948
|
|
|
|
27,653
|
|
Incremental common shares attributable to dilutive performance share awards, restricted stock units and deferred stock units
|
|
|
1,496
|
|
|
|
—
|
|
|
|
1,015
|
|
|
|
—
|
|
Weighted average common shares outstanding, diluted
|
|
|
29,543
|
|
|
|
27,724
|
|
|
|
28,963
|
|
|
|
27,653
|
|
No common stock equivalent shares were considered antidilutive for the three months and nine months ended May 31, 2021. Common stock equivalent shares of 1,228,857 and 887,760 were considered antidilutive and were excluded from the calculation of diluted net income (loss) per share attributable to SSI shareholders for the three and nine months ended May 31, 2020, respectively.
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SCHNITZER STEEL INDUSTRIES, INC.
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Note 11 - Related Party Transactions
The Company purchases recycled metal from its joint venture operations at prices that approximate fair market value. These purchases totaled $6 million and $3 million for the three months ended May 31, 2021 and 2020, respectively, and $14 million and $8 million for the nine months ended May 31, 2021 and 2020, respectively.
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SCHNITZER STEEL INDUSTRIES, INC.