SCHNITZER STEEL(SCHN) - 2025 Q3 - Quarterly Report

FORM 10-Q Cover Page Information This section provides the cover page details for Radius Recycling, Inc.'s Form 10-Q for the quarter ended May 31, 2025, including company name, state of incorporation, stock ticker, exchange, filing status, and outstanding shares - Radius Recycling, Inc. filed its quarterly report (Form 10-Q) for the period ended May 31, 2025[2] - Cover Page Details | Indicator | Details | | :--- | :--- | | Registered Company Name | RADIUS RECYCLING, INC. | | State of Incorporation | OREGON | | Stock Ticker | RDUS | | Registered Exchange | The Nasdaq Stock Market LLC | | Filing Status | Accelerated filer | | Class A Common Stock Outstanding (as of June 27, 2025) | 28,057,661 shares | | Class B Common Stock Outstanding (as of June 27, 2025) | 200,000 shares | FORWARD-LOOKING STATEMENTS Nature and Scope of Forward-Looking Statements This section defines forward-looking statements in the report, emphasizing their inherent uncertainties and potential for actual results to differ materially from expectations - Forward-looking statements involve future events, company expectations, intentions, beliefs, and strategies, including the proposed merger with Toyota Tsusho America, Inc. (TAI)[9] - The nature of forward-looking statements makes them uncertain, often containing words like "outlook," "target," "believe," and "expect"[10] - The company undertakes no obligation to update any forward-looking statements unless required by law[11] Risks and Uncertainties This section details various risks and uncertainties, including those related to the proposed merger, operations, economy, market, environment, and regulations, that could cause actual results to differ significantly - Key risks include uncertainties regarding the completion, terms, timing, structure, benefits, costs, and failure of the merger; potential termination of the merger agreement; management distraction; impact of merger announcement on relationships; termination fees; shareholder opportunity cost; required approvals; potential stock price decline if merger fails; future TAI transactions; and inability to complete the merger within expected timeframe[11] - Other risks encompass potential environmental cleanup costs related to the Portland Harbor Superfund site; production impacts from equipment issues; unrealized capital project benefits; macroeconomic conditions; inflation, interest, and foreign exchange fluctuations; global market changes; rising USD value; economic and geopolitical instability; raw material supply/demand volatility; significant declines in recycled metal prices; global steel market imbalances; acquisition and integration difficulties; supply chain disruptions; reliance on third-party shippers; credit agreement covenants; limited capital access; goodwill impairment; pandemic effects; failure to achieve productivity benefits; lease non-renewal; customer contract performance; steel industry consolidation; product liability claims; legal and compliance impacts; climate change; deferred tax asset realization; tax increases; cybersecurity incidents; ESG focus; foreign exchange translation risk; hedging impacts; inability to obtain/renew licenses; environmental compliance costs; increased environmental regulation; labor shortages/costs; reliance on collective bargaining; and multi-employer plan underfunding[11][12] PART I. FINANCIAL INFORMATION Item 1. Financial Statements (Unaudited) This section presents Radius Recycling, Inc.'s unaudited condensed consolidated financial statements, including balance sheets, statements of operations, comprehensive income (loss), equity, and cash flows, along with related notes Unaudited Condensed Consolidated Balance Sheets This balance sheet presents Radius Recycling, Inc.'s financial position, including assets, liabilities, and stockholders' equity, as of May 31, 2025, and August 31, 2024 - Condensed Consolidated Balance Sheets | Indicator | May 31, 2025 (Thousands of USD) | August 31, 2024 (Thousands of USD) | | :--------------------------------------- | :-------------------------- | :-------------------------- | | Assets | | | | Cash and cash equivalents | 16,214 | 5,552 | | Accounts receivable, net | 239,095 | 258,157 | | Inventories | 272,957 | 293,932 | | Total current assets | 573,987 | 609,127 | | Property, plant, and equipment, net | 640,578 | 672,192 | | Goodwill | 13,105 | 13,105 | | Total assets | 1,472,198 | 1,533,769 | | Liabilities and Equity | | | | Short-term borrowings | 5,403 | 5,688 | | Accounts payable | 193,936 | 202,498 | | Total current liabilities | 309,809 | 316,570 | | Long-term debt, net | 449,010 | 409,082 | | Total liabilities | 944,085 | 908,029 | | Total Radius Recycling, Inc. stockholders' equity | 525,609 | 623,112 | | Noncontrolling interests | 2,504 | 2,628 | | Total equity | 528,113 | 625,740 | | Total liabilities and equity | 1,472,198 | 1,533,769 | Unaudited Condensed Consolidated Statements of Operations This statement presents Radius Recycling, Inc.'s revenues, operating expenses, and net income (loss) for the three and nine months ended May 31, 2025, and May 31, 2024 - Condensed Consolidated Statements of Operations | Indicator | Three Months Ended May 31, 2025 (Thousands of USD) | Three Months Ended May 31, 2024 (Thousands of USD) | Nine Months Ended May 31, 2025 (Thousands of USD) | Nine Months Ended May 31, 2024 (Thousands of USD) | | :--------------------------------------- | :--------------------------------------- | :--------------------------------------- | :--------------------------------------- | :--------------------------------------- | | Revenue | 726,991 | 673,920 | 2,026,036 | 1,967,876 | | Cost of sales | 677,444 | 628,390 | 1,915,587 | 1,842,806 | | Selling, general and administrative expenses | 56,350 | 62,100 | 167,977 | 187,362 | | Goodwill impairment charge | — | 215,941 | — | 215,941 | | Operating income (loss) | (7,203) | (235,486) | (60,795) | (285,191) | | Interest expense | (9,131) | (7,368) | (26,764) | (17,981) | | Income (loss) from continuing operations before income taxes | (16,734) | (243,041) | (87,114) | (303,792) | | Net income (loss) from continuing operations | (16,406) | (198,490) | (86,300) | (250,266) | | Net income (loss) | (16,406) | (198,511) | (86,300) | (250,320) | | Net income (loss) attributable to Radius stockholders | (16,964) | (198,390) | (87,114) | (250,333) | | Basic earnings (loss) per share | (0.59) | (6.97) | (3.04) | (8.82) | | Diluted earnings (loss) per share | (0.59) | (6.97) | (3.04) | (8.82) | Unaudited Condensed Consolidated Statements of Comprehensive Income (Loss) This statement presents Radius Recycling, Inc.'s net income (loss) and other comprehensive income (loss) components for the three and nine months ended May 31, 2025, and May 31, 2024 - Condensed Consolidated Statements of Comprehensive Income (Loss) | Indicator | Three Months Ended May 31, 2025 (Thousands of USD) | Three Months Ended May 31, 2024 (Thousands of USD) | Nine Months Ended May 31, 2025 (Thousands of USD) | Nine Months Ended May 31, 2024 (Thousands of USD) | | :--------------------------------------- | :--------------------------------------- | :--------------------------------------- | :--------------------------------------- | :--------------------------------------- | | Net income (loss) | (16,406) | (198,511) | (86,300) | (250,320) | | Other comprehensive income (loss), net of tax | 3,100 | 616 | (259) | 615 | | Comprehensive income (loss) | (13,306) | (197,895) | (86,559) | (249,705) | | Comprehensive income (loss) attributable to Radius stockholders | (13,864) | (197,774) | (87,373) | (249,718) | Unaudited Condensed Consolidated Statements of Equity This statement details changes in Radius Recycling, Inc.'s stockholders' equity, including common stock, additional paid-in capital, retained earnings, and accumulated other comprehensive income (loss), for the three and nine months ended May 31, 2025, and May 31, 2024 - Condensed Consolidated Statements of Equity (Three Months) | Indicator | Three Months Ended May 31, 2025 (Thousands of USD) | Three Months Ended May 31, 2024 (Thousands of USD) | | :--------------------------------------- | :--------------------------------------- | :--------------------------------------- | | Net income (loss) attributable to Radius stockholders | (16,964) | (198,390) | | Other comprehensive income (loss), net of tax | 3,100 | 616 | | Dividends (USD 0.1875 per share) | (5,488) | (5,369) | | Total Radius stockholders' equity at end of period | 525,609 | 643,271 | - Condensed Consolidated Statements of Equity (Nine Months) | Indicator | Nine Months Ended May 31, 2025 (Thousands of USD) | Nine Months Ended May 31, 2024 (Thousands of USD) | | :--------------------------------------- | :--------------------------------------- | :--------------------------------------- | | Net income (loss) attributable to Radius stockholders | (87,114) | (250,333) | | Other comprehensive income (loss), net of tax | (259) | 615 | | Dividends (USD 0.5625 per share) | (16,390) | (16,106) | | Total Radius stockholders' equity at end of period | 525,609 | 643,271 | Unaudited Condensed Consolidated Statements of Cash Flows This statement presents Radius Recycling, Inc.'s cash flows from operating, investing, and financing activities, and the net change in cash and cash equivalents, for the nine months ended May 31, 2025, and May 31, 2024 - Condensed Consolidated Statements of Cash Flows | Indicator | Nine Months Ended May 31, 2025 (Thousands of USD) | Nine Months Ended May 31, 2024 (Thousands of USD) | | :--------------------------------------- | :--------------------------------------- | :--------------------------------------- | | Net cash from operating activities | 21,229 | (57,218) | | Net cash from investing activities | (29,072) | (59,429) | | Net cash from financing activities | 18,482 | 135,760 | | Net change in cash and cash equivalents | 10,662 | 19,157 | | Cash and cash equivalents at end of period | 16,214 | 25,189 | - Supplemental Cash Flow Information | Supplemental Disclosures | Nine Months Ended May 31, 2025 (Thousands of USD) | Nine Months Ended May 31, 2024 (Thousands of USD) | | :--------------------------------------- | :--------------------------------------- | :--------------------------------------- | | Interest paid (received) during the period | 24,605 | 16,793 | | Income taxes paid (received), net during the period | (27) | 355 | | Purchases of property, plant, and equipment included in liabilities | 3,449 | 5,961 | Notes to the Unaudited Condensed Consolidated Financial Statements This section provides supplementary information and explanations for the condensed consolidated financial statements, detailing significant accounting policies, specific account breakdowns, and contingencies Note 1 - Summary of Significant Accounting Policies This note outlines the basis of financial statement preparation, the company's single operating segment, details of the proposed merger with TAI, and accounting policies for cash, receivables, prepaid expenses, other assets, and involuntary events - The company prepared its unaudited condensed consolidated financial statements in accordance with U.S. GAAP and SEC regulations[37] - The company operates as a single operating and reporting segment, encompassing ferrous and nonferrous scrap metal recycling, end-of-life vehicle procurement, used auto parts sales, and finished steel product manufacturing from an electric arc furnace (EAF) mill[38][39] - On March 13, 2025, the company entered into a merger agreement with Toyota Tsusho America, Inc. (TAI) and its wholly-owned subsidiary, TAI Merger Corporation, under which the company will continue as a wholly-owned subsidiary of TAI[40] - Insurance Receivables | Indicator | May 31, 2025 (Thousands of USD) | August 31, 2024 (Thousands of USD) | | :--------------------------------------- | :-------------------------- | :-------------------------- | | Total insurance receivables | 17,000 | 15,000 | | Of which: Environmental claims related insurance receivables | 14,000 | 13,000 | Note 2 - Inventories This note provides a detailed breakdown of the company's inventory composition, including processed and unprocessed scrap metal, work-in-process, finished goods, and supplies, as of May 31, 2025, and August 31, 2024 - Inventory Composition | Inventory Type | May 31, 2025 (Thousands of USD) | August 31, 2024 (Thousands of USD) | | :----------------------------- | :-------------------------- | :-------------------------- | | Processed and unprocessed scrap metal | 123,073 | 137,013 | | Work-in-process | 12,111 | 14,846 | | Finished goods | 63,713 | 72,225 | | Supplies | 74,060 | 69,848 | | Total Inventories | 272,957 | 293,932 | Note 3 - Goodwill This note details the company's goodwill balance and impairment testing, including a $216 million impairment charge recognized in Q3 FY2024 due to declining financial performance and market capitalization of certain reporting units - As of May 31, 2025, and August 31, 2024, the company's goodwill balance was $13 million, entirely attributable to one recycling services operating unit[62] - In the third quarter of fiscal year 2024, the company identified triggering events and performed goodwill impairment tests on three reporting units (two regional metal recycling businesses and the auto parts store network), resulting in a $216 million goodwill impairment charge[63][64] - The impairment test's income approach valuation considered prevailing scrap metal and retail auto parts market conditions, scrap supply costs, and operating cost trends, assuming operating margins would recover over several years, with a weighted average cost of capital (WACC) of 14.5% to 15.0% and a terminal growth rate of 2%[64] Note 4 - Commitments and Contingencies This note discusses the company's environmental liabilities, particularly those related to the Portland Harbor Superfund site and other historical environmental contingencies, as well as other legal proceedings, with total environmental liabilities of $65 million as of May 31, 2025 - Environmental Liabilities | Indicator | May 31, 2025 (Thousands of USD) | August 31, 2024 (Thousands of USD) | | :--------------------------------------- | :-------------------------- | :-------------------------- | | Total environmental liabilities | 64,593 | 65,649 | | Of which: Current environmental liabilities | 12,993 | 13,232 | | Of which: Long-term environmental liabilities | 51,600 | 52,417 | - The company is a Potentially Responsible Party (PRP) for the Portland Harbor Superfund site, with $5 million in environmental liabilities accrued for this matter as of May 31, 2025, and August 31, 2024; cleanup costs and allocation remain highly uncertain and could materially impact the company's financial condition[79][83] - The company holds insurance policies and Qualified Settlement Funds (QSFs) expected to reimburse defense, remediation, and natural resource damage claims related to Portland Harbor, though full cost coverage is not guaranteed[84] - Other historical environmental contingencies include $4 million accrued in FY2018 (now $5 million as of May 31, 2025) for scrap metal shredder residue remediation; $1 million (as of May 31, 2025) for environmental matters at closed facilities; and $10 million (as of May 31, 2025) for metal contamination remediation at another site[88][89][90] - Legal proceedings include a Clean Air Act (CAA) lawsuit against the company's Oakland shredding facility, with plaintiffs seeking up to $183 million in penalties; additionally, Alameda County criminal grand jury charges against the company and two operating employees for environmental regulatory violations were dismissed on May 23, 2025[94][95] Note 5 - Accumulated Other Comprehensive Income (Loss) This note details the components and changes in accumulated other comprehensive income (loss), including foreign currency translation adjustments, cash flow hedges, and pension obligations, for the three and nine months ended May 31, 2025, and May 31, 2024 - Accumulated Other Comprehensive Income (Loss) Components | Component | May 31, 2025 (Thousands of USD) | May 31, 2024 (Thousands of USD) | | :--------------------------------------- | :-------------------------- | :-------------------------- | | Foreign currency translation adjustments | (38,620) | (38,230) | | Cash flow hedges, net | (666) | 650 | | Pension obligations, net | (1,145) | (1,488) | | Total Accumulated Other Comprehensive Income (Loss) | (40,431) | (39,068) | Note 6 - Revenue This note disaggregates the company's revenue by major product type (ferrous, nonferrous, steel, retail & other) and sales destination (foreign, domestic) for the three and nine months ended May 31, 2025, and May 31, 2024 - Revenue Disaggregation | Revenue Type | Three Months Ended May 31, 2025 (Thousands of USD) | Three Months Ended May 31, 2024 (Thousands of USD) | Nine Months Ended May 31, 2025 (Thousands of USD) | Nine Months Ended May 31, 2024 (Thousands of USD) | | :----------------------------- | :--------------------------------------- | :--------------------------------------- | :--------------------------------------- | :--------------------------------------- | | Ferrous revenue | 320,746 | 334,425 | 966,805 | 999,419 | | Nonferrous revenue | 229,428 | 184,127 | 590,489 | 517,902 | | Steel revenue | 125,935 | 108,259 | 331,900 | 322,511 | | Retail and other revenue | 50,882 | 47,109 | 136,842 | 128,044 | | Total Revenue | 726,991 | 673,920 | 2,026,036 | 1,967,876 | | By sales destination: | | | | | | Foreign | 340,718 | 348,503 | 1,032,275 | 1,023,799 | | Domestic | 386,273 | 325,417 | 993,761 | 944,077 | - Net receivables from customer contracts constituted the vast majority of total accounts receivable on the consolidated balance sheets as of May 31, 2025, and August 31, 2024[101] - Contract liabilities, primarily customer deposits for recycled metal and finished steel sales contracts, were $12 million and $10 million as of May 31, 2025, and August 31, 2024, respectively[102] Note 7 - Share-Based Compensation This note describes the equity incentive awards granted in fiscal year 2025, including Restricted Stock Units (RSUs), Performance Stock Units (PSUs) tied to Total Shareholder Return (TSR) and volume growth, and Deferred Stock Units (DSUs) for non-employee directors - In the first quarter of fiscal year 2025, the company granted 446,993 Restricted Stock Units (RSUs) and 340,454 Performance Stock Units (PSUs) to key employees and executives under the 2024 Omnibus Incentive Plan[103] - The aggregate fair value of RSUs was $9 million, with 334,042 units vesting over five years and 112,951 units vesting over three years, in annual installments[104] - PSUs were split into two tranches: approximately half based on the company's relative Total Shareholder Return (TSR) with a fair value of $3 million, and the other half based on company volume growth with a fair value of $3 million, both with performance periods of approximately three years[106][107][108] - In the second quarter of fiscal year 2025, the company granted 57,642 Deferred Stock Units (DSUs) to non-employee directors, with a total fair value of $1 million, which will vest in full on the day prior to the 2025 Annual Meeting of Stockholders[111] Note 8 - Derivative Financial Instruments This note discusses the company's use of interest rate swap agreements as cash flow hedges to manage interest rate risk on floating-rate debt, with a total notional amount of $150 million as of May 31, 2025 - The company entered into three fixed-rate interest rate swap transactions in fiscal year 2023 to hedge against fluctuations in interest cash flows on floating-rate borrowings under its bank revolving credit facility[113] - As of May 31, 2025, and August 31, 2024, the total notional amount of these interest rate swaps was $150 million, maturing in August 2026[116] - Derivative Financial Instruments on Balance Sheet | Derivative Instrument | Balance Sheet Location | May 31, 2025 (Thousands of USD) | August 31, 2024 (Thousands of USD) | | :----------------------------- | :----------------------------- | :-------------------------- | :-------------------------- | | Interest rate swap agreements | Other accrued liabilities | 497 | 174 | | Interest rate swap agreements | Other long-term liabilities | 363 | 1,667 | - In the third quarter and first nine months of fiscal year 2025, less than $1 million of interest rate swap derivative cash flow hedges were reclassified from Accumulated Other Comprehensive Income (AOCI) to interest expense in each period[117] Note 9 - Income Taxes This note explains the company's effective tax rate for the three and nine months ended May 31, 2025, which was lower than the U.S. federal statutory rate primarily due to increased valuation allowances on deferred tax assets in U.S. tax jurisdictions - Effective Tax Rate | Indicator | Three Months Ended May 31, 2025 | Three Months Ended May 31, 2024 | Nine Months Ended May 31, 2025 | Nine Months Ended May 31, 2024 | | :--------------------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Effective tax rate (benefit on loss from continuing operations) | 2.0% | 18.3% | 0.9% | 17.6% | - The effective tax rate was lower than the U.S. federal statutory rate of 21%, primarily due to the combined impact of the company's financial performance, including increased valuation allowances on deferred tax assets in U.S. tax jurisdictions[118] - The company continues to maintain valuation allowances against deferred tax assets in U.S. federal, state, and Canadian tax jurisdictions[119] Note 10 - Net Income (Loss) Per Share This note provides the calculation of basic and diluted net income (loss) per share attributable to Radius stockholders for the three and nine months ended May 31, 2025, and May 31, 2024 - Net Income (Loss) Per Share Calculation | Indicator | Three Months Ended May 31, 2025 (Thousands of USD) | Three Months Ended May 31, 2024 (Thousands of USD) | Nine Months Ended May 31, 2025 (Thousands of USD) | Nine Months Ended May 31, 2024 (Thousands of USD) | | :--------------------------------------- | :--------------------------------------- | :--------------------------------------- | :--------------------------------------- | :--------------------------------------- | | Income (loss) from continuing operations attributable to Radius stockholders | (16,964) | (198,369) | (87,114) | (250,279) | | Net income (loss) attributable to Radius stockholders | (16,964) | (198,390) | (87,114) | (250,333) | | Basic weighted-average common shares outstanding | 28,700 | 28,479 | 28,652 | 28,385 | | Diluted weighted-average common shares outstanding | 28,700 | 28,479 | 28,652 | 28,385 | | Basic earnings (loss) per share | (0.59) | (6.97) | (3.04) | (8.82) | | Diluted earnings (loss) per share | (0.59) | (6.97) | (3.04) | (8.82) | - For the three and nine months ended May 31, 2025, 513,938 and 272,997 common stock equivalents, respectively, were considered anti-dilutive and excluded from the diluted net income (loss) per share calculation[123] Note 11 - Related Party Transactions This note discloses related party transactions where the company purchased recycled metal from a joint venture at near fair market value, with purchases totaling $5 million and $13 million for the three and nine months ended May 31, 2025, and May 31, 2024, respectively - The company purchases recycled metal from one of its joint ventures at prices approximating fair market value[124] - Related Party Purchases | Period | Purchases (Thousands of USD) | | :----------------------------- | :-------------------------- | | Three Months Ended May 31, 2025 | 5,000 | | Three Months Ended May 31, 2024 | 5,000 | | Nine Months Ended May 31, 2025 | 13,000 | | Nine Months Ended May 31, 2024 | 13,000 | Note 12 - Debt This note details the company's debt structure, primarily consisting of a bank revolving credit facility totaling $454 million as of May 31, 2025, which was amended on June 16, 2025, to reduce commitments and extend covenant suspension - Debt Composition | Debt Type | May 31, 2025 (Thousands of USD) | August 31, 2024 (Thousands of USD) | | :--------------------------------------- | :-------------------------- | :-------------------------- | | Bank revolving credit facility | 435,000 | 393,612 | | Finance lease obligations | 7,319 | 9,042 | | Other debt obligations | 12,094 | 12,116 | | Total Debt | 454,413 | 414,770 | | Less: Current portion of debt | (5,403) | (5,688) | | Net Debt (excluding current portion) | 449,010 | 409,082 | - On June 16, 2025, the company amended its credit agreement, reducing the total revolving commitments from $800 million to $625 million and extending the suspension period for the minimum fixed charge coverage ratio covenant by two fiscal quarters[125] - As of May 31, 2025, the weighted-average interest rate on the credit facility was 7.0% (compared to 8.0% as of August 31, 2024)[128] - As of May 31, 2025, the company was in compliance with the applicable financial covenants under its amended credit agreement[130] Note 13 - Merger with TAI This note details the definitive merger agreement with Toyota Tsusho America, Inc. (TAI) for TAI to acquire Radius Recycling for $30.00 per share in cash, with the merger having received HSR Act early termination and shareholder approval, expected to close in the second half of calendar year 2025 - On March 13, 2025, the company entered into a merger agreement with TAI, under which TAI will acquire the company for $30.00 per share in cash[131][132] - Upon merger effectiveness, all unvested Restricted Stock Units (RSUs), Performance Stock Units (PSUs), and Deferred Stock Units (DSUs) will fully vest and convert into cash[133][136] - The merger received early termination notice of the HSR Act waiting period on May 12, 2025, and company shareholder approval on June 5, 2025[139] - The merger is expected to close in the second half of calendar year 2025, subject to other customary closing conditions[141] - In certain specified circumstances, the company would be required to pay TAI a termination fee of $27.2 million if the merger agreement is terminated[142] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations This section provides management's discussion and analysis of the company's financial performance and condition for the three and nine months ended May 31, 2025, covering revenue, operating results, liquidity, capital resources, and market impacts General Radius Recycling, Inc. is a vertically integrated ferrous and nonferrous metal recycler and finished steel manufacturer, with operations dependent on market demand, prices, raw material supply, and operational efficiency - Radius Recycling, Inc. is one of North America's largest ferrous and nonferrous metal recyclers and a finished steel manufacturer[145] - The company operates a network of 50 retail self-service auto parts stores (Pick-n-Pull brand), 53 metal recycling facilities, and an electric arc furnace (EAF) steel mill[145][146] - Operating results are primarily driven by domestic and international market demand and prices for recycled metals, raw material supply (including end-of-life vehicles), and efficient metal extraction from the shredding process[150] - Quarterly operating results are influenced by market conditions, scrap metal supply, auto parts demand, supply chain efficiency, production and operating cost fluctuations, seasonality, and trade actions like tariffs and sanctions[151] Merger with TAI This section reiterates the merger agreement with Toyota Tsusho America, Inc. (TAI) for TAI to acquire Radius Recycling for $30.00 per share in cash, with the transaction approved and expected to close in the second half of calendar year 2025 - The company entered into a merger agreement with Toyota Tsusho America, Inc. (TAI) on March 13, 2025, for TAI to acquire the company for $30.00 per share in cash[152] - The transaction has received company board and shareholder approval and is expected to close in the second half of calendar year 2025[152] Everett Facility Shredder Fire This section updates on the December 2021 Everett metal recycling facility fire, noting property restoration was largely complete by FY2023, and a $7 million insurance settlement was reached in Q3 FY2024, resolving all claims - On December 8, 2021, a fire occurred at the company's Everett metal recycling facility, with primary damage limited to the shredder building and equipment[153] - Most property restoration and replacement for the damaged assets were substantially completed by the end of fiscal year 2023[153] - In the third quarter of fiscal year 2024, the company reached a full and final settlement with its insurance carriers, recognizing $7 million in insurance recovery benefits, including business interruption income, with all claims resolved by August 31, 2024[153] Use of Non-GAAP Financial Measures This section explains the company's use of non-GAAP financial measures like Adjusted EBITDA to provide a clearer view of operating and financial performance by excluding non-recurring or non-operating items - The company uses non-GAAP financial measures such as Adjusted EBITDA, Adjusted Selling, General and Administrative Expenses, Adjusted Net Income (Loss) from Continuing Operations, and Adjusted Diluted Earnings (Loss) Per Share[155] - These non-GAAP measures aim to provide a more meaningful presentation of operating and financial performance, liquidity, and capital structure by excluding items unrelated to core business operations[155] - Adjusted EBITDA is net income (loss) adjusted for discontinued operations, interest expense, income taxes, depreciation and amortization, restructuring charges, historical environmental matters (net of recoveries), amortization of capitalized cloud computing implementation costs, goodwill and other asset impairment charges, business development costs unrelated to continuing operations (including pre-acquisition and merger-related fees), and other items unrelated to core business operations[155] Financial Highlights of Results of Operations for the Third Quarter of Fiscal 2025 In Q3 FY2025, the company saw significant financial improvement driven by stronger nonferrous markets, increased finished steel volumes, and productivity initiatives, leading to substantial Adjusted EBITDA growth and reduced SG&A expenses - Fiscal year 2025 third-quarter financial results significantly improved, driven by stronger nonferrous market conditions, increased finished steel volumes, and productivity enhancement initiatives[160] - Nonferrous volumes increased by 17% year-over-year, with average net selling prices up 6%; finished steel volumes grew by 20%, benefiting from lower conversion costs due to higher mill utilization[160] - Selling, General and Administrative (SG&A) expenses decreased by 9% year-over-year (adjusted 17%), reflecting benefits from productivity and cost reduction measures implemented in fiscal year 2024[160] - Key Financial Highlights (Q3 FY2025) | Indicator | 2025 Fiscal Q3 | 2024 Fiscal Q3 | | :--------------------------------------- | :-------------------------- | :-------------------------- | | Diluted loss per share from continuing operations attributable to Radius stockholders | $(0.59) | $(6.97) | | Adjusted diluted loss per share from continuing operations attributable to Radius stockholders | $(0.39) | $(0.59) | | Net loss | $16 million | $199 million | | Adjusted EBITDA | $22 million | $9 million | - Key Financial Highlights (First Nine Months FY2025) | Indicator | First Nine Months FY2025 | First Nine Months FY2024 | | :--------------------------------------- | :-------------------------- | :-------------------------- | | Net cash from operating activities | $21 million | $(57) million | | Total debt (as of May 31/Aug 31) | $454 million | $415 million | | Net debt (excluding cash) (as of May 31/Aug 31) | $438 million | $409 million | Results of Operations This section analyzes the company's revenue and operating performance for the three and nine months ended May 31, 2025, highlighting changes in volumes, prices, gross margins, and the impact of cost reduction measures - Revenue and Operating Performance | Indicator | Three Months Ended May 31, 2025 | Three Months Ended May 31, 2024 | Year-over-Year Change (%) | Nine Months Ended May 31, 2025 | Nine Months Ended May 31, 2024 | Year-over-Year Change (%) | | :--------------------------------------- | :-------------------------- | :-------------------------- | :-------------- | :-------------------------- | :-------------------------- | :-------------- | | Ferrous revenue (Thousands of USD) | 320,746 | 334,425 | (4)% | 966,805 | 999,419 | (3)% | | Nonferrous revenue (Thousands of USD) | 229,428 | 184,127 | 25% | 590,489 | 517,902 | 14% | | Steel revenue (Thousands of USD) | 125,935 | 108,259 | 16% | 331,900 | 322,511 | 3% | | Retail and other revenue (Thousands of USD) | 50,882 | 47,109 | 8% | 136,842 | 128,044 | 7% | | Total Revenue (Thousands of USD) | 726,991 | 673,920 | 8% | 2,026,036 | 1,967,876 | 3% | | Cost of sales (Thousands of USD) | 677,444 | 628,390 | 8% | 1,915,587 | 1,842,806 | 4% | | Gross profit (Thousands of USD) | 49,547 | 45,530 | 9% | 110,449 | 125,070 | (12)% | | Gross margin (%) | 6.8% | 6.8% | 0% | 5.5% | 6.4% | (14)% | | Selling, general and administrative expenses (Thousands of USD) | 56,350 | 62,100 | (9)% | 167,977 | 187,362 | (10)% | | Net income (loss) (Thousands of USD) | (16,406) | (198,511) | (92)% | (86,300) | (250,320) | (66)% | | Adjusted EBITDA (Thousands of USD) | 22,014 | 8,618 | 155% | 21,562 | 12,475 | 73% | | Average ferrous recycled metal selling price (USD/long ton) | 341 | 350 | (3)% | 336 | 361 | (7)% | | Ferrous volumes (Thousands of long tons) | 1,137 | 1,112 | 2% | 3,337 | 3,244 | 3% | | Average nonferrous selling price (USD/pound) | 1.10 | 1.04 | 6% | 1.05 | 0.97 | 8% | | Nonferrous volumes (Thousands of pounds) | 215,253 | 183,230 | 17% | 566,831 | 541,435 | 5% | | Average finished steel selling price (USD/short ton) | 787 | 817 | (4)% | 773 | 827 | (7)% | | Finished steel volumes (Thousands of short tons) | 151 | 126 | 20% | 407 | 369 | 10% | | Rolling mill utilization | 107% | 88% | 22% | 92% | 88% | 5% | - Total revenue increased by 8% and 3% for the three and nine months ended May 31, 2025, respectively; nonferrous product average net selling prices rose by 6% and 8%, with volumes up 17% and 5%; ferrous product average net selling prices decreased by 3% and 7%, with volumes up 2% and 3%; finished steel volumes increased by 20% and 10%, while average net selling prices declined by 4% and 7%[170] - Net loss significantly decreased, and Adjusted EBITDA increased, primarily due to higher volumes, reduced finished steel conversion costs from improved mill utilization, increased recycling services contributions, higher retail auto parts sales, and a $3 million gain from the sale of certain real estate assets[171] - Selling, General and Administrative (SG&A) expenses decreased by 9% and 10% (adjusted 17% and 13%) for the three and nine months ended May 31, 2025, respectively, reflecting the benefits of cost reduction initiatives[172] - Interest expense increased, mainly due to higher average borrowings; the effective tax rate was lower than the U.S. federal statutory rate, primarily due to increased valuation allowances on deferred tax assets[174][175] Liquidity and Capital Resources This section discusses the company's liquidity, primarily relying on cash flow from operations and existing credit facilities; net cash from operating activities significantly improved in the first nine months of FY2025, but debt increased to meet working capital and capital expenditure needs - The company primarily relies on cash flow from operations, existing cash, and available credit facilities to meet its liquidity needs[176] - Liquidity Overview | Indicator | May 31, 2025 (Thousands of USD) | August 31, 2024 (Thousands of USD) | | :--------------------------------------- | :-------------------------- | :-------------------------- | | Cash balance | 16,000 | 6,000 | | Total debt | 454,000 | 415,000 | | Net debt (excluding cash) | 438,000 | 409,000 | - Net cash from operating activities was $21 million for the first nine months of fiscal year 2025, compared to a net cash outflow of $57 million in the prior-year period[179] - Net cash outflow from investing activities was $29 million for the first nine months of fiscal year 2025 (compared to $59 million in the prior-year period), with capital expenditures totaling $34 million (compared to $56 million in the prior-year period)[182][183] - Net cash inflow from financing activities was $18 million for the first nine months of fiscal year 2025 (compared to $136 million in the prior-year period), with net borrowings of $40 million (compared to $158 million in the prior-year period)[184][185] - The company plans to invest approximately $60 million in capital expenditures for fiscal year 2025, with approximately $14 million invested in environmental projects during the first nine months and a total planned investment of up to $20 million for such projects in fiscal year 2025[196][197] - On April 4, 2025, the Board of Directors declared a quarterly dividend of $0.1875 per share of common stock for the third quarter of fiscal year 2025, paid on May 5, 2025[199] - As of May 31, 2025, the company retained authorization to repurchase 2.8 million shares of Class A common stock, but no repurchases are expected while the merger agreement is pending due to its terms[200] Contractual Obligations This section states that there have been no material changes to the company's contractual obligations and commitments since the FY2024 annual report, with $9 million in outstanding standby letters of credit as of May 31, 2025 - No material changes have occurred in contractual obligations and commitments since the fiscal year 2024 annual report (Form 10-K)[204] - As of May 31, 2025, the company had $9 million in outstanding standby letters of credit[204] Critical Accounting Estimates This section states that no material changes have occurred in critical accounting estimates since those described in the FY2024 annual report (Form 10-K) - No material changes have occurred in critical accounting estimates since those described in the fiscal year 2024 annual report (Form 10-K)[205] Recently Issued Accounting Standards This section refers to Note 1 for a description of recent accounting standards, specifically ASU 2024-03 on income statement expense disaggregation, effective FY2028, which is not expected to materially impact financial statements - Recently issued accounting standards include ASU 2024-03, "Disaggregation of Expenses in the Income Statement," which requires disclosure of the nature of expenses in the income statement[60][206] - ASU 2024-03 will be effective for the company's fiscal year 2028 and is not expected to have a material impact on the consolidated financial statements as it applies only to disclosures[60] Non-GAAP Financial Measures This section provides reconciliation tables for non-GAAP financial measures, including net debt (excluding cash), net debt borrowings (repayments), Adjusted EBITDA, Adjusted Selling, General and Administrative Expenses, and Adjusted Diluted Loss Per Share, used by management to assess business performance - Net Debt (excluding cash) Reconciliation | Indicator | May 31, 2025 (Thousands of USD) | August 31, 2024 (Thousands of USD) | | :--------------------------------------- | :-------------------------- | :-------------------------- | | Short-term borrowings | 5,403 | 5,688 | | Long-term debt, net (excluding current portion) | 449,010 | 409,082 | | Total Debt | 454,413 | 414,770 | | Less: Cash and cash equivalents | 16,214 | 5,552 | | Net Debt (excluding cash) | 438,199 | 409,218 | - Net Debt Borrowings (Repayments) Reconciliation | Indicator | Nine Months Ended May 31, 2025 (Thousands of USD) | Nine Months Ended May 31, 2024 (Thousands of USD) | | :--------------------------------------- | :--------------------------------------- | :--------------------------------------- | | Long-term debt borrowings | 611,836 | 579,500 | | Long-term debt repayments | (572,026) | (421,414) | | Net Debt Borrowings (Repayments) | 39,810 | 158,086 | - Adjusted EBITDA and SG&A Reconciliation | Indicator | Three Months Ended May 31, 2025 (Thousands of USD) | Three Months Ended May 31, 2024 (Thousands of USD) | Nine Months Ended May 31, 2025 (Thousands of USD) | Nine Months Ended May 31, 2024 (Thousands of USD) | | :--------------------------------------- | :--------------------------------------- | :--------------------------------------- | :--------------------------------------- | :--------------------------------------- | | Net income (loss) | (16,406) | (198,511) | (86,300) | (250,320) | | Adjusted EBITDA | 22,014 | 8,618 | 21,562 | 12,475 | | Selling, general and administrative expenses (as reported) | 56,350 | 62,100 | 167,977 | 187,362 | | Adjusted selling, general and administrative expenses | 51,283 | 61,741 | 162,687 | 186,294 | - Adjusted Diluted Loss Per Share Reconciliation | Indicator | Three Months Ended May 31, 2025 | Three Months Ended May 31, 2024 | Nine Months Ended May 31, 2025 | Nine Months Ended May 31, 2024 | | :--------------------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Diluted loss per share from continuing operations attributable to Radius stockholders (as reported) | (0.59) | (6.97) | (3.04) | (8.82) | | Adjusted diluted loss per share from continuing operations attributable to Radius stockholders | (0.39) | (0.59) | (2.71) | (2.28) | Item 3. Quantitative and Qualitative Disclosures about Market Risk This section discusses the company's various market risks, including commodity price risk, interest rate risk, credit risk, and foreign currency exchange rate risk, and how these risks are managed Commodity Price Risk The company faces commodity price volatility risk for ferrous and nonferrous metals and finished steel, managing it by adjusting purchase prices and monitoring spreads between sales and procurement costs; a 10% decline in estimated inventory selling prices as of May 31, 2025, would not materially impact net realizable value - The company primarily faces commodity price risk from market price fluctuations of ferrous and nonferrous metals, scrap metal, finished steel, auto bodies, and other commodities[218] - The company manages commodity price risk by adjusting purchase prices in response to changes in forward selling prices and actively monitoring the spread between forward selling prices and procurement, processing, and transportation costs[218] - As of May 31, 2025, a 10% decline in estimated inventory selling prices would not materially impact net realizable value (NRV)[218] Interest Rate Risk This section states that no material changes have occurred in interest rate risk disclosures since the FY2024 annual report (Form 10-K) - No material changes have occurred in interest rate risk disclosures since the fiscal year 2024 annual report (Form 10-K)[219] Credit Risk This section explains credit risk arising from counterparty non-performance, managed through various methods including letters of credit, deposits, credit limits, and credit insurance; 24% of accounts receivable were covered by letters of credit as of May 31, 2025 - Credit risk primarily arises from counterparties failing to fulfill contractual obligations, including not receiving scrap metal and finished steel and settling financially, or not providing sufficient quantities of scrap metal or paying advances, loans, and other contractual receivables[220] - The company manages credit risk through various methods, including credit approval, credit limits, credit insurance, letters of credit or other collateral, cash deposits, and monitoring procedures[220] - As of May 31, 2025, and August 31, 2024, 24% and 28%, respectively, of the company's accounts receivable balance were covered by letters of credit[222] Foreign Currency Exchange Rate Risk The company primarily faces foreign currency exchange rate risk from its Canadian subsidiary's USD-denominated sales transactions and related receivables, as the subsidiary's functional currency is the Canadian dollar - The company's primary foreign currency exchange rate risk relates to its Canadian subsidiary's USD-denominated sales transactions and associated accounts receivable, as the subsidiary's functional currency is the Canadian dollar[223] Item 4. Controls and Procedures This section confirms the effectiveness of the company's disclosure controls and procedures and reports no material changes in internal control over financial reporting during the quarter Disclosure Controls and Procedures Management, with the participation of the Chief Executive Officer and Chief Financial Officer, assessed and concluded that the company's disclosure controls and procedures were effective at a reasonable assurance level as of May 31, 2025 - As of May 31, 2025, the company's disclosure controls and procedures were effective at a reasonable assurance level[225] Changes in Internal Control Over Financial Reporting No material changes in internal control over financial reporting occurred during the quarter ended May 31, 2025 - No material changes in internal control over financial reporting occurred during the quarter ended May 31, 2025[226] PART II. OTHER INFORMATION Item 1. Legal Proceedings This section refers to information on reportable legal proceedings incorporated by reference from the company's FY2024 annual report (Form 10-K) and Note 4 of this quarterly report - Information regarding reportable legal proceedings is incorporated by reference from "Item 3. Legal Proceedings" in the company's fiscal year 2024 annual report (Form 10-K) and "Note 4 - Commitments and Contingencies" in "Part I, Item 1" of this quarterly report[229] Item 1A. Risk Factors This section states that no material changes or new risk factors have been identified since the company's FY2024 annual report (Form 10-K) submission, other than those disclosed in the February 28, 2025, quarterly report - No material changes or new risk factors have been identified since the submission of the fiscal year 2024 annual report (Form 10-K), other than those disclosed in the quarterly report dated February 28, 2025[230] Item 5. Other Information This section reports that no directors or officers adopted, terminated, or modified Rule 10b5-1 or non-Rule 10b5-1 trading arrangements during the three months ended May 31, 2025 - During the three months ended May 31, 2025, no directors or officers adopted, terminated, or modified Rule 10b5-1 or non-Rule 10b5-1 trading arrangements[231] Item 6. Exhibits This section lists the exhibits filed with the Form 10-Q, including the merger agreement, CEO and CFO certifications, and XBRL files - Exhibits include: the merger agreement dated March 13, 2025; certifications by the Chief Executive Officer and Chief Financial Officer pursuant to Sections 302 and 906 of the Sarbanes-Oxley Act; and Inline XBRL documents[234] SIGNATURES Signatures This section contains the authorized signatures for Radius Recycling, Inc., by Tamara L. Lundgren, Chairman, President, and Chief Executive Officer, and Stefano R. Gaggini, Senior Vice President and Chief Financial Officer, dated July 1, 2025 - The report was signed by Tamara L. Lundgren, Chairman, President, and Chief Executive Officer, and Stefano R. Gaggini, Senior Vice President, and Chief Financial Officer, on July 1, 2025[237]