SCHN 2017 Annual Report

SCHNITZER STEEL INDUSTRIES, INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 84 / Schnitzer Steel Industries, Inc. Form 10-K 2017 and peer company share price volatility, correlation coefficients between peers, the risk-free rate of return, the expected dividend yield and other award design features. The remaining 69,393 performance share awards have a three-year performance period consisting of the Company’s fiscal 2017, 2018 and 2019. The performance targets are based on the Company's cash flow return on investment ("CFROI") over the three- year performance period, with award payouts ranging from a threshold of 50% to a maximum of 200%. The fair value of the awards granted was based on the market closing price of the underlying Class A common stock on the grant date and totaled $2 million. Fiscal 2017 – 2019 (April) Performance Share Awards In the third quarter of fiscal 2017, the Compensation Committee approved the second half of the fiscal 2017 performance-based awards with a grant date of April 27, 2017. The Compensation Committee granted 167,358 performance share awards consisting of 81,262 TSR awards and 86,096 CFROI awards to the Company's key employees and officers under the Plan with terms substantially similar to the awards granted in the first quarter of fiscal 2017, as described above in this Note, except that the performance period for the TSR awards started on April 27, 2017, and the performance period for the CFROI awards started on March 1, 2017. The estimated fair value of each of these TSR awards and CFROI awards at the date of grant was $2 million. A summary of the Company’s performance-based awards activity is as follows: Number of Shares (in thousands) Weighted Average Grant Date Fair Value Fair Value (1) Outstanding as of August 31, 2014 623 $ 27.93 Granted 269 $ 24.02 Vested (98) $ 26.27 $ 23.60 Forfeited (159) $ 26.36 Outstanding as of August 31, 2015 635 $ 26.92 Granted 364 $ 19.19 Vested (194) $ 28.82 $ 16.86 Forfeited (210) $ 28.48 Outstanding as of August 31, 2016 595 $ 21.02 Granted 302 $ 21.52 Vested (163) $ 24.02 $ 24.15 Forfeited (83) $ 24.02 Outstanding as of August 31, 2017 651 $ 20.12 _____________________________ (1) Amounts represent the weighted average value of the Company’s Class A common stock on the date that the performance share awards vested. Compensation expense associated with performance-based awards was calculated using management’s current estimate of the expected level of achievement of the performance targets under the Plan. Compensation expense for anticipated awards based on the Company’s financial performance was $3 million, $4 million and $2 million for the years ended August 31, 2017, 2016 and 2015, respectively. As of August 31, 2017, unrecognized compensation costs related to non-vested performance shares amounted to $7 million, which is expected to be recognized over a weighted average period of 1.6 years. Deferred Stock Units The Deferred Compensation Plan for Non-Employee Directors (“DSU Plan”) provides for the issuance of DSUs to non-employee directors to be granted under the Plan. Each DSU gives the director the right to receive one share of Class A common stock at a future date. Immediately following the annual meeting of shareholders, each non-employee director will receive DSUs which will become fully vested on the day before the next annual meeting, subject to continued service on the Board. The compensation expense associated with the DSUs granted is recognized over the respective requisite service period of the awards. The Company will issue Class A common stock to a director pursuant to vested DSUs in a lump sum in January of the first year after the director ceases to be a director of the Company, subject to the right of the director to elect an installment payment program under the DSU Plan.