Management Report - Beursgorilla

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ArcelorMittal Annual Report 200918 Consolidated Financial StatementsNotes to the Consolidated Financial Statements continuedArcelorMittal and Subsidiaries(millions of U.S. dollars, except share and per share data)In accordance with IFRS, actuarial gainsor losses resulting from experience andchanges in assumptions are recognizedin ArcelorMittal’s statement of operationsonly if the net cumulative unrecognizedactuarial gains and losses at the end of theprevious reporting period exceeded thegreater of 10% of the present value of thedefined benefit obligation at that date and10% of the fair value of any plan asset atthat date. The fraction exceeding 10% isthen recognized over the expected averageremaining working lives of the employeesparticipating in the plans.Note 22 details the net liabilities of pensionplans and other post-employment benefitsincluding a sensitivity analysis illustratingthe effects of changes in assumptions.Environmental and Other ContingenciesArcelorMittal is subject to changing andincreasingly stringent environmental laws andregulations concerning air emissions, waterdischarges and waste disposal, as well ascertain remediation activities that involve theclean-up of soil and groundwater. ArcelorMittalis currently engaged in the investigation andremediation of environmental contaminationat a number of its facilities. Most of these arelegacy obligations arising from acquisitions.ArcelorMittal recognizes a liability forenvironmental remediation when it is morelikely than not that such remediation will berequired and the amount can be estimated.The estimates of loss contingencies forenvironmental matters and othercontingencies are based on various judgmentsand assumptions including the likelihood,nature, magnitude and timing of assessment,remediation and/or monitoring activities andthe probable cost of these activities. In somecases, judgments and assumptions are maderelating to the obligation or willingness andability of third parties to bear a proportionateor allocated share of cost of these activities,including third parties who sold assets toArcelorMittal or purchased assets from itsubject to environmental liabilities.ArcelorMittal also considers, among otherthings, the activity to date at particular sites,information obtained through consultationwith applicable regulatory authorities andthird-party consultants and contractors and itshistorical experience with other circumstancesjudged to be comparable. Due to the numerousvariables associated with these judgments andassumptions, and the effects of changes ingovernmental regulation and environmentaltechnologies, both the precision and reliabilityof the resulting estimates of the relatedcontingencies are subject to substantialuncertainties. As estimated costs to remediatechange, the Company will reduce or increasethe recorded liabilities through creditsor charges in the statement of operations.ArcelorMittal does not expect theseenvironmental issues to affect the utilizationof its plants, now or in the future.Impairment of Tangible and IntangibleAssets, including GoodwillAt each reporting date, ArcelorMittalreviews the carrying amounts of its tangibleand intangible assets (excluding goodwill)to determine whether there is any indicationthat the carrying amount of those assetsmay not be recoverable through continuinguse. If any such indication exists, therecoverable amount of the asset isreviewed in order to determine the amountof the impairment, if any. The recoverableamount is the higher of its net selling price(fair value reduced by selling costs) andits value in use.In assessing its value in use, the estimatedfuture cash flows are discounted to theirpresent value using a pre-tax discount ratethat reflects current market assessments ofthe time value of money and the risks specificto the asset. For an asset that does notgenerate cash inflows largely independentof those from other assets, the recoverableamount is determined for the cash-generatingunit to which the asset belongs. The cashgeneratingunit is the smallest identifiablegroup of assets corresponding to operatingunits that generate cash inflows. If therecoverable amount of an asset (or cashgenerating unit) is estimated to be less thanits carrying amount, an impairment loss isrecognized. An impairment loss is recognizedas an expense immediately as part of operatingincome in the statement of operations.An impairment loss recognized in prioryears is reversed if, and only if, therehas been a change in the estimates usedto determine the asset’s recoverableamount since the last impairment losswas recognized. However, the increasedcarrying amount of an asset due to areversal of an impairment loss will notexceed the carrying amount that wouldhave been determined (net of amortizationor depreciation) had no impairment lossbeen recognized for the asset in prior years.A reversal of an impairment loss is recognizedimmediately as part of operating income inthe statement of operations.Goodwill is reviewed at the group ofcash-generating units level for impairmentannually, as of November 30, or wheneverchanges in circumstances indicate that thecarrying amount may not be recoverable.The recoverable amounts of the groupsof cash-generating units are determinedfrom the higher of its net selling price(fair value reduced by selling costs) orits value in use calculations, as describedabove. The key assumptions for the valuein use calculations are those regarding thediscount rates, growth rates and expectedchanges to selling prices and direct costsduring the period. Management estimatesdiscount rates using pre-tax rates thatreflect current market rates for investmentsof similar risk. The growth rates are basedon industry growth forecasts. Changesin selling prices and direct costs are basedon historical experience and expectationsof future changes in the market.Cash flow forecasts are derived from themost recent financial budgets for the nextfive years. Beyond the specifically forecastedperiod, the Company extrapolates cashflows for the remaining years based on anestimated growth rate. This rate does notexceed the average long-term growth ratefor the relevant markets. Once recognized,impairment losses recognized for goodwillare not reversed.
ArcelorMittal Annual Report 2009Consolidated Financial Statements 19Derivative financial instrumentsThe Company enters into derivativefinancial instruments principally to manageits exposure to fluctuation in interest rates,exchange rates, prices of raw materials,energy and emission rights allowances.Derivative financial instruments areclassified as current assets or liabilitiesbased on their maturity dates and areaccounted for at trade date. Embeddedderivatives are separated from the hostcontract and accounted for separately ifrequired by IAS 39, “Financial Instruments:Recognition and Measurement”.The Company measures all derivativefinancial instruments based on fairvalues derived from market prices of theinstruments or from option pricing models,as appropriate. Gains or losses arising fromchanges in fair value of derivatives arerecognized in the statement of operations,except for derivatives that are highlyeffective and qualify for cash flowor net investment hedge accounting.Changes in the fair value of a derivativethat is highly effective and that isdesignated and qualifies as a fair valuehedge, along with the gain or loss on thehedged asset, liability, or unrecognizedfirm commitment of the hedged itemthat is attributable to the hedged risk, arerecorded in the statement of operations.Changes in the fair value of a derivativethat is highly effective and that isdesignated and qualifies as a cash flowhedge are recorded in equity. Amountsdeferred in equity are recorded in thestatement of operations in the periodswhen the hedged item is recognizedin the statement of operations and withinthe same line item.The Company formally assesses, both atthe hedge’s inception and on an ongoingbasis, whether the derivatives that areused in hedging transactions are highlyeffective in offsetting changes in fair valuesor cash flows of hedged items. When ahedging instrument is sold, terminated,expires or is exercised the cumulatedunrealized gain or loss on the hedginginstrument is maintained in equity untilthe forecasted transaction occurs. If thehedged transaction is no longer probable,the cumulative unrealized gain or loss,which had been recognized in equity,is reported immediately in the statementof operations.Foreign currency differences arisingon the retranslation of a financial liabilitydesignated as a hedge of a net investmentin a foreign operation are recognizeddirectly as a separate component of equity,to the extent that the hedge is effective.To the extent that the hedge is ineffective,such differences are recognized in thestatement of operations.Use of estimatesThe preparation of financial statementsin conformity with IFRS recognition andmeasurement principles and, in particular,making the aforementioned criticalaccounting judgments require the useof estimates and assumptions that affectthe reported amounts of assets, liabilities,revenues and expenses. Managementreviews its estimates on an ongoing basisusing currently available information.Changes in facts and circumstances mayresult in revised estimates, and actualresults could differ from those estimates.Note 3: AcquisitionsAcquisitions have been accounted forusing the purchase method of accountingand, accordingly, the assets acquired andliabilities assumed have been recordedat their estimated fair values as of thedate of acquisition.Significant acquisitions made during theyears ended December 31, 2008 and2009 include:UniconOn April 4, 2008, the Companycompleted the acquisition of IndustriasUnicon (“Unicon”), Venezuela’s leadingmanufacturer of welded steel pipes for atotal consideration of 350 (336 net of 14of cash acquired). The Company completedthe purchase price allocation in 2009.Intangible assets were recognized fora total amount of 130 with respect tothe valuation of trade mark and customerrelationships. The acquisition of Uniconresulted in the consolidation of total assetsof 591 and total liabilities of 413. The finalgoodwill amounted to 158.Russian coal minesOn April 10, 2008, the Companycompleted the acquisition fromSeverstal of three coal mines(Berezovskaya, Pervomayskaya andAnzherskoye) and associated assets locatedin the Kemerovo region in Russia for a totalconsideration of 720 (715 net of 5 of cashacquired) consisting of 272 for the sharesand 448 related to a debt repayment. TheCompany completed the purchase priceallocation in 2009. The fair value of themining reserves was stated at 365 andgoodwill amounted to 169. The acquisitionof the Russian coal mines resulted in theconsolidation of total assets of 887 andtotal liabilities of 789. The operatingsubsidiary has been subsequently renamedArcelorMittal Northern Kuzbass.Bayou SteelOn July 31, 2008, ArcelorMittal completedthe acquisition of Bayou Steel, LLC, aproducer of structural steel products withfacilities in LaPlace, Louisiana and Harriman,Tennessee (USA) for a total considerationof 509 (504 net of 5 of cash acquired).The Company completed the purchaseprice allocation in 2009. The acquisitionof Bayou Steel resulted in the consolidationof total assets of 494 and total liabilitiesof 153. The final goodwill amountedto 163. The operating subsidiary has beensubsequently renamed ArcelorMittal LaPlace.Mid Vol and ConceptOn June 30, 2008, the Companycompleted the acquisition of Mid Vol CoalGroup for a total consideration of 491(453 net of 38 of cash acquired). OnAugust 18, 2008, ArcelorMittal finalizedthe acquisition of Concept Group for a totalconsideration of 166 (152 net of 14 ofcash acquired). These acquisitions operatecoal mines in the states of West Virginiaand Virginia (USA). The Companycompleted the purchase price allocation in2009. The fair value of the mining reserveswas 474 for Mid Vol and 177 for Concept.The acquired liabilities included 551assigned to unfavorable selling contractsthat are being amortized over the termof the associated contracts ranging fromfour months to two years. The acquisitionof Mid Vol and Concept resulted in theconsolidation of total assets of 1,061 andtotal liabilities of 655. The goodwill was145 for Mid Vol and 54 for Concept.The operating subsidiary was subsequentlyrenamed ArcelorMittal Princeton.
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Management Report - Beursgorilla

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