Stainless Steel Financing costs Income tax In the Stainless Steel segment, Net financing costs include net interest <strong>ArcelorMittal</strong> recorded a consolidated operating income amounted to $0.4 billion expense, revaluation of financial tax expense of $1,098 million for the for the year ended December 31, <strong>2008</strong>, instruments, net foreign exchange year ended December 31, <strong>2008</strong>, compared representing a decrease of 56% compared income / expense (i.e., the net effects to income tax expense of $3,038 million to operating income of $0.9 billion of transactions in a foreign currency for the year ended December 31, 2007. for the year ended December 31, 2007 other than the functional currency The effective tax rate (ETR) for the (mainly due to sharp fall in nickel prices of a subsidiary) and other financing costs. twelve months ended December 31, described above). The result included Net financing costs were 154% higher <strong>2008</strong> was lower at 9.5% (or 12.7% before expenses of approximately $0.2 billion for the year ended December 31, <strong>2008</strong>, the recognition of deferred tax assets recorded in the fourth quarter relating at $2,352 million, as compared with on acquired net operating losses) as to a write-down of inventory and $927 million for the year ended December compared with the effective tax rate for provisions for workforce reductions 31, 2007. the twelve months ended December 31, (including voluntary separation programs). Steel Solutions and Services In the Steel Solutions and Services segment, operating income amounted to $0.2 billion for the year ended December 31, <strong>2008</strong>, representing a decrease of 63% compared to operating income of $0.6 billion for the year ended December 31, 2007. The decline also reflected expenses of $0.7 billion recorded in the fourth quarter, relating primarily to a provision for litigation ($0.4 billion), write-downs of inventory (approximately $0.2 billion), provisions for onerous raw material supply contracts and provisions for workforce reductions (including voluntary separation programs). Income from investment in associates and joint ventures Interest expense, which includes bank fees, interest on loans and interest on pensions, increased to $2.5 billion for the year ended December 31, <strong>2008</strong> compared to $2.2 billion for the year ended December 31, 2007, due to an increased average level of borrowing. As of December 31, <strong>2008</strong>, <strong>ArcelorMittal</strong>’s total debt was $34.1 billion (compared to $30.6 billion as of December 31, 2007). Also contributing to the increase was higher interest cost on pensions, particularly in the United States. Interest income for the year ended December 31, <strong>2008</strong> was $0.5 billion as compared to $0.6 billion for the year ended December 31, 2007, due a reduction in average interest rates on deposits. 2007 of 20.4% on income before taxes of $11,537 million and $14,888 million, respectively. The lower ETR for the year is primarily due to a change in the geographical mix of <strong>ArcelorMittal</strong>’s sources of income and a decrease in the statutory tax rates in some countries. For additional information related to <strong>ArcelorMittal</strong>’s income taxes, see note 19 to the <strong>ArcelorMittal</strong> Consolidated Financial Statements. Minority interest Minority interest was $1,040 million for the year ended December 31, <strong>2008</strong>, as compared with $1,482 million for the year ended December 31, 2007. The decrease resulted primarily from the repurchase of minority interests in Arcelor (via the second-step merger in 2007), <strong>ArcelorMittal</strong> recorded income of $1.7 billion from investments accounted for using the equity method for the year ended December 31, <strong>2008</strong>, as compared with income from equity method investments of $985 million for the twelve months ended December 31, 2007. The increase is primarily related to <strong>ArcelorMittal</strong>’s investments in Dillinger Hütte Saarstahl AG (‘DHS’) in Germany, China Oriental and Hunan Valin in China, MacArthur coal in Australia, Kalagadi Manganese in South Africa and Eregli Losses related to the fair value of derivative instruments for the year ended December 31, <strong>2008</strong> amounted to $177 million, as compared with $431 million of gains for the year ended December 31, 2007. The Company recorded a substantial loss on forward contracts on freight in <strong>2008</strong> (primarily in the fourth quarter), whereas in 2007 it had recorded a substantial gain on derivative instruments primarily in connection with its purchase of a stake in a Turkish entity. <strong>ArcelorMittal</strong> Brasil, <strong>ArcelorMittal</strong> Inox Brasil and Acindar, partially offset by higher income from <strong>ArcelorMittal</strong> South Africa and <strong>ArcelorMittal</strong> Ostrava. Net income attributable to equity holders of the parent <strong>ArcelorMittal</strong>’s net income attributable to equity holders of the parent for the year ended December 31, <strong>2008</strong> decreased to $9,399 million from $10,368 million for the year ended December 31, 2007, for the reasons discussed above. Demir Ve Celik Fab.T.AS (‘Erdemir’) Foreign exchange and other financing in Turkey. On December 15, <strong>2008</strong>, expenses were $156 million for <strong>ArcelorMittal</strong> sold a 17.82% stake in the twelve months ended December 31, DHS for €695 million (plus a dividend <strong>2008</strong>, compared to foreign exchange of €82 million to be received in 2009). and other financing income of $239 million for the twelve months ended December 31, 2007. 52
Customers and Innovation Much of the R&D team’s work extends beyond the development of new steels to the design of total engineering solutions to meet manufacturing and other challenges faced by customers. 53 Customers and Innovation <strong>ArcelorMittal</strong> <strong>Annual</strong> <strong>Report</strong> <strong>2008</strong>
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