SCHN 2017 Annual Report

SCHNITZER STEEL INDUSTRIES, INC. 36 / Schnitzer Steel Industries, Inc. Form 10-K 2017 Operating results in fiscal 2017 benefited from stronger demand for our finished steel products in the West Coast markets during the fourth quarter and improved market conditions for ferrous and nonferrous recycled scrap metal in the export markets. The benefits from the improved conditions were partially offset by continued pressure from low-priced imports and costs of $2 million associated with a major equipment upgrade at our steel mill in the first quarter of fiscal 2017. Operating results for both fiscal years were adversely impacted by selling prices for finished steel products falling faster than cost of goods sold, primarily during the first half of each year, resulting in compressed operating margins. Operating results in fiscal 2016 were adversely affected by impairment charges of $2 million on steel mill supplies inventory and $2 million on an investment in a metals recycling joint venture. Fiscal 2017 operating results included a net recovery on previously impaired assets of $1 million consisting primarily of a gain on the sale of a previously impaired metals recycling joint venture investment. Fiscal 2016 compared with fiscal 2015 CSS Segment Revenues Revenues decreased by $131 million, or 30%, for fiscal 2016 compared to the prior year. This decrease was primarily due to reduced average selling prices and sales volumes for our finished steel products driven by increased competition from lower- priced imports of finished steel products and the impact on selling prices of reduced steel-making raw material costs primarily during the first half of fiscal 2016. Finished steel sales volumes improved in the second half of fiscal 2016 compared to the first half of the fiscal year primarily due to the impact of seasonally stronger construction activity, but remained lower than levels achieved in fiscal 2015. Weaker demand in the export markets for ferrous and nonferrous recycled scrap metal contributed to reduced recycled metal revenues compared to the prior year. CSS Segment Operating Income Operating income for fiscal 2016 was $5 million, a decrease of $16 million compared to $21 million in the prior year. Adjusted operating income in fiscal 2016, excluding other asset impairment charges of $4 million, was $9 million, compared to adjusted operating income of $21 million in fiscal 2015. See the reconciliation of CSS adjusted operating income in Non-GAAP Financial Measures at the end of this Item 7. The year-over-year reduction in operating results was primarily due to the declining price environment for our finished steel products during the first half of fiscal 2016 which led to selling prices falling faster than cost of goods sold. Additionally, finished steel sales volumes decreased primarily due to increased competition from imported steel products. The rolling mill utilization rate decreased primarily due to lower sales volumes compared to the prior year and the optimization of inventory levels.