64 / Schnitzer Steel Industries, Inc. Form 10-K 2021 Notes and other contractual receivables consist primarily of advances to entities in the business of extracting scrap metal through demolition and other activities. Repayment of these advances to suppliers is in either cash or scrap metal. The Company performs periodic reviews of its notes and other contractual receivables to identify credit risks and to assess the overall collectibility of the receivables, which typically involves consideration of the value of collateral which in the case of advances to suppliers is generally in the form of scrap metal extracted from demolition and construction projects. A note or other contractual receivable is considered impaired when, based on current information and events, it is probable that the Company will be unable to collect all amounts due in accordance with the contractual terms of the agreement. If the carrying value of the receivable exceeds its recoverable amount, an impairment is recorded for the difference. Accounting for Impacts of Steel Mill Fire Assets destroyed or damaged as a result of involuntary events are written off or reduced in carrying value to their salvage value. When recovery of all or a portion of the amount of property damage loss or other covered expenses through insurance proceeds is demonstrated to be probable, a receivable is recorded and offsets the loss or expense up to the amount of the total loss or expense. No gain is recorded until all contingencies related to the insurance claim have been resolved. On May 22, 2021, the Company experienced a fire at its steel mill in McMinnville, Oregon. Direct physical loss or damage to property from the incident was limited to the mill’s melt shop, with no bodily injuries and no physical loss or damage to other buildings or equipment. The rolling mill production ceased in early June 2021. In August 2021, the steel mill began ramping up production following the substantial completion of replacement and repairs of property and equipment in the melt shop that had been lost or damaged by the fire. Impacts on business income are expected to continue during the ramp-up phase and may continue thereafter. The Company filed initial insurance claims for the property that experienced physical loss or damage and business income losses resulting from the matter. In the fourth quarter of fiscal 2021, the Company recognized an initial $10 million insurance receivable and related insurance recovery gain, reported within prepaid expenses and other current assets in the Consolidated Balance Sheets and within cost of goods sold in the Consolidated Statements of Operations, respectively, primarily offsetting applicable losses including capital purchases of $10 million that had been incurred by the Company as of August 31, 2021. See “Steel Mill Fire” in Note 18 – Subsequent Events for disclosure of a subsequent event related to this matter. Long-Lived Assets The Company tests long-lived tangible and intangible assets for impairment at the asset group level, which is determined based on the lowest level for which identifiable cash flows are largely independent of the cash flows of other groups of assets and liabilities. Operating lease right-of-use assets are considered long-lived assets subject to this impairment testing. The segment realignment completed in the first quarter of fiscal 2021 described above in this Note under “Segment Reporting” did not significantly impact the composition of the Company’s asset groups. For the Company’s metals recycling operations, an asset group generally consists of the regional shredding and export operation along with surrounding feeder operations, except that the combined Oregon metals recycling and steel manufacturing operations is a single asset group. For regions with no shredding and export operations, each metals recycling facility is an asset group. For the Company’s auto parts operations, generally each auto parts store is an asset group. The Company tests its asset groups for impairment when certain triggering events or changes in circumstances indicate that the carrying value of the asset group may be impaired. If the carrying value of the asset group is not recoverable because it exceeds the Company’s estimate of future undiscounted cash flows from the use and eventual disposition of the asset group, an impairment loss is recognized by the amount the carrying value exceeds its fair value, if any. The impairment loss is allocated to the long-lived assets of the group on a pro rata basis using the relative carrying amounts of those assets, except that the loss allocated to an individual long-lived asset of the group shall not reduce the carrying amount of that asset below its fair value. Fair value is determined using one or more of the income, market, or cost approaches, depending on the nature of the asset group. With respect to individual long-lived assets, changes in circumstances may merit a change in the estimated useful lives or salvage values of the assets, which are accounted for prospectively in the period of change. For such assets, the useful life is shortened based on the Company’s plans to dispose of or abandon the asset before the end of its original useful life and depreciation is accelerated beginning when that determination is made. Long-lived asset impairment charges (recoveries) and accelerated depreciation are reported in the Consolidated Statements of Operations within (1) asset impairment charges, net and (2) restructuring charges and other exit-related activities if related to a site closure. During fiscal 2020, the Company reported $6 million of such items within asset impairment charges, net, comprising primarily $2 million related to abandonment of obsolete machinery and equipment assets, $2 million related to impairment of two auto parts stores, and $2 million related to accelerated depreciation due to the shortening of the useful lives of certain metals recovery assets.
RkJQdWJsaXNoZXIy NTIzOTM0