Form 10-Q SCHNITZER STEEL INDUSTRI For: Nov 30

January 6, 2022 2:26 PM EST

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Table of Contents

 

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

 

   QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the Quarterly Period Ended November 30, 2021

or

   TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the Transition Period from                 to                

Commission File Number 000-22496

 

SCHNITZER STEEL INDUSTRIES, INC.

(Exact name of registrant as specified in its charter)

 

Oregon

 

93-0341923

(State or other jurisdiction of incorporation or organization)

 

(I.R.S. Employer Identification No.)

 

 

 

299 SW Clay Street, Suite 350, Portland, Oregon

 

97201

(Address of principal executive offices)

 

(Zip Code)

(503) 224-9900

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

 

Trading Symbol(s)

 

Name of each exchange on which registered

Class A Common Stock, $1.00 par value

 

SCHN

 

The Nasdaq Stock Market LLC

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes    No 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes    No 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer

Accelerated filer

Non-accelerated filer

 

Smaller reporting company

Emerging growth company

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes    No 

The registrant had 27,623,708 shares of Class A common stock, par value of $1.00 per share, and 200,000 shares of Class B common stock, par value of $1.00 per share, outstanding as of January 4, 2022.

 

 

 

 


Table of Contents

 

 

SCHNITZER STEEL INDUSTRIES, INC.

FORM 10-Q

TABLE OF CONTENTS

 

 

PAGE

FORWARD-LOOKING STATEMENTS

3

 

 

PART I. FINANCIAL INFORMATION

 

 

 

Item 1. Financial Statements (Unaudited)

4

 

 

Unaudited Condensed Consolidated Balance Sheets as of November 30, 2021 and August 31, 2021

4

 

 

Unaudited Condensed Consolidated Statements of Income for the Three Months Ended November 30, 2021 and 2020

5

 

 

Unaudited Condensed Consolidated Statements of Comprehensive Income for the Three Months Ended November 30, 2021 and 2020

6

 

 

Unaudited Condensed Consolidated Statements of Equity for the Three Months Ended November 30, 2021 and 2020

7

 

 

Unaudited Condensed Consolidated Statements of Cash Flows for the Three Months Ended November 30, 2021 and 2020

8

 

 

Notes to the Unaudited Condensed Consolidated Financial Statements

10

 

 

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

22

 

 

Item 3. Quantitative and Qualitative Disclosures about Market Risk

34

 

 

Item 4. Controls and Procedures

35

 

 

PART II. OTHER INFORMATION

 

 

 

Item 1. Legal Proceedings

36

 

 

Item 1A. Risk Factors

36

 

 

Item 5. Other Information

36

 

 

Item 6. Exhibits

37

 

 

SIGNATURES

38

 

 

 

 


Table of Contents

 

 

 

FORWARD-LOOKING STATEMENTS

Statements and information included in this Quarterly Report on Form 10-Q by Schnitzer Steel Industries, Inc. that are not purely historical are forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934 and are made pursuant to the “safe harbor” provisions of the Private Securities Litigation Reform Act of 1995. Except as noted herein or as the context may otherwise require, all references to “we,” “our,” “us,” “the Company,” and “SSI” refer to Schnitzer Steel Industries, Inc. and its consolidated subsidiaries.

Forward-looking statements in this Quarterly Report on Form 10-Q include statements regarding future events or our expectations, intentions, beliefs, and strategies regarding the future, which may include statements regarding the impact of pandemics, epidemics, or other public health emergencies, such as the coronavirus disease 2019 (“COVID-19”) pandemic; the impact of equipment upgrades, equipment failures, and facility damage on production, including timing of repairs and resumption of operations; the realization of insurance recoveries; the Company’s outlook, growth initiatives, or expected results or objectives, including pricing, margins, sales volumes, and profitability; completion of acquisitions and integration of acquired businesses; the impacts of supply chain disruptions and inflation; liquidity positions; our ability to generate cash from continuing operations; trends, cyclicality, and changes in the markets we sell into; strategic direction or goals; targets; changes to manufacturing and production processes; the realization of deferred tax assets; planned capital expenditures; the cost of and the status of any agreements or actions related to our compliance with environmental and other laws; expected tax rates, deductions, and credits; the impact of sanctions and tariffs, quotas, and other trade actions and import restrictions; the potential impact of adopting new accounting pronouncements; the impact of labor shortages or increased labor costs; obligations under our retirement plans; benefits, savings, or additional costs from business realignment, cost containment, and productivity improvement programs; and the adequacy of accruals.

Forward-looking statements by their nature address matters that are, to different degrees, uncertain, and often contain words such as “outlook,” “target,” “aim,” “believes,” “expects,” “anticipates,” “intends,” “assumes,” “estimates,” “evaluates,” “may,” “will,” “should,” “could,” “opinions,” “forecasts,” “projects,” “plans,” “future,” “forward,” “potential,” “probable,” and similar expressions. However, the absence of these words or similar expressions does not mean that a statement is not forward-looking.

We may make other forward-looking statements from time to time, including in reports filed with the Securities and Exchange Commission, press releases, presentations, and on public conference calls. All forward-looking statements we make are based on information available to us at the time the statements are made, and we assume no obligation to update any forward-looking statements, except as may be required by law. Our business is subject to the effects of changes in domestic and global economic conditions and a number of other risks and uncertainties that could cause actual results to differ materially from those included in, or implied by, such forward-looking statements. Some of these risks and uncertainties are discussed in “Item 1A. Risk Factors” of Part I of our most recent Annual Report on Form 10-K, as supplemented by our subsequently filed Quarterly Reports on Form 10-Q. Examples of these risks include: the impact of pandemics, epidemics, or other public health emergencies, such as the COVID-19 pandemic; the impact of equipment upgrades, equipment failures, and facility damage on production; potential environmental cleanup costs related to the Portland Harbor Superfund site or other locations; the cyclicality and impact of general economic conditions; changing conditions in global markets including the impact of sanctions and tariffs, quotas, and other trade actions and import restrictions; volatile supply and demand conditions affecting prices and volumes in the markets for raw materials and other inputs we purchase; significant decreases in recycled metal prices; imbalances in supply and demand conditions in the global steel industry; difficulties associated with acquisitions and integration of acquired businesses; supply chain disruptions; reliance on third-party shipping companies, including with respect to freight rates and the availability of transportation; inability to obtain or renew business licenses and permits; the impact of goodwill impairment charges; the impact of long-lived asset and equity investment impairment charges; failure to realize or delays in realizing expected benefits from investments in processing and manufacturing technology improvements; inability to achieve or sustain the benefits from productivity, cost savings, and restructuring initiatives; inability to renew facility leases; customer fulfillment of their contractual obligations; increases in the relative value of the U.S. dollar; the impact of inflation and foreign currency fluctuations; potential limitations on our ability to access capital resources and existing credit facilities; restrictions on our business and financial covenants under the agreement governing our bank credit facilities; the impact of consolidation in the steel industry; product liability claims; the impact of legal proceedings and legal compliance; the adverse impact of climate change; the impact of not realizing deferred tax assets; the impact of tax increases and changes in tax rules; the impact of one or more cybersecurity incidents; environmental compliance costs and potential environmental liabilities; compliance with climate change and greenhouse gas emission laws and regulations; the impact of labor shortages or increased labor costs; reliance on employees subject to collective bargaining agreements; and the impact of the underfunded status of multiemployer plans in which we participate.

 

 

3


Table of Contents

 

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS (UNAUDITED)

SCHNITZER STEEL INDUSTRIES, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited, in thousands, except per share amounts)

(Currency - U.S. Dollar)

 

 

 

November 30, 2021

 

 

August 31, 2021

 

Assets

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

19,081

 

 

$

27,818

 

Accounts receivable, net of allowance for credit losses of $1,551

   and $1,566

 

 

303,541

 

 

 

214,098

 

Inventories

 

 

313,872

 

 

 

256,427

 

Refundable income taxes

 

 

638

 

 

 

837

 

Prepaid expenses and other current assets

 

 

35,296

 

 

 

43,934

 

Total current assets

 

 

672,428

 

 

 

543,114

 

Property, plant and equipment, net of accumulated depreciation of $844,961 and $837,293

 

 

579,872

 

 

 

562,674

 

Operating lease right-of-use assets

 

 

127,865

 

 

 

131,221

 

Investments in joint ventures

 

 

13,261

 

 

 

12,844

 

Goodwill

 

 

232,367

 

 

 

170,304

 

Intangibles, net of accumulated amortization of $4,467 and $3,846

 

 

23,100

 

 

 

3,980

 

Deferred income taxes

 

 

26,575

 

 

 

27,561

 

Other assets

 

 

44,300

 

 

 

42,665

 

Total assets

 

$

1,719,768

 

 

$

1,494,363

 

Liabilities and Equity

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

Short-term borrowings

 

$

3,501

 

 

$

3,654

 

Accounts payable

 

 

196,847

 

 

 

179,917

 

Accrued payroll and related liabilities

 

 

30,660

 

 

 

69,622

 

Environmental liabilities

 

 

21,568

 

 

 

24,743

 

Operating lease liabilities

 

 

21,695

 

 

 

21,417

 

Accrued income taxes

 

 

2,869

 

 

 

3,521

 

Other accrued liabilities

 

 

71,498

 

 

 

49,976

 

Total current liabilities

 

 

348,638

 

 

 

352,850

 

Deferred income taxes

 

 

51,272

 

 

 

40,593

 

Long-term debt, net of current maturities

 

 

256,215

 

 

 

71,299

 

Environmental liabilities, net of current portion

 

 

55,089

 

 

 

52,385

 

Operating lease liabilities, net of current maturities

 

 

109,191

 

 

 

113,165

 

Other long-term liabilities

 

 

24,607

 

 

 

24,292

 

Total liabilities

 

 

845,012

 

 

 

654,584

 

Commitments and contingencies (Note 5)

 

 

 

 

 

 

 

 

Schnitzer Steel Industries, Inc. (“SSI”) shareholders’ equity:

 

 

 

 

 

 

 

 

Preferred stock – 20,000 shares $1.00 par value authorized, none issued

 

 

 

 

 

 

Class A common stock – 75,000 shares $1.00 par value authorized,

   27,624 and 27,332 shares issued and outstanding

 

 

27,624

 

 

 

27,332

 

Class B common stock – 25,000 shares $1.00 par value authorized,

   200 and 200 shares issued and outstanding

 

 

200

 

 

 

200

 

Additional paid-in capital

 

 

43,641

 

 

 

49,074

 

Retained earnings

 

 

834,504

 

 

 

793,712

 

Accumulated other comprehensive loss

 

 

(35,279

)

 

 

(34,554

)

Total SSI shareholders’ equity

 

 

870,690

 

 

 

835,764

 

Noncontrolling interests

 

 

4,066

 

 

 

4,015

 

Total equity

 

 

874,756

 

 

 

839,779

 

Total liabilities and equity

 

$

1,719,768

 

 

$

1,494,363

 

The accompanying Notes to the Unaudited Condensed Consolidated Financial Statement are an integral part of these statements.

 

4


Table of Contents

 

SCHNITZER STEEL INDUSTRIES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(Unaudited, in thousands, except per share amounts)

(Currency - U.S. Dollar)

 

 

 

Three Months Ended November 30,

 

 

 

2021

 

 

2020

 

Revenues

 

$

798,118

 

 

$

492,107

 

Operating expense:

 

 

 

 

 

 

 

 

Cost of goods sold

 

 

683,244

 

 

 

420,094

 

Selling, general and administrative

 

 

55,267

 

 

 

49,906

 

(Income) from joint ventures

 

 

(236

)

 

 

(727

)

Restructuring charges and other exit-related activities

 

 

22

 

 

 

64

 

Operating income

 

 

59,821

 

 

 

22,770

 

Interest expense

 

 

(1,372

)

 

 

(1,780

)

Other loss, net

 

 

(47

)

 

 

(165

)

Income from continuing operations before income taxes

 

 

58,402

 

 

 

20,825

 

Income tax expense

 

 

(11,097

)

 

 

(5,719

)

Income from continuing operations

 

 

47,305

 

 

 

15,106

 

Loss from discontinued operations, net of tax

 

 

(29

)

 

 

(42

)

Net income

 

 

47,276

 

 

 

15,064

 

Net income attributable to noncontrolling interests

 

 

(1,077

)

 

 

(960

)

Net income attributable to SSI shareholders

 

$

46,199

 

 

$

14,104

 

 

 

 

 

 

 

 

 

 

Net income per share attributable to SSI shareholders:

 

 

 

 

 

 

 

 

Basic:

 

 

 

 

 

 

 

 

Income per share from continuing operations

 

$

1.64

 

 

$

0.51

 

Net income per share

 

$

1.64

 

 

$

0.51

 

Diluted:

 

 

 

 

 

 

 

 

Income per share from continuing operations

 

$

1.55

 

 

$

0.50

 

Net income per share

 

$

1.55

 

 

$

0.50

 

Weighted average number of common shares:

 

 

 

 

 

 

 

 

Basic

 

 

28,159

 

 

 

27,807

 

Diluted

 

 

29,885

 

 

 

28,485

 

The accompanying Notes to the Unaudited Condensed Consolidated Financial Statements are an integral part of these statements.

5


Table of Contents

SCHNITZER STEEL INDUSTRIES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Unaudited, in thousands)

(Currency - U.S. Dollar)

 

 

 

Three Months Ended November 30,

 

 

 

2021

 

 

2020

 

Net income

 

$

47,276

 

 

$

15,064

 

Other comprehensive income (loss), net of tax:

 

 

 

 

 

 

 

 

Foreign currency translation adjustments

 

 

(1,115

)

 

 

239

 

Pension obligations, net

 

 

390

 

 

 

(260

)

Total other comprehensive loss, net of tax

 

 

(725

)

 

 

(21

)

Comprehensive income

 

 

46,551

 

 

 

15,043

 

Less comprehensive income attributable to noncontrolling interests

 

 

(1,077

)

 

 

(960

)

Comprehensive income attributable to SSI shareholders

 

$

45,474

 

 

$

14,083

 

The accompanying Notes to the Unaudited Condensed Consolidated Financial Statements are an integral part of these statements.

 

6


Table of Contents

 

 

SCHNITZER STEEL INDUSTRIES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF EQUITY

(Unaudited, in thousands, except per share amounts)

(Currency - U.S. Dollar)

 

 

 

Common Stock

 

 

Additional

 

 

 

 

 

 

Accumulated

Other

 

 

Total SSI

 

 

 

 

 

 

 

 

 

 

 

Class A

 

 

Class B

 

 

Paid-in

 

 

Retained

 

 

Comprehensive

 

 

Shareholders'

 

 

Noncontrolling

 

 

Total

 

Three Months Ended November 30, 2020

 

Shares

 

 

Amount

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Earnings

 

 

Loss

 

 

Equity

 

 

Interests

 

 

Equity

 

Balance as of September 1, 2020

 

 

26,899

 

 

$

26,899

 

 

 

200

 

 

$

200

 

 

$

36,616

 

 

$

649,863

 

 

$

(36,871

)

 

$

676,707

 

 

$

3,729

 

 

$

680,436

 

Net income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

14,104

 

 

 

 

 

 

14,104

 

 

 

960

 

 

 

15,064

 

Other comprehensive income, net of tax

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(21

)

 

 

(21

)

 

 

 

 

 

(21

)

Distributions to noncontrolling interests

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(723

)

 

 

(723

)

Issuance of restricted stock

 

 

543

 

 

 

543

 

 

 

 

 

 

 

 

 

(543

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Restricted stock withheld for taxes

 

 

(188

)

 

 

(188

)

 

 

 

 

 

 

 

 

(3,782

)

 

 

 

 

 

 

 

 

(3,970

)

 

 

 

 

 

(3,970

)

Share-based compensation cost

 

 

 

 

 

 

 

 

 

 

 

 

 

 

3,019

 

 

 

 

 

 

 

 

 

3,019

 

 

 

 

 

 

3,019

 

Dividends ($0.1875 per common share)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(5,257

)

 

 

 

 

 

(5,257

)

 

 

 

 

 

(5,257

)

Balance as of November 30, 2020

 

 

27,254

 

 

$

27,254

 

 

 

200

 

 

$

200

 

 

$

35,310

 

 

$

658,710

 

 

$

(36,892

)

 

$

684,582

 

 

$

3,966

 

 

$

688,548

 

 

 

 

Common Stock

 

 

Additional

 

 

 

 

 

 

Accumulated

Other

 

 

Total SSI

 

 

 

 

 

 

 

 

 

 

 

Class A

 

 

Class B

 

 

Paid-in

 

 

Retained

 

 

Comprehensive

 

 

Shareholders’

 

 

Noncontrolling

 

 

Total

 

Three Months Ended November 30, 2021

 

Shares

 

 

Amount

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Earnings

 

 

Loss

 

 

Equity

 

 

Interests

 

 

Equity

 

Balance as of September 1, 2021

 

 

27,332

 

 

$

27,332

 

 

 

200

 

 

$

200

 

 

$

49,074

 

 

$

793,712

 

 

$

(34,554

)

 

$

835,764

 

 

$

4,015

 

 

$

839,779

 

Net income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

46,199

 

 

 

 

 

 

46,199

 

 

 

1,077

 

 

 

47,276

 

Other comprehensive income, net of tax

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(725

)

 

 

(725

)

 

 

 

 

 

(725

)

Distributions to noncontrolling interests

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(1,026

)

 

 

(1,026

)

Issuance of restricted stock

 

 

470

 

 

 

470

 

 

 

 

 

 

 

 

 

(470

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Restricted stock withheld for taxes

 

 

(178

)

 

 

(178

)

 

 

 

 

 

 

 

 

(9,399

)

 

 

 

 

 

 

 

 

(9,577

)

 

 

 

 

 

(9,577

)

Share-based compensation cost

 

 

 

 

 

 

 

 

 

 

 

 

 

 

4,436

 

 

 

 

 

 

 

 

 

4,436

 

 

 

 

 

 

4,436

 

Dividends ($0.1875 per common share)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(5,407

)

 

 

 

 

 

(5,407

)

 

 

 

 

 

(5,407

)

Balance as of November 30, 2021

 

 

27,624

 

 

$

27,624

 

 

 

200

 

 

$

200

 

 

$

43,641

 

 

$

834,504

 

 

$

(35,279

)

 

$

870,690

 

 

$

4,066

 

 

$

874,756

 

The accompanying Notes to the Unaudited Condensed Consolidated Financial Statements are an integral part of these statements.

 

7


Table of Contents

 

 

SCHNITZER STEEL INDUSTRIES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited, in thousands)

(Currency - U.S. Dollar)

 

 

 

Three Months Ended November 30,

 

 

 

2021

 

 

2020

 

Cash flows from operating activities:

 

 

 

 

 

 

 

 

Net income

 

$

47,276

 

 

$

15,064

 

Adjustments to reconcile net income to cash used in operating activities:

 

 

 

 

 

 

 

 

Depreciation and amortization

 

 

17,220

 

 

 

14,826

 

Inventory write-downs

 

 

192

 

 

 

 

Deferred income taxes

 

 

11,227

 

 

 

4,770

 

Undistributed equity in earnings of joint ventures

 

 

(236

)

 

 

(727

)

Share-based compensation expense

 

 

4,392

 

 

 

2,984

 

Loss (gain) on disposal of assets, net

 

 

307

 

 

 

(61

)

Unrealized foreign exchange (gain) loss, net

 

 

(10

)

 

 

82

 

Credit loss (recoveries), net

 

 

(4

)

 

 

33

 

Changes in assets and liabilities, net of acquisitions:

 

 

 

 

 

 

 

 

Accounts receivable

 

 

(68,490

)

 

 

(29,116

)

Inventories

 

 

(45,581

)

 

 

(25,928

)

Income taxes

 

 

(59

)

 

 

5,324

 

Prepaid expenses and other current assets

 

 

546

 

 

 

738

 

Other long-term assets

 

 

(488

)

 

 

(737

)

Operating lease assets and liabilities

 

 

(337

)

 

 

(375

)

Accounts payable

 

 

20,509

 

 

 

19,015

 

Accrued payroll and related liabilities

 

 

(38,642

)

 

 

(12,529

)

Other accrued liabilities

 

 

21,327

 

 

 

(5,204

)

Environmental liabilities

 

 

(3,628

)

 

 

1,252

 

Other long-term liabilities

 

 

210

 

 

 

3,158

 

Net cash used in operating activities

 

 

(34,269

)

 

 

(7,431

)

Cash flows from investing activities:

 

 

 

 

 

 

 

 

Capital expenditures

 

 

(39,719

)

 

 

(31,827

)

Acquisitions, net of acquired cash

 

 

(113,939

)

 

 

 

Proceeds from insurance and sale of assets

 

 

10,643

 

 

 

80

 

Net cash used in investing activities

 

 

(143,015

)

 

 

(31,747

)

Cash flows from financing activities:

 

 

 

 

 

 

 

 

Borrowings from long-term debt

 

 

271,091

 

 

 

92,714

 

Repayment of long-term debt

 

 

(86,314

)

 

 

(53,781

)

Taxes paid related to net share settlement of share-based payment awards

 

 

(9,577

)

 

 

(3,970

)

Distributions to noncontrolling interests

 

 

(1,026

)

 

 

(723

)

Dividends paid

 

 

(5,568

)

 

 

(5,680

)