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OAO Severstal and subsidiariesOAO Severstal and subsidiariesNotes to the consolidated financial statementsfor the years ended December 31, 2008, 2007 and 2006(Amounts expressed in thousands of US dollars, except as stated otherwise)For the year ended December 31, 2008, key management’s remuneration totalled US$ 43.9 million (2007: US$ 57.2million; 2006: US$ 44.5 million). As a part of the above amount US$ 40.1 million was paid in 2006 to the Group’srelated party, ZAO Severstal Group that employed executive officers of Severstal and seconded them to Severstalduring the year ended December 31, 2006.6. Net (loss)/income from securities operationsYear ended December 31,2008 2007 2006Held-for-trading securitiesProfit on disposal 3,037 - 153Remeasurement to fair value (106,058) 3,864 401Held-to-maturity securities and loansRemeasurement to fair value (discounting) (2,249) 3,577 13,909Available-for-sale securitiesProfit on disposal 1,203 11,849 6,384Remeasurement to fair value 2,794 4,012 7,183Dividends received 4,520 2,262 241(96,753) 25,564 28,2717. Net other operating income/(expenses)Year ended December 31,2008 2007 2006Insurance proceeds 430,000 - -Compensation for damages 267,000 - -Gain on termination of a supply contract 177,000 - -Other (83,820) (7,266) (23,174)790,180 (7,266) (23,174)In January 2008, an explosion occurred on one of Severstal North America’s (“SNA”) furnaces, blast furnace “B”.Following the accident, SNA has ceased blast furnace “B” operation. SNA is insured against property damage andbusiness interruption with a combined gross coverage of US$ 500.0 million, subject to customary deductibles. Thebusiness interruption insurance covers fixed costs and loss of profits. The entire amount of the insurance coverageof US$ 430.0 million was received in 2008.In February 2008, a long term electricity supply contract between SNA and Dearborn Industrial Generation (“DIG”)has been terminated with a lump sum payment from DIG to compensate SNA for the differential between thecontract price and the price SNA will have to pay another electricity supplier for the duration of the original contract.This lump sum payment amounted to US$ 177.0 million.In December 2008, a court decision was announced to award the Group the compensation of damages of US$ 267.0million by A.T. Massey Coal Co. in connection with a breach of a contract for coal supply during the years 2004– 2006.Insurance proceeds, compensation for damages and gain on termination of supply contract relates to SeverstalNorth America segment.Notes to the consolidated financial statementsfor the years ended December 31, 2008, 2007 and 2006(Amounts expressed in thousands of US dollars, except as stated otherwise)8. Impairment of non-current assetsYear ended December 31,2008 2007 2006Impairment of property, plant and equipment (Note 22) (1,079,124) (28,895) (57,820)Impairment of goodwill (Note 23) (461,139) - -(1,540,263) (28,895) (57,820)For the purpose of impairment testing, the recoverable amount of each cash-generating unit has been determinedbased on value in use calculation, except for Severstal Warren Inc. where the recoverable amount has beendetermined based on fair market value less costs to sell. Value in use calculation uses cash flow projections basedon actual operating results and business plan approved by management and a corresponding discount rate whichreflects time value of money and risks associated with each individual cash generating unit. Key assumptionsmanagement used in their value in use calculation are as follows:• For all cash generating units apart from the Mining segment cash flow projections cover a period of five years,cash flows beyond that five-year period have been extrapolated taking into account business cycles. Cash flowprojections for cash generating units of Mining segment cover a period which corresponds to the contractualtime of respective mining licenses.• Cash flow projections were prepared in nominal terms.• Cash flow projections during the forecast period are based on long-term price trends for both sales pricesand material costs specific for each segment and geographic region and operating cost inflation in line withconsumer price inflation for each country. Consumer price inflation expectations (in local currency) during theforecast period are as follows:Inflation expectations, %Russia 12.0USA 1.8 - 2.0Italy 1.9 - 2.0France 1.6 - 2.0UK 2.3 - 2.0• Discount rates for each cash-generating unit were estimated in nominal terms on the weighted average cost ofcapital basis. These rates, presented by segment, are as follows:Discount rates, %Mining segment:Russia* 18.5 - 21.4Kazakhstan* 23.6USA* 16.4Russian Steel* 20.1 - 22.1Lucchini 12.6 - 13.1North America 17.7 - 18.9Izhora Pipe Mill* 22.5Metalware sement:Russia* 21.7Italy 10.5*US$ rateValues assigned to key assumptions and estimates used to measure the unit’s recoverable amount are consistentwith external sources of information and historic data for each cash-generating unit. Management believes that thevalues assigned to the key assumptions and estimates represent the most realistic assessment of future trends.128129