UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q



x	Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
	For the Quarterly Period Ended ~~February 28,~~November 30, 2014



o	Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
	For the Transition Period from _______ to_______
	Commission File Number 0-22496

SCHNITZER STEEL INDUSTRIES, INC.

(Exact name of registrant as specified in its charter)



OREGON		93-0341923
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

299 SW Clay St., Suite 350 Portland, OR		97201
(Address of principal executive offices)		(Zip Code)

(503) 224-9900

(Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes x No o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

Yes x No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (check one)



Large accelerated filer	x	Accelerated filer	o	Non-accelerated filer	o	Smaller Reporting company	o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes o No x

The Registrant had ~~26,324,268~~26,478,539 shares of Class A common stock, par value of $1.00 per share, and 305,900 shares of Class B common stock, par value of $1.00 per share, outstanding as of ~~March 31, 2014~~January 5, 2015.

Table of Contents

SCHNITZER STEEL INDUSTRIES, INC.

INDEX



	PAGE
PART I. FINANCIAL INFORMATION

Item 1. Financial Statements (unaudited)

Condensed Consolidated Balance Sheets as of ~~February 28,~~November 30, 2014 and August 31, ~~2013~~2014	3

Condensed Consolidated Statements of Operations for the Three ~~and Six~~ Months Ended ~~February 28,~~November 30, 2014 and 2013	4

Condensed Consolidated Statements of Comprehensive ~~Income (Loss)~~Loss for the Three ~~and Six~~ Months Ended ~~February 28,~~November 30, 2014 and 2013	5

Condensed Consolidated Statements of Cash Flows for the ~~Six~~Three Months Ended ~~February 28,~~November 30, 2014 and 2013	6

Notes to the Unaudited Condensed Consolidated Financial Statements	7

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations	2118

Item 3. Quantitative and Qualitative Disclosures about Market Risk	3431

Item 4. Controls and Procedures	3431

PART II. OTHER INFORMATION

Item 1. Legal Proceedings	3532

Item 1A. Risk Factors	3532

Item 6. Exhibits	3633

SIGNATURES	3734

Table of Contents

PART I. FINANCIAL INFORMATION


ITEM 1.	FINANCIAL STATEMENTS (UNAUDITED)

SCHNITZER STEEL INDUSTRIES, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited, in thousands, except per share amounts)


	February 28, 2014			August 31, 2013			November 30, 2014			August 31, 2014
Assets
Current assets:
Cash and cash equivalents	$	20,403		$	13,481		$	14,666		$	25,672
Accounts receivable, net of allowance for doubtful accounts of $2,722 and $2,990	173,876			188,270
Inventories, net	252,849			236,049
Accounts receivable, net of allowance for doubtful accounts of $2,672 and $2,720							155,597			189,359
Inventories							244,268			216,172
Deferred income taxes	3,824			3,750			10,281			6,865
Refundable income taxes	5,680			3,521			3,871			1,756
Prepaid expenses and other current assets	21,966			22,159			21,915			24,108
Total current assets	478,598			467,230			450,598			463,932
Property, plant and equipment, net of accumulated depreciation of $628,127 and $597,989	537,187			564,426
Property, plant and equipment, net of accumulated depreciation of $669,903 and $659,872							507,970			523,433
Investments in joint venture partnerships	14,524			14,808			15,021			14,624
Goodwill	324,831			327,264			322,956			325,903
Intangibles, net of accumulated amortization of $13,963 and $14,139	11,146			13,264
Intangibles, net of accumulated amortization of $10,476 and $15,612							8,968			9,835
Other assets	17,483			18,520			16,663			17,483
Total assets	$	1,383,769		$	1,405,512		$	1,322,176		$	1,355,210
Liabilities and Equity
Current liabilities:
Short-term borrowings	$	696		$	9,174		$	471		$	523
Accounts payable	91,771			96,348			73,558			103,453
Accrued payroll and related liabilities	22,206			24,002			20,302			32,127
Environmental liabilities	1,096			754			1,127			1,062
Accrued income taxes	—			388			42			3,202
Other accrued liabilities	37,052			35,468			39,447			36,903
Total current liabilities	152,821			166,134			134,947			177,270
Deferred income taxes	24,611			22,929			25,911			22,746
Long-term debt, net of current maturities	378,217			372,663			340,355			318,842
Environmental liabilities, net of current portion	48,403			49,040			47,026			47,287
Other long-term liabilities	12,940			13,547			13,090			13,088
Total liabilities	616,992			624,313			561,329			579,233
Commitments and contingencies (Note 6)
Commitments and contingencies (Note 5)
Schnitzer Steel Industries, Inc. (“SSI”) shareholders’ equity:
Preferred stock – 20,000 shares $1.00 par value authorized, none issued	—			—			—			—
Class A common stock – 75,000 shares $1.00 par value authorized, 26,324 and 26,171 shares issued and outstanding	26,324			26,171
Class B common stock – 25,000 shares $1.00 par value authorized, 306 and 393 shares issued and outstanding	306			393
Class A common stock – 75,000 shares $1.00 par value authorized, 26,477 and 26,384 shares issued and outstanding							26,477			26,384
Class B common stock – 25,000 shares $1.00 par value authorized, 306 and 306 shares issued and outstanding							306			306
Additional paid-in capital	13,479			7,476			19,952			19,164
Retained earnings	737,346			751,879			729,971			737,571
Accumulated other comprehensive loss	(15,959		)	(9,361		)	(20,785		)	(12,641		)
Total SSI shareholders’ equity	761,496			776,558			755,921			770,784
Noncontrolling interests	5,281			4,641			4,926			5,193
Total equity	766,777			781,199			760,847			775,977
Total liabilities and equity	$	1,383,769		$	1,405,512		$	1,322,176		$	1,355,210

The accompanying Notes to the Unaudited Condensed Consolidated Financial Statements

are an integral part of these statements.

Table of Contents

SCHNITZER STEEL INDUSTRIES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited, in thousands, except per share amounts)


	Three Months Ended February 28,						Six Months Ended February 28,						Three Months Ended November 30,
	2014			2013			2014			2013			2014			2013
Revenues	$	626,147		$	662,210		$	1,213,891		$	1,255,030		$	555,590		$	587,745
Operating expense:
Cost of goods sold	571,140			600,786			1,113,558			1,142,670			510,022			542,417
Selling, general and administrative	45,856			48,760			93,406			96,754			45,367			47,550
Income from joint ventures	(367		)	(266		)	(777		)	(131		)	(500		)	(409		)
Other asset impairment charges	928			—			928			—
Restructuring charges and other exit-related costs	2,006			1,540			3,819			3,133			623			1,812
Operating income	6,584			11,390			2,957			12,604
Operating income (loss)													78			(3,625		)
Interest expense	(2,816		)	(2,354		)	(5,517		)	(4,371		)	(2,424		)	(2,702		)
Other income (expense), net	(142		)	(49		)	33			271
Income (loss) before income taxes	3,626			8,987			(2,527		)	8,504
Income tax expense	(986		)	(244		)	(201		)	(1,205		)
Net income (loss)	2,640			8,743			(2,728		)	7,299
Other income, net													753			176
Loss before income taxes													(1,593		)	(6,151		)
Income tax (expense) benefit													(8		)	784
Net loss													(1,601		)	(5,367		)
Net income attributable to noncontrolling interests	(851		)	(100		)	(1,712		)	(329		)	(871		)	(861		)
Net income (loss) attributable to SSI	$	1,789		$	8,643		$	(4,440	)	$	6,970
Net loss attributable to SSI													$	(2,472	)	$	(6,228	)

Net income (loss) per share attributable to SSI:
Net loss per share attributable to SSI:
Basic	$	0.07		$	0.32		$	(0.17	)	$	0.26		$	(0.09	)	$	(0.23	)
Diluted	$	0.07		$	0.32		$	(0.17	)	$	0.26		$	(0.09	)	$	(0.23	)
Weighted average number of common shares:
Basic	26,825			26,640			26,790			26,597			26,944			26,755
Diluted	26,947			26,781			26,790			26,751			26,944			26,755
Dividends declared per common share	$	0.188		$	0.188		$	0.376		$	0.376		$	0.1875		$	0.1875

The accompanying Notes to the Unaudited Condensed Consolidated Financial Statements

are an integral part of these statements.

Table of Contents

SCHNITZER STEEL INDUSTRIES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE ~~INCOME (LOSS)~~LOSS

(Unaudited, in thousands)

Three Months Ended February 28, Six Months Ended February 28,
2014 2013 2014 2013
Net income (loss) $ 2,640
$ 8,743
$ (2,728 ) $ 7,299
Other comprehensive income (loss), net of tax:
Foreign currency translation adjustments⁽¹⁾
(5,688 ) (5,518 ) (6,579 ) (6,777 )
Cash flow hedges, net⁽²⁾
(229 ) 5
(108 ) 22
Pension obligations, net⁽³⁾
45
151
89
526
Total other comprehensive loss, net of tax (5,872 ) (5,362 ) (6,598 )
(6,229 )
Comprehensive income (loss) (3,232 ) 3,381
(9,326 )
1,070
Less amounts attributable to noncontrolling interests:
Net income attributable to noncontrolling interests (851 ) (100 ) (1,712 ) (329 )
Foreign currency translation adjustment attributable to redeemable noncontrolling interest —
(886 ) —
(1,059 )
Total amounts attributable to noncontrolling interests (851 ) (986 ) (1,712 )
(1,388 )
Comprehensive income (loss) attributable to SSI $ (4,083 ) $ 2,395
$ (11,038 )
$ (318 )

~~_____________________________~~


~~(1)~~	~~Net of tax benefit of zero,~~ ~~$(353) thousand, zero and $(444) thousand for each respective period.~~


~~(2)~~	~~Net of tax expense (benefit) of~~ ~~$(76) thousand~~, ~~$1 thousand, $(99) thousand and $24 thousand for each respective period.~~


~~(3)~~	~~Net of tax expense of~~ ~~$26 thousand~~, ~~$87 thousand, $51 thousand and $303 thousand for each respective period.~~



	Three Months Ended November 30,
	2014			2013
Net loss	$	(1,601	)	$	(5,367	)
Other comprehensive income (loss), net of tax:
Foreign currency translation adjustments	(7,272		)	(891		)
Cash flow hedges, net	(908		)	121
Pension obligations, net	36			44
Total other comprehensive loss, net of tax	(8,144		)	(726		)
Comprehensive loss	(9,745		)	(6,093		)
Less net income attributable to noncontrolling interests	(871		)	(861		)
Comprehensive loss attributable to SSI	$	(10,616	)	$	(6,954	)

The accompanying Notes to the Unaudited Condensed Consolidated Financial Statements

are an integral part of these statements.

Table of Contents

SCHNITZER STEEL INDUSTRIES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited, in thousands)


	Six Months Ended February 28,						Three Months Ended November 30,
	2014			2013			2014			2013
Cash flows from operating activities:
Net income (loss)	$	(2,728	)	$	7,299
Adjustments to reconcile net income (loss) to cash provided by (used in) operating activities:
Other asset impairment charges	928			—
Exit-related asset impairment charges	566			—
Net loss							$	(1,601	)	$	(5,367	)
Adjustments to reconcile net loss to cash (used in) provided by operating activities:
Depreciation and amortization	41,047			41,573			18,883			21,019
Deferred income taxes	1,803			2,919			101			(317		)
Undistributed equity in earnings of joint ventures	(777		)	(349		)	(500		)	(409		)
Share-based compensation expense	7,180			7,156			2,932			3,868
Excess tax benefit from share-based payment arrangements	(54		)	—			(65		)	(20		)
(Gain) loss on disposal of assets	(66		)	188
Unrealized foreign exchange loss, net	808			469
Gain on disposal of assets							(436		)	(304		)
Unrealized foreign exchange (gain) loss, net							(454		)	342
Bad debt expense (recoveries), net	400			(572		)	(19		)	856
Changes in assets and liabilities, net of acquisitions:
Accounts receivable	5,342			(32,168		)	30,577			57,375
Inventories	(7,581		)	(45,736		)	(25,774		)	(39,083		)
Income taxes	(3,284		)	825			(6,074		)	(1,949		)
Prepaid expenses and other current assets	1,464			(11,312		)	2,391			(181		)
Intangibles and other long-term assets	273			378			179			90
Accounts payable	1,758			(10,595		)	(24,851		)	(4,404		)
Accrued payroll and related liabilities	(1,771		)	511			(11,722		)	(4,284		)
Other accrued liabilities	(115		)	(5,366		)	260			(1,730		)
Environmental liabilities	(337		)	21			350			(306		)
Other long-term liabilities	(198		)	(315		)	(376		)	2
Distributed equity in earnings of joint ventures	1,040			1,279			145			645
Net cash provided by (used in) operating activities	45,698			(43,795		)
Net cash (used in) provided by operating activities							(16,054		)	25,843
Cash flows from investing activities:
Capital expenditures	(21,064		)	(47,823		)	(10,027		)	(14,380		)
Joint venture payments, net	(1,468		)	(510		)	—			(63		)
Proceeds from sale of assets	635			711			883			673
Acquisitions, net of cash acquired	(2,160		)	(22,667		)	—			(2,147		)
Net cash used in investing activities	(24,057		)	(70,289		)	(9,144		)	(15,917		)
Cash flows from financing activities:
Proceeds from line of credit	257,500			315,000			48,000			147,500
Repayment of line of credit	(266,000		)	(315,000		)	(48,000		)	(156,000		)
Borrowings from long-term debt	185,027			158,324			70,848			119,269
Repayment of long-term debt	(180,477		)	(94,987		)	(49,192		)	(98,472		)
Taxes paid related to net share settlement of share-based payment arrangements	(676		)	(1,161		)	(1,343		)	(628		)
Excess tax benefit from share-based payment arrangements	54			—			65			20
Stock options exercised	240			300			—			11
Contributions from noncontrolling interest	—			1,970
Distributions to noncontrolling interest	(1,072		)	(1,002		)	(1,138		)	(495		)
Dividends paid	(9,983		)	(4,952		)	(5,063		)	(4,990		)
Net cash (used in) provided by financing activities	(15,387		)	58,492
Net cash provided by financing activities							14,177			6,215
Effect of exchange rate changes on cash	668			269			15			312
Net increase (decrease) in cash and cash equivalents	6,922			(55,323		)
Net (decrease) increase in cash and cash equivalents							(11,006		)	16,453
Cash and cash equivalents as of beginning of period	13,481			89,863			25,672			13,481
Cash and cash equivalents as of end of period	$	20,403		$	34,540		$	14,666		$	29,934

The accompanying Notes to the Unaudited Condensed Consolidated Financial Statements

are an integral part of these statements.

Table of Contents

SCHNITZER STEEL INDUSTRIES, INC.

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Note 1 - Summary of Significant Accounting Policies

Basis of Presentation

The accompanying Unaudited Condensed Consolidated Financial Statements of Schnitzer Steel Industries, Inc. (the “Company”) have been prepared pursuant to generally accepted accounting principles in the United States of America (“U.S. GAAP”) for interim financial information and the rules and regulations of the United States Securities and Exchange Commission (the “SEC”) for Form 10-Q, including Article 10 of Regulation S-X. The year-end condensed consolidated balance sheet data was derived from audited financial statements, but does not include all disclosures required by U.S. GAAP. Certain information and note disclosures normally included in annual financial statements have been condensed or omitted pursuant to the rules and regulations of the SEC. In the opinion of management, all normal, recurring adjustments considered necessary for a fair statement have been included. Management suggests that these Unaudited Condensed Consolidated Financial Statements be read in conjunction with the financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended August 31, ~~2013~~2014. The results for the three ~~and six~~ months ended ~~February 28,~~November 30, 2014 and 2013 are not necessarily indicative of the results of operations for the entire fiscal year.

~~Revision of Previously Issued Financial Statements~~

In the first quarter of fiscal 2014, an error was identified in the classification of the cash outflow of $24.7 million for the purchase of a noncontrolling interest in a subsidiary as a use of cash in investing activities that, under generally accepted accounting principles, should have been reflected as a use of cash in financing activities in the Company’s consolidated statements of cash flows included in the previously reported financial statements for the nine months ended May 31, 2013 included in the Quarterly Report on Form 10-Q and for the year ended August 31, 2013 included in the 2013 Annual Report on Form 10-K.

~~The Company assessed the materiality of this classification error under the guidance in ASC 250-10 relating to SEC’s Staff Accounting Bulletin (“SAB”) No. 99,~~ ~~Materiality~~, and concluded that the previously issued financial statements for the nine months ended May 31, 2013 and the year ended August 31, 2013 were not materially misstated. The Company also evaluated the impact of correcting the error through an adjustment to its financial statements and concluded, based on the guidance within ASC 250-10 relating to SAB No. 108, ~~Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year Financial Statements~~, to revise its previously issued financial statements to reflect the impact of the correction of the classification error. The consolidated statements of cash flows for the year ended August 31, 2013 and for the nine months ended May 31, 2013 will be revised in the Company’s 2014 Annual Report on Form 10-K and Quarterly Report on Form 10-Q for the third quarter of fiscal 2014, respectively, to correct the classification error.

The revision had no impact on the Company’s consolidated balance sheets, consolidated results of operations, earnings (loss) per share and net cash provided by operating activities in the consolidated statements of cash flows.

The effect of the revision on the line items within the Company’s consolidated statement of cash flows for the nine months ended May 31, 2013 and the year ended August 31, 2013 is as follows (in thousands):

Nine Months Ended May 31, 2013 Year Ended August 31, 2013
As Reported Adjustments As Revised As Reported Adjustments As Revised
Investing Activities
Purchase of noncontrolling interest $ (24,734 ) $ 24,734
$ —
$ (24,734 ) $ 24,734
$ —
Net cash used in investing activities (115,089 ) 24,734
(90,355 ) (137,184 ) 24,734
(112,450 )

Financing Activities
Purchase of noncontrolling interest —
(24,734 ) (24,734 ) —
(24,734 ) (24,734 )
Net cash provided by (used in) financing
activities
60,023
(24,734 ) 35,289
20,587
(24,734 ) (4,147 )



~~Table of Contents~~	~~SCHNITZER STEEL INDUSTRIES, INC.~~
~~NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

Accounting Changes

In ~~February~~July 2013, an accounting standards update was issued that ~~amends~~clarifies the financial statement presentation of certain unrecognized tax benefits. The amendments require that an unrecognized tax benefit be presented as a reduction to a deferred tax asset for a net operating loss carryforward, a similar tax loss, or a tax credit carryforward, except to the extent that such carryforwards and losses are not available at the reporting date under the tax law of ~~amounts reclassified out~~the applicable jurisdiction to settle any additional income taxes that would result from the disallowance of ~~accumulated other comprehensive income. This standard~~a tax position, or the tax law of the applicable jurisdiction does not ~~change~~require the ~~current requirements~~entity to use, and the entity does not intend to use, the deferred tax asset for ~~reporting net income or other comprehensive income~~such purpose, in which case the unrecognized tax benefit should be presented in the financial statements. However, the guidance requires an entity to provide information about the amounts reclassified out of accumulated other comprehensive income by component, either on the face of the financial statement where net income is presented or in the notes to the financial statements.statements as a liability. The Company adopted the new requirement in the first quarter of fiscal ~~2014~~2015 with no significant impact to the ~~Company’s Unaudited~~ Condensed Consolidated Financial Statements, except for the change in presentation. The Company has chosen to present amounts reclassified out of accumulated other comprehensive income in the notes to the financial statements. See Note 10 - Accumulated Other Comprehensive Loss for further detail.

~~During the first quarter of fiscal 2014, the Company elected to change its annual goodwill impairment testing date from February 28 to July 1 of each year. See Note 4 - Goodwill for further detail.~~Statements.

Cash and Cash Equivalents

Cash and cash equivalents include short-term securities that are not restricted by third parties and have an original maturity date of 90 days or less. Included in accounts payable are book overdrafts representing outstanding checks in excess of funds on deposit of ~~$31~~$18 million and $35 million as of ~~February 28,~~November 30, 2014 and August 31, ~~2013~~2014., respectively.

Other Assets

The Company’s other assets, exclusive of prepaid expenses, consist primarily of receivables from insurers, notes and other contractual receivables, and assets held for sale. Other assets are reported within either prepaid expenses and other current assets or other assets in the Condensed Consolidated Balance Sheets based on their expected use either during or beyond the current operating cycle of one year from the reporting date. ~~Other~~As of August 31, 2014, other assets ~~are~~were reported net of an allowance for credit losses on notes and other contractual receivables of $8 million. During the first quarter of fiscal 2015, the contractual receivables against which the $8 million ~~as of~~ ~~February 28, 2014~~ ~~and~~ ~~August 31, 2013~~.

allowance for credit losses was recorded were written off. As of ~~February 28,~~November 30, 2014 and August 31, ~~2013,~~2014, the Company reported ~~$4 million and~~ $3 million of assets held for sale within prepaid expenses and other current assets in the Condensed Consolidated Balance Sheets. During the second quarter of fiscal 2014, the Company recorded impairment charges for the initial and subsequent write-down of certain equipment held for sale to its fair value less cost to sell of $1 million, which are reported within other asset impairment charges in the Condensed Consolidated Statements of Operations. The Company determined fair value using Level 3 inputs under the fair value hierarchy consisting of information provided by brokers and other external sources along with management's own assumptions. See Note 11 - Fair Value Measurements for further detail.

Derivative Financial Instruments

The Company records derivative instruments in prepaid expenses and other current assets or other accrued liabilities in the Condensed Consolidated Balance Sheets at fair value, and changes in the fair value are either recognized in other comprehensive income (loss) in the Condensed Consolidated Statements of Comprehensive ~~Income (Loss)~~Loss or net income (loss) in the Condensed Consolidated Statements of Operations, as applicable, depending on the nature of the underlying exposure, whether the derivative has been designated as a hedge and, if designated as a hedge, the extent to which the hedge is effective. Amounts included in accumulated other comprehensive ~~income (loss)~~loss are reclassified to earnings in the period in which earnings are impacted by the hedged items, in the period that the hedged transaction is deemed no longer likely to occur, or in the period that the derivative is terminated. For cash flow hedges, a formal assessment is made, both at the hedge’s inception and on an ongoing basis, to determine whether the derivatives that are designated as hedging instruments have been highly effective in offsetting changes in the cash flows of hedged items and whether those derivatives may be expected to remain highly effective in future periods. To the extent the hedge is determined to be ineffective, the ineffective portion is immediately recognized in earnings. When available, quoted market prices or prices obtained through external sources are used to measure a derivative instrument’s fair value. The fair value of these



Table of Contents	SCHNITZER STEEL INDUSTRIES, INC.
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

instruments is a function of underlying forward commodity prices or foreign currency exchange rates, related volatility, counterparty creditworthiness and duration of the contracts. Cash flows from derivatives are recognized in the Condensed Consolidated Statements of Cash Flows in a manner consistent with the underlying transactions. See Note ~~11 - Fair Value Measurements and Note 12~~9 - Derivative Financial Instruments for further detail.

Concentration of Credit Risk

Financial instruments that potentially subject the Company to significant concentration of credit risk consist primarily of cash and cash equivalents, accounts receivable, notes and other contractual receivables and derivative financial instruments. The majority of cash and cash equivalents are maintained with two major financial institutions (Bank of America and Wells Fargo Bank, N.A.). Balances inwith these institutions exceeded the Federal Deposit Insurance Corporation insured amount of $250,000 as of ~~February 28,~~November 30, 2014. Concentration of credit risk with respect to accounts receivable is limited because a large number of geographically diverse customers make up the Company’s customer base. The Company controls credit risk through credit approvals, credit limits, letters of credit or other collateral, cash deposits and monitoring procedures. The Company is exposed to a residual credit risk with respect



~~Table of Contents~~	~~SCHNITZER STEEL INDUSTRIES, INC.~~
~~NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

to open letters of credit by virtue of the possibility of the failure of a bank providing a letter of credit. The Company had ~~$64~~$70 million and ~~$94~~$74 million of open letters of credit relating to accounts receivable as of ~~February 28,~~November 30, 2014 and August 31, ~~2013~~2014, respectively. The counterparties to the Company's derivative financial instruments are major financial institutions.

Financial Instruments

The Company’s financial instruments include cash and cash equivalents, accounts receivable, accounts payable, debt and derivative contracts. The Company uses the market approach to value its financial assets and liabilities, determined using available market information. The net carrying amounts of cash and cash equivalents, accounts receivable and accounts payable approximate fair value due to the short-term nature of these instruments. For long-term debt, which is primarily at variable interest rates, fair value is estimated using observable inputs (Level 2) and approximates its carrying value. Derivative contracts are reported at fair value. See Note ~~11 - Fair Value Measurements and Note 12~~9 - Derivative Financial Instruments for further detail.

Fair Value Measurements

Fair value is measured using inputs from the three levels of the fair value hierarchy. Classification within the hierarchy is determined based on the lowest level input that is significant to the fair value measurement. The three levels are described as follows:

Level 1 – Unadjusted quoted prices in active markets for identical assets and liabilities.

Level 2 – Inputs other than quoted prices included within Level 1 that are observable for the determination of the fair value of the asset or liability, either directly or indirectly.

Level 3 – Unobservable inputs that are significant to the determination of the fair value of the asset or liability.

When developing the fair value measurements, the Company uses quoted market prices whenever available or seeks to maximize the use of observable inputs and minimize the use of unobservable inputs when quoted market prices are not available. ~~See Note 11 - Fair Value Measurements for further detail.~~

Restructuring Charges

Restructuring charges consist of severance, contract termination and other restructuring-related costs. A liability for severance costs is typically recognized when the plan of termination has been communicated to the affected employees and is measured at its fair value at the communication date. Contract termination costs consist primarily of costs that will continue to be incurred under operating leases for their remaining terms without economic benefit to the Company. A liability for contract termination costs is recognized at the date the Company ceases using the rights conveyed by the lease contract and is measured at its fair value, which is determined based on the remaining contractual lease rentals reduced by estimated sublease rentals. A liability for other ~~restructuring~~restructuring-related costs is measured at its fair value in the period in which the liability is incurred. See Note 76 - Restructuring Charges and Other Exit-Related Costs for further detail.

~~Employee Benefits~~

Prior to October 1, 2013, the Steelworkers Western Independent Shops Pension Plan (“WISPP”), a multiemployer plan benefiting union employees of the Steel Manufacturing Business, had an accumulated funding deficiency (i.e., a failure to satisfy the minimum funding requirements) and was certified in a Red Zone Status, as defined by the Pension Protection Act of 2006. As of October 1, 2013, the WISPP was no longer in Red Zone Status, having been certified by the plan’s actuaries as being in the Green Zone.

Note 2 - ~~Inventories, net~~Recent Accounting Pronouncements

~~Inventories, net consisted~~In April 2014, an accounting standard update was issued that amends the requirements for reporting discontinued operations, which may include a component of an entity or a group of components of an entity. The amendments limit discontinued operations reporting to disposals of components of an entity that represent strategic shifts that have, or will have, a major effect on an entity's operations and financial results. The amendments require expanded disclosure about the ~~following (in thousands):~~

February 28, 2014 August 31, 2013
Processed and unprocessed scrap metal $ 139,729
$ 132,485
Semi-finished goods (billets) 13,185
10,745
Finished goods 62,341
56,830
Supplies 37,594
35,989
Inventories, net $ 252,849
$ 236,049

assets, liabilities, revenues and expenses of discontinued operations. Further, the amendments require an entity to disclose the pretax profit or loss of an individually significant component that is being disposed of that does not qualify for discontinued operations reporting. The standard is applicable to the Company and is to be applied prospectively to all disposals or classifications as held for sale of components that occur



Table of Contents	SCHNITZER STEEL INDUSTRIES, INC.
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

~~Note 3~~ ~~- Business Combinations~~

~~In November 2013, the Company acquired all of the equity interests of Pick A Part, Inc., a used auto parts business with one store~~beginning in the Olympia metropolitan area in Washington, which expanded the Auto Parts Business’ presence in the Pacific Northwest and is near the Metals Recycling Business’ operations in Tacoma, Washington. The acquisition was not material to the Company’s financial position or results of operations. Pro forma operating results for the acquisition are not presented, since the aggregate results would not be significantly different than reported results.

~~Note 4~~ ~~- Goodwill~~

~~During~~ the first quarter of fiscal ~~2014,~~2016, and interim periods within that fiscal year, and all businesses that, on acquisition, are classified as held for sale that occur beginning in the first quarter of fiscal 2016, and interim periods within that fiscal year. Upon adoption, the standard will impact how the Company ~~changed its annual goodwill impairment testing~~assesses and reports discontinued operations.

In May 2014, an accounting standard update was issued that clarifies the principles for recognizing revenue. The guidance is applicable to all contracts with customers regardless of industry-specific or transaction-specific fact patterns. Further, the guidance requires improved disclosures to help users of financial statements better understand the nature, amount, timing, and uncertainty of revenue that is recognized. The standard is effective for the Company beginning in the first quarter of fiscal 2018, including interim periods within that fiscal year. Early application is not permitted. Upon becoming effective, the Company will apply the amendments in the updated standard either retrospectively to each prior reporting period presented, or retrospectively with the cumulative effect of initially applying the guidance recognized at the date ~~from February 28 to July 1~~ of ~~each year.~~initial application. The Company ~~believes~~is evaluating the impact of adopting this ~~new testing date is preferable because it allows~~standard on its consolidated financial position, results of operations and cash flows.

Note 3 - Inventories

Inventories consisted of the Company to better align the annual goodwill impairment testing procedures with the Company’s year-end financial reporting as well as its annual budgeting cycle and allows the Company visibility into fourth quarter operating results which are typically significant to its annual performance. following (in thousands):



	November 30, 2014		August 31, 2014
Processed and unprocessed scrap metal	$	129,294	$	106,877
Semi-finished goods (billets)	11,875		12,920
Finished goods	64,460		59,039
Supplies	38,639		37,336
Inventories	$	244,268	$	216,172

Note 4 - Goodwill

The Company ~~most recently performed an assessment of~~tests the goodwill in each of its reporting units ~~during~~annually on July 1 and upon the ~~fourth quarter~~occurrence of ~~fiscal 2013. This change~~certain triggering events or substantive changes in ~~accounting principle did not delay, accelerate or cause~~circumstances that indicate that the ~~Company to avoid an impairment charge. As a result~~fair value of ~~this change, the Company will complete its next annual~~ goodwill ~~impairment test during the fourth quarter of fiscal 2014.~~

may be impaired. There were no triggering events identified during the first ~~or second quarters~~quarter of fiscal ~~2014~~2015 requiring an interim goodwill impairment ~~test of our reporting units. Additional sustained declines in or a~~test. A lack of recovery inof market conditions in the metals recycling industry from current levels, a sustained trend of weaker than anticipated Company financial performance including the pace and extent of operating margin and volume recovery, a ~~sustained~~lack of recovery or further decline in the Company’s share price from current levels for a sustained period of time, or an increase in the market-based ~~weighted-average~~weighted average cost of capital, among other factors, could significantly impact the impairment analysis and may result in future goodwill impairment charges that, if incurred, could have a material adverse effect on the Company’s financial condition and results of operations.

The gross changes in the carrying amount of goodwill by reporting segment for the ~~six~~three months ended ~~February 28,~~November 30, 2014 were as follows (in thousands):

Metals Recycling Business Auto Parts Business Total
Balance as of August 31, 2013 $ 147,213
$ 180,051
$ 327,264
Acquisitions —
586
586
Acquisition accounting adjustments —
(51 ) (51 )
Foreign currency translation adjustment (1,730 ) (1,238 ) (2,968 )
Balance as of February 28, 2014 $ 145,483
$ 179,348
$ 324,831



	Metals Recycling Business			Auto Parts Business			Total
Balance as of August 31, 2014	$	146,108		$	179,795		325,903
Foreign currency translation adjustment	(1,717		)	(1,230		)	(2,947		)
Balance as of November 30, 2014	$	144,391		$	178,565		$	322,956

Accumulated goodwill impairment charges were ~~$321~~$321 million as of ~~February 28,~~November 30, 2014 and August 31, ~~2013.~~2014.

~~Note 5 - Short-Term Borrowings~~

The Company has an unsecured, uncommitted $25 million credit line with Wells Fargo Bank, N.A. As of March 1, 2014, the term of this credit facility was renewed and extended to March 1, 2015. Interest rates are set by the bank at the time of borrowing. The Company had zero and $9 million in borrowings outstanding under this credit line as of February 28, 2014 and August 31, 2013. The credit agreement contains various representations and warranties, events of default and financial and other covenants, including covenants regarding maintenance of a minimum fixed charge ratio and a maximum leverage ratio.

Note 65 - Commitments and Contingencies

The Company evaluates the adequacy of its environmental liabilities on a quarterly basis. Adjustments to the liabilities are made when additional information becomes available that affects the estimated costs to study or remediate any environmental issues or expenditures are made for which liabilities were established.

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Changes in the Company’s environmental liabilities for the ~~six~~three months ended ~~February 28,~~November 30, 2014 were as follows (in thousands):


Reporting Segment	Balance as of August 31, 2013		Liabilities Established (Released), Net			Payments and Other			Balance as of February 28, 2014		Short-Term		Long-Term		Balance as of August 31, 2014		Liabilities Established (Released), Net		Payments and Other			Balance as of November 30, 2014		Short-Term		Long-Term
Metals Recycling Business	$	30,520	$	(312	)	$	(231	)	$	29,977	$	345	$	29,632	$	30,139	$	195	$	(331	)	$	30,003	$	496	$	29,507
Auto Parts Business	18,774		373			(120		)	19,027		556		18,471		17,822		—		(49		)	17,773		554		17,219
Corporate	500		—			(5		)	495		195		300		388		—		(11		)	377		77		300
Total	$	49,794	$	61		$	(356	)	$	49,499	$	1,096	$	48,403	$	48,349	$	195	$	(391	)	$	48,153	$	1,127	$	47,026

Metals Recycling Business (“MRB”)

As of ~~February 28,~~November 30, 2014, MRB had environmental liabilities of ~~$30~~$30 million for the potential remediation of locations where it has conducted business and has environmental liabilities from historical or recent activities.

Portland Harbor

In December 2000, the Company was notified by the United States Environmental Protection Agency (“EPA”) under the Comprehensive Environmental Response, Compensation and Liability Act (“CERCLA”) that it is one of the potentially responsible parties (“PRPs”) that own or operate or formerly owned or operated sites which are part of or adjacent to the Portland Harbor Superfund site (the “Site”). The precise nature and extent of any cleanup of the Site, the parties to be involved, the process to be followed for any cleanup and the allocation of the costs for any cleanup among responsible parties have not yet been determined, but the process of identifying additional PRPs and beginning allocation of costs is underway. It is unclear to what extent the Company will be liable for environmental costs or natural resource damage claims or third party contribution or damage claims with respect to the Site. While the Company participated in certain preliminary Site study efforts, it is not party to the consent order entered into by the EPA with certain other PRPs, referred to as the “Lower Willamette Group” (“LWG”), for a remedial investigation/feasibility study (“RI/FS”).

During fiscal 2007, the Company and certain other parties agreed to an interim settlement with the LWG under which the Company made a cash contribution to the LWG RI/FS. The Company has also joined with more than 80 other PRPs, including the LWG, in a voluntary process to establish an allocation of costs at the Site. These parties have selected an allocation team and have entered into an allocation process design agreement. The LWG has also commenced federal court litigation, which has been stayed, seeking to bring additional parties into the allocation process.

In January 2008, the Natural Resource Damages Trustee Council (“Trustees”) for Portland Harbor invited the Company and other PRPs to participate in funding and implementing the Natural Resource Injury Assessment for the Site. Following meetings among the Trustees and the PRPs, a funding and participation agreement was negotiated under which the participating PRPs agreed to fund the first phase of the natural resource damage assessment. The Company joined in that Phase I agreement and paid a portion of those costs. The Company did not participate in funding the second phase of the natural resource damage assessment.

On March 30, 2012, the LWG submitted to the EPA and made available on its website a draft feasibility study (“draft FS”) for the Site based on approximately ten years of work and $100 million in costs classified by the LWG as investigation related. The draft FS identifies ten possible remedial alternatives which range in estimated cost from approximately $170 million to $250 million (net present value) for the least costly alternative to approximately $1.08 billion to $1.76 billion (net present value) for the most costly and estimates a range of two to 28 years to implement the remedial work, depending on the selected alternative. The draft FS does not determine who is responsible for remediation costs, define the precise cleanup boundaries or select remedies. The draft FS is being ~~reviewed~~revised by the EPA and ~~is likely to be subject to~~the revisions ~~which could~~may be significant ~~prior to its approval by~~and could materially impact the ~~EPA.~~scope or cost of remediation. While the draft FS is an important step in the EPA’s development of a proposed plan for addressing the Site, a final decision on the nature and extent of the required remediation will occur only after the EPA has prepared a proposed plan for public review and issued a record of decision (“ROD”). Currently available information indicates that the EPA does not expect to issue its final ROD selecting a remedy for the Site until at least ~~2016.~~2017 or commence remediation activities until 2024. Responsibility for implementing and funding the EPA’s selected remedy will be determined in a separate allocation process, which is currently underway.

Because there has not been a determination of the total cost of the investigations, the remediation that will be required, the amount of natural resource damages or how the costs of the ongoing investigations and any remedy and natural resource damages will be allocated among the PRPs, the Company believes it is not possible to reasonably estimate the amount or range of costs which it is likely or reasonably possible that the Company may incur in connection with the Site, although such costs could be material to the Company’s financial position, results of operations, cash flows and liquidity. Among the facts currently not known or available

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are detailed information on the history of ownership of and the nature of the uses of and activities and operations performed on each property within the Site, which are factors that will play a substantial role in determining the allocation of investigation and remedy costs among the PRPs. The Company has insurance policies that it believes will provide reimbursement for costs it incurs for defense and remediation in connection with the Site, although there is no assurance that those policies will cover all of the costs which the Company may incur. The Company previously recorded a liability for its estimated share of the costs of the investigation of $1 million.

The Oregon Department of Environmental Quality is separately providing oversight of voluntary investigations by the Company involving the Company’s sites adjacent to the Portland Harbor which are focused on controlling any current “uplands” releases of contaminants into the Willamette River. No liabilities have been established in connection with these investigations because the extent of contamination (if any) and the Company’s responsibility for the contamination (if any) has not yet been determined.

Other MRB Sites

As of ~~February 28,~~November 30, 2014, the Company had environmental liabilities related to various MRB sites other than Portland Harbor of ~~$29 million~~.$29 million. The liabilities relate to the potential future remediation of soil contamination, groundwater contamination and storm water runoff issues and were not individually material at any site.

Auto Parts Business (“APB”)

As of ~~February 28,~~November 30, 2014, the Company had environmental liabilities related to various APB sites of ~~$19 million~~.$18 million. The liabilities relate to the potential future remediation of soil contamination, groundwater contamination and storm water runoff issues and were not individually material at any site.

Steel Manufacturing Business (“SMB”)

SMB’s electric arc furnace generates dust (“EAF dust”) that is classified as hazardous waste by the EPA because of its zinc and lead content. As a result, the Company captures the EAF dust and ships it in specialized rail cars to a firm that applies a treatment that allows the EAF dust to be delisted as hazardous waste so it can be disposed of as a non-hazardous solid waste.

SMB has an operating permit issued under Title V of the Clean Air Act Amendments of 1990, which governs certain air quality standards. The permit is based on an annual production capacity of 950 thousand tons. The permit was first issued in 1998 and has since been renewed through February 1, 2018.

SMB had no environmental liabilities as of ~~February 28,~~November 30, 2014.

Other than the Portland Harbor Superfund site, which is discussed above, management currently believes that adequate provision has been made for the potential impact of these issues and that the ultimate outcomes will not have a material adverse effect on the Unaudited Condensed Consolidated Financial Statements of the Company as a whole. Historically, the amounts the Company has ultimately paid for such remediation activities have not been material in any given period.

In addition, the Company is party to various legal proceedings arising in the normal course of business. Management believes that adequate provisions have been made for these contingencies. The Company does not anticipate that the resolution of legal proceedings arising in the normal course of business will have a material adverse effect on its results of operations, financial condition, or cash flows.

Note 76 - Restructuring Charges and Other Exit-Related Costs

In the fourth quarter of fiscal 2012, the Company ~~announced and~~ undertook a number of restructuring initiatives designed to extract greater synergies from the significant acquisitions and technology investments made in recent years, achieve further integration between MRB and APB, and realign the Company’s organization to support its future growth and decrease operating expenses by streamlining functions and reducing organizational ~~layers. These initiatives were substantially completed by the end of fiscal 2013.~~layers (the “Q4'12 Plan”).

In the first quarter of fiscal 2014, the Company announced and began implementing additional restructuring initiatives to further reduce its annual operating expenses through headcount reductions, productivity improvements, procurement savings and other operational ~~efficiencies. The Company expects to incur restructuring charges of $5 million in connection with these initiatives, with substantially all of~~efficiencies (the “Q1'14 Plan”).

In the ~~charges expected to be incurred by the end~~first quarter of fiscal ~~2014. The vast majority of the restructuring charges will require~~2015, the Company announced and began implementing additional productivity initiatives at APB to ~~make cash payments.~~

improve profitability through a combination of revenue drivers and cost reduction initiatives (the “Q1'15 Plan”).

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In addition to the restructuring charges recorded in connection with these initiatives, the Company incurred other exit-related costs consisting of asset impairments related to site closures. The Company did not incur other exit-related costs during the three months ended November 30, 2014 and 2013.

Restructuring charges ~~and other exit-related costs~~ were comprised of the following (in thousands):


	Three Months Ended February 28, 2014								Three Months Ended February 28, 2013						Three Months Ended November 30, 2014						Three Months Ended November 30, 2013
	Q4’12 Plan			Q1’14 Plan			Total Charges		Q4’12 Plan		Q1’14 Plan		Total Charges		Q1’14 Plan		Q1’15 Plan		Total Charges		Q4’12 Plan		Q1’14 Plan		Total Charges
Restructuring charges:
Severance costs	$	(39	)	$	1,182		$	1,143	$	116	$	—	$	116	$	27	$	—	$	27	$	26	$	1,076	$	1,102
Contract termination costs	106			(9		)	97		19		—		19		253		—		253		462		38		500
Other restructuring costs	—			200			200		1,405		—		1,405		—		343		343		—		210		210
Total restructuring charges	67			1,373			1,440		1,540		—		1,540		$	280	$	343	$	623	$	488	$	1,324	$	1,812
Other exit-related costs:
Asset impairments	$	—		$	566		$	566	$	—	$	—	$	—
Total exit-related costs	—			566			566		—		—		—
Total restructuring charges and exit-related costs	$	67		$	1,939		$	2,006	$	1,540	$	—	$	1,540

Six Months Ended February 28, 2014 Six Months Ended February 28, 2013
Q4’12 Plan Q1’14 Plan Total Charges Q4’12 Plan Q1’14 Plan Total Charges
Restructuring charges:
Severance costs $ (13 ) $ 2,259
$ 2,246
$ 1,055
$ —
$ 1,055
Contract termination costs 568
29
597
24
—
24
Other restructuring costs —
410
410
2,054
—
2,054
Total restructuring charges 555
2,698
3,253
3,133
—
3,133
Other exit-related costs:
Asset impairments $ —
$ 566
$ 566
$ —
$ —
$ —
Total exit-related costs —
566
566
—
—
—
Total restructuring charges and exit-related costs $ 555
$ 3,264
$ 3,819
$ 3,133
$ —
$ 3,133


	Total Charges						Total Charges
	Q4’12 Plan		Q1’14 Plan		Total		Q4'12 Plan		Q1’14 Plan		Q1'15 Plan		Total
Total restructuring charges to date	$	13,473	$	2,698	$	16,171	$	13,549	$	6,050	$	343	$	19,942
Total expected restructuring charges	$	13,500	$	5,200	$	18,700	$	13,550	$	6,150	$	2,200	$	21,900

The following illustrates the reconciliation of the restructuring liability by major type of costs for the ~~six~~three months ended ~~February 28,~~November 30, 2014 (in thousands):


	Q4’12 Plan										Q1’14 Plan									Total Charges to Date				Total Expected Charges		Q1’14 Plan													Q1’15 Plan												All Plans
	Balance 8/31/2013		Charges			Payments and Other			Balance 2/28/2014		Balance 8/31/2013		Charges		Payments and Other			Balance 2/28/2014					Balance 8/31/2014				Charges			Payments and Other			Balance 11/30/2014				Balance 8/31/2014			Charges			Payments and Other			Balance 11/30/2014			Total Charges to Date			Total Expected Charges
Severance costs	$	278	$	(13	)	$	(227	)	$	38	$	—	$	2,259	$	(1,300	)	$	959	Total Charges to Date	$	7,430		Total Expected Charges		$	9,600	$	669		$	27			$	(294	)	$	402		$	—		$	—		$	—		$	—		$	9,818		$	10,700
Contract termination costs	3,027		568			(1,835		)	1,760		—		29		(6		)	23		4,266				4,600		500			253			(167		)		586			—			—			—			—			5,306			5,400
Other restructuring costs	—		—			—			—		—		410		(410		)	—		4,475				4,500		—			—			—				—			—			343			—			343			4,818			5,800
Total	$	3,305	$	555		$	(2,062	)	$	1,798	$	—	$	2,698	$	(1,716	)	$	982	$	16,171			$	18,700	$	1,169		$	280		$	(461	)		$	988		$	—		$	343		$	—		$	343		$	19,942		$	21,900

The Q4'12 Plan was substantially completed in fiscal 2014 and all further activity is immaterial. As of November 30, 2014 and August 31, 2014, the restructuring liability for the Q4'12 Plan was $1 million and related to contract terminations.



~~Table of Contents~~	~~SCHNITZER STEEL INDUSTRIES, INC.~~
~~NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

The amounts of restructuring charges and other exit-related costs relating to each segment were as follows (in thousands):


	Three Months Ended February 28,				Six Months Ended February 28,				Total Charges to Date			Total Expected Charges		Three Months Ended November 30,					Total Charges to Date		Total Expected Charges
	2014		2013		2014		2013				2014				2013
Restructuring charges:
Metals Recycling Business	$	860	$	60	$	2,152	$	610	$	6,560		$	8,100	$	255		$	1,291	$	8,934	$	9,000
Auto Parts Business	435		24		496		211		968			1,500		374			61		1,903		3,750
Unallocated (Corporate)	145		1,456		605		2,312		8,643			9,100		(6		)	460		9,105		9,150
Total restructuring charges	1,440		1,540		3,253		3,133		16,171			18,700		623			1,812		19,942		21,900
Other exit-related costs:
Metals Recycling Business	566		—		566		—		566					—			—		566
Total exit-related costs	566		—		566		—		566					—			—		566
Total restructuring charges and other exit-related costs	2,006		1,540		3,819		3,133		16,737					$	623		$	1,812	$	20,508

The Company does not allocate restructuring charges and other exit-related costs to the segments’ operating results because management does not include this information in its measurement of the performance of the operating segments.

~~Note 8~~ ~~- Redeemable Noncontrolling Interest~~

In ~~March 2011~~, the Company, through a wholly-owned acquisition subsidiary, acquired substantially all of the metals recycling assets of a Canadian business. As part of the purchase consideration, the Company issued the seller common shares equal to ~~20%~~ of the issued and outstanding capital stock of the Company’s acquisition subsidiary. Under the terms of an agreement related to the acquisition, the noncontrolling interest holder had the right to require the Company to purchase its interest in the Company’s acquisition subsidiary for fair value upon the occurrence of certain triggering events.

On ~~March 8, 2013, the Company entered into an agreement with the noncontrolling interest holder for the purchase of all of the outstanding noncontrolling interest in the Company’s subsidiary for~~ ~~$25 million. In the second quarter of fiscal 2013, the Company adjusted the redeemable noncontrolling interest to its fair value corresponding to the purchase price of~~ ~~$25 million~~. Prior to its purchase, the noncontrolling interest was presented at its adjusted carrying value, which approximated its fair value. The Company determined fair value using Level 3 inputs under the fair value hierarchy using an income approach based on a discounted cash flow analysis.

~~Following is a reconciliation of the changes in the redeemable noncontrolling interest for the~~ ~~six~~ ~~months ended February 28, 2013 (in thousands):~~

Fiscal 2013
Balances - September 1 (Beginning of period) $ 22,248
Net loss attributable to noncontrolling interest (903 )
Currency translation adjustment (1,059 )
Capital contributions from noncontrolling interest holder 1,970
Adjustment to fair value 2,504
Balances - February 28 (End of period) $ 24,760

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Note 97 - Changes in Equity

The following is a summary of the changes in equity for the ~~six~~three months ended ~~February 28,~~November 30, 2014 and 2013 (in thousands):


	Fiscal 2014									Fiscal 2013									Fiscal 2015									Fiscal 2014
	SSI Shareholders’ Equity			Noncontrolling Interests			Total Equity			SSI Shareholders’ Equity			Noncontrolling Interests			Total Equity			SSI Shareholders’ Equity			Noncontrolling Interests			Total Equity			SSI Shareholders’ Equity			Noncontrolling Interests			Total Equity
Balances - September 1 (Beginning of period)	$	776,558		$	4,641		$	781,199		$	1,080,583		$	5,113		$	1,085,696
Balance - September 1 (Beginning of period)																			$	770,784		$	5,193		$	775,977		$	776,558		$	4,641		$	781,199
Net income (loss) ⁽¹⁾	(4,440		)	1,712			(2,728		)	6,970			1,232			8,202			(2,472		)	871			(1,601		)	(6,228		)	861			(5,367		)
Other comprehensive loss, net of tax⁽²⁾	(6,598		)	—			(6,598		)	(7,288		)	—			(7,288		)	(8,144		)	—			(8,144		)	(726		)	—			(726		)
Distributions to noncontrolling interests	—			(1,072		)	(1,072		)	—			(1,002		)	(1,002		)	—			(1,138		)	(1,138		)	—			(495		)	(495		)
Restricted stock withheld for taxes	(676		)	—			(676		)	(1,161		)	—			(1,161		)	(1,343		)	—			(1,343		)	(628		)	—			(628		)
Stock options exercised	240			—			240			300			—			300			—			—			—			11			—			11
Share-based compensation	7,180			—			7,180			7,156			—			7,156			2,932			—			2,932			3,868			—			3,868
Excess tax deficiency from stock options exercised and restricted stock units vested	(674		)	—			(674		)	(852		)	—			(852		)	(708		)	—			(708		)	(589		)	—			(589		)
Adjustments to fair value of redeemable noncontrolling interest	—			—			—			(2,504		)	—			(2,504		)
Cash dividends	(10,094		)	—			(10,094		)	(9,915		)	—			(9,915		)
Balances - February 28 (End of period)	$	761,496		$	5,281		$	766,777		$	1,073,289		$	5,343		$	1,078,632
Dividends																			(5,128		)	—			(5,128		)	(5,002		)	—			(5,002		)
Balance - November 30 (End of period)																			$	755,921		$	4,926		$	760,847		$	767,264		$	5,007		$	772,271

~~_____________________________~~


~~(1)~~	~~Net income attributable to noncontrolling interests for the~~ ~~six~~ ~~months ended February 28, 2013 excludes net losses of~~ ~~$(903) thousand~~ ~~allocable to the redeemable noncontrolling interest. See~~ ~~Note 8~~ ~~- Redeemable Noncontrolling Interest.~~


~~(2)~~	~~Other comprehensive loss, net of tax for the~~ ~~six~~ ~~months ended February 28, 2013 excludes~~ ~~$(1) million~~ ~~relating to foreign currency translation adjustments for the redeemable noncontrolling interest. See~~ ~~Note 8~~ ~~- Redeemable Noncontrolling Interest.~~

Note 108 - Accumulated Other Comprehensive Loss

Changes in accumulated other comprehensive loss, net of tax, for the three months ended ~~February 28,~~November 30, 2014 and 2013 were as follows:


	Foreign Currency Translation Adjustments			Pension Obligations, net			Net Unrealized Gain/(Loss) on Cash Flow Hedges			Total			Fiscal 2015												Fiscal 2014
Balance as of November 30, 2013	$	(7,314	)	$	(2,773	)	$	—		$	(10,087	)
													Foreign Currency Translation Adjustments			Pension Obligations, net			Net Unrealized Gain (Loss) on Cash Flow Hedges			Total			Foreign Currency Translation Adjustments			Pension Obligations, net			Net Unrealized Gain (Loss) on Cash Flow Hedges			Total
Balances - September 1 (Beginning of period)													$	(10,663	)	$	(2,036	)	$	58		$	(12,641	)	$	(6,423	)	$	(2,817	)	$	(121	)	$	(9,361	)
Other comprehensive loss before reclassifications	(5,688		)	—			(305		)	(5,993		)	(7,272		)	—			(1,712		)	(8,984		)	(891		)	—			—			(891		)
Income tax benefit	—			—			76			76			—			—			428			428			—			—			—			—
Other comprehensive loss before reclassifications, net of tax	(5,688		)	—			(229		)	(5,917		)	(7,272		)	—			(1,284		)	(8,556		)	(891		)	—			—			(891		)
Amounts reclassified from accumulated other comprehensive loss	—			71			—			71			—			49			501			550			—			69			98			167
Income tax expense	—			(26		)	—			(26		)
Income tax (benefit) expense													—			(13		)	(125		)	(138		)	—			(25		)	23			(2		)
Amounts reclassified from accumulated other comprehensive loss, net of tax	—			45			—			45			—			36			376			412			—			44			121			165
Net periodic other comprehensive income (loss)	(5,688		)	45			(229		)	(5,872		)	(7,272		)	36			(908		)	(8,144		)	(891		)	44			121			(726		)
Balance as of February 28, 2014	$	(13,002	)	$	(2,728	)	$	(229	)	$	(15,959	)
Balances - November 30 (End of period													$	(17,935	)	$	(2,000	)	$	(850	)	$	(20,785	)	$	(7,314	)	$	(2,773	)	$	—		$	(10,087	)

Reclassifications from accumulated other comprehensive loss, both individually and in the aggregate, were immaterial to the impacted captions in the Unaudited Condensed Consolidated Statements of Operations.

1513



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NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

~~Changes in accumulated other comprehensive loss, net of tax, for the six months ended February 28, 2014 were as follows:~~

Foreign Currency Translation Adjustments Pension Obligations, net Net Unrealized Gain/(Loss) on Cash Flow Hedges Total
Balance as of August 31, 2013 $ (6,423 ) $ (2,817 ) $ (121 ) $ (9,361 )
Other comprehensive loss before reclassifications (6,579 ) —
(305 ) (6,884 )
Income tax benefit —
—
76
76
Other comprehensive loss before reclassifications, net of tax (6,579 ) —
(229 ) (6,808 )
Amounts reclassified from accumulated other comprehensive loss —
140
98
238
Income tax (expense) benefit —
(51 ) 23
(28 )
Amounts reclassified from accumulated other comprehensive loss, net of tax —
89
121
210
Net periodic other comprehensive income (loss) (6,579 ) 89
(108 ) (6,598 )
Balance as of February 28, 2014 $ (13,002 ) $ (2,728 ) $ (229 ) $ (15,959 )

~~Reclassifications from accumulated other comprehensive loss, both individually and in the aggregate, were immaterial to the Unaudited Condensed Consolidated Statements of Operations.~~

~~Note 11 - Fair Value Measurements~~

The following table presents information about the Company’s assets and liabilities measured at fair value as of February 28, 2014 and August 31, 2013, and indicates the fair value hierarchy of the valuation techniques utilized by the Company and the type of measurement.

(in thousands) Assets (Liabilities) at Fair Value Fair Value Measurement Level Type of Measurement Balance Sheet Classification
February 28, 2014 August 31, 2013
Assets:
Assets held for sale $ 657
$ 2,902
Level 3 Non-recurring Prepaid expenses and other current assets
Impaired long-lived assets 1,000
—
Level 3 Non-recurring Property, plant and equipment, net
Investment in joint venture partnership —
3,261
Level 3 Non-recurring Investments in joint venture partnerships
Total assets $ 1,657
$ 6,163

Liabilities:
Contract termination costs $ —
$ (1,672 ) Level 3 Non-recurring Other accrued liabilities and Other long-term liabilities
Foreign currency exchange forward contracts (316 ) —
Level 2 Recurring Other accrued liabilities
Total liabilities $ (316 ) $ (1,672 )

Note 129 - Derivative Financial Instruments

~~In the second quarter of fiscal 2014, the~~The Company entered into a series of foreign currency exchange forward contracts to sell U.S. ~~Dollars~~dollars in order to hedge a portion of its exposure to fluctuating rates of exchange on anticipated U.S. ~~Dollar-denominated~~dollar-denominated sales by its Canadian subsidiary with a functional currency of the Canadian ~~Dollar.~~dollar. The Company utilized intercompany foreign currency derivatives and offsetting derivatives with external counterparties in order to designate the intercompany derivatives as hedging instruments. Once the U.S. dollar-denominated sales have been recognized and the corresponding receivables collected, the Company utilized foreign currency exchange forward contracts to sell Canadian dollars, achieving a result similar to net settling the contracts to sell U.S. dollars. The foreign currency exchange forward contracts to sell Canadian dollars are not designated as hedging instruments.

As of ~~February 28,~~November 30, 2014, the Company had ~~six individual~~ foreign currency exchange forward contracts with external counterparties to buy Canadian Dollars for a total notional amount of ~~$41~~$51 million, which have various settlement dates through September 30, 2015, and foreign currency exchange forward contracts with external counterparties to sell Canadian Dollars for a total notional amount of $6 million, all of which have a settlement date of December 31, 2014. The



~~Table of Contents~~	~~SCHNITZER STEEL INDUSTRIES, INC.~~
~~NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

contracts with external counterparties are reported at fair value in the Condensed Consolidated Balance Sheets measured using quoted foreign currency exchange rates. ~~See Note 11 - Fair Value Measurements for further detail.~~

The fair value of derivative instruments in the Condensed Consolidated Balance Sheets ~~are~~is as follows (in thousands):

Asset (Liability) Derivatives
Fair Value
Balance Sheet Location February 28, 2014 August 31, 2013
Foreign currency exchange forward contracts Other accrued liabilities $ (316 ) $ —



	Asset (Liability) Derivatives
		Fair Value - Level 2
	Balance Sheet Location	November 30, 2014			August 31, 2014
Foreign currency exchange forward contracts	Prepaid expenses and other current assets	$	76		$	202
Foreign currency exchange forward contracts	Other accrued liabilities	$	(1,304	)	$	(46	)

The following ~~table~~tables summarizes the results of ~~cash flow hedging relationships~~foreign currency exchange derivatives for the three ~~and six~~ months ended ~~February 28~~November 30, 2014 (in thousands):

Derivative Gain (Loss) Recognized in Accumulated Other Comprehensive Loss, net of tax
Three Months Ended February 28, Six Months Ended February 28,
2014 2013 2014 2013
Foreign currency exchange forward contracts $ (229 ) $ —
$ (229 ) $ —



	Derivative Gain (Loss) Recognized
	Three Months Ended November 30, 2014
	Other Comprehensive Income (Loss)		Revenues - Effective Portion		Other Income (Expense), net
Foreign currency exchange forward contracts - designated as cash flow hedges	(1,712	)	(501	)	54
Foreign currency exchange forward contracts - not designated as cash flow hedges	—		—		(5	)

The Company did not have any material derivatives activity for the three months ended November 30, 2013. There was no hedge ineffectiveness with respect to the forward currency exchange cash flow hedges for the three months ended November 30, 2014.

Note 1310 - Share-Based Compensation

In the first quarter of fiscal ~~2014,~~2015, as part of the annual awards under the Company’s Long-Term Incentive Plan, the Compensation Committee of the Company's Board of Directors granted ~~219,504~~268,988 restricted stock units (“~~RSU”~~RSUs”) and ~~219,504~~268,988 performance share awards to the Company's key employees and officers under the Company’s 1993 Amended and Restated Stock Incentive ~~Plan, as amended.~~Plan.

The RSUs have a ~~five-year~~five-year term and vest 20% per year commencing October 31, ~~2014.~~2015. The fair value of the RSUs granted iswas based on the market closing price of the underlying Class A common stock on the grant date ~~of grant~~ and totaled ~~$7 million~~.$6 million. The compensation expense associated with the RSUs is recognized over the requisite service period of the awards, net of forfeitures.

The performance-based awards have a two-year performance period consisting of the Company’s fiscal ~~2014~~2015 and fiscal ~~2015.~~2016. The performance targets are based on ~~divisional volume metrics~~the Company's EBITDA (weighted at 50%) and ~~divisional operating income metrics~~return on equity (weighted at 50%) for the two years of the performance period, with award payouts ranging from a threshold of 50% to a maximum of 200% for each portion of the awards. Awards will be paid in Class A common stock as soon as practicable after October 31 following the end of the performance period. The estimated fair value of the performance-based awards at the date of grant was $7$6 million.

In the second quarter of fiscal 2014, the Company granted a deferred stock unit ("DSU") award to each of its non-employee directors under the Company's 1993 Stock Incentive Plan. John Carter, the Company's Chairman, and Tamara Lundgren, President and Chief Executive Officer, receive compensation pursuant to their employment agreements and do not receive DSUs. One DSU gives the director the right to receive one share of Class A common stock at a future date. The grant included a total of 30,848 shares that will vest on the day before the Company's 2015 annual meeting, subject to continued Board service. The total value of these awards is not material.

~~Note 14~~ ~~- Income Taxes~~

~~The effective tax rate for the Company’s operations for the~~ ~~three and six~~ ~~months ended~~ ~~February 28, 2014~~ ~~was an expense of 27.2% and 8.0%, respectively, compared to 2.7% and 14.2%, respectively, for the~~ ~~three and six~~ ~~months ended~~ ~~February 28, 2013~~.



~~Table of Contents~~	~~SCHNITZER STEEL INDUSTRIES, INC.~~
~~NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

~~A reconciliation of the difference between the federal statutory rate and the Company’s effective rate is as follows:~~

Three Months Ended February 28, Six Months Ended February 28,
2014 2013
2014⁽¹⁾
2013
Federal statutory rate 35.0 % 35.0 % 35.0 % 35.0 %
State taxes, net of credits 0.5
(0.5 ) 5.5
(1.0 )
Foreign income taxed at different rates 1.7
0.6
(18.2 ) 0.7
Section 199 deduction (1.9 ) (11.9 ) 0.3
(12.9 )
Non-deductible officers’ compensation 0.7
0.5
(0.3 ) 0.6
Noncontrolling interests (2.3 ) (2.2 ) 1.1
(5.1 )
Research and development credits (0.3 ) (2.2 ) 0.3
(3.6 )
Valuation allowance on deferred tax assets (8.5 ) (16.8 ) (29.3 ) —
Unrecognized tax benefits 1.4
—
(2.0 ) —
Other 0.9
0.2
(0.4 ) 0.5
Effective tax rate 27.2 % 2.7 % (8.0 )% 14.2 %

~~_____________________________~~


~~(1)~~	For periods with reported pre-tax losses, the effect of reconciling items with positive (negative) signs is tax benefit in excess of (less than) the benefit calculated by applying the federal statutory rate to the pre-tax loss.

The effective tax rate for the first six months of fiscal 2014 was impacted primarily by the recognition of a full valuation allowance on the current period benefit associated with foreign operations losses and the impact of the lower financial performance of foreign operations, which are taxed at more favorable rates. The effective tax rate for the second quarter of fiscal 2014 benefited primarily from the partial realization of previously reserved tax benefits in the foreign jurisdiction as a result of taxable income generated during the period.

The effective tax rate for the second quarter and first six months of fiscal 2013 benefited from increased domestic production activities deductions and research and development credits of $1 million. The effective tax rate for the second quarter of fiscal 2013 also benefited from the release of a valuation allowance on deferred tax assets of a foreign subsidiary of $2 million due to a change in the Company's facts and circumstances with respect to the feasibility of implementing a change in its foreign subsidiaries' operating structure which allowed the Company to rely on future forecasted taxable income and conclude that, at that time, it was more likely than not that the associated tax benefit would be realized. The valuation allowance had been recognized in the first quarter of fiscal 2013 as a result of an assessment indicating that, at that time, it was more likely than not that the associated tax benefit would not be realized.

The Company will continue to regularly assess the realizability of deferred tax assets. Changes in historical earnings performance and future earnings projections, among other factors, may cause the Company to adjust its valuation allowance on deferred tax assets, which would impact its results of operations in the period it determines that these factors have changed.

The Company files federal and state income tax returns in the U.S. and foreign tax returns in Puerto Rico and Canada. The federal statute of limitations has expired for fiscal 2009 and prior years. The Canadian and several state tax authorities are currently examining returns for fiscal years 2005 to 2012.

1814



Table of Contents	SCHNITZER STEEL INDUSTRIES, INC.
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Note 11 - Income Taxes

The effective tax rate for the Company’s operations for the three months ended November 30, 2014 was an expense of 0.5% compared to a benefit of 12.7% for the three months ended November 30, 2013.

A reconciliation of the difference between the federal statutory rate and the Company’s effective rate is as follows:



	Three Months Ended November 30,
	2014⁽¹⁾		2013⁽¹⁾
Federal statutory rate	35.0	%	35.0	%
State taxes, net of credits	—		2.5
Foreign income taxed at different rates	(28.5	)	(6.5	)
Section 199 deduction	0.1		(1.0	)
Non-deductible officers’ compensation	—		0.3
Noncontrolling interests	0.1		(0.9	)
Research and development credits	—		(0.1	)
Valuation allowance on deferred tax assets	(7.0	)	(17.0	)
Unrecognized tax benefits	(0.2	)	—
Other	—		0.4
Effective tax rate	(0.5	)%	12.7	%

_____________________________


(1)	For periods with reported pre-tax losses, the effect of reconciling items with positive signs is tax benefit in excess of the benefit calculated by applying the federal statutory rate to the pre-tax loss.

The effective tax rate for the first quarter of fiscal 2015 and 2014 was lower than the statutory rate primarily due to the impact of the financial performance of certain foreign operations, which are taxed at more favorable rates, and the impact of recording a full valuation allowance on the current period benefit associated with certain foreign operations losses.

The Company files federal and state income tax returns in the U.S. and foreign tax returns in Puerto Rico and Canada. For U.S. federal income tax returns, fiscal years 2011 to 2014 remain subject to examination and the income tax return for fiscal year 2012 is currently under examination. Canada and multiple state tax authorities are currently examining the Company's tax returns for fiscal years 2009 to 2012.

Note 1512 - Net ~~Income (Loss)~~Loss Per Share

The following table sets forth the information used to compute basic and diluted net ~~income (loss)~~loss per share attributable to SSI (in thousands):


	Three Months Ended February 28,						Six Months Ended February 28,						Three Months Ended November 30,
	2014			2013			2014			2013			2014			2013
Net income (loss)	$	2,640		$	8,743		$	(2,728	)	$	7,299
Net loss													$	(1,601	)	$	(5,367	)
Net income attributable to noncontrolling interests	(851		)	(100		)	(1,712		)	(329		)	(871		)	(861		)
Net income (loss) attributable to SSI	$	1,789		$	8,643		$	(4,440	)	$	6,970
Net loss attributable to SSI													$	(2,472	)	$	(6,228	)
Computation of shares:
Weighted average common shares outstanding, basic	26,825			26,640			26,790			26,597			26,944			26,755
Incremental common shares attributable to dilutive stock options, performance share awards, DSUs and RSUs	122			141			—			154			—			—
Weighted average common shares outstanding, diluted	26,947			26,781			26,790			26,751			26,944			26,755

Common stock equivalent shares of ~~591,662~~1,365,414 and ~~1,175,976~~1,106,990 were considered antidilutive and were excluded from the calculation of diluted net ~~income (loss)~~loss per share for the three ~~and six~~ months ended ~~February 28,~~November 30, 2014~~, respectively, compared to 599,184~~ and ~~622,664 common stock equivalent shares for the three and six months ended February 28,~~ 2013, respectively.



Table of Contents	SCHNITZER STEEL INDUSTRIES, INC.
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Note 1613 - Related Party Transactions

The Company purchases recycled metal from its joint venture operations at prices that approximate fair market value. These purchases totaled $7$7 million ~~and~~ ~~$6 million~~ for the three months ended ~~February 28,~~November 30, 2014 and ~~2013, respectively, and $14 million and $12 million for the six months ended February 28, 2014 and 2013, respectively. Net advances to these joint ventures were~~ ~~$1 million~~ ~~for each of the~~ ~~three~~ ~~months ended~~ ~~February 28, 2014~~ ~~and~~ ~~2013, and $1 million for each of the six months ended February 28, 2014 and~~ 2013. ~~The Company owed $2 million and $3 million to joint ventures as of~~ ~~February 28, 2014~~ ~~and~~ ~~August 31, 2013, respectively.~~ Amounts receivable from joint venture partners were $1 million as of ~~February 28,~~November 30, 2014 and August 31, ~~2013~~.

In connection with the acquisition of the assets of a metals recycling business in March 2011, the Company had entered into a series of agreements to obtain barging and other services and lease property with entities owned by the minority shareholder of the Company’s subsidiary that operates its MRB facilities in British Columbia and Alberta, Canada. On ~~March 8, 2013~~, the Company purchased the noncontrolling interest in that subsidiary and, as a result, those entities under common ownership of the former minority shareholder ceased to be related parties of the Company. The Company paid $2 million and $4 million, primarily for barging services, under these agreements for the ~~three~~ ~~and six months ended February 28, 2013.~~2014.

Thomas D. Klauer, Jr., who had been President of the Company’s Auto Parts Business, prior to his retirement on January 5, 2015, is the sole shareholder of a corporation that is the 25% minority partner in a partnership in which the Company is the 75% partner and which operates five self-service stores in Northern California. Mr. Klauer’s 25% share of the profits of this partnership totaled $1 million and less than $1$1 million for the three months ended ~~February 28,~~November 30, 2014 and 2013, ~~and $1 million for the six months ended~~ ~~February 28, 2014~~ ~~and~~ ~~2013~~.respectively. The partnership leases properties from entities in which Mr. Klauer has ownership interests under agreements that expire in March 2016 with options to renew the leases, upon expiration, for multiple periods. The rent paid by the partnership to the entities in which Mr. Klauer has ownership interests was less than $1 million for ~~each of~~ the three months ended ~~February 28, 2014~~ ~~and~~ ~~2013, and for each of the six months ended~~ ~~February 28,~~November 30, 2014 and 2013.

Certain members of the Schnitzer family own significant interests in, or are related to owners of, MMGL Corp, (“MMGL,” formerly known as Schnitzer Investment Corp.), which is engaged in the real estate business and was a subsidiary of the Company prior to 1989. MMGL is considered a related party for financial reporting purposes. The Company and MMGL are both potentially responsible parties with respect to Portland Harbor, which has been designated as a Superfund site since December 2000. The Company and MMGL have worked together in response to Portland Harbor matters, and the Company has paid all of the legal and consulting fees for the joint defense, in part due to its environmental indemnity obligation to MMGL with respect to the Portland scrap metal operations property. The Company and MMGL have agreed to an equitable cost sharing arrangement with respect to defense costs under which MMGL will pay 50% of the legal and consulting costs, net of insurance recoveries. The amounts receivable from (payable to) MMGL vary from period to period because of the timing of incurring legal and consulting fees, payments for cost reimbursements and insurance recoveries. Amounts receivable from MMGL under this agreement were less than $1$1 million and $1 million as of ~~February 28,~~November 30, 2014 and August 31, ~~2013~~2014.

Note 1714 - Segment Information

The accounting standards for reporting information about operating segments define operating segments as components of an enterprise that engages in business activities from which it may earn revenues and incur expenses and for which discrete financial information is available that is evaluated regularly by the chief operating decision maker in deciding how to allocate resources and in assessing performance. The Company’s chief operating decision maker is the Chief Executive Officer. The Company is organized by line of business. While the Chief Executive Officer evaluates results in a number of different ways, the line of business management structure is the primary basis for which the allocation of resources and financial results are assessed. Under the aforementioned criteria, the Company operates in three operating and reporting segments: metal purchasing, processing, recycling and selling (MRB), used auto parts (APB) and mini-mill steel manufacturing (SMB). Additionally, the Company is a noncontrolling partner in joint ventures, which are either in the metals recycling business or are suppliers of unprocessed metal.

MRB buys and processes ferrous and nonferrous metal for sale to foreign and other domestic steel producers or their representatives and to SMB. MRB also purchases ferrous metal from other processors for shipment directly to SMB.

APB purchases used and salvaged vehicles, sells parts from those vehicles through its retail facilities and wholesale operations, and sells the remaining portion of the vehicles to metal recyclers, including MRB.

SMB operates a steel mini-mill that produces a wide range of finished steel products using recycled metal and other raw materials.

Intersegment sales from MRB to SMB are made at rates that approximate ~~export~~ market prices for shipments from the West Coast of the U.S. In addition, the Company has intersegment sales of autobodies from APB to MRB at rates that approximate market prices. These intercompany sales tend to produce intercompany profits which are not recognized until the finished products are ultimately sold to third parties.

The information provided below is obtained from internal information that is provided to the Company’s chief operating decision maker for the purpose of corporate management. The Company uses operating income to measure segment performance. The Company does not allocate corporate interest income and expense, income taxes, other income and expenses related to corporate activity or corporate expense for management and administrative services that benefit all three segments. In addition, the Company does not allocate restructuring charges and other exit-related costs to the segment operating income because management does not include this information in its measurement of the performance of the operating segments. Because of this unallocated income



Table of Contents	SCHNITZER STEEL INDUSTRIES, INC.
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

and expense, the operating income of each reporting segment does not reflect the operating income the reporting segment would report as a stand-alone business.

The table below illustrates the Company’s operating results by reporting segment (in thousands):


	Three Months Ended February 28,						Six Months Ended February 28,						Three Months Ended November 30,
	2014			2013			2014			2013			2014			2013
Revenues:
Metals Recycling Business:
Revenues	$	535,690		$	576,191		$	1,025,999		$	1,070,652		$	456,278		$	490,309
Less: Intersegment revenues	(45,140		)	(42,461		)	(94,893		)	(89,717		)	(55,282		)	(49,751		)
MRB external customer revenues	490,550			533,730			931,106			980,935			400,996			440,558
Auto Parts Business:
Revenues	76,360			78,082			155,995			147,637			80,921			79,635
Less: Intersegment revenues	(22,219		)	(20,849		)	(42,790		)	(36,818		)	(21,545		)	(20,571		)
APB external customer revenues	54,141			57,233			113,205			110,819			59,376			59,064
Steel Manufacturing Business:
Revenues	81,456			71,247			169,580			163,276			95,218			88,123
Total revenues	$	626,147		$	662,210		$	1,213,891		$	1,255,030		$	555,590		$	587,745



~~Table of Contents~~	~~SCHNITZER STEEL INDUSTRIES, INC.~~
~~NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

The table below illustrates the reconciliation of the Company’s segment operating income to ~~income (loss)~~loss before income taxes (in thousands):


	Three Months Ended February 28,						Six Months Ended February 28,						Three Months Ended November 30,
	2014			2013			2014			2013			2014			2013
Metals Recycling Business	$	10,605		$	14,158		$	11,195		$	19,812		$	1,922		$	590
Auto Parts Business	4,575			6,711			10,184			13,075			1,961			5,609
Steel Manufacturing Business	3,573			1,041			5,318			4,445			6,207			1,744
Segment operating income	18,753			21,910			26,697			37,332			10,090			7,943
Restructuring charges and other exit-related costs	(2,006		)	(1,540		)	(3,819		)	(3,133		)	(623		)	(1,812		)
Corporate and eliminations	(10,163		)	(8,980		)	(19,921		)	(21,595		)	(9,389		)	(9,756		)
Operating income	6,584			11,390			2,957			12,604
Operating income (loss)													78			(3,625		)
Interest expense	(2,816		)	(2,354		)	(5,517		)	(4,371		)	(2,424		)	(2,702		)
Other income (expense), net	(142		)	(49		)	33			271
Income (loss) before income taxes	$	3,626		$	8,987		$	(2,527	)	$	8,504
Other income, net													753			176
Loss before income taxes													$	(1,593	)	$	(6,151	)

The following is a summary of the Company’s total assets by reporting segment (in thousands):


	February 28, 2014			August 31, 2013			November 30, 2014			August 31, 2014
Metals Recycling Business⁽¹⁾	$	1,325,158		$	1,316,202		$	1,331,320		$	1,343,771
Auto Parts Business	350,163			359,977			359,260			361,411
Steel Manufacturing Business	336,696			330,282			356,348			350,344
Total segment assets	2,012,017			2,006,461			2,046,928			2,055,526
Corporate and eliminations	(628,248		)	(600,949		)	(724,752		)	(700,316		)
Total assets	$	1,383,769		$	1,405,512		$	1,322,176		$	1,355,210

_____________________________


(1)	MRB total assets include ~~$15~~$15 million as of ~~February 28,~~November 30, 2014 and August 31, ~~2013~~2014 for investments in joint venture partnerships.

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ITEM 2.	MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

This section includes a discussion of our operations for the three ~~and six~~ months ended ~~February 28,~~November 30, 2014 and 2013. The following discussion and analysis provides information which management believes is relevant to an assessment and understanding of our results of operations and financial condition. The discussion should be read in conjunction with our Annual Report on Form 10-K for the year ended August 31, ~~2013~~2014 and the Unaudited Condensed Consolidated Financial Statements and the related Notes thereto included in Part I, Item 1 of this report.

Forward-Looking Statements

Statements and information included in this Quarterly Report on Form 10-Q by Schnitzer Steel Industries, Inc. (the “Company”) that are not purely historical are forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934 and are made pursuant to the “safe harbor” provisions of the Private Securities Litigation Reform Act of 1995. Except as noted herein or as the context may otherwise require, all references to “we,” “our,” “us” and “SSI” refer to the Company and its consolidated subsidiaries.

Forward-looking statements in this Quarterly Report on Form 10-Q include statements regarding our expectations, intentions, beliefs and strategies regarding the future, which may include statements regarding trends, cyclicality and changes in the markets we sell into; strategic direction; changes to manufacturing and production processes; the cost of and the status of any agreements or actions related to our compliance with environmental and other laws; expected tax rates, deductions and credits; the realization of deferred tax assets; planned capital expenditures; liquidity positions; ability to generate cash from continuing operations; the potential impact of adopting new accounting pronouncements; expected results, including pricing, sales volumes and profitability; obligations under our retirement plans; benefits, savings or additional costs from business realignment,cost containment and ~~cost containment~~productivity improvement programs; and the adequacy of accruals.

When used in this report, the words “believes,” “expects,” “anticipates,” “intends,” “assumes,” “estimates,” “evaluates,” “may,” “could,” “opinions,” “forecasts,” “future,” “forward,” “potential,” “probable,” and similar expressions are intended to identify forward-looking statements.

We may make other forward-looking statements from time to time, including in reports filed with the Securities and Exchange Commission, press releases and public conference calls. All forward-looking statements we make are based on information available to us at the time the statements are made, and we assume no obligation to update any forward-looking statements, except as may be required by law. Our business is subject to the effects of changes in domestic and global economic conditions and a number of other risks and uncertainties that could cause actual results to differ materially from those included in, or implied by, such forward-looking statements. Some of these risks and uncertainties are discussed in “Item 1A. Risk Factors” of Part I of our most recent annual report on Form 10-K. Examples of these risks include: potential environmental cleanup costs related to the Portland Harbor Superfund site; the impact of general economic conditions; volatile supply and demand conditions affecting prices and volumes in the markets for both our products and raw materials we purchase; difficulties associated with acquisitions and integration of acquired businesses; the impact of goodwill impairment charges; the impact of long-lived asset impairment charges; the realization of expected cost reductions related to restructuring initiatives; the benefit of business realignment, cost containment and productivity improvement programs and initiatives; the inability of customers to fulfill their contractual obligations; the impact of foreign currency fluctuations; potential limitations on our ability to access capital resources and existing credit facilities; restrictions on our business and financial covenants under our bank credit agreement; the impact of the consolidation in the steel industry; the impact of imports of foreign steel into the U.S.; inability to realize expected benefits from investments in technology; freight rates and availability of transportation; impact of equipment upgrades and failures on production; product liability claims; the impact of impairment of our deferred tax assets; the impact of a cybersecurity incident; costs associated with compliance with environmental regulations; the adverse impact of climate change; inability to obtain or renew business licenses and permits; compliance with greenhouse gas emission regulations; reliance on employees subject to collective bargaining agreements; and the impact of the underfunded status of multiemployer plans in which we participate.

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General

Founded in 1906, Schnitzer Steel Industries, Inc., an Oregon corporation, is one of ~~the nation’s~~North America's largest recyclers of ferrous and nonferrous scrap metal, a leading recycler of used and salvaged vehicles and a manufacturer of finished steel products.

We operate in three reporting segments: the Metals Recycling Business (“MRB”), the Auto Parts Business (“APB”) and the Steel Manufacturing Business (“SMB”), which collectively provide an end-of-life cycle solution for a variety of products through our integrated businesses. We use operating income to measure our segments’ performance. Restructuring charges and other exit-related costs are not allocated to segment operating income because we do not include this information in our measurement of the segments’ performance. Corporate expense consists primarily of unallocated expense for management and administrative services that benefit all three reporting segments. As a result of this unallocated expense, the operating income of each reporting segment does not reflect the operating income the reporting segment would report as a stand-alone business. For further information regarding our reporting segments, see Note 1714 - Segment Information in the Notes to the Unaudited Condensed Consolidated Financial Statements in Part I, Item 1 of this report.

Our results of operations depend in large part on the demand and prices for recycled metal in foreign and domestic markets and on the supply of raw materials, including end-of-life vehicles, available to be processed at our facilities. Our deep water port facilities on both the East and West ~~coasts~~Coasts of the U.S. (in Everett, Massachusetts; Providence, Rhode Island; Oakland, California; Portland, Oregon; and Tacoma, Washington), and access to public deep water port facilities (in Kapolei, ~~Hawaii~~Hawaii; and Salinas, Puerto Rico) ~~and water access for transportation purposes (in Surrey, British Columbia)~~ allow us to efficiently meet the global demand for recycled ~~and processed~~ ferrous metal by shipping bulk cargoes to steel manufacturers located in Asia, Europe, ~~Asia,~~Africa, the Middle East (“EAME”), and Central ~~America and Africa.~~America. Our exports of nonferrous recycled ~~and processed nonferrous~~ metal are shipped in containers through various public docks to specialty steelmakers, foundries, aluminum sheet and ingot manufacturers, copper refineries and smelters, brass and bronze ingot manufacturers and wire and cable producers globally. We also transport both ferrous and nonferrous metals by truck, rail and ~~rail~~barge in order to transfer scrap metal between our facilities for further processing, to load shipments at our export facilities and to meet regional domestic demand.

Executive Overview of Financial Results for the ~~Second~~First Quarter of Fiscal ~~2014~~2015

We generated consolidated revenues of ~~$626~~$556 million in the ~~second~~first quarter of fiscal ~~2014~~2015, a decrease of 5% from the $~~662~~588 million of consolidated revenues in the ~~second~~first quarter of fiscal ~~2013.~~2014. Overall consolidated revenues decreased primarily due to lower average net selling prices for ferrous ~~and nonferrous~~ metal and ~~lower~~reduced sales volumes of export ferrous metal as a result of continued weak ~~economic conditions that negatively impacted~~market conditions. Weak export demand for ~~recycled~~ferrous metal ~~which was~~resulted primarily from a combination of global steelmaking overcapacity and a strengthening of the U.S. currency during the period. These impacts were only partially offset by higher ~~volumes~~average selling prices for ~~domestic sales of recycled ferrous metal and~~our finished steel ~~products.~~products compared to the prior year period.

Consolidated operating income was ~~$7 million~~slightly above break-even in the ~~second~~first quarter of fiscal ~~2014~~,2015, compared to ~~$11~~a consolidated operating loss of $4 million in the ~~second~~first quarter of fiscal ~~2013~~.2014. Adjusted consolidated operating income in the ~~second~~first quarter of fiscal ~~2014, excluding~~2015, which excludes the impact of reselling or modifying the terms of certain previously contracted bulk ferrous shipments and restructuring and other exit-related costs, ~~and other asset impairment charges,~~ was ~~$10~~$6 million compared to an adjusted consolidated operating ~~income~~loss of ~~$13~~$2 million in the ~~second~~first quarter of fiscal ~~2013~~2014 (see the reconciliation of adjusted consolidated operating income (loss) in Non-GAAP Financial Measures at the end of Item 2). ~~The improvement in market conditions~~Export net selling prices for ~~the export~~shipments of recycled ~~metals experienced late~~ferrous metal in the first quarter of fiscal ~~2014 carried into~~2015 declined sharply by approximately $80 per ton, or 20%, compared to the ~~first part~~end of the second quarter and led to an increase in export selling prices during that period, followed by a sharp decline in the latter part of the second quarter as a result of weaker global demand and the impact of severe winter weather conditions on the domestic markets. The combination of benefits arising from the stronger market conditions in the first part of the second quarter and productivity improvements and other cost savings initiatives resulted in improved operating results in the secondfourth quarter of fiscal 2014 ~~compared~~due to weaker global demand. In an environment of declining commodity selling prices as experienced in the ~~immediately preceding quarter. However, the combination~~first quarter of ~~continued challenging ferrous and non-ferrous market conditions and the impact of continued constrained supply~~fiscal 2015, average inventory costs did not decrease as quickly as purchase costs for raw materials, resulting in a substantial adverse effect on ~~the~~ cost of ~~raw materials worsened~~goods sold and compression of operating margins at MRB and APB. The lower price environment during the quarter also adversely impacted the supply of scrap metal, which led to lower processed volumes further compressing operating margins at MRB. In the first quarter of fiscal 2015, the operating results of MRB were adversely impacted by ~~disruptions caused~~$6 million from the resale or modification of the terms, each at significantly lower prices, of certain previously contracted ferrous bulk shipments for delivery during the quarter. These adverse effects were partially offset by ~~severe weather conditions more than offset~~ the benefits from productivity ~~improvements, contributing to a compression in operating margins compared to the prior year quarter. The impact of purchase costs of end-of-life vehicles~~initiatives, primarily at APB decreasing at a slower rate than commodity selling prices in the second quarter of fiscal 2014 also contributed to the compression in operating margins compared to the prior year quarter. These decreases were partially offset byMRB, and an increase in operating income at SMB of $3$4 million ~~compared to the second quarter of fiscal 2013,~~ primarily as a result of higher selling prices for finished steel products and higher rolling mill utilization. The combination of these effects resulted in improved ~~demand leading to higher sales volumes and benefits from productivity improvements, and by a reduction in~~ consolidated ~~selling, general and administrative ("SG&A") expenses by $3 million compared to the prior year quarter primarily due to reduced employee compensation and professional services costs.~~

~~In the second quarter of fiscal 2014, we achieved $6 million in cost savings related to the restructuring and productivity initiatives announced and initiated~~operating results in the first quarter of fiscal 2015 compared to the prior year quarter. Consolidated operating results in the first quarter of fiscal 2014 also included $1 million of operating losses related to store locations acquired or opened by APB during the prior twelve months and the recognition of bad debt expense of $1 million by SMB.

In fiscal 2014, we implemented restructuring and productivity initiatives to reduce our annual operating expenses by approximately ~~$30 million. Furthermore,~~$40 million, with the full annual benefit expected to be achieved in fiscal 2015. In the ~~second~~first quarter of fiscal ~~2014~~2015, we ~~identified an additional~~achieved a benefit of approximately $10 million, compared to a benefit of approximately $4 million in ~~targeted annualized cost savings, bringing~~ the ~~total targeted~~prior year period. The reduction in ~~annual operating~~ expenses ~~to approximately $40 million. Of this amount, approximately~~was from a combination of headcount reductions, implementation of operational efficiencies, reduced lease costs and other productivity improvements. We initiated and implemented additional productivity initiatives at APB in the first quarter of

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~~70% is~~fiscal 2015 to improve profitability through a combination of revenue drivers and cost reduction initiatives. In addition to the measures announced in October 2014 with a targeted annual improvement of $7 million, we have identified incremental cost reduction and productivity initiatives aimed at reducing selling, general and administrative ("SG&A") expense and have increased the overall targeted annual improvement at APB to $14 million, with approximately 50% of that amount expected to benefit fiscal ~~2014 results with~~2015, primarily in the second half, and the full annual ~~benefit~~run rate expected to be achieved in fiscal ~~2015. The reduction in expenses is expected to result from a combination of headcount reductions, implementation of operational efficiencies, reduced lease costs and other productivity improvements.~~

2016.

The following items summarize our consolidated financial results for the ~~second~~first quarter of fiscal 2015:

Revenues of $556 million, compared to $588 million in the first quarter of fiscal 2014:;

~~Revenues~~Slightly above break-even operating results, compared to an operating loss of $~~626 million, compared to~~ ~~$662~~4 million in the ~~second~~first quarter of fiscal ~~2013~~2014;

~~Consolidated~~Adjusted operating income of $7$6 million,, compared to ~~$11~~adjusted operating loss of $2 million in the ~~second~~first quarter of fiscal ~~2013~~;

~~Adjusted consolidated operating income of $10 million, compared to adjusted consolidated operating income of $13 million in the~~ ~~second~~ ~~quarter of fiscal~~ ~~2013~~2014 (see reconciliation of adjusted consolidated operating income (loss) in Non-GAAP Financial Measures at the end of Item 2);

Net ~~income~~loss attributable to SSI of $2$2 million,, or ~~$0.07~~$(0.09) per diluted share, compared to $9net loss attributable to SSI of $6 million, or ~~$0.32~~$(0.23) per diluted share, in the ~~second~~first quarter of fiscal ~~2013~~2014;

Adjusted net income attributable to SSI of $3$2 million,, or ~~$0.13~~$0.08 per diluted share, compared to ~~$10~~adjusted net loss attributable to SSI of $5 million, or ~~$0.36~~$(0.18) per diluted share, in the ~~second~~first quarter of fiscal ~~2013~~2014 (see the reconciliation of adjusted net income (loss) and adjusted diluted earnings per share in Non-GAAP Financial Measures at the end of Item 2);

~~For the first six months~~Net cash used in operating activities of ~~fiscal 2014,~~$16 million, compared to net cash provided by operating activities of $~~46 million, compared to net cash used in operating activities of~~ ~~$44~~26 million in the prior year period; and

Debt, net of cash, of ~~$359~~$326 million as of ~~February 28,~~November 30, 2014, compared to $~~368~~294 million as of August 31, ~~2013~~2014 (see the reconciliation of debt, net of cash in Non-GAAP Financial Measures at the end of Item 2).

The following items highlight the financial results for our reporting segments for the ~~second~~first quarter of fiscal ~~2014~~2015:

MRB revenues and operating income of ~~$536~~$456 million and ~~$11~~$2 million, respectively, compared to $~~576~~490 million and $141 million, respectively, in the ~~second~~first quarter of fiscal ~~2013~~2014~~, respectively;~~;

APB revenues and operating income of $81 million and $2 million, respectively, compared to $7680 million and $56 million, respectively, ~~compared to~~ ~~$78 million~~ ~~and~~ ~~$7 million~~in the ~~second~~first quarter of fiscal ~~2013~~2014~~, respectively;~~; and

SMB revenues and operating income of ~~$81~~$95 million and $4$6 million,, respectively, compared to $7188 million and $1$2 million, respectively, in the ~~second~~first quarter of fiscal ~~2013~~2014~~, respectively.~~.

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Results of Operations


	Three Months Ended February 28,								Six Months Ended February 28,								Three Months Ended November 30,
($ in thousands)	2014			2013			% Change		2014			2013			% Change		2014			2013			% Change
Revenues:
Metals Recycling Business	$	535,690		$	576,191		(7	)%	$	1,025,999		$	1,070,652		(4	)%	$	456,278		$	490,309		(7	)%
Auto Parts Business	76,360			78,082			(2	)%	155,995			147,637			6	%	80,921			79,635			2	%
Steel Manufacturing Business	81,456			71,247			14	%	169,580			163,276			4	%	95,218			88,123			8	%
Intercompany revenue eliminations⁽¹⁾	(67,359		)	(63,310		)	6	%	(137,683		)	(126,535		)	9	%	(76,827		)	(70,322		)	9	%
Total revenues	626,147			662,210			(5	)%	1,213,891			1,255,030			(3	)%	555,590			587,745			(5	)%
Cost of goods sold:
Metals Recycling Business	503,524			538,230			(6	)%	972,124			1,004,817			(3	)%	433,879			468,601			(7	)%
Auto Parts Business	58,119			57,529			1	%	117,501			107,573			9	%	65,298			59,383			10	%
Steel Manufacturing Business	76,689			68,320			12	%	160,370			155,264			3	%	87,304			83,680			4	%
Intercompany cost of goods sold eliminations⁽¹⁾	(67,192		)	(63,293		)	6	%	(136,437		)	(124,984		)	9	%	(76,459		)	(69,247		)	10	%
Total cost of goods sold	571,140			600,786			(5	)%	1,113,558			1,142,670			(3	)%	510,022			542,417			(6	)%
Selling, general and administrative expense:
Metals Recycling Business	21,020			24,090			(13	)%	42,504			46,263			(8	)%	21,004			21,483			(2	)%
Auto Parts Business	13,666			13,842			(1	)%	28,310			26,989			5	%	13,662			14,643			(7	)%
Steel Manufacturing Business	1,194			1,886			(37	)%	3,892			3,567			9	%	1,707			2,699			(37	)%
Corporate⁽²⁾	9,976			8,942			12	%	18,700			19,935			(6	)%	8,994			8,725			3	%
Total selling, general and administrative expense	45,856			48,760			(6	)%	93,406			96,754			(3	)%	45,367			47,550			(5	)%
(Income) loss from joint ventures:
Metals Recycling Business	(387		)	(287		)	35	%	(752		)	(240		)	213	%	(527		)	(365		)	44	%
Change in intercompany profit elimination⁽³⁾	20			21			(5	)%	(25		)	109			NM		27			(44		)	NM
Total income from joint ventures	(367		)	(266		)	38	%	(777		)	(131		)	493	%	(500		)	(409		)	22	%
Other asset impairment charges - Metals Recycling Business	928			—			NM		928			—			NM
Operating income:
Metals Recycling Business	10,605			14,158			(25	)%	11,195			19,812			(43	)%	1,922			590			226	%
Auto Parts Business	4,575			6,711			(32	)%	10,184			13,075			(22	)%	1,961			5,609			(65	)%
Steel Manufacturing Business	3,573			1,041			243	%	5,318			4,445			20	%	6,207			1,744			256	%
Segment operating income	18,753			21,910			(14	)%	26,697			37,332			(28	)%	10,090			7,943			27	%
Restructuring charges and other exit-related costs⁽⁴⁾	(2,006		)	(1,540		)	30	%	(3,819		)	(3,133		)	22	%	(623		)	(1,812		)	(66	)%
Corporate expense⁽²⁾	(9,976		)	(8,942		)	12	%	(18,700		)	(19,935		)	(6	)%	(8,994		)	(8,725		)	3	%
Change in intercompany profit elimination⁽⁵⁾	(187		)	(38		)	392	%	(1,221		)	(1,660		)	(26	)%	(395		)	(1,031		)	(62	)%
Total operating income	$	6,584		$	11,390		(42	)%	$	2,957		$	12,604		(77	)%
Total operating income (loss)																	$	78		$	(3,625	)	NM

_____________________________

~~NM = Not Meaningful~~


(1)	MRB sells ferrous recycled metal to SMB at rates per ton that approximate U.S. West Coast ~~U.S. export~~ market prices. In addition, APB sells ferrous and nonferrous material to MRB at prices that approximate local market rates. These intercompany revenues and cost of goods sold are eliminated in consolidation.


(2)	Corporate expense consists primarily of unallocated expenses for services that benefit all three reporting segments. As a consequence of this unallocated expense, the operating income of each segment does not reflect the operating income the segment would have as a stand-alone business.


(3)	The joint ventures sell recycled metal to MRB and to SMB at prices that approximate local market rates, which produces intercompany profit. This intercompany profit is eliminated while the products remain in inventory and is not recognized until the finished products are sold to third parties.


(4)	Restructuring charges consist of expense for severance, contract termination and other restructuring costs that management does not include in its measurement of the performance of the operating segments. Other exit-related costs consist of asset impairments related to site closures.


(5)	Intercompany profits are not recognized until the finished products are sold to third parties; therefore, intercompany profit is eliminated while the products remain in inventory.

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Revenues

Consolidated revenues in the ~~second~~first quarter ~~and first six months~~ of fiscal ~~2014~~2015 were $~~626~~556 million ~~and $1.2 billion, respectively, decreases~~, a decrease of 5% ~~and 3%~~ compared to the same ~~periods~~period in the prior year. The ~~decreases were~~decrease was primarily due to lower average net selling prices for ferrous ~~and nonferrous~~ metal and ~~lower~~reduced sales volumes of export ferrous metal as a result of continued weak ~~economic conditions that negatively impacted~~market conditions. Weak export demand for ~~recycled~~ferrous metal ~~which~~resulted primarily from a combination of global steelmaking overcapacity and a strengthening of the U.S. currency during the period. These impacts were only partially offset by higher ~~volumes~~average selling prices for ~~domestic sales of recycled ferrous metal and~~our finished steel ~~products. In addition, the low price environment continued to adversely impact the supply of scrap metal and contributed to the lower sales volumes~~products compared to the prior year ~~periods.~~period.

Operating Income

Consolidated operating income in the ~~second~~first quarter ~~and first six months~~ of fiscal ~~2014~~2015 was ~~$7 million~~ ~~and $3 million, respectively,~~slightly above break-even compared to a consolidated operating loss of $114 million ~~and $13 million~~ in the same ~~periods~~period in the prior year. Adjusted consolidated operating income in the ~~second~~first quarter ~~and first six months~~ of fiscal ~~2014~~2015, ~~excluding~~which excludes the impact of reselling or modifying the terms of certain previously contracted bulk ferrous shipments and restructuring and other exit-related costs, ~~and other asset impairment charges,~~ was ~~$10~~$6 million ~~and~~ ~~$8 million, respectively,~~ compared to ~~$13~~an adjusted consolidated operating loss of $2 million ~~and $16 million, respectively,~~ in the ~~second~~first quarter ~~and first six months~~ of fiscal ~~2013~~2014 (see reconciliation of adjusted consolidated operating income (loss) in Non-GAAP Financial Measures at the end of Item 2). ~~The improvement in market conditions~~Export net selling prices for ~~the export~~shipments of recycled ~~metals experienced late~~ferrous metal in the first quarter of fiscal ~~2014 carried into~~2015 declined sharply by approximately $80 per ton, or 20%, compared to the ~~first part~~end of the second quarter and led to an increase in export selling prices during that period, followed by a sharp decline in the latter part of the second quarter as a result of weaker global demand and the impact of severe winter weather conditions on the domestic markets. The combination of benefits arising from the stronger market conditions in the first part of the second quarter and productivity improvements and other cost savings initiatives resulted in improved operating results in the secondfourth quarter of fiscal 2014 ~~compared~~due to weaker global demand. In an environment of declining commodity selling prices as experienced in the first quarter of fiscal 2015, average inventory costs did not decrease as quickly as purchase costs for raw materials, resulting in a substantial adverse effect on cost of goods sold and compression of operating margins at MRB and APB. The lower price environment during the quarter also adversely impacted the supply of scrap metal, which led to lower processed volumes further compressing operating margins at MRB. In the first quarter of fiscal 2015, the operating results of MRB were adversely impacted by $6 million from the resale or modification of the terms, each at significantly lower prices, of certain previously contracted ferrous bulk shipments for delivery during the quarter. Due to the ~~immediately preceding quarter. However,~~sharp decline in selling prices that occurred during the ~~combination~~first quarter of ~~continued challenging ferrous~~fiscal 2015, the revised prices associated with these shipments were significantly lower than the prices in the original sales contracts entered into between August and ~~non-ferrous market conditions and the impact of continued constrained supply on the cost of raw materials worsened~~October 2014. These adverse effects were partially offset by ~~disruptions caused by severe weather conditions more than offset~~ the benefits from productivity ~~improvements, contributing to a compression in operating margins compared to the prior year periods. The impact~~and cost saving initiatives on cost of purchase costs of end-of-life vehicles at APB decreasing at a slower rate than commodity selling prices in the second quarter of fiscal 2014 also contributed to the compression in operating margins compared to the prior year periods. These decreases were partially offset bygoods sold and SG&A expense and an increase in operating income at SMB of $3$4 million primarily as a result of higher selling prices for finished steel products and ~~$1 million for~~higher rolling mill utilization. The combination of these effects resulted in improved consolidated operating results in the ~~second~~first quarter ~~and first six months~~ of fiscal ~~2014, respectively,~~2015 compared to the prior year periods, primarily as a result of improved demand leading to higher sales volumes and benefits from productivity improvements. In addition, consolidated SG&A expenses decreased by $3 million compared toquarter. Consolidated operating results in the ~~second~~first quarter ~~and first six months~~ of fiscal 2014 ~~primarily due~~also included $1 million of operating losses related to ~~reduced employee compensation~~store locations acquired or opened by APB during the prior twelve months and ~~professional services costs.~~the recognition of bad debt expense of $1 million by SMB.

Consolidated operating income in the ~~second~~first quarter ~~and first six months~~ of fiscal ~~2014~~2015 included restructuring charges and other exit-related costs of $2$1 million ~~and $4 million, respectively,~~ consisting of severance, contract termination, and other restructuring costs, ~~and exit-related asset impairments,~~ compared to charges of $2 million ~~and $3 million, respectively,~~ in the ~~comparable~~ prior year ~~periods.~~period. These charges ~~are related~~relate to restructuring initiatives under ~~two~~three separate plans announced in the fourth quarter of fiscal 2012 (the “Q4’12 Plan”) ~~and~~, the first quarter of fiscal 2014 (the “Q1’14 Plan”) and the first quarter of fiscal 2015 (the “Q1’15 Plan”), respectively.

In the first quarter of fiscal 2014, we initiated the Q1’14 Plan and began implementing restructuring and productivity initiatives to further reduce our annual operating expenses by approximately $30 million, which was subsequently increased to $40 million later in the fiscal year. We achieved approximately $29 million of ~~which the majority will be reflected~~benefit in ~~cost of goods sold.~~ ~~In the second quarter and first six months of~~ fiscal 2014, we achieved $6 million and $10 million, respectively, in cost savings related to these initiatives. Furthermore, in the second quarter of fiscal 2014, we identified an additional $10 million in targeted annualized cost savings benefiting mainly SG&A expenses, bringing the total targeted reduction in annual operating expenses to approximately $40 million. Of this amount, approximately 70% is expected to benefit fiscal 2014 results with the full annual benefit expected to be achieved in fiscal 2015. In the first quarter of fiscal 2015, we achieved a benefit of $10 million, compared to a benefit of $4 million in the prior year quarter. The majority of the reduction in operating expenses ~~will primarily occur~~ occurred at MRB and ~~is expected to result~~resulted from a combination of headcount reductions, implementation of operational efficiencies, reduced lease costs and other productivity improvements. We expect to incur restructuring charges of approximately $5$6 million ~~substantially all in fiscal 2014,~~ in connection with ~~these initiatives,~~ the Q1’14 Plan, which were substantially incurred in fiscal 2014. The remaining charges are expected to be incurred by the end of fiscal 2017. The vast majority of ~~which will~~these charges require us to make cash payments.

In the first quarter of fiscal 2015, we initiated the Q1'15 Plan and started implementing additional productivity initiatives at APB to improve profitability through a combination of revenue drivers and cost reduction initiatives. In addition to the ~~restructuring charges recorded~~measures announced in ~~connection~~October 2014 with ~~these~~a targeted annual improvement of $7 million, we have identified incremental cost reduction and productivity initiatives ~~in the second quarter of fiscal 2014 the Company incurred other exit-related costs of $1 million consisting of asset impairments related to site closures.~~

~~The Q4’12 Plan included restructuring initiatives designed to extract~~ greater synergies from the significant acquisitions and technology investments made in recent years, to achieve further integration between MRB and APB, to realign our organization to support future growth and to decrease operating expenses by streamlining functions andaimed at reducing organizational layers. These initiatives, which were completed by the end of fiscal 2013, achieved a reduction in operating costs of approximately $25 million on an annualized basis, comprising approximately $18 million of selling, general and administrative expense in connection with the Q1'15 Plan and $7have increased the overall targeted annual improvement at APB to $14 million, with approximately 50% of ~~cost~~that amount expected to benefit fiscal 2015, primarily in the second half, and the full annual run rate expected to be achieved in fiscal 2016. We expect to incur restructuring charges of ~~goods sold.~~approximat

ely $2 million in connection with the Q1’15 Plan, substantially all of which are expected to be incurred in fiscal 2015. The vast majority of these charges require us to make cash payments.

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Restructuring charges and other exit-related costs for the three months ended ~~February 28,~~November 30, 2014 and 2013 were comprised of the following (in thousands):


	Three Months Ended February 28, 2014								Three Months Ended February 28, 2013						Three Months Ended November 30, 2014						Three Months Ended November 30, 2013
	Q4’12 Plan			Q1’14 Plan			Total Charges		Q4’12 Plan		Q1’14 Plan		Total Charges		Q1’14 Plan		Q1’15 Plan		Total Charges		Q4’12 Plan		Q1’14 Plan		Total Charges
Restructuring charges:
Severance costs	$	(39	)	$	1,182		$	1,143	$	116	$	—	$	116	$	27	$	—	$	27	$	26	$	1,076	$	1,102
Contract termination costs	106			(9		)	97		19		—		19		253		—		253		462		38		500
Other restructuring costs	—			200			200		1,405		—		1,405		—		343		343		—		210		210
Total restructuring charges	67			1,373			1,440		1,540		—		1,540		$	280	$	343	$	623	$	488	$	1,324	$	1,812
Other exit-related costs:
Asset impairments	—			566			566		—		—
Total exit-related costs	—			566			566		—		—
Total restructuring charges and other exit-related costs	$	67		$	1,939		$	2,006	$	1,540	$	—	$	1,540
Total restructuring charges to date	$	13,473		$	2,698		$	16,171	$	8,145	$	—	$	8,145

See Note 76 - Restructuring Charges and Other Exit-Related Costs in the Notes to the Unaudited Condensed Consolidated Financial Statements in Part I, Item 1 of this report for additional details on restructuring charges.

~~Interest Expense~~

~~Interest expense was~~ ~~$3 million~~ ~~and $6 million, respectively, for the~~ ~~second~~ ~~quarter and first six months of fiscal~~ ~~2014, compared to~~ ~~$2 million~~ and $4 million for the same periods in the prior year. The increase in interest expense was primarily due to increased average borrowings under our bank credit facilities compared to the prior year periods.

Income Tax Expense

Our effective tax rate for the ~~second~~first quarter ~~and first six months~~ of fiscal ~~2014~~2015 was an expense of ~~27.2% and 8.0%, respectively,~~0.5% compared to a benefit of ~~2.7%~~12.7% ~~and 14.2%, respectively,~~ for the same ~~periods~~period in the prior year.

The effective tax rate for the first ~~six months~~quarter of fiscal 2015 and 2014 was ~~impacted~~lower than the federal statutory rate of 35% primarily bydue to the ~~recognition~~impact of the financial performance of certain foreign operations, which are taxed at more favorable rates, and the impact of recording a full valuation allowance on the current period benefit associated with certain foreign operations losses and the impact of the lower financial performance of foreign operations, which are taxed at more favorable rates. The effective tax rate for the second quarter of fiscal 2014 benefited primarily from the partial realization of previously reserved tax benefits in the foreign jurisdiction as a result of taxable income generated during the period.

The effective tax rate for the second quarter and first six months of fiscal 2013 benefited from increased domestic production activities deductions and research and development credits of $1 million. The effective tax rate for the second quarter of fiscal 2013 also benefited from the release of a valuation allowance on deferred tax assets of a foreign subsidiary of $2 million due to a change in the Company's facts and circumstances with respect to the feasibility of implementing a change in our foreign subsidiaries' operating structure which allowed us to rely on future forecasted taxable income and conclude that, at that time, it was more likely than not that the associated tax benefit would be realized. The valuation allowance had been recognized in the first quarter of fiscal 2013 as a result of an assessment indicating that, at that time, it was more likely than not that the associated tax benefit would not be realized.

We will continue to regularly assess the realizability of deferred tax assets. Changes in historical earnings performance and future earnings projections, among other factors, may cause us to adjust our valuation allowance on deferred tax assets, which would impact our results of operations in the period we determine that these factors have changed.losses.

The effective tax rate for fiscal ~~2014~~2015 is expected to be approximately ~~39%~~27%, subject to financial performance for the remainder of the year.



~~Table of Contents~~	~~SCHNITZER STEEL INDUSTRIES, INC.~~

Financial Results by Segment

We operate our business across three reporting segments: MRB, APB and SMB. Additional financial information relating to these reporting segments is contained in Note 1714 - Segment Information in the Notes to the Unaudited Condensed Consolidated Financial Statements in Part I, Item 1 of this report.



Table of Contents	SCHNITZER STEEL INDUSTRIES, INC.

Metals Recycling Business


	Three Months Ended February 28,								Six Months Ended February 28,								Three Months Ended November 30,
($ in thousands, except for prices)	2014			2013			% Change		2014			2013			% Change		2014			2013			% Change
Ferrous revenues	$	409,106		$	443,418		(8	)%	$	778,661		$	813,894		(4	)%	$	337,578		$	369,555		(9	)%
Nonferrous revenues	120,833			125,255			(4	)%	233,987			241,856			(3	)%	112,593			113,154			—	%
Other	5,751			7,518			(24	)%	13,351			14,902			(10	)%	6,107			7,600			(20	)%
Total segment revenues	535,690			576,191			(7	)%	1,025,999			1,070,652			(4	)%	456,278			490,309			(7	)%
Cost of goods sold	503,524			538,230			(6	)%	972,124			1,004,817			(3	)%	433,879			468,601			(7	)%
Selling, general and administrative expense	21,020			24,090			(13	)%	42,504			46,263			(8	)%	21,004			21,483			(2	)%
Income from joint ventures	(387		)	(287		)	35	%	(752		)	(240		)	213	%	(527		)	(365		)	44	%
Other asset impairment charges	928			—			NM		928			—			NM
Segment operating income	$	10,605		$	14,158		(25	)%	$	11,195		$	19,812		(43	)%	$	1,922		$	590		226	%
Average ferrous recycled metal sales prices ($/LT):⁽¹⁾
Domestic	$	374		$	363		3	%	$	365		$	358		2	%	$	344		$	356		(3	)%
Foreign	$	361		$	374		(3	)%	$	353		$	368		(4	)%	$	319		$	344		(7	)%
Average	$	365		$	372		(2	)%	$	357		$	365		(2	)%	$	328		$	348		(6	)%
Ferrous sales volume (LT, in thousands):
Domestic	328			261			26	%	651			540			21	%	334			323			3	%
Foreign	701			843			(17	)%	1,356			1,518			(11	)%	605			655			(8	)%
Total ferrous sales volume (LT, in thousands)	1,029			1,104			(7	)%	2,007			2,058			(2	)%	939			978			(4	)%
Average nonferrous sales price ($/pound)⁽¹⁾	$	0.86		$	0.97		(11	)%	$	0.87		$	0.96		(9	)%	$	0.85		$	0.89		(4	)%
Nonferrous sales volumes (pounds, in thousands)	135,935			125,500			8	%	259,876			244,432			6	%	127,473			123,941			3	%
Outbound freight included in cost of goods sold	$	37,223		$	37,349		—	%	$	69,806		$	69,907		—	%	$	34,489		$	32,583		6	%

_____________________________

~~NM = Not Meaningful~~

LT = Long Ton, which is 2,240 pounds


(1)	Price information is shown after netting the cost of freight incurred to deliver the product to the customer.

Revenues

Revenues in the ~~second~~first quarter ~~and first six months~~ of fiscal ~~2014~~2015 decreased by 7% ~~and 4%, respectively,~~ compared to the prior year ~~periods~~period primarily due to lower ~~export~~average net selling prices for ferrous metal and reduced sales volumes ~~and average~~of export ~~sales prices~~ferrous metal as a result of continued weak ~~economic conditions that negatively impacted~~market conditions. Weak export demand for ~~recycled~~ferrous metal resulted primarily from a combination of global steelmaking overcapacity and a strengthening of the U.S. currency during the period.

Segment Operating Income

Operating income for the first quarter of fiscal 2015 was $2 million compared to $1 million in the prior year period. Adjusted operating income in the first quarter of fiscal 2015, which ~~were only partially offset by both higher~~excludes the impact of reselling or modifying the terms of certain previously contracted bulk ferrous ~~volumes and average~~shipments, was $8 million, compared to $1 million in the prior year period (see reconciliation of adjusted MRB operating income in Non-GAAP Financial Measures at the end of Item 2). Export net selling prices ~~on domestic sales~~for shipments of recycled ~~metal.~~ferrous metal in the first quarter of fiscal 2015 declined sharply by approximately $80 per ton, or 20%, compared to the end of the fourth quarter of fiscal 2014 due to weaker global demand. In ~~addition,~~an environment of declining commodity selling prices as experienced in the ~~low~~first quarter of fiscal 2015, average inventory costs did not decrease as quickly as purchase costs for raw materials, resulting in a substantial adverse effect on cost of goods sold and compression of operating margins. The lower price environment ~~continued to~~during the quarter also adversely ~~impact~~impacted the supply of scrap metal, ~~and contributed~~which led to lower processed volumes further compressing operating margins. In the first quarter of fiscal 2015, the operating results of MRB were adversely impacted by $6 million from the resale or modification of the terms, each at significantly lower prices, of certain previously contracted ferrous bulk shipments for delivery during the quarter. Due to the sharp decline in selling prices that occurred during the first quarter of fiscal 2015, the revised prices associated with these shipments were significantly lower than the prices in the original sales ~~volumes~~contracts entered into between August and October 2014. The benefits from productivity and cost saving initiatives on cost of goods sold and SG&A expense partially offset the adverse effects of the continued weak market conditions resulting in improved operating results in the first quarter of fiscal 2015 compared to the prior year ~~periods.~~quarter, which also experienced constrained supply conditions and operating margin compression, but comparably lower benefits from productivity and cost saving initiatives.

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~~Segment Operating Income~~

~~Operating income for each of the~~ ~~second~~ ~~quarter and first six months of fiscal~~ ~~2014~~ was $11 million compared to $14 million and $20 million, respectively, in the comparable prior year periods. The improvement in market conditions for the export of recycled metals experienced late in the first quarter of fiscal 2014 carried into the first part of the second quarter and led to an increase in export selling prices during that period, followed by a sharp decline in the latter part of the second quarter as a result of weaker global demand and the impact of severe winter weather conditions on the domestic markets. The combination of benefits arising from the stronger market conditions and productivity improvements and other cost savings initiatives resulted in improved operating results in the second quarter of fiscal 2014 compared to the immediately preceding quarter. However, the combination of continued challenging ferrous and non-ferrous market conditions and the impact of continued constrained supply on the cost of raw materials worsened by disruptions caused by severe weather conditions more than offset the benefits from productivity improvements, contributing to a compression in operating margins compared to the prior year periods. SG&A expenses in the second quarter and first six months of fiscal 2014 decreased by $3 million and $4 million, respectively, compared to the prior year periods primarily due to reduced employee compensation and outside services costs.

~~Further, during the second quarter of fiscal 2014, we recorded $1 million in other asset impairment charges on assets held for sale.~~

Auto Parts Business


	Three Months Ended February 28,						Six Months Ended February 28,						Three Months Ended November 30,
($ in thousands)	2014		2013		% Change		2014		2013		% Change		2014		2013		% Change
Revenues	$	76,360	$	78,082	(2	)%	$	155,995	$	147,637	6	%	$	80,921	$	79,635	2	%
Cost of goods sold	58,119		57,529		1	%	117,501		107,573		9	%	65,298		59,383		10	%
Selling, general and administrative expense	13,666		13,842		(1	)%	28,310		26,989		5	%	13,662		14,643		(7	)%
Segment operating income	$	4,575	$	6,711	(32	)%	$	10,184	$	13,075	(22	)%	$	1,961	$	5,609	(65	)%
Number of stores at period end	61		59		3	%	61		59		3	%	62		62		—	%
Cars purchased (in thousands)	85		88		(3	)%	176		167		5	%	97		91		7	%

Revenues

Revenues in the ~~second~~first quarter of fiscal ~~2014 decreased~~2015 increased by 2% compared to the prior year period primarily due to ~~lower~~higher sales volumes, as a result of lower commodity selling prices and constrained supply of end-of-life vehicles. Revenues in the first six months of fiscal 2014 increased by 6% compared to the prior year period primarily due to higher sales volume as a result of additional volume in the first three months of the periodincluding from new stores acquired or opened ~~during the prior twelve-month period.~~in fiscal 2014, partially offset by lower commodity prices.

Segment Operating Income

Operating income for the ~~second~~first quarter ~~and first six months~~ of fiscal ~~2014~~2015 decreased by ~~32%~~65% ~~and 22%, respectively,~~ compared to the same ~~periods~~period in the prior year. ~~Operating income in the second quarter of fiscal 2014 was adversely impacted by a combination of the fall in commodity prices in the latter part of the quarter and lower volumes, which compressed~~The benefits on operating margins ~~compared to the prior year quarter. Compared to the first six months of fiscal 2013, the benefits~~ from ~~increased sales~~higher volumes ~~due to the additional store locations~~ were more than offset by ~~the~~a compression in operating margins primarily due to the ~~challenging market conditions. Operating income for~~sharp reduction in ferrous commodity selling prices during the ~~second~~first quarter ~~and first~~ ~~six~~ ~~months~~ of fiscal ~~2014~~ ~~also included operating losses~~ 2015, which led to an adverse effect on cost of ~~$1 million, including integration and startup~~goods sold from average inventory costs ~~related to store locations with twelve months or less of operations, compared to $2 million in the~~ ~~prior year comparable periods.~~not decreasing as quickly as purchase costs for raw materials.



~~Table of Contents~~	~~SCHNITZER STEEL INDUSTRIES, INC.~~

Steel Manufacturing Business


	Three Months Ended February 28,								Six Months Ended February 28,								Three Months Ended November 30,
($ in thousands, except for price)	2014			2013			% Change		2014			2013			% Change		2014			2013			% Change
Revenues	$	81,456		$	71,247		14	%	$	169,580		$	163,276		4	%	$	95,218		$	88,123		8	%
Cost of goods sold	76,689			68,320			12	%	160,370			155,264			3	%	87,304			83,680			4	%
Selling, general and administrative expense	1,194			1,886			(37	)%	3,892			3,567			9	%	1,707			2,699			(37	)%
Segment operating income	$	3,573		$	1,041		243	%	$	5,318		$	4,445		20	%	$	6,207		$	1,744		256	%
Finished steel products average sales price ($/ton)⁽¹⁾	$	676		$	690		(2	)%	$	666		$	684		(3	)%	$	683		$	657		4	%
Finished steel products sold (tons, in thousands)	115			96			20	%	243			225			8	%	127			128			(1	)%
Rolling mill utilization	67		%	63		%			66		%	66		%			72		%	65		%

_____________________________


(1)	Price information is shown after netting the cost of freight incurred to deliver the product to the customer.

Revenues

Revenues for the ~~second~~first quarter ~~and first six months~~ of fiscal ~~2014~~2015 increased by ~~14%~~8% ~~and 4%~~ compared to the same ~~periods~~period in the prior year due to ~~higher sales volumes for finished steel products~~increased average selling prices as a result of ~~slightly~~ higher demand in our West Coast markets mainly driven by improved non-residential ~~construction, partially offset by lower average selling prices as a result of the impact of reduced costs of raw materials.~~construction.

Segment Operating Income

Operating income for the ~~second~~first quarter ~~and first six months~~ of fiscal ~~2014~~2015 increased ~~by 243% and 20%~~significantly compared to the ~~respective~~ prior year ~~periods~~period due to higher ~~sales volumes, the impact of raw material costs decreasing at a faster rate than the~~ average sales ~~price~~prices for finished steel products, ~~on cost of goods sold~~higher rolling mill utilization and benefits from productivity improvements, which generated higher operational ~~efficiencies and productivity improvements. For~~efficiencies. Operating income for the first ~~six months~~quarter of fiscal 2014 ~~these benefits were partially offset by the~~included recognition of bad debt expense of $1 ~~million in the first quarter of fiscal 2014.~~million.

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 ~~$20~~$15 million and $1326 million as of ~~February 28,~~November 30, 2014 and August 31, ~~2013~~2014, respectively. Cash balances are intended to be used primarily for working capital, capital expenditures, acquisitions, dividends and share repurchases. We use excess cash on hand to reduce amounts outstanding under our credit facilities. As of ~~February 28,~~November 30, 2014, debt, net of cash, was~~$359 million~~ ~~compared to~~ ~~$368 million~~ ~~as of~~ ~~August 31, 2013~~ ~~(refer to Non-GAAP Financial Measures below), a decrease of~~ ~~$10 million~~ ~~primarily as a result of the positive cash flows generated by operating activities. Our cash balances as of~~ ~~February 28, 2014~~ ~~and~~ ~~August 31, 2013~~ ~~include~~ ~~$3 million~~ ~~and~~ ~~$7 million, respectively, which are indefinitely reinvested in Puerto Rico and Canada.~~

~~Operating Activities~~

~~Net cash provided by operating activities in the first~~ ~~six~~ ~~months of fiscal~~ ~~2014~~ ~~was~~ ~~$46 million, compared to net cash used in operating activities of~~ ~~$44 million~~ ~~in the first~~ ~~six~~ ~~months of fiscal~~ ~~2013~~.

~~Sources of cash in the first~~ ~~six~~ ~~months of fiscal~~ ~~2014~~ ~~included a~~ ~~$5 million~~ ~~decrease in accounts receivable due to the timing of sales and collections. Uses of cash included a~~ ~~$8 million~~ ~~increase in inventory due to higher volumes on hand including the impact of timing of purchases and sales.~~

Cash used in operating activities in the first six months of fiscal 2013 included a $46 million increase in inventory due to higher volumes on hand including the impact of timing on sales, a $32 million increase in accounts receivable due to the timing of collections and a $11 million decrease in accounts payable due to the timing of payments.

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$326 million compared to $294 million as of August 31, 2014 (refer to Non-GAAP Financial Measures below), an increase of $32 million mainly as a result of higher net working capital primarily due to the timing of inventory purchases and sales. Our cash balances as of November 30, 2014 and August 31, 2014 include $4 million which are indefinitely reinvested in Puerto Rico and Canada.

Operating Activities

Net cash used in operating activities in the first three months of fiscal 2015 was $16 million, compared to net cash provided by operating activities of $26 million in the first three months of fiscal 2014.

Sources of cash in the first three months of fiscal 2015 included a $31 million decrease in accounts receivable due to the timing of sales and collections. Uses of cash included in the first three months of fiscal 2015 included a $26 million increase in inventory due to higher volumes on hand including the impact of timing of purchases and sales and a $25 million decrease in accounts payable due to the timing of payments.

Sources of cash in the first three months of fiscal 2014 included a $57 million decrease in accounts receivable due to the timing of sales and collections. Uses of cash included a $39 million increase in inventory due to higher volumes on hand including the impact of timing of purchases and sales.

Investing Activities

Net cash used in investing activities in the first ~~six~~three months of fiscal 2015 was $9 million, compared to $16 million in the first three months of fiscal 2014 ~~was~~ ~~$24 million, compared to~~ ~~$70 million~~ ~~in the first~~ ~~six~~ ~~months of fiscal~~ ~~2013~~.

~~Cash used in investing activities in the first~~ ~~six~~ ~~months of fiscal~~ ~~2014~~ ~~included capital expenditures of~~ ~~$21 million~~ ~~to upgrade our equipment and infrastructure.~~

Cash used in investing activities in the first ~~six~~three months of fiscal ~~2013~~2015 included capital expenditures of ~~$48~~$10 million ~~including investments~~to upgrade our equipment and infrastructure, compared to $14 million in the ~~construction of a new shredder, advanced processing equipment and related infrastructure for our facility in Surrey, British Columbia, which commenced shredding operations in the third quarter~~first three months of fiscal ~~2013. Cash used for investing activities also included $23 million related to the acquisition of eight used auto parts facilities in the second quarter of fiscal 2013.~~2014.

Financing Activities

Net cash ~~used in~~provided by financing activities in the first ~~six~~three months of fiscal 2015 was $14 million, compared $6 million in the first three months of fiscal 2014 ~~was~~ ~~$15 million, compared to net cash provided by financing activities of~~ ~~$58 million~~ ~~in the first~~ ~~six~~ ~~months of fiscal~~ ~~2013~~.

Cash used in financing activities in the first ~~six~~three months of fiscal ~~2014~~2015 was primarily due to ~~$10 million~~ ~~for dividends and~~ ~~$4 million~~ ~~in net repayments of debt (refer to Non-GAAP Financial Measures below).~~

~~Cash provided by financing activities in the first six months of fiscal 2013 included $63~~$22 million in net borrowings of debt (refer to Non-GAAP Financial Measures below) mainly used to support higher net working capital ~~requirements.~~primarily due to the timing of inventory purchases and sales. Uses of cash included $5 million for dividends.

Cash provided by financing activities in the first three months of fiscal 2014 was primarily due to $12 million in net borrowings of debt (refer to Non-GAAP Financial Measures below) mainly used to support capital expenditures. Uses of cash included $5 million for dividends.

Credit Facilities

Our unsecured committed bank credit facility, which provides for revolving loans of $670 million and C$30 million, matures in April 2017 pursuant to a credit agreement with Bank of America, N.A. as administrative agent, and other lenders party thereto. Interest rates on outstanding indebtedness under the agreement are based, at our option, on either the London Interbank Offered Rate (or the Canadian equivalent) plus a spread of between 1.25% and 2.25%, with the amount of the spread based on a pricing grid tied to our leverage ratio, or the greater of the prime rate, the federal funds rate plus 0.5% or the British Bankers Association LIBOR Rate plus 1.75%. In addition, annual commitment fees are payable on the unused portion of the credit facility at rates between 0.15% and 0.35% based on a pricing grid tied to our leverage ratio.

We had borrowings outstanding under the credit facility of ~~$364~~$327 million as of ~~February 28,~~November 30, 2014 and $~~360~~305 million as of August 31, ~~2013~~2014. The weighted average interest rate on amounts outstanding under this facility was ~~1.95%~~1.94% and ~~1.98%~~1.91% as of ~~February 28,~~November 30, 2014 and August 31, ~~2013~~2014, respectively.

We also have an unsecured, uncommitted ~~$25~~$25 million credit line with Wells Fargo Bank, N.A. that ~~was renewed and extended to~~ expires March 1, ~~2015~~.2015. Interest rates are set by the bank at the time of borrowing. We had ~~zero~~ ~~and $9 million of~~no borrowings outstanding under this line of credit as of ~~February 28,~~November 30, 2014 and August 31, ~~2013~~2014.

We use these credit facilities to fund working capital requirements, acquisitions, capital expenditures, dividends and share repurchases. The two bank credit agreements contain various representations and warranties, events of default and financial and other covenants which could limit or restrict our ability to create liens, raise additional capital, enter into transactions with affiliates,



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acquire and dispose of businesses, guarantee debt, and consolidate or merge. The financial covenants include a consolidated fixed charge coverage ratio, defined as the four-quarter rolling sum of consolidated adjusted EBITDA less defined maintenance capital expenditures divided by consolidated fixed charges, and a consolidated leverage ratio, defined as consolidated funded indebtedness divided by the sum of consolidated net worth and consolidated funded indebtedness. We refer to the Forms 8-K dated February 14, 2011 and April 16, 2012, which include as attachments copies of the unsecured committed bank credit agreement, as amended, for the detailed methodology for calculating the financial covenants.

As of ~~February 28,~~November 30, 2014, we were in compliance with these financial covenants. The consolidated fixed charge coverage ratio is required to be no less than 1.50 to 1 and was ~~1.79~~2.53 to 1 as of ~~February 28,~~November 30, 2014. The consolidated leverage ratio is required to be no more than 0.55 to 1 and was ~~0.34~~0.32 to 1 as of ~~February 28,~~November 30, 2014. While we expect to remain in compliance with these covenants, there can be no ~~assurances~~assurance that we will be able to do so in the event of a sustained ~~or sharp~~ deterioration infrom current market conditions or other negative factors which adversely impact our results of operations and financial position, and lead to a trend of consolidated ~~net~~operating losses. If we do not maintain compliance with our financial covenants and are unable to obtain an amendment or waiver from our lenders, a breach of either covenant would constitute an event of default and allow the lenders to exercise remedies under the agreements, the most severe of which is the termination of the credit facility under our committed bank credit agreement and



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acceleration of the amounts owed under both agreements. In such case, we would be required to evaluate available alternatives and take appropriate steps to obtain alternative funds. There can be no assurance that any such alternative funds, if sought, could be obtained or, if obtained, would be adequate or on acceptable terms.

In addition, as of ~~February 28,~~November 30, 2014 and August 31, ~~2013~~2014, we had $8$8 million of long-term tax-exempt bonds outstanding that mature in January 2021.

Capital Expenditures

Capital expenditures totaled ~~$21~~$10 million for the first ~~six~~three months of fiscal ~~2014~~2015, compared to $4814 million for the same period in the prior year. ~~During the first quarter of fiscal~~ ~~2014, we completed our investment in the construction of a new nonferrous processing facility in Puerto Rico, which commenced operations in September 2013.~~ We currently plan to invest up to ~~$50~~$40 million in capital expenditures on upgrades in fiscal ~~2014~~2015, ~~including~~similar to the upgrades in fiscal 2014, exclusive of any capital expenditures ~~associated with APB acquisitions~~for growth projects, using cash generated from operations and ~~greenfield store developments made or commenced in fiscal 2013 or fiscal 2014.~~available lines of credit.

Dividends

On ~~February 10,~~October 30, 2014 our Board of Directors declared a dividend for the ~~second~~first quarter of fiscal ~~2014~~2015 of $0.1875 per common share, which equates to an annual cash dividend of $0.75 per common share. The dividend was paid on ~~February 28,~~November 24, 2014.

Environmental Compliance

Our commitment to sustainable recycling and to operating our business in an environmentally responsible manner requires us to continue to invest in facilities that improve our environmental presence in the communities in which we operate. As part of our capital expenditures, we invested $2$2 million in capital expenditures for environmental projects during the first ~~six~~three months of fiscal ~~2014~~2015, and plan to invest up to $912 million for such projects in fiscal ~~2014.~~2015. These projects include investments in storm water systems and equipment to ensure ongoing compliance with air quality and other environmental regulations.

We have been identified by the United States Environmental Protection Agency (“EPA”) as one of the potentially responsible parties (“PRPs”) that own or operate or formerly owned or operated sites which are part of or adjacent to the Portland Harbor Superfund site (“the Site”). A group of PRPs is conducting an investigation and study to identify and characterize the contamination at the Site and develop alternative approaches to remediation of the contamination. On March 30, 2012 the group submitted to the EPA a draft feasibility study (“draft FS”) based on approximately ten years of work and $100 million in costs classified as investigation-related. The draft FS identifies ten possible remedial alternatives which range in estimated cost from approximately $170 million to $250 million (net present value) for the least costly alternative to approximately $1.08 billion to $1.76 billion (net present value) for the most costly and estimates a range of two to 28 years to implement the remedial work, depending on the selected alternative. The draft FS does not determine who is responsible for remediation costs, define the precise cleanup boundaries or select remedies. The draft FS is being ~~reviewed~~revised by the EPA and ~~is likely to be subject to~~the revisions ~~which could~~may be significant ~~prior to its approval by~~and could materially impact the ~~EPA. A~~scope or cost of remediation. While the draft FS is an important step in the EPA’s development of a proposed plan for addressing the Site, a final decision on the nature and extent of the required remediation will occur only after the EPA has prepared a proposed plan for public review and issued a record of decision (“ROD”). Currently available information indicates that the EPA does not expect to issue its final ROD selecting a remedy for the Site until at least ~~2016.~~2017 or commence remediation activities until 2024. Responsibility for implementing and funding the EPA’s selected remedy will be determined in a separate allocation process, which is currently underway. Because there has not been a determination of the total cost of the investigations, the remediation that will be required, the amount of natural resource damages or how the costs of the ongoing investigations and any remedy and natural resource damages will be allocated among the PRPs, we believe it is not reasonably possible to estimate the amount or range of



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costs which we are likely or which are reasonably possible to incur in connection with the Site, although such costs could be material to our financial position, results of operations, future cash flows and liquidity. Any material liabilities recorded in the future related to the Site could result in our failure to maintain compliance with certain covenants in our debt agreements. Significant cash outflows in the future related to the Site could reduce the amounts available for borrowing that could otherwise be used for investment in capital expenditures, acquisitions, dividends and share repurchases. See Note 65 - Commitments and Contingencies in the Notes to the Unaudited Condensed Consolidated Financial Statements in Part I, Item 1 of this report.

Assessment of Liquidity and Capital Resources

Historically, our available cash resources, internally generated funds, credit facilities and equity offerings have financed our acquisitions, capital expenditures, working capital and other financing needs.

We generally believe our current cash resources, internally generated funds, existing credit facilities and access to the capital markets will provide adequate short-term and long-term liquidity needs for acquisitions, capital expenditures, working capital, dividends, share repurchases, joint ventures, debt service requirements and environmental obligations. However, in the event of a sustained market deterioration, we may need additional liquidity, which would require us to evaluate available alternatives and



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take appropriate steps to obtain sufficient additional funds. There can be no assurance that any such supplemental funding, if sought, could be obtained or, if obtained, would be adequate or on acceptable terms.

Off-Balance Sheet Arrangements

None.

Contractual Obligations

There were no material changes related to contractual obligations and commitments from the information provided in our Annual Report on Form 10-K for the fiscal year ended August 31, ~~2013~~2014.

We maintain stand-by letters of credit to provide support for certain obligations, including workers’ compensation and performance bonds. At ~~February 28,~~November 30, 2014, we had ~~$17~~$16 million outstanding under these arrangements.

Critical Accounting Policies and Estimates

We reaffirm our critical accounting policies and estimates as described in the “Management’s Discussion and Analysis of Financial Condition and Results of Operations” section of our Annual Report on Form 10-K for the year ended August 31, ~~2013~~,2014, except for the following:

Goodwill

~~During the first quarter of fiscal 2014, we changed the annual impairment testing date of goodwill allocated to our reporting units from February 28 to July 1 of each year.~~ There were no triggering events identified during the first ~~or second quarters~~quarter of fiscal ~~2014~~2015 requiring an interim ~~goodwill~~ impairment test of goodwill allocated to our reporting units. ~~Additional sustained declines or a~~A lack of recovery inof market conditions in the metals recycling industry from current levels, a trend of weaker than anticipated Company financial performance including the pace and extent of operating margin and volume recovery, a ~~sustained~~lack of recovery or further decline in ~~the Company’s~~our share price from current levels for a sustained period of time, or an increase in the market-based ~~weighted-average~~weighted average cost of capital, among other factors, could significantly impact ~~the~~our impairment analysis and may result in future goodwill impairment charges ~~that,~~which, if incurred, could have a material adverse effect on ~~the Company’s~~our financial condition and results of operations. See Note 4 - Goodwill in the Notes to the Unaudited Condensed Consolidated Financial Statements, Part 1, Item 1 of this report for further detail.

Recently Issued Accounting Standards

For a description of recent accounting pronouncements that may have an impact on our financial condition, results of operations or cash flows, see Note 2 - Recent Accounting Pronouncements in the Notes to the Unaudited Condensed Consolidated Financial Statements in Part I, Item 1 of this report.



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Non-GAAP Financial Measures

Debt, net of cash

Debt, net of cash is the difference between (i) the sum of long-term debt and short-term debt (i.e., total debt) and (ii) cash and cash equivalents. ~~Management believes~~We believe that debt, net of cash is a useful measure for investors because, as cash and cash equivalents can be used, among other things, to repay indebtedness, netting this against total debt is a useful measure of our leverage.

The following is a reconciliation of debt, net of cash (in thousands):


	February 28, 2014		August 31, 2013		November 30, 2014		August 31, 2014
Short-term borrowings	$	696	$	9,174	$	471	$	523
Long-term debt, net of current maturities	378,217		372,663		340,355		318,842
Total debt	378,913		381,837		340,826		319,365
Less: cash and cash equivalents	20,403		13,481		14,666		25,672
Total debt, net of cash	$	358,510	$	368,356	$	326,160	$	293,693

Net borrowings (repayments) of debt

Net borrowings (repayments) of debt is the sum of borrowings from long-term debt, repayments of long-term debt, proceeds from line of credit, and repayment of line of credit. ~~Management presents~~We present this amount as the net change in borrowings (repayments) for the period because ~~it believes~~we believe it is useful for investors as a meaningful presentation of the change in debt.



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The following is a reconciliation of net borrowings (repayments) of debt (in thousands):


	Six Months Ended February 28,						Three Months Ended November 30,
	2014			2013			2014			2013
Borrowings from long-term debt	$	185,027		$	158,324		$	70,848		$	119,269
Proceeds from line of credit	257,500			315,000			48,000			147,500
Repayment of long-term debt	(180,477		)	(94,987		)	(49,192		)	(98,472		)
Repayment of line of credit	(266,000		)	(315,000		)	(48,000		)	(156,000		)
Net borrowings (repayments) of debt	$	(3,950	)	$	63,337		$	21,656		$	12,297

Adjusted consolidated operating income (loss), adjusted MRB operating income, adjusted net income (loss) and adjusted diluted earnings per share attributable to SSI

~~Management presents~~We present adjusted consolidated operating income (loss), adjusted MRB operating income, adjusted net income (loss) attributable to SSI and adjusted diluted earnings per share attributable to SSI because ~~it believes~~we believe these measures provide a meaningful presentation of our results from core business operations excluding adjustments for restructuring charges and other exit-related costs ~~and other asset impairment charges~~ that are not related to core underlying business operations and improve the period-to-period comparability of our results from core business operations. To improve comparability of our operating performance between periods, these measures also exclude the impact on operating results in fiscal 2015 from the resale or modification of the terms, each at significantly lower prices, of certain previously contracted ferrous bulk shipments for delivery during the first quarter of fiscal 2015. Due to the sharp decline in selling prices that occurred during the first quarter of fiscal 2015, the revised prices associated with these shipments were significantly lower than the prices in the original sales contracts entered into between August and October 2014.

The following is a reconciliation of the adjusted consolidated operating income (loss), adjusted MRB operating income, adjusted net income (loss) attributable to SSI and adjusted diluted earnings per share attributable to SSI (in thousands, except per share data):

Three Months Ended February 28, Six Months Ended February 28,
2014 2013 2014 2013
Consolidated operating income:
As reported 6,584
$ 11,390
$ 2,957
$ 12,604
Other asset impairment charges 928
—
928
—
Restructuring charges and other exit-related costs 2,006
1,540
3,819
3,133
Adjusted $ 9,518
$ 12,930
$ 7,704
$ 15,737

Net income (loss) attributable to SSI:
As reported $ 1,789
$ 8,643
$ (4,440 ) $ 6,970
Other asset impairment charges, net of tax 521
—
521
—
Restructuring charges and other exit-related costs, net of tax 1,120
1,003
2,401
2,039
Adjusted $ 3,430
$ 9,646
$ (1,518 ) $ 9,009

Diluted earnings per share attributable to SSI:
As reported $ 0.07
$ 0.32
$ (0.17 ) $ 0.26
Other asset impairment charges, net of tax, per share 0.02
—
0.02
—
Restructuring charges and other exit-related costs, net of tax, per share 0.04
0.04
0.09
0.08
Adjusted $ 0.13
$ 0.36
$ (0.06 ) $ 0.34



	Three Months Ended November 30,
	2014		2013
Consolidated operating income (loss):
As reported	$	78	$	(3,625	)
Restructuring charges and other exit-related costs	623		1,812
Resale or modification of certain previously contracted shipments	5,581		—
Adjusted	$	6,282	$	(1,813	)

~~Management believes~~



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MRB operating income:
As reported	$	1,922		$	590
Resale or modification of certain previously contracted shipments	5,581			—
Adjusted	$	7,503		$	590

Net income (loss) attributable to SSI:
As reported	$	(2,472	)	$	(6,228	)
Restructuring charges and other exit-related costs, net of tax	474			1,279
Resale or modification of certain previously contracted shipments, net of tax	4,156			—
Adjusted	$	2,158		$	(4,949	)

Diluted earnings per share attributable to SSI:
As reported	$	(0.09	)	$	(0.23	)
Restructuring charges and other exit-related costs, net of tax, per share	0.02			0.05
Resale or modification of certain previously contracted shipments, net of tax, per share	0.15			—
Adjusted	$	0.08		$	(0.18	)

We believe that these non-GAAP financial measures allow for a better understanding of our operating and financial performance. These non-GAAP financial measures should be considered in addition to, but not as a substitute for, the most directly comparable U.S. GAAP measures. Although we find these non-GAAP financial measures useful in evaluating the performance of our business, our reliance on these measures is limited because the adjustments often have a material impact on our condensed consolidated financial statements presented in accordance with GAAP. Therefore, we typically use these adjusted amounts in conjunction with our GAAP results to address these limitations.

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ITEM 3.	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Commodity Price Risk

We are exposed to commodity price risk, mainly associated with variations in the market price for finished steel products, ferrous and nonferrous metals, including scrap metal, autobodies and other commodities. The timing and magnitude of industry cycles are difficult to predict and are impacted by general economic conditions. We respond to increases and decreases in forward selling prices by adjusting purchase prices on a timely basis. We actively manage our exposure to commodity price risk and monitor the actual and expected spread between forward selling prices and purchase costs and processing and shipping expense. Sales contracts are based on prices negotiated with our customers, and generally orders are placed 30 to 60 days ahead of the shipment date. However, financial results may be negatively impacted when forward selling prices fall more quickly than we can adjust purchase prices or when customers fail to meet their contractual obligations. We assess the net realizable value of inventory (“NRV”) each quarter based upon contracted sales orders and estimated future selling prices. Based on contracted sales and estimates of future selling prices at ~~February 28,~~November 30, 2014,, a 10% decrease in the selling price per ton of finished steel products would have caused an NRV inventory write down of $2$3 million at SMB. A 10% decrease in the selling price of inventory would not have had a material NRV impact on MRB or APB at ~~February 28, 2014~~.as of November 30, 2014.

Interest Rate Risk

There have been no material changes to our disclosure regarding interest rate risk set forth in Item 7A. Quantitative and Qualitative Disclosures About Market Risk included in our Annual Report on Form 10-K for the year ended August 31, ~~2013~~2014.

Credit Risk

As of ~~February 28,~~November 30, 2014 and August 31, ~~2013~~, ~~36%~~2014, 44% and ~~49%~~39%, respectively, of our trade accounts receivable balance was covered by letters of credit. Of the remaining balance as of ~~February 28,~~November 30, 2014 and August 31, 2014, ~~97%~~96% was less than 60 days past ~~due, compared to~~ ~~95%~~ ~~as of~~ ~~August 31, 2013~~.due.

Foreign Currency Exchange Rate Risk

We are exposed to foreign currency exchange rate risk, mainly associated with sales transactions and related accounts receivable denominated in the U.S. Dollar by our Canadian subsidiary with a functional currency of the Canadian Dollar. In certain instances, we use derivatives to manage some portion of this risk. Our derivatives are agreements with independent counterparties that provide for payments based on a notional amount. As of ~~February 28,~~November 30, 2014, all of our derivative transactions were related to actual or anticipated economic transactions in the normal course of business. ~~As of February 28, 2014, we had six individual foreign exchange forward contracts for a total notional amount of $41 million, which have various settlement dates through September 30, 2014.~~ A change in foreign exchange rates by 10% would have changed the fair value of these contracts reported in our Condensed Consolidated Balance Sheets by $4$5 million at ~~February 28,~~November 30, 2014.


ITEM 4.	CONTROLS AND PROCEDURES

Disclosure Controls and Procedures

We maintain disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the Securities and Exchange Act of 1934, as amended (the “Exchange Act”)) that are designed to ensure that information we are required to disclose in the reports we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified by the Securities and Exchange Commission’s rules and forms and that such information is accumulated and communicated to management, including the Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosures. Any controls and procedures, no matter how well designed and operated, can only provide reasonable assurance of achieving the desired control objectives. Our management, with the participation of the Chief Executive Officer and Chief Financial Officer, has completed an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures. Based on this evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that, as of ~~February 28,~~November 30, 2014, our disclosure controls and procedures were effective at the reasonable assurance level.

Changes in Internal Control Over Financial Reporting

There was no change in our internal control over financial reporting (as that term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during our most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

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PART II. OTHER INFORMATION


ITEM 1.	LEGAL PROCEEDINGS

See Note 65 - Commitments and Contingencies in the Notes to the Unaudited Condensed Consolidated Financial Statements in Part I, Item I, incorporated by reference herein.

In fiscal 2013, the Commonwealth of Massachusetts advised us of alleged violations of environmental requirements, including but not limited to those related to air emissions and hazardous waste management, at our operations in the Commonwealth. We have been discussing resolution of the alleged violations with the Commonwealth representatives and have reached an agreement in principle to resolve certain of the alleged violations. No enforcement proceeding has been filed to date and we do not believe that the outcome of this matter will be material to our financial position, results of operations, cash flows or liquidity.

The State of California and the Alameda County District Attorney are investigating alleged violations of environmental requirements, including but not limited to those related to air emissions and hazardous waste management, at one of our operations in the State. We have been discussing resolution of the alleged violations with the government representatives and have reached an agreement in principle to resolve certain of the alleged violations. No enforcement proceedings have been filed to date and we do not believe that the outcome of this investigation will be material to our financial position, results of operations, cash flows or liquidity.


ITEM 1A.	RISK FACTORS

There have been no material changes to our risk factors reported or new factors identified since the filing of our Annual Report on Form 10-K for the year ended August 31, ~~2013~~2014, which was filed with the Securities and Exchange Commission on October ~~29, 2013.~~28, 2014.

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ITEM 6.	EXHIBITS



Exhibit Number	Exhibit Description
10.1*	Form of Long-Term Incentive Award Agreement under the 1993 Stock Incentive Plan used for awards granted in fiscal 2015.

10.2*	Fiscal 2015 Annual Performance Bonus Program for Tamara L. Lundgren.

31.1	Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

31.2	Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

32.1	Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

32.2	Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

101	The following financial information from Schnitzer Steel Industries, Inc.’s Quarterly Report on Form 10-Q for the quarter ended ~~February 28,~~November 30, 2014, formatted in XBRL (eXtensible Business Reporting Language): (i) Condensed Consolidated Statements of Operations for the three ~~and six~~ months ended ~~February 28,~~November 30, 2014 and 2013, (ii) Condensed Consolidated Balance Sheets as of ~~February 28,~~November 30, 2014, and August 31, ~~2013,~~2014, (iii) Condensed Consolidated Statements of Comprehensive ~~Income (Loss)~~Loss for the three ~~and six~~ months ended ~~February 28,~~November 30, 2014 and 2013; (iv) Condensed Consolidated Statements of Cash Flows for the ~~six~~three months ended ~~February 28,~~November 30, 2014 and 2013; and (v) the Notes to Condensed Consolidated Financial Statements.

* Management contract or compensatory plan or arrangement.

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.



		SCHNITZER STEEL INDUSTRIES, INC.
		(Registrant)

Date:	~~April 3, 2014~~January 8, 2015	By:	/s/ Tamara L. Lundgren
			Tamara L. Lundgren
			President and Chief Executive Officer

Date:	~~April 3, 2014~~January 8, 2015	By:	/s/ Richard D. Peach
			Richard D. Peach
			Senior Vice President and Chief Financial Officer

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	Nine Months Ended May 31, 2013									Year Ended August 31, 2013
	As Reported			Adjustments			As Revised			As Reported			Adjustments			As Revised
Investing Activities
Purchase of noncontrolling interest	$	(24,734	)	$	24,734		$	—		$	(24,734	)	$	24,734		$	—
Net cash used in investing activities	(115,089		)	24,734			(90,355		)	(137,184		)	24,734			(112,450		)

Financing Activities
Purchase of noncontrolling interest	—			(24,734		)	(24,734		)	—			(24,734		)	(24,734		)
Net cash provided by (used in) financing activities	60,023			(24,734		)	35,289			20,587			(24,734		)	(4,147		)



	Six Months Ended February 28, 2014							Six Months Ended February 28, 2013
	Q4’12 Plan			Q1’14 Plan		Total Charges		Q4’12 Plan		Q1’14 Plan		Total Charges
Restructuring charges:
Severance costs	$	(13	)	$	2,259	$	2,246	$	1,055	$	—	$	1,055
Contract termination costs	568			29		597		24		—		24
Other restructuring costs	—			410		410		2,054		—		2,054
Total restructuring charges	555			2,698		3,253		3,133		—		3,133
Other exit-related costs:
Asset impairments	$	—		$	566	$	566	$	—	$	—	$	—
Total exit-related costs	—			566		566		—		—		—
Total restructuring charges and exit-related costs	$	555		$	3,264	$	3,819	$	3,133	$	—	$	3,133



	Fiscal 2013
Balances - September 1 (Beginning of period)	$	22,248
Net loss attributable to noncontrolling interest	(903		)
Currency translation adjustment	(1,059		)
Capital contributions from noncontrolling interest holder	1,970
Adjustment to fair value	2,504
Balances - February 28 (End of period)	$	24,760



(in thousands)	Assets (Liabilities) at Fair Value						Fair Value Measurement Level	Type of Measurement	Balance Sheet Classification
	February 28, 2014			August 31, 2013
Assets:
Assets held for sale	$	657		$	2,902		Level 3	Non-recurring	Prepaid expenses and other current assets
Impaired long-lived assets	1,000			—			Level 3	Non-recurring	Property, plant and equipment, net
Investment in joint venture partnership	—			3,261			Level 3	Non-recurring	Investments in joint venture partnerships
Total assets	$	1,657		$	6,163
Liabilities:
Contract termination costs	$	—		$	(1,672	)	Level 3	Non-recurring	Other accrued liabilities and Other long-term liabilities
Foreign currency exchange forward contracts	(316		)	—			Level 2	Recurring	Other accrued liabilities
Total liabilities	$	(316	)	$	(1,672	)



	Asset (Liability) Derivatives
		Fair Value
	Balance Sheet Location	February 28, 2014			August 31, 2013
Foreign currency exchange forward contracts	Other accrued liabilities	$	(316	)	$	—