SCHN 2017 Annual Report

SCHNITZER STEEL INDUSTRIES, INC. 38 / Schnitzer Steel Industries, Inc. Form 10-K 2017 Restructuring Charges and Other Exit-Related Activities Consolidated operating results in fiscal 2017 also included a net benefit from restructuring charges and other exit-related activities of less than $1 million, compared to charges of $7 million in fiscal 2016 and $13 million in fiscal 2015. Additional restructuring charges and other exit-related activities of less than $1 million were included in the results of discontinued operations in fiscal 2017, compared to charges of $1million for fiscal 2016 and $4million for fiscal 2015. Restructuring charges consisted of severance, contract termination and other restructuring costs. Other exit-related activities of less than $1 million in fiscal 2017 included a gain recorded in connection with the disposition of business assets related to the elimination of a metals recycling feeder yard operation, resulting in a net benefit from restructuring charges and other exit-related activities for the period. Other exit-related activities of $2 million and $7 million in fiscal 2016 and 2015, respectively, consisted of asset impairments and accelerated depreciation of assets in connection with the closure of certain operations, net of gains on exit-related disposals. The charges incurred during the periods presented primarily pertain to restructuring initiatives announced in the second quarter of fiscal 2015 and expanded in subsequent periods (the "Q2'15 Plan"). Consolidated operating results for the periods presented also reflect benefits from cost reduction and productivity improvement measures initiated prior to the second quarter of fiscal 2015 and an immaterial amount of associated costs. Since the beginning of fiscal 2015, we have initiated and implemented a number of additional cost reduction and productivity improvement measures with a combined targeted annual benefit of approximately $95 million. These initiatives included those announced in the first quarter of fiscal 2015 ( the "Q1'15 Plan") followed by further cost-saving and exit-related measures as part of the Q2'15 Plan targeting a combined benefit to annual operating performance of approximately $60 million, subsequently increased by $5 million in the first quarter of fiscal 2016. In the second quarter of fiscal 2016, we expanded the Q2'15 Plan initiatives by an additional $30 million. The cost reduction and productivity improvements associated with the Q1'15 Plan were driven by a combination of revenue drivers and production and SG&A cost reduction initiatives with a targeted aggregate annual improvement of $14 million, which was achieved in fiscal 2016. The improvements to performance associated with the Q2'15 Plan included two components. The first component reflected strategic actions initiated in the second quarter of fiscal 2015 consisting of idling shredding equipment and closing seven auto parts stores atAMR to align our business tomarket conditions, targeting a benefit to annual operating performance of approximately $18 million, of which approximately one-third was from reduced depreciation expense. As part of the second component of the Q2'15 Plan, in April 2015, we initiated measures, and also announced the integration of the former Metals Recycling Business and Auto Parts Business into the combined AMR platform, in order to achieve operational synergies and further reduce our annual operating expenses, primarily SG&A expense, by approximately $28 million through personnel reductions, eliminating organizational layers, consolidating shared service functions and reducing other administrative costs. We expanded the Q2'15 Plan and target by initiating measures primarily in the first and second quarters of fiscal 2016 with an additional $35 million in expected benefits primarily through further reductions in personnel, savings from procurement activities, streamlining of administrative and supporting services functions, and adjustments to our operating capacity through additional facility closures, with approximately two-thirds of the target coming from a reduction in SG&A expense and the rest from a reduction in production costs, primarily at AMR. In fiscal 2017, we achieved the approximately $95 million in combined benefits related to these measures, compared to $78 million and $28 million of benefits in fiscal 2016 and 2015, respectively. In total, we have achieved approximately $160 million in combined annual benefit to operating performance since announcing the first cost savings and productivity initiatives at the end of fiscal 2012, which includes approximately $95 million of the benefits described above.