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This section includes a discussion of our operations for the three and nine
months ended May 31, 2022 and 2021. The following discussion and analysis
provide information which management believes is relevant to an assessment and
understanding of our financial condition and results of operations. The
discussion should be read in conjunction with our Annual Report on Form 10-K for
the year ended August 31, 2021, and the Unaudited Condensed Consolidated
Financial Statements and the related Notes thereto included in Part I, Item 1 of
this report. General

Founded in 1906, Schnitzer Steel Industries, Inc. is one of North America’s
largest recyclers of ferrous and nonferrous metal, including end-of-life
vehicles, and a manufacturer of finished steel products. As a vertically
integrated organization, we offer a range of products and services to meet
global demand through our network that includes 50 retail self-service auto
parts stores, 54 metals recycling facilities, and an electric arc furnace
(“EAF”) steel mill.

 We sell recycled ferrous and nonferrous metal in both foreign and domestic
markets. We also sell a range of finished steel long products produced at our
steel mill. We acquire, process, and recycle end-of-life (salvaged) vehicles,
rail cars, home appliances, industrial machinery, manufacturing scrap, and
construction and demolition scrap through our facilities. Our retail
self-service auto parts stores located across the United States ("U.S.") and
Western Canada, which operate under the commercial brand-name Pick-n-Pull,
procure the significant majority of our salvaged vehicles and sell serviceable
used auto parts from these vehicles. Upon acquiring a salvaged vehicle, we
remove catalytic converters, aluminum wheels, and batteries for separate
processing and sale prior to placing the vehicle in our retail lot. After retail
customers have removed desired parts from a vehicle, we may remove remaining
major component parts containing ferrous and nonferrous metals, which are
primarily sold to wholesalers. The remaining auto bodies are crushed and shipped
to our metals recycling facilities to be shredded or sold to third parties when
geographically more economical. At our metals recycling facilities, we process
mixed and large pieces of scrap metal into smaller pieces by crushing, torching,
shearing, shredding, separating, and sorting, resulting in recycled ferrous,
nonferrous, and mixed metal pieces of a size, density, and metal content
required by customers to meet their production needs. Each of our shredding,
nonferrous processing, and separation systems is designed to optimize the
recovery of valuable recycled metal. We also purchase nonferrous metal directly
from industrial vendors and other suppliers and aggregate and prepare this metal
for shipment to customers by ship, rail, or truck. In addition to the sale of
recycled metal processed at our facilities, we also provide a variety of
recycling and related services including brokering the sale of ferrous and
nonferrous scrap metal generated by industrial entities and demolition projects
to customers in the domestic market, among other services. Our steel mill
produces semi-finished goods (billets) and finished goods, consisting of rebar,
coiled rebar, wire rod, merchant bar, and other specialty products, using
recycled ferrous metal sourced internally from our recycling and joint venture
operations and other raw materials. We operate seven deepwater port locations, six of which are equipped with
large-scale shredders. Our deepwater port facilities on both the East and West
Coasts of the U.S. (in Everett, Massachusetts; Providence, Rhode Island;
Oakland, California; Tacoma, Washington; and Portland, Oregon) and access to
public deepwater port facilities (in Kapolei, Hawaii and Salinas, Puerto Rico)
allow us to meet the global demand for recycled ferrous metal by enabling us to
ship bulk cargoes to steel manufacturers located in Europe, Africa, the Middle
East, Asia, North America, Central America, and South America. Our exports of
nonferrous recycled metal are shipped in containers through various public docks
to specialty steelmakers, foundries, aluminum sheet and ingot manufacturers,
copper refineries and smelters, brass and bronze ingot manufacturers, wire and
cable producers, wholesalers, and other recycled metal processors globally. We
also transport both ferrous and nonferrous metals by truck, rail, and barge in
order to transfer scrap metal between our facilities for further processing, to
load shipments at our export facilities, and to meet regional domestic demand. Our results of operations depend in large part on the demand and prices for
recycled metal in foreign and domestic markets and on the supply of raw
materials, including end-of-life vehicles, available to be processed at our
facilities. Our results of operations also depend substantially on our operating
leverage from processing and selling higher volumes of recycled metal as well as
our ability to efficiently extract ferrous and nonferrous metals from the
shredding process. We respond to changes in selling prices for processed metal
by seeking to adjust purchase prices for unprocessed scrap metal in order to
manage the impact on our operating results. We believe we generally benefit from
sustained periods of stable or rising recycled metal selling prices, which allow
us to better maintain or increase both operating results and unprocessed scrap
metal flow into our facilities. When recycled metal selling prices decline,
either sharply or for a sustained period, our operating margins typically
compress. With respect to finished steel products produced at our steel mill,
our results of operations are impacted by demand and prices for these products,
which are sold to customers located primarily in the Western U.S. and Western
Canada. 25

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Table of Contents

 SCHNITZER STEEL INDUSTRIES, INC. Our quarterly operating results fluctuate based on a variety of factors
including, but not limited to, changes in market conditions for recycled ferrous
and nonferrous metal and finished steel products, the supply of scrap metal in
our domestic markets, varying demand for used auto parts from our self-service
retail stores, the efficiency of our supply chain, and variations in production
and other operating costs. Certain of these factors are influenced, to a degree,
by the impact of seasonal changes including severe weather conditions, which can
impact the timing of shipments and inhibit construction activity utilizing our
products, scrap metal collection and production levels at our facilities, and
retail admissions and parts sales at our auto parts stores. Further, sanctions,
trade actions, and licensing, product quality, and inspection requirements can
impact the level of profitability on sales of our products and, in certain
cases, impede or restrict our ability to sell to certain export markets or
require us to direct our sales to alternative market destinations, which can
cause our quarterly operating results to fluctuate. 

Coronavirus Disease 2019 (“COVID-19”)

 We continue to monitor the impact of COVID-19 on all aspects of our business. We
are a company operating in a critical infrastructure industry, as defined by the
U.S. Department of Homeland Security. Consistent with federal guidelines and
with state and local orders to date, we have continued to operate across our
footprint throughout the COVID-19 pandemic. Ensuring the health and safety of
our employees, and all who visit our sites, is our top priority, and we are
following all U.S. Centers for Disease Control and Prevention and state and
local health department guidelines. Following the onset of COVID-19 and its
negative effects on our business, most prominently reflected in our fiscal 2020
results, global economic conditions improved during fiscal 2021, resulting in
increased demand for our products. Beginning in our second quarter of fiscal
2021 and continuing through the third quarter of fiscal 2022, there has been a
trend in many parts of the world of increasing availability and administration
of vaccines against COVID-19, as well as an easing of restrictions on
individual, business, and government activities. The existence of new or
enduring variant strains of COVID-19 may lead to a rise in infections, which
could cause delays in the easing of restrictions previously in place and the
implementation of new restrictions and mandates, and there are ongoing global
impacts resulting directly or indirectly from the pandemic including labor
shortages, logistical challenges such as increased port congestion, and
increases in costs for certain goods and services, which have negatively
impacted our sales volumes and operating results to varying degrees. While the
ongoing effects of the COVID-19 pandemic could negatively impact our results of
operations, cash flows, and financial position, the current level of uncertainty
over the economic and operational impacts of COVID-19 means the related
financial impact cannot be reasonably estimated at this time. 

Steel Mill Fire

 On May 22, 2021, we experienced a fire at our steel mill in McMinnville, Oregon.
Direct physical loss or damage to property from the incident was limited to the
mill's melt shop, with no bodily injuries and no physical loss or damage to
other buildings or equipment. As a result of the fire, the rolling mill
production ceased in early June 2021. In August 2021, the steel mill began
ramping up operations following the substantial completion of replacement and
repairs of property and equipment in the melt shop that had been lost or damaged
by the fire. We experienced the loss of business income during the shutdown of
the steel mill and the subsequent ramp-up phase which was substantially
completed during the second quarter of fiscal 2022. We have insurance that we
believe is fully applicable to the losses and have filed initial insurance
claims, which are subject to deductibles and various conditions, exclusions, and
limits, for the property that experienced physical loss or damage and business
income losses resulting from the matter. The property damage deductible under
the policies insuring the Company's assets in this matter is $1 million, while
the deductible for lost business income is 10 times the Average Daily Gross
Earnings which would have been earned had no interruption occurred, calculated
subject to judgments and uncertainties. As of August 31, 2021, prepaid expenses
and other current assets in the Unaudited Condensed Consolidated Balance Sheets
included an initial $10 million insurance receivable recognized in the fourth
quarter of fiscal 2021, primarily offsetting applicable losses including capital
purchases of $10 million that we had incurred as of August 31, 2021. In the
first nine months of fiscal 2022, we increased the amount of this insurance
receivable to $25 million and recognized a related $15 million insurance
recovery gain, $3 million recorded in the first quarter and $12 million recorded
in the second quarter, within cost of goods sold in the Unaudited Condensed
Consolidated Statements of Income, reflecting recovery of applicable losses
incurred as a result of the fire to date. In addition, during the first nine
months of fiscal 2022, we received advance payments from insurers totaling
approximately $30 million towards our claims, and not reflecting any final or
full settlement of claims with the insurers, which amount reduced the $25
million insurance receivable to zero with the remaining amount of advance
payments of $5 million reported within other accrued liabilities in the
Unaudited Condensed Consolidated Balance Sheets as of May 31, 2022. These
amounts do not reflect potential additional recoveries of business income losses
resulting from this matter that may be recognized in the future when settlements
of the business interruption claims are resolved. 26

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 SCHNITZER STEEL INDUSTRIES, INC.

Everett Facility Shredder Fire

 On December 8, 2021, we experienced a fire at our metals recycling facility in
Everett, Massachusetts. Direct physical loss or damage to property from the
incident was limited to the facility's shredder building and equipment, with no
bodily injuries and no physical loss or damage to property reported at other
buildings or equipment. As a result of the fire, shredding operations ceased,
while all non-shredding operations at the facility continued, including
torching, shearing, separating, and sorting purchased non-shreddable recycled
ferrous metals. On January 28, 2022, shredding operations at the facility began
ramping up following the replacement and repairs to shredder equipment that had
been damaged. Completion of the remainder of repair and replacement of property
that experienced physical loss or damage, primarily buildings and improvements,
will occur over a longer period and impacts on business income may continue. For
example, as of June 18, 2022, shredder operations temporarily ceased at the
facility pending completion of discussions with the Massachusetts Department of
Environmental Protection and the Massachusetts Attorney General's office
regarding installation and operation of temporary emission capture and controls
that would allow operation of the shredder prior to completion of the repair and
replacement of the shredder enclosure building. Non-shredding operations at the
facility continue. We have insurance that we believe is fully applicable to the
losses, including but not limited to the costs of installing the temporary
capture and controls system and any associated loss of business income, and have
filed initial insurance claims, which are subject to deductibles and various
conditions, exclusions, and limits, for the property damage or loss and business
income losses resulting from the matter. The property damage deductible under
the policies insuring our assets in this matter is $0.5 million, while the
deductible for lost business income is 10 times the Average Daily Gross Earnings
which would have been earned had no interruption occurred, calculated subject to
judgments and uncertainties. The insurance claims resolution process may extend
significantly beyond completion of repair and replacement of the physical plant
property that experienced physical loss or damage and the restart of production
activities. In the second quarter of fiscal 2022, we recognized an initial $10
million insurance receivable and related insurance recovery gain, reported
within prepaid expenses and other current assets in the Unaudited Condensed
Consolidated Balance Sheets and within cost of goods sold in the Unaudited
Condensed Consolidated Statements of Income, respectively, reflecting recovery
of applicable losses including impairment charges of $6 million related to the
carrying value of plant and equipment assets damaged by the fire and initial
capital purchases and other costs totaling $4 million that we had incurred as of
February 28, 2022. In the third quarter of fiscal 2022, we increased the amount
of this insurance receivable to $11 million and recognized a related $1 million
insurance recovery gain, reflecting recovery of applicable losses incurred as a
result of the fire to date. Also in the third quarter of fiscal 2022, we
received advance payments from insurers totaling approximately $7 million
towards our claims, and not reflecting any final or full settlement of claims
with the insurers, which amount reduced the insurance receivable to $4 million
as of May 31, 2022. These amounts do not reflect potential additional recoveries
of costs for the repair and replacement of property that experienced physical
loss or damage or of business income losses resulting from this matter that may
be recognized in the future when settlements of the claims are resolved. 

Use of Non-GAAP Financial Measures

 In this management's discussion and analysis, we use supplemental measures of
our performance, liquidity, and capital structure which are derived from our
consolidated financial information, but which are not presented in our
consolidated financial statements prepared in accordance with GAAP. We believe
that providing these non-GAAP financial measures adds a meaningful presentation
of our operating and financial performance, liquidity, and capital structure.
For example, we use adjusted EBITDA as one of the measures to compare and
evaluate financial performance. Adjusted EBITDA is the sum of our net income
before results from discontinued operations, interest expense, income taxes,
depreciation and amortization, asset impairment charges, business development
costs not related to ongoing operations including pre-acquisition expenses,
charges related to non-ordinary course legal settlements, charges for legacy
environmental matters (net of recoveries), restructuring charges and other
exit-related activities, and other items which are not related to underlying
business operational performance. See the reconciliations of supplemental
financial measures, including adjusted EBITDA, in Non-GAAP Financial Measures at
the end of this Item 2. Our non-GAAP financial measures should be considered in addition to, but not as
a substitute for, the most directly comparable GAAP measures. Although we find
these non-GAAP financial measures useful in evaluating the performance of our
business, our reliance on these measures is limited because they often
materially differ from our consolidated financial statements presented in
accordance with GAAP. Therefore, we typically use these adjusted amounts in
conjunction with our GAAP results to address these limitations. Our non-GAAP
financial measures may not be comparable to similarly titled measures of other
companies. Other companies, including companies in our industry, may calculate
non-GAAP financial measures differently than we do, limiting the usefulness of
those measures for comparative purposes. 27

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 SCHNITZER STEEL INDUSTRIES, INC.

Financial Highlights of Results of Operations for the Third Quarter of Fiscal
2022

•

Diluted earnings per share from continuing operations attributable to SSI
shareholders in the third quarter of fiscal 2022 was $2.52, compared to $2.16
per share in the prior year quarter.

•

Adjusted diluted earnings per share from continuing operations attributable to
SSI shareholders in the third quarter of fiscal 2022 was $2.59, compared to
$2.20 per share in the prior year quarter.

•

Net income in the third quarter of fiscal 2022 was $76 million, compared to $65
million in the prior year quarter.

•

Adjusted EBITDA in the third quarter of fiscal 2022 was $119 million, compared
to $97 million in the prior year quarter.

 Market demand for recycled metals was strong in the third quarter of fiscal
2022, leading to significantly higher average net selling prices for our ferrous
and nonferrous products. In the third quarter of fiscal 2022, the average net
selling prices for our ferrous and nonferrous products increased by 35% and 15%,
respectively, compared to the prior year quarter. Sales volumes for our
nonferrous products in the third quarter of fiscal 2022 increased by 29%
compared to the prior year quarter, while quarterly sales volumes for our
ferrous products decreased by 7% year-over-year primarily due to the impact of
slower export demand in the second half of the third quarter of fiscal 2022,
which resulted in delays in contracting and shipping bulk cargoes. Our ferrous
and nonferrous sales volumes in the third quarter of fiscal 2022 included
additional volumes arising from the Columbus Recycling business acquired on
October 1, 2021 and the Encore Recycling business acquired on April 29, 2022.
Market demand for our finished steel products also improved in the third quarter
of fiscal 2022, which contributed to finished steel average selling prices
increasing by 41% compared to the prior year quarter. Finished steel sales
volumes, however, were 12% lower in the third quarter of fiscal 2022 compared to
the prior year quarter in part due to the impact of supply chain disruptions on
current quarter volumes, including logistics constraints and delays to
construction projects related to a four-month concrete industry strike in the
Pacific Northwest that ended in April 2022. Our results for the third quarter of
fiscal 2022 reflected benefits from the higher price environment for most of our
products including a significant expansion in our ferrous and finished steel
spreads and increased nonferrous sales volumes driven by strong demand compared
to the prior year quarter. Our results in the third quarter of fiscal 2022 also
reflected a lower benefit from average inventory accounting compared to the
prior year quarter, the effects of ongoing supply chain disruptions, lower
year-over-year platinum group metals (PGM) prices, and the impact of inflation.
Contributions from recent acquisitions and productivity initiatives helped to
partially offset the effects of inflationary pressure on operating costs. Selling, general, and administrative expense in the third quarter of fiscal 2022
increased by 26% compared to the prior year quarter primarily due to higher
employee-related expenses, including from increased competition for employees in
a tight labor market and higher incentive compensation accruals aligned with
business performance, increased outside and professional services and travel
expenses, including from higher costs resulting from our acquisitions and other
growth-related initiatives, as well as the impact of inflation partially offset
by benefits from productivity initiatives. 

The following items further highlight selected liquidity and capital structure
metrics:

•

For the first nine months of fiscal 2022, net cash provided by operating
activities was $58 million, compared to $51 million in the prior year comparable
period.

•

Debt was $322 million as of May 31, 2022, compared to $75 million as of August
31, 2021, which increase was primarily due to increased borrowings from our
credit facilities to fund the acquisition of the assets of the Columbus
Recycling and Encore Recycling businesses and higher net working capital needs.

•

Debt, net of cash, was $306 million as of May 31, 2022, compared to $47 million
as of August 31, 2021.

•

Repurchase of 444 thousand shares of Class A common stock totaling $18 million
in the first nine months of fiscal 2022, compared to none in the prior year
comparable period.

 See the reconciliations of adjusted diluted earnings per share from continuing
operations attributable to SSI shareholders, adjusted EBITDA, and debt, net of
cash in Non-GAAP Financial Measures at the end of this Item 2. 28

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 Table of Contents SCHNITZER STEEL INDUSTRIES, INC. Results of Operations

Selected Financial Measures and Operating Statistics

 Three Months Ended May 31, Nine Months Ended May 31,
($ in thousands, except
for prices and per share
amounts) 2022 2021 % 2022 2021 %
Ferrous revenues $ 530,303 $ 448,684 18 % $ 1,434,473 $ 1,023,569 40 %
Nonferrous revenues 272,208 204,512 33 % 662,779 471,543 41 %
Steel revenues(1) 165,210 129,057 28 % 384,644 316,662 21 %
Retail and other
revenues 42,366 38,465 10 % 109,507 101,162 8 %
Total revenues 1,010,087 820,718 23 % 2,591,403 1,912,936 35 %
Cost of goods sold 834,375 678,297 23 % 2,188,158 1,585,416 38 %
Gross margin (total
revenues less cost of
goods sold) $ 175,712 $ 142,421 23 % $ 403,245 $ 327,520 23 %
Gross margin (%) 17.4 % 17.4 % (- )% 15.6 % 17.1 % (9 )%
Selling, general and
administrative expense $ 77,672 $ 61,887 26 % $ 194,020 $ 165,935 17 %
Diluted earnings per
share from continuing
operations attributable
to SSI shareholders:
Reported $ 2.52 $ 2.16 17 % $ 5.33 $ 4.23 26 %
Adjusted(2) $ 2.59 $ 2.20 18 % $ 5.54 $ 4.31 29 %
Net income $ 75,504 $ 65,436 15 % $ 160,945 $ 126,179 28 %
Adjusted EBITDA(2) $ 119,090 $ 97,254 22 % $ 272,435 $ 208,920 30 %
Average ferrous recycled
metal sales prices
($/LT)(3):
Domestic $ 516 $ 395 31 % $ 458 $ 332 38 %
Foreign $ 552 $ 401 38 % $ 484 $ 360 34 %
Average $ 541 $ 400 35 % $ 477 $ 354 35 %
Ferrous volumes (LT, in
thousands):
Domestic(4) 490 412 19 % 1,329 1,191 12 %
Foreign 639 803 (20 )% 2,020 2,054 (2 )%
Total ferrous volumes
(LT, in thousands)(4)(8) 1,129 1,215 (7 )% 3,349 3,245 3 %
Average nonferrous sales
price ($/pound)(3)(5) $ 1.12 $ 0.97 15 % $ 1.10 $ 0.82 34 %
Nonferrous volumes
(pounds, in
thousands)(4)(5) 201,413 155,657 29 % 501,785 429,792 17 %
Finished steel average
sales price ($/ST)(3) $ 1,129 $ 802 41 % $ 1,059 $ 709 49 %
Finished steel sales
volumes (ST, in
thousands) 135 153 (12 )% 340 423 (20 )%
Cars purchased (in
thousands)(6) 84 91 (8 )% 237 249 (5 )%
Number of auto parts
stores at period end 50 50 (- )% 50 50 (- )%
Rolling mill
utilization(7) 96 % 98 % (2 )% 87 % 94 % (7 )% NM = Not Meaningful

LT = Long Ton, which is equivalent to 2,240 pounds. ST = Short Ton, which is
equivalent to 2,000 pounds.

(1)

Steel revenues include predominantly sales of finished steel products, in
addition to sales of semi-finished goods (billets) and steel manufacturing
scrap.

(2)

See the reconciliations of Non-GAAP Financial Measures at the end of this Item
2.

(3)

Price information is shown after netting the cost of freight incurred to deliver
the product to the customer.

(4)

Ferrous and nonferrous volumes sold externally and delivered to our steel mill
for finished steel production.

(5)

Average sales price and volume information excludes PGMs in catalytic
converters.

(6)

Cars purchased by auto parts stores only.

(7)

Rolling mill utilization is based on effective annual production capacity under
current conditions of 580 thousand tons of finished steel products.

(8)

May not foot due to rounding.

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 Table of Contents SCHNITZER STEEL INDUSTRIES, INC. Revenues Revenues in the third quarter and first nine months of fiscal 2022 increased by
23% and 35%, respectively, compared to the same periods in the prior year
primarily due to significantly higher average net selling prices for our ferrous
and nonferrous products driven by strong market demand for recycled metals
globally. In each of the third quarter and first nine months of fiscal 2022, the
average net selling prices for our ferrous products increased by 35%, and the
average net selling prices for our nonferrous products increased by 15% and 34%,
respectively, compared to the prior year periods. In the third quarter and first
nine months of fiscal 2022, nonferrous sales volumes increased by 29% and 17%,
respectively, compared to the prior year periods, reflecting strong demand for
these products globally. Ferrous sales volumes in the third quarter of fiscal
2022 decreased by 7% compared to the prior year quarter primarily due to the
impact of slower export demand in the second half of the third quarter of fiscal
2022, which resulted in delays in contracting and shipping bulk cargoes. Our
ferrous and nonferrous sales volumes in the third quarter and first nine months
of fiscal 2022 included additional volumes arising from the Columbus Recycling
business acquired on October 1, 2021 and the Encore Recycling business acquired
on April 29, 2022. Finished steel average selling prices were significantly
higher in the third quarter and first nine months of fiscal 2022 compared to the
prior year periods, reflecting robust market demand for these products. The
impact of the higher average selling prices on steel revenues in the third
quarter and first nine months of fiscal 2022 was partially offset by lower sales
volumes compared to the prior year periods. For the first nine months of fiscal
2022, finished steel sales volumes were lower compared to the same period in the
prior year primarily due to the impact of the ramp-up of steel mill operations
that began in August 2021 and which was substantially completed during the
second quarter, as well as the impact of supply chain disruptions on current
volumes, including logistics constraints and delays to construction projects
related to a four-month concrete industry strike in the Pacific Northwest that
ended in April 2022. The ramp-up of steel mill operations followed completion of
repair and replacement of damaged property arising from the May 2021 steel mill
fire. Operating Performance Net income in the third quarter and first nine months of fiscal 2022 was $76
million and $161 million, respectively, compared to $65 million and $126 million
in the prior year periods. Adjusted EBITDA in the third quarter and first nine
months of fiscal 2022 was $119 million and $272 million, respectively, compared
to $97 million and $209 million, respectively, in the prior year periods. Our
results for the third quarter and first nine months of fiscal 2022 reflected
benefits from the higher price environment for most of our products and
increased nonferrous sales volumes supported by strong demand compared to the
prior year periods. Ferrous metal spreads in the third quarter and first nine
months of fiscal 2022 increased by approximately 45% and 30%, respectively, and
average net selling prices for our nonferrous joint products that are recovered
from the shredding process, comprising primarily zorba, increased by
approximately 15% and 30%, respectively, compared to the prior year periods. The
expansion in ferrous metal spreads compared to the prior year periods in part
reflected higher spreads on certain ferrous sales contracted prior to a decline
in market selling prices that occurred during the latter part of the third
quarter of fiscal 2022. Finished steel spreads also expanded significantly in
the third quarter and first nine months of fiscal 2022, compared to the prior
year periods. Our results in the third quarter and first nine months of fiscal
2022 also reflected the adverse impact of lower third quarter ferrous sales
volumes year-over-year, a lower benefit from average inventory accounting
compared to the prior year period, the effects of ongoing supply chain
disruptions, lower year-over-year PGM prices, the impact of inflation, and the
adverse impact of the Everett shredder downtime in the first half of fiscal
2022. Contributions from recent acquisitions and productivity initiatives helped
to partially offset the effects of inflationary pressure on operating costs. In the first nine months of fiscal 2022, we recognized insurance recoveries of
$15 million in connection with the May 2021 fire at our steel mill in
McMinnville, Oregon, reflecting recovery of applicable costs incurred by the
mill operations following the incident. In the third quarter and first nine
months of fiscal 2022, we also recognized insurance recoveries of $1 million and
$11 million, respectively, in connection with the December 2021 fire at our
Everett shredder facility, reflecting recovery of applicable losses including
asset impairment charges, initial capital purchases, and other costs incurred in
the periods. These amounts do not reflect potential additional recoveries of
business income losses due to the interruptions that may be recognized in the
future when settlements of the business interruption claims are resolved. Selling, general, and administrative expense in the third quarter and first nine
months of fiscal 2022 increased by 26% and 17%, respectively, compared to the
prior year periods primarily due to higher employee-related expenses, including
from increased competition for employees in a tight labor market, and increased
outside and professional services and travel expenses, including from higher
costs resulting from our acquisitions and other growth-related initiatives, as
well as the impact of inflation partially offset by benefits from productivity
initiatives. Accruals in connection with our annual incentive compensation plans
were higher in the third quarter of fiscal 2022, compared to the prior year
quarter, but lower for the nine-month period year-over-year. We also incurred
higher legacy environmental charges during the first nine months of fiscal 2022,
compared to the prior year period. 

See the reconciliation of adjusted EBITDA in Non-GAAP Financial Measures at the
end of this Item 2.

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 SCHNITZER STEEL INDUSTRIES, INC. Because of the sharp decline in market selling prices that occurred during the
latter part of the third quarter of fiscal 2022, which has continued through the
date of this report, we expect our net selling prices for primarily ferrous
recycled metal products in the fourth quarter of fiscal 2022 to be lower than
the average net selling prices for the third quarter of fiscal 2022. While we
aim to respond to changes in selling prices by seeking to adjust purchase prices
for unprocessed scrap metal, we may not be able to reduce our purchase prices to
fully offset the reduction in selling prices, which may negatively impact our
operating margins. Income Tax The effective tax rate from continuing operations for the third quarter and
first nine months of fiscal 2022 was an expense on pre-tax income of 21.0% and
21.2%, respectively, compared to 18.0% and 20.0%, respectively, for the
comparable prior year periods. Our effective tax rate from continuing operations
for the third quarter and first nine months of fiscal 2022 approximated the U.S.
federal statutory rate of 21%, reflecting primarily the aggregate impact of
state taxes and permanent differences from non-deductible expenses on the
projected annual effective tax rate applied to the quarterly results, offset by
discrete tax benefits resulting from vesting of share-based awards in the
periods and the favorable effects of other discrete items. Our effective tax
rate from continuing operations for the third quarter and first nine months of
fiscal 2021 was lower than the U.S. federal statutory rate primarily due to the
benefit from the foreign derived intangible income deduction in fiscal 2021 and
the impacts of research and development credits and other discrete items. 

Liquidity and Capital Resources

We rely on cash provided by operating activities as a primary source of
liquidity, supplemented by current cash on hand and borrowings under our
existing credit facilities.

Sources and Uses of Cash

 We had cash balances of $16 million and $28 million as of May 31, 2022 and
August 31, 2021, respectively. Cash balances are intended to be used primarily
for working capital, capital expenditures, dividends, share repurchases,
investments, and acquisitions. We use excess cash on hand to reduce amounts
outstanding under our credit facilities. As of May 31, 2022, debt was $322
million compared to $75 million as of August 31, 2021, and debt, net of cash,
was $306 million as of May 31, 2022, compared to $47 million as of August 31,
2021, which increases were primarily due to increased borrowings from our credit
facilities to fund the acquisitions of the assets of the Columbus Recycling
business on October 1, 2021 and the Encore Recycling business on April 29, 2022,
and higher net working capital needs. See the reconciliation of debt, net of
cash, in Non-GAAP Financial Measures at the end of this Item 2. 

Operating Activities

 Net cash provided by operating activities in the first nine months of fiscal
2022 was $58 million, compared to net cash provided by operating activities of
$51 million in the first nine months of fiscal 2021. Sources of cash other than from earnings in the first nine months of fiscal 2022
included a $45 million increase in accounts payable primarily due to higher raw
material purchase prices and the timing of purchases and payments and a $9
million increase in income tax accruals. Uses of cash in the first nine months
of fiscal 2022 included a $164 million increase in inventories due to higher raw
material purchase costs and the timing of purchases and sales, a $43 million
increase in accounts receivable primarily due to higher selling prices for most
of our products, as well as the timing of sales and collections, a $17 million
decrease in accrued payroll and related liabilities primarily due to the payment
of incentive compensation in the first quarter of fiscal 2022 previously accrued
under our fiscal 2021 plans, and a $15 million decrease in environmental
liabilities primarily due to payments in connection with legacy environmental
matters. The sources and uses of cash related to operating activities described
above also reflect higher net working capital needs during the ramp-up of steel
mill operations that began in August 2021 following completion of repair and
replacement of damaged property arising from the May 2021 steel mill fire. Sources of cash other than from earnings in the first nine months of fiscal 2021
included a $56 million increase in accounts payable primarily due to higher raw
material purchase prices and the timing of payments, a $19 million increase in
income tax accruals, and a $14 million increase in accrued payroll and related
liabilities primarily due to increased incentive compensation liabilities. Uses
of cash in the first nine months of fiscal 2021 included a $133 million increase
in accounts receivable primarily due to increases in selling prices for recycled
metals and finished steel and higher sales volumes, as well as the timing of
sales and collections, and a $92 million increase in inventories due to higher
raw material purchase prices, higher volumes on hand and the timing of purchases
and sales. Investing Activities

Net cash used in investing activities was $262 million in the first nine months
of fiscal 2022, compared to $76 million in the first nine months of fiscal 2021.

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 SCHNITZER STEEL INDUSTRIES, INC. Cash used in investing activities in the first nine months of fiscal 2022
included $114 million paid to acquire the assets of the Columbus Recycling
business on October 1, 2021, which amount included $7 million paid at closing
for estimated net working capital in excess of an agreed-upon benchmark, and
also included $63 million paid to acquire the assets of the Encore Recycling
business on April 29, 2022, which amount included $8 million paid at closing for
estimated net working capital in excess of an agreed-upon benchmark. We funded
these acquisitions using cash on hand and borrowings under our existing credit
facilities. See Note 3 - Business Acquisitions in the Notes to the Unaudited
Condensed Consolidated Financial Statements in Part I, Item 1 of this report for
further detail. Cash used in investing activities in the first nine months of fiscal 2022 also
included capital expenditures of $98 million to upgrade our equipment and
infrastructure and for investments in advanced metals recovery technology and
environmental and safety-related assets, compared to $77 million in the prior
year period. Cash flows from investing activities in the first nine months of
fiscal 2022 included proceeds of $17 million representing the portion of advance
payments from insurance carriers deemed a recovery of capital purchases incurred
for repair and replacement of damaged property arising from the May 2021 steel
mill fire and the December 2021 Everett facility shredder fire. Cash used in
investing activities in the first nine months of fiscal 2022 also included the
purchase of an investment in the equity of a privately-held Canadian recycling
entity for $5 million. Financing Activities

Net cash provided by financing activities in the first nine months of fiscal
2022 was $192 million, compared to $24 million in the first nine months of
fiscal 2021.

 Cash flows from financing activities in the first nine months of fiscal 2022
included $240 million in net borrowings of debt, compared to $49 million in the
prior year period (refer to Non-GAAP Financial Measures at the end of this Item
2). Uses of cash in the first nine months of fiscal 2022 and 2021 included $11
million and $5 million, respectively, for payment of employee tax withholdings
resulting from vesting of share-based awards and $16 million in each period for
the payment of dividends. Cash used in financing activities for the first nine
months of fiscal 2022 also included $18 million for share repurchases. 

Debt

 Our senior secured revolving credit facilities, which provide for revolving
loans of $700 million and C$15 million, mature in August 2023 pursuant to a
credit agreement with Bank of America, N.A., as administrative agent, and other
lenders party thereto. Interest rates on outstanding indebtedness under the
credit agreement are based, at our option, on either the London Interbank
Offered Rate ("LIBOR") (or the Canadian equivalent for C$ loans), plus a spread
of between 1.25% and 3.50%, with the amount of the spread based on a pricing
grid tied to our ratio of consolidated funded debt to EBITDA (as defined by the
credit agreement), or the greater of (a) the prime rate, (b) the federal funds
rate plus 0.50%, or (c) the daily rate equal to one-month LIBOR plus 1.75%, in
each case, plus a spread of between 0.00% and 2.50% based on a pricing grid tied
to our consolidated funded debt to EBITDA ratio. In addition, commitment fees
are payable on the unused portion of the credit facilities at rates between
0.20% and 0.50% based on a pricing grid tied to our ratio of consolidated funded
debt to EBITDA. The credit facility provides that LIBOR or any LIBOR successor
rate is subject to a 0.50% floor and contains mechanics by which the parties may
replace the benchmark interest rate used in the agreement from LIBOR to one or
more rates based on the secured overnight financing rate administered by the
Federal Reserve Bank of New York or another alternative benchmark rate. We had borrowings outstanding under our credit facilities of $303 million as of
May 31, 2022 and $60 million as of August 31, 2021. The weighted average
interest rate on amounts outstanding under our credit facilities was 2.53% and
1.75% as of May 31, 2022 and August 31, 2021, respectively. We use the credit facilities to fund working capital, capital expenditures,
dividends, share repurchases, investments, and acquisitions. Our credit
agreement contains various representations and warranties, events of default,
and financial and other customary covenants which limit (subject to certain
exceptions) our ability to, among other things, incur or suffer to exist certain
liens, make investments, incur or guaranty additional indebtedness, enter into
consolidations, mergers, acquisitions, and sales of assets, make distributions
and other restricted payments, change the nature of our business, engage in
transactions with affiliates, and enter into restrictive agreements, including
agreements that restrict the ability of our subsidiaries to make distributions.
The financial covenants under the credit agreement include (a) a consolidated
fixed charge coverage ratio, defined as the four-quarter rolling sum of
consolidated EBITDA less defined maintenance capital expenditures and certain
environmental expenditures divided by consolidated fixed charges, and (b) a
consolidated leverage ratio, defined as consolidated funded indebtedness divided
by the sum of consolidated net worth and consolidated funded indebtedness. As of May 31, 2022, we were in compliance with the financial covenants under our
credit agreement. The consolidated fixed charge coverage ratio was required to
be no less than 1.50 to 1.00 and was 6.67 to 1.00 as of May 31, 2022. The
consolidated leverage ratio was required to be no more than 0.55 to 1.00 and was
0.25 to 1.00 as of May 31, 2022. 32

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 SCHNITZER STEEL INDUSTRIES, INC. Our obligations under our credit agreement are guaranteed by substantially all
of our subsidiaries. The credit facilities and the related guarantees are
secured by senior first priority liens on certain of our and our subsidiaries'
assets, including equipment, inventory, and accounts receivable. While we currently expect to remain in compliance with the financial covenants
under the credit agreement, we may not be able to do so in the event market
conditions, COVID-19, or other negative factors have a significant adverse
impact on our results of operations and financial position. If we do not
maintain compliance with our financial covenants and are unable to obtain an
amendment or waiver from our lenders, a breach of a financial covenant would
constitute an event of default and allow the lenders to exercise remedies under
the agreements, the most severe of which is the termination of the credit
facility under our committed bank credit agreement and acceleration of the
amounts owed under the agreement. In such case, we would be required to evaluate
available alternatives and take appropriate steps to obtain alternative funds.
We cannot assure that any such alternative funds, if sought, could be obtained
or, if obtained, would be adequate or on acceptable terms. Other debt obligations, which totaled $13 million and $8 million as of May 31,
2022 and August 31, 2021, respectively, primarily relate to equipment purchases,
the contract consideration for which includes an obligation to make future
monthly payments to the vendor in the form of licensing fees. For accounting
purposes, such obligations are treated as a partial financing of the purchase
price by the equipment vendor. Monthly payments commence when the equipment is
placed in service and achieves specified minimum operating metrics, with
payments continuing for a period of four years thereafter. In the first nine
months of fiscal 2022, we recorded $7 million of additional debt obligations
with these terms generally. Capital Expenditures Capital expenditures totaled $98 million for the first nine months of fiscal
2022, compared to $77 million for the prior year period. Capital expenditures in
the first nine months of fiscal 2022 included approximately $34 million for
investments in growth. We currently plan to invest in the range of $130 million
to $150 million in capital expenditures in fiscal 2022. These capital
expenditures include investments in growth, including new nonferrous processing
technologies, and to support volume initiatives as well as post-acquisition and
other growth projects, and investments to upgrade our equipment and
infrastructure and for environmental and safety-related assets, using cash
generated from operations and available credit facilities. The COVID-19 pandemic
has contributed to some delays in construction activities and equipment
deliveries related to our capital projects, and to the time required to obtain
permits from government agencies, resulting in the deferral of certain capital
expenditures. Given the continually evolving nature of the COVID-19 pandemic and
other factors impacting the timing of project completion, the extent to which
forecasted capital expenditures could be deferred is uncertain. 

Environmental Compliance

 Building on our commitment to recycling and operating our business in an
environmentally responsible manner, we continue to invest in facilities that
improve our environmental presence in the communities in which we operate. As
part of our capital expenditures discussed in the prior paragraph, we invested
approximately $13 million in capital expenditures for environmental projects in
the first nine months of fiscal 2022, and we currently plan to invest in the
range of $25 million to $35 million for such projects in fiscal 2022. These
projects include investments in equipment to ensure ongoing compliance with air
quality and other environmental regulations and storm water systems. We have been identified by the United States Environmental Protection Agency as
one of the potentially responsible parties that own or operate or formerly owned
or operated sites which are part of or adjacent to the Portland Harbor Superfund
site (the "Site"). See Note 5 - Commitments and Contingencies in the Notes to
the Unaudited Condensed Consolidated Financial Statements in Part I, Item 1 of
this report for a discussion of this matter, as well as other legacy
environmental loss contingencies. We believe it is not possible to reasonably
estimate the amount or range of costs which we are likely to or which it is
reasonably possible that we will incur in connection with the Site, although
such costs could be material to our financial position, results of operations,
cash flows, and liquidity. We have insurance policies that we believe will
provide reimbursement for costs we incur for defense, remediation, and
mitigation for natural resource damages claims in connection with the Site,
although there are no assurances that those policies will cover all of the costs
which we may incur. Significant cash outflows in the future related to the Site,
as well as related to other legacy environmental loss contingencies, could
reduce the amounts available for borrowing that could otherwise be used for
working capital, capital expenditures, dividends, share repurchases,
investments, and acquisitions and could result in our failure to maintain
compliance with certain covenants in our debt agreements, and could adversely
impact our liquidity. 33

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 Table of Contents SCHNITZER STEEL INDUSTRIES, INC. Dividends

On April 6, 2022, our Board of Directors declared a dividend for the third
quarter of fiscal 2022 of $0.1875 per common share, which equates to an annual
cash dividend of $0.75 per common share. The dividend was paid on May 2, 2022.

Share Repurchase Program

 Pursuant to our share repurchase program as amended in 2001, 2006 and 2008, we
were authorized to repurchase up to 9 million shares of our Class A common
stock. As of May 31, 2022, we had repurchased approximately 8.7 million shares
under the program and had authorization to repurchase up to a remaining 262
thousand shares of our Class A common stock when we deem such repurchases to be
appropriate. On June 27, 2022, the Company's Board of Directors authorized the
repurchase of up to an additional 3.0 million shares of our Class A common
stock. We may repurchase our common stock for a variety of reasons, such as to
optimize our capital structure and to offset dilution related to share-based
compensation arrangements. We consider several factors in determining whether to
make share repurchases including, among other things, our cash needs, the
availability of funding, our future business plans and the market price of our
stock. In the third quarter and first nine months of fiscal 2022, we repurchased
244 thousand and 444 thousand shares, respectively, of our Class A common stock
in open-market transactions for a total of $10 million and $18 million,
respectively. 

Assessment of Liquidity and Capital Resources

Historically, our available cash resources, internally generated funds, credit
facilities, and equity offerings have financed our acquisitions, capital
expenditures, working capital, and other financing needs.

 We generally believe our current cash resources, internally generated funds,
existing credit facilities, and access to the capital markets will provide
adequate short-term and long-term liquidity needs for working capital, capital
expenditures, dividends, share repurchases, investments and acquisitions, joint
ventures, debt service requirements, environmental obligations, and other
contingencies. However, in the event of a sustained market deterioration, we may
need additional liquidity which would require us to evaluate available
alternatives and take appropriate steps to obtain sufficient additional funds.
There can be no assurances that any such supplemental funding, if sought, could
be obtained or, if obtained, would be adequate or on acceptable terms. 

Contractual Obligations

There were no material changes related to contractual obligations and
commitments from the information provided in our Annual Report on Form 10-K for
the fiscal year ended August 31, 2021.

We maintain stand-by letters of credit to provide support for certain
obligations, including workers’ compensation and performance bonds. As of May
31, 2022, we had $9 million outstanding under these arrangements.

Critical Accounting Estimates

 There were no material changes to our critical accounting estimates as described
in the "Management's Discussion and Analysis of Financial Condition and Results
of Operations" section of our Annual Report on Form 10-K for the year ended
August 31, 2021, other than the following. 

Business Acquisitions

 We recognize the assets acquired, the liabilities assumed, and any
noncontrolling interest in the acquiree at the acquisition date, measured at
their fair values as of that date. Contingent purchase consideration is recorded
at fair value at the date of acquisition. Any excess purchase price over the
fair value of the net assets acquired is recorded as goodwill. Within one year
from the date of acquisition, we may update the value allocated to the assets
acquired and liabilities assumed, and the resulting goodwill balance, based on
information received regarding the valuation of such assets and liabilities that
was not available at the time of purchase. Measuring assets and liabilities at
fair value requires us to determine the price that would be paid by a
third-party market participant based on the highest and best use of the assets
or interests acquired. See Note 3 - Business Acquisitions in the Notes to the
Unaudited Condensed Consolidated Financial Statements in Part I, Item 1 of this
report for disclosure of our acquisition of the assets of the Columbus Recycling
business on October 1, 2021 and our acquisition of the assets of the Encore
Recycling business on April 29, 2022. As of the date of this report, measurement
of actual acquired net working capital, as well as the fair values of certain
other acquired assets and assumed liabilities for both acquisitions, is still
preliminary and subject to change based on the completion of valuation
procedures. 34

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 SCHNITZER STEEL INDUSTRIES, INC.

Recently Issued Accounting Standards

 We have not identified any recent accounting pronouncements that are expected to
have a material impact on our financial condition, results of operations, or
cash flows upon adoption. Non-GAAP Financial Measures Debt, net of cash Debt, net of cash is the difference between (i) the sum of long-term debt and
short-term borrowings (i.e., total debt) and (ii) cash and cash equivalents. We
believe that presenting debt, net of cash is useful to investors as a measure of
our leverage, as cash and cash equivalents can be used, among other things, to
repay indebtedness. 

The following is a reconciliation of debt, net of cash (in thousands):

 May 31, 2022 August 31, 

2021

Short-term borrowings $ 5,764 $ 

3,654

Long-term debt, net of current maturities 316,108 

71,299

Total debt 321,872 

74,953

Less cash and cash equivalents 16,125 27,818
Total debt, net of cash $ 305,747 $ 47,135 

Net borrowings (repayments) of debt

 Net borrowings (repayments) of debt is the sum of borrowings from long-term debt
and repayments of long-term debt. We present this amount as the net change in
our borrowings (repayments) for the period because we believe it is useful for
investors as a meaningful presentation of the change in debt. The following is a reconciliation of net borrowings (repayments) of debt (in
thousands): Nine Months Ended May 31, 2022 2021

Borrowings from long-term debt $ 895,175 $ 445,829
Repayments of long-term debt

 (655,440 ) (396,810 )

Net borrowings (repayments) of debt $ 239,735 $ 49,019

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 SCHNITZER STEEL INDUSTRIES, INC. Adjusted EBITDA, adjusted income from continuing operations attributable to SSI
shareholders, and adjusted diluted earnings per share from continuing operations
attributable to SSI shareholders Management believes that providing these non-GAAP financial measures adds a
meaningful presentation of our results from business operations excluding
adjustments for charges for asset impairment charges, business development costs
not related to ongoing operations including pre-acquisition expenses, charges
related to non-ordinary course legal settlements, legacy environmental matters
(net of recoveries), restructuring charges and other exit-related activities,
and the income tax benefit allocated to these adjustments, items which are not
related to underlying business operational performance, and improves the
period-to-period comparability of our results from business operations. 

Following are reconciliations of net income to adjusted EBITDA (in thousands):

 Three Months Ended May 31, 

Nine Months Ended May 31,

 2022 2021 2022 2021
Reconciliation of adjusted EBITDA:
Net income $ 75,504 $ 65,436 $ 160,945 $ 126,179
Loss from discontinued operations, net
of tax 46 46 46 58
Interest expense 2,223 1,383 5,496 4,387
Income tax expense 20,037 14,401 43,207 31,589
Depreciation and amortization 18,750 14,326 54,566 43,621
Asset impairment charges 932 - 932 -
Business development costs 920 805 2,079 805
Charges related to legal
settlements(1) 590 400 590 400
Charges (recoveries) for legacy
environmental matters, net(2) 62 353 4,522 899
Restructuring charges and other
exit-related activities 26 104 52 982
Adjusted EBITDA $ 119,090 $ 97,254 $ 272,435 $ 208,920 (1)

Charges related to legal settlements in the three and nine months ended May 31,
2022 and 2021 relate to a claim with a utility provider for past charges.

(2)

Legal and environmental charges, net of recoveries, for legacy environmental
matters including those related to the Portland Harbor Superfund site and to
other legacy environmental loss contingencies. See Note 5 - Commitments and
Contingencies, "Portland Harbor" and "Other Legacy Environmental Loss
Contingencies" in the Notes to the Unaudited Condensed Consolidated Financial
Statements in Part I, Item 1 of this report. 36

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 SCHNITZER STEEL INDUSTRIES, INC. Following are reconciliations of adjusted income from continuing operations
attributable to SSI shareholders and adjusted diluted earnings per share from
continuing operations attributable to SSI shareholders (in thousands, except per
share data): Three Months Ended May 31, 

Nine Months Ended May 31,

 2022 2021 2022 2021
Income from continuing operations
attributable to SSI shareholders:
As reported $ 74,680 $ 63,681 $ 158,494 $ 122,385
Asset impairment charges 932 - 932 -
Business development costs 920 805 2,079 805
Charges related to legal
settlements(1) 590 400 590 400
Charges (recoveries) for legacy
environmental matters, net(2) 62 353 4,522 899
Restructuring charges and other
exit-related activities 26 104 52 982
Income tax benefit allocated to
adjustments(3) (557 ) (340 ) (1,879 ) (655 )
Adjusted $ 76,653 $ 65,003 $ 164,790 $ 124,816 Diluted earnings per share from
continuing operations attributable to
SSI shareholders:
As reported $ 2.52 $ 2.16 $ 5.33 $ 4.23
Asset impairment charges, per share 0.03 - 0.03 -
Business development costs, per share 0.03 0.03 0.07 0.03
Charges related to legal settlements,
per share(1) 0.02 0.01 0.02 0.01
Charges (recoveries) for legacy
environmental matters, net, per
share(2) - 0.01 0.15 0.03
Restructuring charges and other
exit-related activities, per share - - - 0.03
Income tax benefit allocated to
adjustments, per share(3) (0.02 ) (0.01 ) (0.06 ) (0.02 )
Adjusted(4) $ 2.59 $ 2.20 $ 5.54 $ 4.31 (1)

Charges related to legal settlements in the three and nine months ended May 31,
2022 and 2021 relate to a claim with a utility provider for past charges.

(2)

Legal and environmental charges, net of recoveries, for legacy environmental
matters including those related to the Portland Harbor Superfund site and to
other legacy environmental loss contingencies. See Note 5 - Commitments and
Contingencies, "Portland Harbor" and "Other Legacy Environmental Loss
Contingencies" in the Notes to the Unaudited Condensed Consolidated Financial
Statements in Part I, Item 1 of this report. 

(3)

Income tax allocated to the aggregate adjustments reconciling reported and
adjusted income from continuing operations attributable to SSI shareholders and
diluted earnings per share from continuing operations attributable to SSI
shareholders is determined based on a tax provision calculated with and without
the adjustments. (4)
May not foot due to rounding. 37

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