Management Report - Beursgorilla

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ArcelorMittal Annual <strong>Report</strong> 200944 Consolidated Financial StatementsNotes to the Consolidated Financial Statements continuedArcelorMittal and Subsidiaries(millions of U.S. dollars, except share and per share data)The levels are as follows:Level 1: Quoted prices in active markets for identical assets or liabilities;Level 2: Significant inputs other than within Level 1 that are observable for the asset or liability, either directly (i.e. as prices)or indirectly (i.e. derived from prices);Level 3: Inputs for the assets or liabilities that are not based on observable market data and require management assumptions or inputsfrom unobservable markets.Level 1 Level 2 Level 3 TotalAssets at fair value:Available-for-sale financial assets 74 — — 74Derivative financial assets — 1,250 — 1,250Total assets at fair value 74 1,250 — 1,324Liabilities at fair valueDerivative financial liabilities — 1,375 1,249 2,624Total liabilities at fair value — 1,375 1,249 2,624Available for sale financial assets classified as Level 1 refer to listed securities quoted in active markets. The total fair value is eitherthe price of the most recent trade at the time of the market close or the official close price as defined by the exchange on whichthe asset is most actively traded on the last trading day of the period, multiplied by the number of units held without considerationof transaction costs.Derivative financial assets and liabilities classified as Level 2 refer to instruments to hedge fluctuations in interest rates, foreignexchange rates, raw materials (base metal), freight, energy and emission rights. The total fair value is based on the price a dealer wouldpay or receive for the security or similar securities, adjusted for any terms specific to that asset or liability. Market inputs are obtainedfrom well established and recognized vendors of market data and the fair value is calculated using standard industry models based onsignificant observable market inputs such as foreign exchange rates, commodity prices, swap rates and interest rates.Derivative financial liabilities classified as level 3 refer to the conversion option in the €1.25 billion convertible bonds (see note 14).The fair value is derived through the use of a binominal model.The following table summarizes the reconciliation of the fair value of the conversion option classified as Level 3 with respect to the€1.25 billion convertible bonds and the 800 convertible senior notes for the year ended December 31, 2009 respectively until thewaiver of the cash settlement option:Fair value of conversion optionFair value of conversion option – €1.25 billion convertible bondsDecemberAt inception 31, 2009408 1,249Fair value of conversion option – 800 convertible senior notesOctoberAt inception 28, 2009*189 279* Date of the waiver of the cash option as described in note 14.
ArcelorMittal Annual <strong>Report</strong> 2009Consolidated Financial Statements 45Portfolio of DerivativesThe Company manages the counter-party risk associated with its instruments by centralizing its commitments and by applyingprocedures which specify, for each type of transaction and underlying, risk limits and/or the characteristics of the counter-party.The Company does not generally grant to or require from its counter-parties guarantees over the risks incurred. Allowing for exceptions,the Company’s counter-parties are part of its financial partners and the related market transactions are governed by framework agreements(mainly of the International Swaps and Derivatives Association agreements which allow netting in case of counter-party default).The portfolio associated with derivative financial instruments as of December 31, 2008 is as follows:Notional Fair Average Notional Fair AverageAmount Value Rate* Amount Value Rate*Interest rate swaps – fixed rate borrowings/loans 1,320 42 4.11% 264 (3) 5.37%Other interest rate instrument 135 — —Total interest rate instruments 42 (3)Foreign exchange rate instrumentsForward purchase of contracts 3,842 131 8,117 (530)Forward sale of contracts 6,678 244 7,407 (186)Exchange option purchases 1,818 37 — —Exchange options sales — 1,941 (33)Total foreign exchange rate instruments 412 (749)Raw materials (base metal), freight, energy,emission rightsTerm contracts sales 81 9 174 (79)Term contracts purchases 197 50 1,342 (540)Swaps using raw materials pricing index 10 — 35 (15)Options sales/purchases 144 47 282 (87)Total raw materials (base metal),freight, energy, emission rights 106 (721)Total 560 (1,473)AssetsLiabilities* The average rate is determined for fixed rate instruments on the basis of the U.S. dollar and foreign currency ratesand for the variable rate instruments generally on the basis of Euribor or Libor.The portfolio associated with derivative financial instruments as of December 31, 2009 is as follows:Notional Fair Average Notional Fair AverageAmount Value Rate* Amount Value Rate*Interest rate swaps – fixed rate borrowings/loans 1,085 32 4.11% 288 (9) 3.36%Other interest rate instrument 140 1 — —Total interest rate instruments 33 (9)Foreign exchange rate instrumentsForward purchase of contracts 5,362 111 10,145 (957)Forward sale of contracts 11,036 962 9,776 (276)Exchange option purchases 1,657 23 — —Exchange options sales — — 1,369 (7)Total foreign exchange rate instruments 1,096 (1,240)Raw materials (base metal), freight, energy, emission rightsTerm contracts sales 118 20 196 (24)Term contracts purchases 698 101 412 (102)Swaps using raw materials pricing index 10 — — —Options sales/purchases 4 — 4 —Total raw materials (base metal), freight, energy, emission rights 121 (126)Total 1,250 (1,375)AssetsLiabilities* The average rate is determined for fixed rate instruments on the basis of the U.S. dollar and foreign currency ratesand for the variable rate instruments generally on the basis of Euribor or Libor.
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