SCHN 2017 Annual Report

SCHNITZER STEEL INDUSTRIES, INC. 41 / Schnitzer Steel Industries, Inc. Form 10-K 2017 Liquidity and Capital Resources We rely on cash provided by operating activities as a primary source of liquidity, supplemented by current cash on hand and borrowings under our existing credit facilities. Sources and Uses of Cash We had cash balances of $7 million and $27 million as of August 31, 2017 and 2016, respectively. Cash balances are intended to be used primarily for working capital, capital expenditures, dividends, share repurchases, investments and acquisitions. We use excess cash on hand to reduce amounts outstanding under our credit facilities. As of August 31, 2017, debt was $145 million, compared to $193 million as of August 31, 2016, and debt, net of cash, was $138 million, compared to $166 million as of August 31, 2016 (refer to Non-GAAP Financial Measures below). Debt, net of cash, decreased by $28 million primarily as a result of the positive cash flows generated by operating activities. Operating Activities Net cash provided by operating activities in fiscal 2017 was $100 million, compared to $99 million in fiscal 2016 and $145 million in fiscal 2015. Net cash provided by operating activities in fiscal 2017 primarily benefited from improved operating performance compared to the prior year. Sources of cash in fiscal 2017 included a $33 million increase in accounts payable primarily due to higher raw material purchase prices and the timing of payments, and a $12 million increase in accrued payroll and related liabilities due to increases in incentive compensation accruals resulting from improved financial performance. Uses of cash in fiscal 2017 included a $22 million increase in inventory due to higher raw material purchase prices, higher volumes on hand and the impact of timing of purchases and sales, and a $36 million increase in accounts receivable primarily due to increases in recycled metal selling prices and sales volumes, and the timing of sales and collections. Sources of cash in fiscal 2016 included a $28 million decrease in inventories due to the impact of lower raw material prices and timing of purchases and sales, a $6 million decrease in refundable income taxes due to collection of tax refunds, and a $6 million insurance reimbursement. Uses of cash included a $11 million increase in accounts receivable due to the timing of sales and collections. A significant amount of cash generated by operating activities in fiscal 2015 and 2016 stemmed from a reduction in net working capital primarily as a result of the declining price environment for ferrous and nonferrous scrap metal and finished steel and to a lesser extent lower inventory volumes, as well as positive operating performance. Sources of cash in fiscal 2015 included a $56 million decrease in accounts receivable primarily due to the timing of sales and collections and a $69 million decrease in inventories due to the impacts of decreasing raw materials prices and timing of purchases and sales. Uses of cash included a $36 million decrease in accounts payable due to lower raw material purchase prices and the timing of payments. Investing Activities Net cash used in investing activities in fiscal 2017 was $45 million, compared to $30 million in fiscal 2016 and $28 million in fiscal 2015. Cash used in investing activities in fiscal 2017, 2016 and 2015 included $45 million, $35 million and $32 million, respectively, in capital expenditures to upgrade our equipment and infrastructure and for additional investments in environmental and safety- related assets. For all fiscal years presented, the significant majority of capital expenditures were associated with projects at AMR. Financing Activities Net cash used in financing activities for fiscal 2017 was $75 million, compared with $65 million in fiscal 2016 and $119 million in fiscal 2015. Cash used in financing activities in fiscal 2017, 2016 and 2015 included $20 million for cash dividends in each fiscal year and $48 million, $36 million and $91 million, respectively, in net repayments of debt. Refer to Non-GAAP Financial Measures below.