Related Party Transactions

12 Months Ended

Aug. 31, 2011

Related Party Transactions [Abstract]

Related Party Transactions

Related Party Transactions

The Company purchases recycled metal from its joint venture operations at prices that approximate fair market value. These purchases totaled $48 million, $29 million and $16 million for the years ended August 31, 2011, 2010 and 2009, respectively. Advances to (payments from) these joint ventures were $(2) million, less than $1 million and $2 million for the years ended August 31, 2011, 2010 and 2009, respectively. The Company owed $2 million and $1 million to joint ventures as of August 31, 2011 and 2010, respectively.

In November 2010, the Company and a joint venture partner entered into a series of agreements to facilitate the expansion of their joint venture operations in order to increase the flow of scrap into MRB yards. In order to fund this growth, the Company and its joint venture partner each contributed an additional $2 million in equity to the joint venture.

In connection with the acquisition of the metals recycling business assets of Amix Salvage & Sales Ltd. during fiscal 2011, the Company entered into a series of agreements to lease property or obtain services with entities owned by the minority shareholder of the Company’s subsidiary that operates its MRB facilities in British Columbia and Alberta, Canada. The Company paid $3 million under these agreements for the year ended August 31, 2011.

Thomas D. Klauer, Jr., President of the Company’s Auto Parts Business, 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 four self-service stores in Northern California. Mr. Klauer’s 25% share of the profits of this partnership totaled $2 million, $2 million and $1 million in the years ended August 31, 2011, 2010 and 2009, respectively. The Company and a company owned by Mr. Klauer jointly own the real property at one of these stores, which is leased to the partnership. Mr. Klauer’s share of the annual rent paid by the partnership is less than $1 million. The term of this lease expires in December 2015, and the partnership has the option to renew the lease, upon its expiration, for multiple five-year periods. Rent under the lease is adjusted annually based on the Consumer Price Index. Also in fiscal 2009, Mr. Klauer, through a company of which he is the sole shareholder, acquired ownership of a contiguous parcel of real property, a portion of which is leased to the partnership. The term of this lease expires in December 2015, and the partnership has the option to renew the lease, upon its expiration, for multiple five-year periods. Rent under the lease is adjusted annually based on the Consumer Price Index. The rent paid by the partnership to Mr. Klauer’s company for this parcel was less than $1 million in the years ended August 31, 2011, 2010 and 2009. In addition, in July 2011, the Company leased a parcel of land in San Jose from a company of which Mr. Klauer is sole shareholder. The term of this lease expires on January 31, 2012, and the Company has the option to renew the lease for an additional six months. The rent paid to Mr. Klauer’s company in fiscal 2011 for this parcel was less than $1 million. In addition, during the year ended August 31, 2008, the Company loaned this partnership $5 million to fund the exercise of an option to purchase another property occupied by the partnership from an unrelated third party. The loan accrued interest at 5% per annum, and the partnership was prohibited from making distributions to its partners (other than for taxes on the income of the partnership) until the loan was repaid. The principal balance was repaid in the first quarter of fiscal 2010.

Certain shareholders of the Company own significant interests in, or are related to owners of, the entities discussed below. As such, these entities are considered related parties for financial reporting purposes. All transactions with the Schnitzer family (including Schnitzer family companies) require the approval of the Company’s Audit Committee, and the Company is in compliance with this policy. Members of the Schnitzer family own all of the outstanding stock of Schnitzer Investment Corp. (“SIC”), which is engaged in the real estate business and was a subsidiary of the Company prior to 1989. The Company and SIC are both potentially responsible parties with respect to Portland Harbor, which has been designated as a Superfund site since December 2000. The Company and SIC 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 SIC with respect to the Portland scrap metal operations property. As these costs have increased substantially in the last two years, the Company and SIC have agreed to an equitable cost sharing arrangement with respect to defense costs under which SIC will pay 50% of the legal and consulting costs, net of insurance recoveries. The Company recognized $1 million and $3 million in reimbursement of environmental expenses in the year ended August 31, 2011 and 2010, respectively, for SIC’s share of costs. Amounts receivable from SIC under this agreement were less than $1 million and $1 million as of August 31, 2011 and 2010, respectively.

The Company’s Restated Articles of Incorporation and Bylaws obligate it to indemnify current or former directors and officers to the fullest extent not prohibited by law, and further obligates it to advance expenses incurred in defending any pending or threatened proceeding to any such person in advance of a final disposition of such matters, but only if the involved officer or director affirms a good faith belief of entitlement to indemnification and undertakes to repay such expenses if it is ultimately determined by a court that the person is not entitled to be indemnified. In connection with the continuing investigation of certain former employees related to the Company’s past practice of making improper payments to purchasing managers of customers in Asia, Robert W. Philip, former Chairman, President and Chief Executive Officer of the Company, requested advancement of expenses and provided the required undertaking. The Company advanced $1 million to Mr. Philip for legal expenses in connection with the investigation during fiscal 2010 and 2009. During fiscal 2010, the Company was reimbursed by its D&O insurance carrier for approximately $3 million of the amounts advanced to former officers and directors.

William Furman, a director of the Company, is the Chairman and Chief Executive Officer of The Greenbrier Companies (with its subsidiaries, “Greenbrier”). During the years ended August 31, 2011, 2010 and 2009, the Company engaged in a series of transactions with Greenbrier in which the Company sold as well as purchased goods on an arm’s length’s basis. During the years ended August 31, 2011, 2010 and 2009, the Company sold goods to Greenbrier in the amount of less than $1 million, $1 million and less than $1 million, respectively. Purchases of goods from Greenbrier were less than $1 million during each of the years ended August 31, 2011, 2010 and 2009.