ArcelorMittal Annual Report 2008

ArcelorMittal has provided for all
receivables over 180 days because
historical experience is such that
receivables that are past due beyond
180 days are generally not recoverable.
Trade receivables between 60 days and
180 days are provided for based on
estimated irrecoverable amounts from the
sale of goods and/or services, determined
by reference to past default experience.
Inventories
Inventories are carried at the lower of
cost and net realizable value. Cost is
determined using the first-in, first-out
(“FIFO”) method or average cost method,
which approximates FIFO. Costs of
production in process and finished goods
include the purchase costs of raw materials
and conversion costs such as direct labor
and an allocation of fixed and variable
production overheads. Raw materials and
spare parts are valued at cost inclusive
of freight and shipping and handling costs.
Net realizable value represents the
estimated selling price at which the
inventories can be realized in the normal
course of business after allowing for the
cost of conversion from their existing state
to a finished condition and for the cost
of marketing, selling, and distribution.
Goodwill and negative goodwill
Goodwill arising on an acquisition
is recognized as an asset and initially
measured at cost, being the excess of
the cost of the business combination
over ArcelorMittal’s interest in the net fair
value of the identifiable assets, liabilities
and contingent liabilities recognized.
Goodwill is allocated to the
cash-generating units expected to
benefit from the synergies of the
combination for the purpose of impairment
testing. The allocation is made to those
cash-generating units or groups of
cash-generating units that are expected
to benefit from the business combination
in which the goodwill arose.
Goodwill is reviewed at the
cash-generating unit level for
impairment annually or whenever
changes in circumstances indicate that the
carrying amount may not be recoverable.
The recoverable amounts of the
cash-generating units are determined
from the higher of fair value less cost
to sell or value in use calculations,
as described in the impairment of tangible
and intangible assets. The key assumptions
for the value in use calculations are those
regarding the discount rates, growth rates
and expected changes to selling prices
and direct costs during the period.
Management estimates discount rates
using pre-tax rates that reflect current
market rates for investments of similar risk.
The growth rates are based on the
Company’s growth forecasts which are
in line with industry trends. Changes in
selling prices and direct costs are based
on historical experience and expectations
of future changes in the market.
Cash flow forecasts are derived from the
most recent financial forecasts for the
next five years. Beyond the specifically
forecasted period, the Company
extrapolates cash flows for the remaining
years based on an estimated growth rate.
This rate does not exceed the average
long-term growth rate for the relevant
markets. Once recognized, impairment
losses recognized for goodwill are not
reversed. On disposal of a subsidiary,
any residual amount of goodwill is included
in the determination of the profit or loss
on disposal.
ArcelorMittal has historically purchased
certain steel assets involved in various
privatization programs in former
government controlled economies.
Businesses with these characteristics
typically have been purchased for
an amount that does not exceed net asset
fair value, thus producing negative goodwill
for accounting purposes.
In a business combination in which
the fair value of the identifiable net
assets acquired exceeds the cost of the
acquired business, the Company reassesses
the fair value of the assets acquired.
If, after reassessment, ArcelorMittal’s
interest in the net fair value of the
acquiree’s identifiable assets, liabilities
and contingent liabilities exceeds the
cost of the business combination,
the excess (negative goodwill) is
recognized immediately in the
statement of income.
Intangible assets
Intangible assets are recognized only
when it is probable that the expected
future economic benefits attributable
to the assets will accrue to the Company
and the cost can be reliably measured.
Intangible assets acquired separately
by ArcelorMittal are initially recorded
at cost and those acquired in a business
combination are recorded at fair value.
These primarily include the cost of
technology and licenses purchased
from third parties. Intangible assets are
amortized on a straight-line basis over
their estimated economic useful lives
which typically are not to exceed five years.
Costs incurred on internally developed
products are recognized as intangible
assets from the date that all of the
following conditions are met: (i) completion
of the development is considered
technically feasible and commercially viable;
(ii) it is the intention and ability of the
Company to complete the intangible asset
and use or sell it; (iii) it is probable that the
intangible asset will generate future
economic benefits; (iv) adequate technical,
financial, and other resources to complete
the development and to use or sell the
intangible asset are available; and (v) it is
possible to reliably measure the expenditure
attributable to the intangible asset during
its development.
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2008 Consolidated Financial Statements continued
ArcelorMittal Annual Report 2008