39 / Schnitzer Steel Industries, Inc. Form 10-K 2021 Revenues Revenues in fiscal 2021 increased by 61% compared to the prior fiscal year primarily due to significantly higher average net selling prices and increased sales volumes for our ferrous and nonferrous products in both export and domestic markets. The increase was driven by stronger market conditions for recycled metals globally, with selling prices for many recycled metal commodities reaching multi-year highs during fiscal 2021. The average net selling price for our ferrous products increased by 61%, and the average net selling price for our nonferrous products increased by 60%, compared to the prior fiscal year. Ferrous sales volumes increased by 11% and nonferrous sales volumes increased by 8%, compared to the prior fiscal year. Market conditions for our finished steel products also improved in fiscal 2021, which contributed to higher finished steel average selling prices, reflecting robust demand in West Coast construction markets. The impact of higher average selling prices for our finished steel products on steel revenues in fiscal 2021 reduced the impact on our financial performance of lower sales volumes and rolling mill utilization compared to the prior fiscal year, which were primarily due to the May 2021 fire and related production interruption at our steel mill. Operating Performance Net income in fiscal 2021 was $170 million, compared to net loss of $2 million in the prior fiscal year. Adjusted EBITDA in fiscal 2021 was $289 million, compared to $85 million in the prior fiscal year. The improvement in our results for fiscal 2021 reflected substantial benefits from the higher price environment for most of our products, including a significant expansion in our ferrous metal spreads, increased ferrous and nonferrous sales volumes supported by strong demand and improved supply flows, greater contributions from sales of nonferrous products, and a favorable impact from average inventory accounting, compared to the prior fiscal year. Ferrous metal spreads in fiscal 2021 increased by approximately 44% and average net selling prices for our nonferrous joint products that are recovered from the shredding process, comprising primarily zorba, increased by approximately 58% compared to the prior fiscal year. Our results in fiscal 2021 also reflected substantially increased contributions from sales of higher priced PGM products compared to the prior fiscal year and achievement of the full run rate of benefits from productivity initiatives implemented throughout fiscal 2020. In the fourth quarter of fiscal 2021, we recognized initial insurance recoveries of $10 million related to the May 2021 fire at our steel mill, partially offsetting the detrimental effects of the incident primarily to our fourth quarter operating results. In comparison, our results in fiscal 2020 reflected periods of sharply declining commodity prices and constrained supply of scrap metal, especially during the third quarter of fiscal 2020 due in large part to the effects of the COVID-19 pandemic, which had a significant negative impact on operating margins and overall operating results for fiscal 2020. Selling, general, and administrative expense in fiscal 2021 increased by 29% compared to the prior fiscal year primarily due to an increase in employee-related expenses as a result of higher incentive compensation accruals driven by improved business performance, increased charges related to legacy environmental matters, and increased legal and professional services costs. See the reconciliation of adjusted EBITDA in Non-GAAP Financial Measures at the end of this Item 7. In fiscal 2020, we implemented productivity initiatives aimed at reducing our annual operating expenses, mainly through reductions in non-trade procurement spend, including outside and professional services, lower employee-related expenses, and other non-headcount measures. We targeted $20 million in annual benefits from these initiatives, and we achieved the full quarterly run rate of benefits in the third quarter of fiscal 2020. We achieved approximately $19 million and $18 million in realized benefits in fiscal 2021 and 2020, respectively. Additionally, in April 2020, we announced our intention to modify our internal organizational and reporting structure to the One Schnitzer functionally-based, integrated model, which we completed in the first quarter of fiscal 2021. This change in structure has resulted in a more agile organization and solidified achievement of recent productivity improvements and cost efficiency initiatives. During fiscal 2020, we incurred severance costs of $2 million, exit-related costs associated with a lease contract termination of $1 million, and professional services costs related to these initiatives of $6 million. Income Taxes Year Ended August 31, 2021 2020 2019 Income (loss) from continuing operations before income taxes $ 207,989 $ (1,939) $ 76,240 Income tax expense $ (37,935) $ (166) $ (17,670) Effective tax rate 18.2% (8.6)% 23.2% Our effective tax rate from continuing operations for fiscal 2021 was an expense on pre-tax income of 18.2%, compared to an expense on pre-tax loss of 8.6% for fiscal 2020. Our effective tax rate from continuing operations for fiscal 2021 was lower than the U.S. federal statutory rate of 21% primarily due to the benefit from the foreign derived intangible income deduction in fiscal 2021 and the impacts of research and development credits, release of the valuation allowance against Puerto Rico deferred tax assets, and other discrete items. Our effective tax rate from continuing operations for fiscal 2020 was lower than the U.S. federal statutory rate of 21%, and reflective of income tax expense on a pre-tax loss from continuing operations, primarily due to the partially offsetting impacts of individually immaterial permanent differences from non-deductible expenses and research and development credits, the effects of unrecognized tax benefits, and the aggregate impact of state taxes.
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