85 / Schnitzer Steel Industries, Inc. Form 10-K 2021 Effective Tax Rate The Company’s 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. The Company’s 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. The reconciling differences between the Company’s effective tax rate from continuing operations for fiscal 2020 and the U.S. federal statutory rate of 21% are exaggerated due to the Company’s near-break-even pre-tax loss from continuing operations of $2 million for fiscal 2020, despite none of the reconciling differences being individually material. The Company’s effective tax rate from continuing operations for fiscal 2020 was lower than the U.S. federal statutory rate, 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. On March 27, 2020, the Coronavirus Aid, Relief and Economic Security (“CARES”) Act was enacted into law. The CARESAct contains several income tax provisions, as well as other measures, aimed at assisting businesses impacted by the economic effects of the COVID19 pandemic. Among other provisions, the CARES Act removes certain limitations on utilization of net operating losses (“NOLs”) and allows for carrybacks of certain past and future NOLs. The Company applied the NOL carryback provisions of the CARES Act to its NOL for fiscal 2020, which resulted in the reclassification of a $11 million NOL deferred income tax asset to refundable income taxes and recognition of a $1 million income tax benefit in the third quarter of fiscal 2020. The Company does not anticipate the other income tax provisions of the CARES Act to have a material impact on its financial statements. Deferred Tax Assets and Liabilities Deferred tax assets and liabilities comprised the following as of August 31 (in thousands): 2021 2020 Deferred tax assets: Operating lease liabilities $ 20,645 $ 22,676 Amortizable goodwill and other intangibles 13,490 17,455 Employee benefit accruals 14,007 9,246 Net operating loss carryforwards 7,642 8,484 Environmental liabilities 10,508 7,938 Other contingencies(1) 5,044 4,133 State credit carryforwards 7,216 7,933 Federal credit carryforwards — 5,116 Inventory valuation methods 2,129 2,865 Other 2,459 2,941 Valuation allowances (14,522) (16,933) Total deferred tax assets 68,618 71,854 Deferred tax liabilities: Accelerated depreciation and other basis differences 43,304 39,596 Operating lease right-of-use assets 19,895 21,104 Investment in operating partnerships 12,410 14,703 Uncertain tax positions — 4,936 Prepaid expense acceleration and other 6,041 2,655 Total deferred tax liabilities 81,650 82,994 Net deferred tax liabilities $ (13,032) $ (11,140) (1) The deferred tax asset balance as of August 31, 2020 was classified within “Other” in the Annual Report on Form 10-K for fiscal 2020. As of August 31, 2021, foreign operating loss carryforwards were $10 million, which expire if not used between 2025 and 2041. State credit carryforwards will expire if not used between 2021 and 2035.
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