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Mountain State CarbonDearborn and Wheeling each own 50% of MountainState Carbon LLC, a metallurgical coke-making jointventure, located in Follansbee, West Virginia. It wasformed to provide its owners with a reliable supply ofhigh-quality, competitively priced domestic coke. Itsannual production is 1 million tones, and our ownershipallows us to receive coke every year at a substantiallylower cost than imported coke.2008 AcquisitionsIn May 2008, Severstal acquired Sparrows Point, LLC(renamed to Severstal Sparrows Point, LLC), located inBaltimore, Maryland for a total consideration of US$818million. This was subject to certain adjustments ofUS$48 million, resulting in a final consideration ofUS$770 million. The transaction reflects a strategicopportunity to add complementary assets and scaleto SNA’s existing US business. Sparrows Point has acapacity of 3.4 million tonnes of crude steel; it is theonly integrated producer of flat-rolled steel on the USEast Coast and is a major North American supplier of tinmill products.In July 2008, Severstal acquired WCI Steel (renamedto Severstal Warren, Inc.), a producer of value-addedsteel products, based in Warren, Ohio, for a totalconsideration of US$443.1 million. This company’s totalannual steelmaking capacity of 1.4 million tonnes isfocused on high-quality, custom flat-rolled steel for usein demanding applications. It produces high-quality,flat-rolled steel for the automotive, appliance, furniture,construction and energy markets. However, in February2009, we announced the temporary shut down of thesteel galvanizing line at the Severstal Warren facility.Severstal Warren Inc. will remain idle while the companybalances production volume to match current demand.We expect this acquisition – which consists mainly oftwo operating companies, Severstal Wheeling, Inc. andNorthern Steel Group (NSG) – to play a critical role inour North American industrial strategy, with an annualcapacity of 2.5 million tonnes. The combined companyis one of North America’s leading producers of flatrolledsteel and expands Severstal’s product offeringsto direct customers and service centres.SNA expects to benefit substantially from co-operationbetween the new additions and existing US operationsin Dearborn, Michigan and Columbus, Mississippi. Theaddition of Wheeling and NSG to our US portfolio alsooffers potential for significant advances in operationaland financial efficiencies, as do our recent acquisitionsof Sparrows Point in Baltimore, Maryland and WCISteel in Warren, Ohio. Also, full ownership of MountainState Carbon will increase the company’s domesticcoke-making capacities and consolidate further our rawmaterial supply base.StrategyThe strategic objectives of Severstal North America are:• Improve efficiency of operations throughdownsizing and cost-cutting initiatives• Secure low cost raw material supplies• Improve margins and acquire downstream outletsfor our products.Key performance indicators2008 2007 Change year-on-year %Production of crude steel (Thousand tonnes) 5,100 2,230 128.7Sales of steel products (Thousand tonnes) 5,184 2,537 104.3Revenue (US$ million) 5,319 1,805 194.7Gross profit (US$ million) (522) (43) 1,114.0Profit from operations (US$ million) 145 (111) (230.6)Operating margin (%) 2.7 (6.1) n/aEBITDA (US$ million) 377 (50) (854.0)EBITDA per tonne (US$/tonne) 73 (20) (465.0)EBITDA margin (%) 7.1 (2.8) n/aAverage steel product price (US$/tonne) * 978 693 41.1Hot-rolled strip and plate (US$/tonne) 905 595 52.1Cold-rolled sheet (US$/tonne) 979 711 37.7Galvanized and other metallic coated sheet (US$/tonne) 1,040 864 20.4Color coated sheet (US$/tonne) 1,706 - n/aMetalware products (US$/tonne) 1,829 - n/aSemifinished products (US$/tonne) 967 - n/a* steel products include semifinished, rolled and downstream productsSales revenue in 2008 amounted to US$5,319 million,which is 194.7% higher than the US$1,805 millionwe achieved in 2007. EBITDA in 2008 amounted toThey are also due to favourable litigation and contracttermination outcomes, and ‘B’ blast furnace incidentinsurance recoveries.US$377 million, which is an 854.0% improvement onthe US$(50) million figure for 2007. Improvementsin operating profit in 2008 compared with 2007 areAt the end of 2008, 6,453 employees and contractorsworked at SNA, compared with 2,610 in 2007.related mainly to increasing sales volume – bothacquisition-related and market-driven – and revenuerates.In August 2008, SNA acquired Esmark Inc. (renamedto Severstal Wheeling Holding, Inc.) for a totalconsideration of US$977.8 million.66 67