SCHN 2017 Annual Report

SCHNITZER STEEL INDUSTRIES, INC. 44 / Schnitzer Steel Industries, Inc. Form 10-K 2017 Contractual Obligations and Commitments We have certain contractual obligations to make future payments. The following table summarizes these future obligations as of August 31, 2017 (in thousands): Payment Due by Period 2018 2019 2020 2021 2022 Thereafter Total Contractual Obligations Long-term debt (1) $ 41 $ 153 $ 92 $140,050 $ 53 $ 317 $140,706 Interest payments on long-term debt (2) 4,904 4,914 4,900 3,135 26 61 17,940 Capital leases, including interest 1,169 1,043 1,022 885 753 1,824 6,696 Operating leases 19,572 16,824 13,333 7,894 5,317 22,410 85,350 Purchase obligations (3) 73,230 15,143 14,985 3,591 2,067 5,600 114,616 Other (4) 217 314 311 308 305 3,325 4,780 Total $ 99,133 $ 38,391 $ 34,643 $155,863 $ 8,521 $ 33,537 $370,088 _____________________________ (1) Long-term debt represents the principal amounts of all outstanding long-term debt, maturities of which extend to 2027. (2) Interest payments on long-term debt are based on interest rates in effect as of August 31, 2017. As contractual interest rates and the amount of debt outstanding is variable in certain cases, actual cash payments may differ from the estimates provided. (3) Purchase obligations include all enforceable, legally binding agreements to purchase goods or services that specify all significant terms, regardless of the duration of the agreement, including purchases of inventory items to be sold in the ordinary course of business. (4) Other contractual obligations consist of pension funding obligations and other accrued liabilities. We maintain stand-by letters of credit to provide support for certain obligations, including workers’compensation and performance bonds. At August 31, 2017, we had $10 million outstanding under these arrangements. Critical Accounting Policies and Estimates The preparation of financial statements in accordance with accounting principles generally accepted in the United States ofAmerica requires us to make certain judgments, estimates, and assumptions regarding uncertainties that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. An accounting policy is deemed to be critical if it requires an accounting estimate to be made based on assumptions and judgments about matters that are inherently uncertain at the time the estimate is made, if different estimates reasonably could have been used, or if changes in the estimate that are reasonably likely to occur could materially impact our consolidated financial statements. We deem critical accounting policies to be those that are most important to the portrayal of our financial condition and results of operations. Because of the uncertainty inherent in these matters, actual results could differ from the estimates we use in applying the critical accounting policies. We are not currently aware of any reasonably likely events or circumstances that would result in materially different amounts being reported. Our critical accounting estimates include those related to goodwill, long-lived assets, environmental costs, inventories, accounting for business combinations and revenue recognition. Goodwill We evaluate goodwill for impairment annually and upon the occurrence of certain triggering events or substantive changes in circumstances that indicate that the fair value of goodwill may be impaired. Impairment of goodwill is tested at the reporting unit level. A reporting unit is an operating segment or one level below an operating segment (referred to as a ‘component’). When testing goodwill for impairment, we have the option to first assess qualitative factors to determine whether the existence of events or circumstances leads to a determination that it is more likely than not that the estimated fair value of a reporting unit is less than its carrying amount. If we elect to perform a qualitative assessment and determine that an impairment is more likely than not, we are then required to perform the quantitative impairment test, otherwise no further analysis is required. We also may elect not to perform the qualitative assessment and, instead, proceed directly to the quantitative impairment test. As of the beginning of the third quarter of fiscal 2017, we early-adopted an accounting standard update that revises the quantitative goodwill impairment test with no impact to the Consolidated Financial Statements. Under the revised guidance, we apply a one- step quantitative test and record the amount of goodwill impairment as the excess of a reporting unit's carrying amount over its fair value, not to exceed the total amount of goodwill allocated to that reporting unit.