SCHN 2017 Annual Report

Note 5 – Property, Plant and Equipment, net Property, plant and equipment, net consisted of the following as of August 31 (in thousands): 2017 2016 Machinery and equipment $ 683,364 $ 659,641 Land and improvements 260,854 245,266 Buildings and leasehold improvements 111,077 104,121 Office equipment 48,517 49,924 ERP systems 17,884 17,735 Construction in progress 25,427 31,098 Property, plant and equipment, gross 1,147,123 1,107,785 Less: accumulated depreciation (756,494) (714,965) Property, plant and equipment, net $ 390,629 $ 392,820 Depreciation expense for property, plant and equipment, which includes amortization expense for assets under capital leases, was $49 million, $53 million and $66 million for the years ended August 31, 2017, 2016 and 2015, respectively. Depreciation expense of $1 million was reported within discontinued operations for the year ended August 31, 2015. No depreciation expense was reported within discontinued operations for the years ended August 31, 2017 and 2016. Note 6 – Goodwill and Other Intangible Assets, net The Company evaluates goodwill for impairment annually on July 1 and upon the occurrence of certain triggering events or substantive changes in circumstances that indicate that the fair value of goodwill may be impaired. In the second quarter of fiscal 2015, management identified the combination of a significant further weakening in market conditions at such time, continued constrained supply of raw materials due to the lower price environment which negatively impacted volumes, the planned idling or closure of certain production facilities and retail stores, the Company’s financial performance and a decline in the Company’s market capitalization during the first half of fiscal 2015 as a triggering event requiring an interim impairment test of goodwill allocated to its reporting units, which resulted in impairment of the remaining carrying amount of a reporting unit's goodwill totaling $141 million. The impairment charge is reported within the results of AMR in this report. In the second quarter of fiscal 2016, management identified the combination of sustained weak market conditions at such time, including the adverse effects of lower commodity selling prices and the constraining impact of the lower price environment on the supply of raw materials which negatively impacted volumes, the Company’s financial performance and a decline in the Company’s market capitalization at such time as a triggering event requiring an interim impairment test of goodwill allocated to its reporting units, which resulted in impairment of the entire carrying amount of goodwill allocated to a reporting unit within AMR totaling $9 million. In the fourth quarter of fiscal 2017, the Company performed the annual goodwill impairment test as of July 1, 2017. As of the testing date, the balance of the Company's goodwill of $167 million was carried by a single reporting unit within AMR. The Company elected to first assess qualitative factors to determine whether the existence of events or circumstances led to a determination that it was more likely than not that the estimated fair value of the reporting unit was less than its carrying amount. As a result of the qualitative assessment, the Company concluded that it was not more likely than not that the fair value of the reporting unit was less than its carrying value as of the testing date and, therefore, no further impairment testing was required. The gross changes in the carrying amount of goodwill by reportable segment for the years ended August 31, 2017 and 2016 were as follows (in thousands): AMR Balance as of August 31, 2015 $ 175,676 Foreign currency translation adjustment 16 Goodwill impairment charge (8,845) Balance as of August 31, 2016 166,847 Foreign currency translation adjustment 988 Balance as of August 31, 2017 $ 167,835 70 / Schnitzer Steel Industries, Inc. Form 10-K 2017 SCHNITZER STEEL INDUSTRIES, INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS