SCHNITZER STEEL(SCHN) - 2024 Q4 - Annual Report

Part I Business Radius Recycling, Inc. is a leading North American metal recycler and steel manufacturer, operating a vertically integrated business across auto parts, metals recycling, and steel production - The company officially changed its name from Schnitzer Steel Industries, Inc. to Radius Recycling, Inc. on January 30, 2024[17] - Radius Recycling operates as a single, vertically integrated reportable segment, combining metals recycling, auto parts retailing, and steel manufacturing[18][203] - A major strategic initiative involves investing approximately $140 million in advanced nonferrous metal recovery technologies to increase recovery rates and create higher-quality products, with $135 million incurred as of fiscal 2024[24] - The company operates a network of 50 retail self-service auto parts stores under the Pick-n-Pull brand, 53 metals recycling facilities, and an EAF steel mill[18] - In fiscal 2023, the company launched its integrated recycling services under the trademarked 3PRTM brand, encompassing scrap brokerage, certified destruction, and other services[29] - The company's steel mill has an effective annual production capacity of approximately 580 thousand tons of finished steel products[26] Risk Factors The company faces significant risks from environmental cleanup costs, cyclical market conditions, volatile commodity prices, and extensive regulations - Potential costs related to the environmental cleanup of the Portland Harbor Superfund site could be material, with the EPA's estimated remedy cost at $1.7 billion[104] - The business is cyclical and sensitive to economic conditions, with higher inflation and interest rates in fiscal 2023 and 2024 leading to reduced scrap generation and decreased demand[111] - A significant portion of revenue comes from exports, making the company vulnerable to global market conditions; in fiscal 2024, 85% of ferrous export sales were to Bangladesh, Turkey, and India[112] - The company is subject to increasing environmental regulations, including state and federal initiatives focused on air emissions, GHG emissions, and cleanup actions, which could increase compliance costs and capital expenditures[151][154][155] - Cybersecurity incidents pose a significant risk, though no material breaches have occurred to date, with the company investing in mitigation measures[139] - Approximately 24% of the full-time workforce is unionized, and failure to negotiate acceptable collective bargaining agreements could lead to strikes or work stoppages[157] Unresolved Staff Comments The company reports that it has no unresolved staff comments from the SEC - None[159] Cybersecurity Radius Recycling manages cybersecurity risk through a comprehensive, multi-layered strategy based on the NIST framework, overseen by the Board's Audit Committee - The company's cybersecurity program is modeled on the National Institute of Standards and Technology (NIST) framework and employs a layered security approach[162] - Oversight is provided by the Board of Directors, with the Audit Committee responsible for ensuring management has processes to identify, evaluate, and manage cybersecurity risks, led by the CIO[166][167] - To date, no identified risks from cybersecurity threats or incidents have materially affected, or are reasonably likely to materially affect, the company[165] Properties As of August 31, 2024, the company operates 110 facilities and administrative offices, with 52 owned and 58 leased, across the U.S., Puerto Rico, and Western Canada Facility Ownership Status as of August 31, 2024 | Type | Owned | Leased | Total | | :--- | :--- | :--- | :--- | | Operating Facilities & Admin Offices | 52 | 58 | 110 | - The company's key operational assets include 7 deepwater port locations and 7 large-scale shredding operations, crucial for processing and exporting recycled metals[171] Legal Proceedings The company is involved in several significant legal and regulatory matters, including disputes with the California DTSC and litigation from The Athletics Investment Group LLC - The company is challenging a corrective action enforcement order from the California DTSC for its Oakland facility and has settled a similar matter in Fresno[175][176] - The Athletics Investment Group LLC (A's) has filed a lawsuit alleging Clean Air Act violations at the Oakland facility, seeking up to approximately $183 million in fines, with trial set for November 2024[184][496] - In June 2024, the Alameda County Criminal Grand Jury indicted the company and two employees on felony and misdemeanor charges for alleged mishandling of hazardous waste and destruction of evidence following an August 2023 fire at the Oakland facility, which the company disputes[188][497] - The company resolved an enforcement matter with the Oregon DEQ regarding its Portland shredder facility by signing a Mutual Agreement and Order (MAO), paying a $100 thousand penalty, and contributing $400 thousand to a supplemental environmental project[179] Mine Safety Disclosures This item is not applicable to the company - Not applicable[189] Part II Market for Registrant's Common Equity, Related Stockholder Matters, and Issuer Purchases of Equity Securities Radius Recycling's Class A common stock trades on NASDAQ under RDUS, with a history of consistent dividends and an active share repurchase program - The company's Class A common stock is listed on NASDAQ under the symbol RDUS, changed from SCHN prior to September 1, 2023[192] - The company declared its 122nd consecutive quarterly dividend in the fourth quarter of fiscal 2024[193] - As of August 31, 2024, approximately 2.8 million shares were available for repurchase under the authorized share repurchase program, with no shares repurchased during fiscal 2024 or 2023[194] Management's Discussion and Analysis of Financial Condition and Results of Operations In fiscal 2024, Radius Recycling faced weaker market conditions, resulting in a 5% revenue decrease and a significant net loss due to a goodwill impairment charge Fiscal 2024 vs. 2023 Performance | Metric | Fiscal 2024 | Fiscal 2023 | % Change | | :--- | :--- | :--- | :--- | | Total Revenues | $2,738.7M | $2,882.2M | (5)% | | Gross Margin | $177.1M | $307.7M | (42)% | | Net Loss | ($266.2M) | ($25.4M) | 947% | | Adjusted EBITDA | $29.3M | $144.3M | (80)% | | Diluted EPS (Reported) | ($9.37) | ($0.92) | 918% | | Diluted EPS (Adjusted) | ($2.68) | $0.85 | NM | - The company recorded a non-cash goodwill impairment charge of $216 million in fiscal 2024, driven by financial performance and a sustained decrease in market capitalization[220][232] - Productivity and cost reduction initiatives targeting an annual benefit of approximately $70 million were implemented in fiscal 2024, helping to offset inflationary pressures[230] - Total debt increased from $249 million at FYE 2023 to $415 million at FYE 2024, primarily to fund working capital and capital expenditures[223][239] - Capital expenditures were $76 million in fiscal 2024, down from $130 million in fiscal 2023, with plans to invest $80 million to $90 million in fiscal 2025[258] - The company amended its credit agreement in June 2024 to revise certain financial covenants, including removing the fixed charge coverage ratio through February 2025 and introducing minimum interest and asset coverage ratios[249][464] Quantitative and Qualitative Disclosures About Market Risk The company is exposed to significant market risks, including commodity price volatility, interest rate fluctuations, credit risk, and foreign currency exchange rate risk - The company is exposed to commodity price risk from fluctuations in ferrous and nonferrous metal prices, though a 10% decrease in selling prices would not have had a material Net Realizable Value (NRV) impact on inventory as of August 31, 2024[306] - Interest rate risk from variable-rate debt is managed in part through interest rate swap derivatives[307] - Credit risk is managed via letters of credit, deposits, and credit insurance; as of August 31, 2024, 28% of accounts receivable were covered by letters of credit, down from 38% in the prior year[308][310] Financial Statements and Supplementary Data This section presents the company's consolidated financial statements for fiscal years 2022-2024, along with the auditor's report highlighting critical audit matters Consolidated Balance Sheet Highlights (As of August 31) | (In thousands) | 2024 | 2023 | | :--- | :--- | :--- | | Total Current Assets | $609,127 | $550,340 | | Total Assets | $1,533,769 | $1,715,949 | | Total Current Liabilities | $316,570 | $323,930 | | Total Liabilities | $908,029 | $804,290 | | Total Equity | $625,740 | $911,659 | Consolidated Statement of Operations Highlights (Year Ended August 31) | (In thousands) | 2024 | 2023 | 2022 | | :--- | :--- | :--- | :--- | | Revenues | $2,738,692 | $2,882,224 | $3,485,815 | | Operating Income (Loss) | ($293,981) | ($3,925) | $225,906 | | Net Income (Loss) | ($266,224) | ($25,438) | $171,996 | - The independent auditor, PricewaterhouseCoopers LLP, identified two Critical Audit Matters for the fiscal 2024 audit: (1) the volume of ferrous metal inventory due to significant estimation, and (2) the goodwill impairment assessment due to significant management judgment in fair value estimates[331][334] - Management concluded that the company's internal control over financial reporting was effective as of August 31, 2024[317] Controls and Procedures Management, including the CEO and CFO, concluded that the company's disclosure controls and procedures were effective as of August 31, 2024 - The CEO and CFO concluded that as of August 31, 2024, the company's disclosure controls and procedures were effective at the reasonable assurance level[549] - There were no changes in the company's internal control over financial reporting during the most recent fiscal quarter that materially affected, or are reasonably likely to materially affect, these controls[551] Part III Directors, Executive Officers, and Corporate Governance This section provides information about the company's directors, executive officers, and corporate governance practices, with details incorporated by reference from the proxy statement - Information regarding directors and corporate governance is incorporated by reference from the company's definitive proxy statement for the 2025 Annual Meeting of Shareholders[557] - The company's Code of Conduct applies to all directors and employees and is available on its website, with amendments or waivers for senior officers disclosed there[556] Executive Compensation Information concerning the compensation of the company's executive officers is incorporated by reference from the definitive proxy statement for the 2025 Annual Meeting of Shareholders - All information required by this item is incorporated by reference from the company's definitive proxy statement for its 2025 Annual Meeting of Shareholders[558] Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters Details regarding security ownership of certain beneficial owners, management, and related stockholder matters are incorporated by reference from the 2025 Annual Meeting of Shareholders proxy statement - All information required by this item is incorporated by reference from the company's definitive proxy statement for its 2025 Annual Meeting of Shareholders[559] Certain Relationships and Related Transactions, and Director Independence Information concerning certain relationships, related party transactions, and director independence is incorporated by reference from the definitive proxy statement for the 2025 Annual Meeting of Shareholders - All information required by this item is incorporated by reference from the company's definitive proxy statement for its 2025 Annual Meeting of Shareholders[560] Principal Accountant Fees and Services Details regarding fees paid to and services provided by the company's principal independent registered public accounting firm are incorporated by reference from the 2025 Annual Meeting of Shareholders proxy statement - All information required by this item is incorporated by reference from the company's definitive proxy statement for its 2025 Annual Meeting of Shareholders[561] Part IV Exhibits and Financial Statement Schedules This section lists all documents filed as part of the Form 10-K report, including financial statements, schedules, and various exhibits - This item lists the financial statements, financial statement schedules (Schedule II – Valuation and Qualifying Accounts), and all exhibits filed with the 10-K[563] - Key exhibits include the Fourth Amendment to the Credit Agreement (Exhibit 10.10), the 2024 Omnibus Incentive Plan (Exhibit 10.16), and various certifications by the CEO and CFO (Exhibits 31.1, 31.2, 32.1, 32.2)[563][565] Form 10-K Summary The company has not provided a summary for this item - None[572]