86 / Schnitzer Steel Industries, Inc. Form 10-K 2021 Valuation Allowances The Company assesses the realizability of its deferred tax assets on a quarterly basis through an analysis of potential sources of future taxable income, including prior year taxable income available to absorb a carryback of tax losses, reversals of existing taxable temporary differences, tax planning strategies, and forecasts of taxable income. The Company considers all negative and positive evidence, including the weight of the evidence, to determine if valuation allowances against deferred tax assets are required. In fiscal 2021, the Company released the valuation allowance against its Puerto Rican deferred tax assets resulting in a discrete tax benefit of $2 million. The release of this valuation allowance was the result of sufficient positive evidence at the time, including cumulative income in the Company’s Puerto Rico tax jurisdiction in recent years and projections of future taxable income based primarily on the Company's improved financial performance, that it is more-likely-than-not that the deferred tax assets will be realized. The Company continues to maintain valuation allowances against certain state and Canadian deferred tax assets. Canadian deferred tax assets against which the Company continues to maintain a valuation allowance relate to indefinite-lived assets. Accounting for Uncertainty in Income Taxes The following table summarizes the activity related to the Company’s reserve for unrecognized tax benefits, excluding interest and penalties, for the years ended August 31 (in thousands): 2021 2020 2019 Unrecognized tax benefits, as of the beginning of the year $ 7,456 $ 5,410 $ 5,054 (Reductions) additions for tax positions of prior years (574) 1,368 (151) Additions for tax positions of the current year 1,486 852 507 Reductions for lapse of statutes (48) (174) — Unrecognized tax benefits, as of the end of the year $ 8,320 $ 7,456 $ 5,410 The Company does not anticipate any material changes to the reserve in the next 12 months. The recognized amount of tax-related penalties and interest was not material for each of the fiscal years presented in this report. The Company files federal and state income tax returns in the U.S. and foreign tax returns in Puerto Rico and Canada. For U.S. federal income tax returns, fiscal years 2014 to 2021 remain subject to examination under the statute of limitations. Note 15 - Restructuring Charges and Other Exit-Related Activities In fiscal 2020, the Company implemented restructuring initiatives aimed at further reducing its annual operating expenses, primarily selling, general, and administrative, mainly through reductions in non-trade procurement spend, including outside and professional services, lower employee-related expenses, and other non-headcount measures. Additionally, in April 2020, the Company announced its intention to modify its internal organizational and reporting structure to the One Schnitzer functionally-based, integrated model, which it completed in the first quarter of fiscal 2021. During fiscal 2020, the Company incurred severance costs of $2 million, exitrelated costs associated with a lease contract termination of $1 million, and professional services costs related to these initiatives of $6 million. Note 16 - Net Income (Loss) Per Share The following table sets forth the information used to compute basic and diluted net income (loss) per share attributable to SSI shareholders for the years ended August 31 (in thousands): 2021 2020 2019 Income (loss) from continuing operations $ 170,054 $ (2,105) $ 58,570 Net income attributable to noncontrolling interests (4,863) (1,945) (1,977) Income (loss) from continuing operations attributable to SSI shareholders 165,191 (4,050) 56,593 Loss from discontinued operations, net of tax (79) (95) (248) Net income (loss) attributable to SSI shareholders $ 165,112 $ (4,145) $ 56,345 Computation of shares: Weighted average common shares outstanding, basic 27,982 27,672 27,527 Incremental common shares attributable to dilutive performance share, RSU and DSU awards 1,211 — 695 Weighted average common shares outstanding, diluted 29,193 27,672 28,222
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