Segment Information

The accounting standards for reporting information about operating segments define an operating segment as a component of an enterprise that engages in business activities from which it may earn revenues and incur expenses 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.

Prior to the fourth quarter of fiscal 2017, the Company’s internal organizational and reporting structure supported two operating and reportable segments: the Auto and Metals Recycling (“AMR”) business and the Steel Manufacturing Business (“SMB”). In the fourth quarter of fiscal 2017, in accordance with its plan announced in June 2017, the Company modified its internal organizational and reporting structure to combine its steel manufacturing operations, which had been reported as the SMB segment, with its Oregon metals recycling operations, which had been reported within the AMR segment, forming a new division named Cascade Steel and Scrap (“CSS”). This resulted in a realignment of how the Chief Executive Officer, who is considered the Company’s chief operating decision maker, reviews performance and makes decisions on resource allocation. The Company began reporting under this new segment structure in the fourth quarter of fiscal 2017 as reflected in its Annual Report on Form 10-K for the year ended August 31, 2017. The segment data for the comparable periods presented herein have been recast to conform to the current period presentation for all activities of the reorganized segments. Recasting this historical information did not have an impact on the Company’s consolidated financial performance for any of the periods presented.

AMR buys and processes ferrous and nonferrous scrap metal for sale to foreign and domestic steel producers or their representatives and procures salvaged vehicles and sells serviceable used auto parts from these vehicles through a network of self-service auto parts stores. These auto parts stores also supply the Company’s shredding facilities with autobodies that are processed into saleable recycled scrap metal. CSS operates a steel mini-mill that produces a range of finished steel long products using recycled scrap metal and other raw materials. CSS’s steel mill obtains substantially all of its recycled scrap metal raw material requirements from its integrated metals recycling and joint venture operations. CSS’s metals recycling operations also sell recycled metal to external customers primarily in export markets.

The Company holds noncontrolling ownership interests in joint ventures, which are either in the metals recycling business or are suppliers of unprocessed metal. The Company’s allocable portion of the results of these joint ventures is reported within the segment results. Three of the joint venture interests are presented as part of AMR operations, and one interest is presented as part of CSS operations. The joint ventures sell recycled scrap metal to AMR and to CSS 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.

Intersegment sales from AMR to CSS are made at prices that approximate local market rates. 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 segment operating income to measure segment performance. The Company does not allocate corporate interest income and expense, income taxes and other income and expense to its reportable segments. Certain expenses related to shared services that support operational activities and transactions are allocated from Corporate to the segments. Unallocated Corporate expense consists primarily of expense for management and certain administrative services that benefit both reportable segments. In addition, the Company does not allocate certain items to the segment operating income because management does not include the information in its measurement of the performance of the operating segments. Such unallocated items include restructuring charges and other exit-related activities, charges related to certain legacy environmental liabilities, and provisions for certain legal matters. Because of the unallocated income and expense, the operating income of each reportable segment does not reflect the operating income the reportable segment would report as a stand-alone business. The results of discontinued operations are excluded from segment operating income and are presented separately, net of tax, from the results of ongoing operations for all periods presented.

The table below illustrates the Company’s revenues from continuing operations by reportable segment (in thousands):



	Three Months Ended May 31,						Nine Months Ended May 31,
	2018			2017			2018			2017
Revenues:
Auto and Metals Recycling:
Revenues	$	529,611		$	385,396		$	1,377,450		$	970,311
Less: Intersegment revenues	(7,271		)	(4,533		)	(19,086		)	(11,349		)
AMR external customer revenues	522,340			380,863			1,358,364			958,962
Cascade Steel and Scrap:
Revenues	130,076			96,225			336,774			234,371
Total revenues	$	652,416		$	477,088		$	1,695,138		$	1,193,333

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



	Three Months Ended May 31,						Nine Months Ended May 31,
	2018			2017			2018			2017
Auto and Metals Recycling	$	54,980		$	29,520		$	135,284		$	67,414
Cascade Steel and Scrap	10,793			1,163			24,682			(2,744		)
Segment operating income	65,773			30,683			159,966			64,670
Restructuring charges and other exit-related activities	(70		)	(93		)	(261		)	200
Corporate and eliminations	(14,469		)	(11,443		)	(48,690		)	(30,965		)
Operating income	51,234			19,147			111,015			33,905
Interest expense	(2,483		)	(2,131		)	(6,823		)	(5,969		)
Other income, net	403			524			1,353			1,318
Income from continuing operations before income taxes	$	49,154		$	17,540		$	105,545		$	29,254

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



	May 31, 2018			August 31, 2017
Auto and Metals Recycling⁽¹⁾	$	1,449,838		$	1,298,757
Cascade Steel and Scrap⁽¹⁾	725,081			696,269
Total segment assets	2,174,919			1,995,026
Corporate and eliminations⁽²⁾	(1,097,649		)	(1,061,271		)
Total assets	$	1,077,270		$	933,755

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(1)	AMR total assets included $4 million and $5 million for investments in joint ventures as of May 31, 2018 and August 31, 2017, respectively. CSS total assets included $7 million for investments in joint ventures as of May 31, 2018 and August 31, 2017.


(2)	The substantial majority of Corporate and eliminations total assets are composed of Corporate intercompany payables to the Company’s operating segments and intercompany eliminations.