SCHN 2017 Annual Report

80 / Schnitzer Steel Industries, Inc. Form 10-K 2017 Note 12 – Derivative Financial Instruments Foreign Currency Exchange Rate Risk Management To manage exposure to foreign exchange rate risk, the Company has entered into foreign currency forward contracts to stabilize the U.S. dollar amount of the transaction at settlement. Prior to fiscal 2016, the Company entered into a series of foreign currency exchange forward contracts to sell U.S. dollars in order to hedge a portion of its exposure to fluctuating rates of exchange on anticipated U.S. dollar-denominated sales by its Canadian subsidiary with a functional currency of the Canadian dollar. The Company did not have any foreign currency exchange forward contracts as ofAugust 31, 2017 and 2016, and the results of contracts that expired during fiscal 2016 were immaterial. Accordingly, the results of foreign currency exchange forward contracts for fiscal 2017 and 2016 are excluded from the tabular disclosures below. The following table summarizes the results of foreign currency exchange derivatives for the year ended August 31, 2015 (in thousands): Derivative Gain (Loss) Recognized in Fiscal 2015 Other Comprehensive Income Revenues - Effective Portion Other Income (Expense), net Foreign currency exchange forward contracts - designated as cash flow hedges $ (5,310) $ (4,923) $ 216 Foreign currency exchange forward contracts - not designated as cash flow hedges — — (87) There was no hedge ineffectiveness with respect to the foreign currency exchange cash flow hedges for the period presented. Note 13 – Employee Benefits The Company and certain of its subsidiaries have or contribute to qualified and nonqualified retirement plans covering substantially all employees. These plans include a defined benefit pension plan, a supplemental executive retirement benefit plan (“SERBP”), multiemployer pension plans and defined contribution plans. Defined Benefit Pension Plan and Supplemental Executive Retirement Benefit Plan The Company maintains a qualified defined benefit pension plan for certain nonunion employees. Effective June 30, 2006, the Company froze this plan and ceased accruing further benefits for employee service. The Company reflects the funded status of the defined benefit pension plan as a net asset or liability in its Consolidated Balance Sheets. Changes in its funded status are recognized in comprehensive income (loss). The Company amortizes as a component of net periodic pension benefit cost a portion of the net gain or loss reported within accumulated other comprehensive loss if the beginning-of-year net gain or loss exceeds 5% of the greater of the benefit obligation or the market value of plan assets. Net periodic pension benefit cost was not material for the years ended August 31, 2017, 2016 and 2015. The fair value of plan assets was $16 million and $15 million as of August 31, 2017 and 2016, respectively, and the projected benefit obligation was $13 million and $15 million as of August 31, 2017 and 2016, respectively. The plan was fully funded with the plan assets exceeding the projected benefit obligation by $3 million and $1 million as of August 31, 2017 and 2016, respectively. Plan assets were comprised entirely of Level 1 investments as of August 31, 2017 and 2016. Level 1 investments are valued based on quoted market prices of identical securities in the principal market. No contributions are expected to be made to the defined benefit pension plan in the future; however, changes in the discount rate or actual investment returns that are lower than the long-term expected return on plan assets could result in the need for the Company to make additional contributions. The assumed discount rate used to calculate the projected benefit obligations was 3.68% and 3.22% as of August 31, 2017 and 2016, respectively. The Company estimates future annual benefit payments to be between $1 million and $2 million per year. SCHNITZER STEEL INDUSTRIES, INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

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