Description of the Business and Significant Accounting Policies (Policies)

3 Months Ended

Mar. 31, 2023

Description of the Business and Significant Accounting Policies

Principles of Consolidation

Principles of Consolidation

The consolidated financial statements include the accounts of SDI, together with its wholly- and majority-owned or controlled subsidiaries, after elimination of intercompany accounts and transactions. Noncontrolling and redeemable noncontrolling interests represent the noncontrolling owners’ proportionate share in the equity, income, or losses of the company’s majority-owned or controlled consolidated subsidiaries. Redeemable noncontrolling interests related to USS (owned 87.5% by SDI at March 31, 2023 and December 31, 2022) are $75.0 million at March 31, 2023 and $70.3 million at December 31, 2022. Redeemable noncontrolling interests related to Mesabi Nugget (owned 85% by SDI) are $111.2 million at March 31, 2023, and December 31, 2022.

At March 31, 2023, SDI owned 87.5% of the equity interest in USS. Originally, after the fourth anniversary of the initial transaction (March 1, 2023), SDI has an option to purchase, and the noncontrolling members had the option to require the company to purchase, the remaining 12.5% equity interest of USS. On April 1, 2023, a noncontrolling member of USS exercised its option to require SDI to purchase its 2.5% equity interest, increasing SDI’s ownership to 90%. The remaining noncontrolling members’ option to require SDI to purchase the remaining 10% equity interest of USS has been extended to on or after February 28, 2025.

Use of Estimates

Use of Estimates

These consolidated financial statements are prepared in conformity with accounting principles generally accepted in the United States, and accordingly, include amounts that require management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and in the notes thereto. Significant items subject to such estimates and assumptions include the carrying value of property, plant and equipment, intangible assets, and goodwill; valuation allowances for trade receivables, inventories and deferred income tax assets; unrecognized tax benefits; potential environmental liabilities; and litigation claims and settlements. Actual results may differ from these estimates and assumptions.

In the opinion of management, these financial statements reflect all normal recurring adjustments necessary for a fair presentation of the interim period results. These consolidated financial statements and notes should be read in conjunction with the audited financial statements and notes thereto included in the company’s Annual Report on Form 10-K for the year ended December 31, 2022.

Cash and Equivalents, and Restricted Cash

Cash and Equivalents, and Restricted Cash

Cash and equivalents include all highly liquid investments with a maturity of three months or less at the date of acquisition. Restricted cash is primarily funds held in escrow as required by various insurance and government organizations. The balance of cash, cash equivalents and restricted cash in the consolidated statements of cash flows includes restricted cash of $5.5 million for all periods presented, which are recorded in Other Assets (noncurrent) in the company’s consolidated balance sheets.

Goodwill

Goodwill

The company’s goodwill consisted of the following at March 31, 2023, and December 31, 2022 (in thousands):

	March 31,		December 31,
	2023		2022
Steel Operations Segment	$	272,133	$	272,133
Metals Recycling Operations Segment		228,009		228,009
Steel Fabrication Operations Segment		1,925		1,925
	$	502,067	$	502,067

Credit Losses

Credit Losses

The company is exposed to credit risk in the event of nonpayment of accounts receivable by customers. The company mitigates its exposure to credit risk, which it generally extends on an unsecured basis, by performing ongoing credit evaluations and taking further action if necessary, such as requiring letters of credit or other security interests to support the customer receivable. The allowance for credit losses for accounts receivable is based on the company’s reasonable estimate of known credit risks and historical experience, adjusted for current and anticipated economic and other pertinent factors affecting the company’s customers, that may differ from historical experience. Customer accounts receivable are written off when all collection efforts have been exhausted and the amounts are deemed uncollectible.

At March 31, 2023, the company reported $2,127 million of accounts receivable, net of allowances for credit losses of $6.4 million. Changes in the allowance were not material for the three-month periods ended March 31, 2023 and 2022.