SCHNITZER STEEL(SCHN) - 2025 Q2 - Quarterly Report

FORWARD-LOOKING STATEMENTS This section provides a standard forward-looking statement disclaimer, highlighting inherent uncertainties and risks, including the proposed merger with Toyota Tsusho America, Inc. (TAI) and various operational, market, and financial risks - Forward-looking statements address matters that are, to different degrees, uncertain, and often contain words such as "outlook," "target," "aim," "believes," "expects," "anticipates," "intends," "assumes," "estimates," "evaluates," "may," "will," "should," "could," "opinions," "forecasts," "projects," "plans," "future," "forward," "potential," "probable," and similar expressions[10] - Key risks include the proposed Merger with Toyota Tsusho America, Inc. (TAI), the impact of equipment upgrades/failures, realization of insurance recoveries, the Company's outlook, growth initiatives, pricing, margins, volumes, profitability, acquisitions, technology investments, sanctions, tariffs, supply chain disruptions, inflation, rising interest rates, liquidity positions, ability to generate cash, market trends, strategic direction, tax rates, pandemics, labor shortages, and environmental compliance[9][11][12] PART I. FINANCIAL INFORMATION Item 1. Financial Statements (Unaudited) This section presents unaudited condensed consolidated financial statements, including balance sheets, statements of operations, comprehensive income (loss), equity, and cash flows, providing a snapshot of the Company's financial position and performance Unaudited Condensed Consolidated Balance Sheets Condensed Consolidated Balance Sheet Highlights (in thousands) | Metric | February 28, 2025 | August 31, 2024 | Change (%) | | :-------------------------------- | :------------------ | :---------------- | :--------- | | Total Assets | $1,458,183 | $1,533,769 | -5.06% | | Total Liabilities | $913,179 | $908,029 | +0.57% | | Total Equity | $545,004 | $625,740 | -12.90% | | Cash and cash equivalents | $5,437 | $5,552 | -2.07% | | Accounts receivable, net | $216,365 | $258,157 | -16.27% | | Inventories | $281,757 | $293,932 | -4.00% | | Long-term debt, net of current maturities | $424,424 | $409,082 | +3.75% | Unaudited Condensed Consolidated Statements of Operations Condensed Consolidated Statements of Operations Highlights (in thousands, except per share amounts) | Metric | 3 Months Ended Feb 28, 2025 | 3 Months Ended Feb 29, 2024 | Change (YoY) | 6 Months Ended Feb 28, 2025 | 6 Months Ended Feb 29, 2024 | Change (YoY) | | :------------------------------------------ | :-------------------------- | :-------------------------- | :----------- | :-------------------------- | :-------------------------- | :----------- | | Revenues | $642,508 | $621,059 | +3.45% | $1,299,045 | $1,293,956 | +0.39% | | Operating income (loss) | $(28,680) | $(26,718) | +7.34% | $(53,592) | $(49,705) | +7.82% | | Net income (loss) attributable to Radius shareholders | $(32,977) | $(33,979) | -2.95% | $(70,150) | $(51,943) | +35.06% | | Diluted Income (loss) per share | $(1.15) | $(1.19) | -3.36% | $(2.45) | $(1.83) | +33.88% | Unaudited Condensed Consolidated Statements of Comprehensive Income (Loss) Condensed Consolidated Statements of Comprehensive Income (Loss) Highlights (in thousands) | Metric | 3 Months Ended Feb 28, 2025 | 3 Months Ended Feb 29, 2024 | Change (YoY) | 6 Months Ended Feb 28, 2025 | 6 Months Ended Feb 29, 2024 | Change (YoY) | | :---------------------------------------------------- | :-------------------------- | :-------------------------- | :----------- | :-------------------------- | :-------------------------- | :----------- | | Net income (loss) | $(32,965) | $(34,010) | -3.07% | $(69,894) | $(51,808) | +34.91% | | Total other comprehensive income (loss), net of tax | $(1,827) | $418 | -537.08% | $(3,359) | $(1) | +335800.00% | | Comprehensive income (loss) attributable to Radius shareholders | $(34,804) | $(33,561) | +3.69% | $(73,509) | $(51,944) | +41.52% | Unaudited Condensed Consolidated Statements of Equity Condensed Consolidated Statements of Equity Highlights (in thousands) | Metric | Feb 28, 2025 | Dec 1, 2024 | Change | | :-------------------------------- | :----------- | :---------- | :----- | | Total Radius shareholders' equity | $542,716 | $580,430 | -6.50% | | Retained earnings | $525,365 | $563,770 | -6.81% | | Additional paid-in capital | $32,682 | $30,209 | +8.19% | | Class A common stock shares | 28,000 | 27,955 | +0.16% | Condensed Consolidated Statements of Equity Highlights (Six Months Ended, in thousands) | Metric | Feb 28, 2025 | Sep 1, 2024 | Change | | :-------------------------------- | :----------- | :---------- | :----- | | Total Radius shareholders' equity | $542,716 | $623,112 | -12.90% | | Retained earnings | $525,365 | $606,417 | -13.37% | | Additional paid-in capital | $32,682 | $28,828 | +13.37% | | Class A common stock shares | 28,000 | 27,839 | +0.58% | Unaudited Condensed Consolidated Statements of Cash Flows Condensed Consolidated Statements of Cash Flows Highlights (Six Months Ended, in thousands) | Metric | Feb 28, 2025 | Feb 29, 2024 | Change (YoY) | | :------------------------------------------ | :----------- | :----------- | :----------- | | Net cash provided by (used in) operating activities | $18,049 | $(56,393) | +132.00% | | Net cash used in investing activities | $(18,908) | $(43,658) | -56.68% | | Net cash provided by (used in) financing activities | $762 | $107,596 | -99.29% | | Net change in cash and cash equivalents | $(115) | $7,530 | -101.53% | | Cash and cash equivalents as of end of period | $5,437 | $13,562 | -59.93% | Notes to the Unaudited Condensed Consolidated Financial Statements Note 1 - Summary of Significant Accounting Policies This note details the basis of financial statement presentation, segment reporting, and key accounting policies, including the subsequent merger with TAI and accounting for involuntary events and credit risk - The Company operates as a single operating and reportable segment, acquiring and recycling ferrous and nonferrous scrap metal, procuring salvaged vehicles, selling used auto parts, and producing finished steel long products[38][39] - On March 13, 2025, the Company entered into a Merger Agreement with Toyota Tsusho America, Inc. (TAI), under which the Company will become a wholly-owned subsidiary of TAI; this merger is further detailed in Note 13[40] - Receivables from insurers for environmental claims, workers' compensation, and third-party claims totaled $15 million as of February 28, 2025, and August 31, 2024, including $13 million relating to environmental claims[48] - The FASB issued ASU 2024-03, Disaggregation of Income Statement Expenses, effective for fiscal 2028, requiring additional expense disclosures; the Company does not expect a material impact on its consolidated financial statements[56] Note 2 - Inventories This note breaks down inventory components, including scrap metal, semi-finished goods, finished goods, and supplies, showing a slight decrease in total inventories from August 31, 2024, to February 28, 2025 Inventories (in thousands) | Category | February 28, 2025 | August 31, 2024 | | :-------------------------- | :------------------ | :---------------- | | Processed and unprocessed scrap metal | $131,376 | $137,013 | | Semi-finished goods | $16,085 | $14,846 | | Finished goods | $62,015 | $72,225 | | Supplies | $72,281 | $69,848 | | Total Inventories | $281,757 | $293,932 | Note 3 - Goodwill The Company's goodwill balance remained stable at $13 million, allocated to one reporting unit, with no impairment charges recorded during the first half of fiscal 2025 - Goodwill balance remained $13 million as of both February 28, 2025, and August 31, 2024, allocated to one recycling services reporting unit[58] - No triggering events for impairment were identified, and no goodwill impairment charges were recorded in the first half of fiscal 2025[58] Note 4 - Commitments and Contingencies This note details environmental liabilities, primarily for the Portland Harbor Superfund site and other legacy contamination totaling $65 million, alongside other legal proceedings including a criminal indictment related to an Oakland facility fire Environmental Liabilities (in thousands) | Metric | September 1, 2024 | Established (Released), Net | Payments and Other | February 28, 2025 | | :---------------- | :------------------ | :-------------------------- | :----------------- | :---------------- | | Total Liabilities | $65,649 | $309 | $(1,080) | $64,878 | | Short-Term | | | | $12,706 | | Long-Term | | | | $52,172 | - The Company's environmental liabilities include $5 million relating to the Portland Harbor Superfund site, where the EPA estimated a total remedy cost of $1.7 billion in 2017[72][65] - The Company is proceeding with early settlements for natural resource damages at Portland Harbor, with an environmental reserve of approximately $2 million and a corresponding receivable[73] - The Company faces a criminal indictment for alleged felony and misdemeanor environmental regulatory violations related to an August 2023 scrap metal fire at its Oakland, CA facility, which it intends to vigorously defend[88] Note 5 - Accumulated Other Comprehensive Income (Loss) This note details changes in accumulated other comprehensive income (loss), net of tax, for the three and six months ended February 28, 2025, showing a total comprehensive loss attributable to Radius shareholders of $(43.5 million) Accumulated Other Comprehensive Income (Loss) (in thousands) | Metric | Feb 28, 2025 | Sep 1, 2024 | Change | | :-------------------------------- | :----------- | :---------- | :----- | | Balances (End of period) | $(43,531) | $(40,172) | +8.36% | | Foreign currency translation adjustments (6M) | $(3,955) | N/A | N/A | | Cash flow hedges, net (6M) | $703 | N/A | N/A | | Pension obligations, net (6M) | $(107) | N/A | N/A | Note 6 - Revenue This note disaggregates the Company's revenues by major product categories and sales destination, showing total revenues of $1.3 billion for the six months ended February 28, 2025, with nonferrous revenues increasing by 8% Revenues by Major Product (in thousands) | Product Category | 3 Months Ended Feb 28, 2025 | 3 Months Ended Feb 29, 2024 | Change (YoY) | 6 Months Ended Feb 28, 2025 | 6 Months Ended Feb 29, 2024 | Change (YoY) | | :----------------------- | :-------------------------- | :-------------------------- | :----------- | :-------------------------- | :-------------------------- | :----------- | | Ferrous revenues | $318,955 | $316,097 | +0.90% | $646,059 | $664,994 | -2.85% | | Nonferrous revenues | $179,012 | $164,481 | +8.83% | $361,061 | $333,775 | +8.17% | | Steel revenues | $104,114 | $100,721 | +3.37% | $205,965 | $214,252 | -3.87% | | Retail and other revenues | $40,427 | $39,760 | +1.68% | $85,960 | $80,935 | +6.21% | | Total revenues | $642,508 | $621,059 | +3.45% | $1,299,045 | $1,293,956 | +0.39% | Revenues by Sales Destination (in thousands) | Destination | 3 Months Ended Feb 28, 2025 | 3 Months Ended Feb 29, 2024 | Change (YoY) | 6 Months Ended Feb 28, 2025 | 6 Months Ended Feb 29, 2024 | Change (YoY) | | :---------- | :-------------------------- | :-------------------------- | :----------- | :-------------------------- | :-------------------------- | :----------- | | Foreign | $336,707 | $328,259 | +2.57% | $691,557 | $686,280 | +0.77% | | Domestic | $305,801 | $292,800 | +4.44% | $607,488 | $607,676 | -0.03% | | Total revenues | $642,508 | $621,059 | +3.45% | $1,299,045 | $1,293,956 | +0.39% | - Contract liabilities, primarily customer deposits for recycled metal and finished steel sales, totaled $13 million as of February 28, 2025, up from $10 million as of August 31, 2024[96] Note 7 - Share-Based Compensation This note details share-based compensation granted in fiscal 2025, including RSUs, PSUs tied to TSR and volume growth, and DSUs for non-employee directors, outlining their fair values and vesting conditions - In Q1 fiscal 2025, 446,993 RSUs and 340,454 PSUs were granted to key employees and officers under the 2024 Omnibus Incentive Plan[97] - The aggregate fair value of RSUs granted was $9 million, with vesting over three or five years[98] - PSUs are split between relative TSR and volume growth metrics, with an estimated aggregate fair value of $3 million for each type of award[99][100][101] - In Q2 fiscal 2025, 57,642 DSUs were granted to non-employee directors, with a total fair value of $1 million, vesting on the day before the Company's 2025 annual meeting[106] Note 8 - Derivative Financial Instruments The Company uses pay-fixed interest rate swaps as cash flow hedges to manage interest rate risk on its variable-rate debt, with a total notional amount of $150 million maturing in August 2026 - The Company uses pay-fixed interest rate swap transactions, designated as cash flow hedges, to manage variability in interest cash flows associated with variable-rate loans under its bank revolving credit facilities[108] - The total notional amount of these interest rate swaps was $150 million as of February 28, 2025, and August 31, 2024, with contracts maturing in August 2026[108] Fair Value of Derivative Instruments (in thousands) | Balance Sheet Location | February 28, 2025 | August 31, 2024 | | :----------------------- | :------------------ | :---------------- | | Interest rate swap contracts (Other accrued liabilities) | $506 | $174 | | Interest rate swap contracts (Other long-term liabilities) | $428 | $1,667 | Note 9 - Income Taxes The effective tax rate from continuing operations for Q2 fiscal 2025 was an 11.5% benefit on pre-tax loss, primarily due to an increased valuation allowance against deferred tax assets in the U.S. tax jurisdiction - The effective tax rate from continuing operations for Q2 fiscal 2025 was an 11.5% benefit on pre-tax loss, compared to a 3.6% expense on pre-tax loss in the comparable prior year quarter[110] - The lower effective tax rate in Q2 fiscal 2025 was primarily due to the aggregate effect of the Company's financial performance, including an increase in the valuation allowance against deferred tax assets in the U.S. tax jurisdiction[110] - The Company continues to maintain a valuation allowance against its deferred tax assets in the U.S. federal, state, and foreign tax jurisdictions[113] Note 10 - Net Income (Loss) Per Share This note provides the computation for basic and diluted net income (loss) per share attributable to Radius shareholders, showing a diluted loss per share of $(1.15) for the three months ended February 28, 2025 Net Income (Loss) Per Share Attributable to Radius Shareholders (in thousands, except per share amounts) | Metric | 3 Months Ended Feb 28, 2025 | 3 Months Ended Feb 29, 2024 | 6 Months Ended Feb 28, 2025 | 6 Months Ended Feb 29, 2024 | | :---------------------------------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Income (loss) from continuing operations attributable to Radius shareholders | $(32,977) | $(33,948) | $(70,150) | $(51,910) | | Diluted Income (loss) per share from continuing operations | $(1.15) | $(1.19) | $(2.45) | $(1.83) | | Weighted average common shares outstanding, diluted | 28,684 | 28,454 | 28,628 | 28,337 | Note 11 - Related Party Transactions The Company purchased recycled metal from a joint venture, with transactions totaling $4 million for the three months and $8 million for the six months ended February 28, 2025 Purchases from Joint Ventures (in thousands) | Period | Feb 28, 2025 | Feb 29, 2024 | | :-------------------- | :----------- | :----------- | | Three Months Ended | $4,000 | $5,000 | | Six Months Ended | $8,000 | $9,000 | Note 12 - Debt This note details the Company's debt, primarily bank revolving credit facilities totaling $410 million as of February 28, 2025, and its compliance with amended financial covenants Debt Composition (in thousands) | Category | February 28, 2025 | August 31, 2024 | | :-------------------------------- | :------------------ | :---------------- | | Bank revolving credit facilities | $410,000 | $393,612 | | Finance lease liabilities | $7,815 | $9,042 | | Other debt obligations | $12,089 | $12,116 | | Total debt | $429,904 | $414,770 | | Less current maturities | $(5,480) | $(5,688) | | Debt, net of current maturities | $424,424 | $409,082 | - The Company's senior secured revolving credit facilities provide for $800 million and C$15 million in revolving loans maturing in August 2027[119] - The Fifth Amendment to the credit agreement extended the temporary replacement of the maintenance covenant (fixed charge coverage ratio) with a minimum consolidated interest coverage ratio (1.25 to 1.00) and a minimum consolidated asset coverage ratio (1.00 to 1.00) through August 31, 2025[119][122] - As of February 28, 2025, the Company was in compliance with all applicable financial covenants: interest coverage ratio was 1.56:1.00 (required 1.25:1.00), asset coverage ratio was 1.17:1.00 (required 1.00:1.00), and leverage ratio was 0.44:1.00 (required no more than 0.55:1.00)[183] Note 13 - Subsequent Events On March 13, 2025, the Company entered into a Merger Agreement with Toyota Tsusho America, Inc. (TAI) for acquisition at $30.00 per share in cash, with closing expected in the second half of calendar year 2025 - On March 13, 2025, the Company entered into a Merger Agreement with TAI, where Merger Sub will merge into the Company, making it a wholly-owned subsidiary of TAI[124] - Each share of Radius Common Stock will be converted into the right to receive $30.00 in cash (Merger Consideration), without interest and less applicable withholding taxes[127] - The merger is subject to customary closing conditions, including shareholder adoption, regulatory approvals (e.g., CFIUS), and compliance with covenants; it is expected to close in the second half of calendar year 2025[130][131] - Upon termination of the Merger Agreement under certain specified circumstances, the Company may be required to pay TAI a termination fee of $27.2 million[132] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations This section provides management's perspective on the Company's financial condition and results of operations for the three and six months ended February 28, 2025, covering business overview, financial highlights, and analysis of performance, liquidity, and capital resources General Business Overview This section provides a general overview of Radius Recycling, Inc.'s business operations as a major recycler of ferrous and nonferrous metal and a manufacturer of finished steel products - Radius Recycling, Inc. is one of North America's largest recyclers of ferrous and nonferrous metal and a manufacturer of finished steel products, operating 50 retail self-service auto parts stores and 53 metals recycling facilities[135] - The Company's results of operations depend on demand and prices for recycled metal and finished steel, supply of raw materials, operating leverage from processing higher volumes, and efficient metal extraction[140] - Quarterly operating results fluctuate due to market conditions, scrap metal supply, demand for used auto parts, supply chain efficiency, operating costs, seasonal changes, and trade actions (tariffs, sanctions)[141] Merger with TAI This section provides an overview of the Company's pending merger with Toyota Tsusho America, Inc. (TAI), including the acquisition price and expected closing timeline - On March 13, 2025, the Company entered into a Merger Agreement with Toyota Tsusho America, Inc. (TAI) to be acquired for $30.00 per share in cash[142] - The transaction has been unanimously approved by the Company's Board of Directors and is expected to close in the second half of calendar year 2025, subject to customary closing conditions[142] Everett Facility Shredder Fire This section confirms the full resolution of the December 2021 fire at the Everett, Massachusetts metals recycling facility, with all insurance proceeds and recovery gains recognized in fiscal 2024 - The December 2021 fire at the Everett, Massachusetts metals recycling facility, which caused physical damage to the shredder building and equipment, was fully resolved in fiscal 2024[143] - All insurance proceeds and recovery gains related to the property damage and business income losses from the fire were received and recognized as of August 31, 2024[143] Use of Non-GAAP Financial Measures This section explains the Company's use of supplemental non-GAAP financial measures, such as Adjusted EBITDA, to provide a meaningful presentation of its operating and financial performance - The Company uses supplemental non-GAAP financial measures, such as Adjusted EBITDA, to provide a meaningful presentation of its operating and financial performance, liquidity, and capital structure[146] - Adjusted EBITDA is defined as net income before discontinued operations, interest expense, income taxes, depreciation and amortization, restructuring charges, legacy environmental matters (net of recoveries), cloud computing amortization, asset impairment, business development costs, and other non-operational items[146] Financial Highlights of Results of Operations for the Second Quarter of Fiscal 2025 This section highlights the Company's financial performance for Q2 fiscal 2025, noting impacts from softer market conditions for recycled ferrous metal and finished steel, alongside stronger nonferrous demand - Financial performance in Q2 fiscal 2025 was impacted by softer market conditions for recycled ferrous metal and finished steel, leading to lower average net selling prices and compression of metal spreads[151] - Stronger nonferrous global demand led to higher average net selling prices for nonferrous products in Q2 fiscal 2025 compared to the prior year quarter[151] Key Financial Highlights (Q2 Fiscal 2025 vs. Prior Year Quarter) | Metric | Q2 FY25 | Q2 FY24 | Change | | :---------------------------------------------------- | :------ | :------ | :----- | | Diluted loss per share from continuing operations | $(1.15) | $(1.19) | -3.36% | | Adjusted diluted loss per share from continuing operations | $(0.99) | $(1.04) | -4.81% | | Net loss | $33M | $34M | -2.94% | | Adjusted EBITDA | Break-even | $3M | NM | | Net cash provided by operating activities (6M) | $18M | $(56)M | +132.14% | | Debt, net of cash | $424M | $409M | +3.67% | Results of Operations Revenues Revenues increased 3% in Q2 fiscal 2025, driven by stronger nonferrous demand and higher ferrous sales volumes, despite decreased average net selling prices for ferrous products and finished steel Revenue and Volume Performance (YoY Change) | Metric | Q2 FY25 vs Q2 FY24 | 6M FY25 vs 6M FY24 | | :-------------------------------- | :----------------- | :----------------- | | Total revenues | +3% | 0% | | Average net selling prices (Ferrous) | -14% | -9% | | Average net selling prices (Nonferrous) | +10% | +10% | | Average net selling prices (Finished steel) | -9% | -8% | | Ferrous sales volumes | +12% | +3% | | Finished steel sales volumes | +15% | +5% | Operating Performance Net loss improved slightly in Q2 fiscal 2025 but worsened for the six-month period, impacted by decreased ferrous metal spreads and lower finished steel contribution, partially offset by 12% SG&A expense reduction Operating Performance Highlights (in millions) | Metric | Q2 FY25 | Q2 FY24 | Change (YoY) | 6M FY25 | 6M FY24 | Change (YoY) | | :-------------------- | :------ | :------ | :----------- | :------ | :------ | :----------- | | Net loss | $33 | $34 | -2.94% | $70 | $52 | +34.62% | | Adjusted EBITDA | $0 | $3 | NM | $0 | $4 | NM | | SG&A expense | $54.9 | $62.2 | -11.6% | $111.6 | $125.3 | -10.8% | - Ferrous metal spreads decreased due to lower average net selling prices for ferrous products[162] - The Company recognized a $3 million gain on the sale of certain real property assets in Q2 and first six months of fiscal 2025[162] - The prior year quarter and first six months included non-recurring insurance recovery gains of $2 million and $6 million, respectively, related to the Everett Facility shredder fire[162] Interest Expense Interest expense increased significantly in Q2 and the first six months of fiscal 2025, primarily due to increased average borrowings and higher interest rates on bank credit facilities Interest Expense (in millions) | Period | FY25 | FY24 | Change (YoY) | | :-------------------- | :--- | :--- | :----------- | | Three Months Ended | $9 | $6 | +50.00% | | Six Months Ended | $18 | $11 | +63.64% | - The increase in interest expense was primarily due to increased average borrowings and higher interest rates on amounts outstanding under the bank credit facilities[165] Income Tax The effective tax rate from continuing operations for Q2 fiscal 2025 was an 11.5% benefit on pre-tax loss, primarily due to an increased valuation allowance against deferred tax assets in the U.S. tax jurisdiction Effective Tax Rate from Continuing Operations | Period | FY25 | FY24 | | :-------------------- | :----- | :----- | | Three Months Ended | 11.5% benefit | 3.6% expense | | Six Months Ended | 0.7% benefit | 14.8% benefit | - The effective tax rate for Q2 fiscal 2025 was lower than the U.S. federal statutory rate of 21% primarily due to an increase in the Company's valuation allowance against deferred tax assets in the U.S. tax jurisdiction[166] Liquidity and Capital Resources Sources and Uses of Cash The Company relies on operating cash, current cash, and credit facilities for liquidity, with debt, net of cash, increasing to $424 million as of February 28, 2025, primarily due to increased borrowings Debt and Cash Balances (in millions) | Metric | Feb 28, 2025 | Aug 31, 2024 | Change | | :---------------- | :----------- | :----------- | :----- | | Cash balances | $5 | $6 | -16.67% | | Total Debt | $430 | $415 | +3.61% | | Debt, net of cash | $424 | $409 | +3.67% | - The increase in debt was primarily due to increased borrowings from credit facilities, mainly to fund working capital needs and capital expenditures[169] Operating Activities Net cash provided by operating activities significantly improved to $18 million for the first six months of fiscal 2025, driven by decreases in accounts receivable and inventories Net Cash from Operating Activities (Six Months Ended, in millions) | Period | FY25 | FY24 | Change (YoY) | | :-------------------- | :--- | :--- | :----------- | | Net cash provided by (used in) operating activities | $18 | $(56) | +132.14% | | Decrease in accounts receivable | $33 | N/A | N/A | | Decrease in inventories | $19 | N/A | N/A | | Decrease in accounts payable | $(6) | N/A | N/A | Investing Activities Net cash used in investing activities decreased to $19 million for the first six months of fiscal 2025, primarily due to lower capital expenditures Net Cash Used in Investing Activities (Six Months Ended, in millions) | Period | FY25 | FY24 | Change (YoY) | | :-------------------- | :--- | :--- | :----------- | | Net cash used in investing activities | $(19) | $(44) | -56.82% | | Capital expenditures | $(23) | $(40) | -42.50% | Financing Activities Net cash provided by financing activities significantly decreased to $1 million for the first six months of fiscal 2025, mainly due to lower net borrowings of debt Net Cash from Financing Activities (Six Months Ended, in millions) | Period | FY25 | FY24 | Change (YoY) | | :-------------------- | :--- | :--- | :----------- | | Net cash provided by (used in) financing activities | $1 | $108 | -99.07% | | Net borrowings of debt | $15 | $124 | -87.90% | | Dividends paid | $11 | $11 | 0.00% | Debt The Company's senior secured revolving credit facilities provide $800 million and C$15 million in revolving loans, with compliance maintained for all financial covenants as of February 28, 2025 - Senior secured revolving credit facilities provide for $800 million and C$15 million in revolving loans, maturing in August 2027[177] - The Fifth Amendment to the credit agreement extended the temporary replacement of the fixed charge coverage ratio covenant through August 31, 2025[177] - Borrowings outstanding under credit facilities were $410 million as of February 28, 2025, with a weighted average interest rate of 6.9%[181] - As of February 28, 2025, the Company was in compliance with financial covenants: consolidated interest coverage ratio was 1.56:1.00 (required 1.25:1.00), consolidated asset coverage ratio was 1.17:1.00 (required 1.00:1.00), and consolidated leverage ratio was 0.44:1.00 (required no more than 0.55:1.00)[183] Capital Expenditures Capital expenditures totaled $23 million for the first six months of fiscal 2025, with a full-year plan of approximately $60 million for growth, equipment upgrades, and IT systems Capital Expenditures (in millions) | Period | FY25 | FY24 | | :-------------------- | :--- | :--- | | Six Months Ended | $23 | $40 | | Fiscal Year 2025 Plan | ~$60 | N/A | - Planned capital expenditures for fiscal 2025 include investments in growth (new nonferrous processing technologies), equipment upgrades, IT systems, and environmental/safety-related assets[187] Environmental Compliance The Company plans to invest approximately $20 million in fiscal 2025 environmental projects, with potential significant cash outflows related to legacy environmental loss contingencies Environmental Capital Expenditures (in millions) | Period | FY25 | FY24 | | :-------------------- | :--- | :--- | | Six Months Ended | $6 | N/A | | Fiscal Year 2025 Plan | ~$20 | N/A | - Significant cash outflows in the future related to Portland Harbor and other legacy environmental loss contingencies could reduce available borrowing amounts and potentially impact compliance with debt covenants[189] Dividends On January 7, 2025, the Board declared a dividend of $0.1875 per common share for Q2 fiscal 2025, representing an annual cash dividend of $0.75 per common share - A dividend of $0.1875 per common share was declared for Q2 fiscal 2025, paid on February 18, 2025, representing an annual cash dividend of $0.75 per common share[190] Share Repurchase Program As of February 28, 2025, the Company had authorization to repurchase up to 2.8 million shares of Class A common stock, but repurchases are restricted under the Merger Agreement - As of February 28, 2025, the Company had remaining authorization to repurchase up to 2.8 million shares of Class A common stock[191] - Share repurchases are restricted under the terms of the Merger Agreement, and none are anticipated during the pendency of the Merger[191] Assessment of Liquidity and Capital Resources The Company believes its current cash, internally generated funds, existing credit facilities, and access to capital markets will provide adequate liquidity, though adverse market conditions could necessitate additional funding - The Company believes its current cash resources, internally generated funds, existing credit facilities, and access to capital markets will provide adequate short-term and long-term liquidity for various needs[194] - In the event market conditions fail to improve or other negative factors occur, the Company may need additional liquidity, which may not be obtainable or on acceptable terms[194] Contractual Obligations No material changes to contractual obligations and commitments were reported since the Annual Report on Form 10-K for fiscal year ended August 31, 2024, with $7 million outstanding under stand-by letters of credit - No material changes to contractual obligations and commitments were reported since the Annual Report on Form 10-K for fiscal year ended August 31, 2024[195] - As of February 28, 2025, the Company had $7 million outstanding under stand-by letters of credit[195] Critical Accounting Estimates No material changes to critical accounting estimates were reported since the Annual Report on Form 10-K for fiscal year ended August 31, 2024 - No material changes to critical accounting estimates were reported since the Annual Report on Form 10-K for fiscal year ended August 31, 2024[196] Recently Issued Accounting Standards For a description of recent accounting pronouncements, refer to "Recent Accounting Pronouncements" in Note 1 - Summary of Significant Accounting Policies - For a description of recent accounting pronouncements, refer to "Recent Accounting Pronouncements" in Note 1 - Summary of Significant Accounting Policies[197] Non-GAAP Financial Measures Reconciliations This section provides detailed reconciliations for non-GAAP financial measures, including Debt, net of cash, Adjusted EBITDA, and Adjusted diluted (loss) earnings per share, offering a clearer view of operational performance Debt, net of cash (in thousands) | Metric | February 28, 2025 | August 31, 2024 | | :-------------------------- | :------------------ | :---------------- | | Short-term borrowings | $5,480 | $5,688 | | Long-term debt, net of current maturities | $424,424 | $409,082 | | Total debt | $429,904 | $414,770 | | Less cash and cash equivalents | $5,437 | $5,552 | | Total debt, net of cash | $424,467 | $409,218 | Net borrowings (repayments) of debt (in thousands) | Metric | Six Months Ended Feb 28, 2025 | Six Months Ended Feb 29, 2024 | | :-------------------------- | :---------------------------- | :---------------------------- | | Borrowings from long-term debt | $388,747 | $389,692 | | Repayments of long-term debt | $(373,432) | $(265,910) | | Net borrowings (repayments) of debt | $15,315 | $123,782 | Adjusted EBITDA (in thousands) | Metric | 3 Months Ended Feb 28, 2025 | 3 Months Ended Feb 29, 2024 | 6 Months Ended Feb 28, 2025 | 6 Months Ended Feb 29, 2024 | | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Net income (loss) | $(32,965) | $(34,010) | $(69,894) | $(51,808) | | Interest expense | $8,771 | $5,803 | $17,633 | $10,613 | | Income tax expense (benefit) | $(4,277) | $1,195 | $(486) | $(8,975) | | Depreciation and amortization | $24,032 | $24,311 | $48,066 | $47,782 | | Business development costs | $2,541 | $140 | $2,551 | $230 | | Restructuring charges | $1,422 | $3,175 | $3,319 | $3,210 | | Charges (recoveries) for legacy environmental matters, net | $(244) | $156 | $(2,328) | $479 | | Amortization of cloud computing software costs | $240 | $247 | $503 | $327 | | Asset impairment charges | $0 | $1,748 | $184 | $1,967 | | Adjusted EBITDA | $(480) | $2,796 | $(452) | $3,858 | Adjusted Diluted Loss Per Share from Continuing Operations (in thousands, except per share data) | Metric | 3 Months Ended Feb 28, 2025 | 3 Months Ended Feb 29, 2024 | 6 Months Ended Feb 28, 2025 | 6 Months Ended Feb 29, 2024 | | :---------------------------------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Income (loss) from continuing operations attributable to Radius shareholders (As reported) | $(32,977) | $(33,948) | $(70,150) | $(51,910) | | Business development costs | $2,541 | $140 | $2,551 | $230 | | Restructuring charges and other exit-related activities | $1,422 | $3,175 | $3,319 | $3,210 | | Charges (recoveries) for legacy environmental matters, net | $(244) | $156 | $(2,328) | $479 | | Asset impairment charges | $0 | $1,748 | $184 | $1,967 | | Income tax expense (benefit) allocated to adjustments | $832 | $(938) | $(103) | $(1,675) | | Adjusted Income (loss) from continuing operations attributable to Radius shareholders | $(28,426) | $(29,667) | $(66,527) | $(47,699) | | Diluted income (loss) per share from continuing operations (As reported) | $(1.15) | $(1.19) | $(2.45) | $(1.83) | | Business development costs, per share | $0.09 | $0.00 | $0.09 | $0.01 | | Restructuring charges and other exit-related activities, per share | $0.05 | $0.11 | $0.12 | $0.11 | | Charges (recoveries) for legacy environmental matters, net, per share | $(0.01) | $0.01 | $(0.08) | $0.02 | | Asset impairment charges, per share | $0.00 | $0.06 | $0.00 | $0.07 | | Income tax expense (benefit) allocated to adjustments, per share | $0.03 | $(0.03) | $0.00 | $(0.06) | | Adjusted diluted (loss) earnings per share from continuing operations | $(0.99) | $(1.04) | $(2.32) | $(1.68) | Item 3. Quantitative and Qualitative Disclosures about Market Risk This section outlines the Company's exposure to various market risks, including commodity price, interest rate, credit, and foreign currency exchange rate risks, primarily from its Canadian subsidiary's U.S. Dollar denominated sales - The Company is exposed to commodity price risk, mainly associated with variations in market prices for ferrous and nonferrous metals, which it manages by adjusting purchase prices in response to forward selling prices[210] - Credit risk from customer non-performance is managed through letters of credit, deposits, credit limits, and credit insurance, but reductions in credit insurance availability may increase exposure[212] - As of February 28, 2025, 17% of accounts receivable balance was covered by letters of credit, down from 28% as of August 31, 2024[214] - Foreign currency exchange rate risk is mainly associated with sales transactions and related accounts receivable denominated in the U.S. Dollar by the Company's Canadian subsidiary[215] Item 4. Controls and Procedures As of February 28, 2025, the Company's management concluded its disclosure controls and procedures were effective, with no material changes in internal control over financial reporting during the quarter - The Company's disclosure controls and procedures were effective at the reasonable assurance level as of February 28, 2025[217] - There was no change in internal control over financial reporting during the quarter ended February 28, 2025, that materially affected or is reasonably likely to materially affect it[218] PART II. OTHER INFORMATION Item 1. Legal Proceedings Information regarding reportable legal proceedings is incorporated by reference from Note 4 - Commitments and Contingencies in Part I, Item 1 of this Quarterly Report on Form 10-Q - Information regarding reportable legal proceedings is contained in Note 4 - Commitments and Contingencies in Part I, Item 1 of this Quarterly Report on Form 10-Q[221] Item 1A. Risk Factors This section highlights material changes to existing risk factors and new risks, focusing on adverse effects of changing global market conditions on international sales and significant risks related to the pending merger with TAI - Changing global market conditions, including sanctions, tariffs, quotas, and import restrictions, may adversely affect operating results, financial condition, and cash flows, especially given that 54% to 61% of ferrous and 56% to 57% of nonferrous sales volumes are exports[222] - The pending merger with TAI introduces risks such as potential non-completion, a $27.2 million termination fee, negative publicity, a decline in investor confidence, adverse impacts to relationships with employees, customers, and suppliers, and the diversion of management's attention[229][230][234] - Restrictions on business activities while the Merger Agreement is in effect could prevent the Company from pursuing strategic business opportunities or responding effectively to competitive pressures[232] - If the merger is completed, shareholders will forgo the opportunity to realize the potential long-term value of the successful execution of the Company's current strategy as an independent company[239] Item 5. Other Information During the three months ended February 28, 2025, no directors or officers adopted, terminated, or modified Rule 10b5-1 or non-Rule 10b5-1 trading arrangements - No directors or officers adopted, terminated, or modified Rule 10b5-1 or non-Rule 10b5-1 trading arrangements during the three months ended February 28, 2025[240] Item 6. Exhibits This section lists exhibits filed with the Form 10-Q, including the Agreement and Plan of Merger with Toyota Tsusho America, Inc., and the Fifth Amendment to the Credit Agreement - Exhibit 2.1: Agreement and Plan of Merger, dated as of March 13, 2025, by and among Radius Recycling, Inc., Toyota Tsusho America, Inc. and TAI Merger Corporation[243] - Exhibit 10.3: Fifth Amendment, dated as of January 3, 2025, to Third Amended and Restated Credit Agreement[243] SIGNATURES This section contains the signatures of the Chairman, President, Chief Executive Officer, and Senior Vice President and Chief Financial Officer, dated April 4, 2025 - The report was signed on April 4, 2025, by Tamara L. Lundgren, Chairman, President and Chief Executive Officer, and Stefano R. Gaggini, Senior Vice President and Chief Financial Officer[248]